Tag: finance

Ukraine President Flees Kiev After "Coup D'Etat" As Protesters Storm Presidential Palace, Plunder Gold; Army On Hold

It has been a busy night in the Ukraine.

First, the newly-installed interior minister declared that the police were now behind the protesters they had fought for days, giving central Kiev the look of a war zone with 77 people killed, while central authority crumbled in western Ukraine. Then despite yesterday’s latest anti-crisis “agreement” which we said would last at best hours, the protesters continued their pressure against embattled president Yanukovich, demanding his outright and unconditional resignation, leading to his fleeing Kiev by airplane overnight to the far more pro-Russian city of Kharkiv located in the Eastern Ukraine, even as his arch rival, Yulia Tymoshenko, who is held in prison in the same city, was rumored to have been released on her way to the far more anti-Russian city of Kiev – it turns out those rumors have so far been incorrect.

Then there was a plethora of rumors that he has or is about to either escape the country and/or resign, sparking celebrations in Kiev, only for him to appear on TV subsequently and not only deny a resignation is coming, but that he accused the current leaders in Kiev of staging a coup d’etat and that all parliamentary decisions today have been illegitimate, saying “I did all I could to avoid bloodshed” while comparing recent events in the Ukraine to the “Fascist Revolution” in Germany. This was promptly rebutted by the Polish foreign minister Radoslaw Sikorski who tweeted there is no coup in Kiev and President Viktor Yanukovych has 24 hours to sign re-adopted 2004 constitution into law.

The just released interview is below:

Most importantly, all of this is happening as governors, and regional legislators in eastern Ukraine question authority of national parliament. Meanwhile over in the “western” Kiev, Parliament members of the opposition began laying the groundwork for a change in leadership, electing Oleksander Turchynov, an ally of the imprisoned opposition leader and former prime minister, Yulia V. Tymoshenko, as speaker. And Mr. Klitschko called for new elections to replace Mr. Yanukovych by May 25. “Millions of Ukrainians see only one choice — early presidential and parliamentary elections,” he tweeted.

The NYT reports:

Members of an opposition group from Lviv called the 31st Hundred — carrying clubs and some of them wearing masks — were in control of the entryways to the palace Saturday morning. And Vitali Klitschko, one of three opposition leaders who signed the deal to end the violence, said that Mr. Yanukovych had “left the capital” but his whereabouts were unknown, with members of the opposition speculating that he had gone to Kharkiv, in the northeast part of Ukraine.

 

Protesters claimed to have established control over Kiev. By Saturday morning they had secured key intersections of the city and the government district of the capital, which police officers had fled, leaving behind burned military trucks, mattresses and heaps of garbage at the positions they had occupied for months.

All of this is pointing to a national schism between the pro-Russian east, and its new de facto capital, Kharkiv, and the western part of the nation, where the EU (and CIA) influences are strongest. Luckily, for now there won’t be a military involvement:

  • UKRAINE DEFENSE MIN: ARMY WON’T BE INVOLVED IN GOVT CONFLICT

… for now.This will likely change: moments ago Russia’s Foreign Minister said Ukraine’s opposition is led by “armed extremists” and their actions pose direct threat to Ukraine’s sovereignty, which means a Russian involvement in some capacity is imminent.

Perhaps more important was the following statement:

  • UKRAINE TO ENSURE SMOOTH NATGAS TRANSIT TO EU, DEP PREMIER SAYS

That would the Russian gas which traverses the country, which can be halted with the turn of a spigot.

 

Bottom line, the situation is fluid, and is increasingly bordering on an all too real threat of civil war between the country’s linguistically and affiliation-divided west and east.

 

The one thing that is clear is that the former presidential compound is now in the power of the people. From CBS.

The protesters, who are angry over corruption and want Ukraine to move toward Europe rather than Russia, claimed full control of Kiev and took up positions around the president’s office and a grandiose residential compound believed to be his, though he never acknowledged it.

 

At the sprawling suburban Kiev compound, protesters stood guard and blocked more radical elements among them from entering the building, fearing unrest. Moderate protesters have sought to prevent their comrades from looting or taking up the weapons that have filled Kiev in recent weeks.

 

The compound became an emblem of the secrecy and arrogance that defines Yanukovych’s presidency, painting him as a leader who basks in splendor while his country’s economy suffers and his opponents are jailed. An AP journalist visiting the grounds Saturday saw manicured lawns, a pond, several luxurious houses and the big mansion itself, an elaborate confection of five stories with marble columns.

 

Protesters attached a Ukrainian flag to a lamppost at the compound, shouting: “Glory to Ukraine!”

 

A group of protesters in helmets and shields stood guard at the president’s office Saturday. No police were in sight.

Which brings us to the most interesting finding of the day: what has so far been plundered from the palace:

Inside Yanukovych’s private residence

Pictures emerging from the president’s private residence in the outskirts of Kyiv after protesters stormed the building.

 

Protesters with an “euromaidan” flag at Yanukovych’s balcony.

And as usually happens, the plundering has revealed numerous golden coins discovered in Yanukovych’s garage and a 1 kg gold coin with the president’s portrait.

Finally, for the blow by blow, or rather tweet by tweet of events in the past 24 hours, we go to Euronews which has done the best job of summairizing the constatntly changing situation:

Yanukovych on TV:  “I’m not leaving the country”

On an interview broadcast minutes ago on ukrainian TV UBR, and recorded at 12h30, president Yanukovych refuses to resign saying “we’ve taken all the steps to stabilize the country, we voted an amnesty law and organised early elections”. The president that fled Kyiv to go to Kharkiv also says, “I’m trying to protect people from bandits”. Yanukovitch compares also Ukraine now to Nazi Germany in the 30s. In the interview, the president assures that he’s not leaving the country. He also denounced on Saturday what he described as a “coup d’etat”. “The events witnessed by our country and the whole world  are an example of a coup d’etat,” he was quoted as saying.

 

Yanukovych resignation to be read soon at the parliament

Euronews’ correspondents in Kyiv report that the statement should be read at the parliament in the next minutes.

Waiting for the release of jailed former Prime-Minister Yulia Tymoshenko. Conflicting reports that she was already freed from Kharkiv jail.

Tymoshenko daughter speaks to Kyiv Post at parliament, says releasing her mom won’t be easy


    



via Zero Hedge http://ift.tt/1f8xyzI Tyler Durden

FX: Be Skeptical of Breakouts

The technical outlook for the dollar against the major currencies is not clear.  Yet, given the key events over the next two weeks, we are suspicious of the market’s willingness to sustain breakouts.  This seems particularly true for the euro, where it has drawn within striking distance of the old nemesis in the $1.3800 area.

