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The Coming Derivatives Panic That Will Destroy Global Financial Markets
By Michael, on December 4th, 2012
When financial markets in the United States crash, so does the U.S. economy. Just remember what happened back in 2008. The financial markets crashed, the credit markets froze up, and suddenly the economy went into cardiac arrest. Well, there are very few things that could cause the financial markets to crash harder or farther than a derivatives panic. Sadly, most Americans don't even understand what derivatives are. Unlike stocks and bonds, a derivative is not an investment in anything real. Rather, a derivative is a legal bet on the future value or performance of something else. Just like you can go to Las Vegas and bet on who will win the football games this weekend, bankers on Wall Street make trillions of dollars of bets about how interest rates will perform in the future and about what credit instruments are likely to default. Wall Street has been transformed into a gigantic casino where people are betting on just about anything that you can imagine. This works fine as long as there are not any wild swings in the economy and risk is managed with strict discipline, but as we have seen, there have been times when derivatives have caused massive problems in recent years. For example, do you know why the largest insurance company in the world, AIG, crashed back in 2008 and required a government bailout? It was because of derivatives. Bad derivatives trades also caused the failure of MF Global, and the 6 billion dollar loss that JPMorgan Chase recently suffered because of derivatives made headlines all over the globe. But all of those incidents were just warm up acts for the coming derivatives panic that will destroy global financial markets. The largest casino in the history of the world is going to go "bust" and the economic fallout from the financial crash that will happen as a result will be absolutely horrific.
There is a reason why Warren Buffett once referred to derivatives as "financial weapons of mass destruction". Nobody really knows the total value of all the derivatives that are floating around out there, but estimates place the notional value of the global derivatives market anywhere from 600 trillion dollars all the way up to 1.5 quadrillion dollars.
Keep in mind that global GDP is somewhere around 70 trillion dollars for an entire year. So we are talking about an amount of money that is absolutely mind blowing.
So who is buying and selling all of these derivatives?
Well, would it surprise you to learn that it is mostly the biggest banks?
According to the federal government, four very large U.S. banks "represent 93% of the total banking industry notional amounts and 81% of industry net current credit exposure."
These four banks have an overwhelming share of the derivatives market in the United States. You might not be very fond of "the too big to fail banks", but keep in mind that if a derivatives crisis were to cause them to crash and burn it would almost certainly cause the entire U.S. economy to crash and burn. Just remember what we saw back in 2008. What is coming is going to be even worse.
It would have been really nice if we had not allowed these banks to get so large and if we had not allowed them to make trillions of dollars of reckless bets. But we stood aside and let it happen. Now these banks are so important to our economic system that their destruction would also destroy the U.S. economy. It is kind of like when cancer becomes so advanced that killing the cancer would also kill the patient. That is essentially the situation that we are facing with these banks.
It would be hard to overstate the recklessness of these banks. The numbers that you are about to see are absolutely jaw-dropping. According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are...
JPMorgan Chase
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Citibank
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Goldman Sachs
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars - yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
To get a better idea of the massive amounts of money that we are talking about, just check out this excellent infographic.
How in the world could we let this happen?
And what is our financial system going to look like when this pyramid of risk comes falling down?
Our politicians put in a few new rules for derivatives, but as usual they only made things even worse.
According to Nasdaq.com, beginning next year new regulations will require derivatives traders to put up trillions of dollars to satisfy new margin requirements.
Swaps that will be allowed to remain outside clearinghouses when new rules take effect in 2013 will require traders to post $1.7 trillion to $10.2 trillion in margin, according to a report by an industry group.
The analysis from the International Swaps and Derivatives Association, using data sent in anonymously by banks, says the trillions of dollars in cash or securities will be needed in the form of so-called "initial margin." Margin is the collateral that traders need to put up to back their positions, and initial margin is money backing trades on day one, as opposed to variation margin posted over the life of a trade as it fluctuates in value.
So where in the world will all of this money come from?
Total U.S. GDP was just a shade over 15 trillion dollars last year.
Could these rules cause a sudden mass exodus that would destabilize the marketplace?
Let's hope not.
But things are definitely changing. According to Reuters, some of the big banks are actually urging their clients to avoid new U.S. rules by funneling trades through the overseas divisions of their banks...
Wall Street banks are looking to help offshore clients sidestep new U.S. rules designed to safeguard the world's $640 trillion over-the-counter derivatives market, taking advantage of an exemption that risks undermining U.S. regulators' efforts.
U.S. banks such as Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks' overseas units, according to industry sources and presentation materials obtained by Reuters.
Unfortunately, no matter how banks respond to the new rules, it isn't going to prevent the coming derivatives panic. At some point the music is going to stop and some big financial players are going to be completely and totally exposed.
When that happens, it might not be just the big banks that lose money. Just take a look at what happened with MF Global.
MF Global has confessed that it "diverted money" from customer accounts that were supposed to be segregated. A lot of customers may never get back any of the money that they invested with those crooks. The following comes from a Huffington Post article about the MF Global debacle, and it might just be a preview of what other investors will go through in the future when a derivatives crash destroys the firms that they had their money parked with...
Last week when customers asked for excess cash from their accounts, MF Global stalled. According to a commodity fund manager I spoke with, MF Global's first stall tactic was to claim it lost wire transfer instructions. Then instead of sending an overnight check, it sent the money snail mail, including checks for hundreds of thousands of dollars. The checks bounced. After the checks bounced, the amounts were still debited from customer accounts and no one at MF Global could or would reverse the check entries. The manager has had to intervene to get MF Global to correct this.
How would you respond if your investment account suddenly went to "zero" because the firm you were investing with "diverted" customer funds for company use and now you have no way of recovering your money?
Keep an eye on the large Wall Street banks. In a previous article, I quoted a New York Times article entitled "A Secretive Banking Elite Rules Trading in Derivatives" which described how these banks dominate the trading of derivatives...
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
According to the article, the following large banks are represented at these meetings: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.
When the casino finally goes "bust", you will know who to blame.
Without a doubt, a derivatives panic is coming.
It will cause the financial markets to crash.
Several of the "too big to fail" banks will likely crash and burn and require bailouts.
As a result of all this, credit markets will become paralyzed by fear and freeze up.
Once again, we will see the U.S. economy go into cardiac arrest, only this time it will not be so easy to fix.
Do you agree with this analysis, or do you find it overly pessimistic? Please feel free to post a comment with your thoughts below...
http://theeconomiccollapseblog.com/archives/the-coming-derivatives-panic-that-will-destroy-global-financial-markets
Washington’s Biggest Lie (and Why it Continues to be Told)
December 3, 2012 By ilene
From The latest Market Shadows newsletter: A Failure to Communicate: Numbers, Rates & Lies
By Dr. Paul Price of Market Shadows
Normal people have no trouble defining how they measure inflation in their own lives. They compare what the same exact purchases of goods and services cost them today versus one-year earlier. It would include everything they spend money on.
Big ticket items like gasoline, insurance (health, life, auto and property/casualty), food and utility bills have the greatest impact. Increases in other major expense categories such as college tuition, property taxes, FICA, Federal, state and local income taxes can also add tremendously to the year-over-year true cost of living.
Those of us old enough to have lived through the 1970s remember the bad old days when prices were escalating at a sickening pace. An item that cost $1 on Jan. 1, 1969, cost $1.31 five years later. At the end of the ten year period, the cost had shot up to $1.92!
The officially reported 1980 CPI increase of 13.91% was the ‘straw that broke the camel’s back’ in terms of what our leaders were willing to admit to. They decided to change the way CPI was calculated to avoid making people even more upset.
Intentionally understating CPI also served to diminish COLA (cost of living adjustments) in government salaries, pensions and social security obligations. It also kept the rates paid on government borrowing somewhat below what would otherwise have been demanded by bond vigilantes. Those nasty lenders insisted on being compensated for the fast-diminishing value of their dollars.
Unions across America used the high CPI rates to justify huge increases in pay and benefits. While inflation calmed down from the roaring period described below the BLS again adjusted their calculation of CPI in 1990 to further understate the truth as most of us see it.
Today’s headline core CPI excludes food and energy completely. That’s impossible for us to do that in our real lives. Remember the old sub-$2 per gallon gasoline prices? How about the health insurance premiums, grocery expenses and electric bills you’re paying today versus four or five years ago ?
(Chart above is looking at the compounding inflation starting on Jan. 1 , 1969 – so baseline starting point is on Jan. 1, 1969.)
CPI Year-to-Year Growth
The CPI-U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the U.S. Government’s Bureau of Labor Statistics (BLS).
While the headline number usually is the seasonally-adjusted month-to-month change, the formal CPI is reported on a not-seasonally-adjusted basis, with annual inflation measured in terms of year-to-year percent change in the price index.
The chart below shows the Shadow Government Stats -Alternate CPI estimate. It figures inflation based on our own government’s official methodology for computing the CPI-U in the years through 1980.
Under the old rules US inflation has been in the double-digits for much of the preceding five years. The ‘new’ BLS numbers want you to believe price increases since 2008 have been quite mild.
The Bureau of Labor Statistics also uses a technique called ‘substitution’ to hold down their reported inflation figures. If an item in their index goes up in price they can assume consumer would simply trade down to something cheaper instead.
If your favorite rib-eye steak went from $7.99 to $12.99 per pound you’d simply eat hamburger instead. Have those organic bananas gotten too expensive. Try prunes. Need a replacement for your Lexus? Buy a Kia instead. Presto, there’s no inflation evident in any of those situations according to the BLS.
All these changes in the way CPI is calculated have been duly disclosed to the public. That doesn’t make them any less dishonest when viewed the way most people gauge changes in their real cost of living.
Chart courtesy of Shadow Statistics. The chart above compares the official CPI-U to the pre-1980 methodology for computing the CPI-U. It shows that without the government’s manipulation of the methodology for computing the CPI, current inflation would be nearly 10%.
Fed Chairman Ben Bernanke has put Bond Vigilantes on the endangered species list with his multiple, and now eternal QE programs. Interest rates are no longer useful as measures of present or future inflation.
Bond Vigilantes are people/institutions that insist on coupon rates (i.e. interest rates paid on bonds) being high enough to offset inflation. The Fed’s almost unlimited bond buying (money printing) took away the ability of ‘the free market’ to set interest rates.
This rendered useless the ‘diagnostic’ value of treasury bond rates as a measure of true inflation. Currently, the interest rates on bonds are much lower than actual inflation, making real interest rates essentially negative. That is why I would avoid bonds like the plague.
If truth in advertising were being strictly enforced the BLS might be renamed just the BS.
Market Shadows (http://s.tt/1vBC8)
http://www.marketshadows.com/2012/12/03/washingtons-biggest-lie-and-why-it-continues-to-be-told/
Thank you DD xprt. First Majestic was a stock recommended by Ron Hera research too and look at the impressive gains.
Our Collapsing Economy and Currency
Paul Craig Roberts
12/1/2012
Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.
The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslin countries–wars that have benefited only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending.
The hoax is the propaganda that the fiscal cliff can be avoided by reneging on promised Social Security and Medicare benefits that people have paid for with the payroll tax and by cutting back all aspects of the social safety net from food stamps to unemployment benefits to Medicaid, to housing subsidies. The right-wing has been trying to get rid of the social safety net ever since Franklin D. Roosevelt constructed it, out of fear or compassion or both, during the Great Depression.
Washington’s response to the fiscal cliff is austerity: spending cuts and tax increases. The Republicans say they will vote for the Democrats’ tax increases if the Democrats vote for the Republican’s assault on the social safety net. What bipartisan compromise means is a double-barreled dose of austerity.
Ever since John Maynard Keynes, economists have understood that tax increases and spending cuts suppress, not stimulate, economic activity. This is especially the case in an economy such as the American one, which is driven by consumer spending. When spending declines, so does the economy. When the economy declines, the budget deficit rises.
This is especially the case when an economy is weak and already in decline. A declining economy means less sales, less employment, less tax revenues. This works against the effort to close the federal budget deficit with austerity measures. Instead of strengthening the economy, the austerity measures weaken it further. To cut unemployment benefits and food stamps when unemployment is high or rising would be to provoke social and political instability.
Some economists, such as Robert Barro at Harvard University, claim that stimulative measures, the opposite of austerity, don’t work, because consumers anticipate the higher taxes that will be needed to cover the budget deficit and, therefore, reduce their spending and increase their saving in order to be able to pay the anticipated higher taxes.
In other words, the Keynesian effort to stimulate spending causes consumers to reduce their spending. I don’t know of any empirical evidence for this claim.
Regardless, the situation on the ground at the present time is that for the majority of people, incomes are stretched to the limit and beyond. Many cannot pay their bills, their mortgages, their car payments, their student loans. They are drowning in debt, and there is nothing that they can cut back in order to save money with which to pay higher taxes.
Many commentators are complaining that Congress will refuse to face the difficult issues and kick the can down the road, leaving the fiscal cliff looming. This would probably be the best outcome. As the fiscal cliff is a result, not a cause, to focus on the fiscal cliff is to focus on the symptoms rather than the disease.
The US economy has two serious diseases, and neither one is too much welfare spending
One disease is the offshoring of US middle class jobs, both manufacturing jobs and professional service jobs such as engineering, research, design, and information technology, jobs that formerly were filled by US university graduates, but which today are sent abroad or are filled by foreigners brought in on H-1B work visas at two-thirds of
the salary.
The other disease is the deregulation, especially the financial deregulation, that caused the ongoing financial crisis and created banks too big to fail, which has prevented capitalism from working and closing down insolvent corporations.
The Federal Reserve’s policy is focused on saving the banks, not on saving the economy. The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.
Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. The banks are too busted to lend, and consumers are too indebted to borrow.
However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve.
Already there is evidence of central banks and individuals moving out of dollars into gold and silver bullion and into other currencies of countries that are not hemorrhaging debt and money. According to John Williams of Shadowstats.com, the US dollar as a percentage of global holdings of reserve assets has declined from 36.6% in 2006 to 28.7% in 2012. Gold has increased from 10.5% to 12.8% and other foreign currencies except the euro increased from 38.4% to 44.4%.
Russia, China, Brazil, India, and South Africa intend to conduct trade among themselves in their own currencies without use of the dollar as reserve currency. The EU countries conduct their trade with one another in euros, and although not reported in the US media, Asian countries are discussing a new common currency for trade among themselves.
The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.
This means that the price of the dollar is threatened
Concern over the dollar means concern over dollar-denominated financial instruments such as stocks and bonds. The Chinese hold some $2 trillion in US financial instruments. The Japanese hold about $1 trillion in US Treasuries. The Saudis and the oil emirates also hold large quantities of US dollar financial instruments. At some point the move away from the dollar also means a move away from US financial instruments. The dumping of US stocks and bonds would destabilize US financial markets and wipe out the remainder of US wealth.
As I have previously written, the Federal Reserve can create new money with which to purchase the dumped financial instruments, thus maintaining their prices. But the Federal Reserve cannot print gold or foreign currencies with which to buy up the dollars that foreigners are paid for their US stocks and bonds. When the dollars in turn are dumped, the exchange value of the dollar will collapse, and US inflation will explode.
The onset of hyperinflation can be as sudden as the collapse of a currency’s exchange value
The real crisis facing the US is the impending collapse of the US dollar’s foreign exchange value. The US dollar’s value in relation to silver and gold has already collapsed. In the past ten years, gold’s price in US dollars has increased from $250 per ounce to $1,750 per ounce, an increase of $1,500. Silver’s price as risen from $4 per ounce to $34 per ounce. These price rises are not due to a sudden scarcity of gold and silver, but to a flight from the dollar into the two forms of historical money that cannot be created with the printing press.
The price of oil has risen from $20 a barrel ten years ago to as high as $120 per barrel earlier this year and currently $90 a barrel. This price rise has come about despite a weak world economy and without any supply restrictions other than those caused by the attempted US occupation of Iraq, the Western assault on Libya, and the self-harming Western sanctions on Iran, impacts most likely offset by the Saudis, still Washington’s faithful puppet, a country that pumps out its precious life fluid in order to save the West from its own mistakes. The moronic neoconservatives wish to overthrow the Saudi Arabian government, but what more faithful servant has Washington ever had than the Saudi royal house?
What can be done? For a number of years I have pointed out that the problem is the loss of US employment, consumer income, GDP, and tax base to offshoring. The solution is to reverse the outward flow of jobs and to bring them back to the US. This can be done, as Ralph Gomory has made clear, by taxing corporations according to where they add value to their product. If the value is added abroad, corporations would have a high tax rate. If they add value domestically with US labor, they would face a low tax rate. The difference in tax rates can be calculated to offset the benefit of the lower cost of foreign labor.
As all offshored production that is brought to the US to be marketed to Americans counts as imports, relocating the production in the US would decrease the trade deficit, thus strengthening belief in the dollar. The increase in US consumer incomes would raise tax revenues, thus lowering the budget deficit. It is a win-win solution.
The second part to the solution is to end the expensive unfunded wars that have ruined the federal budget for the past 11 years as well as future budgets due to the cost of veterans’ hospital care and benefits. According to ABC World News, “In the decade since the Sept. 11, 2001 terrorist attacks on the World Trade Center, 2,333,972 American military personnel have been deployed to Iraq, Afghanistan or both, as of Aug. 30, 2011 [more than a year ago].” These 2.3 million veterans have rights to various unfunded benefits including life-long health care. Already, according to ABC, 711,986 have used Veterans Administration health care between fiscal year 2002 and the third-quarter of fiscal year 2011. http://abcnews.go.com/Politics/us-veterans-numbers/story?id=14928136#1
The Republicans are determined to continue the gratuitous wars and to make the 99 percent pay for the neoconservatives’ Wars of Hegemony while protecting the 1 percent from tax increases.
The Democrats are little different
No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.
And the rest of the world will be thankful. America along with Israel is the world’s most hated country. Don’t expect any foreign bailouts of the failed “superpower.”
http://www.silverbearcafe.com/private/12.12/collapsing.html
Hon. Paul Craig Roberts is the John M. Olin Fellow at the Institute for Political Economy, Senior Research Fellow at the Hoover Institution, Stanford University, and Research Fellow at the Independent Institute. A former editor and columnist for The Wall Street Journal and columnist for Business Week and the Scripps Howard News Service, he is a nationally syndicated columnist for Creators Syndicate in Los Angeles and a columnist for Investor's Business Daily. In 1992 he received the Warren Brookes Award for Excellence in Journalism. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists.
He was Distinguished Fellow at the Cato Institute from 1993 to 1996. From 1982 through 1993, he held the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies. During 1981-82 he served as Assistant Secretary of the Treasury for Economic Policy. President Reagan and Treasury Secretary Regan credited him with a major role in the Economic Recovery Tax Act of 1981, and he was awarded the Treasury Department's Meritorious Service Award for "his outstanding contributions to the formulation of United States economic policy." From 1975 to 1978, Dr. Roberts served on the congressional staff where he drafted the Kemp-Roth bill and played a leading role in developing bipartisan support for a supply-side economic policy.
In 1987 the French government recognized him as "the artisan of a renewal in economic science and policy after half a century of state interventionism" and inducted him into the Legion of Honor.
Dr. Roberts' latest books are The Tyranny of Good Intentions, co-authored with IPE Fellow Lawrence Stratton, and published by Prima Publishing in May 2000, and Chile: Two Visions - The Allende-Pinochet Era, co-authored with IPE Fellow Karen Araujo, and published in Spanish by Universidad Nacional Andres Bello in Santiago, Chile, in November 2000. The Capitalist Revolution in Latin America, co-authored with IPE Fellow Karen LaFollette Araujo, was published by Oxford University Press in 1997. A Spanish language edition was published by Oxford in 1999. The New Colorline: How Quotas and Privilege Destroy Democracy, co-authored with Lawrence Stratton, was published by Regnery in 1995. A paperback edition was published in 1997. Meltdown: Inside the Soviet Economy, co-authored with Karen LaFollette, was published by the Cato Institute in 1990. Harvard University Press published his book, The Supply-Side Revolution, in 1984. Widely reviewed and favorably received, the book was praised by Forbes as "a timely masterpiece that will have real impact on economic thinking in the years ahead." Dr. Roberts is the author of Alienation and the Soviet Economy, published in 1971 and republished in 1990. He is the author of Marx's Theory of Exchange, Alienation and Crisis, published in 1973 and republished in 1983. A Spanish language edition was published in 1974.
Dr. Roberts has held numerous academic appointments. He has contributed chapters to numerous books and has published many articles in journals of scholarship, including the Journal of Political Economy, Oxford Economic Papers, Journal of Law and Economics, Studies in Banking and Finance, Journal of Monetary Economics, Public Finance Quarterly, Public Choice, Classica et Mediaevalia, Ethics, Slavic Review, Soviet Studies, Rivista de Political Economica, and Zeitschrift fur Wirtschafspolitik. He has entries in the McGraw-Hill Encyclopedia of Economics and the New Palgrave Dictionary of Money and Finance. He has contributed to Commentary, The Public Interest, The National Interest, Harper's, the New York Times, The Washington Post, The Los Angeles Times, Fortune, London Times, The Financial Times, TLS, The Spectator, Il Sole 24 Ore, Le Figaro, Liberation, and the Nihon Keizai Shimbun. He has testified before committees of Congress on 30 occasions.
Dr. Roberts was educated at the Georgia Institute of Technology (B.S.), the University of Virginia (Ph.D.), the University of California at Berkeley and Oxford University where he was a member of Merton College.
He is listed in Who's Who in America, Who's Who in the World, The Dictionary of International Biography, Outstanding People of the Twentieth Century, and 1000 Leaders of World Influence. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com
http://www.silverbearcafe.com/private/12.12/collapsing.html
Our Collapsing Economy and Currency
Paul Craig Roberts
12/1/2012
Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.
The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslin countries–wars that have benefited only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending.
The hoax is the propaganda that the fiscal cliff can be avoided by reneging on promised Social Security and Medicare benefits that people have paid for with the payroll tax and by cutting back all aspects of the social safety net from food stamps to unemployment benefits to Medicaid, to housing subsidies. The right-wing has been trying to get rid of the social safety net ever since Franklin D. Roosevelt constructed it, out of fear or compassion or both, during the Great Depression.
Washington’s response to the fiscal cliff is austerity: spending cuts and tax increases. The Republicans say they will vote for the Democrats’ tax increases if the Democrats vote for the Republican’s assault on the social safety net. What bipartisan compromise means is a double-barreled dose of austerity.
