You Can’t Make This Up: MF Global Sues PWC, Blames It For Its Collapse

File this one in the “you can’t make it up” category. Over two years after the MF Global collapse, in which the primary dealer headed by Jon “I don’t recall” Corzine all but admitted it had engaged in the cardinal sin of any financial intermediary, i.e., commingling money, to cover up a trade gone horribly bad and which resulted in the disappearance of some $1 billion in client funds until such time as the bankruptcy process managed to “liberate” funds from other part of the company, MF Global has suddenly figured who is at fault: not the CEO, not his brown-nosing lackey, not some janitor meant to be scapegoated precisely in a situation such as this, not even the infamous “glitch” – no, the party that is accountable for the firm’s theft of client funds, and horrible investing decisions that led to its bankruptcy, are the accountants.

No really: yesterday MF Global Holdings sued PricewaterhouseCoopers LLP for $1 billion, alleging accounting malpractice helped bring down the brokerage company.

Like we said, you can’t make this up. From Bloomberg:

PwC, which provided outside auditing and accounting experts, failed to advise the firm to account properly for its European sovereign debt holdings, leading it to over-invest in them, MF Global Holdings said in a complaint filed today in Manhattan federal court.

 

But for PwC’s erroneous accounting advice, MF Global Holdings could not have — and would not have — invested heavily in European sovereign debt to generate immediate revenues and would not have suffered the massive damages that befell the company in 2011,” MF Global Holdings said in the complaint.

 

MF Global filed for bankruptcy on Oct. 31, 2011. Customers have claimed in lawsuits against the firm’s former executives that more than $1.6 billion of their funds that should have been segregated went missing, transferred to other parts of the company during the liquidity crisis.

 

Christopher Atkins, a PwC spokesman, didn’t immediately return a voice-mail message seeking comment on the suit.

In retrospect: almost brilliant. MF Global, or what’s left of the estate, is using the old tried and true “Enron defense”, where if there was corporate criminality, the accountants were surely involved. And they most probably were. There is one problem though: in the case of Enron, all of its key executives, Lay, Skilling and Fastow, got prison sentences. In MF Global’s case of Jon Corzine… not so much.

 

Why? The answer:


    



via Zero Hedge http://ift.tt/1ltPq0U Tyler Durden

Dollar Mixed to Start Q2

There have been four notable price action developments in the foreign exchange market:

 

The euro has pulled back from the attempt seen earlier this month on the $1.40 level.

Sterling has recouped more than half of what it lost this month.  

The dollar has moved to the upper end of its two-week trading range against the yen.

The dollar-bloc has powered ahead. 

 

Euro:  The combination of the dovish comments from ECB officials, where even the Bundesbank appears to have warmed to the idea of QE, and the somewhat more hawkish FOMC, has prompted some profit-taking on long euro positions.  The euro peaked just shy of the $1.40 level on March 13.  While Draghi’s comments helped put the euro’s top in, it was Yellen’s comments that exposed the downside.  

 

The euro was briefly pushed through the $1.3720 area, the 50% retracement of the euro’s rally from early February lows, just below $1.33, which is the low for the year, thus far.  Resistance is now seen in the $1.3800-30 area.  The outlook hinges on the ECB meeting on Thursday.  The failure to take strong action (this means more than a symbolic 10 bp cut in the repo rate, which would have little consequence) could send the euro back to $1.40, if not above.  On the downside, the $1.3650-75 area is technically interesting, housing a key retracement objective, the 100-day moving average and the late-February lows.  

 

Yen:  The dollar moved to the upper end of its two week trading range against the yen near JPY102.80, which corresponds to a, 61.8% retracement of this month’s decline.  There does not appear to be any technical obstacle for additional near-term gains, with the JPY103.10-20 area offering the next proximate target.   The controversial retail sales tax hike goes into effect on April 1 and a government adviser warned that the BOJ could make its assessment as early as May whether additional stimulus is needed.  This may help widen the US-Japanese 10-year spread, which at 208 bp is near the middle of the 2-month range.    A strong US employment report at the end of the week could also help underpin the spread and dollar. 

 

Sterling:  With the gains in the second half of last week, sterling has recovered 50% of this month’s losses after being rebuffed near $1.68 on March 7.    Technical indicators, like the RSI and MACDs, are constructive.  A move above $1.6660 could signal another run at the $1.68 cap.  Support is now pegged near $1.6600 and then $1.6550. 

 

While we have preferred sterling over the euro on fundamentals and technical considerations, we have liked sterling against Swiss franc more.  It has approached the CHF1.48 area and the 5-day moving average has crossed above the 20-day average for the first time in five weeks.   Provided the CHF1.47 level holds now, sterling can work its way to the upper end of our target range near CHF1.50. 

