Ukraine To Seek Compensation From Russia For Seized Assets, Introduces Visas For Russians

Now that the non-fighting and the Crimean annexation is over, all that’s left are cheap words and hollow threats.

First, Ukraine has effectively given up on claims to Crimea… 

  • UKRAINE TO REMOVE MILITARY FROM CRIMEA TO MAINLAND: PARUBIY
  • UKRAINE TO SEEK DEMILITARIZED ZONE STATUS FOR CRIMEA: PARUBIY

… but hopes to make Russia’s life more difficult:

  • UKRAINE PLANS TO INTRODUCE VISA REGIME WITH RUSSIA: PARUBIY

And just in case Russia decides to steamroll unobstructed into other areas of East Ukraine, Kiev is pretending it is taking measures:

  • UKRAINE TO FORTIFY MILITARY ON EASTERN BORDER: PARUBIY
  • UKRAINE TO STRENGTHEN SECURITY AT NUCLEAR POWER PLANTS

Finally, Ukraine somehow still thinks it has any leverage:

  • UKRAINE TO SEEK COMPENSATION FOR RUSSIA SEIZING ASSETS

And this stinger for Russia which will surely lose much sleep now:

  • UKRAINE PLANS TO LEAVE CIS, PARUBIY SAYS

As for the US, it is just comical now:

  • RUSSIA CREATING `DANGEROUS SITUATION,’ CARNEY SAYS
  • U.S. PREPARED TO IMPOSE FURTHER COSTS ON RUSSIA, CARNEY SAYS

Costs – drink. And speaking of “dangerous situations”, perhaps the biggest danger here is that the US still thinks it is the sole superpower in a unipolar world. It clearly no longer is.


    



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Meet The Brand New, And Shocking, Third Largest Foreign Holder Of US Treasurys

Something hilarious, and at the same time pathetic, happened earlier today: at precisely 9 am the US Treasury released its delayed Treasury International Capital data (which was supposed to be released yesterday but was delayed because it snowed) which disclosed all the latest foreign Treasury holdings for the month of January. Among the key numbers tracked and disclosed, was that China’s official holdings increased from $1.270 trillion to $1.284 trillion, that Japan holdings declined by a tiny $0.2 billion, that UK holdings increased by $7.8 billion to $171 billion, and that holdings of Caribbean Banking Centers, aka hedge funds, declined by $16.7 billion. Here is Reuters with the full data summary (save it before this article is pulled).

So why is it hilarious and pathetic? Because just three short hours later, the Treasury that organization that has billions of dollars at its budgetary disposal to collate, analyze and disseminate accurate and error-free dataadmitted that all the previously reported data was in effect made up!

Of course, it didn’t phrase it as such. Instead, what TIC did was release an entire set of January numbers shortly after it had released the “old” numbers, which differed by a small amount but differed across the board – in other words, not a small typo here and there: a wholesale data fudging exercise gone horribly wrong. For example:

  • Instead of a $14 billion increase, China’s revised holdings were only $3.5 billion higher.
  • Instead of unchanged, Japan’s holdings suddenly mysteriously increased by $19 billion in January.
  • Instead of plunging by $17 billion, the Caribbean Banking Centers were down by a tiny $1 billion.
  • And instead of the previously reported increase of just under $1 billion, the all important Russia was revised to have sold $7 billion, bringing its new total to just $132 billion ahead of the alleged previously reported dump of Fed custody holdings in mid-March.

That this glaring confirmation that all TIC data is made up on the fly, without any real backing, and merely goalseeked is disturbing enough. For what it’s worth, the latest TIC data is here. Feel free to peruse it before it is revised again

However, what was perhaps more disturbing than even that was the revelation that as of January, the US has a brand new third largest holder of US Treasurys, one which in the past two months has added over $100 billion in US Treasury paper, bringing its total from $201 billion in November, to $257 billion in December, to a whopping $310 billion at January 31.

The country? Belgium

The same Belgium which at the end of 2013 had a GDP of just over €100 billion, or a little over one-third what its alleged UST holdings are.

