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Submitted by Jeff Thomas via InternationalMan.com,

No one is very concerned about inflation right now and that’s understandable.

Although inflation exists in some sectors of the economy, the present subject of discussion is deflation. Any depression is inherently deflationary since spending is curtailed, which drives prices down.

Since 2008, despite all the fudged reports emanating from governments, much of the world has been in a depression since 2008 and remains in one. This will continue until such time as there is a true cleansing of the system – a step the leaders of each jurisdiction have avoided as much as possible, choosing instead to extend the party as long as possible before the inevitable collapse occurs.

Since deflation is the problem that’s staring us in the face now, most economic discussion deals with it. But, historically, when deflation occurs, governments do everything they can do reverse the problem and return to inflation.

To the average person, one type of ‘flation is as bad as another type of ‘flation – he merely hopes for economic stability. And so the effort by governments to not only accept inflation but to recommend its existence as policy seems odd. But then, governments (and banks) benefit from inflation.

People can only be taxed so much before they rebel, but inflation acts as a hidden tax and most people don’t recognise that it’s not the number of currency units one possesses that matters, but what level of purchasing power they have. Inflation allows the individual to retain his currency notes, but devalues them so they buy him less in goods and services. Inflation is the unperceived tax.

The US Federal Reserve has done a sterling job of exacting wealth from US citizens. Since it was created in 1913, it has devalued the dollar by roughly 97% and the dollar is now due for replacement.

Through the creation of tremendous debt, the US, EU, and many other countries have created a condition that will result in deflation – the very condition that they most dread. There can be no question that they will do whatever it takes to reverse this trend and return to inflation. Indeed, this is their stated policy. Former Fed Chairman Ben Bernanke is famous for his 2002 speech in which he said he would dump currency from helicopters if necessary when deflation occurred. Since that date, he has reconfirmed his commitment nearly every year, as has his successor, so there can be little doubt as to what the Fed will do to address deflation.

Add to this the fact that the stock and bond markets are in bubbles of historic proportions, assuring the inevitability of crashes in the near future – events that will contribute greatly to deflation.

But, given the choice, wouldn’t we all prefer a bit of inflation to deflation? Yes, in this we would agree with the Fed and the ECB, but worse than either of these possibilities is that green-eyed monster – hyperinflation. At present, we feel we’re so far away from this possibility that, for most people, it’s not even a question. Trouble is, hyperinflation, when it comes, comes very fast and is uncontrollable.

So, how does it happen?

Hyperinflation never occurs spontaneously. It always happens in essentially the same way when governments attempt to artificially manipulate currency. It has occurred on more than twenty occasions around the world in the last hundred years. The most recent occurrence is currently underway in Venezuela.

But a textbook example was the Weimar hyperinflation of 1922–1923. In that instance, the government, along with the central bank of Germany, was facing a collapsing economy, so they did the worst thing possible – they expanded the creation of currency in the belief that if people had more of the stuff, they would spend more and the economy would boom. Unfortunately, the money creation only resulted in rising prices, not greater wealth (True wealth is only created through the creation of more goods and services). So, they printed more. Then more again, and again, and again. With each printing, the problem worsened and the bankers and political leaders reasoned that if they could only print enough, the problem would be solved. It’s important to note that at no time did anyone (not the government, nor the banks, nor private industry, nor the unions) suggest that the printing itself was the problem.

Eventually, inflation became so dramatic that the German people realised that they were better off dumping reichsmarks in favour of goods. As soon as workers were paid, they’d buy anything – food, clothing, anything that wasn’t going up in price as rapidly as the reichsmark was going down.

It is at this point that inflation becomes hyperinflation. It’s never intended by anyone (least of all, governments) to occur but, once the population begins to think of money as something to get rid of instead of something to possess, the monster is born and it happens so quickly that a hamburger that costs $5 today may cost $50 three months later, $500 after a further month, and $5,000 the following week. Soon, a hamburger costs (quite literally) millions.

As hard as this is to imagine, this is what occurs in every case. And in every case, it culminates in a collapse of the monetary system. It’s generally accompanied by a collapse in commerce, riots, food shortages, and famine.

And so, of course, we hope that this time around the leaders of the US, EU, et al, will do the right thing and avoid this eventuality at all costs. Surely, the highly educated folks at the Fed and the ECB will learn from the mistakes of past leaders and not repeat the disastrous mistakes. Hopefully, this time it will be different.

