All The Presidents’ Bankers: The World Bank And The IMF

The following is an excerpt from ALL THE PRESIDENTS’ BANKERS: The Hidden Alliances that Drive American Power by Nomi Prins (on sale April 8, 2014).  Reprinted with permission from Nation Books. Nomi Prins is a former managing director at Goldman Sachs.
 

The World Bank and the IMF: Expanding Wall Street’s Reach Worldwide

Just after the United States entered World War II, two simultaneous initiatives unfolded that would dictate elements of financing after the war, through the joint initiatives of foreign policy measures and private banking whims. Plans were already being formulated to navigate the postwar peace, especially its international power implications for finance and politics, in the background. American political leaders and scholars began considering the concept of “one world” from an economic perspective, void of divisions and imbalances. Or so the theory went.

The original plans to create a set of multinational entities that would finance one-world reconstruction and development (and ostensibly balance the world’s various economies) were conceived by two academics: John Maynard Keynes, an adviser for the British Treasury, and Harry Dexter White, an economist in the Division of Monetary Research of the US Treasury under Treasury Secretary Henry Morgenthau.

By the spring of 1942, White had drafted plans for a “stabilization fund” and a “Bank for Reconstruction and Development.” His concept for the fund became the seed for the International Monetary Fund. The other idea became the World Bank. But before those entities would come to life through the Bretton Woods conferences, many arguments about their makeup would take place, and millions of lives would be lost.

Keynes, White, and Power Transfer to the United States

By early 1944, nearly two-thirds of the European GNP had been devoted to war; millions of people had been slaughtered. But six months after the complete liberation of Leningrad, it was the international financial aspects of the coming peace that exercised the imagination of the policy elites. In July 1944, 730 delegates representing the forty-four Allied nations convened at the Mount Washington Hotel in Bretton Woods, New Hampshire. Amid picturesque mountains, hiking trails, and oppressive heat, they sat to determine the postwar economic system.

For three weeks, they debated the charter for the International Monetary Fund and discussed how the International Bank for Reconstruction and Development, or the “World Bank,” would operate.

White and Keynes had competed for influence over this final result for the past two years. To a large extent, the personal vehemence of each man aside, they did so as an extension of the jockeying for position between the United States and Britain as the incoming and outgoing financial superpowers. At first, virtually every American banker and politician opposed the main aspects of Keynes’s plans, particularly his idea about creating a new global currency—the unitas—that would supersede gold and the dollar.

Many subsequent histories of the Bretton Woods Conference consider the final doctrines for the IMF and World Bank as representing a clear compromise between White and Keynes. But they leaned far more toward White’s model and vision.

From the bankers’ standpoint, White’s model was more tolerable because it preserved the supremacy of the dollar. Former President James A. Garfield once said, “He who controls the money supply of a nation controls the nation.” But in the negotiations surrounding those Bretton Woods meetings, the mantra was more “Those who control the banks backed by the currency that dominates the world control world finance.”

While final drafts snaked through Congress after the July 1944 meetings, one key US banker maintained his public opposition to Bretton Woods. Even after it became clear that the multinational entities would be dollar-based, Chase chairman Winthrop Aldrich remained opposed to the idea. Mostly, he feared the slightest amount of competition from any uncontrollable source. Though Aldrich favored removing trade barriers, which would provide the US banks a wider field for cross-border financing, he didn’t want some supranational entity getting in the way of private lending to facilitate that trade.

In his “Proposed Currency Plan” of September 16, 1944, Aldrich slammed the accords, which he saw as a distinct challenge to the power of private banks. “The IMF,” he said, “would become a mechanism for instability rather than stability since it would encourage exchange-rate alterations.”

Like most bankers, Aldrich was fine with the World Bank taking responsibility for exchange-stabilization lending. That element would aid bankers; a supranational entity providing monies to struggling countries would bolster them sufficiently to be able to borrow more through private banks. But bankers didn’t want a fund constructed as a competing lending mechanism that could possibly take business away from them, operating in the guise of economic security.

