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Sometimes you just have to wonder what they are really thinking… rigged? rigged!!
Fact or Fiction!!!
Click image for brief entertaining clip of what Yellen was really thinking…
Source: RealVisionTV – Financial TV for the Real World
via Zero Hedge http://ift.tt/1seZeuo Tyler Durden
One can’t help but look at the situations transpiring around the globe and hope: things are different this time. The problem is being different puts it right back in line with that other caveat: history doesn’t repeat itself, but it does rhyme. And so lies the most troubling aspect facing not only the U.S. economy, but quite possibly the world as whole. For if things rhyme anything inline with past events in history: We’re all in a dung heap of QE based minutia, with Geo-political ramifications the “intellectual” crowd never contemplated as possible – let alone probable.
It was just a mere 4 years ago this month in which then Fed. Chair Ben Bernanke announced to the world via his now infamous Jackson Hole speech that QE would basically be adulterating the financial markets indefinitely. i.e., QE1 became QE2 signaling QE4eva. And since that time the Federal Reserve has done just. And as always that decision was heralded by the financial media as “genius.”
And why wouldn’t they since this would now afford them a seemingly never-ending revolving set of happy faced hedge fund managers that could tell the world how they were just making a killing for their investors. Everything once again seemed just ducky. “Don’t fight the Fed.” again became the clarion call. However what most of these “wizards of smart” couldn’t read past their teleprompter is that the world may turn and fight them – literally.
The distortions in financial markets throughout the world have been breathtaking to anyone who’ll look using a thimble full of common sense. As the emerging markets became overheated and searched for ways to deal with hot money inflows wreaking havoc within their own markets. The Fed. and crew kept the pedal down, year, after year seemingly not giving any notion of care that others may retaliate in ways never contemplated by the intellectual crowd. i.e., War.
Just look at recent comments made by now Fed. Chair Janet Yellen in her most recent appearance before Congress as reported by ZeroHedge™: Yellen Warns Of Small Cap Bubble. I read that headline and thought: Are you F’n kidding me?! I then took to the media channels to see if anyone called out that statement as proof the Fed. has no idea of what they are doing and counting on the media as to not point it out. It seemed I was correct for the silence was in fact – deafening.
If one thinks back to nearly every single testimony given as proof that QE was working you’ll recall Mr. Bernanke state, (I’m paraphrasing) “Just look at the Russell 2K.” Now suddenly a mere 5 months after his departure when the media et al gave his steady hand a sycophantic waving of goodbye, no one reports as to elaborate the glaringly obvious admittance by the new Fed. Chair? No one?
Revelations such as this along with the sheer unwillingness (or worse – incomprehension) of others to question such out right contradictory assessments must also be leaving others as slack-jawed as much as myself. But (and it’s a very big but) there are others that see such ineptitude, rudderless, contradiction in monetary, as well as political: as opportunity.
Nothing rallies a nation faster than the threat of an enemy. And nothing serves a political class born of dictators than using any and every tool at their disposal as to rally the glaring eyes of political unrest and affix it to another as to release their ire. And what better straw-man has the world offered the tyrannical powers of the world at large than the interventionist monetary policies of the Federal Reserve via their QE program.
Attach to this the mighty response as a “show of strength” in unison across the globe that sanctions along with freezing accounts is the openly decided upon tool more powerful than armies, or weapons.
To the multitude of uninformed as well of as misinformed people under these regimes. This is propaganda made to order in ways that even Goebbels would blush.
One can’t help but find the timing hauntingly coincidental that Vladimir Putin decided the window of opportunity to make his move on former parts of the Soviet Union was in near unison with the Fed. Revelations that in fact QE was being wound down. i.e., In February when the announcement of the 2nd $10 Billion dollar reduction made manifest that in fact the QE wind down was on schedule. (A schedule many across the financial media said wouldn’t happen.) Now economies such as Russia and others would find themselves once again at the center of any political unrest, while simultaneously being economically hamstrung screamed opportunity to use it to their advantage with Machiavelli inspired actions.