And actually, this time it will be different, but not in the way we would hope. Rather than wait for the crashes and subsequent significant deflation to occur, the Fed and the ECB have already announced a plan to introduce negative interest rates. They describe this plan as being intended to discourage saving and force people to buy goods, causing the economy to boom…just as in Weimar Germany almost one hundred years ago.

But, as discussed above, this is never the outcome. Once a population discovers that dumping currency is preferable to holding it, the green-eyed monster comes knocking.

So, are we around the corner from hyperinflation? No, I believe we have a little breathing time before that, but we’ll be spending that time dealing with the market crashes and deflation that generally come first (unless the leaders decide to pre-empt them by introducing negative interest rates very soon, which they may well do).

Well then, if hyperinflation is not yet a certainty, nor is it necessarily right around the corner, why bother thinking about it?

The reason is that the triggering mechanism of hyperinflation is to be presented to us on a platter in the relatively near future. Its likelihood is now great enough that if we don’t prepare our lives for its eventuality, we’ll be amongst the casualties.

If the German people could have known in 1922 what was coming in 1923, many could have saved their skins. Today, those who choose to internationalise their wealth (however large or small) and even themselves in anticipation of events will have the greatest insulation against the effects of hyperinflation. They have the greatest likelihood to not only survive, but thrive, as the world changes.

Editor’s Note: Negative interest rates are an obvious sign of desperation.

Central bankers are playing with fire and inviting a currency catastrophe, just like they have done so many times in the past.

The sad truth is most people have no idea what really happens when a currency collapses, let alone how to prepare…

How will you protect your savings in the event of a currency crisis? Doug Casey just-released video that will show you exactly how. Click here to watch it now.

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

How quickly the official narrative changes.

Just several months ago, in October, we reported that the now-rattled largest European bank, Deutsche Bank, boosted its forecast for German GDP to 1.9% in 2016 compared with 1.7% previously, saying that “although the external and the financial environment have deteriorated we have lifted our 2016 GDP call… drivers are stronger real consumption growth due to lower oil prices/stronger EUR and the surge in immigration,” analysts wrote, adding they expected the boost in consumption to be evenly split between private and public.

Little did DB know that crashing oil and commodity prices, would lead to existential concerns about its own viability manifesting in a record blow out in its subordinated DB CDS, a record plunge in its stock price and ever louder comparisons between Deutsche Bank and Lehman Brothers. As for the boost to German GDP from the influx of refugees, maybe DB had in mind the soaring pepper spray sales following the infamous Cologne New Year’s “celebration” events.

But even prior to that, on September 18, in an editorial piece the NYT wrote that “Europe Should See Refugees as a Boon, Not a Burden” and goalseeked its liberal conclusion as follows:

Many European leaders have described the refugees who are risking their lives to get to the Continent as a burden. But there is good reason to believe that these immigrants will contribute more to Europe economically than they will take from it.

 

Numerous studies have found that immigrants bolster growth by increasing the labor force and consumer demand. Rather than being a drain, immigrants generally pay more in taxes than they claim in government benefits. Even a large influx of immigrants does not mean fewer jobs for the existing population, since economies do not have a finite number of jobs. Immigrants often bring skills with them, and some start new businesses, creating jobs for others. The less skilled often take jobs that are hard to fill, like in child care, for example, which allows more parents to work.

The left-wing push for sympathy even prompted US Secretary of State to announced just two days later that the United States would significantly increase the number of worldwide migrants it takes in over the next two years. 

The U.S. will accept 85,000 refugees from around the world next year, up from 70,000, and that total would rise to 100,000 in 2017, Kerry said at news conference with German Foreign Minister Frank-Walter Steinmeier after they discussed the mass migration of Syrians fleeing their civil war.

This followed a prior commitment from the White House to accept 10,000 Syrian refugees over the coming year.

Well, those plans may be dead and buried now, following the latest U-turn in U.S. policy, which brings us to evens from this weekend, when the same John Kerry, Speaking at  the Munich Security Conference, praised German Chancellor Angela Merkel for showing “great courage in helping so many who need so much” and European communities who are taking in those fleeing the violence and “rejecting intolerance and racism” within their societies.

However it was here, that for the first time Kerry uttered a warning which until recently would have been branded as borderline xenophobic by the same NYT noted above, when Kerry warned that the mass influx of refugees and other migrants into Europe spells a “near existential threat” to the continent.

“We are facing the gravest humanitarian crisis in Europe since World War II,” he said at the conference, which has been dominated by the Syrian conflict. 