 

In the week ahead, the two pillars of the ECB’s monetary policy, money supply and inflation, will be reported.  Soft reports, following the disappointing PMI survey data, may influence the outcome of next month’s ECB meeting, at which time new forecasts will be presented, and for the first time, extended to 2016.  

 

The weaker the data, the more the speculation will likely mount that the ECB will take additional action on March 6.  Many talk about a small cut in the repo rate.  It would only be token as it is arguably not the key rate right now.  The problem is not that that it is not that the repo rate is 10 or even 15 bp too high.  To reduce the volatility of EONIA, cutting the lending rate, the ceiling, currently at 75 bp, could be more effective. The underlying problem is access to capital for small and medium businesses and households, when banks are de-leveraging.  We continue to believe that a negative deposit rate is an extreme and unprecedented move, for which there is a reasonable risk of significant disruptions.

 

The point is that between the data, ECB meeting and the US employment data on March 7, there is sufficient event risk to deter a strong euro gains from here.  It is in the upper end of its 5-month 5-cent trading range, roughly $1.33-$1.38.  This may help explain why implied volatility made new multi-year lows in recent days.  It is hard to be bullish the euro, if you have a 3-6 month horizon or longer, even if you recognize, as we do, risk that the euro could see $1.40.

 

Sterling may be in a somewhat better position.  The market has largely taken on board the probability that the BOE is the first of the major central banks to hike rates and at is not, most likely until early 2015.   There is some risk of an earlier than a later move.  Yet, even here the technical indicators are not generating strong signals and market positioning appears stretched.  The price action on Friday was poor; an outside down day was recorded.  This warns of risk of a deeper correction if the $1.66 area is violated.  A break could signal another leg down, perhaps a little more than a cent, though some chart-based support seen in the $1.6530 area.

 

The dollar’s three-week uptrend against the yen remains intact.  The uptrend line drawn off the Feb 2 and 17 lows, caught the Fed 20 low.   It comes in near JPY102 at the end of the week ahead.  On the top side, there is immediate scope toward JPY103.10, but the real test is probably nearer JPY103.45.  

 

The US dollar is near a breakout against the Canadian dollar, having tested the CAD1.12 multi-year high set at the end of January in response to the exceptionally poor December retail sales data (-1.8% rather than the consensus call of -4%) released just before the weekend.  Recall that at midweek, the US dollar had approached CAD1.09 for the first time in a month.  The rebound did not appear to be initially sparked by fresh US or Canadian data, though some attribute it to the disappointing Chinese data.    In lieu of a breakout, if a consolidative phase emerges, it means a somewhat softer US dollar.

 

The Australian dollar ran out of steam the day before the Canadian dollar did against the US dollar near $0.9080.  It proceeded to fall to $0.8930 before staging an impressive recovery on Feb 21.  However, despite the intra-day reversal, the Aussie could not build on extend its recovery before the weekend.  A convincing break now could quickly see $0.8880.

 

It is difficult to get excited about the Mexican peso in the near-term.  The US dollar continues to trade largely in  a MXN13.17-MXN13.40 range and the technical indicator are not pointing to an imminent breakout.  Economic data continues to disappoint and even the longer-term peso bulls, like ourselves, are not in a particular hurry.

 

Observations from the speculative positioning in the CME currency futures:  

 

1.  The net euro position switched to a small long (8.6k contracts) from a small short (6.9k contracts). On the other hand, the small net long Swiss franc position (600 contracts) switched to small net short (2.8k contracts).

 

2.  There were four significant position adjustments (over 10k contracts) among the 14 gross positions were examine.  The gross long euro position rose 13.6k contracts to 88.6k.  The gross short Mexican peso position was cut by 12.2k contracts to 31.4.  Sterling account for the other two:  gross longs jumped 23.1k contracts to 76.3k and the gross short positions increased by 11.4k contracts to 53.9k.  

 

3. One theme that stands out from the latest reporting period is greater involvement.  Of the 14 gross positions, only 5 fell:  short euros were trimmed by almost 2k contracts to 80.0 and gross longs and shorts were reduced in the Australian dollar and Mexican peso.  Outside of the little more than a quarter decline in the gross peso shorts we noted above, the other position reductions in the Aussie and peso were minor  (less than 4k contracts)

 

4.  Sterling positioning is extreme in the sense that rarely over the past two decades has the net long position exceeded 20k contracts.  It stands at 23.3k at the end of the reporting period that ended February 18.  The gross long positions are approaching the highest level since 2012.  That both gross longs and short rose warns of the risk of further consolidation, which makes neither bull nor bear happy.  

 

5.  Although it was not large, the 4k contract increase in gross short yen positions (to 96.5k contracts) is the first rise since before Xmas.


    



via Zero Hedge http://ift.tt/1p6u2i7 Marc To Market

Guest Post: China – The Insecure Global Power

Submitted by Kerry Brown via The Diplomat,

We speak of China now as more assertive, confident and sure of its position in the world. And yet wealth and the hard power that has come with it seem in fact to have made China’s behavior more insecure, not less so. Insecurity above all is the more accurate description of China’s diplomatic character at the moment, rather than a newfound confidence.

One can see this most easily not in grand geopolitics but on the granular level of China’s relations with regional powers around its borders. Cambodia stands as a kind of bellwether state. During the late Maoist period, it is now increasingly clear, Cambodia did little without leaders in Beijing knowing. In particular, China’s links with the Khmer Rouge leadership from 1975 on were profound and varied. Pol Pot, according to a superb account in veteran journalist Francis Deron’s Le Procès Des Khmers Rouges, visited Beijing secretly three times: in 1966, in 1970 and then, only two months after seizing power, in June 1975. He had his only ever state visit abroad to Beijing in 1977. Mao Zedong would grant Khieu Samphan, the regime’s Head of State, an audience in 1974 before they had even come to power, and Ieng Sary, who was to become Kampuchea’s Foreign Minister, ran what was in effect a liaison office from Beijing from 1971. Andrew Mertha of Cornell University has just written a further account of the immense amounts of Chinese aid that went to the Khmer Rouge regime. In light of this evidence, it is hard to not see Cambodia during this era as almost akin to a client state. No principles of “non-interference in the affairs of others” stopped China from having a huge say in the way the country was run and how it acted diplomatically.

Four decades later, Cambodia is now a wholly different neighbor. While the main thoroughfare in Phnom Penh is called Mao Zedong Boulevard, the real focus of Cambodians is on business opportunities in Guangdong rather than making political links with stuffy Beijing. And long term Prime Minister Hun Sen plows his country’s own nationalist furrow. Chinese investment and trade are all welcome, but the days of Beijing supremacy are long over. A similar pattern can be seen in Vietnam, Myanmar, the Philippines and Laos. The era of stark choices between friends and enemies fostered by the Cold War has left a region with blurred allegiances and almost constantly changing loyalties. China can search for leverage in vain in this new context, but it knows than even endless amounts of trade, aid, and financial largesse don’t buy much any longer.

