Month: May 2014

“The crisis doesn’t destroy wealth, it merely evidences the extent to which wealth has already been destroyed by stupid investments made in the boom.” This is critically important, as banking (or financial) crisis do not start the day the market collapses but years before, and as Punk Economics’ David McWilliams explains, this is usually driven by banks (central or otherwise) beginning to lend recklessly using other people’s money to ramp up asset values. So, with that in mind, what have we learned from the 2008 banking crisis? (spoiler alert – nothing good).

 

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Submitted by Mike Krieger of Liberty Blitzkrieg blog,

The writing on the wall is there for anyone willing to take a look and be honest with themselves. I always try to highlight when public figures have the courage to state what is really happening in this country (such as rapper Lupe Fiasco), rather than cower in a corner from fear of repercussions. Most celebrities are the biggest cowards on earth. They prance around criticizing other nations, never daring to look inward. It is disgraceful.

Rob Schneider had a lot to say in his recent interview with Chris Stigall. Here are a few of his most incisive lines:

There’s a polarization that’s happening…I do think you look can look at government and go, ‘Wow, it is out of control now,’ and if you do criticize or tend to be not directly along a liberal stand, you can get murdered.

 

We don’t really have freedom of the press. It’s owned by about eight different companies, and it doesn’t really express or help the average American.

There’s also the money shot of him discussing America’s decline into fascism, which you can hear in the clip below.

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Baghdad Bob eat your heart out…

 

 

Source: Investors

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Submitted by John Rubino via The Dollar Collapse blog,

A perfect sign of the times is the unexpected success of a 700-page economics text called Capital in the 21st Century by French college professor Thomas Piketty. As of April 30, it is the best-selling book in the world and is generating the kind of controversy that one would expect for what is reportedly an updating of Marxist theory for the Internet age.

I haven’t read it, so can’t comment on the book itself. But the subject is a good springboard for a look at the actual tragedy of Karl Marx, which is that his ideas got tried out in the real world.

There are two parts to Marx’s main theory. One is a critique of capitalism as a system in which the guys who own factories and hire workers coalesce into an international class with a very specific set of goals: to drive workers’ wages down to just enough to keep them alive, to accumulate as much wealth as possible and to use that wealth to take over the political as well as the economic system. Eventually this process reaches a point where the 1% own pretty much everything, the 99% own virtually nothing, and the latter finally get fed up and take it all back for themselves. You get either a violent revolution or a political process that results in massive wealth taxes and comprehensive social programs to redistribute the capitalists’ ill-gotten gains.

So far, so good. This pretty much describes the period since 1971 when the world stopped basing their currencies on gold and began pouring trillions of newly-created, totally-unbacked dollars into a banking system that evolved from supporting real wealth creation to basically running everything for its own benefit. Bankers and their corporate and political allies accumulated vast fortunes while the rest of the world was pushed ever-further down the economic ladder. And now comes the revolution, with rising taxes and massive new entitlements in the developed world (see Obamacare in the US and a doubling of the sales tax in Japan) and violent revolutions in much of the developing world.

So Marx got this right and would be seen as a prophet if he’d stopped there. Unfortunately, he went on to predict that the revolt of the 99% would result in a “dictatorship of the proletariat” in which workers of the world abolished private property and ran things so wisely that government would just fade away.

This is of course crazy, and when it was tried in the 20th century it failed with catastrophic consequences for the Soviet Union, China, and a long list of smaller but no less tragic countries. In case the reasons for this failure aren’t obvious, here are the two big ones:

1) You can’t eliminate ownership of property. If it exists, someone has to own it, and if private individuals don’t, then government does. Governments are run by people and people are infinitely corruptible, so giving politicians and bureaucrats the infinite power of total ownership necessarily, always and everywhere, produces dictatorship. You just end up replacing rapacious but creative international bankers with brutal and uncreative political hacks.