And somehow the Treasury expects us to believe that tiny Belgium – the center of the doomed Eurozone which is all too busy running debt ponzi scheme of its own – bought in two months nearly as much US Treasurys as its entire GDP?

Apparently yes. However we are not that naive.

So our question is: just who is Belgium being used as a front for?

Recall that for years, the “UK” line item on TIC data was simply offshore accounts transaction on behalf of China. Of course, since China hasn’t added any net US paper holdings in the past year, the UK, and China, are both irrelevant in the grand scheme of things.

But not Belgium. Because with Russia (or someone else) rumored to have sold or otherwise reallocated $100 billion in US Treasurys in March away from the Fed, we wouldn’t be surprised if the Belgium total holdings somehow soared to over $400 billion when the March data is revealed some time in May. Courtesy of the excel goalseeking function of course.

Needless to say, this all ignores the initially confirmed fact that all the data presented above is made up gibberish, goalseeked by a bored intern at the Treasury, and whose work got zero error-proofing before its released to the entire world earlier today.

So… just what is going on with this most critical of data sets – official foreign holdings of US paper, and how long before an Edward Snowden emerges from the depths of the US Treasury building and reveals that behind all the data manipulation and unaudited figures was none other than the Fed, whose holdings, far greater than represented, are all that matter, and everything else is merely one grand, theatrical plug?


    



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CFTC Investigates The “Secret” HFT-Exchange Incentive Programs

It would appear that yesterday’s announcement by NY AG Schneiderman (who appeared to find Virtu’s practically flawless trading record too much to bear) has prompted further investigations into HFT shenanigans by regulators. As WSJ reports, regulators are taking aim at the relationship between high-frequency trading firms and major exchanges, examining whether the preferential treatment market operators offer the firms puts other investors at a disadvantage. The CFTC probe is focused on complicated, often opaque incentive programs that give high-volume trading firms financial benefits such as discounts on fees the exchanges charge to execute trades.

 

 

Via WSJ,

 

The Commodity Futures Trading Commission is investigating deals between large high-speed firms and the two futures-exchange operators, CME Group  and IntercontinentalExchange Group according to people familiar with the matter.

 

 

Separately, Securities and Exchange Commission enforcement officials are investigating whether stock exchanges provide advantages to certain clients, including high-frequency traders, by designing software programs that can give preferential treatment to their orders, and whether such details have been fully disclosed, people familiar with that inquiry said.

 

 

Regulators are concerned that less-savvy or less-influential investors aren’t aware of the benefits and advantages that exchanges are providing to certain clients, making it difficult for them to compete fairly, according to people familiar with the investigations.

 

 

So far, market watchdogs have done little to curb such trading, which has boomed and now makes up about half of all stock-market volume.

 

 

The CFTC probe is focusing on contracts tied to high-volume commodities such as crude oil, among other trading, and whether exchanges are pressuring some clients to trade such contracts exclusively on their venue, according to the people familiar with the probe. It also is targeting deals struck privately between exchanges and trading firms that aren’t disclosed to other trading outfits.

 

“There shouldn’t be secret deals,” said Mark Gorton, chief executive of Tower Research Capital, a U.S. high-frequency trading firm. “The big players shouldn’t have better rates than the little players.”

 

Among the firms in focus are New York high-speed giant Virtu Financial Inc., which last week disclosed in a regulatory filing that the CFTC is “looking into our trading during the period from July 2011 to November 2013 and specifically our participation in certain incentive programs offered by exchanges or venues during that time period.”

 

 

Defenders say such programs help boost the number of orders on the exchanges, making it easier for other investors to buy and sell futures contracts… But, the CFTC’s concerns is that the programs can encourage traders to engage in strategies that boost volumes but harm other investors.

Yet another worrying risk for the Virtu IPO… but then again, as long as it doesn’t IPO in Japan (like Japan Display’s terrible opening last night) the current exuberance will, we are sure, guarantee the greater fools will give the Virtu executives their exit at “peak HFT”.

 

It appears the probes are working… (via WSJ),

Marketwired, a provider of news releases such as corporate earnings and economic data, has decided to stop providing the releases directly to high-frequency traders, according to people familiar with the matter.

