The Deutsche Bank Settlement is Meaningless

Written by Jeff Nielson (CLICK FOR ORIGINAL)

 

 

 

 

 

 

 

There has been considerable hoopla and celebration,following Deutsche Bank’s legal settlement , in a U.S.-based litigation against this Big Bank regarding precious metals manipulation. The enthusiasm surrounds Deutsche Bank’s pledge to “cooperate” in providing evidence to be used against the other defendants in that litigation: HSBC and the Bank of Nova Scotia (and possibly UBS, as well).

 

It is painful to be a naysayer here. The extreme, perennial, manipulation and suppression of precious metals prices is one of the more odious blotches on what we call “markets”. However, there is unfortunately no basis for renewed optimism that this current litigation will have any meaningful impact on precious metals manipulation – with respect to either silver or gold.

 

There are several reasons for not considering this to be the turning point in precious metals markets which several commentators have suggested. The most important reason here is the subject matter of the manipulation itself. The lawsuit which reaped this settlement is based exclusively on manipulation of the silver fix (and gold fix).

 

As has been explained previously, manipulation of the silver and gold “fix” is only the tip of the iceberg regarding the manipulation of precious metals markets. Of far greater significance are the following categories of fraud and manipulation:

1) Naked shorting

2) Bullion “leasing”

3) Algorithm manipulation

 

Naked shorting is an endemic form of fraud in our pseudo-markets, due to lack of regulation and enforcement of this crime. We can only assume that this is particularly egregious in precious metals trading, as the short positions in these metals is grossly disproportionate to shorting activity anywhere else in the spectrum of commodities.

 

So-called bullion leasing is a form of fraud and manipulation which has been discussed by many other commentators, as well as in previous commentaries. “Gold generates no income.” This tautology is true with respect to any commodity.

 

The only way to produce revenues from any commodity is to use it (i.e. consume it), or sell it. In either case, it requires surrendering possession. Consequently, there can be no legitimate business purpose in “leasing” any commodity, only nefarious ones. In the case of (central bank) bullion leasing, the fraudulent modus operandi is well known.

 

…central banks stand ready to lease gold in increasing quantities should the price rise.

– Testimony of [Federal Reserve] Chairman Alan Greenspan , July 24th, 1998

 

 

So what? Central banks “stand ready” to temporarily transfer possession of their gold to some third party. In what way does that counteract a rising gold price, the clear intent of Chairman Greenspan’s testimony? There is no legitimate way in which such a transaction could impact bullion markets.

 

 

The illegitimate way is well known. Western central banks “lease” their gold to “traders” (i.e. the Big Banks). The bankers then short the gold onto the market (manipulating the price lower), thus requiring them to transfer permanent ownership of that gold, should the party on the other end of the transaction take delivery of the metal being traded.

 

 

The gold is gone, forever, but it remains on the books of the central banks: the phantom “gold reserves” of which Western governments continue to boast. Countless, thousands of tonnes of gold have been leased onto the market during this era of manipulation. We don’t know the precise level of fraud with respect to central bank bullion “leasing”, because (of course) these institutes of financial crime permit no full, public audits of their books, ever.

 

Algorithm manipulation is undoubtedly now the most important category of precious metals manipulation, just as it is with respect to price manipulation throughout our markets. This has been well established in previous commentaries.

 

So-called “HFT trading” (i.e. computerized algorithm trading) now dominates all trade activity, in all markets. The evidence of manipulation, particularly in U.S. markets, has now been clearly revealed and defined through research into this form of market crime. That research showed that:

a) 75% of all U.S. equities were subjected to significant levels of algorithm price manipulation.

b) This manipulation is not only endemic, it is systemic. This algorithm manipulation was strongly “correlated”, meaning it was being controlled by a single Invisible Hand – the Big Bank crime syndicate which regular readers know as the One Bank.

 

Throughout the last, five years of relentless price suppression, we have seen clear technical “break-outs” in the price of gold and silver, only to see prices quickly reverse.

 

 

 

 

 

It is true that even legitimate markets occasionally send false (technical) signals. However, both gold and silver have been priced at only small fractions of any minimum, rational price which we could possibly assign. When strong, bullish technical indicators are accompanied by strongly bullish fundamentals, legitimate markets never reverse in such a manner.

 

This is why the mainstream media (a tentacle of the One Bank) invests so much time and effort with their own, gibberish analysis of gold and silver, creating their own, bogus “fundamentals” which they then hype as an “explanation” of the absurdly fraudulent prices of silver and gold.

 

Note additionally the pattern of silver trading over the past 5 years. Silver is both a much smaller market than the gold market, with much more volatile demand. For both of those reasons, the price of silver must be more volatile than the price of gold, yet over the past five years we see precisely the opposite pattern.

 

We see a pseudo-market which is being ruthlessly suppressed. Further indication of this comes by looking at the technical break-outs in the price of silver versus break-outs in the gold pseudo-market. Silver break-outs are instantly attacked, and the price is hammered lower, while gold break-outs occasionally are allowed to gather a little momentum, before then being illegally reversed. Indeed, it is precisely this previously demonstrated omnipotence which prompted the warning that the current “rally” in gold and silver is a fake-rally.

 

The fact that silver is held in a much tighter choke-hold reflects the differences in the fundamentals of these metals. Physical inventories and stockpiles of silver are undoubtedly much smaller than those of gold, in relative terms. The price of silver has been suppressed to a much more extreme degree. This means that the upward price-pressure on silver is much greater than with gold, and the capacity of the “market” to withstand any stampede of bullish demand is much more limited.