 

Swiss franc: For its part, the dollar tested the CHF0.8900.  It corresponds to the 50-day average, the 50% retracement of the dollar’s decline since early February, and the highs from earlier this month.  Addition resistance is seen near CHF0.8945.  Support is a big figure lower, nearly CHF0.8845.

 

The Canadian dollar:  It has been the weakest of the major currencies this here in Q1, losing about 3.85% against the dollar.    This is after it rallied about 1.6% in the past week, to eclipse the New Zealand dollar as the second strongest behind the Australian dollar.   Encouraged by a recovery in retail sales and the lack of fresh deterioration in Canada’s CPI, a short-covering rally in the Canadian dollar saw the greenback test CAD1.10.  Technical indicators are still somewhat supportive of the US dollar, and the real test may come on a bounce to CAD1.11.   Quebec’s general election (April 7) and Canada ‘s employment data  (April 4), at the same time as US jobs report pose event risk. 

 

The Australian dollar:  The Aussie recorded higher highs for six consecutive sessions through the end of last week.  After being shunned, it is back as in the markets’ favor.  It gained 1.9% to lead the major currencies last week and was the strongest currency in March gaining 3.6%

 

Early last week it broke above its 200-day moving average (~$0.9140) and has not looked back.  It also moved surpassed the 50% retracement of the decline from the late October high near $0.9760.   The next target is near $0.9330.

 

Although it is looking a bit stretched against the dollar, we note that the Australian dollar looks particular good against the euro.  The euro has traced out what looks to be a head and shoulder’s pattern.   The neckline is near A$1.50, and the measuring objective is near A$1.42.  The 20-day moving average was tested before the weekend near A$1.4795, while a retracement objective is found near A$1.4730.

 

We had also liked the Australian dollar against the New Zealand dollar.  It met our N$1.0680-N$1.0700 objective last Thursday.  The technical indicators are not suggesting a top is in place.  However, a move now below N$1.0640 could weaken the constructive case. 

 

Mexican peso:  The chase for yields helped lift the Mexican peso to its best level since mid-January.  However, after slipped below MXN13.05, the dollar rebounded and finished the session near the highs.  If this does not mark a near-term bottom for the dollar, it probably came close.  Our reading of the technical indicators warns of a risk of a move back into the MXN13.15-MXN13.20 in the days ahead.

 

Observations based on the speculative positioning in the CME currency futures:

 

1.  Most position adjustments were minor in the reporting week ending March 25. which may be surprising since it covered the FOMC meeting and BBK President Weidmann suggesting that, if needed and conducted properly, he could support QE.   Of the 14 gross positions we track, all but four were changed by less than 4k contracts.  

 

2.  The Canadian dollar account for half of the four notable adjustments.  Gross longs rose 12.7k, which is about 33% increase.  Gross shorts were culled by almost 24k contracts, which is nearly a quarter.  Euro longs were cut by nearly 11k to 107k contracts.  Long yen positions were cut by a quarter to 17.6k contracts.

 

3.    The recent price action shows divergent US dollar performance.  The greenback is doing a bit better against the euro (and Swiss franc) and less well against the dollar bloc. This is reflected in speculative positioning.  The euro and yen saw longs cut and shorts increase.  The dollar-bloc was the opposite:  gross long Australian and Canadian grew and shorts were reduced.  Over the past week, sterling was the best performer outside of the dollar-bloc.  In the futures market, the gross long sterling position rose and the shorts fell.


    



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

Fed Needs To “Stress Test” Itself As Balance Sheet Balloons To $4.3 Trillion

Friday’s AM fix was USD 1,295.75, EUR 944.15 and GBP 779.68 per ounce.              

Thursday’s AM fix was USD 1,295.00, EUR 942.09 and GBP 779.14 per ounce.  



Gold in U.S. Dollars, 1 Month – (Thomson Reuters) 


Snapping its four-day losing streak, gold prices recovered very marginally yesterday. Traders said there was a revival of buying by retailers at these lower levels and this contributed to a marginal recovery in gold prices.

Gold climbed $6.19 to $1298.69 at about 4AM EST before it fell back to a new 6-week low of $1285.81 in the next six hours of trade. It then bounced higher into the close and ended with a marginal gain of 0.02%. Silver slipped to as low as $19.649 before it also bounced back higher and ended with a gain of 0.2%.

Gold in Singapore, which normally sets price in the important Indian gold market, rose 0.4% to $1,296.80 an ounce and silver by 0.8% to $19.86 an ounce. Among other precious metals, palladium gained nearly 1% today to $765/oz but is lower for the week.


Gold remains near six week lows and is on track for a second straight weekly decline. Gold has dropped about $100 an ounce from a six-month high in the last nine trading sessions despite increasing concerns about the U.S. and global economy.