In this context, China’s remaining solid relationships with the DPRK and Pakistan are the exceptions that prove the rule. China as number two in the world is now ironically more isolated than when it was a relatively small player. Having “friends” like the world’s last Stalinist state under its increasingly worrying and capricious young leadership, and Pakistan, riddled with instability and uncertainty, raise the question of why in this sort of neighborhood you would bother having friends at all. But even more concerning is China’s relative impotence in being able to do anything about the DPRK, despite multiple provocations and irritations. The DPRK almost daily shows the limits of Chinese influence over the only country one would expect to see some sort of traction.

In Chinese politics, being number two in the hierarchy was always the worst place to end up. Mao’s various chosen successors all met sticky ends once they were immediately below him in the pecking line. The same could be said for Deng and his first few choices. Number two is a tough place to be. How ironic, therefore, that diplomatically China is finding out that being the world’s second largest economy and almost universally regarded as a sort of heir apparent to the United States’ slipping great power mantle is like being caught between a rock and a hard place. This expectation of prominence and power by outsiders towards China seems to have made the country even more jittery, even more narrowly focused on relatively small strategic issues like its maritime borders, and even more defensive.

The simple fact is that the world is still waiting for a bolder statement from China about what its modern role is. So far no one in the country’s ruling elite has dared to try to articulate this. That, more than anything, is a sign of how profound China’s current feeling of insecurity and uncertainty is, under the bluff exterior of all the nationalist posturing.


    



via Zero Hedge http://ift.tt/1nUQ0RS Tyler Durden

EIA Chief: Boundless Natural Gas, Boundless Opportunities

Despite stockpiles imploding and prices exploding in the short-term, The U.S. Energy Information Administration (EIA) has predicted that natural gas production in the US will continue to grow at an impressive pace. Right now output is close to 70 billion cubic feet a day and is expected to reach over 100 billion cubic feet per day by 2040. The trend is likely to continue without hitting a geologic “peak”, and along with this trend will come new marketing opportunities for America. The following exclusive interview with OilPrice.com answsers some of the bigger questions…

In an exclusive interview with Oilprice.com, EIA Administrator Adam Sieminski discusses:

•    What’s at stake in lifting the US crude export ban
•    Whether lifting the ban is inevitable
•    Why energy-related CO2 emissions will likely climb this year
•    What we can expect from US coal output through 2014
•    Why US natural gas production will continue to grow strongly
•    Where we can expect (unexpectedly) new production to come from
•    Why Alaska just might surprise us
•    Where the biggest new shale opportunities lie
•    How production increases might come from ‘non-shale’ formations
•    The potential for Colombian shale
•    What to expect from Mexico’s reforms
•    What the Panama Canal expansion really means
•    Why we will see new marketing opportunities for the US

Interview by James Stafford of Oilprice.com

Oilprice.com: US mainstream media are heralding the debate over lifting the US crude oil export ban as potentially one of the most critical for this year. While most agree this is not likely to happen anytime soon, is it an eventuality?

Adam Sieminski: When I first took office at the EIA, I said that light sweet crude oil production was growing very rapidly, and that it would ultimately have a number of impacts on the energy infrastructure in the US; for instance, that we would see changes in things like movement of oil by rail.  We would see changes in refinery configurations designed to deal with light sweet crude. The Gulf Coast refineries in the US over the past decade were upgraded to run heavy sour imports, and so there are issues with the ability of refineries in the US to handle rapid increases in light sweet crude oil production.

I noted at the time that at some point, policymakers were going to be confronted with all of these changes resulting from the enormous shift in thinking about US production growth.  Five or 10 years ago, everybody thought that US oil production would just go down, and demand would always go up. Now we have in the EIA’s forecast over the next five years very strong growth in crude oil production and weak growth—if not negative trends—going on in gasoline and liquid fuels demand.  This creates an interesting atmosphere.

Is lifting the crude export ban inevitable? I’m not sure that anything is inevitable. Certainly what I’ve learned in the last five years is that the inevitable declines in production and growth in demand didn’t come true.

Oilprice.com: What are the congressional hurdles faced here?

Adam Sieminski: I don’t know that there’s a hurdle. That’s a question that’s going to be dealt with by policymakers. Energy policy issues generally tend to involve environmental concerns, national security concerns, and economic concerns.  

The biggest hurdle that congress faces is just having good information on future trends in supply and demand, refinery configurations and pipeline and railroad transportation infrastructure.

Oilprice.com: What would be the consequences of lifting this ban, for the industry, for refiners, for consumers?

Adam Sieminski: Well, that’s going to be part of the debate. I don’t have the answer to that, and I doubt that anybody at this point has the complete answer to that question. What is the economic impact? Does it increase jobs or not? What is the environmental impact of producing, moving and refining the crude oil? What are the national security implications? Is it better to keep the oil here, or to move it into global markets where it might have an ameliorating effect on volatility? There are a lot of questions, so I’m not going to try to pre-judge that debate.

Oilprice.com: The EIA has noted that after two years of declining production, US coal output is expected to increase in 2014, forecast to rise almost 4%,  as higher natural gas prices make coal more competitive for power generation. At the same time, there is concern about the EPA’s proposed new carbon emissions standards for power plants, which would make it impossible for new coal-fired plants to be built without the implementation of carbon capture and sequestration technology, or “clean-coal” tech. Is this a feasible strategy in your opinion?

Adam Sieminski: Well, the facts as you laid them out are certainly what the EIA is looking at.  Natural gas prices have gone up, so in 2013, we already saw some recovery in coal at electric utilities. As a consequence, energy-related carbon dioxide emissions actually climbed in 2013 and probably are going to do so again in 2014 for the reasons that you stated.

Longer term, even without changes by the Environmental Protection Agency, there’ll be coal retirements, and the amount of coal being burned in the US will eventually come below the amount of electricity being generated by natural gas. So sometime after the year 2030, we will have more electricity in the US being produced from natural gas than from coal.

Oilprice.com: What can we expect from US onshore natural gas production over the next two years; over the next five years? And where will production increases offset declines?

Adam Sieminski: Well, the EIA has been pretty clear on this in our Annual Energy Outlook Reference case for 2014, which we published in mid-December. We reiterated what we said the previous year: natural gas production in the US is going to continue to grow very strongly. We are close to 70 billion cubic feet a day of output now. That number will be over 100 billion cubic feet a day by 2040. Shale gas will be easily 50% or more of production by 2040.