 

The Big Bank crime syndicate is much more afraid of silver than gold, and we see this clearly reflected in the pattern of price manipulation. The price of silver is never allowed to gain momentum, for fear that once “lift off” was achieved with silver that there would be no way to reverse either a price spiral, nor prevent some final, catastrophic implosion of inventories.

 

This brings us to the silver fix, and the Deutsche Bank settlement. The silver fix and gold fix were never anything more than minor tools of manipulation. At two moments each day; the banking crime syndicate “fixes” gold and silver prices. This is useful for defrauding contracts based upon the prevailing “fix” in gold or silver, but it has no significant impact on overall price manipulation.

 

Exposing such manipulation will do nothing toward preventing the continued, systemic manipulation of gold and silver prices, via the much more potent weapons of naked shorting, bullion leasing, and algorithm manipulation. Deutsche Bank was never accused of crimes of this nature in this lawsuit, thus its “cooperation” does not extend to providing information about such manipulation. However, by settling its own suit, acknowledging its liability, and “confessing” the manipulation of the gold-fix and silver-fix by other Tentacles, the One Bank can pretend that “manipulation” has now been eradicated from these markets.

 

This brings us to the final reason why the Deutsche Bank legal settlement is (unfortunately) much ado about nothing. It is the settlement of a lawsuit, not a conviction for the crime of illegally manipulating the gold and silver pseudo-markets. Deutsche Bank acknowledged civil liability for its actions, not criminal guilt.

 

These fix-manipulation lawsuits were launched in both the United States and Canada. Do we see the pseudo-regulators or pseudo-justice officials in either Canada or the U.S. announcing (criminal) investigations of the obvious crime for which Deutsche Bank has acknowledged its culpability? No.

 

Any real “investigation” might stumble upon the more potent forms of price manipulation discussed previously, and have some real, lasting impact on the serial manipulation of the prices of these metals. Civil lawsuits, no matter what their outcome, have no lasting impact on such systemic criminal activity. All that the victims of manipulation can do is launch additional suits in the future, since “justice” is a commodity which no longer exists in markets – the playground of the Big Bank crime syndicate.

 

As regular readers are already aware, the One Bank is now able to counterfeit its bogus “Monopoly money” in literally infinite amounts. No matter how much of its worthless confetti it is forced to shower upon litigants (now or in the future),such lawsuits could never have any deterrent effect on these financial crimes.

 

Even more appalling, when the Big Banks are actually caught-and-convicted perpetrating one of their serial Mega Crimes, such convictions never provide any actual law enforcement. A token “fine” is paid, and then the Big Banks go right back to committing the same crimes. Indeed, the U.S. Department of (pseudo) Justice has now formally proclaimed that it will never punish these corporations for their corporate crimes.

 

In the face of such systemic, unobstructed criminality, the token “victory” in an aspect of precious metals price-manipulation which has little overall relevance is trivial. Real victories will only come with real justice. The latter no longer exists in our corrupt nations, thus we should not be holding our breath for the former.

 

 

 

Please email with any questions about this article or precious metals HERE

 

 

 

 

The Deutsche Bank Settlement is Meaningless

Written by Jeff Nielson (CLICK FOR ORIGINAL)

via http://ift.tt/1SvRWmI Sprott Money

Debt undermines growth and, as Scotiabank's Guy Haselmann exclaims, the world has never been more indebted.

Reinhart and Rogoff’s 2010 research on the topic concluded that growth is about 1 percentage point lower in the long run when sovereign debt is 90% or more of GDP.  They found that these episodes of ‘high debt’ were long and costly and that the average period (of ‘high debt’) lasted 23 years.  [Such long duration advocates that ‘high debt’ is not merely a function of a downturn in the business cycle.]

Debt levels of many countries have reached levels far higher than 90%. 

Those levels do not include the trillions of dollars in corporate debt (which has grown rapidly in the last 5 years). In many countries, debt has been growing at a rate far faster than economic growth. Such a trend is clearly unsustainable. Historically, rapid increases in debt levels typically result in a financial crisis or a prolonged slowdown in GDP growth.

The government debt-to GDP level of 104% in the US does not even include gargantuan unfunded entitlement liabilities which many argue will reach levels greater than $100 trillion in the next 10 years. It could be argued that a US growth rate of 2% might be the best case scenario for many years.

Loose monetary policy is supposed to provide cheap(er) funding for investment into capital projects that ultimately create jobs and spurs economic growth throughout the broader economy.  However, when there is limited visibility, projects will not be undertaken. Highly indebted corporations will be reluctant to take out more debt for capital projects without some sense of the value of those future cash flows as well as the cost of operating that future business.

Currently, it is too difficult to handicap future costs, and changes to the tax code, employee health care costs, regulations, or the fiscal policies (of whomever our elected leaders will be). Low and negative interest rates have not led to borrowing for capital projects because of this uncertainty.  Without these fiscal reforms, the effectiveness of monetary policy is muffled.

Yet, a massive amount of borrowing has taken place.  Unfortunately, the proceeds of the huge corporate debt issuance have been used for share buybacks and dividend increases.  To make things look ‘less bad’, corporate executives have made efforts to increase earnings per share (EPS) ratios by making sure that the “S” falls faster than the “E”. The net result is higher asset prices that increasingly diverge from underlying economic fundamentals.

Low interest rates attempt to buy time. The idea is to bring consumption forward until the economy heals on its own as capital projects are completed. But those projects never began for the reasons I mentioned. The end result is ever-higher debt that borrows more and more from the future. Unfortunately, it borrows from the future without making the future any brighter through solutions to root causes of economic ailments.