Ever since John Maynard Keynes, economists have understood that tax increases and spending cuts suppress, not stimulate, economic activity. This is especially the case in an economy such as the American one, which is driven by consumer spending. When spending declines, so does the economy. When the economy declines, the budget deficit rises.
This is especially the case when an economy is weak and already in decline. A declining economy means less sales, less employment, less tax revenues. This works against the effort to close the federal budget deficit with austerity measures. Instead of strengthening the economy, the austerity measures weaken it further. To cut unemployment benefits and food stamps when unemployment is high or rising would be to provoke social and political instability.
Some economists, such as Robert Barro at Harvard University, claim that stimulative measures, the opposite of austerity, don’t work, because consumers anticipate the higher taxes that will be needed to cover the budget deficit and, therefore, reduce their spending and increase their saving in order to be able to pay the anticipated higher taxes.
In other words, the Keynesian effort to stimulate spending causes consumers to reduce their spending. I don’t know of any empirical evidence for this claim.
Regardless, the situation on the ground at the present time is that for the majority of people, incomes are stretched to the limit and beyond. Many cannot pay their bills, their mortgages, their car payments, their student loans. They are drowning in debt, and there is nothing that they can cut back in order to save money with which to pay higher taxes.
Many commentators are complaining that Congress will refuse to face the difficult issues and kick the can down the road, leaving the fiscal cliff looming. This would probably be the best outcome. As the fiscal cliff is a result, not a cause, to focus on the fiscal cliff is to focus on the symptoms rather than the disease.
The US economy has two serious diseases, and neither one is too much welfare spending
One disease is the offshoring of US middle class jobs, both manufacturing jobs and professional service jobs such as engineering, research, design, and information technology, jobs that formerly were filled by US university graduates, but which today are sent abroad or are filled by foreigners brought in on H-1B work visas at two-thirds of
the salary.
The other disease is the deregulation, especially the financial deregulation, that caused the ongoing financial crisis and created banks too big to fail, which has prevented capitalism from working and closing down insolvent corporations.
The Federal Reserve’s policy is focused on saving the banks, not on saving the economy. The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.
Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. The banks are too busted to lend, and consumers are too indebted to borrow.
However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve.
Already there is evidence of central banks and individuals moving out of dollars into gold and silver bullion and into other currencies of countries that are not hemorrhaging debt and money. According to John Williams of Shadowstats.com, the US dollar as a percentage of global holdings of reserve assets has declined from 36.6% in 2006 to 28.7% in 2012. Gold has increased from 10.5% to 12.8% and other foreign currencies except the euro increased from 38.4% to 44.4%.
Russia, China, Brazil, India, and South Africa intend to conduct trade among themselves in their own currencies without use of the dollar as reserve currency. The EU countries conduct their trade with one another in euros, and although not reported in the US media, Asian countries are discussing a new common currency for trade among themselves.
The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.
This means that the price of the dollar is threatened
Concern over the dollar means concern over dollar-denominated financial instruments such as stocks and bonds. The Chinese hold some $2 trillion in US financial instruments. The Japanese hold about $1 trillion in US Treasuries. The Saudis and the oil emirates also hold large quantities of US dollar financial instruments. At some point the move away from the dollar also means a move away from US financial instruments. The dumping of US stocks and bonds would destabilize US financial markets and wipe out the remainder of US wealth.
As I have previously written, the Federal Reserve can create new money with which to purchase the dumped financial instruments, thus maintaining their prices. But the Federal Reserve cannot print gold or foreign currencies with which to buy up the dollars that foreigners are paid for their US stocks and bonds. When the dollars in turn are dumped, the exchange value of the dollar will collapse, and US inflation will explode.
The onset of hyperinflation can be as sudden as the collapse of a currency’s exchange value
The real crisis facing the US is the impending collapse of the US dollar’s foreign exchange value. The US dollar’s value in relation to silver and gold has already collapsed. In the past ten years, gold’s price in US dollars has increased from $250 per ounce to $1,750 per ounce, an increase of $1,500. Silver’s price as risen from $4 per ounce to $34 per ounce. These price rises are not due to a sudden scarcity of gold and silver, but to a flight from the dollar into the two forms of historical money that cannot be created with the printing press.
The price of oil has risen from $20 a barrel ten years ago to as high as $120 per barrel earlier this year and currently $90 a barrel. This price rise has come about despite a weak world economy and without any supply restrictions other than those caused by the attempted US occupation of Iraq, the Western assault on Libya, and the self-harming Western sanctions on Iran, impacts most likely offset by the Saudis, still Washington’s faithful puppet, a country that pumps out its precious life fluid in order to save the West from its own mistakes. The moronic neoconservatives wish to overthrow the Saudi Arabian government, but what more faithful servant has Washington ever had than the Saudi royal house?
What can be done? For a number of years I have pointed out that the problem is the loss of US employment, consumer income, GDP, and tax base to offshoring. The solution is to reverse the outward flow of jobs and to bring them back to the US. This can be done, as Ralph Gomory has made clear, by taxing corporations according to where they add value to their product. If the value is added abroad, corporations would have a high tax rate. If they add value domestically with US labor, they would face a low tax rate. The difference in tax rates can be calculated to offset the benefit of the lower cost of foreign labor.
As all offshored production that is brought to the US to be marketed to Americans counts as imports, relocating the production in the US would decrease the trade deficit, thus strengthening belief in the dollar. The increase in US consumer incomes would raise tax revenues, thus lowering the budget deficit. It is a win-win solution.
The second part to the solution is to end the expensive unfunded wars that have ruined the federal budget for the past 11 years as well as future budgets due to the cost of veterans’ hospital care and benefits. According to ABC World News, “In the decade since the Sept. 11, 2001 terrorist attacks on the World Trade Center, 2,333,972 American military personnel have been deployed to Iraq, Afghanistan or both, as of Aug. 30, 2011 [more than a year ago].” These 2.3 million veterans have rights to various unfunded benefits including life-long health care. Already, according to ABC, 711,986 have used Veterans Administration health care between fiscal year 2002 and the third-quarter of fiscal year 2011. http://abcnews.go.com/Politics/us-veterans-numbers/story?id=14928136#1
The Republicans are determined to continue the gratuitous wars and to make the 99 percent pay for the neoconservatives’ Wars of Hegemony while protecting the 1 percent from tax increases.
The Democrats are little different
No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.
And the rest of the world will be thankful. America along with Israel is the world’s most hated country. Don’t expect any foreign bailouts of the failed “superpower.”
http://www.silverbearcafe.com/private/12.12/collapsing.html
Hon. Paul Craig Roberts is the John M. Olin Fellow at the Institute for Political Economy, Senior Research Fellow at the Hoover Institution, Stanford University, and Research Fellow at the Independent Institute. A former editor and columnist for The Wall Street Journal and columnist for Business Week and the Scripps Howard News Service, he is a nationally syndicated columnist for Creators Syndicate in Los Angeles and a columnist for Investor's Business Daily. In 1992 he received the Warren Brookes Award for Excellence in Journalism. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists.
He was Distinguished Fellow at the Cato Institute from 1993 to 1996. From 1982 through 1993, he held the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies. During 1981-82 he served as Assistant Secretary of the Treasury for Economic Policy. President Reagan and Treasury Secretary Regan credited him with a major role in the Economic Recovery Tax Act of 1981, and he was awarded the Treasury Department's Meritorious Service Award for "his outstanding contributions to the formulation of United States economic policy." From 1975 to 1978, Dr. Roberts served on the congressional staff where he drafted the Kemp-Roth bill and played a leading role in developing bipartisan support for a supply-side economic policy.
In 1987 the French government recognized him as "the artisan of a renewal in economic science and policy after half a century of state interventionism" and inducted him into the Legion of Honor.
Dr. Roberts' latest books are The Tyranny of Good Intentions, co-authored with IPE Fellow Lawrence Stratton, and published by Prima Publishing in May 2000, and Chile: Two Visions - The Allende-Pinochet Era, co-authored with IPE Fellow Karen Araujo, and published in Spanish by Universidad Nacional Andres Bello in Santiago, Chile, in November 2000. The Capitalist Revolution in Latin America, co-authored with IPE Fellow Karen LaFollette Araujo, was published by Oxford University Press in 1997. A Spanish language edition was published by Oxford in 1999. The New Colorline: How Quotas and Privilege Destroy Democracy, co-authored with Lawrence Stratton, was published by Regnery in 1995. A paperback edition was published in 1997. Meltdown: Inside the Soviet Economy, co-authored with Karen LaFollette, was published by the Cato Institute in 1990. Harvard University Press published his book, The Supply-Side Revolution, in 1984. Widely reviewed and favorably received, the book was praised by Forbes as "a timely masterpiece that will have real impact on economic thinking in the years ahead." Dr. Roberts is the author of Alienation and the Soviet Economy, published in 1971 and republished in 1990. He is the author of Marx's Theory of Exchange, Alienation and Crisis, published in 1973 and republished in 1983. A Spanish language edition was published in 1974.
Dr. Roberts has held numerous academic appointments. He has contributed chapters to numerous books and has published many articles in journals of scholarship, including the Journal of Political Economy, Oxford Economic Papers, Journal of Law and Economics, Studies in Banking and Finance, Journal of Monetary Economics, Public Finance Quarterly, Public Choice, Classica et Mediaevalia, Ethics, Slavic Review, Soviet Studies, Rivista de Political Economica, and Zeitschrift fur Wirtschafspolitik. He has entries in the McGraw-Hill Encyclopedia of Economics and the New Palgrave Dictionary of Money and Finance. He has contributed to Commentary, The Public Interest, The National Interest, Harper's, the New York Times, The Washington Post, The Los Angeles Times, Fortune, London Times, The Financial Times, TLS, The Spectator, Il Sole 24 Ore, Le Figaro, Liberation, and the Nihon Keizai Shimbun. He has testified before committees of Congress on 30 occasions.
Dr. Roberts was educated at the Georgia Institute of Technology (B.S.), the University of Virginia (Ph.D.), the University of California at Berkeley and Oxford University where he was a member of Merton College.
He is listed in Who's Who in America, Who's Who in the World, The Dictionary of International Biography, Outstanding People of the Twentieth Century, and 1000 Leaders of World Influence. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com
http://www.silverbearcafe.com/private/12.12/collapsing.html
Great interview basserdan.
How Iceland Restrained the Anglo-American Banks: CBC Interviews Ólafur Grimsson
Posted by Jesse
at 12:13 PM 28 November 2012
(special thanks to basserdan)
As you have read here and elsewhere, there is the 'Japanese model' and the 'Swedish model' for dealing with a crisis caused by asset bubbles and fraud from an oversized financial sector and an overly powerful segment of monied interests.
It is obviously a simplification to slot such a policy issue into two models, but it has some philosophical validity with regard to the resolution of the bad debt that follows such a period of financial recklessness by the Banks.
I should note that I have rarely if ever seen this sort of broader discussion of other policy alternatives in any mainstream US media, and certainly not during the presidential debates which tended to focus on soft issues, distractions, and style.
The Swedish model favors the disposition of the debt failures on the banks, and their management and bond holders. The Japanese model seeks to sustain the financial status quo and their associated corporate cartels with public debt and social policy adjustments.
Iceland has famously followed the 'Swedish model.' Perhaps so well it may better be called the 'Iceland model.'
If it is not apparent, what made the difference was the resolute manner in which the people of Iceland rejected the deal offered to them by the Banks and their politicians.
Americans made some initial attempts to prevent such bailouts as in TARP, before their politicians caved in to the 'bullet and the bribe.' But lost their fervor in the co-opting of the Tea Party movement, and even turned against the Occupy Wall Street movement in the face of a determined media campaign to portray them as outsiders, cranks, and radicals.
As a smaller nation with a stronger sense of community, the Icelanders receive more of their information from diverse and direct personal sources, rather than through interpretation and packaging of the news by a few large media outlets. They also seem less disposed to make a 'war on the weak' amongst their own people than the larger, more impersonalized nations with less homogenous populations.
The US, the UK, and the rest of Europe are currently following the 'Japanese model' of pretend and extend, supporting those who benefited from the bubble, the wealthy elite, with sovereign debt and a policy of austerity for the public.
The US and the UK seem likely to do so since they are the home ground of the banking cartel and the financial status quo, but the path that Europe is taking is a bit of a surprise considering they are supposed to be progressive and 'socialists.' It is no wonder that many of the key decision making slots are being 'handled' as they are by the monied interests, and their friends in big media are weaving a campaign of pride and nationalistic divisiveness to harness the darker side of human nature. It has worked before, at least twice in Germany during the last century, as you may recall.
Neither approach is easy or perfect. But it does seem that one is more just and effective than the other.
(interview 27min)
http://jessescrossroadscafe.blogspot.com/2012/11/how-iceland-restrained-anglo-american.html
Nice article. Another great interview with Olafur Grimsson , President of Iceland, posted by basserdan. post# 67687 (27 min).
Nice article cork.
Big Banks Oppose FDIC Guarantee Program
November 30, 2012
Dow Jones Newswires
Big banks are urging lawmakers not to extend unlimited guarantees for around $1.4 trillion in bank deposits, a move that pits them against smaller banks and the top Democrat in the U.S. Senate.
A group representing big banks voiced its opposition three days after Majority Leader Harry Reid (D., Nev.) introduced a bill that would extend to the Federal Deposit Insurance Corp.'s crisis-era guarantee program for certain zero-interest deposits.
Small banks have asked Congress to continue the program, because it helps lure payroll cash and other funds to banks that are often seen as riskier than the largest financial institutions.
But the biggest financial institutions stand to gain if money leaves smaller banks and ends up in their deposit accounts or money-market funds.
The Financial Services Roundtable, which includes J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), had avoided taking a stance on the issue in recent months. But in a letter dated Thursday, obtained by Dow Jones Newswires, the organization urged key senators not to extend the FDIC's program, popularly referred to as the "transaction account guarantee," or TAG.
Created in 2008, the unlimited deposit guarantee program is set to expire at the end of the year. Normally, the FDIC provides only $250,000 in insurance per depositor at a given bank.
Small bankers have said the end of the program represents a "fiscal cliff" for lenders and could lead to an exodus of deposits from corporations and municipalities. But the large banks argued in the letter that the program "is no longer needed because our nation's economy is stronger and the financial services industry has made great strides since 2008 and are now safer and sounder than before the crisis began."
Extending the program "may create the misperception of instability, at the very time that the financial services sector has made significant and positive reforms," the group said.
Mr. Reid introduced a bill Monday that would extend the FDIC program for another two years. Mr. Reid, along with another supporter, Senate Banking Committee Chairman Tim Johnson (D., S.D.), could potentially get the measure included in legislation to counteract the looming "fiscal cliff" of tax hikes and spending cuts.
If it is not extended, FBR Capital Markets estimates as much as $250 billion in deposits could flow out of smaller banks to large banks or big money market mutual funds.
"Many of these institutions have gotten even bigger and more systemically risky since the financial meltdown," said Paul Merski, chief economist at the Independent Community Bankers of America. "I doubt Congress will stand by and watch a few of the largest too-big-to-fail megabanks vacuum up local deposits from 7,000 small and mid-sized banks nationwide."
Earlier this week, Sen. Bob Corker (R., Tenn.), a member of the Senate Banking Committee, said the program should not be extended. "The program's benefit to the community banking system is, at best, unclear," he said in a statement. "It's time to move beyond this period of unprecedented government support of the banking industry."
The FDIC has not taken a position on the issue, but in a June letter, the agency estimated losses on deposits guaranteed by the program accounted for about 3% of the $9.3 billion lost from bank failures from 2011 to the start of 2012.
The FDIC's former chairman, Sheila Bair, has suggested gradually phasing out the program by bringing down the size of covered deposits to $1 million, with the amount gradually falling after that.
Write to Alan Zibel at alan.zibel@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
Read more: http://www.foxbusiness.com/news/2012/11/30/big-banks-oppose-fdic-guarantee-program/#ixzz2Dpug4Fbb
The Ultimate Fiscal Cliff Cheat Sheet Infographic
Submitted by Tyler Durden on 11/30/2012
http://www.zerohedge.com/news/2012-11-30/ultimate-fiscal-cliff-cheat-sheet-infographic
When Greg McCoach Picks Mining Stocks, It's Location, Location, Location
Source: Zig Lambo of The Gold Report (10/15/12)
TGR: Do you want to talk about some of the companies that you like?
GM: I divide my recommendations into exploration, development, production and permitting situations. In the first eight years, we had great success with exploration stories and a few development stories. Now I'm more oriented toward a combination in the portfolio, but looking more at companies that have cash flow. Because of the volatile nature of our markets, I'm looking at companies that can still deliver a big upside, yet have cash flow so they don't have to be constantly going back to the market to do financings, which dilutes current shareholders.
I like a company called SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT), located in one of the best areas of Mexico. There are certain areas of Mexico I don't like, but this is in a good area. The company is currently working through all the startup bugs, but it's banking money hand-over-fist, with over $35 million (M) cash and growing every month. It's using that cash flow to find more ounces around its mine site.
SilverCrest also made a new discovery in another location in Mexico that's looking very promising. The stock price was around $1.65/share over the summer and it's at $2.39/share now. That shows it's in a quality mining spot and is a company to watch. I think the stock will break out to a new all-time high along with silver prices. That should take SilverCrest to a $6–8/share buyout by a midtier company. I'm very bullish on SilverCrest right now.
http://www.theaureport.com/pub/na/14561
Profiting from Silver Mining in the Age of Resource Nationalism: Sean Rakhimov
Source: Brian Sylvester of The Gold Report (10/26/12)
"In the smaller companies, one of the companies I like a lot is SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT). This is a company that I've followed for a very long time and is another company that was victimized by resource nationalism. It had a major silver project in El Salvador years back, but the government wouldn't let the company develop it.
So SilverCrest came to Mexico and got back to work. Since then it made a discovery, built a mine and that mine is now in production. SilverCrest is making about $3 million (M) a month at current metal prices.
TGR: Do you think that that's fully priced into the stock?
SR: That may be fully priced into the stock. That's hard to call mainly because the price of the metal moves and that changes the bottom line on a weekly basis, or what the bottom line would be based on that price.
TGR: Are you getting the La Joya exploration potential for free with that?
SR: Absolutely. I believe that the expansion of the Santa Elena mine to go underground and to build a mill is not priced in. Granted it is at least a year away for that expansion to come on-line, but I believe the current plan is to finance that mill out of cash flow. I don't think the expansion is priced in because that would take them toward about 5 million ounce (Moz) silver production, on par with a company like Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX) that is trading something like $400–600M in market cap. Another company in that range is Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), although Fortuna has a base metal segment to it.
There's certainly room for growing the valuation of SilverCrest based on that expansion and because the La Joya project is going to be very big. The company already has about a 100 Moz silver equivalent, the equivalent coming half from gold and half from copper. So 75% of value is in precious metals, between silver and gold. I believe it should come out with a new resource calculation sometime this year, which I expect to significantly increase the overall resource. I believe SilverCrest is getting no value for La Joya, which is common for producing companies. They get very little value for assets that are not in production once a company is valued on a cash-flow basis. "
http://www.theaureport.com/pub/na/14646
According to Ron Hera, Fortuna Silver Mines is positioned to be the next First Majestic.
http://www.heraresearch.com/companies/HERA_Fortuna_Silver_Mines_Inc_20120504.pdf
research report
James Turk: “A lot of central bank gold is missing”
Nov. 30, 2012
Episode 77: GoldMoney's Andy Duncan speaks to James Turk, Chairman of GoldMoney and co-author of The Collapse of the Dollar (2004), about his claim that central banks are holding less in their physical gold reserves than many assume.
James Turk explains the problem that central banks report gold and gold receivables as one line item on their balance sheets. This allows them to lease out physical gold in return for paper claims – posing the question of just how much physical gold is left.
They also discuss the Gold Money Index and the gold-based Fear Index. Both show that gold remains undervalued compared with historical norms. They talk about how close we are to a “Golden Cliff”, where the western central banks stop lending out their gold, and what the systemic repercussions of this are likely to be.
Finally, they assess the chances of Western governments undertaking gold confiscation and capital control measures; the likely amount of physical gold held at Fort Knox; and the reasons behind their prediction of an upcoming failure of fiat paper currency.
This podcast was recorded on 30 November 2012.
(18:59 min)
http://www.goldmoney.com/podcast/james-turk-a-lot-of-central-bank-gold-is-missing.html?gmrefcode=DOLLARC
James Turk: “A lot of central bank gold is missing”
Nov. 30, 2012
Episode 77: GoldMoney's Andy Duncan speaks to James Turk, Chairman of GoldMoney and co-author of The Collapse of the Dollar (2004), about his claim that central banks are holding less in their physical gold reserves than many assume.
James Turk explains the problem that central banks report gold and gold receivables as one line item on their balance sheets. This allows them to lease out physical gold in return for paper claims – posing the question of just how much physical gold is left.
They also discuss the Gold Money Index and the gold-based Fear Index. Both show that gold remains undervalued compared with historical norms. They talk about how close we are to a “Golden Cliff”, where the western central banks stop lending out their gold, and what the systemic repercussions of this are likely to be.
Finally, they assess the chances of Western governments undertaking gold confiscation and capital control measures; the likely amount of physical gold held at Fort Knox; and the reasons behind their prediction of an upcoming failure of fiat paper currency.
This podcast was recorded on 30 November 2012.
(18:59 min)
http://www.goldmoney.com/podcast/james-turk-a-lot-of-central-bank-gold-is-missing.html?gmrefcode=DOLLARC
Yes it's done by Rehypothecation. Here's a nice article on the topic.