Aldrich warned, “We shall have the shadow of stability without the substance. . . . Perhaps the most dangerous aspect of the Bretton Woods proposals is that they serve as an obstacle to the immediate consideration and solution of these basic problems.”

Aldrich’s public outcry was unsettling to President Roosevelt and Treasury Secretary Robert Morgenthau, who knew that it was politically important to get all the main bankers’ support. Not only did they hold a solid proportion of US Treasury debt; they had become the distribution mechanisms of that debt to more and more citizens and countries. There couldn’t be an IMF without the support of private lenders, and if the US was going to be in command of such an entity from a global perspective, US bankers had to be on board. Concession to the bankers wasn’t a matter of empty appeasement but of economic supremacy.

The American Bankers Association, on which Aldrich was a board member, also wanted to restrict the IMF’s powers. Burgess, who served as chairman of the American Bankers Association and National City Bank vice chairman, was unwilling to back the Bretton Woods proposals unless White made more concessions to reinforce the supremacy of the US banks and the dollar. He would play hardball and get Morgenthau involved if he had to.

Though White refused to bow to Burgess’s requests, Congress incorporated them into the final documents. To make the bankers happy, a compromise was fashioned that restricted the IMF funds to loans offsetting short-term exchange rate fluctuations, such as when one country has a sharp and sudden shift in the value of its currency relative to another. That loophole left plenty of room for banks to supply aggressive financing to developing nations over the loosely defined longer-term. It also meant that all nations receiving short- term assistance from the IMF would likely be on the hook for more expensive debt at the hands of the bankers in tandem, or later. But in the scheme of White’s plan, this alteration was more cosmetic than substantial.

The Bretton Woods Agreement

Congress approved the Bretton Woods agreement on July 20, 1945. Twenty- seven other countries joined as well. The Soviet Union did not. It was a portent of how rapidly the world was falling into the Cold War and how rapidly the United States was forging its own foreign alliances in the postwar economy.

By the time the Bretton Woods delegates reconvened to settle the final details of the agreement at Savannah, Georgia, in March 1946, Churchill had already coined the term “the Iron Curtain” to describe the line between Communist Soviet Union and the West in his famous “Sinews of Peace” speech at Westminster College.

In addition to the growing Cold War mentality, or perhaps because of it, expectations that White would lead the IMF were squashed when the FBI alerted President Truman that White and other senior civil servants had passed secret intelligence to the Soviet Union. It’s doubtful that Truman believed the allegations; though he took White out of the bidding for the head position, White remained an executive director.

The incident served as a precedent for how the top positions at the World Bank and the IMF would be allocated along political-geographical lines. The post was offered instead to Belgian economist Camille Gutt, establishing the protocol whereby the IMF would be headed by a Western European and the World Bank by an American.

But while politics dictated the initial leadership choices, private bankers’ behavior would soon overshadow the functions of both bodies. Despite their “international” monikers, the World Bank and the IMF disproportionately served the interests of the Western European nations that were most important to the United States from the get-go. The bankers could exert their influence over both entities to expand their own enterprises.

Later, another element that reinforced this dynamic was added. Thanks to a minor technicality introduced by Truman’s Treasury secretary, John Snyder, “aid monies” to “friendly” (or large and friendly) countries would be considered “grants,” which would not show up as national debt, thereby providing the illusion of better economic health. Money granted for military operations or the friendly countries would not show up as debt either. This presented a foreign business opportunity whereby banks could provide loans at better terms to larger countries and make more money off higher interest loans to developing ones because of the disparity in their perceived debt loads.

In addition, as Martin Mayer observed in his classic book The Bankers, “the growing and unregulated Eurodollar market would become a cauldron of out-of-control debt and heady profits for US banks.” Through this market, many of the major midcentury postwar loans would be made.

Making the World Bank Work for Wall Street

Congress had established the National Advisory Council to be the “coordinating agency for United States international financial policy” and as a mechanism to direct that policy through the international financial organizations. In particular, the council dealt with the settlement of lend-lease and other wartime arrangements, including the terms of foreign loans, details of assistance programs, and the evolving policies of the IMF and World Bank. As chairman of the National Advisory Council, U.S Treasury secretary John Snyder carried a vast amount of influence over those entities, as many major decisions were discussed privately at the council meetings and decided upon there.