At some point, the “future” becomes “today”.

A former central banker used a good analogy to describe the current condition in which central banks have placed themselves.  He said it is like cycling up a hill that is getting increasingly steeper and steeper and you need to pedal faster and faster to maintain the same position.

The hill is steepening as low and negative interest rates are no longer bringing spending forward. The BoJ cut in January to negative rates caused consumers to retrench.  This was likely due to worries about what such extraordinary measure must mean for the future.  Expectations matter. This market reaction has rightly acted as a warning sign to central banks about the limits of their policies.

There are trillions of dollars of debt maturing in the next 24 months. In this light, some random facts follow.  China has around $86 billion of debt maturing in May alone. The largest in their history. US CMBS has over $125 billion in loans maturing both this year and next.  Italy has around €360 Billion of impaired assets and non-performing loans (NPLs), which equals almost 25% of GDP. Since Greece had missed budget targets due to weaker than expected tax receipts, creditors may have to give them more money in order for Greece to be able to pay the €3.5 billion interest payment due in July.  The Malaysian state fund 1MDB defaulted this month on the interest on a $1.75 billion bond which in turn led to a few cross defaults.

The bottom line is that high debt typically inflicts future financial stress.  The burden magnifies if interest rates rise, or if the debt burden either cannot be rolled over or can only be refinanced at wider spreads.

High yield bonds spread have come roaring back from wide levels, but credit will face headwinds and challenges going forward.  Emerging markets (EM) corporations and countries that have borrowed in US dollars face similar challenges, particularly due to the relative strength of the USD in recent years (which is likely to persist). According to the BIS EM borrowing in USD has soared above $9 trillion.

My view of US Treasuries has not changed.  The compelling technical story, which I have outlined in several notes, remains firmly intact. The global shortage of (and increasing demand for) high-quality, risk-free, and positive-yielding collateral can be added to the list of factors.  I still expect long-maturity Treasury yields to fall to all-time low levels in 2016. Other financial assets will not perform so well.

“Know what you own, and know why you own it” – Peter Lynch

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Submitted by Irina Slav via OilPrice.com,

Depressed oil prices, rampant corruption, and pipeline vandalism are only parts of Nigeria’s oil problem. It’s now losing a massive 400,000 barrels of crude daily to pirates in the Gulf of Guinea, an amount equal to the entire daily export capacity of its Forcados terminal.

Overall damage from piracy, theft and fraud for Africa’s largest oil exporter is estimated at some $1.5 billion a month, according to U.S. deputy ambassador to the UN, Michele Sison, citing a Chatham House report.

Attempts by local governments and the UN to put a stop to piracy have met with some success, but the practice continues – shifting location and adapting to new security measures, so now the UN Security Council is calling for a comprehensive framework of measures aimed at eradicating it.

Since 2014, says the UN, Gulf of Guinea piracy has increased at an alarming rate.

Two pirate attacks on 11 April affected seven countries. The cargoes came from Nigeria, Turkey and Greece; the ships were flying Maltese and Liberian flags; and the 8 missing crewmen were from the Egypt, the Philippines and Turkey.

In the first quarter of this year alone, there were six recorded pirate attacks in the Gulf of Guinea, and six attempted attacks. Nine of those were off the coast of Nigeria, while one was off the coast of Côte d’Ivoire, and two were within the territorial waters of the Democratic Republic of the Congo.

Last year, there were 100 similar incidents in the Gulf of Guinea, according to the UK’s ambassador to the UN, Peter Wilson.

Dealing with the pirates requires an international effort, and particularly a coordinated effort by those countries near the Gulf of Guinea. There isn’t much Nigeria can do on its own. Without a major overhaul of intelligence sharing and local law enforcement collaboration and training, the piracy scourge will continue to worsen.

Nigeria has thrown its lot in the fight against pirates, but it has too much on its plate already. Plagued by low oil prices, pipeline vandalism and stalling reforms at its state oil company, the country has more than enough to worry about in addition to losses to pirates.

In March, Nigeria pumped 1.677 million barrels of crude, which was a decline on the previous month’s 1.744 million. According to a Financial Times analysis, the decline is set to continue over the coming years, largely because the reforms at the NNPC, pledged by new president Muhammadu Buhari to tackle long-time corruption and inefficiency, have so far not yielded any actual results.

In addition to dealing with corruption, as part of the reforms, Buhari’s government planned to change the terms of the production-sharing agreements it has with foreign oil companies operating in the country. Oil majors with a Nigerian presence said at the time that such a move could deter investments and ultimately have a negative effect on oil revenues.

All in all, Nigeria has sunk deeper and deeper, and even a continued oil price rally would not be sufficient to prop it up as production continues to decline.

For June, Nigeria plans to export 1.57 million barrels of crude, for instance, compared with 1.6 million barrels scheduled to leave its shores in May. What’s more, its budget for 2016 had envisaged a daily output of 2.2 million barrels—an amount unlikely to be reached in the short-term.

Disputes between the NNPC and foreign oilfield operators are hampering normal output at more than one field. That’s in addition to the growing nervousness among international oil companies regarding Nigeria’s ability to ensure the stability of production and revenue sharing.

Vandals are responsible for an estimated 250,000 barrels in daily losses. Pirates are stealing at a rate of 400,000 barrels per day. That’s a 650,000-barrel shortage on the budgeted daily output. So–barring all conscious effort on the part of the Nigerian government—prices will have to rise more substantially than they have so far this year for Nigeria to feel any positive effect.