Shadow Rehypothecation, Infinite Leverage, And Why Breaking The Tyranny Of Ignorance Is The Only Solution
http://www.zerohedge.com/news/shadow-rehypothecation-infinte-leverage-and-why-breaking-tyrrany-ignorance-only-solution
Gold: The Solution To The Banking Crisis?
by Tyler Durden on 11/29/2012
Authored by Eric Sprott and David Baker of Sprott Global Resource Investment,
The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world’s largest financial institutions. It is part of the Bank of International Settlements (BIS) and is often referred to as the Central Banks’ central bank. Ever since the financial meltdown four years ago, the Basel Committee has been hard at work devising new international regulatory rules designed to minimize the potential for another large-scale financial meltdown. The Committee’s latest ‘framework’, as they call it, is referred to as “Basel III”, and involves tougher capital rules that will force all banks to more than triple the amount of core capital they hold from 2% to 7% in order to avoid future taxpayer bailouts. It doesn’t sound like much of an increase, and according to the Basel group’s own survey, the 100 largest global banks will only require approximately €370 billion in additional reserves to comply with the new regulations by 2019. Given that the Spanish banks alone are believed to need well over €100 billion today simply to keep their capital ratios in check, it is hard to believe €370 billion will be enough protect the world’s “too-big-to-fail” banks from future crises, but it is indeed a step in the right direction.
Initial implementation of Basel III’s capital rules was expected to come into effect on January 1, 2013, but US banking regulators issued a press release on November 9th stating that they wouldn’t meet the deadline, citing a large volume of letters (ie. complaints) received from bank participants and a “wide range of views expressed during the comment period”. It has also been revealed that smaller US regional banks are loath to adopt the new rules, which they view as overly complicated and potentially devastating to their bottom lines. The Independent Community Bankers of America has even requested a Basel III exemption for all banks with less than $50 billion in assets,“in order to avoid large-scale industry concentration that would curtail credit for consumers and business borrowers, especially in small communities.” The long-term implementation period for all Basel III measures actually extends to 2019, so the delays are not necessarily meaningful news, but they do illustrate the growing rift between the US banking cartel and its European counterpart regarding the Basel III framework. JP Morgan’s CEO Jamie Dimon is on record having referred to Basel III regulations as “un-American” for their favourable treatment of European covered bonds over US mortgage-backed securities. Readers may also remember when Dimon was caught yelling at Mark Carney, Canada’s (soon to be former) Central Bank Governor and head of the Financial Stability Board, during a meeting in Washington to discuss the same topic. More recently, Deutsche Bank’s co-chief executive Juergen Fitschen suggested that the US regulators’ delay was “hurting trans-Atlantic relations” and creating distrust... stating, “when the whole thing is called un-American, I can only say in disbelief, who can still believe in this day and age that there can be purely European or American rules.” Suffice it to say that Basel III implementation has not gone as smoothly as planned.
One of the more relevant aspects of Basel III for our portfolios is its treatment of gold as an asset class. Documents posted by the Bank of International Settlements (which houses the Basel Committee) and the United States FDIC have both referenced gold as a “zero percent risk-weighted item” in their proposed frameworks, which has launched spirited rumours within the gold community that Basel III may define gold as a “Tier 1” asset, along with cash and AAA-government securities. We have discovered in delving further that gold’s treatment in Basel III is far more complicated than the rumours suggest, and is still, for all intents and purposes, very much undecided. Without burdening our readers with the turgid details, it turns out that the reference to gold as a “zero-percent risk-weighted item” only relates to its treatment in specific Basel III regulation related to the liquidity of bank assets vs. its liabilities. (For a more comprehensive explanation of Basel III’s treatment of gold, please see the Appendix). But what the Basel III proposals do confirm is the regulators’ desire for banks to improve their liquidity position by holding a larger amount of “high-quality”, liquid assets in order to improve their overall solvency in the event of another crisis.
Herein lies the problem, however: the Basel III regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet post Basel III-compliant liquidity and capital ratios. As we discussed in our August newsletter entitled, “NIRP: The Financial System’s Death Knell”, the problem with all this regulation-induced buying is that it ultimately pushes government bond yields into negative territory - as banks buy more and more of them not because they want to but because they have to in order to meet the new regulations. Although we have no doubt in the ability of governments’ issue more and more debt to satiate that demand, the captive purchases by the world’s largest banks may turn out to be surprisingly high. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs… AND the new Dodd Frank rules, which will require more government bonds to be held on top of what’s required under Basel III, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all. This is where gold comes into play.
If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the “liquidity trifecta” of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn’t a bank choose gold? From a purely ‘opportunity cost’ perspective, it makes much more sense for a bank to improve its balance sheet liquidity profile through the addition of gold than it does by holding more cash or government bonds – if the banks are given the freedom to choose.
The world’s non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from ‘Central Planning’ printing programs. This is why non-Western central banks are on track to buy at least 500 tonnes of net new physical gold this year, adding to the 440 tonnes they collectively purchased in 2011. In the un-regulated world of central banking, gold has already been accepted as the de-facto forex diversifier of choice, so why shouldn’t the regulated commercial banks be taking note and following suit with their balance sheets? Gold is, after all, one of the only assets they can all own simultaneously that will actually benefit from their respective participation through pure price appreciation. If banks all bought gold as the non-Western central banks have, it is likely that they would all profit while simultaneously improving their liquidity ratios. If they all acted in concert, gold could become the salvation of the banking system. (Highly unlikely… but just a thought).
So far there have only been two banking jurisdictions that have openly incorporated gold into their capital structures. The first, which may surprise you, is Turkey. In an unconventional effort to increase the country’s savings rate and propel loan growth, Turkish Central Bank Governor Erdem Basci has enacted new policies to promote gold within the Turkish banking system. He recently raised the proportion of reserves Turkish banks can keep in gold from 25 percent to 30 percent in an effort to attract more bullion into Turkish bank accounts. Turkiye Garanti Bankasi AS, Turkey’s largest lender, now offers gold-backed loans, where “customers can bring jewelry or coins to the bank and take out loans against their value.” The same bank will also soon “enable customers to withdraw their savings in gold, instead of Turkish lira or foreign exchange.” Basci’s policies have produced dramatic results for the Turkish banks, which have attracted US$8.3 billion in new deposits through gold programs over the past 12 months - which they can now extend for credit. Governor Basci has even stated he may make adjusting the banks’ gold ratio his main monetary policy tool.
The other banking jurisdiction is of course that of China, which has long encouraged its citizens to own physical gold. Recent reports indicate that the Shanghai Gold Exchange is planning to launch an interbank gold market in early December that will “pilot with Chinese banks and eventually be open to all.” Xie Duo, general director of the financial market department of the People’s Bank of China has stated that, “[China] should actively create conditions for the gold market to become integrated with the international gold market,” which suggests that the Chinese authorities have plans to capitalize on their growing gold stockpile. It is also interesting to note that China, of all countries, has been adamant that its 16 largest banks will meet the Basel III deadline on January 1, 2013. We can’t help but wonder if there is any connection between that effort and China’s recent increase in physical gold imports. Could China be positioning itself for the day Western banks finally realize they’d prefer gold over Treasuries? Possibly – and by the time banks figure it out, China may have already cornered most of the world’s physical gold supply.
If global banks’ are realistically going to improve their balance sheet diversification and liquidity profiles, gold will have to be part of that process. It is ludicrous to expect the global banking system to regain a sure footing through the increased ownership of government securities. If anything, we are now at a time when banks should do their utmost to diversify away from them, before the biggest “crowded trade” of all time begins to unravel itself. Basel III liquidity rules may be the start of gold’s re-emergence into mainstream commercial banking, although it is still not guaranteed that the US banking cartel will adopt all of the Basel III measures, and they still have years to hammer out the details. If regulators hold firm in applying stricter liquidity rules, however, gold is the only financial asset that can satisfy those liquidity requirements while freeing banks from the constraints of negative-yielding government bonds. And while it strikes us as somewhat ironic that the banking system may be forced to turn to gold out of sheer regulatory necessity, that’s where we see the potential in Basel III. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented ‘sound money’ throughout history.
Appendix: Gold’s treatment in Basel III
Basel III is a much more complex “framework” than Basel I or II, although we do not claim to be experts on either. It should also be mentioned that Basel II only came into effect in early 2008, and wasn’t even adopted by the US banks on its launch. Post-meltdown, Basel III is the Basel Committee’s attempt to get it right once and for all, and is designed to provide an all-encompassing, international set of banking regulations designed to avoid future bailouts of the “too-big to fail” banks in the event of another financial crisis.
Without going into cumbersome details, under the older Basel framework (Basel I), the lower the “risk weighting” regulators applied to an asset class, the less capital the banks had to set aside in order to hold it. CNBC’s John Carney writes, “The earlier round of capital regulations… government-rated bonds rated BBB were given 50 percent riskweightings. A-rated bonds were given 20 percent risk weightings. Double A and Triple A were given zero risk weightings — meaning banks did not have to set aside any capital at all for the government bonds they held.” Critics of Basel I argued that the risk-weighting system compelled banks to overweight their exposure to assets that had the lowest riskweightings, which created a herd-like move into same assets. This was most evident in their gradual overexposure to European sovereign debt and mortgage-backed securities, which the regulators had erroneously defined as “low-risk” before the meltdown proved them to be otherwise. The banks and governments learned that lesson the hard way.
Basel III (and Basel II) takes the same idea and complicates it further by dividing bank assets into two risk categories (credit and market risk) and risk-weighting them depending on their attributes. Just like Basel I, the higher the “riskweight” applied to an asset class, the more capital the bank is required to hold to offset them.
It is our understanding that gold’s reference as a “zero percent risk-weighted asset” in the FDIC and BIS literature only applies to gold’s “credit risk” - which makes perfect sense given that gold isn’t anyone’s counterparty and cannot default in any way. Gold still has “market-risk” however, which stems from its price fluctuations, and this results in the bank having to set aside capital in order to hold it. So for banks who hold physical gold on their balance sheet (and we don’t know of any who do, other than the bullion dealers), the gold would not be treated the same as cash or AAA-bonds for the purposes of calculating their Tier 1 ratio. This is where the gold community’s conjecture on gold as a “Tier 1” asset has been misleading. There really isn’t such a thing as a “Tier 1” asset under Basel III. Instead, “Tier 1” is merely the ratio that reflects the capital supporting a bank’s risk-weighted assets.
HOWEVER, Basel III will also be adding an entirely new layer of regulation concerning the relative liquidity of the bank’s assets and liabilities. This will be reflected in two new ratios banks must calculate starting in 2015: the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
Just as Basel III requires risk-weights for the asset side of a bank’s balance sheet (based on credit risk and market risk), Basel III will also soon require the application of risk-weights to be applied to the LIQUIDITY profile of both the assets and liabilities held by the bank. The idea here is to address the liquidity constraints that arose during the 2008 meltdown, when banks suffered widespread deposit withdrawals just as their access to wholesale funding dried up.
This is where gold’s Basel III treatment becomes more interesting. Under the proposed LIQUIDITY component of Basel III, gold is currently labeled with a 50% liquidity “haircut”, which is the same haircut that is applied to equities and bonds. This implicitly assumes that gold cannot be easily converted into cash in a stressed period, which is exactly the opposite of what we observed during the crisis. It also requires the bank to maintain a much more stable source of funding in order to hold gold as an asset on its balance sheet. Fortunately, there is a strong chance that this liquidity definition for gold may be changed. The World Gold Council has in fact been lobbying the Basel Committee, the Federal Reserve and the FDIC on this issue as far back as 2009, and published a paper arguing that gold should enjoy the same liquidity profile as cash or AAA-government securities when calculating Basel III’s LCR and NSFR ratios. And as it turns out, the liquidity definitions that will guide banks’ LCR and NSFR calculations have not yet been finalized by the Basel Committee. The Basel III comment period that ended on October 22nd resulted in the deadline being pushed back to January 1, 2013, and given the recent delays with the US bank regulators, will likely be postponed even further next year. Of specific interest to us is how the Basel Committee will treat gold from a liquidity-risk perspective, and whether they decide to lower gold’s liquidity “haircut” from 50% to something more reasonable, given gold’s obvious liquidity superiority over that of equities and bonds.
The only hint we’ve heard thus far has come from the World Gold Council itself, which suggested in an April 2012 research paper, and re-iterated on a recent conference call, that gold will be given a 15% liquidity “haircut”, but we have not been able to confirm this with either the Basel Committee or the FDIC. In fact, all inquiries regarding gold’s treatment made to those groups by ourselves, and by other parties that we have spoken with, have been met with silence. We get the sense that the regulators have no interest in stirring the pot by mentioning anything related to gold out of turn. Given our discussion above, we can understand why they may be hesitant to address the issue, and only time will tell if gold gets the proper liquidity treatment it deserves.
http://www.zerohedge.com/news/2012-11-29/gold-solution-banking-crisis
Gold: The Solution To The Banking Crisis?
by Tyler Durden on 11/29/2012
Authored by Eric Sprott and David Baker of Sprott Global Resource Investment,
The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world’s largest financial institutions. It is part of the Bank of International Settlements (BIS) and is often referred to as the Central Banks’ central bank. Ever since the financial meltdown four years ago, the Basel Committee has been hard at work devising new international regulatory rules designed to minimize the potential for another large-scale financial meltdown. The Committee’s latest ‘framework’, as they call it, is referred to as “Basel III”, and involves tougher capital rules that will force all banks to more than triple the amount of core capital they hold from 2% to 7% in order to avoid future taxpayer bailouts. It doesn’t sound like much of an increase, and according to the Basel group’s own survey, the 100 largest global banks will only require approximately €370 billion in additional reserves to comply with the new regulations by 2019. Given that the Spanish banks alone are believed to need well over €100 billion today simply to keep their capital ratios in check, it is hard to believe €370 billion will be enough protect the world’s “too-big-to-fail” banks from future crises, but it is indeed a step in the right direction.
Initial implementation of Basel III’s capital rules was expected to come into effect on January 1, 2013, but US banking regulators issued a press release on November 9th stating that they wouldn’t meet the deadline, citing a large volume of letters (ie. complaints) received from bank participants and a “wide range of views expressed during the comment period”. It has also been revealed that smaller US regional banks are loath to adopt the new rules, which they view as overly complicated and potentially devastating to their bottom lines. The Independent Community Bankers of America has even requested a Basel III exemption for all banks with less than $50 billion in assets,“in order to avoid large-scale industry concentration that would curtail credit for consumers and business borrowers, especially in small communities.” The long-term implementation period for all Basel III measures actually extends to 2019, so the delays are not necessarily meaningful news, but they do illustrate the growing rift between the US banking cartel and its European counterpart regarding the Basel III framework. JP Morgan’s CEO Jamie Dimon is on record having referred to Basel III regulations as “un-American” for their favourable treatment of European covered bonds over US mortgage-backed securities. Readers may also remember when Dimon was caught yelling at Mark Carney, Canada’s (soon to be former) Central Bank Governor and head of the Financial Stability Board, during a meeting in Washington to discuss the same topic. More recently, Deutsche Bank’s co-chief executive Juergen Fitschen suggested that the US regulators’ delay was “hurting trans-Atlantic relations” and creating distrust... stating, “when the whole thing is called un-American, I can only say in disbelief, who can still believe in this day and age that there can be purely European or American rules.” Suffice it to say that Basel III implementation has not gone as smoothly as planned.
One of the more relevant aspects of Basel III for our portfolios is its treatment of gold as an asset class. Documents posted by the Bank of International Settlements (which houses the Basel Committee) and the United States FDIC have both referenced gold as a “zero percent risk-weighted item” in their proposed frameworks, which has launched spirited rumours within the gold community that Basel III may define gold as a “Tier 1” asset, along with cash and AAA-government securities. We have discovered in delving further that gold’s treatment in Basel III is far more complicated than the rumours suggest, and is still, for all intents and purposes, very much undecided. Without burdening our readers with the turgid details, it turns out that the reference to gold as a “zero-percent risk-weighted item” only relates to its treatment in specific Basel III regulation related to the liquidity of bank assets vs. its liabilities. (For a more comprehensive explanation of Basel III’s treatment of gold, please see the Appendix). But what the Basel III proposals do confirm is the regulators’ desire for banks to improve their liquidity position by holding a larger amount of “high-quality”, liquid assets in order to improve their overall solvency in the event of another crisis.
Herein lies the problem, however: the Basel III regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet post Basel III-compliant liquidity and capital ratios. As we discussed in our August newsletter entitled, “NIRP: The Financial System’s Death Knell”, the problem with all this regulation-induced buying is that it ultimately pushes government bond yields into negative territory - as banks buy more and more of them not because they want to but because they have to in order to meet the new regulations. Although we have no doubt in the ability of governments’ issue more and more debt to satiate that demand, the captive purchases by the world’s largest banks may turn out to be surprisingly high. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs… AND the new Dodd Frank rules, which will require more government bonds to be held on top of what’s required under Basel III, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all. This is where gold comes into play.
If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the “liquidity trifecta” of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn’t a bank choose gold? From a purely ‘opportunity cost’ perspective, it makes much more sense for a bank to improve its balance sheet liquidity profile through the addition of gold than it does by holding more cash or government bonds – if the banks are given the freedom to choose.
The world’s non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from ‘Central Planning’ printing programs. This is why non-Western central banks are on track to buy at least 500 tonnes of net new physical gold this year, adding to the 440 tonnes they collectively purchased in 2011. In the un-regulated world of central banking, gold has already been accepted as the de-facto forex diversifier of choice, so why shouldn’t the regulated commercial banks be taking note and following suit with their balance sheets? Gold is, after all, one of the only assets they can all own simultaneously that will actually benefit from their respective participation through pure price appreciation. If banks all bought gold as the non-Western central banks have, it is likely that they would all profit while simultaneously improving their liquidity ratios. If they all acted in concert, gold could become the salvation of the banking system. (Highly unlikely… but just a thought).
So far there have only been two banking jurisdictions that have openly incorporated gold into their capital structures. The first, which may surprise you, is Turkey. In an unconventional effort to increase the country’s savings rate and propel loan growth, Turkish Central Bank Governor Erdem Basci has enacted new policies to promote gold within the Turkish banking system. He recently raised the proportion of reserves Turkish banks can keep in gold from 25 percent to 30 percent in an effort to attract more bullion into Turkish bank accounts. Turkiye Garanti Bankasi AS, Turkey’s largest lender, now offers gold-backed loans, where “customers can bring jewelry or coins to the bank and take out loans against their value.” The same bank will also soon “enable customers to withdraw their savings in gold, instead of Turkish lira or foreign exchange.” Basci’s policies have produced dramatic results for the Turkish banks, which have attracted US$8.3 billion in new deposits through gold programs over the past 12 months - which they can now extend for credit. Governor Basci has even stated he may make adjusting the banks’ gold ratio his main monetary policy tool.
The other banking jurisdiction is of course that of China, which has long encouraged its citizens to own physical gold. Recent reports indicate that the Shanghai Gold Exchange is planning to launch an interbank gold market in early December that will “pilot with Chinese banks and eventually be open to all.” Xie Duo, general director of the financial market department of the People’s Bank of China has stated that, “[China] should actively create conditions for the gold market to become integrated with the international gold market,” which suggests that the Chinese authorities have plans to capitalize on their growing gold stockpile. It is also interesting to note that China, of all countries, has been adamant that its 16 largest banks will meet the Basel III deadline on January 1, 2013. We can’t help but wonder if there is any connection between that effort and China’s recent increase in physical gold imports. Could China be positioning itself for the day Western banks finally realize they’d prefer gold over Treasuries? Possibly – and by the time banks figure it out, China may have already cornered most of the world’s physical gold supply.
If global banks’ are realistically going to improve their balance sheet diversification and liquidity profiles, gold will have to be part of that process. It is ludicrous to expect the global banking system to regain a sure footing through the increased ownership of government securities. If anything, we are now at a time when banks should do their utmost to diversify away from them, before the biggest “crowded trade” of all time begins to unravel itself. Basel III liquidity rules may be the start of gold’s re-emergence into mainstream commercial banking, although it is still not guaranteed that the US banking cartel will adopt all of the Basel III measures, and they still have years to hammer out the details. If regulators hold firm in applying stricter liquidity rules, however, gold is the only financial asset that can satisfy those liquidity requirements while freeing banks from the constraints of negative-yielding government bonds. And while it strikes us as somewhat ironic that the banking system may be forced to turn to gold out of sheer regulatory necessity, that’s where we see the potential in Basel III. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented ‘sound money’ throughout history.
Appendix: Gold’s treatment in Basel III
Basel III is a much more complex “framework” than Basel I or II, although we do not claim to be experts on either. It should also be mentioned that Basel II only came into effect in early 2008, and wasn’t even adopted by the US banks on its launch. Post-meltdown, Basel III is the Basel Committee’s attempt to get it right once and for all, and is designed to provide an all-encompassing, international set of banking regulations designed to avoid future bailouts of the “too-big to fail” banks in the event of another financial crisis.
Without going into cumbersome details, under the older Basel framework (Basel I), the lower the “risk weighting” regulators applied to an asset class, the less capital the banks had to set aside in order to hold it. CNBC’s John Carney writes, “The earlier round of capital regulations… government-rated bonds rated BBB were given 50 percent riskweightings. A-rated bonds were given 20 percent risk weightings. Double A and Triple A were given zero risk weightings — meaning banks did not have to set aside any capital at all for the government bonds they held.” Critics of Basel I argued that the risk-weighting system compelled banks to overweight their exposure to assets that had the lowest riskweightings, which created a herd-like move into same assets. This was most evident in their gradual overexposure to European sovereign debt and mortgage-backed securities, which the regulators had erroneously defined as “low-risk” before the meltdown proved them to be otherwise. The banks and governments learned that lesson the hard way.
Basel III (and Basel II) takes the same idea and complicates it further by dividing bank assets into two risk categories (credit and market risk) and risk-weighting them depending on their attributes. Just like Basel I, the higher the “riskweight” applied to an asset class, the more capital the bank is required to hold to offset them.
It is our understanding that gold’s reference as a “zero percent risk-weighted asset” in the FDIC and BIS literature only applies to gold’s “credit risk” - which makes perfect sense given that gold isn’t anyone’s counterparty and cannot default in any way. Gold still has “market-risk” however, which stems from its price fluctuations, and this results in the bank having to set aside capital in order to hold it. So for banks who hold physical gold on their balance sheet (and we don’t know of any who do, other than the bullion dealers), the gold would not be treated the same as cash or AAA-bonds for the purposes of calculating their Tier 1 ratio. This is where the gold community’s conjecture on gold as a “Tier 1” asset has been misleading. There really isn’t such a thing as a “Tier 1” asset under Basel III. Instead, “Tier 1” is merely the ratio that reflects the capital supporting a bank’s risk-weighted assets.