 

2) This economic vision is static. It says that today’s factories represent society’s “wealth” and that running them right and distributing the proceeds equitably produces a happy world. But a modern economy is dynamic. Today’s factories are constantly being surpassed by tomorrow’s, as entrepreneurs come up with better ways of doing things. This creative destruction is the real source of wealth and the reason that capitalist societies progress — in terms of product quality and cost, if not necessarily in good sense and compassion. Compare today to 1950 and, well, there’s no comparison. One would have to be insane to go back to a time before smart phones, stem cell therapies and the Internet.

To freeze progress by putting bureaucrats in charge of everything is, in effect, telling creative individuals not to bother working 16 hours a day and taking big risks to revolutionize biotech or microchips or solar power because even if they can get their ideas past the people who would be made obsolete, they (the inventors) won’t be rewarded for their efforts in any tangible way. So, as Ayn Rand explained in Atlas Shrugged, the creative class goes on strike and society stagnates.

The result: brutal dictatorships and the eventual dismissal of the Marxist ideas on which those societies are founded.

Which is too bad, because Marx’s critique of the modern world was right-on, and the first half of his scenario is playing out just as he predicted. Now the challenge is devising a monetary/financial reset that brings the 99% back into the game without producing a stagnant dictatorship. It will help if we understand why it’s happening.

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The New York Times' Neil Irwin gives a balanced view of the new jobs numbers:

Rarely does a monthly report on the United States job market look so terrific on the surface while being so disappointing underneath.

 

***

 

Employers added a whopping 288,000 jobs, the most in two years.

 

***

 

The number of people in the labor force fell by a whopping 806,000, wiping out the February and March gains and a bit of January as well. The labor force participation rate fell by 0.4 percentage points to 62.8 percent, returning to its December level.

 

And the number of people reporting they were unemployed fell by 733,000, which sounds good on its surface, but paired with the similar-sized decline in the labor force points to job seekers giving up looking rather than finding new employment.

In other words, 288,000 jobs were created, but 806,000 fell out of the labor force and gave up looking for work altogether.  So 2.8 times as many people dropped out as found jobs.

As CBS notes:

The unemployment rate dropped to 6.3 percent in April from 6.7 percent in March, the lowest it has been since September 2008 when it was 6.1 percent. The sharp drop, though, occurred because the number of people working or seeking work fell. The Bureau of Labor Statistics does not count people not looking for a job as unemployed.

 

***

 

The amount (not seasonally adjusted) of Americans not in the labor force in April rose to 92,594,000, almost 1 million more than the previous month.

The number of women not in the labor force has risen to an all-time high.  there was a loss of jobs in the 25-54 age group,  And – in 20% of American families – no one works.

Despite what you may have heard, the huge numbers of people dropping out of the labor force can't be attributed to retiring baby boomers.

In reality, throwing money at the big banks has led to a  “jobless recovery” – a permanent destruction of jobs – which is a redistribution of wealth from the little guy to the big boys. (And see this.)

And most of the new jobs being created are low-wage or temporary jobs.

Also In the News:

• Enron 2.0: Wall Street Manipulates Energy Prices … and Every Other Market

• Banksters Pretend that Prosecuting Wall Street Crime Will Blow Up the Economy

• Big Banks Started Laundering Massive Sums of Drug Money In the 1980s … And Are Still Doing It Today

• Supreme Court Refuses to Uphold the Constitution: Allows Indefinite Detention

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This week's data marked a crucial turning point in US monetary policy. For all those "rules-following" economists out there with their various adaptions of the infamous Taylor Rule (a model that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions), this week marked the point at which ALL models suggest that Fed interest rate policy is simply too easy. This explains why the Fed has shifted to a qualitative forward guidance (reminding us of porn – we'll know when to tighten when we see it) as Rick Santelli so eloquently the fact that the Fed claims to be data-dependent "is a twilight zone" and as John Taylor himself notes, the Fed's QE policy "has not worked with few if any signs of success," and now, even as they taper, their rate policy is far too easy. Simply put, they're making it up as they go along (and it's never been more obvious).