“The United States understands the near existential nature of this threat to the politics and fabric of life in Europe,” he told the meeting as reported by The Local.

The core problem is well-known: Europe has been deeply split by how to handle the mass influx of people fleeing war-torn Syria, Iraq, Afghanistan and other countries. Germany has taken over 1.1 million refugees last year, while Italy and Greece have been overwhelmed as the main arrival points from the Middle East and Africa. The result is a collapse in Merkel’s until recently unshakable popularity and loud whispers that Merkel political career may not last too long if the refugee problem is not promptly addressed.

Sweden and Austria have also taken in large numbers, but many EU members, especially in the east, have been deeply reluctant to open their doors.

So what does Kerry believe now? Kerry said about the refugee influx: “We are not saying, ‘This is your problem, not ours’. This is our problem. And that is why we are joining now and enforcing a NATO mission to close off a key access route,” he said of an alliance naval surveillance mission off Turkey and Greece.”And we will join you in other ways to stem this tide because of the potential of its damage to the fabric of a united Europe,” he added.

Which is not to say he is incorrect: after all none other than the architect of Europe’s “open society” George Soros, now openly warns about the collapse of the EU if the refugee influx, something he himself has been advocating, is not fixed. Here is a brief excerpt of an interview between George Soros and Gregor Peter Schmitz of the German magazine WirtschaftsWoche.

Schmitz: You have been so involved in promoting the principles of open society and supporting democratic change in Eastern Europe. Why is there so much opposition and resentment toward refugees there?

 

Soros: Because the principles of an open society don’t have strong roots in that part of the world. Hungarian Prime Minister Viktor Orbán is promoting the principles of Hungarian and Christian identity. Combining national identity with religion is a powerful mix. And Orbán is not alone. The leader of the newly elected ruling party in Poland, Jaros?aw Kaczy?ski, is taking a similar approach. He is not as intelligent as Orbán, but he is a canny politician and he chose migration as the central issue of his campaign. Poland is one of the most ethnically and religiously homogeneous countries in Europe. A Muslim immigrant in Catholic Poland is the embodiment of the Other. Kaczy?ski was successful in painting him as the devil.

Soros’ solution? Money, of course. “My foundations do not engage only in advocacy; they seek to make a positive contribution on the ground. We established a foundation in Greece, Solidarity Now, in 2013. We could clearly foresee that Greece in its impoverished state would have difficulty taking care of the large number of refugees that are stuck there.”

Schmitz: Where would the money for your plan come from?

 

Soros: It would be impossible for the EU to finance this expenditure out of its current budget. It could, however, raise these funds by issuing long-term bonds using its largely untapped AAA borrowing capacity. The burden of servicing the bonds could be equitably distributed between member states that accept refugees and those that refuse to do so or impose special restrictions. Needless to say, that is where I remain at odds with Chancellor Merkel.

In other words, Soros advocates adding cultural diversity injury to even more debt in an already insolvent European continent – debt which hedge funds could trade and profit from when the time for yet another bailout comes – to fix a problem that would not have been there had Merkel not listened to the likes of Soros, and the NYT editorial board, whose only advocacy of liberal ideals was merely a placeholder to promote their own selfish agendas.

As for Kerry, we find it ironic that the person now warning about refugees posing “a near existential threat” to an entire continent, was just five months ago so very eager to welcome 100,000 Syrian refugees to the US. We wonder if his policy on accepting those same refugees with open arms has changed as of this moment… and who gets to profit this time?

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

ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until this month that things truly became completely and utterly broken.

The Friday before last, the Bank of Japan cut interest rates to NIRP for the first time in its history. And for the first time since 2008, a major Central Bank’s policy didn’t have a single positive outcome.

Every Central Bank action since 2008 has had a negative consequence whether it be a higher cost of living, publishing savers and those relying on interest income, moral hazard, and the like.

However, up until the week before last, every time a Central Bank launched a new policy, there was always the a positive consequence, namely stocks moving higher.

Not this time.

The Bank of japan launched NIRP and stocks immediately nose-dived.

Please let this sink in: a Central bank, indeed, one of the largest, most important Central Banks, has officially "lost control."

This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

Smart investors are preparing now.

We just published a 21-page investment report titled Stock Market Crash Survival Guide.

In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

We are giving away just 1,000 copies for FREE to the public.