HOWEVER, Basel III will also be adding an entirely new layer of regulation concerning the relative liquidity of the bank’s assets and liabilities. This will be reflected in two new ratios banks must calculate starting in 2015: the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
Just as Basel III requires risk-weights for the asset side of a bank’s balance sheet (based on credit risk and market risk), Basel III will also soon require the application of risk-weights to be applied to the LIQUIDITY profile of both the assets and liabilities held by the bank. The idea here is to address the liquidity constraints that arose during the 2008 meltdown, when banks suffered widespread deposit withdrawals just as their access to wholesale funding dried up.
This is where gold’s Basel III treatment becomes more interesting. Under the proposed LIQUIDITY component of Basel III, gold is currently labeled with a 50% liquidity “haircut”, which is the same haircut that is applied to equities and bonds. This implicitly assumes that gold cannot be easily converted into cash in a stressed period, which is exactly the opposite of what we observed during the crisis. It also requires the bank to maintain a much more stable source of funding in order to hold gold as an asset on its balance sheet. Fortunately, there is a strong chance that this liquidity definition for gold may be changed. The World Gold Council has in fact been lobbying the Basel Committee, the Federal Reserve and the FDIC on this issue as far back as 2009, and published a paper arguing that gold should enjoy the same liquidity profile as cash or AAA-government securities when calculating Basel III’s LCR and NSFR ratios. And as it turns out, the liquidity definitions that will guide banks’ LCR and NSFR calculations have not yet been finalized by the Basel Committee. The Basel III comment period that ended on October 22nd resulted in the deadline being pushed back to January 1, 2013, and given the recent delays with the US bank regulators, will likely be postponed even further next year. Of specific interest to us is how the Basel Committee will treat gold from a liquidity-risk perspective, and whether they decide to lower gold’s liquidity “haircut” from 50% to something more reasonable, given gold’s obvious liquidity superiority over that of equities and bonds.
The only hint we’ve heard thus far has come from the World Gold Council itself, which suggested in an April 2012 research paper, and re-iterated on a recent conference call, that gold will be given a 15% liquidity “haircut”, but we have not been able to confirm this with either the Basel Committee or the FDIC. In fact, all inquiries regarding gold’s treatment made to those groups by ourselves, and by other parties that we have spoken with, have been met with silence. We get the sense that the regulators have no interest in stirring the pot by mentioning anything related to gold out of turn. Given our discussion above, we can understand why they may be hesitant to address the issue, and only time will tell if gold gets the proper liquidity treatment it deserves.
http://www.zerohedge.com/news/2012-11-29/gold-solution-banking-crisis
Macro Analytics - Currency Wars - Failing Petrodollar Strategy - John Rubino
Published on Nov 17, 2012 by GordonTLong
Historians will show that September 2012 was a seminal month in globalization. However, it won't be because of the epic monetary foray into "Unlimited" QE and "Uncapped" OMT by central bankers. A more profound development will be the milestone agreement reached between China and Russia to begin trading oil in other than the Petro$$. This aggressive break from the status quo effectively threw down the gauntlet in recognization that the developed economies money printing was a "full throated" declaration of Currency War. These initial salvos of heavy monetary artillery clearly shook the monetary policy conference tables of the world.
This latest in eleven strategic agreements, now pits the strategy of currency debasement by the debt saturated developed economies, against the inflation fighting ramparts of the BRICS and Emerging economies. This emerging, first full scale Currency War of the 21st century, will soon challenge the long term viability of the US$ as the world's reserve currency and trading standard. With 60% of US$ now held abroad for specifically this reason, even a marginal reduction will challenge the funding capabilites of the US "welfare and warfare" state and potentially ignite hyperinflation, as US dollar IOUs are relentlessly returned for "claim".
Gordon T Long and John Rubino explore a cadre of evidence that suggests this will be a dangerous and voliatile era for the global economy.
(Video- 25 min)
Goldman Wins Again As European Union Court Rules To Keep ECB Involvement In Greek Debt Fudging A Secret
Submitted by Tyler Durden on 11/29/2012
Three years ago, a hard fought landmark FOIA lawsuit was won by the great Bloomberg reporter, the late Mark Pittman, in which the Fed was forced to disclose a plethora of previously secret bailout information, which in turn spurred the movement to "audit the Fed" and include a variety of largely watered down provisions in the Frank-Dodd bill. This victory came despite extensive objections by the Fed and the threat that the case may even escalate to the highly politicized Supreme Court, which lately has demonstrated conclusively that not only is justice not blind, but goes to the highest ideological bidder. Moments ago, Europe just learned that when it comes to secrecy of its supreme monetary leaders, in this case all originating from Goldman Sachs and defending data highly sensitive to the same Goldman Sachs, the European central bank's secrecy is not only matched by that of the Fed, but even more engrained in the "judicial" system of the Eurozone, after the European Union General Court in Luxembourg just announced that the European Central Bank will be allowed to refuse access to secret files showing how Greece used derivatives to hide its debt. Why? Simple: recall that it was Goldman Sachs who was the primary "advisor" on a decade worth of FX swaps-related deals which allowed Greece to outright lie about both its fiscal deficit and its total debt levels, and that it was a Goldman alum who became head of the same Greek debt office just before the country imploded. And certainly the ECB was involved and knew very all about the Greek behind the scenes shennanigans. And who happens to be head of the ECB? Why yet another former Goldman worker, of course. Mario Draghi.
And with yet another ex-Goldmanite taking over the BOE, any hopes of bank transparency in the UK have just been crushed as well. Goldman is taking over the world one central bank, and Supreme Court at a time, and leaving not a trace behind, even as it manages to create ever more debt out of thin air to keep the population occupied chasing trinkets, gadgets, and other unneeded stuff, while the real wealth plunder by Goldman et al enters its terminal phase.
From Bloomberg:
“Disclosure of those documents would have undermined the protection of the public interest so far as concerns the economic policy of the EU and Greece,” the European Union General Court in Luxembourg said today, rejecting a challenge by Bloomberg News. The news organization initially sought the documents in August 2010.
The same excuse always and forever: the common man should not know what is truly going on behind the scenes, as the truth would "undermine protection of the public interest" - just leave it to the smart men in tweed suits to fret about the details; it is best if the general ignorant herd remains in the dark, or else its "protection" may be impaired...
Today’s ruling by three judges denies European taxpayers, on the hook for the cost of Greece’s 240 billion-euro ($311.5 billion) bailout, the opportunity to see whether EU officials knew of irregularities in Greece’s public accounts before they became public in 2009.
The decision underscores the lack of accountability at the ECB as it expands its powers to become the region’s lender of last resort and chief banking regulator. The central bank, which puts greater limits on its disclosures about its decision making than its British and U.S. equivalents, is under pressure from policy makers including governing council member Erkki Liikanen to boost transparency. ECB President Mario Draghi last month defended the Frankfurt-based bank, telling reporters it was already a “very transparent” institution.
Bloomberg News sought two internal papers drafted for the central bank’s six-member Executive Board. The first document is entitled “The impact on government deficit and debt from off- market swaps: the Greek case.” The second reviews Titlos Plc, a structure that allowed National Bank of Greece SA (ETE), the country’s biggest lender, to borrow from the ECB by creating collateral.
And just to complete the farce, perhaps the Fed will tell us how its own investigation launched in February of 2010(!) looking at Goldman's behind the scenes involvement in faking the Greek debt numbers for a decade, is going. Recall: "We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece," Bernanke said in testimony before the Senate Banking Committee. It is now nearly three years later and still nothing...
Naturally, we won't hold our breath.
Sadly, little can be added here: Goldman wins again, and justice for the common man is long dead.
http://www.zerohedge.com/news/2012-11-29/goldman-wins-again-european-union-court-rules-keep-ecb-involvement-greek-debt-fudgin
The Giant Currency Superstorm That Is Coming To The Shores Of America When The Dollar Dies
By Michael, on November 27th, 2012
By recklessly printing, borrowing and spending money, our authorities are absolutely shredding confidence in the U.S. dollar. The rest of the world is watching this nonsense, and at some point they are going to give up on the U.S. dollar and throw their hands up in the air. When that happens, it is going to be absolutely catastrophic for the U.S. economy. Right now, we export a lot of our inflation. Each year, we buy far more from the rest of the world than they buy from us, and so the rest of the world ends up with giant piles of U.S. dollars. This works out pretty well for them, because the U.S. dollar is the primary reserve currency of the world and is used in international trade far more than any other currency is. Back in 1999, the percentage of foreign exchange reserves in U.S. dollars peaked at 71 percent, and since then it has slid back to 62.2 percent. But that is still an overwhelming amount. We can print, borrow and spend like crazy because the rest of the world is there to soak up our excess dollars because they need them to trade with one another. But what will happen someday if the rest of the world decides to reject the U.S. dollar? At that point we would see a tsunami of U.S. dollars come flooding back to this country. Just take a moment and think of the worst superstorm that you can possibly imagine, and then replace every drop of rain with a dollar bill. The giant currency superstorm that will eventually hit this nation will be far worse than that.
Most Americans don't realize that there are far more dollars in use in the rest of the world than in the United States itself. The following is from a scholarly article by Linda Goldberg...
The dollar is a major form of cash currency around the world. The majority of dollar banknotes are estimated to be held outside the US. More than 70% of hundred-dollar notes and nearly 60% of twenty- and fifty-dollar notes are held abroad, while two-thirds of all US banknotes have been in circulation outside the country since 1990
For decades we have been exporting gigantic quantities of our currency.
So what would happen if that process suddenly reversed and massive piles of dollars started coming back into the country?
It is frightening to think about.
Well, I guess the key is to get the rest of the world to continue to have confidence in the U.S. dollar so that will never happen, right?
Unfortunately, there are lots of signs that the rest of the world is accelerating their move away from the U.S. dollar.
For example, it was recently announced that the BRICS countries are developing their own version of the World Bank...
The BRICS (Brazil, Russia, India, China and South Africa) bloc has begun planning its own development bank and a new bailout fund which would be created by pooling together an estimated $240 billion in foreign exchange reserves, according to diplomatic sources. To get a sense of how significant the proposed fund would be, the fund would be larger than the combined Gross Domestic Product (GDP) of about 150 countries, according to Russia and India Report.
And as I noted in a previous article, over the past few years there have been a whole host of new international currency agreements that encourage the use of national currencies over the U.S. dollar. The following are just a few examples...
1. China and Germany (See Here)
2. China and Russia (See Here)
3. China and Brazil (See Here)
4. China and Australia (See Here)
5. China and Japan (See Here)
6. India and Japan (See Here)
7. Iran and Russia (See Here)
8. China and Chile (See Here)
9. China and the United Arab Emirates (See Here)
10. China, Brazil, Russia, India and South Africa (See Here)
Will this movement soon become a stampede away from the U.S. dollar?
That is a very important question.
But you don't hear anything about this in the U.S. media and our politicians are not talking about this at all.
Meanwhile, our "leaders" seem to be doing everything that they can to destroy confidence in the U.S. dollar. The Federal Reserve is printing money like there is no tomorrow, and the federal government continues to run up trillion dollar deficits year after year.
They do not seem to understand that they are systematically destroying the U.S. financial system.
Other world leaders get it. For example, Russian President Vladimir Putin once said the following...
"Unreasonable expansion of the budget deficit, accumulation of the national debt – are as destructive as an adventurous stock market game.
During the time of the Soviet Union the role of the state in economy was made absolute, which eventually lead to the total non-competitiveness of the economy. That lesson cost us very dearly. I am sure no one would want history to repeat itself.”Wow.
Why can't most of our politicians see how destructive debt is?
What the federal government continues to do is absolutely insane. The national debt increased by more than 24 billion dollars on the day after Thanksgiving this year. But utter disaster has not struck yet, and most Americans are not really that concerned about the debt. So things just keep rolling along.
And of course our national debt of $16,309,738,056,362.44 is nothing when compared to the future liabilities that our federal government is facing. Just check out what a recent article in the Wall Street Journal had to say about all this...
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Other economists paint an even gloomier picture. According to economist Niall Ferguson, the U.S. government is facing future unfunded liabilities of 238 trillion dollars.
So where are we going to get all that money?
Well, why don't we just print more money than ever before so that the U.S. government can borrow and spend more money than ever before?
Don't laugh. That is actually what some of the top economists in the country are actually recommending.
The most famous economic journalist in the entire country, Paul Krugman of the New York Times, is boldly proclaiming that the solution to all of our problems is to print, borrow and spend a lot more money. He insists that there is no reason to fear that the giant mountain of debt that we are accumulating will someday collapse the system...
For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.
But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.
Now, it’s true that investors might start to expect higher inflation some years down the road. They might also push down the value of the dollar. Both of these things, however, would actually help rather than hurt the U.S. economy right now: expected inflation would discourage corporations and families from sitting on cash, while a weaker dollar would make our exports more competitive.
Of course what he is prescribing is complete and utter madness.
At some point this con game is going to collapse and the rest of the world is going to say a big, fat, resounding "NO" to the U.S. dollar.
Why should they continue to use a currency that is becoming extremely unstable and that is constantly being manipulated?
And when the rest of the world rejects the U.S. dollar, the value of the dollar will drop like a rock because there will be far less global demand for it.
In addition, if the rest of the world is not using the U.S. dollar for trade any longer, other nations will cease to soak up our excess currency and huge mountains of our currency that are floating around out there will start flooding back to our shores.
At that point we will be looking at inflation unlike anything we have ever seen before. The era of cheap imports will be over and we will pay far more for everything from oil to the foreign-made plastic trinkets that we buy at Wal-Mart.
Most Americans don't even know what a "reserve currency" is, but when the U.S. dollar loses reserve currency status it is going to unleash a nightmare that most economists cannot even imagine.
So enjoy this holiday season while you can. There are still lots and lots of cheap imports filling the shelves of our stores.
Once the coming giant currency superstorm strikes, we will dearly wish for the good old days of 2012.
Yes, the U.S. dollar is alive and ticking for now. But at the pace that our authorities are abusing it, I would not say that things are looking good for a long and healthy lifespan.
http://theeconomiccollapseblog.com/archives/the-giant-currency-superstorm-that-is-coming-to-the-shores-of-america-when-the-dollar-dies
Bitter struggle over Internet regulation to dominate global summit
By Joseph Menn
SAN FRANCISCO | Tue Nov 27, 2012 2:41pm EST
SAN FRANCISCO (Reuters) - An unprecedented debate over how the global Internet is governed is set to dominate a meeting of officials in Dubai next week, with many countries pushing to give a United Nations body broad regulatory powers even as the United States and others contend such a move could mean the end of the open Internet.
The 12-day conference of the International Telecommunications Union, a 147-year-old organization that's now an arm of the United Nations, largely pits revenue-seeking developing countries and authoritarian regimes that want more control over Internet content against U.S. policymakers and private Net companies that prefer the status quo.
Many of the proposals have drawn fury from free-speech and human-rights advocates and have prompted resolutions from the U.S. Congress and the European Parliament, calling for the current decentralized system of governance to remain in place.
While specifics of some of the most contentious proposals remain secret, leaked drafts show that Russia is seeking rules giving individual countries broad permission to shape the content and structure of the Internet within their borders, while a group of Arab countries is advocating universal identification of Internet users. Some developing countries and telecom providers, meanwhile, want to make content providers pay for Internet transmission.
Fundamentally, most of the 193 countries in the ITU seem eager to enshrine the idea that the U.N. agency, rather than today's hodgepodge of private companies and nonprofit groups, should govern the Internet. They say that a new regime is needed to deal with the surge in cybercrime and more recent military attacks.
The ITU meeting, which aims to update a longstanding treaty on how telecom companies interact across borders, will also tackle other topics such as extending wireless coverage into rural areas.
If a majority of the ITU countries approve U.N. dominion over the Internet along with onerous rules, a backlash could lead to battles in Western countries over whether to ratify the treaty, with tech companies rallying ordinary Internet users against it and some telecom carriers supporting it.
In fact, dozens of countries including China, Russia and some Arab states, already restrict Internet access within their own borders. Those governments would have greater leverage over Internet content and service providers if the changes were backed up by international agreement.
Amid the escalating rhetoric, search king Google last week asked users to "pledge your support for the free and open Internet" on social media, raising the specter of a grassroots outpouring of the sort that blocked American copyright legislation and a global anti-piracy treaty earlier this year.
Google's Vint Cerf, the ordinarily diplomatic co-author of the basic protocol for Internet data, denounced the proposed new rules as hopeless efforts by some governments and state-controlled telecom authorities to assert their power.
"These persistent attempts are just evidence that this breed of dinosaurs, with their pea-sized brains, hasn't figured out that they are dead yet, because the signal hasn't traveled up their long necks," Cerf told Reuters.
The ITU's top official, Secretary-General Hamadoun Touré, sought to downplay the concerns in a separate interview, stressing to Reuters that even though updates to the treaty could be approved by a simple majority, in practice nothing will be adopted without near-unanimity.
"Voting means winners and losers. We can't afford that in the ITU," said Touré, a former satellite engineer from Mali who was educated in Russia.
Touré predicted that only "light-touch" regulation on cyber-security will emerge by "consensus", using a deliberately vague term that implies something between a majority and unanimity.
He rejected criticism that the ITU's historic role in coordinating phone carriers leaves it unfit to corral the unruly Internet, comparing the Web to a transportation system.
"Because you own the roads, you don't own the cars and especially not the goods they are transporting. But when you buy a car you don't buy the road," Touré said. "You need to know the number of cars and their size and weight so you can build the bridges and set the right number of lanes. You need light-touch regulation to set down a few traffic lights."
Because the proposals from Russia, China and others are more extreme, Touré has been able to cast mild regulation as a compromise accommodating nearly everyone.
Two leaked Russian proposals say nations should have the sovereign right "to regulate the national Internet segment". An August draft proposal from a group of 17 Arab countries called for transmission recipients to receive "identity information" about the senders, potentially endangering the anonymity of political dissidents, among others.
A U.S. State Department envoy to the gathering and Cerf agreed with Touré that there is unlikely to be any drastic change emerging from Dubai.
"The decisions are going to be by consensus," said U.S. delegation chief Terry Kramer. He said anti-anonymity measures such as mandatory Internet address tracing won't be adopted because of opposition by the United States and others.
"We're a strong voice, given a lot of the heritage," Kramer said, referring to the United States' role in the development of the Internet. "A lot of European markets are very similar, and a lot of Asian counties are supportive, except China."
Despite the reassuring words, a fresh leak over the weekend showed that the ITU's top managers viewed a badly split conference as a realistic prospect less than three months ago.
The leaked program for a "senior management retreat" for the ITU in early September included a summary discussion of the most probable outcomes from Dubai, concluding that the two likeliest scenarios involved major reworkings of the treaty that the United States would then refuse to sign. The only difference between the scenarios lay in how many other developed countries sided with the Americans.
An ITU spokesman said Tuesday that "the management team has never doubted that consensus will be found" and that the scenarios were meant to aid efforts at facilitating the process.
Touré said that because the disagreements are so vast, the conference probably will end up with something resembling the ITU's earlier formula for trying to protect children online — an agreement to cooperate more and share laws and best practices, perhaps with hotlines to head off misunderstandings.
"From Dubai, what I personally expect is to see some kind of principles saying cyberspace is a global phenomenon and it can only have global responses," Touré said. "I just intend to put down some key principles there that will lay the seeds for something in the future."
Even vague terms could be used as a pretext for more oppressive policies in various countries, though, and activists and industry leaders fear those countries might also band together by region to offer very different Internet experiences.
In some ways, the U.N. involvement reflects a reversal that has already begun.
The United States has steadily diminished its official role in Internet governance, and many nations have stepped up their filtering and surveillance. More than 40 countries now filter the Net that their citizens see, said Ronald Deibert, a University of Toronto political science professor and authority on international conflicts in cyberspace.
Google Executive Chairman Eric Schmidt said this month that the Net is already on the road to Balkanization, with people in different countries getting very different experiences from the services provided by Google, Skype and others.
This month, a new law in Russia took effect that allows the federal government to order a Website offline without a court hearing. Iran recently rolled out a version of the Internet that replaced the real thing within its borders. A growing number of countries, including China and India, order sites to censor themselves for political, religious and other content.
China, which has the world's largest number of Internet users, also blocks access to Facebook, YouTube and Twitter among other sites within its borders.
The loose governance of the Net currently depends on the non-profit ICANN, which oversees the Web's address system, along with voluntary standard-setting bodies and a patchwork of national laws and regional agreements. Many countries see it as a U.S.-dominated system.
The U.S. isolation within the ITU is exacerbated by it being home to many of the biggest technology companies - and by the fact that it could have military reasons for wanting to preserve online anonymity. The Internet emerged as a critical military domain with the 2010 discovery of Stuxnet, a computer worm developed at least in part by the United States that attacked Iran's nuclear program.
Whatever the outcome in Dubai, the conference stands a good chance of becoming a historic turning point for the Internet.
"I see this as a constitutional moment for global cyberspace, where we can stand back and say, `Who should be in charge?' said Deibert. "What are the rules of the road?"
(Reporting by Joseph Menn; Editing by Jonathan Weber, Martin Howell, Ken Wills and Andrew
http://www.reuters.com/article/2012/11/27/net-us-un-internet-idUSBRE8AQ06320121127
RPT-US Senate works on new package of Iran sanctions
Wed Nov 28, 2012 5:26am EST
* Would punish foreign banks for more types of Iran dealings
* Could be attached to annual defense policy bill
* Would stop "Turkey's game of gold for natural gas"-aide
By Roberta Rampton
WASHINGTON, Nov 27 (Reuters) - New sanctions aimed at reducing global trade with Iran in the energy, shipping and metals sectors may soon be considered by the U.S. Senate as part of an annual defense policy bill, senators and aides said on Tuesday.
The sanctions legislation, which has not yet been unveiled, comes during a crowded calendar as the Senate races to deal with deficit reduction, the defense bill and other pressing issues by the end of the year.
The package would build on current U.S. sanctions, passed almost a year ago, that have slashed Iran's oil revenues. The goal is to pressure Tehran to stop efforts to enrich uranium to levels that could be used in weapons.
Tehran has said its nuclear program is strictly for civilian purposes.
Democratic Senator Robert Menendez and Republican Mark Kirk have crafted new sanctions that would punish foreign banks that handle transactions for a broad sector of industries, including shipping, ports, ship building and more types of energy.
"Our significant effort right now is in pursuing areas of the economy that can lead to proliferation - energy, shipping, to mention a few," Menendez said in a brief hallway interview.