We also see increases in natural gas production from geologic formations that we don’t consider to be shale gas. We think that there might also be some production, believe it or not, from Alaska, because the economics ultimately will favor construction of an LNG facility in Alaska that would allow production from the associated gas in the North Slope of Alaska.

Just in the last five years, we’ve seen natural gas production in the US from shale go from about five billion cubic feet a day to nearly 30 billion cubic feet a day–a huge increase. A lot of that is coming from places like the Haynesville—and more recently the Marcellus in Pennsylvania and West Virginia. In our view, those production trends are going to continue without the likelihood of running into a plateau from a geologic standpoint.

Oilprice.com: How do you see future extraction, development and commercialization of oil and gas resources in the Americas playing out over the next 5-10 years?

Adam Sieminski: Well, the big new opportunities, I think–certainly in the US and Canada–lie in the development of shale resources. There are oil and gas shale resources in places like Argentina, Mexico, Columbia, and elsewhere across the Americas. Whether or not the very rapid development of shale resources in the US can be duplicated in a lot of other countries—even in the Americas—remains to be seen. Certainly there has been some interesting progress in developing shale resources in Canada and Argentina.

I’ve been hearing from many people that they’re quite hopeful there will be developments in shale in Colombia, and given the constitutional changes that have now been agreed in Mexico, that opens up an opportunity for Mexico to step into this area.

One of the things that is happening is the increase in oil production in the US and the fact that we have very sophisticated refineries with very strong technology, while relatively low natural gas prices are allowing us to run our refineries at higher utilization rates and dispose of surplus products—by exporting petroleum products like gasoline and diesel fuel—into Latin America and Canada.

In a sense, this creates a manufacturing opportunity for the US to take a raw material, process it, and sell it abroad. It also fits in pretty well with the fact that a number of countries in Latin America have had difficulty in building and upgrading their own refineries.  So it’s opened up a marketing opportunity for the United States to take advantage of.

Oilprice.com: What can we expect from Mexico’s recently adopted energy reforms and what regional effect could this have?

Adam Sieminski: Well the Mexican government and Pemex, the state oil company, are very excited about the opportunities they see for Mexico to increase its production and to take advantage of some of the new technologies that are available through cooperation with non-Mexican companies. They believe that it is going to be instrumental in reversing some of the difficulties they’ve had in oil production and natural gas production.

It certainly looks to the EIA as something that we’re going to have to watch very carefully when considering the longer-term outlook for Mexican energy production.

We actually bumped up the Mexican numbers because of the opportunities we think will be created by constitutional reform there. If the implementation of that proceeds along the lines that the Mexicans are considering, I think we’ll probably have to look at it again.

Oilprice.com: In its latest report, the EIA notes that the Americas accounted for 20% of global natural gas trade, and while 80% of that was via pipeline, the rest was traded as LNG. How do you see this proportion changing over the next 5-10 years?

Adam Sieminski: Well, I suspect that we’re going to see more of both. Our longer-term outlook shows US pipeline exports of natural gas to Mexico going up, and we also see LNG exports from the United States increasing. We’re not responsible for permitting. What we try to do is look at the economics. We run our national energy modeling system to basically say, “What would the economics do if you let them run?” And that shows we’re likely to see increases in exports of both LNG and pipeline gas.

Interestingly, the model also says that there’s plenty of production to do that and still allow demand in the US to go up considerably. We’re seeing demand increases in natural gas use by refineries; it’s a big refinery fuel. And in the industrial sector, we see significant gains in natural gas consumption occurring in areas like bulk chemicals, food processing, and elsewhere. And then the biggest increases in natural gas may come from electric utilities, which will likely be using more natural gas relative to coal to provide electricity growth in the United States.

Oilprice.com: Is the US Department of Energy moving too quickly or too slowly to approve LNG exports to non-FTA countries?

Adam Sieminski: I think that the Department of Energy’s Department of Fossil Energy, which is responsible for permits, is moving exactly the way it should under the law to make the kinds of findings necessary from a legal standpoint. I wouldn’t characterize it as too fast or too slow. I would say that from what I can see, it’s just right given the legal framework.

Oilprice.com: When could we expect the US to become a net gas exporter?

Adam Sieminski: The EIA’s forecast is that the US will become a net exporter of natural gas before the end of this decade.

We’re already a net exporter of coal. In terms of electricity, most of our trade is with Canada, and that never really seems to have been much of an issue. The US is also a net exporter of petroleum products, so we now export more gasoline and diesel fuel than we import. We import a lot of oil products, particularly into the East and West Coasts. But we are a big exporter, mostly from the Gulf Coast, with the increase in refinery utilization down there. The overall picture now is one in which the US trade deficit is being reduced by growing oil and petroleum product exports.

The only big outstanding question is: could the US potentially be a net exporter of crude oil? In the EIA’s Reference case forecast, that doesn’t seem likely. Despite the fact that our production is rising while demand is falling, we’re still importing about five million barrels a day net of of crude oil and products. It doesn’t seem likely that net importsd are going to go to zero–at least not given the facts as we currently see them. It’s possible, in a high petroleum resources case combined with a technology and policy-driven low demand case, but not probable.

One thing you want to keep in mind is what it would mean, exactly, if the US were completely self-sufficient in energy. Some people like to use the phrase, “energy independence.” We would still be part of a global trading system in energy, and particularly petroleum products and crude oil. And if oil prices go up globally, they’re going to go up in the United States. If there’s a geopolitical problem somewhere or a weather problem somewhere—anything—the US would be impacted just as it has always been. The US has a lot of interest in what’s going on around the world, in the Middle East and elsewhere, regardless of whether it is independent or self-sufficient in fuels. Those political and economic interests will remain whether we become an exporter or not.

Oilprice.com: What role will the expansion of the Panama Canal play in this?

Adam Sieminski: What they’re doing is widening the Panama Canal. They’ll make the Canal itself wider and the locks longer, and the net result will be the potential to save in transportation costs through the use of larger oil tankers and LNG tankers. This offers an opportunity to reduce the costs associated with global trade. It is something that I know Panama and all of the customers who use the Panama Canal are very interested in seeing happen. There have been some cost and labor issues, but I’m sure those will be resolved and this expansion will eventually be completed. When that happens, it’s going to reduce the cost of moving goods back and forth between the Atlantic and the Pacific, and that’s going to apply particularly to things like liquefied natural gas and oil.