Tag onto this that other land mass with far more people to cast political upheaval than Putin has to contend with: China.
Suddenly the economy touted as “the” economy that will save us all is not only slowing, it’s contracting at a pace far more quickened as a direct result of QE being pulled.
One has to search far and deep to find just how bad and the frightening instability within their financial system that could take down world markets in a free fall under the right circumstances.
The issue here is these circumstances are not a million to one, they could be as high as 1 in 10. The U.S. “intelligentsia” seems absolutely oblivious to these facts or even the notion that such could transpire. Yet, suddenly that trading partner that every one of our so-called “smart crowd” regurgitates “they need us as more than we need them” is publicly taking the side, drawing up trade deals, and standing for photo ops with: Russia. Seems they have something in common suddenly don’t you think?
I marveled the other day when I found myself in a heated argument with others in respects to the events of today and how they’re playing out. Every time a point was brought about on how or why the circumstances along with the possibility for WWIII breaking out in earnest was met with sheer contempt, as if such things were ancient history.
Even when it was pointed out the display this past week by Soviet forces in assorted missile launches coupled with the now seemingly joined at the hip China sending in armed protection provoking retaliation or provocation in both U.S. friendly Japan and Vietnam territories: it was brushed aside.
Used as defense was the ludicrous notion that things like this aren’t as probable any more since economically we’re all dependent on each other as never before. That’s why the monetary policies since WWII has kept that type of balance in check. Personally I was left once again – mouth agape.
Even when the notion was interjected we could see a Bay Of Pigs styled replay at any given time, and that alone could bring on consequences no one has a clue about. Once again it was met as if all the powers that be are in fact “all-powerful” and can handle things with little to no disruption of any significance using , Greece, Spain, and even our own conflicts such as Iraq and more as validation.
I wonder how many besides myself felt quite unnerved when none other Iran was put back into the spotlight openly thumbing their nose in a way that Mussolini could identify with when none other than China publicly endorsed their relationship.
WWI began in earnest just about a month following the Archduke’s demise. Russia invaded Crimea in about the same time-frame. Couple with that the quickness of communist leaders publicly displaying solidarity reminiscent of events that transpired at the beginning of WWII. And the outright visible show of armament and the willingness to display it prominently under the noses of Western alliances suggestive of The Bay Of Pigs, and I guess there’s really no need for concern. After all we’ve got the latest and greatest deterrent the world has ever seen: #hashtags.
via Zero Hedge http://ift.tt/SN5DTh Tyler Durden
While the housing bubble for anything but the ultra luxury segment has long since popped with $1.1 trillion of student loans playing a significant role in the burst, (as explained in “Stick A Fork In The “Housing Recovery“), as can be seen in the chart below which shows that the only increase in existing home sales from a year ago is that for the $500 and over price range (which accounts for only 10% of all actual transactions)….
… when it comes to the luxury segment, things have moved beyond the simply bizarre and have entered outright surreal territory.
Case in point: San Francisco, where realtors have had to come up with a new term to explain what is happening when a house just sold for $600,000 above the $1.5 million asking price! The term: “overbid madness” and it explains well the buying frenzy that has engulfed the smallest portion of the housing market – that of the rarefied ultraluxury housing where the wealthy – almost exclusively offshore buyers – merely flip properties back and forth from each other without regard for price, comps or any other traditional valuation metrics. The underlying objective – parking illegal cash into the safety of the US housing market in which the NAR is a perfectly willing receptacle of laundered money.
Shrouded in fog, and swimming in cash a two bedroom, modern home in the Glen Park neighborhood was just snapped up for $2.1 million.
“That’s really unbelievable,” said Kendra Mastain of San Francisco.
The sleek home on Bosworth sold for $600,000 over asking price. “I’m a RN, I make a decent living,” said Tammy Elder of San Francisco. “I don’t ever picture myself buying a house here.”
Arrian Binnings of Christie’s / Pacific Union told KPIX 5, “That wasn’t even our highest offer.”
Binnings said it’s supply and demand, with most homes for sale commanding 12 percent over asking.