 

Marketwired is expected to sign a deal to stop the practice with New York Attorney General Eric Schneiderman, who has stepped up efforts to crack down on abusive practices by high-frequency firms, the people said.

 

The news follows a decision last month by Berkshire Hathaway Inc. ‘s Business Wire to stop providing high-speed traders direct access to corporate earnings and other market-moving press releases following consultations with Berkshire Chief Warren Buffett and Mr. Schneiderman’s office.

 

The ties between Marketwired, based in Toronto, and Business Wire were first reported in a Wall Street Journal article last month.


    



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Ukraine Demands Its “Seized Personnel” Be Released Shortly, Or Else

Ukraine acting President Oleksandr Turchynov has some stern demands of his Russian occupying force neighbors:

  • *UKRAINE’S TURCHYNOV SEEKS RELEASE OF DETAINED CRIMEA PERSONNEL
  • *UKRAINE PLEDGES ‘ADEQUATE MEASURES’ IF PERSONNEL NOT RELEASED

Furthermore, he promisese to take “appropriate steps” unless Crimean authorities free all hostages within 3 hours. For now, Russian forces refuse to negotiate. Meanwhile, Russia is standing both militarily and now economically behind Crimea as it affirms it will cover the region’s budget deficit.

Via Bloomberg,

Ukraine acting President Oleksandr Turchynov wants seized personnel including Navy Chief Serhiy Hayduk released by 9pm local time.

Ukraine to take “adequate measures” if personnel not released by deadline, Turchynov says in website statement

Russian forces refuse to negotiate in Crimea: Turchynov

Via Reuters,

Russia will cover Crimea’s estimated 55 billion rouble ($1.53 billion) budget deficit with funds from the federal budget, Russian Finance Minister Anton Siluanov said on Channel 1 state television on Tuesday.

 

“The volume of the (budget) deficit of Crimea and Sevastopol is about 55 billion roubles,” Siluanov said in an interview televised by Channel 1.

 

“The whole sum will definitely be covered with federal budget.”

So now we have another red-line at 3pmET…


    



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China’s “Minsky Moment” Is Here, Morgan Stanley Finds

From Morgan Stanley’s Cyril Moulle-Berteaux and Sergei Parmenov, who pick up where our simple chart showing China’s “debt nightmare” left off.

We have described in detail over the past two years how we believe China’s twin excesses (excessive investment funded by excessive debt) will inevitably unwind, causing a substantial slowdown in China’s economy, significantly below market expectations. In recent weeks, a trip to the region and further research into China’s shadow banking system have convinced us that China is approaching its “Minsky Moment,” (Display 1) which increases the chances of a disorderly unwind of China’s excesses. The efficiency with which credit generates economic activity is already deteriorating, as more investments are made in non-productive projects and more debt is being used to repay old debts.

Based on our analysis, our baseline case is that China may slow from the current level of 7.7% Gross Domestic Product (GDP) growth to 5.0% over the next two years. A disorderly unwind could take Chinese growth down to 4% in a shorter time frame with potentially disastrous consequences for levered Chinese assets (banks, property) and the entire commodity supply chain (commodity stocks, equipment stocks, commodity-sensitive countries and their currencies).

The consensus is more optimistic and expects China’s economy to grow by 7.4% in 2014 and 7.2% in 2015. Most market participants have concluded that the Chinese economy, despite its excesses, will slow only moderately as the government successfully manages to “soft-land” the credit and investment boom and that, as a result, the impact on global GDP growth could be moderate and is not likely to derail the global developed-market-led expansion. However, one of the more controversial conclusions of our analysis is that global economic growth could be impacted severely enough to cause a global earnings recession.

 

Hyman Minsky was a neo-Keynesian economist who developed a theory called the Financial Instability Hypothesis, similar to the Austrian school of thought, about the impact of credit cycles on the economy. In his 1993 paper entitled “The Financial Instability Hypothesis,” Minsky identified three financing regimes that economies can operate under: the first, which he called hedge finance, is a regime in which borrowers have sufficient cash flows to meet “their contractual obligations,” i.e. interest payments and principal repayment, usually by having a large equity component in their capital structure; the second, speculative finance, is a regime under which borrowers have cash flows that are sufficient to pay interest but not to repay principal, i.e. they must roll over their debts; the third, Ponzi finance, is a regime in which borrowers have insufficient cash flows to pay either principal or interest and therefore must either borrow or sell assets to make interest payments.