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Authored by Project Chesapeake's Tom Chatham, via Alt-Market.com,

It has been said that history may not repeat but it sometimes rhymes. Just as the generals always seem to fight the last war people seem to prepare for the last depression. Times change and the mechanism that leads to misfortune changes with it. Looking at the past may not give us the clear answer to how to deal with the future but it can help us to determine what might happen and how to deal with it when the time comes.

We always look at the last incident because that is what we know. The problem is that social and economic conditions are always changing and they have a major impact on how things unfold. When people hear that they should prepare for another great depression they immediately think about how people survived the last one and how events unfolded. That is a good starting point but things will not be exactly the same the next time.

In the 1930’s people did not posses specialized skills, they had general knowledge that allowed them to take any job that was available. Today people are skilled in one area and loss of employment in that area requires them to obtain skills to work in a new area. The jack of all trades has been replaced by the specialist so when job loss comes they have a more difficult time finding a new one.

 

In the 1930’s we had a deflationary depression and anyone holding cash and bonds were able to hold on to their wealth and banks were allowed to fail. The farmers suffered from a drop in commodity prices but taxes were low and most people that had land owned it free and clear allowing them to stay in place. Today we are more likely to have an inflationary depression due to the mandate to save the banks at all costs. Anyone trying to save their wealth in cash and bonds will get slaughtered in the paper assets they hold due to massive money printing.

 

In the 1930’s most people lived in rural areas and people worked to help their neighbors in difficult times. Most people had the skills to take care of themselves and their families until things got better. Today most people live in urban and suburban areas and society has been fragmented into militant groups that cannot work together even in good times. Declining economic conditions will likely make society turn in on itself even more causing suffering and loss of life. Most people have no idea how to care for themselves if the system breaks down.

 

In the 1930’s people were forced to find new employment due to job loss because there were no social safety nets to provide for them. In difficult times they were forced to look to family, friends and the church for help but most people felt they had failed if they asked for help. Today people losing a job have unemployment, welfare, food stamps and dozens of other services to provide for them if they have no job. Many have come to rely on these services and expect the government to provide for them as long as necessary. If these services ever end it will trigger a violent response by certain segments of society.

 

In the 1930’s a man out of work could sell apples on the street corner for a nickel to make money to support himself. In a future depression environment anyone attempting to make some money may be selling apples for five dollars each and will likely be arrested for vending without a license. Another difference today is that most people do not want to get their hands dirty so they will opt for government assistance rather than hard work.

 

When people lost jobs in the 1930’s they could look for many different types of jobs they could do and they were able to negotiate pay with business owners to get the job. The large number of unemployed allowed businesses to negotiate lower wages that allowed them to stay in business. Today minimum wage laws prevent business owners from cutting wages to stay in business which will cause business closures in difficult times. The closing of businesses is a self reinforcing loop that puts more and more people out of work as time goes on.

 

In the 1930’s the monetary system not only survived but cash was worth even more. The next depression will likely see the monetary system collapse and cash become worthless. This will likely lead to the creation of local currencies and barter among individuals. The attempt by bankers and governments to create new fiat currencies will likely be rejected to a large degree.

 

In the 1930’s most properties were owned by people that utilized the land themselves. The investor mentality of today will see the mortgage market collapse and the investors buying properties to flip lose it all. Some experts expect to see a 75% to 90% drop in land prices in the coming years.

Many of the things that allowed people to get through the last great depression will not save them this time. Social and economic conditions have changed and different methods will be required to get through the depression we are now entering. Where once cash and bonds were a safe haven gold and silver will, be now. The ability to negotiate wages is gone and wage laws will insure massive closings of businesses forcing people to become self employed to avoid the wage laws. Overall the standard of living will drop dramatically and most people today will not be prepared to accept it.

There are some things that are likely to be the same as before. Those who need help will once again need to turn to family and friends for help. Those that own land free and clear will be able to keep a roof over their head. Those that can supply their own needs will make out better than those dependant on others. Those with multiple job skills will make out better than those with no job skills. Those that can produce a product to sell will make out better than those in the service industry.

In order to learn from the past you must look at current trends and extrapolate where we are headed from here. It is not an exact science but those that pay attention to details will likely fare better than those that go blindly along their daily lives expecting things to always be the same.

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Submitted by Kessler Companies

Output Gap Update – Q1 2016

Among our favorite indicators to write about is the GDP output gap. Today we update it with the latest Q1 2016 GDP data. We’ve written about it many times in the past (some recent examples: 09/30/2015, 12/27/2014, and 06/06/2014). It is the standard for representing economic slack in most other developed countries but is usually overlooked in the United States in favor of the gap between the unemployment rate and full employment (also called NAIRU (link is external)). This is partially because the US Federal Reserve’s FOMC has one half of its main goal to promote ‘full employment’ (along with price stability) but it is also partially because the unemployment rate makes the economy look better, which is always popular to promote. In past US business cycles, these two gaps had a close linear relationship (Okun’s law (link is external)) and so normally they were interchangeable, yet, in this recovery, the unemployment rate suggests much more progression than the GDP output gap.