U.S. persons and companies have long been barred from doing business with Iranian entities. These new sanctions apply to foreign banks, threatening to ban them from the U.S. financial system unless they cut their dealings with Iran.
Senator Carl Levin, the Democratic chairman of the Armed Services Committee, said he was reviewing a draft version of the sanctions and was amenable to the measures being added to the defense bill.
"It's fine with me," Levin said. "Going in, I favor strengthening any way we can the sanctions against Iran."
The package seeks to ban financial transactions with any person or organization blacklisted for their association with the Iranian government, as well as sales of metallurgical coal and precious metals, a congressional aide said, speaking on condition of anonymity.
The sanctions would end "Turkey's game of gold for natural gas," a senior Senate aide said, referring to reports that Turkey has been paying for natural gas with gold due to sanctions rules.
The legislation "would bring economic sanctions on Iran near de facto trade embargo levels with the hope of speeding up the date by which Iran's economy will collapse," the aide said.
The legislation will also impose new bans on insurance and re-insurance for shipments of a broader range of goods, aides said.
http://www.reuters.com/article/2012/11/28/usa-iran-sanctions-idUSL1E8MS1SI20121128
New U.S. Sanctions To End "Turkey's Game Of Gold For Natural Gas"
Nov. 28, 2012
Currency wars are set to intensify as the US Senate is considering new sanctions against Iran that would prevent Iran getting paid for its natural resource exports in gold bullion.
The new sanctions aimed at reducing global trade with Iran in the energy, shipping and precious metals sectors may soon be considered by the U.S. Senate as part of an annual defense policy bill, senators and aides said on Tuesday, according to Reuters.
The sanctions would end "Turkey's game of gold for natural gas," Reuters reported a senior Senate aide as saying, referring to reports that Turkey has been paying for natural gas with gold due to sanctions rules.
The legislation "would bring economic sanctions on Iran near de facto trade embargo levels with the hope of speeding up the date by which Iran's economy will collapse," the aide said.
Last week Turkish Deputy Prime Minister Ali Babacan has revealed a critical detail about a widely discussed Turkey-Iran gold trade boom, disclosing that the Islamic republic was exporting gas to Turkey in exchange for payment in gold bullion.
It is also reported that Iranians are buying Turkish gold with the Turkish Lira, which is deposited into their bank accounts in exchange for Turkey’s natural gas purchases, the deputy prime minister said at midnight Nov. 22 during a parliamentary session.
Iran cannot transfer monetary payments to Iran in U.S. dollars due to U.S sanctions against the country’s alleged nuclear weapons program.
Iran has been forced to shun the international financial system and the petrodollar as means of payment and turn to the international gold market to ensure it gets paid for its natural resources in order to prevent absolute economic collapse.
The law of unintended consequences may apply here and should the Iranian currency and economy collapse there is likely to be a war with Israel and turbulence in the Middle East akin to, if not worse, than that seen in the 1970’s.
http://www.goldcore.com/goldcore_blog/new-us-sanctions-end-turkeys-game-gold-natural-gas
Integrity of Internet Is Crux of Global Conference
By ERIC PFANNER
November 27, 2012
PARIS — A commercial and ideological clash is set for next week, when representatives of more than 190 governments, along with telecommunications companies and Internet groups, gather in Dubai for a once-in-a-generation meeting.
The subject: Control of the Internet, politically and commercially.
The stated purpose of the World Conference on International Telecommunications is to update a global treaty on technical standards needed to, say, connect a telephone call from Tokyo to Timbuktu. The previous conference took place in 1988, when the Internet was in its infancy and telecommunications remained a highly regulated, mostly analog-technology business.
Now the Internet is the backbone for worldwide communications and commerce. Critics of the International Telecommunication Union, the agency of the United Nations that is organizing the meeting, see a dark agenda in the meeting. The blogosphere has been raging over supposed plans led by Russia to snatch control of the Internet and hand it to the U.N. agency.
That seems unlikely. Any such move would require an international consensus, and opposition is widespread.
Terry D. Kramer, the former Vodafone executive who is the United States ambassador to the conference, has vowed to veto any change in how the Internet is overseen.
Analysts say the real business of the conference is business. “The far bigger issue — largely obscured by this discussion — are proposals that are more likely to succeed that envision changing the way we pay for Internet services,” Michael Geist, an Internet law professor at the University of Ottawa, said by e-mail.
Hamadoun Touré, secretary general of the I.T.U., has repeatedly said that the U.N. group has no desire to take over the Internet or to stifle its growth. On the contrary, he says, one of the main objectives of the conference is to spread Internet access to more of the four and a half billion people around the world who still do not use it.
And yet, groups as diverse as Google, the Internet Society, the International Trade Union Confederation and Greenpeace warn that the discussions could set a bad precedent, encouraging governments to step up censorship or take other actions that would threaten the integrity of the Internet.
“This is a very important moment in the history of the Internet, because this conference may introduce practices that are inimical to its continued growth and openness,” Vinton G. Cerf, vice president and chief Internet evangelist at Google, said in a conference call.
Google set up a Web site last week, “Take Action,” encouraging visitors to sign a petition for a “free and open Internet.” The campaign is modeled on the successful drive last winter to defeat legislative proposals to crack down on Internet piracy in the United States.
More energy is expected to be spent on how companies make money off the Internet. In one submission to the conference, the European Telecommunications Network Operators’ Association, a lobbying group based in Brussels that represents companies like France Télécom, Deutsche Telekom and Telecom Italia, proposed that network operators be permitted to assess charges for content providers like Internet video companies that use a lot of bandwidth.
Analysts say the proposal is an acknowledgment by European telecommunications companies that they cannot hope to provide digital content. “The telecoms realize that they have lost the battle,” said Paul Budde, an independent telecommunications analyst in Australia. “They are saying, ‘We can’t beat the Googles and the Facebooks, so let’s try to charge them.’ ”
The European lobbying group says that without the new fees, there will be no money to invest in network upgrades needed to deal with a surge in traffic. Regulators have required European telecommunications operators to open their networks to rivals, and the market for broadband is fiercely competitive, with rock-bottom prices.
In the United States, by contrast, most telecommunications companies have been permitted to maintain local monopolies — or duopolies, with cable companies — in broadband, keeping prices higher. And American regulators have ordered broadband providers to give equal priority to all Internet traffic. Such “network neutrality” is incompatible with charging content providers for moving their bits of data.
Analysts say this may explain why American telecommunications companies have not joined the European call for a new business model. “Models that try to force payment terms between nations and telecom operators run a huge risk of cutting off traffic,” Mr. Kramer said in an interview. “Liberalized markets are the only way to expand the success of the Internet.”
People who have been briefed on the conference submissions say that not a single European government delegation has endorsed the telecommunications operators’ proposal, and the European Parliament has passed a resolution denouncing it. Only governments, not private groups or companies, can put items on the meeting agenda.
While many documents prepared for the conference remain secret, several people who have seen submissions say there is broad support for Internet connection fees in French-speaking Africa and among Arab nations — countries in which many telecommunications companies are still owned or heavily regulated by governments.
Much of the attention before the 12-day conference has focused on a proposal from Russia that would effectively remove control of the Internet’s infrastructure from a collection of decentralized and apolitical organizations, mostly based in the United States. “Member states,” Russia proposed, “shall have equal rights to manage the Internet, including in regard to the allotment, assignment and reclamation of Internet numbering, naming, addressing and identification resources.”
Those functions are performed by the Internet Corporation for Assigned Names and Numbers, a private organization with an international board that operates under contract with the United States government.
The Russian proposal was widely interpreted as a call to legitimize domestic censorship of the Internet. Yet analysts note that governments inclined to filter the Web, like China and Iran, have not waited for consensus in an international meeting to do so.
http://www.nytimes.com/2012/11/28/technology/dark-warnings-about-future-of-internet-access.html?_r=0
European banks urge one-year delay for Basel III rules
Nov 24, 2012, 9:15 AM EST
GUBBIO, Italy (Reuters) - European banks have asked the European Commission to postpone the introduction of tougher global bank capital rules by a year to 2014 after U.S. regulators told lenders they did not expect the new regulations to take effect in 2013.
The tougher rules, known as Basel III, are the world's regulatory response to the 2007-09 financial crisis and would force banks to triple the amount of basic capital they hold in a bid to avoid future taxpayer bailouts.
The European Banking Federation sent a letter on November 21 to EU Internal Market Commissioner Michel Barnier, formally requesting a delay on the grounds that EU banks would be at a competitive disadvantage if they introduced the new rules before their U.S. counterparts.
"We are now very troubled over the possible repercussions that the most recent statement from the US Authorities may have for the international competitiveness of Europe's banks," the letter, made available to Reuters on Saturday, said.
It said EU banks were facing sweeping regulatory changes including new rules on capital requirements and liquidity buffers, and the creation of a EU supervisory authority.
"All the while, our US competitors will not have matching obligations imposed on them in parallel, or in a foreseeable future," it said, asking for the introduction of the new rules to be delayed to January1, 2014.
A spokesman for Barnier said the EU would seek a coordinated stance with the United States.
"We will wrap up negotiations in the coming weeks between countries and parliament (on Basel III) and Michel Barnier will seek clarity from the U.S. and work for a coordinated U.S.-EU approach. Basel 3 norms are important for sound and competitive banks in Europe."
The Basel III rules are meant to be phased in from January 2013 but U.S. regulators cast doubt on the timeframe due to a flood of industry comments on the proposals.
"Basel III must be postponed, full stop" said the head of Italy's banking association, Giuseppe Mussari, at a conference in the central Italian town of Gubbio.
"Clearly there is no worldwide agreement, so we wouldn't be starting on a level playing field."
(Reporting By Giselda Vagnoni, additional reporting by John O'Donnell in Brussels, writing by Silvia Aloisi, editing by William Hardy)
http://finance.yahoo.com/news/european-banks-urge-one-delay-112946241.html
New Silver Trading Platform Planned In Hong Kong
Tuesday November 20, 2012
by Michelle Smith2 - Exclusive to Silver Investing News3
The Chinese Gold & Silver Exchange Society (CGSE) foresees a bright future for silver in Hong Kong and is making moves to play a bigger role in that future. Last week, the CGSE hosted its first Annual CGSE International (Silver) Conference, at which President Haywood Cheung spoke about the Loco Hong Kong Silver Contract, a new trading platform that the society plans to launch in the first quarter of 2013.
The CGSE is a metals market participant whose history dates back to 1910. A Reuters article5 notes that in addition to playing a major role in Hong Kong’s gold6 market, the society “currently offers electronic trading for Loco London gold and silver, which are denominated in U.S. dollars, and the Renminbi kilobar gold.”
Next year, the CGSE plans to expand its offerings. With the forthcoming Loco Hong Kong platform, the CGSE hopes to bolster the city’s precious metals trading hub status, reported7 China Daily.
Contracts will be denominated in Hong Kong dollars and will be required to be at least 10 kilograms in size. The CGSE plans to set up a subsidiary to act as a clearing house, China Daily also revealed. The silver will be vaulted at Hong Kong International Airport and physical delivery will be subject to a 30-kilogram minimum.
Within the first six months following the launch, the CGSE projects that 2 to 3 million ounces of silver per day will be traded on the platform.
Furthermore, Cheung recently told Reuters that the CGSE is in talks with Chinese officials to set up a bonded warehouse for gold and silver in Qianhai, a new financial zone in Southern China.
Up to 25 percent of the CGSE’s trade came from the mainland in 2011, and this figure is expected to rise to between 25 percent and 30 percent this year, Cheung said.
It would be a notable accomplishment for the CGSE to be allowed to pursue its warehouse plans as it would mark a shift in Chinese policy. The CGSE is registered in Hong Kong and as a foreign exchange it is not currently eligible to maintain mainland storage facilities. However, since China is a top producer and consumer of silver, the CGSE could see substantial benefits if it overcomes this barrier.
The CGSE’s plans for the Loco Hong Kong platform and Chinese storage are part of a growing trend whereby Asian players seem to be diligently aiming to shift the center of gravity in the metals markets away from the west.
In May, the Shanghai Futures Exchange began trading8 silver contracts. Its goal in doing so was to provide Chinese market participants with direct market access and to give them the capability of hedging domestically. Regulators also expressed hopes that the silver futures contracts would control price volatility and provide a pricing mechanism.
In June, Hong Kong Exchanges and Clearing (HKEx) outbid9 all competitors who were in the running to buy the London Metal Exchange (LME). The LME also wants to include China in its warehouse network and this deal is seen as an important step in furthering that goal.
After LME shareholders voted in favor of the deal, HKEx CEO Charles Li said10, “I’d like to thank the shareholders of the LME for their support in welcoming this acquisition. Our shared vision for global leadership in the commodities market will allow us to respectfully build on the proud heritage of this unique institution. HKEx’s ability to help the LME grow its business in Asia and beyond provides significant opportunities for both parties and will deliver value for all of our stakeholders.”
http://silverinvestingnews.com/14634/new-silver-trading-platform-hong-kong-chinese-gold-silver-exchange-london-metal-exchange-hkex-loco-shanghai-futures-exchange.html
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Why Is Iran Banning Gold Exports?
Nov. 2, 2012
Agency'S Iran News Service Chief, Trend News Agency, Baku, Azerbaijan
Iran has prohibited exports of gold bullion, golden coins and gold ornament from the country, without the license issued by country's Central Bank.
With regarding this fact that Iranians' yearly gold demand is 300 tons, but only 2 to 2.5 tons of gold is extracted from 12 domestic active mines, according to official statistics published by Geological Survey Organization of Iran, the total volume of country's 15 gold mines' reserves roughly reaches to 320 tones equals to only Iran's one year gold demands, the gold storage is vital for Iran.
However, it is just a part of story, showing the reliance of gold demands in Iran on foreign resources. The main reasons of banning gold export are foreign exchanges rate's fluctuations in Iran, difference about triple time in value between official USD rate and it's price in Iran's open market, also sanctioned Iranian government's plan to replace gold with USD in foreign trades.
Iran has banned exporting 52 items of commodity in late October, including gold, silver and platinum. USD rate in Iran has risen from 18, 500 rials to 32,000 rials since July 2012.
Forex market in Iran
Iran's national currency, rial, has lost 80 percent of its value during last months, but inflation rate, which is around 25 percent, has not risen as much as rial drop in value. Naturally, in this situation, most Iranian traders want to use the opportunity to export more commodities and gain huge benefits.
For instance, one liter of gasoline is sold in Turkey at $2.5, but in Iran is sold at 7000 rials (23 cents). Even Iranians pay for gasoline once they use up a 50-liter monthly allowance to purchase fuel at 4,000 rials (14 cents). This is a strong motivation for smugglers. For legal exporters, the huge benefits story is same. Considering all this, Iranian government fears from facing boosting exports of necessary items for people such as meat, dairy, oil, rice, etc. and shortage of vital commodities in the country.
Huge Difference Between Official, Non-official USD Rate
A dollar price officially is 12, 260 rials, while that is sold at 32,000 rials in open market and is offered restrictedly at 26,000 rials in Forex Trade Center, established last month by government.
Iran vitally needs gold both as paying tool for imports versus USD and keeping domestic gold market established. Then, the government is keen to import gold and it has provided facilities for gold importers.
However, some gold importers actually attempt to get dollars from government at official price to import gold and after importing the gold, they re-export it, and sell the gained dollars in Iran's open market, where the price for a dollar sometimes rises up to 36,000 rials.
West sanctions on Iran's banking system
Iran, which has been in trouble to get or pay USD and Euro in foreign trade circles because of western sanctions on the banking system, prefers to replace gold with USD as payment tool in foreign trades. Iran has boosted gold bullion import from Turkey, reportedly increased fluctuating between $1.2 billion and about $1.8 billion each month since April.
It is not clear how big are the gold reserves of Iran's Central Bank, but regarding problems to get crude oil revenues through USD and decreasing forex reserves in the country, the vital increase of gold reserves of Central Bank is being done to avoid further falling of national currency.
Distributed by MCT Information Services
http://www.hispanicbusiness.com/2012/11/2/why_is_iran_banning_gold_exports.htm
Older article but worth reading:
41 Facts about Central Banks no longer taught in US schools
by The Prudent Investor
Nov. 15, 2010
Today, most American students don't even understand what a central bank is, much less that the battle over central banks is one of the most important themes in U.S. history.
The truth is that our nation was birthed in the midst of a conflict over taxation and the control of our money. Central banking has played a key role in nearly all of the wars that America has fought. Presidents that resisted the central bankers were shot, while others shamefully caved in to their demands. Our current central bank is called the Federal Reserve and it is about as "federal" as Federal Express is. The truth is that it is a privately-owned financial institution that is designed to ensnare the U.S. government in an endlessly expanding spiral of debt from which there is no escape. The Federal Reserve caused the Great Depression and the Federal Reserve is at the core of our current economic crisis. None of these things is taught to students in America's schools today.
In 2010, young Americans are taught a sanitized version of American history that doesn't even make any sense. As with so many things, if you want to know what really happened just follow the money.
The following are 41 facts about the history of central banks in the United States that every American should know....
1. As a result of the Seven Years War with France, King George III of England was deeply in debt to the central bankers of England.
2. In an attempt to raise revenue, King George tried to heavily tax the colonies in America.
3. In 1763, Benjamin Franklin was asked by the Bank of England why the colonies were so prosperous, and this was his response....
"That is simple. In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one."
4. The Currency Act of 1764 ordered the American Colonists to stop printing their own money. Colonial script (the money the colonists were using at the time) was to be exchanged at a two-to-one ratio for "notes" from the Bank of England.
5. Later, in his autobiography, Benjamin Franklin explained the impact that this currency change had on the colonies....
"In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed."
6. In fact, Benjamin Franklin stated unequivocally in his autobiography that the power to issue currency was the primary reason for the Revolutionary War....
"The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the prime reason for the Revolutionary War."
7. Gouverneur Morris, one of the authors of the U.S. Constitution, solemnly warned us in 1787 that we must not allow the bankers to enslave us....
"The rich will strive to establish their dominion and enslave the rest. They always did. They always will...
They will have the same effect here as elsewhere, if we do not, by (the power of) government, keep them in their proper spheres."
8. Unfortunately, those warning us about the dangers of a central bank did not prevail. After an aborted attempt to establish a central bank in the 1780s, the First Bank of the United States was established in 1791. Alexander Hamilton (who had close ties to the Rothschild banking family) cut a deal under which he would support the move of the nation's capital to Washington D.C. in exchange for southern support for the establishment of a central bank.
9. George Washington signed the bill creating the First Bank of the United States on April 25, 1791. It was given a 20 year charter.
10. In the first five years of the First Bank of the United States, the U.S. government borrowed 8.2 million dollars and prices rose by 72 percent.
11. The opponents of central banking were not pleased. In 1798, Thomas Jefferson said the following...."I wish it were possible to obtain a single amendment to our Constitution - taking from the federal government their power of borrowing."
12. In 1811, the charter of the First Bank of the United States was not renewed.
13. One year later, the War of 1812 erupted. The British and the Americans were at war once again.
14. In 1814, the British captured and burned Washington D.C., but the Americans subsequently experienced key victories at New York and at New Orleans.
15. The Treaty of Ghent, officially ending the war, was ratified by the U.S. Senate on February 16th, 1815 and was ratified by the British on February 18th, 1815.
16. In 1816, another central bank was created. The Second Bank of the United States was established and was given a 20 year charter.
17. Andrew Jackson, who became president in 1828, was determined to end the power of the central bankers over the United States.
18. In fact, in 1832, Andrew Jackson's re-election slogan was "JACKSON and NO BANK!"
19. On July 10th, 1832 President Jackson said the following about the danger of a central bank....
"It is not our own citizens only who are to receive the bounty of our government. More than eight millions of the stock of this bank are held by foreigners...is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? ...Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence... would be more formidable and dangerous than a military power of the enemy."
20. In 1835, President Jackson completely paid off the U.S. national debt. He is the only U.S. president that has ever been able to accomplish this.
21. President Jackson vetoed the attempt to renew the charter of the Second Bank of the United States in 1836.
22. Richard Lawrence attempted to shoot Andrew Jackson, but he survived. It is alleged that Lawrence said that "wealthy people in Europe" had put him up to it.
23. The Civil War was another opportunity for the central bankers of Europe to get their hooks into America. In fact, it is claimed that Abraham Lincoln actually contacted Rothschild banking interests in Europe in an attempt to finance the war effort. Reportedly, the Rothschilds were demanding very high interest rates and Lincoln balked at paying them.
24. Instead, Lincoln pushed through the Legal Tender Act of 1862. Under that act, the U.S. government issued $449,338,902 of debt-free money.
25. This debt-free money was known as "Greenbacks" because of the green ink that was used.
26. The central bankers of Europe were not pleased. The following quote appeared in the London Times in 1865....
"If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedent in the history of the world. The brains, and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe."
27. Abraham Lincoln was shot dead by John Wilkes Booth on April 14th, 1865.
28. After the Civil War, all money in the United States was created by bankers buying U.S. government bonds in exchange for bank notes.
29. James A. Garfield became president in 1881, and he was a staunch opponent of the banking powers. In 1881 he said the following....
"Whoever controls the volume of money in our country is absolute master of all industry and commerce...and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."
30. President Garfield was shot about two weeks later by Charles J. Guiteau on July 2nd, 1881. He died from medical complications on September 19th, 1881.
31. In 1906, the U.S. stock market was setting all kinds of records. However, in March 1907 the U.S. stock market absolutely crashed. It is alleged that elite New York bankers were responsible.
32. In addition, in 1907 J.P. Morgan circulated rumors that a major New York bank had gone bankrupt. This caused a massive run on the banks. In turn, the banks started recalling all of their loans. The panic of 1907 resulted in a congressional investigation that ended up concluding that a central bank was "necessary" so that these kinds of panics would never happen again.
33. It took a few years, but the international bankers finally got their central bank in 1913.
34. Congress voted on the Federal Reserve Act on December 22nd, 1913 between the hours of 1:30 AM and 4:30 AM.
35. A significant portion of Congress was either sleeping at the time or was already at home with their families celebrating the holidays.
36. The president that signed the law that created the Federal Reserve, Woodrow Wilson, later sounded like he very much regretted the decision when he wrote the following....
"A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men ... [W]e have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world--no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men."