Minsky stated that “it can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system.” His paper draws the following two conclusions: 1) that “the economy has financing regimes under which it is stable, and financing regimes in which it is unstable” and 2) “that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.” In essence, the longer an economic expansion goes on, the greater the share of speculative and Ponzi finance, and the more unstable the economy becomes.

Our analysis indicates that China’s economy has arrived at that unstable state where speculative and Ponzi finance appear to dominate. From a macroeconomic perspective, very few economies have ever created as much debt as China has in the past five years. China’s private sector debt has increased from 115% of GDP in 2007 to 193% at the end of 2013.3 (Display 2) That 80% increase over five years compares to the U.S.’s 26% in 2000-2005. In recent years, only Spain and Ireland have achieved debt growth greater than China’s. Every year, China is now adding $2.5 trillion of private sector debt to a $9.7 trillion GDP.

There is evidence that this debt growth has become excessive and non-productive. It now takes 4 renminbi (RMB) of debt to create 1 renminbi of GDP growth from a nearly 1:1 ratio in the early and mid-2000s. After the massive stimulus and more than doubling of new bank loans in 2009, the government attempted to stabilize credit growth, but the growth of the shadow banking system exploded instead. Shadow banking now accounts for more than a fifth of total credit in China—or about 40% of GDP from a base of 12% just five years ago. The shadow banking system funnels credit to borrowers who can no longer get loans from the formal banking sector, such as Local Government Funding Vehicles, the property sector, and companies in sectors with massive overcapacity and low or negative profitability such as coal mining, steel, cement, shipbuilding, and solar. Work by Nomura’s Chief China Economist indicates that more than half of Local Government Funding Vehicles, which borrow money on behalf of local governments to invest in infrastructure, have insufficient cash flows to pay interest or principal; the exact manifestation of Minsky’s Ponzi finance regime. Total local government debt adds up to RMB17.9 trillion (nearly $3 trillion) according to the latest, likely understated, national audit. In addition, estimates show that up to one third of all new borrowings are currently being used to roll over existing debt, and that interest payments on debt represent nearly 17% of Chinese GDP—a staggeringly large number (which excludes principal repayments) and which is nearly double the level that the U.S. reached in 2007. (Display 3)

It is clear to us that speculative and Ponzi finance dominate China’s economy at this stage. The question is when and how the system’s current instability resolves itself. The Minsky Moment refers to the moment at which a credit boom driven by speculative and Ponzi borrowers begins to unwind. It is the point at which Ponzi and speculative borrowers are no longer able to roll over their debts or borrow additional capital to make interest payments. Minsky states this usually occurs when monetary authorities, in order to control inflationary impulses in the economy, begin to tighten monetary policy. We would add that this monetary tightening often begins to occur at the time when the size of speculative and Ponzi borrowings have become so large that the demand for additional capital to keep these borrowers afloat becomes greater than the supply of such capital. We believe that China finds itself today at exactly this juncture.

The People’s Bank of China (PBOC) has been slowly tightening credit for nine months. This can be seen in the steady uptrend in interbank financing costs (the one-month Shanghai Interbank Offered Rate, or SHIBOR, is up 220 basis points since last May). The PBOC’s latest Q4 Monetary Policy Report indicates it intends to continue to tighten liquidity in order to control the excessively fast growth of shadow banking credit.

Of the $1.8 trillion in Trust Loans provided by the shadow banking sector, nearly $600bn, or RMB 3.6 trillion will come due in 2014. (Display 4 shows maturities for a sample of half of collective trust loans, which represent one quarter of total trust loans)

Defaults or near-defaults have begun to occur with regularity over the past three months and are likely to pick up in quantity significantly over the next year. As it is becoming more clear that investors may not get all of their money back, interest rates on trust products, wealth management products (WMPs), corporate bonds, and bank loans have risen by roughly 200 basis points in the last year. (Display 5)

So at the same time that large amounts of debt come due and borrowers are increasingly stretched, growth is slowing, monetary policy is being tightened, and market rates are beginning to rise, making new borrowings even more expensive and difficult. The combination of these factors indicates to us that China’s Minsky Moment is approaching.