To pick up yours, swing by:

http://ift.tt/1HW1LSz

 

Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

via Zero Hedge http://ift.tt/1U48B16 Phoenix Capital Research

Submitted by Jim Quinn via The Burning Platform blog,

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

• 637 rate cuts since Bear Stearns
• $12.3 trillion of asset purchases by global central banks in the past 8 years
• $8.3 trillion of global government debt currently yielding 0% or less
• 489 million people currently living in countries with official negative rates policies (i.e. Japan, Eurozone, Switzerland, Sweden, Denmark)
• -0.92%, the most negative yield in the world (2-year Swiss government bond)

Massive levels of debt and negative interest rates have done nothing to revive U.S., European or Asian economies. The natives are growing restless, as the early electoral success of political outsiders like Trump and Sanders substantiates. Far right parties in Europe are gaining traction as hordes of Muslim refugees overwhelm their countries. Central bankers, who formerly graced the covers of Time Magazine as saviors and heroes, are now being revealed as nothing more than glorified money printers with PhDs and no plan B.

The trillions in low grade junk bonds are beginning to go bad. The bond market is the canary in the coalmine. A tsunami of defaults is approaching the shoreline, investors are running for the hills, and deranged central bankers are telling people to come a see the colorful shells in the surf. As John Hussman points out, following their advice will be fatal.

Despite short-term interest rates being only a whisper above zero, we increasingly hear assertions that “financial conditions have tightened.” Now, understand that the reason they’ve “tightened” is that low-grade borrowers were able to issue a mountain of sketchy debt to yield-seeking speculators in recent years, encouraged by the Federal Reserve’s deranged program of quantitative easing, and that debt is beginning to be recognized as such. As default risk emerges and investors become more risk-averse, low-grade credit has weakened markedly. The correct conclusion to draw is that the consequences of misguided policies are predictably coming home to roost. But in the labyrinth of theoretically appealing but factually baseless notions that fill the minds of contemporary central bankers, the immediate temptation is to consider a return to the same misguided policies that got us here in the first place, just more aggressively.

Based on the CDS market, fear is rising rapidly and European bank stocks are collapsing faster than they did in 2008. The Too Big To Trust Wall Street banks have seen their stocks fall 25% thus far. Bank debt has fallen even faster. The lying and denials by bank CEOs sounds exactly like the summer of 2008. The most smoke is coming from Deutsche Bank, and where there’s smoke there’s fire. The papering over of billions in bad debt with more bad debt is reaching its logical and expected disastrous conclusion. John Hussman notes when credit default swaps soar, the massive level of defaults are only a quarter or two away, despite the propaganda and lies perpetuated by Wall Street to cover their asses as they scramble to escape again.

Credit default swaps continued to soar last week, particularly among European banks. Given that risks surrounding China and the energy sector are widely discussed, European banks continue to have my vote for “most likely crisis from left field.”

In the fixed income market, we wouldn’t touch low-grade credit at present. Once credit spreads widen sharply, the default cycle tends to kick in several quarters later. The present situation is much like what we observed in early 2008, when we argued that it was impossible for financial companies to simply “come clean” about bad debts, because then as now, the bulk of the defaults were still to come.

The mainstream corporate media has been assuring the masses the recent 10% to 20% plunge in stock market indexes is just a temporary hiccup and isn’t anything like the 2008 worldwide financial collapse. They’re right. The situation today is far more dire and widespread than it was in 2008. Global debt is 50% higher, rates are at zero or below, the global economy is already in recession, with war and civil chaos spreading around the globe.

There are no more rabbits for central bankers to pull out of their hats. U.S. annual deficits are headed to $1 trillion without Keynesian shovel ready stimulus packages. The Fed increased their balance sheet fivefold while creating speculative bubbles in stocks, bonds and real estate simultaneously. As John Hussman points out, the bubbles are bursting again and economic collapse is baked in the cake.

The Fed’s real policy error, as it was during the housing bubble, was to hold interest rates so low for so long in the first place, encouraging years of yield-seeking speculation and malinvestment by doing so. Put simply, the Federal Reserve has created the third speculative bubble in 15 years in return for real economic improvements that amount to literally a fraction of 1% from where we would otherwise have been.

The entire global economy seems condemned to repeatedly suffer from deranged central bankers that wholly disregard the weak effect size of monetary policy on policy targets like employment and inflation, and equally disregard their responsibility for the disruptive economic collapses that have followed on the heels of Fed-induced yield-seeking speculation.