There remain concerns that the manipulation of gold prices being investigated by the FSA and Bafin may be ongoing and a factor in recent price weakness.

Gold’s technical position is now negative and the close below $1,300/oz yesterday opens up the possibility of further falls to $1,270/oz and $1,200/oz. The sharp drop in prices in the last few days should bring physical buyers back into the market and support gold.


Gold in U.S. Dollars,  5 Year – (Thomson Reuters) 


 
Demand for gold in Japan surged 500% in the last month as Japanese buyers bought ahead of a sales tax increase and due to concerns about Abenomics and the ongoing debasement of the yen.


A man who has been a trader for 33 years and works at a foreign-owned brokerage told the Financial Times that the tax increase represented a “good opportunity” to buy more gold as he was worried about holding too many yen-denominated assets.

“I plan to hold it for a long time until there is a good time to sell, when the yen collapses or something,” he said.


The surge in Japanese demand is small in tonnage terms in a global context and small vis a vis huge demand from India & especially China and from central banks but shows increasing concerns regarding currency debasement.


Fed Stress Tests “Rattle Banks Around The World”

Yesterday, the Federal Reserve’s stress tests led to jitters in financial markets and in the words of the Financial Times “rattled banks around the world.” Citigroup’s share price was hammered and fell 5.4%

 

The aftershock of the stress tests was felt beyond U.S. shores for the first time. The U.S. subsidiaries of Royal Bank of Scotland, Santander and HSBC all failed on “qualitative” grounds, which includes failing to project losses rigorously when contemplating a severe recession or market meltdown.

The Fed said that the banks management practices or capital cushions are not robust enough to withstand a severe economic downturn. Not surprisingly, the banks themselves accused the  stress tests as being “opaque”.

 

Twenty five other banks took part in the Fed’s annual “stress test” and received a green light for their planned dividend payouts and share repurchases. Bank of America and Goldman Sachs initially fell short of minimum capital requirements. However, they met the standards after reducing their planned dividend payments and share buybacks over the past week.

 

The banks now have 90 days to address the weaknesses and risks identified by the Fed and resubmit their dividend and share buyback plans.

 

The Fed’s decision was part of the annual checkup it requires of banks with more than $50 billion in assets. Banks must now undergo tests to ensure they can endure shocks like those that upended the banking system and led to the massive government bailouts in the 2008 financial crisis.

In what the Fed sees as the extreme scenario, the test assumed a rise in the 6.7% unemployment rate to 11.2%, a 50% drop in stock prices and a decline in home prices to 2001 levels. All of which appear a strong possibility given debt burdened state of the tapped out U.S. consumer and the poor fundamentals of the U.S. economy.

Indeed real levels of unemployment in the U.S. are likely well over 11% already.


St Louis Federal Reserve

It is important to note that if the Federal Reserve’s assets were marked to market, it itself is insolvent.

The Fed’s balance sheet has ballooned to $4.3 trillion from $800 million in the past five years as the central bank has electronically created trillions of dollars in order to buy their own government bonds and mortgage-related bonds in a radical and indeed reckless attempt to kick the can down the road and prevent a systemic event or a recession or depression.

The Federal Reserve is likely to suffer significant losses on its Treasury holdings once interest rates rise from historic lows. Indeed, the researchers at the San Francisco Fed have recently called for “stress tests” on the Fed itself and it’s assets and income, an echo of the central bank’s annual exercise for the nation’s largest banks.

Educate yourself about the threat bail-ins pose to your livelihood by reading:
Bail-In Guide: Protecting your Savings In The Coming Bail-In Era (10 pages)

Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications (50 pages)  

 


    



via Zero Hedge http://ift.tt/1gM3Gjz GoldCore

China & Germany Sign Yuan-Settlement Pact And Obama Heads To Saudi Arabia

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

I haven’t paid too much attention as of late to agreements between China and other nations intended to expand the use of the yuan (renminbi) internationally, because the near-term implications always seem to be exaggerated by many market commentators. That said, this deal between the People’s Bank of China (PBOC) and Germany’s Bundesbank seems quite significant given the importance of Germany within the global economy generally and the E.U. specifically.

From Bloomberg via BusinessWeek:

Germany’s Bundesbank and the ?People’s Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market.

 

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

 

Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

 

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.”

 

China was Germany’s third-biggest foreign trade partner last year, with 140 billion euros in turnover passing between the two countries, according to the Federal Statistics Office in Wiesbaden. China ranks fifth among importers of German goods and is the second-biggest exporter to Germany.

 

German companies including Siemens AG, the country’s biggest engineering company, and Volkswagen AG are embracing the renminbi internally as a third currency for cross-border trade settlements.