The unwind of this credit boom is likely in progress, and we expect it to pick up speed over the coming months and quarters. It will likely involve a steady drip of defaults and near-defaults as insolvent borrowers finally become illiquid. Market rates for all assets except central government bonds and central bank bills will likely continue to rise, reflecting increasing market fears of default by shaky borrowers. Asset values will likely begin to deteriorate as stressed borrowers attempt to sell assets to stay afloat. As a result, banks and other financial entities could begin to increase provisioning for bad debts and to reduce credit availability by gradually tightening credit standards. This could lead to a credit crunch where credit to the economy is choked off for all but the safest borrowers.

This rise in defaults, non-performing assets, and credit standards could exacerbate a significant slowdown in economic activity concentrated in the areas most dependent on debt, such as local government infrastructure spending and the sectors with the greatest overcapacity mentioned above.

The impact would therefore be most visible in the fixed investment side of the economy, particularly in infrastructure, real estate construction and related industries (cement, steel, machinery, etc.).

In time, the slowdown in growth and the increase in defaults could become significant enough that the government would intervene and ease policy to moderate the downturn. This policy easing would likely involve a combination of monetary easing and extraordinary liquidity by the PBOC and possibly, some fiscal stimulus. But until then, the impact on assets that are dependent on China’s debt growth and investment spending growth could be severe.

We recognize that it is extremely likely that the Chinese government will attempt to stave off the unwind or at least keep it orderly in an effort to achieve the ever-elusive soft landing. One way that the government could attempt this would be by stepping in to bail out borrowers on the verge of default. A version of this occurred in January, when the well-publicized default of a RMB3 billion China Credit Trust product was averted when an unknown entity stepped in to pay the principal due to investors, though not the remaining interest due (worth approximately 7% of principal). The unknown entity is likely to have been either the local government of Shanxi, home of the coal mining company that defaulted on the underlying trust loan, or the Ping An insurance company, parent of China Credit Trust. The benefit of the government or other entities stepping in to bail out borrowers is that it helps prevent investors from losing money, maintaining their faith in the financial system and ensuring they continue to buy trust products offering rates five times above deposit rates. The drawback is that credit continues to be extended to weak or insolvent borrowers, potentially leading to an even higher level of bad debts in the future. The problem is not eliminated, it is simply postponed. Interestingly, growth is likely to be negatively impacted whether or not the government steps in frequently to prevent borrowers from defaulting. First, scarce capital is being provided to prevent default by insolvent borrowers (“zombies”) rather than being channeled toward productive investments. Second, in order to limit the cumulative size of the bailouts, the government is likely to continue to restrict the growth of shadow banking and lending to these uncreditworthy borrowers. Lastly, market rates are likely to continue to rise, reflecting increasing market unease with the growing number of near-defaults.

Most other analyses we have seen conclude that China could slow more than currently expected by the consensus, but that the global economy is well-positioned to withstand such a slowdown. Our conclusion is a bit more pessimistic. We have found that every 1% of Chinese GDP deceleration could reduce global economic growth by 60 basis points. On a current dollar basis (i.e., not purchasing power parity, or PPP), the global economy is expected to grow about 3% in 2014 and 2015. (Display 6)

Therefore, if the Chinese economy were to slow by 200 basis points to 5.4%, from current expectations of 7.4% for 2014,13 (Display 7) global economic growth would slow to 1.8%, substantially below potential of 2.8%. This could have a significant impact on global equities, as our analysis shows that the global economy needs to grow at least 2.5% for global corporate profits to grow. Thus, a 1.8% pace for global GDP growth would result in earnings down roughly 13%, a huge miss compared to current expectations of 11% earnings growth. At this point, this is not our base case but a risk scenario we are closely monitoring.


    



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The Changing Face Of The Low-Wage Worker In America

Climbing above the poverty line has become more daunting in recent years. NY Times reports that the composition of the nation’s low-wage work force has been transformed by the Great Recession, shifting demographics and other factors.