The unemployment gap now, looked at on its face, would imply that the US is at full employment; i.e., the unemployment rate is 5% and full employment is considered to be 5%. Thus, this implies that the US economy is right on the verge of generating inflation pressure. Yet, the unemployment rate almost certainly overstates the health of the economy because of a sharp increase over the last many years of unemployed surveyee’s claiming they are not involved in the workforce (i.e. not looking for a job). From the beginning of the last recession, November 2007, the share of adults claiming to be in the workforce has fallen by 3.0% of the adult population, or 7.6 million people of today’s population! Those 7.6 million simply claiming to be looking for a job would send the unemployment rate up to 9.4%!. In other words, this metric’s strength is heavily reliant on whether people say they are looking for a job or not, and many could switch if the economy was better. Thinking about this in a very simplistic way; a diminishing share of the population working still has to support the entire population and without offsetting higher real wages, this pattern is regressive to the economy. The unemployment rate’s strength misses this.

Adding to the evidence that the unemployment rate is overstating the health of the economy is the mismatch between the Bureau of Labor Statistics’ (BLS) household survey (unemployment rate) and the establishment survey (non-farm payroll number). Analyzing the growth in non-farm payrolls over the period of recovery (and adjusting for aging demographics) suggests that the US economy still has a gap to full employment of about 1.5 million jobs; this is the Hamilton Project’s Jobs Gap (link is external).  

But, the labor market is a subset of the economy, and while its indicators are much more accessible and frequent than measurements on the entire economy, the comprehensive GDP output gap merits being part of the discussion on the economy. Even with the Congressional Budget Office (CBO) revising potential GDP lower each year, the GDP output gap (chart) continues to suggest a disinflationary economy, let alone a far away date when the Federal Reserve needs to raise rates to restrict growth. This analysis suggests a completely different path for the Fed funds rate than the day-to-day hysterics over which and how many meetings the Fed will raise rates this year. This analysis is the one that has worked, not the “aspirational” economics that most practice.

In an asset management context, US Treasury interest rates tend to trend lower when there is an output gap and trend higher when there is an output surplus. This simple, yet overlooked rule has helped to guide us to stay correctly long US Treasuries over the last several years while the Wall Street community came up with any reason why they were a losing asset class. We continue to think that US Treasury interest rates have significant appreciation ahead of them. As we have stated before, we think the 10yr US Treasury yield will fall to 1.00% or below.

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We often use big, overarching ideas to help us understand the world and the opportunities contained within. These narratives, which can change over time, are used to create context. They give us a frame of reference for comprehending the news and events that affect our outlook on things.

As VisualCapitalist's Jeff Desjardins notes, China’s economic prowess is one of these new paradigms that has emerged, but many people still can’t really wrap their heads around the scale or scope of it.

It’s happened suddenly, and the ramifications are extremely relevant to our investments and understanding. Here’s four maps on China’s trade dominance that will help you think differently about the world:

China is the world’s #1 trade partner

Image courtesy of: Connectography

The United States is the number one trading partner for 56 countries, with important relationships throughout North America, South America, and Western Europe.

Meanwhile, China is the top partner for 124 countries, dominating trade in Asia, Eastern Europe, Africa, and Australia.

China’s Sphere of Influence

This map shows the portion of trade conducted by each country with China in Southeast Asia.

Image courtesy of: Stratfor

The influence that China has with nations in Southeast Asia is significant. Most trade is in double-digit percentages, and China views this as its immediate sphere of influence. Throughout history, territories in this region would even pay tribute to China to gain access to trade.

“In East Asia’s tribute system, China was the superior state, and many of its neighboring states were vassal states, and they maintained a relationship of tribute and rewards,” writes Liu Mingfu in The China Dream, a popular book about China’s plans to return to power.

Maintaining influence in Southeast Asia is part of the reason that Beijing is posturing in the South China Sea. In fact, China’s coastguard is growing so fast that in 10 years it will have more tonnage than all of the coastguards in Southeast Asia, the United States, and Japan combined.

Building a New Silk Road for Chinese Trade

Image courtesy of: Council of Foreign Relations

China seeks to increase trade ties with Asia and Europe even further by building a new Silk Road that puts even Marco Polo’s route to shame.

The Chinese transcontinental network, a massive infrastructure project pegged for completion by 2025, is expected to bring down overland travel time from Beijing to London to just two days. Currently, it takes 15 days for the journey.

The project’s aim is to shorten the time of bulk consumer-goods transport to Europe, while unlocking the economic potential behind Eurasian cities from Almaty to Tehran. The new Silk Road will include at least one high-speed line that goes 320 km/h, and the network will help to link up 70% of the world’s population in roughly 40 countries.

Infrastructure Override

You may have heard of the AIIB (Asian Infrastructure Investment Bank), which was officially launched at the end of last year. Initially proposed by China, the bank now has over a $100 billion of capitalization and 57 founding member states.

Image courtesy of: Reuters

While this shows China’s push for infrastructure especially to coincide with its new Silk Road, there is another very interesting detail: Beijing controls 26.06% of the votes, essentially giving it veto power as most bank decisions need 75% of the votes to pass.

In other words, only infrastructure projects that benefit Chinese trade will likely get the nod from Beijing.

Source: VisualCapitalist.com

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Submitted by Annie Zhou via FinancialRepressionAuthority.com,

FRA Co-founder Gordon T. Long is joined by Professor Michael Hudson in discussing his concept of the FIRE economy and its influence on the production and consumption economy, along with some of his writings.

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Killing the Host (2015), The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971), amongst many others.

 

ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East. Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.

Full Interview:

 

Abstract:

FIRE ECONOMY

FIRE is an acronym to the Finance, Insurance, and Real Estate sector. Basically that sector is all about assets, not production and consumption. Most people think of the economy as being producers making goods and services and paying labor to produce them, and then labor is going to buy the goods and services. But this production and consumption is rife in the asset economy of who owns assets and who owns other things.