37. Between 1921 and 1929 the Federal Reserve increased the U.S. money supply by 62 percent. This was the time known as "The Roaring 20s".
38. In addition, highly leveraged "margin loans" became very common during this time period.
39. In October 1929, the New York bankers started calling in these margin loans on a massive scale. This created the initial crash that launched the Great Depression.
40. Rather than expand the money supply in response to this crisis, the Federal Reserve really tightened it up.
41. In fact, it was reported the the U.S. money supply contracted by eight billion dollars between 1929 and 1933. That was an extraordinary amount of money in those days. Over one-third of all U.S. banks went bankrupt. The New York bankers were able to buy up other banks and all kinds of other assets for pennies on the dollar.
But are American students being taught any of this today?
Of course not.
http://www.24hgold.com/english/news-gold-silver-41-facts-about-central-banks-no-longer-taught-in-us-schools.aspx?article=3210615714G10020&redirect=false&contributor=The+Prudent+Investor
Basel III and Gold - Gold to Tier I on 1 Jan 2013
by Charleston Voice - Knology
Published : November 19th, 2012
In the never-ending and important debate over whether gold is money, there is a voice that has recently spoken, and you might want to hear what it said. Many voices worth listening to have said gold has no utility.
For example, Warren Buffett is famous for saying that we dig gold out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility, he says. Anyone watching from Mars would be scratching their head.
But there is another voice, much more important than Buffett, that has, in the last 6 months, uttered the opposing view. It's not the voice of a newsletter or any analyst or expert, or any one person, although many agree with this voice, including me. It is actually the voice of a group, a club, that has been described as the most exclusive, secretive and powerful club in the world. The New York Times has called them "the secretive panel that establishes global banking rules" - the central banks' central bank.
They meet four times a year in a little town called Basel in Switzerland. Edward Jay Epstein did an article on them for Harper's Magazine back in 1983 where he describes their shyness about publicity and the sophistication of their clubhouse. They have a nuclear bomb shelter in the basement, an entire hospital, as well as some 20 miles of subterranean archives. They make the Fed look like a lemonade stand.
It's an important voice. When did it speak and what did it say? Well, they have spoken, with comprehensive new rule sets, "frameworks" they call them, only three times since their inception in 1974. In 1988, they issued Basel I and in 2004 it was Basel II. And now in 2012, they are issuing Basel III.
They are men of few words. They issue no binding legislation, but in the banking world, what they say goes. Both Basel I and II took the then fashionable view of what money is - government bonds, mortgage backed securities, cash, etc.
Gold was included in what they allow as capital, but as a "tier 3 asset" (not real money), and thus was only allowed to be reserves for loans at just 50% of its market value, much like, say an art collection would be. Since 2004, a lot has changed with all that. Mortgage-anything has become ultra-toxic, major countries are teetering on bond defaults, and the race to debase cash is raging. These developments have moved the Basel Committee to make some changes, but I'll focus on just two here.
The most significant change is moving gold from its tier 3 status to tier 1 capital as 100% loan-backing reserves, the same as cash and bonds. For the first time in 42 years, gold is being brought back into our financial system as money. All the world's banks are now storing this metal, not as some 3rd rate "asset", but as all the world's working capital - its money. So it's not just any voice, it is the ultimate voice on what is money that has spoken. Gold was removed from our system by Nixon in 1971, when he took us off the gold standard by disallowing foreign governments to exchange their dollar reserves for US-held gold.
Read the rest of the article on Seeking Alpha here
http://www.24hgold.com/english/news-gold-silver-basel-iii-and-gold--gold-to-tier-i-on-1-jan-2013.aspx?article=4131646938G10020&redirect=false&contributor=Charleston+Voice
Thank you Doubloon.
What company did the ground IP survey 2 years ago? Was it Abititi? What is their explanation for the drill results? Does the company back their geological survey?
The Forces That Will Push Silver Over $100
Nov 19, 2012 - 06:29 AM
By: Steve_St_Angelo
http://www.marketoracle.co.uk/Article37608.html
How Fiscally FUBAR Will Your State Be?
Submitted by Tyler Durden
11/15/2012
http://www.zerohedge.com/news/2012-11-15/how-fiscally-fubar-will-your-state-be
Farewell to Congress by Ron Paul
Thursday, November 15, 2012
(special thanks to basserdan)
Ron Paul
This may well be the last time I speak on the House Floor. At the end of the year I'll leave Congress after 23 years in office over a 36-year period. My goals in 1976 were the same as they are today: promote peace and prosperity by a strict adherence to the principles of individual liberty.
It was my opinion, that the course the U.S. embarked on in the latter part of the 20th Century would bring us a major financial crisis and engulf us in a foreign policy that would overextend us and undermine our national security.
To achieve the goals I sought, government would have had to shrink in size and scope, reduce spending, change the monetary system, and reject the unsustainable costs of policing the world and expanding the American Empire.
The problems seemed to be overwhelming and impossible to solve, yet from my view point, just following the constraints placed on the federal government by the Constitution would have been a good place to start.
How Much Did I Accomplish?
In many ways, according to conventional wisdom, my off-and-on career in Congress, from 1976 to 2012, accomplished very little. No named legislation, no named federal buildings or highways – thank goodness. In spite of my efforts, the government has grown exponentially, taxes remain excessive, and the prolific increase of incomprehensible regulations continues. Wars are constant and pursued without Congressional declaration, deficits rise to the sky, poverty is rampant and dependency on the federal government is now worse than any time in our history.
All this with minimal concerns for the deficits and unfunded liabilities that common sense tells us cannot go on much longer. A grand, but never mentioned, bipartisan agreement allows for the well-kept secret that keeps the spending going. One side doesn't give up one penny on military spending, the other side doesn't give up one penny on welfare spending, while both sides support the bailouts and subsidies for the banking and corporate elite. And the spending continues as the economy weakens and the downward spiral continues. As the government continues fiddling around, our liberties and our wealth burn in the flames of a foreign policy that makes us less safe.
The major stumbling block to real change in Washington is the total resistance to admitting that the country is broke. This has made compromising, just to agree to increase spending, inevitable since neither side has any intention of cutting spending.
The country and the Congress will remain divisive since there's no "loot left to divvy up."
Without this recognition the spenders in Washington will continue the march toward a fiscal cliff much bigger than the one anticipated this coming January.
I have thought a lot about why those of us who believe in liberty, as a solution, have done so poorly in convincing others of its benefits. If liberty is what we claim it is- the principle that protects all personal, social and economic decisions necessary for maximum prosperity and the best chance for peace- it should be an easy sell. Yet, history has shown that the masses have been quite receptive to the promises of authoritarians which are rarely if ever fulfilled.
Authoritarianism vs. Liberty
If authoritarianism leads to poverty and war and less freedom for all individuals and is controlled by rich special interests, the people should be begging for liberty. There certainly was a strong enough sentiment for more freedom at the time of our founding that motivated those who were willing to fight in the revolution against the powerful British government.
During my time in Congress the appetite for liberty has been quite weak; the understanding of its significance negligible. Yet the good news is that compared to 1976 when I first came to Congress, the desire for more freedom and less government in 2012 is much greater and growing, especially in grassroots America. Tens of thousands of teenagers and college age students are, with great enthusiasm, welcoming the message of liberty.
I have a few thoughts as to why the people of a country like ours, once the freest and most prosperous, allowed the conditions to deteriorate to the degree that they have.
Freedom, private property, and enforceable voluntary contracts, generate wealth. In our early history we were very much aware of this. But in the early part of the 20th century our politicians promoted the notion that the tax and monetary systems had to change if we were to involve ourselves in excessive domestic and military spending. That is why Congress gave us the Federal Reserve and the income tax. The majority of Americans and many government officials agreed that sacrificing some liberty was necessary to carry out what some claimed to be "progressive" ideas. Pure democracy became acceptable.
They failed to recognized that what they were doing was exactly opposite of what the colonists were seeking when they broke away from the British.
Some complain that my arguments makes no sense, since great wealth and the standard of living improved for many Americans over the last 100 years, even with these new policies.
But the damage to the market economy, and the currency, has been insidious and steady. It took a long time to consume our wealth, destroy the currency and undermine productivity and get our financial obligations to a point of no return. Confidence sometimes lasts longer than deserved. Most of our wealth today depends on debt.
The wealth that we enjoyed and seemed to be endless, allowed concern for the principle of a free society to be neglected. As long as most people believed the material abundance would last forever, worrying about protecting a competitive productive economy and individual liberty seemed unnecessary.
The Age of Redistribution
This neglect ushered in an age of redistribution of wealth by government kowtowing to any and all special interests, except for those who just wanted to left alone. That is why today money in politics far surpasses money currently going into research and development and productive entrepreneurial efforts.
The material benefits became more important than the understanding and promoting the principles of liberty and a free market. It is good that material abundance is a result of liberty but if materialism is all that we care about, problems are guaranteed.
The crisis arrived because the illusion that wealth and prosperity would last forever has ended. Since it was based on debt and a pretense that debt can be papered over by an out-of-control fiat monetary system, it was doomed to fail. We have ended up with a system that doesn't produce enough even to finance the debt and no fundamental understanding of why a free society is crucial to reversing these trends.
If this is not recognized, the recovery will linger for a long time. Bigger government, more spending, more debt, more poverty for the middle class, and a more intense scramble by the elite special interests will continue.
We Need an Intellectual Awakening
Without an intellectual awakening, the turning point will be driven by economic law. A dollar crisis will bring the current out-of-control system to its knees.
If it's not accepted that big government, fiat money, ignoring liberty, central economic planning, welfarism, and warfarism caused our crisis we can expect a continuous and dangerous march toward corporatism and even fascism with even more loss of our liberties. Prosperity for a large middle class though will become an abstract dream.
This continuous move is no different than what we have seen in how our financial crisis of 2008 was handled. Congress first directed, with bipartisan support, bailouts for the wealthy. Then it was the Federal Reserve with its endless quantitative easing. If at first it doesn't succeed try again; QE1, QE2, and QE3 and with no results we try QE indefinitely – that is until it too fails. There's a cost to all of this and let me assure you delaying the payment is no longer an option. The rules of the market will extract its pound of flesh and it won't be pretty.
The current crisis elicits a lot of pessimism. And the pessimism adds to less confidence in the future. The two feed on themselves, making our situation worse.
If the underlying cause of the crisis is not understood we cannot solve our problems. The issues of warfare, welfare, deficits, inflationism, corporatism, bailouts and authoritarianism cannot be ignored. By only expanding these policies we cannot expect good results.
Everyone claims support for freedom. But too often it's for one's own freedom and not for others. Too many believe that there must be limits on freedom. They argue that freedom must be directed and managed to achieve fairness and equality thus making it acceptable to curtail, through force, certain liberties.
Some decide what and whose freedoms are to be limited. These are the politicians whose goal in life is power. Their success depends on gaining support from special interests.
No More 'isms'
The great news is the answer is not to be found in more "isms." The answers are to be found in more liberty which cost so much less. Under these circumstances spending goes down, wealth production goes up, and the quality of life improves.
Just this recognition – especially if we move in this direction – increases optimism which in itself is beneficial. The follow through with sound policies are required which must be understood and supported by the people.
But there is good evidence that the generation coming of age at the present time is supportive of moving in the direction of more liberty and self-reliance. The more this change in direction and the solutions become known, the quicker will be the return of optimism.
Our job, for those of us who believe that a different system than the one that we have had for the last 100 years, has driven us to this unsustainable crisis, is to be more convincing that there is a wonderful, uncomplicated, and moral system that provides the answers. We had a taste of it in our early history. We need not give up on the notion of advancing this cause.
It worked, but we allowed our leaders to concentrate on the material abundance that freedom generates, while ignoring freedom itself. Now we have neither, but the door is open, out of necessity, for an answer. The answer available is based on the Constitution, individual liberty and prohibiting the use of government force to provide privileges and benefits to all special interests.
After over 100 years we face a society quite different from the one that was intended by the Founders. In many ways their efforts to protect future generations with the Constitution from this danger has failed. Skeptics, at the time the Constitution was written in 1787, warned us of today's possible outcome. The insidious nature of the erosion of our liberties and the reassurance our great abundance gave us, allowed the process to evolve into the dangerous period in which we now live.
Dependency on Government Largesse
Today we face a dependency on government largesse for almost every need. Our liberties are restricted and government operates outside the rule of law, protecting and rewarding those who buy or coerce government into satisfying their demands. Here are a few examples:
• Undeclared wars are commonplace.
• Welfare for the rich and poor is considered an entitlement.
• The economy is overregulated, overtaxed and grossly distorted by a deeply flawed monetary system.
• Debt is growing exponentially.
• The Patriot Act and FISA legislation passed without much debate have resulted in a steady erosion of our 4th Amendment rights.
• Tragically our government engages in preemptive war, otherwise known as aggression, with no complaints from the American people.
• The drone warfare we are pursuing worldwide is destined to end badly for us as the hatred builds for innocent lives lost and the international laws flaunted. Once we are financially weakened and militarily challenged, there will be a lot resentment thrown our way.
• It's now the law of the land that the military can arrest American citizens, hold them indefinitely, without charges or a trial.
• Rampant hostility toward free trade is supported by a large number in Washington.
• Supporters of sanctions, currency manipulation and WTO trade retaliation, call the true free traders "isolationists."
• Sanctions are used to punish countries that don't follow our orders.
• Bailouts and guarantees for all kinds of misbehavior are routine.
• Central economic planning through monetary policy, regulations and legislative mandates has been an acceptable policy.
Questions
Excessive government has created such a mess it prompts many questions:
• Why are sick people who use medical marijuana put in prison?
• Why does the federal government restrict the drinking of raw milk?
• Why can't Americans manufacturer rope and other products from hemp?
• Why are Americans not allowed to use gold and silver as legal tender as mandated by the Constitution?
• Why is Germany concerned enough to consider repatriating their gold held by the FED for her in New York? Is it that the trust in the U.S. and dollar supremacy beginning to wane?
• Why do our political leaders believe it's unnecessary to thoroughly audit our own gold?
• Why can't Americans decide which type of light bulbs they can buy?
• Why is the TSA permitted to abuse the rights of any American traveling by air?
• Why should there be mandatory sentences – even up to life for crimes without victims – as our drug laws require?
• Why have we allowed the federal government to regulate commodes in our homes?
• Why is it political suicide for anyone to criticize AIPAC ?
• Why haven't we given up on the drug war since it's an obvious failure and violates the people's rights? Has nobody noticed that the authorities can't even keep drugs out of the prisons? How can making our entire society a prison solve the problem?
• Why do we sacrifice so much getting needlessly involved in border disputes and civil strife around the world and ignore the root cause of the most deadly border in the world-the one between Mexico and the US?
• Why does Congress willingly give up its prerogatives to the Executive Branch?
• Why does changing the party in power never change policy? Could it be that the views of both parties are essentially the same?
• Why did the big banks, the large corporations, and foreign banks and foreign central banks get bailed out in 2008 and the middle class lost their jobs and their homes?
• Why do so many in the government and the federal officials believe that creating money out of thin air creates wealth?
• Why do so many accept the deeply flawed principle that government bureaucrats and politicians can protect us from ourselves without totally destroying the principle of liberty?
• Why can't people understand that war always destroys wealth and liberty?
• Why is there so little concern for the Executive Order that gives the President authority to establish a "kill list," including American citizens, of those targeted for assassination?
• Why is patriotism thought to be blind loyalty to the government and the politicians who run it, rather than loyalty to the principles of liberty and support for the people? Real patriotism is a willingness to challenge the government when it's wrong.
• Why is it is claimed that if people won't or can't take care of their own needs, that people in government can do it for them?
• Why did we ever give the government a safe haven for initiating violence against the people?
• Why do some members defend free markets, but not civil liberties?
• Why do some members defend civil liberties but not free markets? Aren't they the same?
• Why don't more defend both economic liberty and personal liberty?
• Why are there not more individuals who seek to intellectually influence others to bring about positive changes than those who seek power to force others to obey their commands?
• Why does the use of religion to support a social gospel and preemptive wars, both of which requires authoritarians to use violence, or the threat of violence, go unchallenged? Aggression and forced redistribution of wealth has nothing to do with the teachings of the world great religions.
• Why do we allow the government and the Federal Reserve to disseminate false information dealing with both economic and foreign policy?
• Why is democracy held in such high esteem when it's the enemy of the minority and makes all rights relative to the dictates of the majority?
• Why should anyone be surprised that Congress has no credibility, since there's such a disconnect between what politicians say and what they do?
• Is there any explanation for all the deception, the unhappiness, the fear of the future, the loss of confidence in our leaders, the distrust, the anger and frustration? Yes there is, and there's a way to reverse these attitudes. The negative perceptions are logical and a consequence of bad policies bringing about our problems. Identification of the problems and recognizing the cause allow the proper changes to come easy.
Trust Yourself, Not the Government
Too many people have for too long placed too much confidence and trust in government and not enough in themselves. Fortunately, many are now becoming aware of the seriousness of the gross mistakes of the past several decades. The blame is shared by both political parties. Many Americans now are demanding to hear the plain truth of things and want the demagoguing to stop. Without this first step, solutions are impossible.
Seeking the truth and finding the answers in liberty and self-reliance promotes the optimism necessary for restoring prosperity. The task is not that difficult if politics doesn't get in the way.
We have allowed ourselves to get into such a mess for various reasons.
Politicians deceive themselves as to how wealth is produced. Excessive confidence is placed in the judgment of politicians and bureaucrats. This replaces the confidence in a free society. Too many in high places of authority became convinced that only they, armed with arbitrary government power, can bring about fairness, while facilitating wealth production. This always proves to be a utopian dream and destroys wealth and liberty. It impoverishes the people and rewards the special interests who end up controlling both political parties.
It's no surprise then that much of what goes on in Washington is driven by aggressive partisanship and power seeking, with philosophic differences being minor.
Economic Ignorance
Economic ignorance is commonplace. Keynesianism continues to thrive, although today it is facing healthy and enthusiastic rebuttals. Believers in military Keynesianism and domestic Keynesianism continue to desperately promote their failed policies, as the economy languishes in a deep slumber.
Supporters of all government edicts use humanitarian arguments to justify them.
Humanitarian arguments are always used to justify government mandates related to the economy, monetary policy, foreign policy, and personal liberty. This is on purpose to make it more difficult to challenge. But, initiating violence for humanitarian reasons is still violence. Good intentions are no excuse and are just as harmful as when people use force with bad intentions. The results are always negative.
The immoral use of force is the source of man's political problems. Sadly, many religious groups, secular organizations, and psychopathic authoritarians endorse government initiated force to change the world. Even when the desired goals are well-intentioned – or especially when well-intentioned – the results are dismal. The good results sought never materialize. The new problems created require even more government force as a solution. The net result is institutionalizing government initiated violence and morally justifying it on humanitarian grounds.
This is the same fundamental reason our government uses force for invading other countries at will, central economic planning at home, and the regulation of personal liberty and habits of our citizens.
It is rather strange, that unless one has a criminal mind and no respect for other people and their property, no one claims it's permissible to go into one's neighbor's house and tell them how to behave, what they can eat, smoke and drink or how to spend their money.
Yet, rarely is it asked why it is morally acceptable that a stranger with a badge and a gun can do the same thing in the name of law and order. Any resistance is met with brute force, fines, taxes, arrests, and even imprisonment. This is done more frequently every day without a proper search warrant.
No Government Monopoly over Initiating Violence
Restraining aggressive behavior is one thing, but legalizing a government monopoly for initiating aggression can only lead to exhausting liberty associated with chaos, anger and the breakdown of civil society. Permitting such authority and expecting saintly behavior from the bureaucrats and the politicians is a pipe dream. We now have a standing army of armed bureaucrats in the TSA, CIA, FBI, Fish and Wildlife, FEMA, IRS, Corp of Engineers, etc. numbering over 100,000. Citizens are guilty until proven innocent in the unconstitutional administrative courts.
Government in a free society should have no authority to meddle in social activities or the economic transactions of individuals. Nor should government meddle in the affairs of other nations. All things peaceful, even when controversial, should be permitted.
We must reject the notion of prior restraint in economic activity just we do in the area of free speech and religious liberty. But even in these areas government is starting to use a backdoor approach of political correctness to regulate speech-a dangerous trend. Since 9/11 monitoring speech on the internet is now a problem since warrants are no longer required.
The Proliferation of Federal Crimes
The Constitution established four federal crimes. Today the experts can't even agree on how many federal crimes are now on the books – they number into the thousands. No one person can comprehend the enormity of the legal system – especially the tax code. Due to the ill-advised drug war and the endless federal expansion of the criminal code we have over 6 million people under correctional suspension, more than the Soviets ever had, and more than any other nation today, including China. I don't understand the complacency of the Congress and the willingness to continue their obsession with passing more Federal laws. Mandatory sentencing laws associated with drug laws have compounded our prison problems.
The federal register is now 75,000 pages long and the tax code has 72,000 pages, and expands every year. When will the people start shouting, "enough is enough," and demand Congress cease and desist.
Achieving Liberty
Liberty can only be achieved when government is denied the aggressive use of force. If one seeks liberty, a precise type of government is needed. To achieve it, more than lip service is required.
Two choices are available.
1. A government designed to protect liberty – a natural right – as its sole objective. The people are expected to care for themselves and reject the use of any force for interfering with another person's liberty. Government is given a strictly limited authority to enforce contracts, property ownership, settle disputes, and defend against foreign aggression. (bolded/colored for emphasis)
2. A government that pretends to protect liberty but is granted power to arbitrarily use force over the people and foreign nations. Though the grant of power many times is meant to be small and limited, it inevitably metastasizes into an omnipotent political cancer. This is the problem for which the world has suffered throughout the ages. Though meant to be limited it nevertheless is a 100% sacrifice of a principle that would-be-tyrants find irresistible. It is used vigorously – though incrementally and insidiously. Granting power to government officials always proves the adage that: "power corrupts." (emphasis mine)
Once government gets a limited concession for the use of force to mold people habits and plan the economy, it causes a steady move toward tyrannical government. Only a revolutionary spirit can reverse the process and deny to the government this arbitrary use of aggression. There's no in-between. Sacrificing a little liberty for imaginary safety always ends badly.
Today's mess is a result of Americans accepting option #2, even though the Founders attempted to give us Option #1.
