Never waste a good crisis. While we already knew a major reason for The West chasing into Africa was to leverage its relatively low credit levels as the last bastion of Keynesian-stimulus-hope in the world(estimated at between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral). And so it is little surprise that, as The WSJ reports, The International Monetary Fund on Thursday warned the West African Ebola epidemic requires a “large scale” global intervention to control acrisis that is ravaging economies in the region. All three major Ebola-suffering countries were already in bailout programs ($200mm loan in 2012 for Guinea, $100mm loan for Sierra Leone, and $80mm credit facility for Liberia) but with the “world community taking forever to respond,” The IMF is happy to step in and secure some assets / lend over $100mm more to each nation to fill financing gaps.
This post was published at Zero Hedge on 09/15/2014.
By Don Quijones, freelance writer, translator in Barcelona, Spain, but currently in Mexico. Raging Bull-Shit is his modest attempt to challenge the wishful thinking and scrub away the lathers of soft soap peddled by political and business leaders and their loyal mainstream media. This article is a Wolf Street exclusive. If there’s one word that has dominated the post-crisis vernacular of policy makers, central bankers, economists, think tanks and establishment journalists worldwide, it is the word ‘reform.’ In the last six years of centrally planned post-crisis crisis, scores of countries have been subjected to ‘ambitious’ reform programs, largely at the insistence of reform-obsessed institutions such as the IMF. The programs have included health reform and education reform (in both cases with a heavy emphasis on privatization and increased costs); pension reform (cuts to public pensions, hikes to the entitlement age); fiscal reform (less spending on public services, more spending on deadbeat banks – all funded, of course, by higher taxes on the middle class); and, last but not least, labor reform (making it easier for corporations to hire and fire but mainly fire). In fact, we’ve had just about every kind of reform one can possibly imagine, with one glaring exception: meaningful banking reform, for the simple reason that by now the banks are far beyond reform. The Great Reformer One country that has recently taken reform to an art form is Mexico. Since taking office in late 2012, President Enrique Pea Nieto has made it his mission to transform Mexico beyond all recognition. And judging by the first 21 months of his six-year mandate, he means business.
This post was published at Wolf Street on September 14, 2014.
Some grim stats on Ukrainian economy here: very comprehensive survey, despite some politically loaded statements. Read it for the stats at least. Meanwhile, the prospect of Ukraine dipping into gas deliveries destined for Europe is looming as Naftogaz debt continues to rise: and as winter draws closer and closer. The fabled ‘reversed flows’ from Eastern Europe are not materialising (predictably) and reserves are bound to be running out faster as coal production is all but shut. Per Vice PM Volodymyr Hroisman, ukraine is facing a shortfall of some 5 million tonnes of coal by the end of 2014 and gas shortages are forecast at 5 billion cubic meters. As the result, Ukraine is now forced to buy coal abroad, with one recent agreement for shipments of 1 million tonnes of coal signed with South Africa. Electricity exports from Ukraine are suffering too, primarily as domestic production falls and demand rises. In January-August 2014, electricity exports are down 6% y/yNational Bank of Ukraine governor, Valeria Hontareva, has been reduced to talking up the markets by delivering promises that the Government will not default on its bonds and Naftogaz bonds. She had to admit this week that hryvna devaluation has now hit 60% y/y (by other calculations, depending on the currency basket chosen it is just above 40%) and inflation is running at 90%. Recall that on September 2, the IMF assessment of the economy which reflected the updates to risks and latest forecasts. Revised programme forecasts now see real GDP shrinking 6.5% y/y in 2014, but growing by 1% in 2015 and 4% in 2016. Hontareva said this week the GDP can fall by 9% this year alone. End of year CPI is expected to come in at 19% in 2014 (which has now been exceeded by a massive 71 percentage points, based on Hontareva statement) and 9% in 2015 before declining to 6.9% in 2016. Hryvna devaluation vis-a-vis the USD was expected to run around 50.6% y/y which is already too conservative compared to the reality, and by another 6.4% in 2015 falling to a devaluation of just 0.8% in 2016. Needless to say, Hontareva’s statement suggests that the IMF forecasts, published only 10 days before she spoke, are largely imaginary numbers.