“That is a red hot market,” he said.
And while the bubble for most areas across the US has long since burst, in San Francisco it is raging like never before:
Real estate agents said if new property stopped coming on the market, San Francisco would run out of homes for sale in just five weeks. There were eight offers on the home, but only one person can win. It has turn San Francisco’s real estate market into contestant’s row on The Price Is Right, making the losing bidders desperate
Ridiculous? Yes. Insane? Absolutely.
But San Francisco has nothing on the the insanity that has gripped the ultra luxury housing segment in New York, where within 24 hours, an overzealous seller tried to flip a $31 million three-bedroom condo at One57 purchased on May 6, to an even more overzealous buyer on May 7 for… $41 million – a $10 million price increase in one day!
From Bloomberg:
A three-bedroom condo in the building sold for a record $31 million in April to a mysterious buyer known as Escape From New York LLC. The sale was officially memorialized in public real estate records on Tuesday. Then, on Wednesday, the new buyer put the property back on the market for $41 million, a miraculous 32 percent increase in value.
This is a sign of what real estate writers often describe as “a frothy” market. The Real Deal, which uncovered the fast-appreciating home, describes it as a “4,483-square-foot, 62nd-floor apartment [featuring] four bathrooms and floor-to-ceiling windows.” It must be adorable. But could such comforts be worth $10 million more overnight? We won’t know until the aspiring investor-escapee completes the flip of No. 62A.
A $10 million flip in a day? Why not – and if the greater fool for whom money is no object appears, others will promptly follow:
If the entity known as Escape From New York gets its asking price, there will be at least one other satisfied party in the tower: the owner of a three-bedroom unit on two floors below. That unit sold for $30 million last month, too, in a transaction that inspired a bit of real-estate porn in the New York Times:
“The apartment, No. 60A, has four-and-a-half marble baths and the ultimate view magnet, 60 feet of park frontage in the living/dining/entertaining area. The master suite has his-and-hers baths and bird’s-eye views of the city and the Hudson River. The custom eat-in kitchen by Smallbone of Devizes has hand-painted white cabinetry (although buyers at One57 do have the option of choosing a Macassar ebony color scheme).”
Throw in the optional room service—wouldn’t you expect it at this price?—and such opulence suddenly seems like a bargain at only $30 million.
How much longer can this undisputed housing bubble last? Going back to San Francisco, here is what a Christie’s real estate agent thinks:
Binnings believes there is an end to the real estate crazy train. “The type of growth we’re seeing right now is not sustainable year over year, I expect to see these types of prices tame down a little bit,” he said.
Then again, neither Binnings, noe anyone else, has seen what happens when central banks inject $10 trillion into a global economy with very finite real assets.
Expect the sheer idiocy created by Bernanke, the Charimanwoman et al to last at least a little bit longer: because why rush the epic amusement associated with the biggest bubble burst ever seen in human history?
If anything, the more terminal the destruction in its wake, the more certain that the Keynesian idiocy that has gripped the “very serious” people of the world with its final deathly grip, dies the slow and miserable death it so deserves.
via Zero Hedge http://ift.tt/1iCRHEC Tyler Durden
There's more than one oil price around the world and as the following comprehensive (but brief) overview from Morgan Stanley's Global Energy Teach In shows, crude oil pricing across the world is dynamic and multi-factorial – from fundamental factors (such as simple supply and demand and seasonality) to macro factors (such as USD strength, macro sentiment, and "burden") and risk premia (e.g. geopolitics), the following provides everything you wanted to know about global crude oil fundamentals, but were afraid to ask…
Source: Morgan Stanley
via Zero Hedge http://ift.tt/1qqwvam Tyler Durden
As Putin warned earlier in the week, they do not see the effectiveness of sanctions; but it seems he had something else in mind. By rolling back informal limits on Chinese investment, Putin has opened the door for significant capital inflows from his new best friend… and China has already agree to increase investment. While Putin is careful to note that the Chinese will not be allowed to invest in gold or diamond mining, or hi-tech projects, Russia hopes to lure cash from the world’s second-biggest economy into industries from housing and infrastructure construction to natural resources. Chinese President Xi Jinping and Russian President Vladimir Putin will meet in Shanghai May 20/21 and Chinese officials have already confirmed bilateral cooperation in the areas of investment and finance has made major progress as local currency settlement in two-way trade increases. Forget sanctions, just remove the US from the world trade equation…
As Bloomberg reports, Russian President Vladimir Putin plans to open the door to Chinese money as U.S. and European sanctions over Ukraine threaten to tip the economy into recession, according to two senior government officials.