 

“The potential is vast,” said Stefan Harfich, the Siemens Financial Services manager, who steered the introduction of the yuan at the Munich-based company in October. “The introduction of the renminbi as an official company currency will therefore have a big impact on Siemens’s business in the coming years.”

 

Daimler AG, the Mercedes manufacturer that sold 235,644 autos in China last year, issued 500 million yuan of one-year notes in Asia’s largest economy on March 14, in the first so-called panda bond by an overseas non-financial company.

With all that in mind, let’s not forget that Obama is currently in Saudi Arabia trying to restore ties with the Medieival Kingdom, i.e., he is trying to figure out a way to arm al-Qaeda in Syria without the American public finding out about it.

From the Wall Street Journal:

RIYADH—Barack Obama’s visit to Saudi Arabia on Friday marks a bid to warm relations that the Saudis hope will result in commitments by the U.S. president to boost the supply of sophisticated weapons to Syrian insurgents.

 

Mr. Obama’s stopover at the end of a European tour will mark his first visit to the kingdom since U.S.-Saudi ties were severely strained last year following the renewal of high-level U.S. contacts with Iran and the cancellation of planned airstrikes against the regime of Syrian President Bashar al-Assad.

 

Saudi officials also are hoping he will bring word of a breakthrough in U.S. and Jordanian opposition to supplying Syrian rebels with more advanced weapons, including shoulder-launched missiles, known as manpads, capable of bringing down Syrian aircraft, according to Saudis, a Western diplomat and regional security analysts familiar with the situation.

 

Saudi officials also are hoping he will bring word of a breakthrough in U.S. and Jordanian opposition to supplying Syrian rebels with more advanced weapons, including shoulder-launched missiles, known as manpads, capable of bringing down Syrian aircraft, according to Saudis, a Western diplomat and regional security analysts familiar with the situation.

 

Jordan also has blocked delivery of the additional weapons through its territory to rebels in Syria, for fear of getting pulled deeper into the Syrian conflict. The diplomat and two Syrian opposition officials said Amman is waiting for the U.S. to approve the deployment of Saudi-bought manpads currently sitting in Jordanian warehouses.

 

Saudi royals have muted their angry rhetoric since last autumn’s rift. Prince Turki Al Faisal, whose criticism of the Obama administration’s policies on Iran and Syria made front-page news in December, made virtually no mention of the U.S. during a U.S. speech about Iran this month. A Saudi ambassador who wrote of Saudi Arabia breaking with the U.S. in the New York Times in December has been publicly silent since.

It appears that becoming entrenched in a Syrian civil war is still very much on the table…

Lots of moves appear to be afoot on the macro front at the moment. The months ahead should be very interesting to say the least.


    



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

West Desperate To Break Russia-China Axis, But “Money Talks” Straight To Putin

Among other things, there is one major obstacle to the West's "costs" imposition on Vladimir Putin and his Russian economy – China. So far, a Xi Jinping has described, China has been a "sleeping lion" but today "the lion is awake" and with the Chinese President's first trip to Europe, as WSJ reports, western leaders are hoping to enlist his support over the crisis in Ukraine. However, privately, European diplomats concede that China's relationship with Russia remains solid and that was evidenced by their most recent investment in Russia's $10bn state-backed Direct Investment Fund (which just happens to be run by a former Goldman Sachs banker. It seems "money talks" once again and China will likely continue to play the middle ground.

 

US and European leaders, as the Wall Street Journal notes, will try to bring Xi to the other side of the red line…

European leaders are seizing on Chinese President Xi Jinping's inaugural trip to Europe to enlist his support over the crisis in Ukraine, but so far the Chinese leader has given no sign the diplomacy will succeed in driving a wedge between China and its strategic partner Russia.

 

 

In a Thursday address commemorating the 50th anniversary of China's diplomatic ties with France, Mr. Xi conveyed his views of foreign policy through grand pronouncements, quoting Napoleon Bonaparte's warning that China was a "sleeping lion" that would shake the world if awakened.

 

"Today, the lion is awake, and it's peaceful, nice and civilized," Mr. Xi said.

 

From the start, however, the Ukraine crisis has loomed large over Mr. Xi's closely watched visit.

 

 

European policy makers have sought to cast as a diplomatic victory China's decision to abstain from a United Nations Security Council vote condemning a referendum that cleared the way for Crimea to break away from Ukraine and join Russia.

But that is just spin as even they know that is unlikely China will take up support 'against' Russia…

Privately, European diplomats concede that China's relationship with Russia remains solid. China has often joined Russia in vetoing Security Council resolutions on issues like the civil war in Syria. In addition, Beijing's abstention vote on Crimea was less a departure from Moscow than a move consistent with Beijing's long-standing rejection of any meddling by foreign countries in its own domestic affairs, said a senior French diplomat.