There was one ambitious lawyer who understood the significance of Snyder’s role. That was John McCloy, an outspoken Republican whose career would traverse many public service and private roles (including the chairmanship of Chase in the 1950s), and who had just served as assistant secretary of war under FDR’s war secretary, Henry Stimson. McCloy and Snyder would form an alliance that would alter the way the World Bank operated, and the influence that private bankers would have over it.

It was Snyder who made the final decision to appoint McCloy as head of the World Bank. McCloy, a stocky Irishman with steely eyes, had been raised by his mother in Philadelphia. He went on to become the most influential banker of the mid-twentieth century. He had been a partner at Cravath, Henderson, and de Gersdorff, a powerful Wall Street law firm, for a decade before he was tapped to enter FDR’s advisory circle.

After the war, McCloy returned to his old law firm, but his public service didn’t translate into the career trajectory that he had hoped for. Letting his impatience be known, he received many offers elsewhere, including an ambassadorship to Moscow; the presidency of his alma mater, Amherst College; and the presidency of Standard Oil. At that point, none other than Nelson Rockefeller swooped in with an enticing proposition that would allow McCloy to stay in New York and get paid well—as a partner at the family’s law firm, Milbank, Tweed, Hope, and Hadley.

The job brought McCloy the status he sought. He began a new stage of his private career at Milbank, Tweed on January 1, 1946. The firm’s most import- ant client was Chase, the Rockefeller’s family bank. But McCloy would soon return to Washington.

Truman had appointed Eugene Meyer, the seventy-year-old veteran banker and publisher of the Washington Post, to be the first head of the World Bank. But after just six months, Meyer abruptly announced his resignation on December 4, 1946. Officially, he explained he had only intended to be there for the kick-off. But privately, he admitted that his disagreements with the other directors’ more liberal views about lending had made things untenable for him. His position remained vacant for three months.

When Snyder first approached McCloy for the role in January 1947, he rejected it. But Snyder was adamant. After inviting McCloy to Washington for several meetings and traveling to New York to discuss how to accommodate his stipulations about the job—conditions that included more control over the direction of the World Bank and the right to appoint two of his friends— Snyder agreed to his terms.

Not only did Snyder approve of McCloy’s colleagues, but he also approved McCloy’s condition that World Bank bonds would be sold through Wall Street banks. This seemingly minor acquiescence would forever transform the World Bank into a securities vending machine for private banks that would profit from distributing these bonds globally and augment World Bank loans with their private ones. McCloy had effectively privatized the World Bank. The bankers would decide which bonds they could sell, which meant they would have control over which countries the World Bank would support, and for what amounts.

With that deal made, McCloy officially became president of the World Bank on March 17, 1947. His Wall Street supporters, who wanted the World Bank to lean away from the liberal views of the New Dealers, were a powerful lot. They included Harold Stanley of Morgan Stanley; Baxter Johnson of Chemical Bank; W. Randolph Burgess, vice chairman of National City Bank; and George Whitney, president of J. P. Morgan. McCloy delivered for all of them.

A compelling but overlooked aspect of McCloy’s appointment reflected the postwar elitism of the body itself. The bank’s lending program was based on a supply of funds from the countries enjoying surpluses, particularly those holding dollars. It so happened that “the only countries [with] dollars to spare [were] the United States and Canada.” As a result, all loans made would largely stem from money raised by selling the World Bank’s securities in the United States.

This gave the United States the ultimate power by providing the most initial capital, and thus obtaining control over the future direction of World Bank financial initiatives—all directives for which would, in turn, be predicated on how bankers could distribute the bonds backing those loans to investors. The World Bank would do more to expand US banking globally than any other treaty, agreement, or entity that came before it.