The Finance, Insurance, and Real Estate sector is dominated by finance. For instance, 70-80% of bank loans in North America and Europe are mortgage loans against real estate. The only way of buying a home or commercial real estate is on credit, so the loan to value ratio goes up steadily, banks lend more to the real estate sector, and real estate is worth whatever banks are willing to lend against it.

As banks loosen credit terms, lower interest rates, take lower down payments and basically lower amortization rates, interest only loans, they’re going to lend more hand more against property.

“Property’s bid up on price, but all of this rise in price is debt leverage.”

A financialized economy is a debt leveraged economy, whether it’s real estate or insurance or just living, and debt leveraging means a larger portion of assets are represented by debt, raising debt-equity ratios, but also that more and more of people’s incomes and tax revenue is paid to creditors. So there’s a flow of revenue from the production and consumption economy into the financial sector.

WE’RE STILL IN CAPITALISM, NOT CREDITISM

There’s a huge amount of gross savings, about 18-19% of the US economy, coded in part in debt. The savings that are lent out to borrowers are debt. So you have the 1% lending out their savings to the 99%, but the gross savings are higher.

“Every economy is a credit economy.”

“The IMF has this Austrian theory that pretends money began as barter and capitalism operates on barter, and this is a disinformation campaign. This is a very modern theory that is basically used to say “oh, debt is bad”, an what they really mean is that public debt is bad, the government shouldn’t create money or deficit, and you should leave it all to the banks who should somehow run off debt and in-debt the economy”.

“You can usually ignore just about everything the IMF says, and if you understand money you’re not going to be hired by the IMF.

They impose austerity programs that they call “stabilization programs” that are actually destabilization programs, almost wherever they’re imposed.

“When you have an error repeated year after year, decade after decade, it’s not really insanity doing the same thing thinking it’ll be different. It’s sanity. It’s doing the same thing thinking the result will be the same again and again.”

The result will be austerity programs making the budget deficit even worse. The successful era of monetarism is to force countries to have self-defeating policies that end up having to privatize their natural resources, public domain, public enterprise, their communications and transportation, and sell it off.

Everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that’s all rejected in favor of a rentier class evolving into an oligarchy. Financiers in the 1% are going to pry away the public domain from the government and privatize it so that they get all of the revenue for themselves. It’s all sucked up to the top of the pyramid, impoverishing the 99%.

“As long as you can avoid studying economics, you know what’s happened. Once you take an economics course you step into the brainwashing of an Orwellian world.”

KILLING THE HOST

Finance has taken over the industrial economy. Instead of banks evolving from usurious organizations that leant to governments, finance was going to be industrialized. They were going to mobilize savings and flow it back into financing the means of production, starting with heavy industry. In Germany in the late 19^th century, banks worked with government and industry in a kind of triangular process. But that’s not what’s happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form and instead of allying themselves with industry, they allied with real estate and monopolies because they realized they can make more money off real estate.

You had David Ricardo arguing against the landed interest in 1817. Now the banks are all in favor of supporting land rent, knowing that today people can buy and sell property, renters are paying interests, and they’re going to get all of the rent.

“You have the banks merge with real estate against industry, against the economy as a whole, and the result is that they’re a part of the overhead process, not part of the production process.”

THE WALL STREET ECONOMY

“The Wall Street economy has taken over the economy and is draining it.”

Instead of the circular flow between producers and consumers, you have more and more of this flow being diverted to pay interest and insurance and rent. In other words, to pay the FIRE sector, most of which is owned by the 1%. The agency is active politicking by the financial interests and the lobbyists on Wall Street to obtain all of the growth of income and wealth for themselves, and that’s what happened in America and Canada since the late 1970s.

INVESTMENT STRATEGIES FOR TODAY

What all the billionaires and heavy investors do is they’re simply trying to preserve their wealth. They’re not trying to make money, they’re not trying to speculate, and if you’re an investor you’re not going to outsmart the billionaires because the markets are basically fixed. It’s the George Soros principle.

“If you have so much money, billions of dollars, you can break the Bank of England. You don’t follow the market, you don’t anticipate it, you actually make the market and push the market up.”

You have to be able to control the prices and you have the insiders making money but the investors are not going to make money.

The Canadians don’t buy stocks until they’re up at the very top and then they lose all the money, and finally when the market’s all the way at the bottom the Canadians begin selling because they can see a trend, and then they miss the upswing.

“J” IS FOR JUNK ECONOMICS

“It begins as a dictionary of terms just so I can provide people with a vocabulary. The vocabulary that is taught to students today, used by the mass media and government spokesmen, is basically a set of euphemisms. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that’s happening. For instance, “business cycles”. Nobody in the 19^th century used “business cycle”. They spoke about “crashes”. They know that things go up slowly and then plunge very quickly. It was a crash, not the sine curve you have in Josef Schachter’s business cycle. A cycle is something that is automatic, and if it’s a cycle then you’d think “oh, okay, everything that goes up will come down and everything that goes down will come up, just wait your turn.” And that means you should be passive. That is the opposite of everything that’s said in classical economics in the progressive era, when they realized that economies don’t recover by themselves”.

“You need the government to step in, you need something exogenous, as the economists say. You need something from outside the system to revive it.”

This idea of the business cycle analysis is, somehow you leave out the whole role of government. If you look at neoliberal and Austrian theory, there’s no role of government spending or public investment. And the whole argument of privatization, for instance, is the opposite of what was taught in American business schools in the 19^th century.