 

Mr. Xi is walking a tightrope as he weighs China's partnership with Russia against its growing economic ties with the West.

 

"China will try to steer a middle course" on Ukraine, said Gudrun Wacker, an Asia specialist at the German Institute for International and Security Affairs in Berlin. "The conversation will be about what has to happen to make sure that Russia doesn't become an obstacle in these other negotiations."

While the three-day trip to Germany is unlikely to produce diplomatic breakthroughs, it could strengthen economic ties.

But, as The FT reports, it is always about "follow the money" and China is not pulling back from Russian investment at all…

Russia’s $10bn state-backed fund has tapped Chinese and Middle Eastern sovereign wealth fund money in a bid to show it can attract foreign capital into the country even if US and European investors turn away following the annexation of Crimea.

 

Russian Direct Investment Fund (RDIF), which was set up by President Vladimir Putin three years ago and which counts Blackstone chief executive Stephen Schwarzman, Apollo’s co-founder Leon Black and Apax’s boss Martin Halusa on its international advisory board, is leading the purchase of a $200m stake in Sodrugestvo, a large oilseed processor and trader, alongside sovereign wealth funds including China Investment Corp.

 

 

“Obviously, what we see now, is that US and European investors are slowing down their investment pace. I expect we’ll do many more deals with Chinese and Middle Eastern investors going forward,” Mr Dmitriev said. “But we have significant hope of de-escalation going forward.”

But it's not just China…

In July, Mr Dmitriev, a former Goldman Sachs banker, announced the appointment of Ahmad Mohamed Al-Sayed, the chief executive of the Qatar Investment Authority, to RDIF’s international advisory board, heralding a possible collaboration with Qatar.

So Stephen Schwarzmann, Leon Black, Martin Halusa, the Qatar Investment authorirty, and Dominique Strauss Kahn are all on the advisory board of the RDIF and it's run by this guy:

Kirill A. Dmitriev, Chief Executive Officer, Russian Direct Investment Fund

 

Kirill Dmitriev is the Chief Executive Officer of the Russian Direct Investment Fund. Before being asked by the Russian government to run the fund, Mr. Dmitriev was President of Icon Private Equity, a leading private equity fund in the CIS with over $1 billion under management. Prior to establishing Icon, he was Co-Managing Partner of Delta Private Equity Partners, a leading private equity fund in Russia with over $500 million under management. Prior to joining Delta Private Equity in 2002, Mr. Dmitriev was Deputy General Director at IBS, the top Russian IT services provider.

 

He also worked as an investment banker with Goldman Sachs in New York and as a consultant with McKinsey & Company in Los Angeles, Moscow and Prague. Mr. Dmitriev is a Young Global Leader of the World Economic Forum in Davos and past Chairman of the Russian Venture Capital and Private Equity Association. He holds a BA in Economics with Honors and Distinction from Stanford University and an MBA with High Distinction (Baker Scholar) from the Harvard Business School.

Once again, Goldman's tentacles are embroiled…


    



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

Stephen Roach: Is This End Of Chinese Central Planning?

Authored by Stephen Roach (author of Unbalanced: The Codependency of America and China), via The Jewish Business News,

“Isn’t it now time for China to abandon the concept of a growth target?”

That was the question I asked Chinese Finance Minister Lou Jiwei this week at the 15th annual China Development Forum, which brings together top Chinese officials and an international delegation of academics, leaders of multilateral organizations, and business executives. Having attended the CDF since former Premier Zhu Rongji initiated it in 2000, I can attest to its role as one of China’s most important platforms for debate. Zhu welcomed the exchange of views at the Forum as a true intellectual test for China’s reformers.

It was in that spirit that I posed my question to Lou, whom I have known since the late 1990’s. In that period, he has been Deputy Minister of Finance, founding Chairman of China’s sovereign wealth fund, China Investment Corporation, and now Minister of Finance. I have always found him to be direct, intellectually curious, a first-rate analytical thinker, and a forward-looking advocate of market-based reforms. He is cut from the same cloth as his mentor, Zhu.

My question was set in the context of the new thrust of Chinese reforms announced at last November’s Third Plenum of the 18th Central Committee of the Chinese Communist Party, which emphasized the “decisive role” of market forces in shaping the next phase of China’s economic development.

I prefaced my question by underscoring the inherent contradiction between a target and a forecast in framing China’s major economic objectives. I argued that the former embodied the obsolete straitjacket of central planning, while the latter was far more consistent with market-based outcomes. A target perpetuates the image of the all-powerful state-directed Chinese growth machine – a government that will essentially stop at nothing to hit a predetermined number.