The move would roll back informal limits on Chinese investment as Russia seeks to stimulate growth, said the officials, who have direct knowledge of talks and asked not to be identified as the information isn’t public. The government wants to lure cash from the world’s second-biggest economy into industries from housing and infrastructure construction to natural resources, they said.
The Chinese won’t be welcome in all areas: Russia plans to set “red lines” around significant gold, platinum-group metals, diamond mining and high-technology projects, the officials said.
…
Putin’s decision, coming as competition from U.S. and European financing slows, may offer China a good opportunity to gain access to Russia’s economy. Existing resource projects will probably be more appealing than starting from scratch, Moscow-based George Buzhenitsa, Deutsche Bank AG analyst said by phone on May 7.
…
“Given that China has a shortage of raw materials from iron ore to coal to copper, it may be extremely interested in gaining access to such projects in Russia,” Buzhenitsa said.
And China seems more than willing to step up…
China is ready to join with Russia to increase two-way investment, Chinese Vice Premier Zhang Gaoli said here Thursday.
…
Their talks were focused on bilateral investment and practical cooperation in the financial area, in preparation for the forthcoming meeting between the two heads of state.
Chinese President Xi Jinping and Russian President Vladimir Putin will meet when Putin attends the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA), on May 20 and 21 in Shanghai.
Zhang said bilateral cooperation in the areas of investment and finance has made major progress. China has increased investment in Russia and become the country’s fourth largest source of foreign direct investment.
He said financial cooperation between China and Russia is growing as local currency settlement in two-way trade increases and consultations on a package of currency swaps are on-going.
Zhang expressed the hope that the two sides increase mutual investment via the China-Russia investment fund and carry out the first batch of investment projects as planned.
He said the two sides should increase investment in the forms of greenfield investment, equity investment, bond issuance and mergers and acquisitions.
Zhang asked the Russian side to help Chinese enterprises to invest in special economic zones in the Far East region of Russia.
Who needs sanctions when China is your friend? And it would seem no matter what card the US tries to play, Putin has a trump (for now).
via Zero Hedge http://ift.tt/1iCy7Ip Tyler Durden
Submitted by Mike Krieger of Liberty Blitzkrieg blog,
During this week’s Senate hearings, Janet Yellen was asked by Senator Bernie Sanders if the U.S. was a capitalist democracy or has morphed into an oligarchy. While readers of this site already know the answer to this question, which was recently proved empirically by a Princeton and Northwestern academic study, it was still stunning to note her unwillingness to answer the question.
I will give her some credit for not flat out lying about it. She inherently understands that the U.S. is a corrupt, shameful oligarchy, but as head of the institution most responsible for this transformation she simply cannot tell the truth. It is incredible that things have fallen so far that a U.S. Senator felt compelled to ask such a question, and even worse that such a powerful official couldn’t vehemently and decisively deny the claim.
Where I take exception with Sanders, is that he appears to live under some strange sort of hypnosis that makes him think only Republican oligarchs are problematic. Of course no sane person should draw any serious distinction between establishment Democrats or Republicans. Furthermore, he also makes the mistake of focusing on the 1%, when the real problem resides in a far smaller 0.01%, which I described in my post: Where Does the Real Problem Reside? Two Charts Showing the 0.01% vs. the 1%.