The first professor of economics at the Wharton School of Business, Simon Patten, said public infrastructure is a fourth factor of production but its role isn’t to make a profit. It’s to lower the cost of public services and basic inputs to lower the cost of living and cost of doing business to make the economy more competitive.

“The privatization of this adds in interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions, and obviously bills all of these financialized charges into the price system and raises the cost of living and doing business.”

MORE ON FIRE ECONOMICS

We’re going into a debt deflation and the key is to look at debt. If the economy has to spend more and more money, then the reason he economy isn’t recovering isn’t simply because this is a normal cycle.

“It’s not because labour is paid too much, it’s because people are diverting more and more of their income to paying their debts, so they can’t afford to buy goods.”

Markets are shrinking, so real estate rents are shrinking, and profits are shrinking. Instead of using earnings to reinvest, hire more labor to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run.

“They’re all setting up to take the money and run, leaving the companies are bankrupt shells, which is pretty much what hedge funds do when they take over companies.”

The financialization of companies is the reverse of everything classical economists were saying. They can get wrap themselves in this cloak of classical economics by dropping history of economic thought from the curriculum. Following the banks and the Austrian school of the banks’ philosophy, that’s the road to serfdom. That’s the road to debt serfdom.

“It lets universities and its government be run by the neoliberals, and they’re a travesty of what real economics is all about.”

via http://ift.tt/1r03sfy Tyler Durden

While BofA’s base-case calls for “no crisis,” the soaring levels of bond-sale cancellations hitting the non-government credit markets is starting to make Asia strategist David Cui nervous…

Year-to-date, 241 non-government bond issuances had been cancelled or postponed; 120 so far in April alone, vs. 315 in total in 2015 (Chart 1). At this stage, the situation appears manageable – in April month-to-day, issuers successfully sold 709 bonds (worth Rmb1.04tr), so the success rate is still above 85%. That said, if, contrary to our expectation, the bond market indeed corrects sharply, finances of developers, banks, brokers, industrials and utilities may suffer disproportionally, by our assessment, because they are highly geared and they have heavily relied on bonds recently.

Bond default risk is mispriced: A perceived implicit government guarantee on bonds and other moral hazards in the shadow banking sector, including wealth management products, is largely behind the mispricing, in our view. There also appears to be noticeable bond-rating inflation, in our opinion.

And the wall of maturing debt that will need to be rolled/refinanced is about to peak…

 

Especially troubling for energy, industrials, and materials companies who are about to face a dramatic drop in their underlying commodity valuations…

 

 

BofAML’s base case is no crisis over the next few months, but risk exists: We expect the government to inject enough liquidity and to bail out enough bonds to prevent a credit crunch in the bond market this round. However, the risk exists that the government could mismanage. Also, restrictions on how much the government can loosen and stimulate are getting tighter, in our view, due to the high debt level, the pressure on RMB and, possibly, inflation/asset speculation risk.

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Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Although Lance Simmens has been intimately involved in public life for several decades, you’ve probably never heard of him. As such, a little introduction is needed.

As mentioned, Lance Simmens’ career was spent in public policy. Specifically, he worked for two U.S. Presidents as well as a couple of senators and governors. Since retirement, he’s been a prolific writer, publishing 180 articles at the Huffington Post over the past 8 years. As such, it came as a great shock to him to discover that one of his recent articles was removed by the Huffington Post shortly after publication. It was the first article ever rejected by the online publication, and the unacceptable subject matter was nothing more than a positive review of the banned everywhere documentary VAXXED.

Here’s Lance Simmens describing the ordeal in a recent interview:

He mentions being locked out of his account, but it seems to have been reinstated since I came across a new piece published April 22 titled, Can Berners Become Trumpeters?

His VAXXED article; however, remains missing in action. As such, I bring you the banned Huffington Post article titled, Why Our Children Should Hate Us:

Vaxxed, the controversial documentary alleging a direct causal relationship between vaccines and exponential increases in autism amongst children is a deeply disturbing and hence critically important piece of work that will cause many sleepless nights for parents of infants everywhere.

 

I had the honor of both watching the film and participating in a discussion afterwards with its Producer, Del Bigtree and Director, Dr. Andrew Wakefield. It is a must see film and deserves to serve as a catalyst for a national discussion of the role of mandatory vaccines for children and the role of the pharmaceutical industry in government decision-making.

 

What is equally disturbing, however, is that the film represents another in a cascade of documented allegations calling to task not only the corruption of government regulatory agencies but the corruption of science and scientific method itself. And to the extent that the current Presidential election contest has sparked virulent dissatisfaction with our elected leadership and the institutions of government, we must take this opportunity to seriously question what many had taken for granted: namely, that government has as its most solemn mission the protection of public health, safety and welfare. The film carefully documents decisions by the Centers for Disease Control that lend credence to systemic corruption.

 

As a father of two millennials, I have been bombarded with what has turned out to be a warranted cynicism, criticism, and rejection of government. As one who devoted nearly 40 years to the promotion of public service and government, I have come to reassess my initial reluctance to such criticisms. The kids have every right to be cynical and critical and as hard as it is for parents to accept it, probably know more than we do.

 

The corruption of science and scientific method has manifested itself most prominently in recent years with a spate of attempts to deny the existence of global climate change and the role that continued fossil fuel usage plays in accelerating it. This, of course, finds refuge in the stalling tactical maneuvers perfected by the tobacco industry over a half century ago. These “Merchants of Doubt” cast an effective smoke screen that effectively blurs rational thought by an unsuspecting public that would much rather leave it to the experts. And the experts on protecting the public are those we elect to steer the ship of state.