While it may seem like splitting hairs, continuing to frame the economic goal as a target sends a message of determined and explicit guidance that now seems at odds with the government’s market-oriented intentions. Wouldn’t dropping the concept send a far more powerful message? Isn’t it time for China to let go of the last vestiges of its centrally planned past?

Lou’s response: “Good question.”

China, he went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list.

This gives China and its policymakers considerable room for maneuver in coping with the current growth slowdown. Unlike most Western observers, who are fixated on the slightest deviation from the official growth target, Chinese officials are actually far more open-minded. They care less about GDP growth per se and more about the labor content of the gains in output.

This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown.

Last year was a case in point. At the start of 2013, the government announced that it was targeting ten million new urban jobs. In fact, the economy added 13.1 million workers – even though GDP expanded by “only” 7.7%. In other words, if China can hit its employment goal with 7.5% GDP growth, there is no reason for its policymakers to panic and roll out the heavy counter-cyclical artillery. That, in fact, was pretty much the message conveyed by a broad cross-section of senior officials at this year’s CDF: Slowdown, yes; major policy response, no.

Zhou Xiaochuan, the head of the People’s Bank of China, was just as emphatic on this point. The PBOC, he argued, does not pursue a single target. Instead, it frames monetary policy in accordance with what he called a “multi-objective function” comprised of goals for price stability, employment, GDP growth, and the external balance-of-payments – the latter factor added to recognize the PBOC’s authority over currency policy.

The trick, Zhou stressed, is to assign weights to each of the four goals in the multi-objective policy function. He conceded that the weighting problem has now been seriously complicated by the new need to pay greater attention to financial stability.

All of this paints China with a very different brush than was used during the first 30 years of its growth miracle. Since Deng Xiaoping’s reforms of the early 1980’s, less and less attention has been paid to the numerical targets of central planning. The State Planning Commission evolved into the National Development and Reform Commission (NDRC) – though it is still housed in the same building on Yuetan Street in Beijing. And, over time, economic managers succeeded in drastically curtailing sector-by-sector Soviet-style planning. But there was still a plan and an aggregate growth target – and an all-powerful NDRC hanging on to the levers of control.

Those days are now over. A new “leading committee” on reforms is marginalizing the NDRC, and China’s most senior fiscal and monetary policymakers – Lou Jiwei and Zhou Xiaochuan – are close to taking the final step in the long journey to a market-based economy. Their shared interpretation of flexible growth targeting puts them basically in the same camp as policymakers in most of the developed world. The plan is now a goal-setting exercise. From now on, fluctuations in the Chinese economy, and the policy responses that those fluctuations imply, need to be considered in that vein.


    



via Zero Hedge http://ift.tt/1o9ygrd Tyler Durden

Jim Rogers: “America Is Shooting Itself In The Foot” Over Russia

There is no reason for Russia to worry about the western sanctions it is facing now over the Ukrainian issue since "Moscow has too many other trade partners to work with," Jim Rogers explains in this interview, adding that "America is shooting itself in a foot getting the most of our world to pushing China and Russia closer together." Simply put, he warns, "I don’t see any sanctions strategy that they can use that will hurt Russia worse than it will hurt the people imposing those sanctions."

Via Voice Of Russia,

Could China’s decision to purchase superjet planes be viewed as a gesture of support following a series of sanctions imposed by the West against Moscow over the Ukrainian issue?

Of course it is. I’m an American, so I hate to say this, but America is shooting itself in a foot getting the most of our world to pushing China and Russia closer together. And you are going to see more and more trade between the two. And that makes the sanctions against Russia almost impossible, because there are other people who will not play.

And are there chances for the Russia Sukhoi Superjet planes to compete with other major plane-makers?

I don’t think that the Russians have enough to compete with Boeing planes yet. But you are certainly getting better. I mean, as far as cargo planes, you are probably better than anybody else. And if people are forcing you or forcing other people to buy from you, then, of course, your costs will go down, your quality will get better and it will only benefit Russia, but not benefit Europe or America.

 

I think that’s one reason Europe and America are a little hesitant to do too much about the sanctions, because they know that they may lose more than they will gain.

And there are some articles on the Internet right now where different experts say that the sanctions imposed by the EU and the US could be bad only for them. What do you think about this sanctions strategy that the US and the EU are using with respect to Russia?

I don’t see any sanctions strategy that they can use that will hurt Russia worse than it will hurt the people imposing those sanctions. You have many people who will trade with you – China, Iran, many of your neighbours. America cannot patrol all of those borders. You can get just about any products you need. Plus, some of the products that you sell, other people need them very-very badly, such as natural gas and some of the metals.