See for yourself:
via Zero Hedge http://ift.tt/1semloX Tyler Durden
As the San Fran Fed recently explained, when it looked at the upside of a college education, it found that the average college graduate earns over “$800,000 more than the average high school graduate by retirement age.” What was ignored is the offsetting cost to this upside in terms of hundreds of thousands of college loans bearing compounding interest that are just as sticky and in increasingly more cases also remain with the graduate until retirement. But what about business schools? For those professionals who have already picked a career in finance or business, and who are willing to spending even more ridiculous amounts of money for a piece of paper and a rolodex, which business schools offer the best bank for the buck?
According to an analysis by Economist, the business schools that generate the highest IRR for students aren’t the traditional MBA mainstays of Harvard and Wharton (which as it turns, was the worst school from a return perspective in the sample), but far less popular vanues such as HEC in Paris, Aston in Britain, the University of Hong Kong and the Indian Institute of Management, Ahmedabad in India.
The Economist reports:
Which MBA offers the best return on investment? That depends on whether you are after a long- or short-term gain. Our chart shows the cost of an MBA at selected business schools after taking into account tuition fees and forgone salary. Two-year courses at prestigious American institutions are the most expensive. An MBA at Wharton costs $330,000 on average, in part because it enrolls well-paid executives. But the immediate return on such degrees is small. Graduates tend to land jobs just a few notches above the ones they left. Cheaper, shorter MBAs around the world offer better returns. Students at HEC make enough extra money upon graduation to pay off their degrees in less than two years. Schools, such as IESE, that enroll lots of students from poor countries who then find jobs in the West also fare well. Still, Wharton alumni are more likely to top the greasy pole in the long run.
And the verdict in chart format: those who wish to get rich quick by going to the most popular US MBA programs at Penn, Harvard, or Stanford will most likely have nothing but even more debt to show for it for a very long time.
via Zero Hedge http://ift.tt/1qqgJMG Tyler Durden
While the following YouTube clip is – in the eyes of the West – irrefutable proof of potential vote-rigging ahead of tomorrow’s referendum, we find it somewhat intriguing that a group of heavily-armed “rebels”, carrying boxes with 100,000 pre-marked ‘positive’ referendum ballots
…would be detained by Ukraine’s anti-terrorist operations without firing one shot…
…still men laying down with bags on their head proves it… right?
via Zero Hedge http://ift.tt/1nsX5gL Tyler Durden
Submitted by Pater Tenebrarum of Acting-Man blog,
Dimitri Speck is an expert on commodities markets who may actually be familiar to many of our readers as the creator of seasonal charts (which incidentally are the statistically most accurate seasonal charts available). Readers may also recall that we referred to Mr. Speck’s work in the past, when speculators were accused in the media of causing hunger in the third world, as their activities were alleged to artificially inflate the prices of agricultural commodities. When we wrote about the topic, the voices of reason were few and far between. Mr. Speck’s unique and highly original contributions to the debate certainly took some of the wind out of the sails of the economically illiterate scaremongers in the media and politics.
The English language edition of Mr. Speck’s book “Geheime Goldpolitik”, has been published early this year under the title “The Gold Cartel”, in parallel with an updated second German edition. The book has received great praise from many quarters, and it is well-deserved (ironically, even from a central banker, in spite of the fact that central bankers come in for a lot of criticism in the book).
The first few pages of the book right away prove to the discerning reader that the author actually understands gold. Surprisingly, this can often not be taken for granted. A great many analysts continue to regard gold as akin to an industrial commodity, including many working for ‘expert’ organizations, whose main job it is to publish data and forecasts on the gold and silver markets.
Essentially one could say that the Gold Cartel consists of three major parts, namely statistical studies, a historical disquisition and a theoretical part that deals with the consequences the adoption of a full-fledged fiat money system has wrought.
Note: This is an abridged and edited version of the review that appeared in issue 92, January/February 2014 of the Hedge Fund Journal.