This stock market crash in progress is following the exact pattern exhibited in prior crash periods. The market has gone nowhere since QE3 ceased and had fallen by 14% since November. The tremendous rally on Friday is nothing but the beginning of a 5% to 8% retracement of the initial loss. Once this head fake lures in more muppets, the bottom will drop out. As Hussman discusses below this crash is following the 2000 and 2007 pattern. When the 1,800 level is breached a vertical drop to the 1,500’s will happen in the blink of an eye. That will get the attention of a few 401k holders.

With regard to the stock market, I suspect that the first event in the completion of the current market cycle may be a vertical loss that would put the S&P 500 in the mid-1500’s in short order. I’ve often noted the historical signature of market crashes: a sustained period of overvalued, overbought, overbullish conditions that is then coupled with a clear deterioration in market internals and hostile yield trends, particularly in the form of widening credit spreads. See my comments from the 2000 and 2007 market peaks about the identical syndrome at those points. Historically, what we know as “crashes” have followed only after a compressed, initial market loss on the order of about 14%, a recovery that retraces 1/3 to 2/3 of the initial decline; and finally a break below that initial low. That threshold is currently best delineated by the 1800-1820 level on the S&P 500.

Not only have deranged central bankers created the conditions for a catastrophic collapse, but they have encouraged crazed sociopathic mega-corp CEOs to borrow billions to buy back their own stocks at all-time high prices. These Ivy League educated MBA lemmings have done this to boost their compensation because they are too incompetent to grow their businesses through true investment. These rocket scientists have managed to lose $126 billion on their highly leveraged stock purchases in the past three years. Some of the top losers include:

• IBM – $9.8 billion of losses
• American Express – $4.1 billion of losses
• Chevron – $2.8 billion of losses
• Macy’s – $1.5 billion of losses
• Ford – $500 million of losses
• Starwood Resorts – $500 million of losses

The CEOs of these companies should be fired for their idiocy, greed and ineptitude. Instead they will receive multi-million dollar bonuses. Ben Bernanke, Janet Yellen and their cohorts at the Federal Reserve have already destroyed the lives of millions of senior citizens and savers with their deranged zero interest rate policy while contributing to the wage stagnation of the middle class with their QE policy.

Janet Yellen looked like a deer in headlights last week while testifying before Congress. She realizes, along with the other central bankers around the world, their Keynesian lunacy is about to create a crisis that will make 2008 seem like a walk in the park. The coming destruction of trillions in wealth ($1.2 trillion already), along with the accelerating currency wars, and the further impoverishment of billions will ultimately lead to global war.

In short, what we should fear is not the slight impact of recent policy normalizations, but the violent, delayed, yet inevitable consequences of years of speculative distortions that are already fully baked in the cake. What we should fear are the Fed’s repeated and deranged attempts to achieve weak effects on the real economy, at the cost of speculative distortions that exact ten times the damage when they unwind. What we should fear is more of the same Fed recklessness that encouraged a yield-seeking bubble in mortgage debt, enabling a housing bubble that collapsed to create the worst economic crisis since the Great Depression. What we should fear is Fed policy that has encouraged a yield-seeking bubble in equities, debt-financed stock repurchases, and covenant-lite junk debt; that has carried capitalization-weighted valuations to the second greatest extreme in history other than the 2000 peak, and median equity valuations to the highest level ever recorded. That’s exactly what the Fed has done in recent years, and the cost of that unwinding is still ahead.

The fiat currency system, fractional reserve banking fraud, insane Keynesian fiscal policies, and consumer debt based consumption economy are mathematically unsustainable, so they won’t be sustained. The world is about to sit down to a banquet of consequences, served by deranged central bankers.

“Sooner or later we all sit down to a banquet of consequences” – Robert Louis Stevenson

 

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

By EconMatters

Whether you are Warren Buffet, Carl Icahn or Bill Ackman cutting losses is the hardest thing to do in Financial Markets these days.

via Zero Hedge http://ift.tt/245LxDJ EconMatters

Back in October, we asked the following: “Did Obama Just Set Off A Global Nuclear Arms Race By Signing The Iran Deal?”

On the surface that seems like an oxymoronic headline. After all, the nuclear accord is supposed to be about curbing nuclear proliferation, not setting off an arms race.

Unfortunately, one of the frightening ironies of the deal is that it’s causing some states to reconsider commitments they made to the US with regard to nuclear weapons development. “In barely noticed testimony last month, Rep. Ed Royce, R-Calif., chairman of the House Foreign Affairs Committee, said the UAE’s ambassador in Washington, Yousef al-Otaiba, had informed him in a telephone call that the country no longer felt bound by its previous nuclear agreement with the United States,” AP reported last autumn.