 

Via NYTimes,

More than half of those who make $9 or less an hour are 25 or older, while the proportion who are teenagers has declined to just 17 percent from 28 percent in 2000, after adjusting for inflation, according to Janelle Jones and John Schmitt of the Center for Economic Policy Research.

 

Today’s low-wage workers are also more educated, with 41 percent having at least some college, up from 29 percent in 2000. “Minimum-wage and low-wage workers are older and more educated than 10 or 20 years ago, yet they’re making wages below where they were 10 or 20 years ago after inflation,” said Mr. Schmitt, senior economist at the research center.

 

"If you look back several decades, workers near the minimum wage were more likely to be teenagers — that’s the stereotype people had. It’s definitely not accurate anymore.”

Read more personal stories of the "recovery" here.


    



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How Corporations Are Masking Inflation… Without the CPI Moving

Since 2007, the world’s Central Banks have collectively put more than $10 trillion into the financial system since 2008. To put that number into perspective, it’s equal to roughly 15% of global GDP.

 

This kind of money printing is literally unheard of in modern history. And it has set the stage for a roaring wave of inflation to hit the financial system. Indeed, the first signs are already showing up… not in the “official” Government data (which is bogus) but in how those who run businesses around the globe are acting.

 

Most people believe that when inflation hits, prices have to go higher. This is true, but higher prices can be manifested in multiple ways. Firms usually do not simply raise prices in nominal terms as price elasticity can kill revenues because it would hurt sales.

 

Instead, companies resort to a number of strategies to maintain profit margins without hurting their sales. One of them is to simply leave part of a package EMPTY, thereby selling LESS product for the SAME price (a hidden price hike).

 

Food manufacturers, like the politicians currently debating health reform, may have a solution to the obesity crisis: Feed Americans a lot of hot air. But this heated air is not just a figure of speech for packaged goods companies including Ralcorp Holdings' (RAH) Post Foods and PepsiCo (PEP) subsidiaries Frito-Lay and Quaker.

 

In many packaged products, as much as 50% of the contents is just empty space, an investigation by Consumer Reports reveals. And we consumers are buying that nothingness every day.

 

http://ift.tt/1cNOxut

 

Another tactic corporation use is to simply sell smaller packages for the SAME price (another means of selling less for MORE= a price hike).

 

U.S. Companies Shrink Packages as Food Prices Rise

           

Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.

 

Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don't notice that they're getting less of the product for the same price.

 

http://ift.tt/1cNOvCK

 

However, perhaps the most scandalous policy employed by companies looking to engage in stealth price hikes is to swap out higher quality ingredients for lower quality/ lower cost alternatives. One bigname coffee maker was caught doing this just a few years ago.

 

Reuters is reporting that many of America's major brands have been quietly tweaking their coffee blends. While most coffee companies consider their blends trade secrets, and are loath to disclose exactly what goes into them, both circumstantial and direct evidence suggests they're now substituting lower-grade Robusta beans for some of their pricier Arabica, and degrading the quality of our coffee…

 

At least one coffee roaster has admitted it. In November, Massimo Zanetti USA, which roasts for both Chock full o'Nuts and Hills Bros., publicly confirmed upping its Robusta usage by 25% this year.

 

Why the switcheroo? Prepare to not be shocked. The answer is: price.

 

Last year, a shortage of Arabica caused prices of the premium bean to spike as high as $3 a pound — $2 more than what a pound of Robusta would cost. This compares to a five-year historical trend of Arabica costing closer to 70 cents more than Robusta. In recent weeks, the trend has reversed, with Arabica prices falling to just a 62-cent premium over Robusta.

 

http://ift.tt/RAgFIl

 

In simple terms, inflation is already around us, though it’s not yet showing up in LITERAL price hikes. Instead, we’re all paying MORE for LESS. And this won’t show up in the official numbers for some time.