This post was published at True Economics on Saturday, September 13, 2014.
The World Gold Council (WGC), the London headquartered market development organisation for the gold industry, and the China Gold Association have signed a ‘Comprehensive Strategic Cooperation Agreement’, at the official launch of the China Gold Congress & Expo 2014 in Beijing. The aim of the agreement is stated to be to enhance the global understanding of the gold market and supply chain and China’s role within it through the exchange of research, data insights and developing innovations for gold in investment, technology and jewellery. One hopes that this may give WGC researchers perhaps a better understanding of the Chinese gold supply and demand situation than seems to be the case at present where known import figures, stated gold demand figures and published data out of the Shanghai Gold Exchange seem to suggest a wide disparity in apparent demand in particular. However given the China Gold Association’s ties with the Chinese government, as will have any Chinese trade organisation, which may have an agenda to only let Western organisations, like the WGC, know what it wants them to know, then the co-operation agreement might not actually provide a great deal of new information on these disparities, although any such regular contact should be helpful. It is also highly unlikely to throw any new light on whether the Chinese Central Bank is surreptitiously increasing its gold reserves without reporting them to the IMF – as many Western analysts believe – or not. We will almost certainly have to wait until the Chinese government deems it politic to announce any reserve upgrade, if any, before we know for sure.
The day that Banco Espirito Santo finally crashed and was liquidated nationalized under the weight of its countless criminal “inside the family” fund transfers, money losing loans, and off balance sheet activities, we pointed out to something amusing: the Goldman trail. Because not only was it revealed that in mid-July, two weeks before the Portuguese bank conglomerate failed, Goldman had invested several hundred million into the broken business, but that all through 2014, Goldman had done its best to drag the muppets down with it. Recall from January 14, 2014 where Goldman said: Buy BES: Winner at home, recovering abroad In our view, BES is (1) optimally positioned to gain from Portugal’s banking market evolution and (2) likely to benefit from improving margins in Angola. With the stock trading at a 29% discount to peers’ 2015E P/TBV and with 28% upside to our 12m target price of 1.55, we upgrade BES to Buy. * * * Positioning: Looking beyond the crisis – BES best placed Resilience to asset quality deterioration determined banks’ ability to withstand the effects of the economic and financial crisis. Those effects, however, have their cause in macroeconomic imbalances that led Portugal to ask for financial assistance from the EU/IMF. Addressing those causes will determine the future shape of the Portuguese banking market and the relative positioning of the banks. In this context, we develop a theoretical (and severe) scenario to assess relative positioning in a deleveraging economy: under this scenario, we estimate that Portuguese banks would need to delever by a further 35 bn domestic loans (or 15%) by 2020 to partially reverse the imbalances that contributed to the crisis. This is a top-end assumption and depends heavily on the country’s future macroeconomic performance. In this negative scenario, we show that BES would be best positioned to gain from a ‘race to the bottom’. Our estimate is harsh, but we still believe that it is a good proxy for the underlying trends in the lending market. In this context, even under more benign scenarios, BES is best placed.
This post was published at Zero Hedge on 09/01/2014.
Christine Lagarde has long been suspected of corruption yet of course the International Monetary Fund’s (IMF) board proclaimed they firmly stand behind her because she has raised the stature of the IMF to a world player once again thanks to Obama and their joint agenda to raise our taxes to 80% and confiscate 10% of everyone’s bank account to pay for the bankers. Christine Lagarde is facing a criminal investigation in France that is tied to a political corruption probe dating from 2008. The allegations by French magistrates earlier in the week placed Lagarde squarely under formal investigation for ‘negligence’ after questioning her in Paris for a fourth time.
TENSION between Russia and Ukraine as well as escalating violence in the Middle East have helped support the price of gold this week as it is often regarded as an insurance against financial and political risk. There are also signs of support from developing countries. Russia, one of the world’s biggest holders of gold, increased its official reserves by nearly 340,000 troy ounces in July, to 35.5-million ounces, according to data from the International Monetary Fund (IMF). The amount of gold now held by Russia is the most since at least 1993. Kazakhstan’s central bank added 45,000 ounces of gold to its reserves in July, to 5.1-million ounces. The IMF said the central bank of Ecuador also increased its reserves in July, by 10,000 ounces, while Belarus cut its holdings by 79,000 ounces. Turkey’s central bank reported a decline of nearly 138,000 ounces to the IMF, dropping its official reserves to 16.4-million ounces.