“He told me, ‘Your worst enemy has achieved this right to enrich. It’s a right to enrich now that your friends are going to want, too, and we won’t be the only country,'” Royce said in a phone interview.

In so-called 123 agreements, the US agrees to share materials, technology, and equipment for producing nuclear energy in exchange for a pledge from the receiving country not to enrich uranium or reprocess spent fuel to extract plutonium.

As you can see, the US has quite a few 123 agreements with a whole host of countries.

• Argentina
• Australia
• Brazil
• Canada
• China
• Colombia
• Egypt
• India
• Indonesia
• Japan
• Kazakhstan
• Korea, Republic of (ROK)
• Morocco
• Norway
• Russia
• South Africa
• Switzerland
• Taiwan
• Thailand
• Turkey
• Ukraine
• United Arab Emirates

Broadly speaking, some countries are concerned that Iran will go back on its obligations under to nuclear accord as the revenue starts to roll in and the country’s economy begins to expand (Rouhani is aiming for 8% growth).

Critics of the deal also point to the recent test-firing of a next generation, surface-to-surface missile as proof positive of Iran’s intent to skirt the spirit of the accord if not the letter.

On Sunday, in the latest sign that the crowning achievement of Obama’s presidency is about to backfire in dramatic fashion, Israeli defense minister Moshe Ya’alon claimed Sunni Arab nations are moving ahead with plans to aquire nuclear weapons. “We see signs that countries in the Arab world are preparing to acquire nuclear weapons, that they are not willing to sit quietly with Iran on brink of a nuclear or atomic bomb,” he said, after meeting with Jordan’s King Abdullah.

And he didn’t stop there. “If at a certain stage they feel confident, particularly economically, they are liable to make a break for the bomb,” Ya’alon claimed, referencing Iran’s windfall crude profits. “15 years is just around the corner,” he warned, a reminder to the world that the deal to limit Iran’s nuclear enrichment has an expiration date.

“He did not specify which Arab nations were making nuclear preparations but Saudi Arabia, the leader of the Sunni states, is considered the most likely candidate [as] its vast oil wealth could help fund a nuclear programme while its ties with Pakistan, a nuclear power, could provide technical expertise,” The Telegraph adds. “The United Arab Emirates (UAE) also has oil money and is already building a civilian nuclear power programme, though there is no evidence it is moving to develop weapons.”

Ya’alon went on to say that although relations between Israel and the Sunni world are frosty thanks to Israel’s approach to the West Bank and Gaza, there are always back channels. “I speak about the Gulf states and North African states too. Unfortunately they are not here to listen. For them, Iran and the Muslim Brotherhood are the enemy. Iran is the bad guy for us and for the Sunni regimes. They are not shaking hands [with Israelis] in public, but we meet in closed rooms.”

What exactly it is that the Israelis and the the Gulf states are discussing in these “closed rooms” is an open question but what we do know is that both Israel and Saudi Arabia felt a deep sense of betrayal when Obama signed on the dotted line and shook hands with Iran.

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

China is upset with “speculators.”

You see it’s not that China’s economy is “landing hard” and it’s not that a massive yuan devaluation is almost a foregone conclusion. No, it’s that “manipulators,” “speculators,” financial “predators,” and all sorts of other nefarious foreign meddlers are colluding to destabilize the country’s economy and financial markets for personal gain.

If it were up to the Beijing, this gang of evildoers would be rounded up and jailed until they agreed to confess their “crimes” on live television. Either that or they’d simply disappear into the bowels of the Politburo. Unfortunately for Beijing, the Chinese can’t arrest George Soros (who one Chinese media outlet recently called a “crocodile” for daring to place a bet against the yuan) and they can’t arrest Kyle Bass either.

As regular readers are no doubt aware, Bass is betting on a meltdown in China’s mammoth banking sector which he says will need to recapitalized. China, Bass figures, doesn’t have nearly enough in reserves to pay for a banking sector bailout and will thus need to do QE on a massive scale to plug the holes. That, he says, will eventually lead the currency to fall 30-40%.

China has fired back at Bass and at Soros over the past several weeks via a series of hilariously absurd “Op-Eds”, the latest of which (out this morning) is entitled “Groundless, unfair to blame China for hardship.” “Pessimists misunderstand the Chinese economy, or they just choose to turn a blind eye to the bright spots that really matter,” it reads.