When Frank Veneroso published a study on gold lending in 1998, many people probably heard the term ‘gold carry trade’ for the first time. However, it became a staple of deliberations about the gold market in subsequent years. A superficially legitimate (if ultimately slightly dubious) business activity, namely the hedging of future gold output by mining companies, had apparently been turned into a major and potentially explosive financial engineering scheme. However, research was hampered by the fact that the carry trade involved gold held by central banks. It was shrouded in secrecy and its size could only be estimated. While Veneroso’s work was path breaking, it was marred by its lack of precision, which partly resulted from the difficulty of obtaining good data.
Central bank accounting for gold was (and in most cases remains) rather peculiar: gold receivables and bullion still in their vaults are treated as a single line item in their balance sheets. This makes it nigh impossible for outsiders to ascertain how much of their gold is actually on loan. Central banks used inter alia the alleged need to protect the trade secrets of their business partners as an excuse to avoid publishing the data. This flimsy pretext naturally fanned speculation about the amounts involved as well as the planners’ motives. It was no secret that central banks once upon a time intervened in the gold market quite openly. Given gold’s nature as the ‘political metal’, it didn’t seem a big stretch to suspect them of still doing so clandestinely.
Estimates of the size of the carry trade published by researchers varied enormously (the more establishment-friendly they were, the smaller their estimates would be). Enter Dimitri Speck, who has delivered what is to date probably the best such estimate ever produced by an independent gold market analyst, not least because he actually employed sound statistical analysis. His estimate of the amount of gold lent out by Germany’s Bundesbank over time, calculated from the meager tidbits of information that could be gleaned from the BuBa’s balance sheet, confirmed the soundness of his methods. The BuBa recently relented in the face of public pressure and finally lifted the veil of secrecy from the data, so we know how close the estimate came (the BuBa is no longer lending out gold by the way).
‘The Gold Cartel’ presents the results of painstaking statistical analysis of the gold market from every conceivable angle. It never gets so technical as to bore the reader – the analysis reads rather like a detective story. It focuses specifically on whether anomalies that point to possible interventions are detectable in the gold market and whether the beginning of these anomalous activities can be dated. Gold’s behavior during financial crises, as well as the carry trade and the determination of its overall size are other focal points. There is a refreshing difference in Mr. Speck’s approach to the subject compared to that often encountered elsewhere, which we believe makes the book an enjoyable and highly informative read even for people who are skeptical about the intervention thesis. There is very little speculation, instead the focus is strictly on known or knowable facts. Speck lays out a logically consistent and coherent history of the gold market. Some of his conclusions naturally remain open to debate; history is a thymological discipline and as such always leaves room for interpretation. It should be mentioned that although central banks nowadays increasingly strive to provide greater transparency, Speck thoroughly disabuses the reader of the naïve notion that they ‘would never intervene clandestinely in markets’ by providing hard evidence of past transgressions (which include even the deliberate falsification of data in one instance).
Gold lent out by the German Bundesbank over time – click to enlarge.
Estimate of central bank gold entering the market worldwide – click to enlarge.
The book’s statistical analysis is buttressed and supplemented by a gripping account of the history of the modern monetary system, beginning with the step-by-step disintegration of the Bretton Woods system in the late 1960s (which culminated in Nixon’s gold default in 1971) and encompassing everything that has happened since then, including the creation and first major crisis of the euro. All these events are brought into context with what happened concurrently in the gold market. There is a detailed look at the FOMC meetings of the early 1990s, which show that although gold had been thoroughly ‘demonetized’ from an official standpoint, it still was very much on the minds of many FOMC members at the time, including then chairman Greenspan. The conversations at these meetings clearly show that there was major concern at the time both over gold’s potential as a competitor of the US dollar as a store of value as well as its function as an indicator of inflation expectations.
As Speck explains with respect to the gold carry trade, once gold lending by central banks had grown well beyond the hedging needs of mining firms, the interests of private parties involved in the trade and those of central banks at first increasingly converged, only to diverge again at a later stage. He demonstrates convincingly that once the carry trade exceeded a certain size, the role played by private profit motives must have grown ever larger. In order to keep being able to play the game and avoid losses, bullion banks started putting pressure on central banks to motivate them to continue to sell and lend out ever increasing amounts of gold. For a time, an odd role reversal between bullion banks and central banks took hold with respect to their gold market-related interests.