This post was published at Gold-Eagle on August 29, 2014.
The International Monetary Fund is warning that the world is at risk of ‘another devastating housing crash.’ This is true for instance for Australia, Belgium, Canada, Norway and Sweden,’ he said. In the wake of the global recession central bankers have cut interest rates to record lows, pushing house prices to a level that the IMF regards as a significant risk to economies as diverse as Hong Kong and Israel. In Canada, for example, house prices are 33 per cent above their long-run average in relation to incomes and 87 per cent above their long-run average compared with rents. The figures for the UK are 27 per cent relative to incomes and 38 per cent relative to rents.
This post was published at Mises Canada on August 27th, 2014.
The IMF’s latest international gold reserves data, updated yesterday, shows that in July, Russia raised its official gold reserves to 5.5 million ounces (1,104 tonnes). This confirms data released last week by the Central bank of the Russian Federation, which reported an increase of over 300,000 ounces from June’s 5.197 million ounces figure. IMF data is reported with a one month lag. The latest IMF data also shows that in July, the National Bank of Kazakhstan added 45,000 ounces to its official gold reserves, taking its total holding to 5.1 million ounces. According to the World Gold Council, over the last six months, Russia has now increased its gold reserves by 54 tonnes. In the same period Kazakhstan has purchased 12 tonnes. Russia now has the world’s 6th largest gold reserves, officially higher than both Switzerland’s 1,040 tonnes and China’s 1054.1 tonnes. As a comparison, in the second quarter of 2009, Russia only had 550 tonnes of gold in its official reserves meaning that their reserves have nearly doubled in just over 5 years. The ongoing accumulation of official gold by Russia appears to be part of a reserve diversification strategy. Gold is held by central banks as one of their reserve assets alongside foreign exchange assets including US Dollars and Euros, and also IMF Special Drawing Rights (SDRs). Some Russian analysts point to the threat of continued western sanctions on Russia as a renewed catalyst for the Russian central bank diversifying out of dollars and euros by increasing its gold reserves. Gold now accounts for over 12% of Russian official reserves and could reach 15% by year end if the current trend continues.
This post was published at Gold Core on 26 August 2014.
Most of us have our hard-earned money deposited in a bank. So, what would happen if these banks, with their over-leveraged derivatives investments suddenly became insolvent? Well, the law has already been written and it only needs to be enforced when (not if) these institutions finally fail. When the crisis hits, the FDIC will be unable to cover all deposits – that insurance is woefully inadequate, capable of covering only 0.25% of all deposits. As “unsecured creditors,” depositors will end up as stock holders of the failed institution in lieu of their cash deposits. After watching the following video from publicbankinginstitute.org, which explains in simple, yet specific legal terms, exactly what rights depositors have, consider yourself pre-warned.
After all is said and done, this is basically what’s been happening in Europe, where countries like Spain, Greece, Ireland, Portugal, Italy and Cyprus depend on each other and the stronger members of the European Union to keep buying their bonds, burying them ever deeper in debt (to each other).
But it’s not limited to just Europe, of course. The US is in just as bad of shape as far as debt is concerned. In all western nations, as the cartoon above adequately portrays, there seems to be a symbiotic relationship between the banks and the countries in debt. The banks enable the governments to keep borrowing just to be able to buy more debt from other countries’ governments, which are doing the exact same thing. The whole sovereign bond market is one giant Ponzi scheme, just waiting to capsize.
U.S. Treasury Secretary, Timothy Geithner and Federal Reserve Chairman, Ben Bernanke testified at the House Committee Oversight and Government Reform on March 21, 2012. In discussing the European debt crisis and responding to questions regarding IMF funding, the Treasury Secretary suggested that a default by the IMF or any of its borrowers was highly unlikely because the loans are backed by “a substantial amount of IMF gold …”
More commentary from Swiss America can be found here.