Right. You want to focus on “the bright spots that really matter” instead of depressing things that really don’t matter, like collapsing exports or the fact that the banking sector may be sitting on $3.5 trillion in souring loans.

Thankfully, there’s at least one source who is willing to take a glass half full approach to assessing the situation and that person is Mao Junhua, who you know isn’t biased when it comes to analyzing Chinese banks because he works for – CICC, a Chinese bank.

“China’s bad-loan problems are ‘not as serious as’ Hayman Capital Management’s Kyle Bass claimed earlier this month,” Bloomberg writes, citing a report by Mao. “10 trillion yuan ($1.5 trillion) is the most that banks could lose from soured credit in an economic hard-landing scenario [and] that’s less than half the $3.5 trillion potential loss flagged by Bass.”

Obviously Mao’s figure is wildly optimistic. If he’s right, it would mean that in a worst case scenario, NPLs would only rise to 5%. If we’re being honest, they’re probably already above 10% and it’s getting worse all the time as evidenced by the growing number of bankruptcies we’ve seen over the past nine or so months.

In fact, even the headline number (which is even less reliable than an NBS GDP print) is on the rise.

“Soured loans at Chinese commercial banks rose to the highest level since June 2006 as the nation’s economic expansion slowed to the weakest pace in a quarter century,” Bloomberg reported earlier today.

NPLs rose 51% from a year ago, hitting CNY1.27 trillion yuan ($196 billion) by December. That’s the highest level since Q3 2006. “The bad-loan ratio climbed to 1.67 percent from 1.25 percent, while the industry’s bad-loan coverage ratio, a measure of its ability to absorb potential losses from soured credit, weakened to 181 percent from more than 200 percent a year earlier,” Bloomberg continues.

“NPLs increased by 88.1 billion yuan over the last three months of the year,” Reuters adds. “Special mention loans, referring to debts that could potentially turn sour, rose to 2.89 trillion yuan, the regulator said, an increase of 80 billion yuan from the end of September.”

And while special mention loans gives us a bit more clarity on what the “real situation” (to quote the NBS) is, there’s no way of knowing how many loans have been rolled and thus not counted as souring and perhaps more importantly, there’s no way of knowing just what the figure would look like if it included bad channel loans that are carried as “investments” on banks’ books.

But before you go following Bass and Soros over to the dark side where “speculators” conspire and plot to bring down the Chinese economy and destroy the country’s financial markets, consider the following message from Xinhua: 

“It is groundless and unfair to blame China for the global slowdown and market volatility, and naysayers’ misjudgments highlight their ignorance on the world’s second-largest economy.”

via Zero Hedge http://ift.tt/215bHUK Tyler Durden

Thanksgiving Day in 2014 will remain in the history books for one key event: that is the day when OPEC effective collapsed, after Saudi Arabia refused to comply with demands by other OPEC members to cut oil production, unleashing the biggest ever drop in the price of oil, ultimately surpassing even that seen after the great financial crisis in duration and severity.

Now, another historic cartel may be on its last legs: the DeBeers diamond cartel, because according to Russian daily Izvestia, as part of Russia plan to combat its creeping budget deficit, Russia’s state minerals depository, known as Gokhran, will conduct two auctions on February 29 and March 10, in which it plans to sell as much as 167,500 carats of diamonds. By comparison, Russia sold only only 8,800 carats in all of 2015, generating proceeds of $3.6 million.

This is a surprising development, because while many had expected Russia to potentially sell some of its extensive gold reserves as the Kremlin battles with low oil prices, few had anticipated that Russia would flood the diamond market. Furthermore, the proceeds from the auctions are de minimis: the budget proceeds will hardly exceed $ 15 million (1.2 billion rubles) from the diamond sales according to Izvestia.

That, however, will not stop Russia. Initially, only medium-sized stones – those weighing up to 10.8 carats – will be sold. Citing experts, Izvetsia notes that such diamonds are found in abundance on the market, and do not represents a special interest for buyers, but the Russian media adds that the oversupply may adversely affect the market as a result of the sudden surge in supply. 

According to the expert from the analytical industry agency Rough and Polished Sergey Goryainov, there is little grounds to expect a successful auction. He said that the Russian Ministry of Finance can only sell diamonds on the domestic market, and in Russia demand for diamonds in now at a very low level. The recent record ruble devaluation is partially to blame for the lack of diamond demand.