    



via Zero Hedge http://ift.tt/1ef7nav Tyler Durden

Feds Withhold Water To California Farmers For First Time In 54 Years

The US Bureau of Reclamation released its first outlook of the year and finds insufficient stock is available in California to release irrigation water for farmers. This is the first time in the 54 year history of the State Water Project. “If it’s not there, it’s just not there,” notes a Water Authority director adding that it’s going to be tough to find enough water, but farmers are hit hardest as “they’re all on pins and needles trying to figure out how they’re going to get through this.” Fields will go unplanted (supply lower mean food prices higher), or farmers will pay top dollar for water that’s on the market (and those costs can only be passed on via higher food prices).

 

Via AP,

Federal officials announced Friday that many California farmers caught in the state’s drought can expect to receive no irrigation water this year from a vast system of rivers, canals and reservoirs interlacing the state.

The U.S. Bureau of Reclamation released its first outlook of the year, saying that the agency will continue to monitor rain and snow fall, but the grim levels so far prove that the state is in the throes of one of its driest periods in recorded history.

Unless the year turns wet, many farmers can expect to receive no water from the federally run Central Valley Project.

… the state’s snowpack is at 29 percent of average for this time of year.

…

California officials who manage the State Water Project, the state’s other major water system, have already said they won’t be releasing any water for farmers, marking a first in its 54-year history.

…

“They’re all on pins and needles trying to figure out how they’re going to get through this,” Holman said, adding that Westland’s 700 farmers will choose to leave fields unplanted, draw water from wells or pay top dollar for water that’s on the market.

Farmers are hit hardest, but they’re not alone. Contractors that provide cities with water can expect to receive half of their usual amount, the Bureau said, and wildlife refuges that need water flows in rivers to protect endangered fish will receive 40 percent of their contracted supply.

Contractors that provide farmers with water and hold historic agreements giving them senior rights will receive 40 percent of their normal supplies. Some contracts date back over a century and guarantee that farmers will receive at least 75 percent of their water.

One of those is the San Joaquin River Exchange Contractors Water Authority in Los Banos that provides irrigation for 240,000 acres of farmland.

The Water Authority’s executive director Steve Chedester said farmers he serves understand that the reality of California’s drought means it’s going to be tough to find enough water for them. “They’re taking a very practical approach,” he said. “If it’s not there, it’s just not there.”


    



via Zero Hedge http://ift.tt/1gTVhbL Tyler Durden

Peter Schiff On WhatsApp And The “Dysfunctional And Distorted Economy”

Submitted by Peter Schiff of Euro Pacific Capital,

Two pieces of business news announced this week provide a convenient frame through which to view our dysfunctional and distorted economy. The first (which has attracted tremendous attention), is Facebook’s blockbuster $19 billion acquisition of instant messaging provider WhatsApp. The second (which few have noticed) is the horrific earnings report issued by Texas-based retail chain Conn’s. While these two developments don’t seem to have much in common, together they shed some very unflattering light on where we stand economically.
 
Given the size and extravagance of the Facebook deal, it may go down as one of those transactions that define an era (think AOL and Time Warner). Facebook paid $19 billion for a company with just 55 employees, little name recognition, negligible revenues, and little prospects to earn much in the future. For the same money the company could have bought American Airlines and Dunkin’ Donuts, and still have had $2 billion left over for R&D. Alternatively they could have used the money to lock in more than $1 billion in annual revenue through an acquisition of any one of the numerous large cap oil producing partnerships. Instead they chose a company that is in the business of giving away a valuable service for free. Come again?
 
Mark Zuckerberg, the owner of Facebook, is not your typical corporate CEO. Through a combination of technological smarts, timing, luck, and questionable business ethics, he became a billionaire before most of us bought our first cars. And in the years since social media became the buzzword of the business world, Wall Street has been falling over backward to funnel money into the hot sector. As a result, it may be that Zuckerberg looks at real money the way the rest of us look at Monopoly money. It also helps that a large portion of the acquisition is made with Facebook stock, which is also of dubious value.
 
But even given this highly distorted perspective, it’s still hard to figure out why Facebook would pay the highest price ever paid for a company per employee – $345 million (more than four  times the old record of $77 million per employee, set last year when Facebook bought Instagram). The popular talking point is that the WhatsApp has gained users (450 million) faster than any other social media site in history, faster even than Facebook itself. Based on its rate of growth, the $42 per user acquisition cost does not seem so outrageous. But WhatsApp gained its users by giving away a service (text messaging) for which cellular carriers charge up to $10 or $20 per month. It’s very easy to get customers when you don’t charge them, it’s much harder to keep them when you do.
 
Boosters of the deal expect that WhatsApp will be able to charge customers after the initial 12-month free trial period ends (it now charges 99 cents per year after the first year). Based on this model, the firm had revenues of $20 million last year. But what happens if another provider comes in and offers it for free? After all, the technology does not seem to be that hard to replicate. Google has developed a similar application. More importantly, no one seems to be projecting what the cellular carriers may do to protect their texting cash cows.
 
WhatsApp gives away what AT&T and Verizon offer as an a la carte texting service. As these carriers continue to lose this business we can expect they will simply no longer offer texting as an a la carte option. Instead it will likely be bundled with voice and data at a price that recoups their lost profits. If texting comes free with cell service, a company giving it away will no longer have value. People will still need cellular service to send mobile texts, so unless Facebook acquires its own telecom provider, it can easily be sidelined from any revenue the service may generate.
 
Some say that texting revenue is unimportant, and that the real value comes from the new user base.  But how many of the 450 million users it just acquired don’t already have Facebook accounts? And besides, Facebook itself hasn’t really figured out how to fully monetize the users it already has. In other words, it is very difficult to see how this mammoth investment will be profitable.
 
From my perspective, the transaction reflects the inflated nature of our financial bubble. The Fed has been pumping money into the financial sector through its continuous QE programs. The money has pushed up the value of speculative stocks, even while the real economy has stagnated. With few real investments to fund, the money is plowed right back into the speculative mill. We are simply witnessing a replay of the dot com bubble of the late 1990’s. But this time it isn’t different.
 
In another replay of that spectacular crash fourteen years ago, the appliance and furniture retailer Conn’s has just showed the limits of a business built on vendor financing. In the late 1990’s telecom equipment companies almost went bankrupt after selling gear to dot com start-ups on credit. For a while, these “sales” made growth and profits look great, but when the dot coms went bust, the equipment makers bled. Conn’s makes its money by selling TVs and couches on credit to Americans who have difficulty scraping up funds for cash purchases. For a while, this approach can juice sales. Not surprisingly, Conn’s stock soared more than 1500% between the beginning of 2011 and the end of 2013. These financing options are part of the reason why Conn’s was able to keep up the appearance of health even while rivals like Best Buy faltered in 2013.
 