 

For a FREE Special Report on how to protect your portfolio from inflation, swing by

http://ift.tt/RQfggo

 

Best Regards

Phoenix Capital Research

 


    



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Crimea Wastes No Time – Mints New Coinage Already

With the ink still wet on the referendum vote slips and the Duma’s agreement to accept Crimea into Mother Russia, the Crimean Mint (since we pre-suppose there is one) has wasted no time in creating the new coinage for the nation. As Crimea transitions quickly to the Russian Ruble, they have created their own “Crimea-styled” currencyperhaps to be named the ‘cruble’?

 

 

h/t @abunin


    



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What a surprise– it turns out they lied about the deficit last year

March 19, 2014
Santiago, Chile

Truth can be a damn difficult thing to digest sometimes.

Some of us have been there. You get that news from the doctor that you, or a loved one, has just been diagnosed with a serious disease, and it hits you like a ton of bricks.

Several years ago my father was diagnosed with a brain tumor known as a Glioblastoma (GBM). A GBM diagnosis is essentially a death sentence– it’s one of the most aggressive tumors in existence, and it grows in the part of the body that modern medicine understands the least.

I clearly remember the neurosurgeon telling us, “There have been some miraculous advances in medicine over the last 20-years related to the treatment of cancerous tumors. Unfortunately, this tumor is not one of them.”

It was a tough pill for everyone to swallow… especially my father.

Our natural defense mechanism as human beings is to deny reality. These sorts of things happen to other people, not to us.

It’s this same defense mechanism that leads people to ignore the obvious fiscal realities of their home country despite overwhelming objective evidence.

After all, debt-fueled collapse happens to other countries. Not to us.

We go our entire lives being told that our country is different. We’re special.

We have televised ‘experts’ going on TV explaining why our debts and deficits don’t matter. And Nobel Prize-winning pseduoscientists complaining that our debts and deficits aren’t big enough.

But deep down you know the truth.

In the Land of the Free, the Government Accountability Office (GAO) recently released its 2013 Financial Report of the United States government.

This is the government’s best attempt at an honest accounting of its books. And even though they use a different accounting system that gives them special advantages, the picture is still remarkably bleak.

We all know that the US government has racked up a substantial debt; as of this morning, total outstanding public debt is $17,546,814,482,078.90. ($17.5 trillion)

But it’s not all about the debt. Debt is not necessarily evil… and it’s important to look at the situation qualitatively in addition to quantitatively.

Let’s drop a few zeros and consider this in terms of personal finance.

Assume you had $1.75 million in total debt. That sounds like a lot to most people.

But if you had $3 million in liquid assets to offset the debt, plus $500,000 in annual income to pay interest, living expenses, and just about any contingency that could come your way, you’d be in great shape.

It would be even better if that $1.75 million in debt financed a lucrative real estate investment which was generating a 25% cash-on-cash return for you.

But that’s not the case for the US government.

Despite the Obama administration touting a budget deficit of “only” $680 billion in 2013, the GAO’s more accurate accounting shows a total government cost of $3.8 trillion on total revenue of $2.8 trillion.

In other words– the administration wasn’t exactly honest with the American people– the deficit was more like $1 trillion, not $680 billion. But it gets worse.

The GAO added up ALL the US government’s assets in 2013. Aircraft carriers. The highway system. Land. Cash and financial assets. The total is $2.97 trillion.

The liabilities, on the other hand, total $19.88 trillion. This includes the official public debt, plus all sorts of IOUs and loan guarantees.

This means the net EQUITY of the US government is minus $16.9 trillion.

Moreover, the US government’s cash position is a mere $206 billion… roughly 1.1% of its public debt. This isn’t enough to cover net interest payments for the next year.

Unlike a savvy investor who borrows cheap money to purchase productive assets, the US government borrows money to pay interest.

Quantitatively AND qualitatively, the data point to an inevitable conclusion: despite all the propaganda, this is NOT a risk free environment.

And understanding these trends and consequences is absolutely critical to your long-term financial survival.

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China’s Housing Problem In One Chart

The one problem with every Ponzi scheme is that it must constantly grow, in both demand and supply terms, for the mass delusion to continue. The other problem, of course, is that every Ponzi scheme always comes to an end…. which may have just happened in China where as the chart below shows, as of this moment at least, the supply side to the Chinese housing ponzi (and recall that in China the bubble is not in the stock market like in the US, but in housing) has slammed shut.


    



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