At 10AM on Wednesday, February 29, 2012 gold and silver were hit with massive paper selling on the COMEX. Gold was hit for about $100 (5.5%) and silver was taken down $3.75 (10%). But the stock market was flat, untouched.
According to Jim Sinclair, this was a cover-up by the Fed chairman and the precious metals were manipulated to the downside on purpose. Because if the expectation of no more liquidity from the Fed was really the cause of the collapse of precious metal prices, then the stock market should have been hit just as hard, which it was not! Furthermore, this $700+ billion for European banks was QE! The ECB got those funds from two places: “It’s been coming in from the IMF and from swaps done by the US Federal Reserve.” Here’s Jim Sinclair’s audio interview at King World News.
Indeed, here are three articles making the case that the sell-off was initiated by a seller who wasn’t at all interested in profit, but was motivated by taking the market down:
Ironically (or not), the precious metals were hit during this exchange between Ron Paul and Ben Bernanke, where Paul held up a silver ounce coin and asked the chairman why people aren’t given the option of using gold and silver as a “competing currency” with the US dollar.
When the economy of a country faces economic stress, that country’s central bank usually tries to take steps to recover by adjusting or boosting inputs to GDP. GDP is based on:
– Consumer consumption – Investments in housing and business – Government spending – Net exports (Exports minus Imports)
When the country reaches a level where there is high unemployment and excessive debt, it leads to a situation where consumer consumption is weak and no one is investing in housing or business because they are uncertain about the future. Government spending can sometimes overcome this, but it comes with higher taxes or borrowing costs which become politically unpopular.
Therefore, as a last-ditch effort to boost GDP, a country will embark on currency debasement in order to increase its net exports. The currency is devalued by inflating the money supply. The local citizens suffer because their own money buys less goods as things become more expensive at home.
However, as a country’s currency becomes weak in relation to its trading partners’ currencies, it makes its products and services cheaper for foreigners, and thus more attractive to buyers in other countries. As foreigners buy more, the affect is a rising GDP.
But this is only a temporary situation. Other countries begin to experience problems because their imports are rising relative to their exports. This hits their own GDP and now they have to take similar steps – debasing their currency to remain competitive.
Rickards explains that there have been two major global currency wars already – one from 1921 to 1936 and the other from 1967 to 1987 and that we are now in the third global currency war. This war has three main participants – the U.S., China and Europe – although many countries around the world are severely affected by the currency games being played out and make their own contributions to the overall picture as well.
Rickards also gives four possible outcomes of this currency war:
Multiple reserve currencies. Instead of the U.S. dollar being the preferred reserve currency of the world, countries would hold several denominations from currencies around the globe. But imagine having to deal with the policies of several central banking activities – it’s bad enough dealing with those of the Fed.
SDRs. Special Drawing Rights have been the instrument of the IMF. SDRs are backed by a basket of different currencies from different countries around the world. However, the SDR’s value floats – that is, it is adjusted according to global exchange rates. Furthermore, the IMF is able to print SDRs at will. Thus, there really is no difference between any other currency of the world, except it’s worse with the SDR – the IMF controls the SDR and the people controlling the IMF are appointed, not democratically elected.
A return to the gold standard. Here Rickards discusses some of the things to think about prior to a return to the gold standard, like what definition of the money supply (M0, M1, M2, etc.) to use as the base money supply on which to base on the gold supply? Additionally what ratio should be used between paper and gold? And finally, what regulations should be in place for exceptions to be made in certain circumstances?
Chaos. If nothing is done to stem the current path towards currency debasement, a catestrophic collapse could devistate the world as we know it.
There’s also an interesting chapter explaining how currency and capital markets have become so complex that they are quickly approaching a breaking point. Current risk models used by most firms are inadequate to account for the existing risk and thus most are unaware of the true problems underlying the system and thus are unprepared for the inevitable catastrophe.
Here’s an interview with James Rickards where his book is discussed:
And here’s an audio interview discussing the book, whether or not America needs the Fed and whether or not a gold standard is a possible answer to today’s economic issues.