But if people stop paying, the losses mount. This is what is happening to Conn’s. The low and middle-income American consumers that form the company’s customer base just don’t have the ability to pay off their debt. The disappointing repayment data in the earnings report sent the stock down 43% in one day.
 
In essence, Conn’s customers are just stand-ins for the country at large. In just about every way imaginable, America has borrowed beyond its ability to repay. Meanwhile our foreign creditors continue to provide vendor financing so that we can buy what we can’t really afford.
 
So thanks for the metaphors Wall Street. Too bad most economists can’t read the tea-leaves


    



via Zero Hedge http://ift.tt/1hDhspv Tyler Durden

Peter Schiff On WhatsApp And The "Dysfunctional And Distorted Economy"

Submitted by Peter Schiff of Euro Pacific Capital,

Two pieces of business news announced this week provide a convenient frame through which to view our dysfunctional and distorted economy. The first (which has attracted tremendous attention), is Facebook’s blockbuster $19 billion acquisition of instant messaging provider WhatsApp. The second (which few have noticed) is the horrific earnings report issued by Texas-based retail chain Conn’s. While these two developments don’t seem to have much in common, together they shed some very unflattering light on where we stand economically.
 
Given the size and extravagance of the Facebook deal, it may go down as one of those transactions that define an era (think AOL and Time Warner). Facebook paid $19 billion for a company with just 55 employees, little name recognition, negligible revenues, and little prospects to earn much in the future. For the same money the company could have bought American Airlines and Dunkin’ Donuts, and still have had $2 billion left over for R&D. Alternatively they could have used the money to lock in more than $1 billion in annual revenue through an acquisition of any one of the numerous large cap oil producing partnerships. Instead they chose a company that is in the business of giving away a valuable service for free. Come again?
 
Mark Zuckerberg, the owner of Facebook, is not your typical corporate CEO. Through a combination of technological smarts, timing, luck, and questionable business ethics, he became a billionaire before most of us bought our first cars. And in the years since social media became the buzzword of the business world, Wall Street has been falling over backward to funnel money into the hot sector. As a result, it may be that Zuckerberg looks at real money the way the rest of us look at Monopoly money. It also helps that a large portion of the acquisition is made with Facebook stock, which is also of dubious value.
 
But even given this highly distorted perspective, it’s still hard to figure out why Facebook would pay the highest price ever paid for a company per employee – $345 million (more than four  times the old record of $77 million per employee, set last year when Facebook bought Instagram). The popular talking point is that the WhatsApp has gained users (450 million) faster than any other social media site in history, faster even than Facebook itself. Based on its rate of growth, the $42 per user acquisition cost does not seem so outrageous. But WhatsApp gained its users by giving away a service (text messaging) for which cellular carriers charge up to $10 or $20 per month. It’s very easy to get customers when you don’t charge them, it’s much harder to keep them when you do.
 
Boosters of the deal expect that WhatsApp will be able to charge customers after the initial 12-month free trial period ends (it now charges 99 cents per year after the first year). Based on this model, the firm had revenues of $20 million last year. But what happens if another provider comes in and offers it for free? After all, the technology does not seem to be that hard to replicate. Google has developed a similar application. More importantly, no one seems to be projecting what the cellular carriers may do to protect their texting cash cows.
 
WhatsApp gives away what AT&T and Verizon offer as an a la carte texting service. As these carriers continue to lose this business we can expect they will simply no longer offer texting as an a la carte option. Instead it will likely be bundled with voice and data at a price that recoups their lost profits. If texting comes free with cell service, a company giving it away will no longer have value. People will still need cellular service to send mobile texts, so unless Facebook acquires its own telecom provider, it can easily be sidelined from any revenue the service may generate.
 
Some say that texting revenue is unimportant, and that the real value comes from the new user base.  But how many of the 450 million users it just acquired don’t already have Facebook accounts? And besides, Facebook itself hasn’t really figured out how to fully monetize the users it already has. In other words, it is very difficult to see how this mammoth investment will be profitable.
 
From my perspective, the transaction reflects the inflated nature of our financial bubble. The Fed has been pumping money into the financial sector through its continuous QE programs. The money has pushed up the value of speculative stocks, even while the real economy has stagnated. With few real investments to fund, the money is plowed right back into the speculative mill. We are simply witnessing a replay of the dot com bubble of the late 1990’s. But this time it isn’t different.
 
In another replay of that spectacular crash fourteen years ago, the appliance and furniture retailer Conn’s has just showed the limits of a business built on vendor financing. In the late 1990’s telecom equipment companies almost went bankrupt after selling gear to dot com start-ups on credit. For a while, these “sales” made growth and profits look great, but when the dot coms went bust, the equipment makers bled. Conn’s makes its money by selling TVs and couches on credit to Americans who have difficulty scraping up funds for cash purchases. For a while, this approach can juice sales. Not surprisingly, Conn’s stock soared more than 1500% between the beginning of 2011 and the end of 2013. These financing options are part of the reason why Conn’s was able to keep up the appearance of health even while rivals like Best Buy faltered in 2013.
 
But if people stop paying, the losses mount. This is what is happening to Conn’s. The low and middle-income American consumers that form the company’s customer base just don’t have the ability to pay off their debt. The disappointing repayment data in the earnings report sent the stock down 43% in one day.
 
In essence, Conn’s customers are just stand-ins for the country at large. In just about every way imaginable, America has borrowed beyond its ability to repay. Meanwhile our foreign creditors continue to provide vendor financing so that we can buy what we can’t really afford.
 
So thanks for the metaphors Wall Street. Too bad most economists can’t read the tea-leaves


    



via Zero Hedge http://ift.tt/1hDhspv Tyler Durden

China Faces “Vicious Circle” As Commodity Collateral Collapses

As we warned last week, stockpiles of iron-ore have reached record levels in China as end-demand slumps but, as Bloomberg notes, this is potentially creating massive dislocations in other markets. Record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market. A stunning 40 percent of the iron ore at China’s ports are part of finance deals (having replaced copper after China's last shadow-banking crackdown) and with the glut, prices drop (driving down the value of collateral on loans) and "borrowers, forced by their bankers to repay loans or to top up collateral, will have to sell the metals, sinking market prices even further and begetting a vicious cycle."

 

As we noted last week, Bloomberg reports China’s record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market.

Iron Ore stockpiles ar record highs…

 

But Lenders seeking repayment are finding irregularities, including the same pile of materials used as collateral for multiple borrowings, China International Capital Corp. said.

Xiao Jiashou, known as the “steel-trading king” in Shanghai, had his assets frozen as China Minsheng Banking Corp. sues for money owed.