 

We leave it to Santelli and Taylor to destroy the myth that the Fed has a clue…

 

And here are the various "rules-based" approaches all flashing "tighten" signals…

The Classic Taylor Rule Model…

 

The "aggressive" Taylor Rule Model…

 

The "Rudebusch" Taylor Model…

 

The "Mankiw" Taylor Model…

 

The "Stone & McCarthy" Taylor Rule Model…

 

The "Deutchse Bank" Taylor Rule Model…

 

 

But of course – The Fed knows best – so we leave it to Rick Santelli to slam the Fed apologists…who defend their wavy-hands non-rules-based approach…

Charles Evans made the following statement not long ago: "for me, there is a problem with simplistic approaches. simple tailor rules failed to express policy, intentions clearly"

 

[ZH: Yeah – because youy fucking nailed this:

 

 

Professor, where i come from, kiss is the rule of the day. keep it simple, or stupid, i'll say, keep it simple. what is wrong with simple where every player in the marketplace can tinker with your formula and nowhere fed funds ought to be. isn't that a better way?

 

Isn't a rule-based fed policy preferable? absolutely.

In other words… "they're making it up as they go along…" (forward to 1:46 for the punchline)

 

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Submitted by Dan Popescu via GoldBroker,

« Switzerland is for gold what Bordeaux is to wine », Gilles Labarthe, Swiss journalist and ethnologist.

 

When one thinks of Switzerland, banking comes to mind easily but gold doesn’t as much. After all, the relationship between Switzerland and gold is more ancient than the one with paper bank deposits. Certain bankers from Geneva, such as Lombard Odier and Pictet, started in 1800 and have more than 200 years of history. Back then, paper money didn’t exist yet and deposits consisted mainly of gold and silver. Today, still, a full two-thirds of the world’s gold goes through Switzerland and, in an average year, it refines grossly 70% of the world’s gold. Six of the gold refiners on the LBMA Good Delivery list make for 90% of global volume, and four of those are in Switzerland. Up until 1992, the Swiss franc’s 40% backing by gold was written in the country’s Constitution. When Switzerland became a member of the International Monetary Fund (IMF) it had to abandon this backing by gold. Today, Swiss citizens have asked for a referendum to be called in order to get back to that backing.

Gold is, along with silver, the oldest money in the world, hence its unbreakable relation with the banking system. Gold is also the most liquid and transportable wealth protection in time and space. In case of war or revolution, it is hard to flee with one’s property or other valuable assets as can be done with gold. In 1685, when the Nantes Edict was revoked by Louis XIV, Protestants were definitely denied their religious rights. This led most of the Huguenots to flee to the European Protestant countries, such as Switzerland.

We all know about Switzerland’s banking secrecy, but a little less about its origins. One might think that it originates in a text of law, like in other banking centers. But banking secrecy is profoundly buried in the Swiss mentality. One can always revoke a law, but it is very hard to change one’s state of mind or tradition. When you ask a question of a Swiss, you have to follow up with ten more questions in order to get a complete response. He will answer bit by bit. If you ask the same question of an Italian, he will tell you about his whole life. Having lived in Switzerland, this is how I can best describe Switzerland’s banking secrecy. Swiss people are discreet by nature. They don’t need laws… laws only reinforce what is de facto.

« It is not the federal banking laws’ article 47 that defines the notion of banking secrecy in Switzerland, but common law; banking secrecy thus falls under the general dispositions of the code of contractual obligations, as well as under articles 27 and 28 of the civil code, which put into law the principle of identity protection. » ⁽¹⁾ « Penalties for breaking this principle are covered by the federal banking laws’ article 47, constituting a disposition of administrative penal law. »⁽²⁾ The civil code protects every personal right worth protecting and, notably, private life secrecy. The Swiss federal Court estimates that, « the inviolability of private life does not only constitute a moral principle, but is also a civil right, a « judicial asset »; it is an attribute of personality, and the law protects it. »⁽³⁾ And privacy in the economic sphere is also protected.