Speck looks closely at what happened during this phase in the late 1990s. A great many politicians, whose credentials as experts on gold or monetary policy were rather dubious, attempted to influence the climate and official attitudes toward gold. Unwilling central banks such as e.g. the Swiss National Bank were put under great political pressure to agree to gold sales. Many of the events surrounding official gold policy in the late 1990s are largely forgotten today, and Speck does us a great service by rescuing them from the memory hole.
Gordon Brown’s famously ill-timed sale of the bulk of the UK gold reserves is of course discussed as well. To this day it remains a bit of a mystery why Brown deliberately chose to perform the sales in a manner that ensured that the UK would get the lowest possible price. Clearly though, there was more to it than just the fact that he was evidently one of the worst market timers of all time. The discussion of the Washington agreement, which effectively froze the carry trade and limited official sales, was especially interesting to us. Few people will remember all the details and announcements that were made just prior and after the agreement was struck, or may never have been aware of them at all. The information Speck provides in this context serves to greatly enhance one’s understanding of these events.
In this context, Speck also provides a logical explanation as to why the carry trade never ‘blew up’ as so many forecasters had expected it to do – in spite of the considerable size it had attained at its peak and in spite of the fact that a bull market in gold began in 1999/2000.
Gold sales by central banks, net – click to enlarge.
The statistical and historical analysis of the gold market is followed by a theoretical part that deals in great detail and in a highly original manner with the problems the abandonment of gold as an anchor of the monetary system has ultimately brought about. The conceptual approach to the topic will be recognizable to readers familiar with the Austrian School of Economics, even though Speck employs at times a slightly different, somewhat idiosyncratic terminology. The most notable effect of demonetizing gold has been and continues to be the recurrence of numerous sizable booms and busts, although Speck rightly acknowledges that the emergence of credit expansions could not necessarily be completely averted in a gold-based system, although gold would definitely ‘serve as a brake’, as he puts it.
A detailed description of how credit-financed bubbles begin and are then continuing to grow, driven by their inherent dynamics, is provided. The most important feature of such bubbles is that speculation for some time appears to ‘pay for itself’, as artificial accounting profits emerge. Wealth is seemingly created ex nihilo, and profits are booked even though no-one has actually produced anything tangible. This explains the enduring popularity of credit-driven bubbles, as it is simply human nature to embrace the ‘something for nothing’ mirage that is their major characteristic.
Since financial bubbles have real economic effects, and since their recurrence can seemingly not be averted, the focus of the authorities soon shifted to the question of how the effects of their bursting could be mitigated – a momentous decision, as Speck proceeds to show. The mitigation policy involves governments intervention in the form of a further expansion in debt and credit claims, the very policies that lead to the emergence of bubbles in the first place. Illogical as this is, it almost always seems to ‘work’ in the short term. As credit claims accumulated in the past are never extinguished, but merely added to, a kind of ‘mega-bubble’ evolves over time. Private and public sector indebtedness both continue to expand, effectively egging each other on. An ever greater pile of credit claims towers over the real economy. Speck also points out that the vast expansion in public sector liabilities is deeply undemocratic, as it lulls the population into believing that it can get ‘something for nothing’. As a result, there are only superficial deliberations over the wisdom of public spending. Ultimately, no-one is taking responsibility while the political class pursues its own narrow interests. Indeed, as official remarks preceding the abandonment of gold in 1971 show, it was precisely the ability to run deficits in quasi-perpetuity that attracted governments to the new monetary system. The ability to increase spending without having to increase taxation is deemed a highly desirable method of achieving short term political goals.
Establishment economists have done us a great disservice by ignoring and/or whitewashing the long term implications of the ever-growing level of financial claims. Ever since the 1987 crash, central bankers have begun to consistently err on the side of easier monetary policy and their focus has increasingly turned toward he chimera of price stability, while the growth in credit claims has been ignored. ‘Mitigation of busts’ has become the official mantra to this day.