…

About 40 percent of the iron ore at China’s ports are part of finance deals, Mysteel Research estimates.

“The risk comes when metal prices fall by a large magnitude within a short time, driving down the value of the collateral,” Yang Changhua, a researcher with Beijing Antaike Information Development Co., said in a Feb. 19 interview. “Borrowers, forced by their bankers to repay loans or to top up collateral, will have to sell the metals, sinking market prices even further and begetting a vicious cycle.”

And those prices are tumbling:

Steel reinforcement-bar futures in Shanghai have fallen 19 percent in the past year, while iron ore delivered to China’s Tianjin port dropped 22 percent

And non-performing loans are therefore – exploding (as we noted here)…

Traders began having trouble repaying loans when steel prices in China slumped 38 percent in the seven months through August 2012 as the economy slowed. In the southern city of Foshan alone, local banks have given 100 billion yuan in credit to steel traders, Caijing magazine reported this week, citing a local banker it didn’t name. Loans to the sector helped drive non-performing loans in Yunnan province to 5.86 percent as of November 2013…

 

At China Citic Bank Corp., bad assets surged from 2011 to 2013 mainly because of non-performing loans to the steel-trade industry, Moneyweek magazine reported on Feb. 17, citing bank President Zhu Xiaohuang. The lender said on Dec. 12 that it plans to write off 5.2 billion yuan of bad debt for 2013.

 

At least a third of China’s 200,000 steel-trading firms will collapse as part of the credit crisis which started at the end of 2011, the official Xinhua news agency said Feb. 7, citing industry estimates. Nanjing Iron & Steel Co. said last month its 2018 bonds may stop trading due to losses.

 

Everyone should also know that like a metastatic cancer, the amount of non-performing, bad loans within the Chinese financial system is growing at an exponential pace.

But no matter how much the PBOC cracks down, only one thing matters:

“Those cash-starved steel mills or trading firms don’t care whether steel or iron-ore prices are falling,” said Zhang Jizhou, a trader at Ningbo Future Import & Export Co. “Their priority is to get cash flow so they can survive.”

 

So the shadow-banking system filled the gap as prime lenders disappeared…

 

Which means, howevere well intended, the PBOC is exacerbating the situation that many have drawn ugly comaprisons to the subprime-lending bubble in the US.

Simply put, the 'clever' people in China – having had their copper financind taken away, have shifted to steel – as the following diagram explains (just replace Copper warrants with Iron Ore…)


 

Which will end just as disastrously… unless of course, China once again unleashes the ghost cities building spree. Which it inevitably will: after all it has become all too clear that not one nation – neither Developing nor Emerging – will dare deviate from the current status quo course of unsustainable, superglued house of cards "muddle-through" until external, and internal, instability finally forces events into a world where everyone now has their head in the proverbial sand.

 

The big question is then, does China re-ignite huge inflation in an attempt to save its vicious-circle-facing economy or does the "pig in the python" get expelled first as fast-money carry leaves en masse and crushes collateral values…


    



via Zero Hedge http://ift.tt/1h7fKtl Tyler Durden

China Faces "Vicious Circle" As Commodity Collateral Collapses

As we warned last week, stockpiles of iron-ore have reached record levels in China as end-demand slumps but, as Bloomberg notes, this is potentially creating massive dislocations in other markets. Record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market. A stunning 40 percent of the iron ore at China’s ports are part of finance deals (having replaced copper after China's last shadow-banking crackdown) and with the glut, prices drop (driving down the value of collateral on loans) and "borrowers, forced by their bankers to repay loans or to top up collateral, will have to sell the metals, sinking market prices even further and begetting a vicious cycle."

 

As we noted last week, Bloomberg reports China’s record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market.

Iron Ore stockpiles ar record highs…

 

But Lenders seeking repayment are finding irregularities, including the same pile of materials used as collateral for multiple borrowings, China International Capital Corp. said.

Xiao Jiashou, known as the “steel-trading king” in Shanghai, had his assets frozen as China Minsheng Banking Corp. sues for money owed.

…

About 40 percent of the iron ore at China’s ports are part of finance deals, Mysteel Research estimates.

“The risk comes when metal prices fall by a large magnitude within a short time, driving down the value of the collateral,” Yang Changhua, a researcher with Beijing Antaike Information Development Co., said in a Feb. 19 interview. “Borrowers, forced by their bankers to repay loans or to top up collateral, will have to sell the metals, sinking market prices even further and begetting a vicious cycle.”

And those prices are tumbling:

Steel reinforcement-bar futures in Shanghai have fallen 19 percent in the past year, while iron ore delivered to China’s Tianjin port dropped 22 percent

And non-performing loans are therefore – exploding (as we noted here)…

Traders began having trouble repaying loans when steel prices in China slumped 38 percent in the seven months through August 2012 as the economy slowed. In the southern city of Foshan alone, local banks have given 100 billion yuan in credit to steel traders, Caijing magazine reported this week, citing a local banker it didn’t name. Loans to the sector helped drive non-performing loans in Yunnan province to 5.86 percent as of November 2013…

 

At China Citic Bank Corp., bad assets surged from 2011 to 2013 mainly because of non-performing loans to the steel-trade industry, Moneyweek magazine reported on Feb. 17, citing bank President Zhu Xiaohuang. The lender said on Dec. 12 that it plans to write off 5.2 billion yuan of bad debt for 2013.

 

At least a third of China’s 200,000 steel-trading firms will collapse as part of the credit crisis which started at the end of 2011, the official Xinhua news agency said Feb. 7, citing industry estimates. Nanjing Iron & Steel Co. said last month its 2018 bonds may stop trading due to losses.

 

Everyone should also know that like a metastatic cancer, the amount of non-performing, bad loans within the Chinese financial system is growing at an exponential pace.

But no matter how much the PBOC cracks down, only one thing matters:

“Those cash-starved steel mills or trading firms don’t care whether steel or iron-ore prices are falling,” said Zhang Jizhou, a trader at Ningbo Future Import & Export Co. “Their priority is to get cash flow so they can survive.”

 

So the shadow-banking system filled the gap as prime lenders disappeared…

 

Which means, howevere well intended, the PBOC is exacerbating the situation that many have drawn ugly comaprisons to the subprime-lending bubble in the US.

Simply put, the 'clever' people in China – having had their copper financind taken away, have shifted to steel – as the following diagram explains (just replace Copper warrants with Iron Ore…)


 

Which will end just as disastrously… unless of course, China once again unleashes the ghost cities building spree. Which it inevitably will: after all it has become all too clear that not one nation – neither Developing nor Emerging – will dare deviate from the current status quo course of unsustainable, superglued house of cards "muddle-through" until external, and internal, instability finally forces events into a world where everyone now has their head in the proverbial sand.