 

But of late we have seen spineless political chicanery, which I must sadly admit is totally bipartisan, when it comes to issues like fracking and the substitution of natural gas as a purportedly transitional fuel to bridge the gap between coal and renewables. What, in essence, we are doing is substituting one form of greenhouse gas, carbon dioxide with its long-term atmospheric consequences, with a far more potent heat-trapping gas, methane, in the short- and intermediate-term. This is fossil foolishness that will sentence our kids and grandkids to a lifetime of gut-wrenching and maybe irretrievably lesser quality-of-life choices. But the effects will not show up until after those making the decisions have long left their lofty perches within the government.

 

Fracking is contaminating water supplies and the air we breathe, is causing public health problems and facilitating earthquakes in places that have never even had earthquakes in recorded history, yet the regulatory responses are negligible. While New York State maintains a moratorium on fracking its neighbor Pennsylvania continues to put communities at risk. California—with its tough-talking Governor Jerry Brown loudly decrying climate change and promising to be a world leader on mitigation strategies—is essentially missing in action when it comes to regulating fracking in the Central Valley and even within the city limits of Los Angeles. The inadequacy of California’s regulatory body to place the citizens’ health and safety above industry considerations borders on criminal.

 

We all witnessed the BP disaster in the Gulf of Mexico, and its dastardly cousin in Porter Ranch, California, that has been described as BP on land, the release of nearly 100,000 metric tons of methane from a leaking natural gas storage well. Yet we merrily proceed to push forward with government-subsidized fossil fuel production policies that benefit the richest corporations known to mankind.

 

We see government failure and most likely criminal negligence if not outright prosecutable actions on behalf of government officials with regard to the contaminated drinking water in cities like Flint, Michigan, and evidently in cities all across the U.S.

 

There are crimes against humanity being perpetrated by chemical companies like Monsanto as glyphosates and genetically engineered foods find their ways comfortably into our kitchens and stomachs. Steven Druker, in his seminal book Altered Genes, Twisted Truth has meticulously documented systemic corruption in the Food and Drug Administration.

 

In Malibu, there is a local effort to address the existence of PCB’s in window caulking in schools yet the school board spends millions of dollars to fight its removal rather than simply remove it. Once again it seems to be far easier to spend money denying the evidence than in fixing the problem. This is obscene and unfortunately the problem extends to schools throughout the country. Why is it we have so little regard for the injuries we are inflicting upon our children?

 

Last but not least we are witnessing a monumental failure on the part of the Fourth Estate, the media. Bowing to the pressures of deep-pocketed advertisers, the media refuses to even make an attempt at investigative journalism. A glaring exception to this is the case of the Spotlight investigative team at the Boston Globe, which uncovered massive corruption within the Catholic Archdiocese in sheltering child molesters and pedophiles among the priesthood. We celebrate this as an act of great valor, when in essence it ought to be business as usual. This should not be the exception; it should be the norm and the media is abdicating its responsibility to expose the truth and instead prefers the safer course which is to be complicit in the cover-up. Richard Dreyfuss and I recently penned an article calling attention to this complicity here.

 

I have worked in numerous governmental agencies at senior levels where I attempted to defer to the scientific expertise when contemplating major policy decisions affecting millions of people. To see the systemic corruption that is occurring in government agencies like the Environmental Protection Agency, Department of Energy, Department of Health and Human Services including the Centers for Disease Control and the Food and Drug Administration not only makes me sad but it makes me mad.

 

There has always been an attempt in this nation to balance out the avarice of the private sector with a regulatory framework in the public sector that protects those most vulnerable in society. That balance has been totally upended and as the latest effort on behalf of those involved in Vaxxed shows, we as a society can no longer depend upon our government leaders and institutions to protect us.

 

We must begin by electing leaders who will restore the balance that is needed to protect at the very least our children. If we do not our legacy to our children will be one punctuated by scorn and anger. In this instance our kids actually know us better than we know ourselves. What a sad commentary on the state of affairs of the human race.

The first thing that strikes you upon reading the article above is that only a small portion of the piece even discusses VAXXED, and yet a mere endorsement of this documentary by a veteran writer who’s been publishing on the Huffington Post for nearly a decade is enough to elicit an article ban.

Which leads us to a couple of followup questions. Is this how the Huffington Post treats its longtime contributors? Are writers not allowed to share their personal opinions about a movie? Or is the issue this movie in particular? Why is this one documentary so threatening? 

It seems like it’s this particular movie, which makes me even more curious to see it. As I wrote in a post published earlier this month, Video of the Day – Producer of Vaccine Documentary Banned From Tribeca Film Festival Speaks Out:

What I’m still having trouble getting my head around is why a documentary that is apparently so easily disproven and full of garbage poses such a threat to so many powerful people. Indeed, the film’s critics should be thrilled about an opportunity to discredit the film publicly, and the total panic generated by the simple screening of a movie is what I find so bizarre and noteworthy.

 

Perhaps it’s partly due to the following, which was noted in a recent article critical of the film published by the Hollywood Reporter:

 

It’s all effective, but also purely anecdotal. It’s more interesting to learn that drug manufacturers are protected by federal law from customer lawsuits claiming adverse effects from vaccines, and that injury claims are handled by a particular U.S. court that is commonly known as the “Vaccine Court,” a term that doesn’t exactly inspire confidence.

I haven’t seen this film, but one thing is clear. Some very, very powerful and influential people are terrified of it and are doing everything they can to make sure it never sees the light of day.

Which makes me infinitely more curious.

Here’s the trailer:

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