 

I think Mr. Obama is making the fool of himself yet again. After all, Mr. Obama is the one who instigated the coup in Ukraine where there was an elected Government. Mr. Obama, his diplomats are recorded and we have recordings of them saying – we’ve got to do something about this Government. And then, when it went against him, he got angry. And I’m afraid he is going to shoot himself in the foot yet again.

And if we come back to this Sukhoi Superjet deal, does it mean that Moscow is switching to the eastern market and what are the other Asian countries that Moscow could cooperate with in the nearest future, apart from China?

Of course, Russia is being forced to look east and not necessarily because they want to, but because they have to. If people are going to impose the sanctions and if you look to the east, you’d see who is out there, who may or may not trade with you. Not just North Korea, not just China, some other countries –Myanmar, Thailand, Vietnam certainly will, Indonesia certainly will. So, many people that don’t have problems with Russia these days, they will be happy to trade with Russia.

So, this decision to purchase these superjet planes is a gesture of support followed by the sanctions. And what about China’s trade with Ukraine in this regard? Will they stop any economic relations with Ukraine?

I doubt it. I don’t know why they would. I mean, they don’t want to be involved in a trade war. So, I don’t see why most Asian nations would cut off Ukraine or Russia, or anybody else. This is the fight Mr. Obama has picked and, perhaps, to some extent Mr. Putin. But I don’t know why China would stop trading with Ukraine, I don’t see that at all.


    



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Guest Post: The Government Inflation Scam

Submitted by Jacob Hornberger via Laissez-Faire blog,

What is happening in Argentina provides a valuable lesson in why governments in every country on earth control the education of the nation’s children.

Argentina is suffering the ravages of government debasement of the currency — i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.

According to the New York Times, last year prices in Argentina rose nearly 30%. This year, they’re expected to increase by 45%.

Not surprisingly, the government’s inflation of the money supply is causing economic chaos within Argentine society. From butchers who are now posting price increases on scraps of paper, to women filing for increases in alimony payments, to café owners who are selling less, to wholesalers who are having trouble pricing imported goods, the government’s monetary debauchery spares virtually no one.

So, what does all this have to do with government schools?

Well, ask yourself: Why do governments finance their expenditures with inflation rather than simply by raising taxes?

 

The answer is a simple one: With taxes, everyone knows that the government’s the culprit because people can see that it’s a government agency that is collecting the taxes. With inflation, government can blame what is happening on the private sector, where prices are rising in response to the government’s continued debasement of the currency.

And that’s precisely what they teach children in public (i.e., government) schools. They teach them that it is greedy, rapacious people in the private sector, not the government, who are to blame for the rising prices brought on by inflation. They teach them that it is the job of the government to protect people from the greed and rapaciousness of the private sector by doing such things as imposing price controls on businessmen, sellers, and producers.

Inflation is one of the greatest government scams in history. The government inflates the money supply to pay for ever-increasing debts and expenditures. Prices of most everything naturally begin to rise in response to the debased value of the money. The government blames the rising prices on the private sector. Public-school graduates are taught to support the government and castigate the private sector.

Through it all, government officials know exactly what they are doing. They know that it’s their central bank that is producing the problem by expanding the money supply. But they also know that most of the citizens are graduates of public schools, which teach that inflation is caused by private-sector people who are greedily raising their prices. The officials know that all they have to do is focus the blame on the private sector and the citizenry will immediately fall into line and see the government as their savior rather than the entity that is actually the cause of the problem.

By imposing price controls on the private sector, the government makes it a criminal or civil offense to raise prices. Then, officials encourage citizens to become snitches, exhorting them to report unlawful price increases to the authorities.

The price controls inevitably mean shortages. That’s because producers can’t make a profit if they are forced to sell at a price below their costs. The citizenry then get angry over the shortages and condemn the greedy, rapacious businessmen for being “hoarders.” Of course, government officials love to see the process working.

You’ll recall that this was what happened in the United States during the 1970s, when price controls were imposed on gasoline. The result? Shortages and long lines at the gasoline stations, which public school graduates, not surprisingly, blamed on the oil companies and gas station owners.

Through it all, the U.S. government played the innocent. It even had a Whip Inflation Now campaign, acting as if inflation was caused by someone other than the government. The citizenry loved the WIN campaign and participated in it enthusiastically.

It’s no different in Argentina. As part of its campaign to blame inflation on the private sector, the government has imposed a wide range of price controls, leading to shortages and even more economic chaos. Government billboards exhort people to snitch on businesses that are unlawfully raising their prices.

Playing her important role in the scam, Argentine President Christina Kirchner tells the citizens, “We have to monitor prices. Don’t let them rob you.”

Not suspecting that government is the cause of the chaos, the citizenry love the price controls and their new-found role as snitches for the government. According to the Times, two engineering students even devised an app that enables shoppers to see whether grocery stores are complying.