The results are not good. As our liberties have been eroded our wealth has been consumed. The wealth we see today is based on debt and a foolish willingness on the part of foreigners to take our dollars for goods and services. They then loan them back to us to perpetuate our debt system. It's amazing that it has worked for this long but the impasse in Washington, in solving our problems indicate that many are starting to understand the seriousness of the world -wide debt crisis and the dangers we face. The longer this process continues the harsher the outcome will be.
The Financial Crisis Is a Moral Crisis
Many are now acknowledging that a financial crisis looms but few understand it's, in reality, a moral crisis. It's the moral crisis that has allowed our liberties to be undermined and permits the exponential growth of illegal government power. Without a clear understanding of the nature of the crisis it will be difficult to prevent a steady march toward tyranny and the poverty that will accompany it.
Ultimately, the people have to decide which form of government they want; option #1 or option #2. There is no other choice. Claiming there is a choice of a "little" tyranny is like describing pregnancy as a "touch of pregnancy." It is a myth to believe that a mixture of free markets and government central economic planning is a worthy compromise. What we see today is a result of that type of thinking. And the results speak for themselves.
A Culture of Violence
America now suffers from a culture of violence. It's easy to reject the initiation of violence against one's neighbor but it's ironic that the people arbitrarily and freely anoint government officials with monopoly power to initiate violence against the American people – practically at will.
Because it's the government that initiates force, most people accept it as being legitimate. Those who exert the force have no sense of guilt. It is believed by too many that governments are morally justified in initiating force supposedly to "do good." They incorrectly believe that this authority has come from the "consent of the people." The minority, or victims of government violence never consented to suffer the abuse of government mandates, even when dictated by the majority. Victims of TSA excesses never consented to this abuse.
This attitude has given us a policy of initiating war to "do good," as well. It is claimed that war, to prevent war for noble purposes, is justified. This is similar to what we were once told that: "destroying a village to save a village" was justified. It was said by a US Secretary of State that the loss of 500,000 Iraqis, mostly children, in the 1990s, as a result of American bombs and sanctions, was "worth it" to achieve the "good" we brought to the Iraqi people. And look at the mess that Iraq is in today.
Government use of force to mold social and economic behavior at home and abroad has justified individuals using force on their own terms. The fact that violence by government is seen as morally justified, is the reason why violence will increase when the big financial crisis hits and becomes a political crisis as well.
First, we recognize that individuals shouldn't initiate violence, then we give the authority to government. Eventually, the immoral use of government violence, when things goes badly, will be used to justify an individual's "right" to do the same thing. Neither the government nor individuals have the moral right to initiate violence against another yet we are moving toward the day when both will claim this authority. If this cycle is not reversed society will break down.
When needs are pressing, conditions deteriorate and rights become relative to the demands and the whims of the majority. It's then not a great leap for individuals to take it upon themselves to use violence to get what they claim is theirs. As the economy deteriorates and the wealth discrepancies increase – as are already occurring – violence increases as those in need take it in their own hands to get what they believe is theirs. They will not wait for a government rescue program.
When government officials wield power over others to bail out the special interests, even with disastrous results to the average citizen, they feel no guilt for the harm they do. Those who take us into undeclared wars with many casualties resulting, never lose sleep over the death and destruction their bad decisions caused. They are convinced that what they do is morally justified, and the fact that many suffer just can't be helped.
When the street criminals do the same thing, they too have no remorse, believing they are only taking what is rightfully theirs. All moral standards become relative. Whether it's bailouts, privileges, government subsidies or benefits for some from inflating a currency, it's all part of a process justified by a philosophy of forced redistribution of wealth. Violence, or a threat of such, is the instrument required and unfortunately is of little concern of most members of Congress.
Some argue it's only a matter of "fairness" that those in need are cared for. There are two problems with this. First, the principle is used to provide a greater amount of benefits to the rich than the poor. Second, no one seems to be concerned about whether or not it's fair to those who end up paying for the benefits. The costs are usually placed on the backs of the middle class and are hidden from the public eye. Too many people believe government handouts are free, like printing money out of thin air, and there is no cost. That deception is coming to an end. The bills are coming due and that's what the economic slowdown is all about.
Sadly, we have become accustomed to living with the illegitimate use of force by government. It is the tool for telling the people how to live, what to eat and drink, what to read and how to spend their money.
To develop a truly free society, the issue of initiating force must be understood and rejected. Granting to government even a small amount of force is a dangerous concession.
Limiting Government Excesses vs. a Virtuous Moral People
Our Constitution, which was intended to limit government power and abuse, has failed. The Founders warned that a free society depends on a virtuous and moral people. The current crisis reflects that their concerns were justified.
Most politicians and pundits are aware of the problems we face but spend all their time in trying to reform government. The sad part is that the suggested reforms almost always lead to less freedom and the importance of a virtuous and moral people is either ignored, or not understood. The new reforms serve only to further undermine liberty. The compounding effect has given us this steady erosion of liberty and the massive expansion of debt. The real question is: if it is liberty we seek, should most of the emphasis be placed on government reform or trying to understand what "a virtuous and moral people" means and how to promote it. The Constitution has not prevented the people from demanding handouts for both rich and poor in their efforts to reform the government, while ignoring the principles of a free society. All branches of our government today are controlled by individuals who use their power to undermine liberty and enhance the welfare/warfare state-and frequently their own wealth and power.
If the people are unhappy with the government performance it must be recognized that government is merely a reflection of an immoral society that rejected a moral government of constitutional limitations of power and love of freedom.
If this is the problem all the tinkering with thousands of pages of new laws and regulations will do nothing to solve the problem.
It is self-evident that our freedoms have been severely limited and the apparent prosperity we still have, is nothing more than leftover wealth from a previous time. This fictitious wealth based on debt and benefits from a false trust in our currency and credit, will play havoc with our society when the bills come due. This means that the full consequence of our lost liberties is yet to be felt.
But that illusion is now ending. Reversing a downward spiral depends on accepting a new approach.
Expect the rapidly expanding homeschooling movement to play a significant role in the revolutionary reforms needed to build a free society with Constitutional protections. We cannot expect a Federal government controlled school system to provide the intellectual ammunition to combat the dangerous growth of government that threatens our liberties.
The internet will provide the alternative to the government/media complex that controls the news and most political propaganda. This is why it's essential that the internet remains free of government regulation.
Many of our religious institutions and secular organizations support greater dependency on the state by supporting war, welfare and corporatism and ignore the need for a virtuous people.
I never believed that the world or our country could be made more free by politicians, if the people had no desire for freedom.
Under the current circumstances the most we can hope to achieve in the political process is to use it as a podium to reach the people to alert them of the nature of the crisis and the importance of their need to assume responsibility for themselves, if it is liberty that they truly seek. Without this, a constitutionally protected free society is impossible.
If this is true, our individual goal in life ought to be for us to seek virtue and excellence and recognize that self-esteem and happiness only comes from using one's natural ability, in the most productive manner possible, according to one's own talents.
Productivity and creativity are the true source of personal satisfaction. Freedom, and not dependency, provides the environment needed to achieve these goals. Government cannot do this for us; it only gets in the way. When the government gets involved, the goal becomes a bailout or a subsidy and these cannot provide a sense of personal achievement.
Achieving legislative power and political influence should not be our goal. Most of the change, if it is to come, will not come from the politicians, but rather from individuals, family, friends, intellectual leaders and our religious institutions. The solution can only come from rejecting the use of coercion, compulsion, government commands, and aggressive force, to mold social and economic behavior. Without accepting these restraints, inevitably the consensus will be to allow the government to mandate economic equality and obedience to the politicians who gain power and promote an environment that smothers the freedoms of everyone. It is then that the responsible individuals who seek excellence and self-esteem by being self-reliance and productive, become the true victims.
Conclusion
What are the greatest dangers that the American people face today and impede the goal of a free society? There are five.
1. The continuous attack on our civil liberties, which threatens the rule of law and our ability to resist the onrush of tyranny.
2. Violent anti-Americanism that has engulfed the world. Because the phenomenon of "blow-back" is not understood or denied, our foreign policy is destined to keep us involved in many wars that we have no business being in. National bankruptcy and a greater threat to our national security will result.
3. The ease in which we go to war, without a declaration by Congress, but accepting international authority from the UN or NATO even for preemptive wars, otherwise known as aggression.
4. A financial political crisis as a consequence of excessive debt, unfunded liabilities, spending, bailouts, and gross discrepancy in wealth distribution going from the middle class to the rich. The danger of central economic planning, by the Federal Reserve must be understood.
5. World government taking over local and US sovereignty by getting involved in the issues of war, welfare, trade, banking, a world currency, taxes, property ownership, and private ownership of guns.
Happily, there is an answer for these very dangerous trends.
What a wonderful world it would be if everyone accepted the simple moral premise of rejecting all acts of aggression. The retort to such a suggestion is always: it's too simplistic, too idealistic, impractical, naïve, utopian, dangerous, and unrealistic to strive for such an ideal.
The answer to that is that for thousands of years the acceptance of government force, to rule over the people, at the sacrifice of liberty, was considered moral and the only available option for achieving peace and prosperity.
What could be more utopian than that myth – considering the results especially looking at the state sponsored killing, by nearly every government during the 20th Century, estimated to be in the hundreds of millions. It's time to reconsider this grant of authority to the state.
No good has ever come from granting monopoly power to the state to use aggression against the people to arbitrarily mold human behavior. Such power, when left unchecked, becomes the seed of an ugly tyranny. This method of governance has been adequately tested, and the results are in: reality dictates we try liberty.
The idealism of non-aggression and rejecting all offensive use of force should be tried. The idealism of government sanctioned violence has been abused throughout history and is the primary source of poverty and war. The theory of a society being based on individual freedom has been around for a long time. It's time to take a bold step and actually permit it by advancing this cause, rather than taking a step backwards as some would like us to do.
Today the principle of habeas corpus, established when King John signed the Magna Carta in 1215, is under attack. There's every reason to believe that a renewed effort with the use of the internet that we can instead advance the cause of liberty by spreading an uncensored message that will serve to rein in government authority and challenge the obsession with war and welfare.
What I'm talking about is a system of government guided by the moral principles of peace and tolerance.
The Founders were convinced that a free society could not exist without a moral people. Just writing rules won't work if the people choose to ignore them. Today the rule of law written in the Constitution has little meaning for most Americans, especially those who work in Washington DC.
Benjamin Franklin claimed "only a virtuous people are capable of freedom." John Adams concurred: "Our Constitution was made for a moral and religious people. It is wholly inadequate to the government of any other."
A moral people must reject all violence in an effort to mold people's beliefs or habits.
A society that boos or ridicules the Golden Rule is not a moral society. All great religions endorse the Golden Rule. The same moral standards that individuals are required to follow should apply to all government officials. They cannot be exempt.
The ultimate solution is not in the hands of the government.
The solution falls on each and every individual, with guidance from family, friends and community.
The #1 responsibility for each of us is to change ourselves with hope that others will follow. This is of greater importance than working on changing the government; that is secondary to promoting a virtuous society. If we can achieve this, then the government will change.
It doesn't mean that political action or holding office has no value. At times it does nudge policy in the right direction. But what is true is that when seeking office is done for personal aggrandizement, money or power, it becomes useless if not harmful. When political action is taken for the right reasons it's easy to understand why compromise should be avoided. It also becomes clear why progress is best achieved by working with coalitions, which bring people together, without anyone sacrificing his principles.
Political action, to be truly beneficial, must be directed toward changing the hearts and minds of the people, recognizing that it's the virtue and morality of the people that allow liberty to flourish.
The Constitution or more laws per se, have no value if the people's attitudes aren't changed.
To achieve liberty and peace, two powerful human emotions have to be overcome. Number one is "envy" which leads to hate and class warfare. Number two is "intolerance" which leads to bigoted and judgemental policies. These emotions must be replaced with a much better understanding of love, compassion, tolerance and free market economics. Freedom, when understood, brings people together. When tried, freedom is popular.
The problem we have faced over the years has been that economic interventionists are swayed by envy, whereas social interventionists are swayed by intolerance of habits and lifestyles. The misunderstanding that tolerance is an endorsement of certain activities, motivates many to legislate moral standards which should only be set by individuals making their own choices. Both sides use force to deal with these misplaced emotions. Both are authoritarians. Neither endorses voluntarism. Both views ought to be rejected.
I have come to one firm conviction after these many years of trying to figure out "the plain truth of things." The best chance for achieving peace and prosperity, for the maximum number of people world-wide, is to pursue the cause of LIBERTY.
If you find this to be a worthwhile message, spread it throughout the land.
http://www.thedailybell.com/28295/Ron-Paul-Farewell-to-Congress
Why Copper Is A Critical Metal
Mickey Fulp
November 15, 2012
Copper is often referred to as "Dr. Copper," the metal with a Ph.D. in economics. Yet most analysts don't view it as a critical metal. In this interview with The Critical Metals Report, Mickey Fulp, author of The Mercenary Geologist, gives his thoughts on why the experts are wrong and why copper should be considered a critical metal.
The Critical Metals Report: In the past, there has been some confusion about the term "critical metals." What do you consider to be critical metals and why?
Mickey Fulp: Critical metals are the major metals that are used globally in industrial applications and are essential for world economic health. They include iron, aluminum, copper, the various iron alloys, zinc, lead, tin and uranium. These are the real "critical metals," the ones that enable the world's economy to function.
TCMR: So your classification of a critical metal is based on the need and the supply and demand, is that correct?
MF: It's based on the fact that they have major tonnages mined and processed and are essential to industry and world economic health. Critical metals either trade on worldwide markets through spot, futures and options or they trade as bulk dry commodities, as iron ore does.
TCMR: One that most people don't classify as a critical metal is copper, but you do. What are the supply and demand fundamentals that you think make copper critical right now?
MF: Copper's always critical. In my opinion, some so-called experts have bastardized the idea of what critical metals actually input to our industrial society. Copper is absolutely one of the critical metals because it is so tied to the functioning world economy. For example, you can't transmit electricity without copper. Ask the people in New York and New Jersey right now if transmission of electricity is critical.
TCMR: As you're looking at the price of copper, what are the indicators that you watch for? Is it global gross domestic product? Is it the Shanghai Exchange warehouse inventory data, Baltic Dry Index, bulk dry materials shipping rates?
MF: All of the above, plus London Metal Exchange warehouse inventories, which are the largest in the world; COMEX inventories, which are the third largest; the total world inventory, the Bulk Dry Index, which indicates shipping rates of commodities like copper; LME canceled warrants, which is inventoried copper designated for immediate delivery; monthly demand for the metal from China and world mined copper and refined copper production. At this juncture, China drives the world copper market, consuming somewhere between 35-40% of supply.
TCMR: What are you seeing in those indicators, particularly out of China?
MF: We've been in a holding pattern for copper and that's reflected in the range-bound prices seen for most of the last year, with prices between ~$3.30-3.90 per pound [lb]. The same can be said of the world's economy-we can't say if it's especially healthy, or especially sick, or more likely, just has the "blahs."
This summer I wrote a "Mercenary Musing" called "Long-Term Fundamentals of the Copper Market"; I'm very bullish on the long-term copper outlook. "Short-Term Fundamentals of the Copper Market" followed about a month later. In it, I was equivocal on the direction of copper in the short term, and by the short term, I'm generally looking one to six months out. So now we're four months into that time frame and I still have the same view of the copper market. It's relatively healthy, but it is not robust.
TCMR: It's lingering at the bottom end of that range you talked about, at roughly $3.47/lb today. Do you see it staying there? Do you see anything changing in those indicators we talked about?
MF: Copper has dropped something on the order of $0.30/lb over the last month or so; the major reason is the "net longs" have come out of the market. Traders have been unwilling to risk speculative money in something that is obviously one of the most speculative markets on earth, and that's the futures and options market of copper. I don't think that what's happened over the last month in any of the metals is so much due to supply-demand fundamentals as it was geopolitical reasons connected with the U.S. elections.
TCMR: So you think it's the U.S. political situation, and not the China situation that's driving the recent decline?
MF: Absolutely. All financial markets were in holding patterns in the month leading up to the election.
TCMR: The International Wrought Copper Council [IWCC] recently predicted a 281,000-tonne surplus in 2013. Do you agree with that, and if not, what's your projection and why?
MF: I'm not a copper analyst per se, but I do understand copper supply and demand fundamentals. I don't make projections like that; I'll leave that for the analysts whose full-time work is analyzing a particular commodity. This supposed 281,000-tonne surplus, do you know how many days of world copper use that is?
TCMR: Tell me.
MF: About five days of global demand. The world uses somewhere between 55,000-60,000 tons of copper per day, or well over 20 million metric tonnes [200 Mmt] of copper a year. Current warehouse inventories only account for about eight days of world supply.
These projections always assume a certain amount of supply disruption every year such as labor strikes, accidents, infrastructure failures, weather, etc., usually something on the order of 5-10 days of world supply. So this 281,000-tonne surplus is basically calling for a balanced copper market. The IWCC is saying we're going to have another year largely in supply-demand balance. The copper market has been in supply-demand balance for the last five years. So what else is new?
TCMR: So you still think that $3.50-4 range is intact?
MF: For the next few months, I might expand that range to $3.30-4/lb. But if you look at overall supply costs, including operating, infrastructure and general and administrative costs, they probably average about $3/lb for producing copper worldwide. Therefore, it's a safe bet to say that if prices go below $3/lb, then supply starts coming off the market drastically and the price will go up.
TCMR: An SEC decision on a proposed JP Morgan copper exchange traded fund [ETF] has been delayed again, at least till December. Could such an ETF really take as much as 30% of official inventoried copper off the market and if so, what would that do to prices?
MF: It does not surprise me that it's been delayed once again because of the possible economic effects on the copper market and given the ability now for a single entity to exert significant control over inventories. If 30% of the copper stored in warehouses is not available to the market, prices could skyrocket.
The real concern here is that physical ETFs for industrial metals could be disastrous for the supply-demand fundamentals of the market. I personally do not think that this ETF is going to come about. If it does, then we will have even more manipulation of the copper market than at present. I don't think that would be good for a healthy supply-demand balance.
TCMR: Do you think the copper market is manipulated?
MF: All markets are manipulated. Duh.
TCMR: By whom?
MF: By large speculators with vested interests in that particular market. Get used to it. Learn to live with it. Our task should be to learn to speculate, trade and profit within the paradigms that we are given.
TCMR: Do you think the copper market is manipulated more than other markets?
MF: No. It is more speculative than most other markets though.
TCMR: If 30% of warehoused copper were to go away, that would make it even more vulnerable.
MF: Absolutely. Think about what that will do if you take 30% of official warehouse inventories, the short-term surplus waiting for a buyer, off the market. Obviously, with less of a buffer, the general overall effect would be increased prices. For example, look at precious metals ETFs. They have been one of the biggest drivers for price increases over the past few years.
TCMR: What countries would you say are the biggest users of copper and what are the biggest supplier countries? And are there any projects in particular you're watching?
MF: The biggest supplier of mined copper is Chile. The U.S., Peru, China and Indonesia are other big miners. The largest suppliers of refined copper are China, Japan and Chile, reflecting where the smelters are. The biggest user is China. Numbers two, three and four are Western Europe as a whole, the U.S. and Japan.
One of the future wild cards will be India because it is the world's second-largest country in terms of population. Lots of people still don't have electricity and a big portion of their electrical grid went down briefly last summer. Copper demand is going to be driven number one by China and number two by the rest of Eastern Asia; that would include mainly India and Indonesia. Further out, it will be sub-Saharan Africa. About 25% of the world's population still can't turn on a light switch at night. That's one of the reasons I'm a long-term bull on the copper market.
TCMR: Are most of the producers long established, or are there some new projects that have the potential to change the supply-demand fundamentals going forward?
MF: There are new projects coming along, but for the most part they are either brownfield projects or they are much lower grade than we are seeing for current producers. The problem is we cannot find enough good copper deposits to replace the reserves that are currently being mined.
Established producers are mining lower and lower grades at higher cost and, based on supply and demand fundamentals, copper prices must continue to rise over the longer term. But by the same token, operating and capex costs are keeping pace or exceeding the price increases. So, as Brent Cook is very fond of saying, the world uses a Bingham Canyon every year, about 17 Mmt of newly mined copper and that does not include 4-5 Mmt of scrap supplies and recycled copper. We have to find more and more and that's hard to do with world use growing at an average of 4% per year since 1900.
TCMR: Is technology making it easier to find underground sources?
MF: There are some new tools such as deeper-seeing geophysics tools and remote sensing satellite imagery. The problem is that we've found the outcropping copper deposits in the world. So now we have to discover new, deeper, potentially mineable underground sources.
To be successful, that process comes from a combination of very good multi-disciplined work and new interpretations by companies going back into previously explored districts, specifically places like the southwest U.S. and Chile. So we are making new discoveries employing boots-on-the-ground geology, advances in satellite technology, geophysics, data processing and, as always, drilling.
TCMR: Is there a project that interests you right now?
MF: The company that attracts my attention is Curis Resources Ltd. (PCCRF.PK). It's a company I cover and hold a share position in.
Curis is developing a new in situ recovery [ISR] project in southeast Arizona. It will be the first greenfield ISR project in the world. Curis has received a permit for a test mine facility and construction will start soon. The stock has been beaten up unmercifully and I think it has very good upside.
TCMR: It looks like it's at $0.67/share right now. It was much higher, almost $4/share back in 2011. Do you think it could reach its previous highs, and if so, what would send it there?
MF: That's not my current target price on it. I started covering the stock about a year ago when it was trading in the $0.90 range. I had the opportunity to cover it much earlier, and declined because it was overbought. It finally got to a price where I thought it had significant upside, i.e. a double in 12 months or less. That has proven not to be true because the company had some permitting difficulties, which have now been resolved, and then got hit by a negative publicity campaign in a very bad junior market. The stock got as low as $0.36/share this summer. At its current trading price, I consider it a buy.
TCMR: When we're talking about the catalysts for the stock, you said it should be in production soon. When do you think it will be in production?
MF: The current projection is that the Florence project will be producing copper from the test mine facility sometime in the second quarter of 2013.
TCMR: Is this a site that you've visited?
MF: Yes.
TCMR: What did you see when you went there? How do you like the management team?