 

« What sane man would not put away some money in swiss banks? Switzerland is the vault of the world », Félix Houphouët-Boigny, former President of the Ivory Coast.

 

For a long time Switzerland has been building infrastructures to safeguard financial assets such as gold. Its political stability, its neutrality, its defense system based on a militia army, and the Alps, that serve as a natural fortress, make Switzerland the ideal safe vault for gold. In addition, we can add to that ultra-qualified personnel, more dedicated to excellence than to volume.

During the crisis of the London Gold Pool in the ‘70s, Zurich has even come close to becoming the main gold trading hub, at the expense of London. The Bank for International Settlements (BIS), the central banks’ banker, is still based in Basel. Almost all of central banks’ gold trades are effected by the BIS in the utmost discretion. The headquarters of the World Gold Council was in Zurich, before moving to London recently. Geneva, where the most important jewelry auctions take place, has also been the global center for jewelry and watchmaking for many years.

The sound management of public finances has the effect of the Swiss franc mimicking the price of gold closely. Recently, in order to protect its exporting businesses, Switzerland decided to peg the Swiss franc to the euro, thus diminishing its attraction as an anti-inflation currency (in favor of gold). Even though Swiss banking secrecy is no longer backed as much by the authorities and the large banks, it still remains strong in the mentality of the Swiss people. True, the Americanization of the Swiss banking system since the ‘80s has weakened banking secrecy and the role of gold in fortune management. However, having talked with Swiss wealth managers, I see that this is starting to change and that, without admitting it publicly, they include more and more gold in their clients’ portfolios. In the last ten years, several companies specialising in gold storage for businesses and individuals, outside the banking system, have appeared.

The Swiss have a reputation for excellence in gold refining. That has let Switzerland become the hub of gold refining, with nearly 70% of the world’s gold transiting through the country. Mining companies and gold recyclers export to Switzerland, where the gold is purified to the highest levels (.9999 or even .99999). It is then exported in the whole world to jewellers, investors or central banks.

The best precious metals storage and safekeeping companies are also based in Switzerland.

Other countries are trying to compete with Switzerland, but they still have a long way to go, especially since Switzerland is not sleeping on its laurels. Two of those countries are City-States like Dubai and Singapore. Singapore is a stable haven in Asia, as is Dubai in the Middle East, but they haven’t reached Switzerland’s level yet. Dubai is trying to develop an expertise in refining and trading gold, whereas Singapore, already with an excellent infrastructure for wealth management, is developing its capacity for gold storage and, also, a gold trading market for Asia.

We live in uncertain times, and no one is safe from unforeseen events. In the actual context, it seems to me that Switzerland is the best place to store gold. However good the infrastructures may be, one must never lose sight of the financial health of the country in which one wants to store gold. A fiscal or financial paradise that has gone into debt loses its independence and will not hesitate to use legal means to confiscate assets and, thus, gold, that are on its territory, as we’ve seen with Cyprus recently. The United States and the European Union have already adjusted their legislation for possible confiscation. Even Switzerland was taking the wrong road with its public finances in the ‘90s but, thanks to direct democracy, a positive radical change has taken place. This is a positive element for Switzerland, even though I remain vigilant. The only caveat I have is that the large Swiss banks, because of high exposure to derivatives and being very present in the United States, have lost a little of their financial stability and, consequently, a little of their independence.

 

« It is said that the Swiss only love money… this is not true. They also love gold. » Anonymous

 

Gold Price vs Swiss franc

 

Largest Gold Refineries by Capacity (tonnes per year)

 

Switzerland’s Gold Trading (2013)

 

Gold Trading between Hong Kong and Switzerland

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