However, there are some Argentinians who see through the scam, just as libertarians saw through the Whip Inflation Now scam here in the United States here in the 1970s. A retired 77-year-old accountant named Jose, who declined to give his last name, no doubt out of fear of government retaliation, showed that he had somehow broken through the government’s indoctrination: “The campaign is useless. It’s a rule that’s older than the world. If you print money, there’s inflation.”

How is it that Jose sees the truth behind the government’s inflation scam while others continue to fall for it? Who knows? Why is it that American libertarians see through the inflation scam here at home while so many others continue to fall for it? Public schooling works well but it’s not foolproof.


    



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Economic Inequality In The USA (In One Comprehensive Chart)

Inequality – long ignored – is now centre stage in debate about economic policy around the globe. As Tony Atkinson and Salvatore Morelli note, the 2007-2008 collapse of the global financial system and the subsequent economic downturn/debt crises have acted as a catalyst for growing anxiety around the increasing dispersion of incomes within most advanced economies. In an effort to show that “we are not ‘all in it together'”, the two professors have created The Chartbook of Income Inequality.

As the chart below shows, the acute loss of job prospects, especially among the young, the credit crunch and the austerity measures implemented by governments to contain the sovereign debt crisis have all put extra burden on the shoulders of the lower and middle classes.

 

 

Income Inequality In The US…

 

Summed up

 

And the huge interactive version…

 


    



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A U.S.-Saudi Move to Lower Oil Prices?

Submitted by Nick Cunningham via OilPrice.com,

Could the U.S. unleash a flood of oil from the strategic petroleum reserve that would drive down prices in order to punish Russia? While the idea has been kicked around over the last few weeks – most recently by George Soros – it has also been dismissed as not a serious option. Some say the impact of an oil sale, if it actually succeeded in lower prices, would be temporary. Saudi Arabia could cut back on production to keep oil prices at their current levels. Others decried the idea as contrary to the objective of the SPR, which has been setup to be used only in cases of emergency.

However, over at Quartz, Steve LeVine wrote an interesting article about the possibility of a coordinated response between the U.S. and Saudi Arabia that could have a much broader impact on oil markets. President Obama is, after all, meeting with the Saudi King on March 28. Ukraine is certainly going to come up in their discussions – his time in Europe was dominated by coordinating a response to Russia, despite the original intention of the trip to discuss nuclear security.

LeVine argues that it is possible that the U.S. could sustain a sale of 500,000 to 750,000 barrels of oil per day from the SPR. If the U.S. coordinated with the Saudis to ensure that they did not cut back production – indeed, they could even step up production from 9.7 million bpd – the greater supplies could slash prices almost immediately. Russia gets about 70% of its export revenue from oil and gas, so even a modest drop would be a significant blow. A former Ford and Carter administration official believes a U.S. SPR release could lower oil prices by $12 per barrel, potentially costing Russia $40 billion in lost revenue.

But by LeVine’s own account, there are few signs that such a move is in the works. Saudi officials, including Prince Turki bin al-Faisal, recently remarked about the global nature of today’s oil market, and the inefficacy of a single nation’s move to impact supply. Moreover, Saudi incentives aren’t exact in line with such a move. As one the world’s largest oil producers, Saudi Arabia would suffer from a drop in oil prices. And the fiscal breakeven price for Saudi Arabia is rather high, considering its budget necessities. Bank of America Merrill Lynch estimates the Saudis need a global oil price of $85 per barrel for its budget to breakeven. That figure has crept higher in recent years, meaning the Saudis are probably not inclined to want oil prices to decline from the $105-$110 range, where they have been for the last few months.

Not only that, but as LeVine notes, the Saudi King is convinced the U.S. is “unreliable,” and relations between the two countries hit a low point after Obama’s back and forth over air strikes on Syria last year. With Saudis increasingly frustrated with the U.S., why would they shoot themselves in the foot just to help out an unreliable partner? Now they could be interested in striking a blow against Iran, which lower oil prices would do. But, that doesn’t seem like enough of an upside.

Back in the U.S., President Obama could get an earful from oil producers if he reaches for the SPR spigot. Attempting to saturate the market with SPR oil could lower prices, but that would be pretty damaging to U.S. drillers. Their Republican allies will also oppose the move, at least they did when Obama used the SPR back in 2011 during the Libyan civil war. Republicans may have more difficulty justifying their opposition this time around, given that they have been the loudest about using American energy as a geopolitical weapon. But they will surely argue that exports are the better answer to Russia than an SPR release.

For now, Obama will probably hold the SPR card in his back pocket. Should Russia resist any further action in Ukraine, nothing will come of it. But, he is almost certainly mulling over the idea in the event that Russia takes broader action in Eastern Europe.


    



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