MF: It's a Hunter Dickinson company, so there's no doubt about the management team. It has a good share structure and has the ability to finance. There's not much to see when you go look at an ISR project though; they simply are well fields, tank houses and water impoundments. At Florence, there's flat desert, a few hills and some irrigated fields. We did look at the core and at an old well field and facilities that were developed by BHP around 1990, which abandoned it due to poor copper prices at the time.
TCMR: Copper is a new field for a lot of investors. What advice would you have for someone thinking about getting into the space?
MF: Investors need to find and stick with good, fundamentally strong companies. Unless you are a much more speculative gambler than I am, the futures and options copper markets are not something that I consider a small investor can profit in.
I'm a long-term bull in copper and so I'm always looking for good copper projects. I certainly want them to be in the lowest quartile of operating costs to reap windfall profits during the good times and to weather low prices during the bad. I picked Curis because their projections for operating costs will be some of the lowest in the world as an in situ recovery project and not a big open-pit or underground mine.
TCMR: Thank you for your time.
MF: It's always my pleasure.
This interview was conducted by JT Long of The Critical Metals Report and can be read in its entirety at http://www.theaureport.com/pub/na/14727.
Michael S. "Mickey" Fulp is the author of The Mercenary Geologist. He is a certified professional geologist with a Bachelor of Science in earth sciences from the University of Tulsa, and a Master of Science in geology from the University of New Mexico. He has 35 years' experience as an exploration geologist searching for economic deposits of base and precious metals, coal, uranium, oil and gas and water. Fulp worked for junior explorers, major mining companies and investors as a consulting economic geologist for 20 years, specializing in geological mapping, property evaluation and business development. In 2007, he went from the sell- to the buy-side as an analyst, writer and speaker.
DISCLOSURE:
1) JT Long of The Critical Metals Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: None. Interviews are edited for clarity.
3) Mickey Fulp: I own shares of the following companies mentioned in this interview: Curis Resources Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: Curis Resources Ltd. pays a fee to sponsor my website. I was not paid by Streetwise Reports for participating in this interview.
http://seekingalpha.com/article/1010421-why-copper-is-a-critical-metal-mickey-fulp
Fantastic post basserdan!
Welcome to the Nuthouse: How Private Financial Fiat Creates a Public Farce
November 13, 2012
By Zeus Yiamouyiannis, Ph.D. (aka Citizen Zeus)
Today I present a deeply insightful guest essay by frequent contributor Zeus Yiamouyiannis, Ph.D.
Nothing succeeds like failure when you are a big bank. We’ve already seen that. Too many articles have already been written about that.
Heads, the big banks win through their hugely profitable derivatives and other fake wealth vehicles on the way up the phony growth curve.
Tails, you, the citizen, loses as you are forced to redeem this toxic trash for real money in the form of government bailouts and Federal Reserve purchases as fake value collapses.
“O, the inhumanity, O the injustice.”
Hey, we get it. You can stop pounding the drums. Bring on Act II: “The current anti-capitalist farce and its riotous effects.”
Capitalism turned on its head
What happens to functioning capitalism when its core operating principles of value and money, risk, private property, profit, supply and demand, price discovery, transparency and accountability, productivity, and exchange of worth can selectively be erased on the whim of self-interested, politically connected players?
What happens when every standard of the game is turned upside-down by rule-rigging fat cats and then cravenly excused by international governments, prosecutors, and regulators? You get a leaky economic charade riding on a sea of debt bailed out with “expert” psycho-babble, high-level cheerleading, and government assurances that sound more each day like sick punch lines to bad jokes:
• “Deficits don’t matter.”
• “The recession has ended.”
• “The weak dollar is good for trade.”
• “Debt just needs to be ‘restructured.’”
• “We just need more government stimulus spending.”
• “Federal zero interest rate policies (ZIRP) help everyone.”
• “Unemployment is down.”
Enough of the minstrel show and its official nonsense. Here is the real deal on the current corporate/government war against capitalism:
Farce #1: “Market value” and “free markets” have become a joke.
In order for “value” to have financial value in the free market it, 1) must have real worth to someone else, and 2) must be freely chosen. The whole point of a market is that people choose according to their desires and needs, not yours. No one is entitled to a profit.
That’s what “market value” and “free market” mean. Other people, known as “the public,” interactively determine what your asset, good, or service is worth. You may think something is financially worth a lot. If others do not, it’s not worth squat.
If you can merely create private fiat by assigning your own value to your “assets” and products and then force others to buy them, there is no valid market value or free market. It is simply financial dictatorship.
Farce #2: Private, self-assigned, fake value is being traded for public money at 100 cents on the dollar
Even basic monetary standards for public exchange of value no longer apply. Now big banks have been given the executive go-ahead to self-assign value to their assets at any price they choose. This is called “market to model” (i.e. profitable lying with complicated mathematical formulas).
This violation of capitalism comes not only in refusing to allow the market to determine price of assets, but in forcing the public through government capture to pay for “impaired private assets” with “real” public money at 100 cents on the dollar!
This is nothing more than the exchange of publicly accepted money for worthless, private, counterfeit crap.
Farce #3: Printed money is backed by nothing However, what “value” does that public money have? What is the current U.S. dollar tied to? Nothing of worth. It refers to no credible public asset, good, or service. The Treasury and the Fed are just printing money, period.
The abstract future ability of the U.S. to pay off an exponentially increasing debt amid a long-term contracting economy is not even close to being a plausible substitute. If that money was invested in infrastructure, perhaps a case could be made, but can you name even one project that the 800 billion dollars of “stimulus spending” has funded?
In order for money to be a credible marker of exchange it must be tied to an asset, good, or service that has collectively established worth (i.e. commodities, present and future national productivity, or local networks of exchange of services and goods).
Current money needs to become rebased in things that produce value, that preserve and enhance present and future life. At bottom, neither banks nor governments are doing that, and if anything they seem to be working hard together to kill off both broader prosperity and free market capitalism.
Farce #4: We have a “free” enterprise system dominated by monopolies that force people to buy inferior goods and services at exorbitant rates.
Exhibit A: “Health” care: U.S. health “insurance” is dominated by regional monopolies that are notorious for denying treatment and charging double what the rest of the world charges. What do we get for that? We get a record number of uninsured citizens, and health results (infant mortality, etc), which are near the bottom, rather than the top, of industrialized nations.
The U.S. health care system is also possibly one of the most inefficient in the world in delivering services, wasting some 750 billion dollars per year in unnecessary spending, including hundreds of billions of dollars per year in excessive administrative costs.
“The best health care system in the world”? Hardly. Maybe if you are rich or have generous subsidized benefits.
Even then, you are not immune to hospitals that cut safety corners to save on costs, and both slash pay and increase work hours for the people treating you. Think about it. Medical error is one of the leading causes of death in the U.S, killing some 200,000 people per year.
Exhibit B: Military industrial complex boondoggles: The United States is currently spending almost as much on its military as the rest of the world combined.
What kind of value are we getting for that? We’ve gotten pointless wars built on politically expedient lies, that have lasted longer than any wars in modern history, that have cost trillions, and that have made us less secure.
Farce #5: High-level financial crimes, no matter how egregious or widespread, are not being prosecuted.
Instead, corrupt and fraud-ridden organizations like Countrywide, Goldman-Sachs, Bank of America, JP Morgan, and Citigroup, get bought up and/or pay a small percentage of their ill-gotten gains to settle civil suits in which they do not admit fault.
The leaders of these anti-capitalist organizations (Anthony Mazillo, Jamie Dimon, Lloyd Blankfein, et. al.) still walk away with enormous compensation, after having ruined their companies and tanked the world economy. When they have to hire legal representation, they do it at the stockholders’ expense, adding insult to injury.
There are probably millions of forged documents, involved in “fraudclosure”, the pervasive property assignment control fraud that includes all the big financial players. Companies and citizens have brought civil lawsuits, but these are taking time.
There has been negligible government investigation, much less criminal prosecution. Here you have millions of cases of the very foundation of private property, clear ownership, being decimated by rampant, obvious fraud, and you do nothing?
Oh, I forgot, you extend the big banks a reprieve in the form of yet another settlement, this time with States’ Attorney Generals (basically a 25 billion dollar slap on the wrist for trillions of dollars of interconnected fraud). What does it take for law enforcement to do its job?
What effect does this have? It screams, “Crime pays!” It destroys the morale of hard-working, law-abiding citizens, and it keeps zombie banks not only alive and kicking, but prospering on the backs of citizens.
It sinks the global economy even more by encouraging financial criminals to double-down on the profitable crime that got them their unreal returns in the first place.
Where do you think that’s going to end? Too-big-to-fail is now bigger. Bailouts from central banks are more frequent. Overt and covert citizen subsidies for this crime keep climbing. Welcome to the financial cancer club.
Farce #6: Risk is gone. Now there is only liability borne by citizens.
Corrupted capitalism expects you, the citizen, to pay for “their,” the crony capitalists’, failure. In functioning capitalism, a company and its investors take their own risks, profit from the gains, and stomach the losses. Other people do not pay for their mistakes or their crimes.
That core element of capitalism is now gone. Irish citizens have had to pay many billions just to cover the losses of one of their private banks. Greece has learned, with its enforced austerity programs, that if this liability is not paid in dollars (or the phony dollars of debt restructuring), it gets paid in diminished quality of life.
Farce #7: Productivity has been supplanted by parasitism
There is hardly anything more important to thriving functioning capitalism than productivity, and sharing the fruits of productivity. It is notable that productivity among U.S. workers actually skyrocketed over the last decade and a half, but real wages have flattened or declined.
Where did the surpluses go? To parasitic financializers who have seen their share over all corporate profits grow from 10% to over 45% in recent decades.
After costing trillions and wiping out the world economy, what asset, good, or service do big banks produce that has genuine public worth?
• “Expert advice”, in which brokers intentionally sell junk to consumers, as shown in investment bank emails?
• “Financial services”, which turn out to be so laden with hidden fees and loosened/fabricated credit qualifications that the lendee is worse off?
• Allegiances that concentrate financial wealth the top 0.1% of the population, causing the vast majority of the world to get poorer?
If anything, citizens would stand to gain more by paying big banks to close their doors.
Big banks have largely stopped lending to businesses or individuals because that’s not profitable enough and because they need to retain capital to reduce their exposure due to their own foolish overleveraging. This depresses community and small business entrepreneurship and productivity.
Bottom line: Big banks’ “services” take far more in costs than they provide in benefits. Much would be gained, and little lost, if they were allowed to fail or were decommissioned outright for their criminal behavior.
Conclusion
In short, the non-accountability of big banks means American honest work and honest gain will be increasingly ripped off. This is a zero-sum game in which not even a single, direct, effective champion of the interest of broader American and middle and working class interest exists in the actual machinery of Washington.
Those few heroes, the former and present prosecutors and officials who have attempted to enforce transparency and accountability, Elizabeth Warren, Brooksley Born, Harry Markopolos, Neil Barofsky, and William K. Black have either been ignored, pushed out, or shut down.
Says Neil Barofsky of President Obama:
“I thought that if there was ever going to be a political figure that would take on the interests of Wall Street, and put the American people… above the monied interests, it was going to be President Obama, and that just didn’t happen. In fact it was the opposite. He had the same ideology as Timothy Geithner [and others from Wall Street]: ‘Protect the banks. What is best for the biggest banks is what’s best for the country.’”
This is pretty grim stuff, but it has a silver lining: When you don’t have champions to manage the economy fairly or effectively, you organize yourselves to transform your economy.
Both liberal and conservative officials have turned themselves from public servants into private servants. We, in response, have no excuse but to turn ourselves into necessary public champions. We must decide and act upon our choices to drive the economy in a healthy direction.
Economy cannot exist without people and their agreement. It is our job now to form the next principles and new, healthy practices as we turn away from a corrupted system.
To inform this effort, I shall be releasing my new article next week, called “I Give a Damn: A Manifesto for the Productive Class.” I will also have an e-book available soon called “Transforming Economy: Moving from Corrupted Capitalism to Connected Communities.”
Please email me at zeus@citizenzeus.com if you are interested in the “Transforming Economy” e-book, or simply subscribe at my website citizenzeus.com to read my latest work and be notified when the e-book is available.
By Zeus Yiamouyiannis, Ph.D. (aka Citizen Zeus), copyright November 2012
http://www.oftwominds.com/blognov12/Zeus-private-fiat11-12.html
Welcome to the Nuthouse: How Private Financial Fiat Creates a Public Farce
November 13, 2012
By Zeus Yiamouyiannis, Ph.D. (aka Citizen Zeus)
Today I present a deeply insightful guest essay by frequent contributor Zeus Yiamouyiannis, Ph.D.
Nothing succeeds like failure when you are a big bank. We’ve already seen that. Too many articles have already been written about that.
Heads, the big banks win through their hugely profitable derivatives and other fake wealth vehicles on the way up the phony growth curve.
Tails, you, the citizen, loses as you are forced to redeem this toxic trash for real money in the form of government bailouts and Federal Reserve purchases as fake value collapses.
“O, the inhumanity, O the injustice.”
Hey, we get it. You can stop pounding the drums. Bring on Act II: “The current anti-capitalist farce and its riotous effects.”
Capitalism turned on its head
What happens to functioning capitalism when its core operating principles of value and money, risk, private property, profit, supply and demand, price discovery, transparency and accountability, productivity, and exchange of worth can selectively be erased on the whim of self-interested, politically connected players?
What happens when every standard of the game is turned upside-down by rule-rigging fat cats and then cravenly excused by international governments, prosecutors, and regulators? You get a leaky economic charade riding on a sea of debt bailed out with “expert” psycho-babble, high-level cheerleading, and government assurances that sound more each day like sick punch lines to bad jokes:
• “Deficits don’t matter.”
• “The recession has ended.”
• “The weak dollar is good for trade.”
• “Debt just needs to be ‘restructured.’”
• “We just need more government stimulus spending.”
• “Federal zero interest rate policies (ZIRP) help everyone.”
• “Unemployment is down.”
Enough of the minstrel show and its official nonsense. Here is the real deal on the current corporate/government war against capitalism:
Farce #1: “Market value” and “free markets” have become a joke.
In order for “value” to have financial value in the free market it, 1) must have real worth to someone else, and 2) must be freely chosen. The whole point of a market is that people choose according to their desires and needs, not yours. No one is entitled to a profit.
That’s what “market value” and “free market” mean. Other people, known as “the public,” interactively determine what your asset, good, or service is worth. You may think something is financially worth a lot. If others do not, it’s not worth squat.
If you can merely create private fiat by assigning your own value to your “assets” and products and then force others to buy them, there is no valid market value or free market. It is simply financial dictatorship.
Farce #2: Private, self-assigned, fake value is being traded for public money at 100 cents on the dollar
Even basic monetary standards for public exchange of value no longer apply. Now big banks have been given the executive go-ahead to self-assign value to their assets at any price they choose. This is called “market to model” (i.e. profitable lying with complicated mathematical formulas).
This violation of capitalism comes not only in refusing to allow the market to determine price of assets, but in forcing the public through government capture to pay for “impaired private assets” with “real” public money at 100 cents on the dollar!
This is nothing more than the exchange of publicly accepted money for worthless, private, counterfeit crap.
Farce #3: Printed money is backed by nothing
However, what “value” does that public money have? What is the current U.S. dollar tied to? Nothing of worth. It refers to no credible public asset, good, or service. The Treasury and the Fed are just printing money, period.
The abstract future ability of the U.S. to pay off an exponentially increasing debt amid a long-term contracting economy is not even close to being a plausible substitute. If that money was invested in infrastructure, perhaps a case could be made, but can you name even one project that the 800 billion dollars of “stimulus spending” has funded?
In order for money to be a credible marker of exchange it must be tied to an asset, good, or service that has collectively established worth (i.e. commodities, present and future national productivity, or local networks of exchange of services and goods).
Current money needs to become rebased in things that produce value, that preserve and enhance present and future life. At bottom, neither banks nor governments are doing that, and if anything they seem to be working hard together to kill off both broader prosperity and free market capitalism.
Farce #4: We have a “free” enterprise system dominated by monopolies that force people to buy inferior goods and services at exorbitant rates.
Exhibit A: “Health” care: U.S. health “insurance” is dominated by regional monopolies that are notorious for denying treatment and charging double what the rest of the world charges. What do we get for that? We get a record number of uninsured citizens, and health results (infant mortality, etc), which are near the bottom, rather than the top, of industrialized nations.
The U.S. health care system is also possibly one of the most inefficient in the world in delivering services, wasting some 750 billion dollars per year in unnecessary spending, including hundreds of billions of dollars per year in excessive administrative costs.
“The best health care system in the world”? Hardly. Maybe if you are rich or have generous subsidized benefits.
Even then, you are not immune to hospitals that cut safety corners to save on costs, and both slash pay and increase work hours for the people treating you. Think about it. Medical error is one of the leading causes of death in the U.S, killing some 200,000 people per year.
Exhibit B: Military industrial complex boondoggles: The United States is currently spending almost as much on its military as the rest of the world combined.
What kind of value are we getting for that? We’ve gotten pointless wars built on politically expedient lies, that have lasted longer than any wars in modern history, that have cost trillions, and that have made us less secure.
Farce #5: High-level financial crimes, no matter how egregious or widespread, are not being prosecuted.
Instead, corrupt and fraud-ridden organizations like Countrywide, Goldman-Sachs, Bank of America, JP Morgan, and Citigroup, get bought up and/or pay a small percentage of their ill-gotten gains to settle civil suits in which they do not admit fault.
The leaders of these anti-capitalist organizations (Anthony Mazillo, Jamie Dimon, Lloyd Blankfein, et. al.) still walk away with enormous compensation, after having ruined their companies and tanked the world economy. When they have to hire legal representation, they do it at the stockholders’ expense, adding insult to injury.
There are probably millions of forged documents, involved in “fraudclosure”, the pervasive property assignment control fraud that includes all the big financial players. Companies and citizens have brought civil lawsuits, but these are taking time.
There has been negligible government investigation, much less criminal prosecution. Here you have millions of cases of the very foundation of private property, clear ownership, being decimated by rampant, obvious fraud, and you do nothing?
Oh, I forgot, you extend the big banks a reprieve in the form of yet another settlement, this time with States’ Attorney Generals (basically a 25 billion dollar slap on the wrist for trillions of dollars of interconnected fraud). What does it take for law enforcement to do its job?
What effect does this have? It screams, “Crime pays!” It destroys the morale of hard-working, law-abiding citizens, and it keeps zombie banks not only alive and kicking, but prospering on the backs of citizens.
It sinks the global economy even more by encouraging financial criminals to double-down on the profitable crime that got them their unreal returns in the first place.
Where do you think that’s going to end? Too-big-to-fail is now bigger. Bailouts from central banks are more frequent. Overt and covert citizen subsidies for this crime keep climbing. Welcome to the financial cancer club.
Farce #6: Risk is gone. Now there is only liability borne by citizens.
Corrupted capitalism expects you, the citizen, to pay for “their,” the crony capitalists’, failure. In functioning capitalism, a company and its investors take their own risks, profit from the gains, and stomach the losses. Other people do not pay for their mistakes or their crimes.
That core element of capitalism is now gone. Irish citizens have had to pay many billions just to cover the losses of one of their private banks. Greece has learned, with its enforced austerity programs, that if this liability is not paid in dollars (or the phony dollars of debt restructuring), it gets paid in diminished quality of life.
Farce #7: Productivity has been supplanted by parasitism
There is hardly anything more important to thriving functioning capitalism than productivity, and sharing the fruits of productivity. It is notable that productivity among U.S. workers actually skyrocketed over the last decade and a half, but real wages have flattened or declined.
Where did the surpluses go? To parasitic financializers who have seen their share over all corporate profits grow from 10% to over 45% in recent decades.
After costing trillions and wiping out the world economy, what asset, good, or service do big banks produce that has genuine public worth?
• “Expert advice”, in which brokers intentionally sell junk to consumers, as shown in investment bank emails?
• “Financial services”, which turn out to be so laden with hidden fees and loosened/fabricated credit qualifications that the lendee is worse off?
• Allegiances that concentrate financial wealth the top 0.1% of the population, causing the vast majority of the world to get poorer?
If anything, citizens would stand to gain more by paying big banks to close their doors.
Big banks have largely stopped lending to businesses or individuals because that’s not profitable enough and because they need to retain capital to reduce their exposure due to their own foolish overleveraging. This depresses community and small business entrepreneurship and productivity.
Bottom line: Big banks’ “services” take far more in costs than they provide in benefits. Much would be gained, and little lost, if they were allowed to fail or were decommissioned outright for their criminal behavior.
Conclusion
In short, the non-accountability of big banks means American honest work and honest gain will be increasingly ripped off. This is a zero-sum game in which not even a single, direct, effective champion of the interest of broader American and middle and working class interest exists in the actual machinery of Washington.
Those few heroes, the former and present prosecutors and officials who have attempted to enforce transparency and accountability, Elizabeth Warren, Brooksley Born, Harry Markopolos, Neil Barofsky, and William K. Black have either been ignored, pushed out, or shut down.
Says Neil Barofsky of President Obama:
“I thought that if there was ever going to be a political figure that would take on the interests of Wall Street, and put the American people… above the monied interests, it was going to be President Obama, and that just didn’t happen. In fact it was the opposite. He had the same ideology as Timothy Geithner [and others from Wall Street]: ‘Protect the banks. What is best for the biggest banks is what’s best for the country.’”
This is pretty grim stuff, but it has a silver lining: When you don’t have champions to manage the economy fairly or effectively, you organize yourselves to transform your economy.
Both liberal and conservative officials have turned themselves from public servants into private servants. We, in response, have no excuse but to turn ourselves into necessary public champions. We must decide and act upon our choices to drive the economy in a healthy direction.
Economy cannot exist without people and their agreement. It is our job now to form the next principles and new, healthy practices as we turn away from a corrupted system.
To inform this effort, I shall be releasing my new article next week, called “I Give a Damn: A Manifesto for the Productive Class.” I will also have an e-book available soon called “Transforming Economy: Moving from Corrupted Capitalism to Connected Communities.”
Please email me at zeus@citizenzeus.com if you are interested in the “Transforming Economy” e-book, or simply subscribe at my website citizenzeus.com to read my latest work and be notified when the e-book is available.
By Zeus Yiamouyiannis, Ph.D. (aka Citizen Zeus), copyright November 2012
http://www.oftwominds.com/blognov12/Zeus-private-fiat11-12.html