Goryanov adds that “the diamonds that will be sold are currently overly abundant in the market. Starting prices will be low as one can’t expect much excitement in the auction.”

While the Ministry of Finance is only expected to sell medium-sized diamonds, on previous occasions it marketed larger stones, heavier than 10.8 carats. It may have no choice but to resort to more of the same if there is no demand for the initial offered lots.

The Russian Gokhran finds itself in possession of an substantial amount of small and medium-sized diamonds. The reason is the large-scale buying diamonds by the Russian government from the state company Alrosa in the 2008-2009 period. “Alrosa” has a monopoly on diamond mining in Russia (98% of production), and its largest owners are the Federal Property Management Agency – 43.9%, and the government of Yakutia  at 25% of the stock.

Until 2008, Alrosa had no experience selling diamonds – Russian precious stones were marketed in the global market by the South African company De Beers. However, in 2007 a European Court decided that such cooperation harms competition on the world diamond market. One year later the global financial crisis broke out and demand for diamonds had fallen sharply, and as a result of this double whammy the government had to bail out Alrosa and in the period January to July 2008, when the Russian Gokhran bought diamonds worth $ 1 billion. Then in 2009 Russian purchased another $872 million worth of diamonds from Alrosa, leading to the huge diamond pile currently held by Gokhran, including diamond special sized as well as medium-sized rocks; a pile which is about to be auctioned off.

Rough diamonds from the Nyurbinskaya open-pit mine. Photo property of ALROSA.

It is unclear who the Russian dumping of diamonds on the local market will impact global prices, however it is likely that a substantial arbitrage will emerge, especially if clearing prices for Russian diamonds comes at a significant discount to global, cartel-controlled fixes.

Worse, this comes as a time when the biggest marginal buyer of diamonds in both the wholesale and retail market, the wealthy Chinese investor and speculator, has been forced off the stage. Which likely means that with diamond prices trending lower ever since peaking in mid-2011 at nearly double their post-Lehman lows, prices are about to slide to new cycle lows…

… and just as the collapse of the oil cartel has led to major shakeups in the crude market, we eagerly await to see what skeletons emerge from the closet of one of the world’s most infamous and notorious cartels in history, that of the world’s diamond producers who until now had maintained a firm grasp on total supply; a grasp which is about to be shaken as a result of Russia’s desperate measure to balance its budget at any cost.

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

Submitted by Constantin Gurdgiev via True Economics blog,

Global growth leading indicators are screaming it, Baltic Dry Index is screaming it, PMIs are screaming it, BRICS are living it, and now Ifo surveys are showing it: global economy is heading into a storm.

The latest warning is from the Ifo World Economic Climate Index.

 

Per Ifo release:

"The Ifo Index for the world economy dropped from 89.6 points to 87.8 points this quarter, drifting further from its long-term average (96.1 points). While assessments of the current economic situation brightened marginally, expectations were less positive than last quarter. The sharp decline in oil prices seems to be having no overall positive economic impact. Growth in the world economy continues to lack impetus."

In numbers, thus:

• Headline World Economic Climate Index is now averaging 88.7 over the two quarters through 1Q 2016, which is statistically below 97.7 average for the 2 quarters through 3Q 2015 and 93.2 average for 4 quarters through 1Q 2016. Current 2 quarters average is way lower than 8 quarters average of 98.4. Historical average is 94.9, but when one considers only periods of robust economic growth, the index average is 98.9. Again, current 2 quarters average is significantly below that.
• Present Situation sub-index 2 quarters average is at 87.0, which is woefully lower than 2 quarters average through 3Q 2015 at 91.6 and is well below 96.0 average for the historical series covering periods of robust economic expansions.
• Expectations for the next 6 months sub-index is at 90.4 on the 2 quarters average basis, down from 103.5 2 quarters average through 3Q 2015 and below historical (expansion periods only) average of 101.5.

?Geographically, per Ifo release:

“The economic climate deteriorated in all regions, except in Oceania, Asia and Latin America. In Oceania the climate index stabilised at a low level, and in Asia and Latin America it edged upwards. The indicator is now below its long-term average in all regions, with the exception of Europe. The climate in the CIS states and the Middle East clouded over, especially due to poorer economic expectations.

 

In Europe WES experts are slightly less positive about future economic developments than in October 2015. In North America and Africa, by contrast, the slightly less favourable economic situation led to a deterioration in the economic climate.”

Of course, all that this means is that central planners will have more excuses for more repressive and extreme measures to "save" us from ourselves.

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