 

The big question is then, does China re-ignite huge inflation in an attempt to save its vicious-circle-facing economy or does the "pig in the python" get expelled first as fast-money carry leaves en masse and crushes collateral values…


    



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via Zero Hedge http://ift.tt/1h7fKtl Tyler Durden

Central Bankers: Inflation is God’s Work

Submitted by Doug French via the Ludwig von Mises Institute of Canada,

Inflation is always somebody else’s fault. Ludwig von Mises called out finger pointing central bankers and politicians decades ago in his book, Economic Policy. “The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”

In the fall of 2007, Gideon Gono blamed his country’s inflation rate of 4,500 percent on “the differences that Zimbabwe has had with its former colonial master, the UK,” and added, “we are busy laying the foundations for a serious deceleration programme.” Deceleration? A year later inflation was 231 million percent.

Money printing didn’t have anything to do with it according to the central banker. Droughts began to be more frequent in the 2000’s and Gono believed  ”there is a positive correlation between the drought and inflation.” Dry weather, he told New African magazine, has, “got a serious bearing on our inflation level.”

In Gono’s dilluded mind,inflation was about the weather, lack of support from other nations, and political sanctions. He had nothing to do with the hyperinflation in his country. “No other [central-bank] governor has had to deal with the kind of inflation levels that I deal with,” Gono told Newsweek. “[The people at] my bank [are] at the cutting edge of the country.”

These days in Argentina its not the weather and political sanctions causing prices to rise, its businesses engaging in commerce. President Cristina Fernández de Kirchner is urging her people to work “elbow-to-elbow” with her government to stop companies from looting the people with high prices. Two weeks ago the government devalued the peso by 20 percent but it is private businesses that are stealing from working people with price increases.

Posters of retail executives have been plastered around Buenos Aires. For instance, Wal-Mart Argentina’s president Horacio Barbeito has his mug on a poster with the caption, “Get to know them, these are the people who steal your salary.”

Kirchner’s cabinet chief Jorge Capitanich calls economists who point to government policies as inflation’s culprit “undercover agents.”  He implies that these economists are the tools of business. “Argentines should know that independent, objective economists don’t exist,” Capitanich claims. “I want to say emphatically that when unscrupulous businessmen raise prices it has absolutely nothing to do with macroeconomic variables.”

In 2012 the president of Argentina’s central bank, Yale-educated Mercedes Marcó del Pont, said in an interview, “it is totally false to say that printing more money generates inflation, price increases are generated by other phenomena like supply and external sector’s behaviour.”

So while its central bank prints, the Kirchner government has enlisted the citizenry to work undercover in the fight against rising prices. A free smartphone application is encouraging Argentines to be citizen-cops while they shop.

The app is a bigger hit than “Candy Crush” and “Instagram.” President Kirchner wants “people to feel empowered when they shop.” And, they do. “You can go checking the prices,” marveled Analia Becherini, who learned of the app on Twitter. “You don’t even have to make any phone calls. If you want to file a complaint, you can do it online, in real time.”

“Argentina’s government blames escalating inflation on speculators and greedy businesses,” reports Paul Byrne for the Associated Press, “and has pressured leading supermarket chains to keep selling more than 80 key products at fixed prices.”

However, businesses aren’t eager to lose money selling goods. Fernando Aguirre told Chris Martenson that with price inflation running rampant, “Lots of stores don’t want to be selling stuff until they get updated prices. Suppliers holding on, waiting to see how things go, which is something that we are familiar with because that happened back in 2001 when everything went down as we know it did.”

In his Peak Prosperity podcast with Aguirre, Martenson makes the ironic point that when governments print excessive amounts of money, goods disappear from store shelves. In a hyper-inflation the demand for money drops to zero as people buy whatever they can get their hands on. Inflation destroys the calculus of profit and loss, destroying business, and undoing the division of labor.

Aguirre reinforced Martenson’s point. Describing shelves as “halfway empty,” in Argentina he said,  “The government is always trying to muscle its way through these kind of problems, just trying to force companies to stock back products and such, but they just keep holding on. For example, gas has gone up 12% these last few days. And there is really nothing they can do about it. If they don’t increase prices, companies just are not willing to sell. It is a pretty tricky situation to be in.”

Tricky indeed.  “It would be a serious blunder to neglect the fact that inflation also generates forces which tend toward capital consumption,” Mises wrote in Human Action. “One of its consequences is that it falsifies economic calculation and accounting. It produces the phenomenon of illusory or apparent profits.”

Inflation is also rampant at the other end of South America.  Venezuela inflations is clocking in at 56 percent. Comparing the two countries, Leonardo Vera, a Caracas-based economist told the FT, “Argentina still has some ammunition to fight the current situation, while Venezuela is running out of bullets.”

Fast money growth has also led to shortages such as “newsprint to car parts and ceremonial wine to celebrate mass,” reports the FT.

Venezuelan president Nicolás Maduro is using the government’s heavy hand to introduce a law capping company profits at 30 percent. Heavy prison sentences await anyone found hoarding, overcharging, or “destabilising the economy.”  Hundreds of inspectors have been deployed to enforce the mandates.

The results will be predictable. “With every new control, the parallel, or black market, dollar will keep going up, and so will the price and scarcity of milk, oil, and toilet paper,” says Humberto García, an economist with the Central University of Venezuela.

Don’t expect the printing to stop any time soon. Central bankers believe they are doing God’s work. “To ensure that my people survive, I had to print money,” Gideon Gono told Newsweek. “I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the U.S. to please print money. The whole world is now practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”

It seems disasters wrought by inflationary policies must be experienced again and again, as “Inflation is the true opium of the people,” Mises explained, “administered to them by anticapitalist governments.”

The practice of central banking is the same around the world. The only difference is in degree. Before he destroyed the Zimbabwean dollar Gono looked to America for inspiration. “Look at the bridges across the many rivers in New York and elsewhere,” Gono told New African, “and the other infrastructure in the country that were built with high budget deficits.”

The Zimbabwe, Argentina, and Venezuela inflations may seem to be something that happens to somebody else. But Mr. Aguirre makes a point when asked about 2001, when banks in Argentina, after a bank holiday, converted dollar accounts into the same number of pesos. A massive theft.

“Those banks that did that are the same banks that are found all over the world,” Aguirre says. “They are not like strange South American, Argentinean banks–they are the same banks. If they are willing to steal from people in one place, don’t be surprised if they are willing to do it in other places as well.”


    



via Zero Hedge http://ift.tt/1dcpsXc Tyler Durden