Speck also discusses the question of the long term consequences of this spiral of ever-growing debt. As he points out, the classical denouement of a credit-financed bubble used to be a major deflation, egged on by debt defaults and the associated destruction of deposit liabilities held by banks falling into insolvency. There can however be no guarantee that this outcome will be repeated in modern times. Today, the authorities can and do intervene to avert deflationary reductions in outstanding financial claims. Their countermeasures could eventually result in the exact opposite outcome (i.e., a major inflation). However, other possibilities are just as thinkable (such as e.g. a prolonged period of stagnation as has happened in Japan).
Japan’s debt to GDP, total and disaggregated: the world’s biggest debtberg – click to enlarge.
Global debt to GDP – click to enlarge.
We highly recommend this book to anyone with an interest in the gold market. In fact, anyone with an interest in financial markets and/or the economy will undoubtedly benefit from reading it. It provides a solid statistical analysis of every aspect of the gold market, a thoroughly researched and well-presented account of the history of the modern monetary system and a highly original perspective of the growing bubble in debt and credit claims we have experienced since adopting today’s system of credit-based money.
Dimitri Speck, The Gold Cartel (link to Amazon)
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Despite denouncements from the West (how did that work out in Crimea?) and diplomatic calls for postponement from Putin, tomorrow appears to be setting up for the next crucial catalyst in the ever-escalating civil (and not so civil) war in Ukraine. As RIA reports, Referendum organizers printed about 1.7 million ballots and on the day of voting in the region there will be more than 1,600 polling stations. The referendum will ask voters to answer the simple question: “Do you support the act of state independence of the People’s Republic of Luhansk.” and will take place from 8am to 8pm local time. Organizers claim that “the willingness to vote is almost total,” which makes the decision of the People’s Mayor that “after the referendum… gradually, we will move to the Russian ruble,” even more economically significant for the IMF-supported nation.
The referendum poll is happening:
Ballots in the referendum on the status of the Lugansk region delivered almost all polling stations in the region, told RIA Novosti spokesman Army southeast Vasily Nikitin.
In the Donetsk and Lugansk regions May 11 must pass a referendum on the status of the regions. In Lugansk region submitted to the vote the question “Do you support the act of state independence of the People’s Republic of Luhansk.” Voting will take place from 8.00 to 20.00 (9.00 – 21.00 MSK).
“Newsletters delivered to almost all areas, the willingness to vote almost wholly” – said Nikitin.
Referendum organizers printed about 1.7 million ballots. Nikitin said that on the day of voting in the region will work more than 1.6 thousand polling stations.
Which followed this…
In March in eastern Ukraine – Donetsk, Kharkiv and Luhansk – started rallies federalization, dissatisfied with the actions of the Kiev authorities new. Later protests spread to a number of cities of Donetsk and Lugansk regions. From mid-April in Kiev authorities carried out a special operation against the protesters with military support. In Moscow, Kiev decision to use army against the population identified extremely dangerous developments.
On Wednesday, Russian President Vladimir Putin has urged supporters federalization postpone the referendum to create the conditions for dialogue to de-escalate the situation in the country. However, the militia decided to hold a referendum on May 11, as originally planned.
And, as seems likely, independence is voted for, separatist leaders are already making plans…
“People’s Mayor” Vyacheslav Ponomarev Sloviansk not exclude that the Donetsk region eventually move to settlements in Russian rubles. Tomorrow, May 11, in the region must pass a referendum on self-determination.
“After the referendum will go until ukrainian hryvnia, but gradually, I think we will move to the Russian ruble,” – the words Ponomareva RIA Novosti .
“People’s Mayor” explained that closer economic integration with the Russian Federation. “Economically we strongly tied with Russia. Our industry is almost entirely focused on Russia “, – said Ponomarev.
Of course, the West are denouncing and proclaiming the referendum illegal…
But just as in Crimea, things tend to be beyond the control of the West’s ire for now…
via Zero Hedge http://ift.tt/RzzFZH Tyler Durden