To solidify private banking control, McCloy continued to emphasize that “a large part of the Bank capital be raised by the sale of securities to the investment public.” McCloy’s like-minded colleagues at the World Bank—vice president Robert Garner, vice president of General Foods and former treasurer of Guaranty Trust; and Chase vice president Eugene Black, who replaced the “liberal” US director Emilio Collado—concurred with the plan that would make the World Bank an extension of Wall Street. McCloy stressed Garner and Black’s wide experience in the “distribution of securities.” In other words, they were skilled in the art of the sale, which meant getting private investors to back the whole enterprise.

The World Bank triumvirate was supported by other powerful men as well. After expressing his delight over their appointments to Snyder on March 1, 1947, Nelson Rockefeller offered the three American directors his Georgetown mansion, plus drinks, food, and servants, for a three-month period while they hammered out strategies. No wives were allowed. Neither were the other directors. This was to be an exclusive rendezvous.

It is important to note here that the original plan as agreed upon at Bretton Woods did not include handing the management and organization of the World Bank over to Wall Street. But the new World Bankers seemed almost contemptuous of the more idealistic aspects of the original intent behind Bretton Woods, that quaint old notion of balancing economic benefits across nations for the betterment of the world. Armed with a flourish of media fanfare from the main newspapers, they set about constructing a bond-manufacturing machine.

With the Cold War hanging heavily in the political atmosphere, the World Bank also became a political mechanism to thwart Communism, with funding provided only to non-Communist countries. Politics drove loan decisions: Western allies got the most money and on the best terms.




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“Analysts” Lower Revenue Growth Expectations By Most In 18 Months

“Estimates have come down more dramatically than usual,” warns BofAML’s Savita Subramanian as so-called “analysts” slash their expectations to lower the bar even further for firms to hop over. This hype-hope-reality plunge in expectations is nothing new as the chart below shows but Q1’s gap between the starting and ending growth rates was 5.6 percentage points – the widest gap in at least 18 months. The widest spread for 2013 was 4.4 points, recorded in the second quarter. The reductions may help firms beat expectations but do nothing to sustain the hype priced into markets.

 

 

Once again we ask, why do we listen to analysts?

 

Chart: Bloomberg




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Guest Post: Oil Limits and Climate Change – How They Fit Together

Submitted by Gail Tverberg via Our Finite World blog,

We hear a lot about climate change, especially now that the Intergovernmental Panel on Climate Change (IPCC) has recently published another report. At the same time, oil is reaching limits, and this has an effect as well. How do the two issues fit together?

In simplest terms, what the situation means to me is that the “low scenario,” which the IPCC calls “RCP2.6,” is closest to what we can expect in terms of man-made carbon emissions. Thus, the most reasonable scenario, based on their modeling, would seem to be the purple bar that continues to rise for the next twenty years or so and then is close to horizontal.

Figure 1. Summary Climate Change Exhibit from new IPCC Report.

Figure 1. Summary global average surface temperature change exhibit from new IPCC Report.

I come to this conclusion by looking at the tables of anthropogenic carbon emission shown in Annex II of the report. According to IPCC data, the four modeled scenarios have emissions indicated in Figure 2.

Figure 2. Total anthropogenic carbon emissions modeled for in the scenarios selected by the IPCC, based on data from Table All 2.a in Annex II.

Figure 2. Total anthropogenic carbon emissions modeled for in the scenarios selected by the IPCC, based on data from Table All 2.a in Annex II.

 

The Likely Effect of Oil Limits

The likely effect of oil limits–one way or the other–is to bring down the economy, and because of this bring an end to pretty much all carbon emissions (not just oil) very quickly. There are several ways this could happen:

  • High oil prices – we saw what these could do in 2008.  They nearly sank the financial system. If they return, central banks have already done most of what they can to “fix” the situation. They are likely to be short of ammunition the next time around.
  • Low oil prices – this is the current problem. Oil companies are cutting back on new expenditures because they cannot make money on a cash flow basis on shale plays and on other new oil drilling. Oil companies can’t just keep adding debt, so they are doing less investment. I talked about this in Beginning of the End? Oil Companies Cut Back on Spending. Less oil means either a rebound in prices or not enough oil produced to go around. Either way, we are likely to see massive recession and falling world GDP.
  • Huge credit problems, such as happened in 2008, only worse. Oil drilling would stop within a few years, because oil prices would drop too low, and stay too low, without lots of credit to prop up prices of commodities of all types.
  • Rapidly rising interest rates, as QE reaches its limits. (QE for the United States was put in place at the time of the 2008 crisis, and has been continued since then.) Rising interest rates lead to higher needed tax rates and high monthly payments for homes and cars. The current QE-induced bubble in stock, land, and home prices is also likely to break, sending prices down again.
  • End of globalization, as countries form new alliances, such as Russia-China-Iran. The US is making false claims that we can get along without some parts of the world, because we have so much natural gas and oil. This is nonsense. Once groups of countries start pulling in opposite directions, the countries that have been using a disproportionate share of oil (particularly Europe, the United States, and Japan) will find themselves in deep trouble.
  • Electric grid failures, because subsidies for renewables leave companies that sell fossil-fuel powered electricity with too little profit. The current payment system for renewables needs to be fixed to be fair to companies that generate electricity using fossil fuels. We cannot operate our economy on renewables alone, in part, because the quantity is far too small. Creation of new renewables and maintenance of such renewables is also fossil fuel dependent.

If any of these scenarios takes place and snowballs to a collapse of today’s economy, I expect that a rapid decline in fossil fuel consumption of all kinds will take place. This decline is likely to be more rapid than modeled in the RCP2.6 Scenario. The RCP2.6 Scenario assumes that anthropogenic carbon emissions will still be at 84% of 2010 levels in 2030. In comparison, my expectation (Figure 3, below) is that fossil fuel use (and thus anthropogenic carbon emissions) will be at a little less than 40% of 2010 levels in 2030.

Figure 3. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

Figure 3. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

After 2070, the RCP2.6 Scenario indicates negative carbon emissions, presumably from geo-engineering. In my view of the future, such an approach seems unlikely if oil limits are a major problem, because without fossil fuels, we will not have the ability to use engineering approaches. It is also doubtful that there would be as much need for these engineered carbon-take-downs at the end of the period. Population would likely be much lower by then, so current anthropogenic carbon emissions would be less of a problem.

The Climate Change Scenario Not Modeled

We really don’t know what future climate change will look like because no one has tried to model what a collapse situation would look like. Presumably there will be a lot of tree-cutting and burning of biomass for fuel. This will change land use besides adding emissions from the burned biomass to the atmosphere. At the same time, emissions associated with fossil fuels will likely drop very rapidly.

Clearly the climate has been changing and will continue to change. At least part of our problem is that we have assumed that it is possible to have an unchanging world and have made huge investments assuming that climate would go along with our plans. Unfortunately, the way nature “works” is by repeatedly replacing one system with another system. The new systems that survive tend to be better adapted to recent changes in conditions. If we think of humans, other animals, and plants as “systems,” this is true of them as well. No living being can expect to survive forever.

Unfortunately economies are not permanent either. Just as the Roman Empire failed, our economy cannot last forever. In physics, economies seem to be examples of dissipative structures, just as plants and animals and hurricanes are. Dissipative structures are formed in the presence of flows of energy and matter in open thermodynamic systems–that is, systems that are constantly receiving a new flow of energy, as we on earth do from the sun. Unfortunately, dissipative structures don’t last forever.

Dissipative structures temporarily dissipate energy that is available. At the same time, they affect their surroundings. In the case of an economy, the use of energy permits the extraction of the most accessible, easy-to-extract resources, such as fossil fuels, metals, and fresh water. At the same time, population tends to grow. The combination of growing extraction and rising population leads to economic stresses.

At some point the economy becomes overly stressed because of limits of various types. Some of these limits are pollution-related, such as climate change. Other limits present themselves as higher costs, such as the need for deeper wells or desalination to provide water for a growing population, and the need for greater food productivity per acre because of more mouths to feed. The extraction of oil and other fossil fuels also provides a cost limit, as resource extraction becomes more complex, requiring a larger share of the output of the economy. When limits hit, governments are especially likely to suffer from inadequate funding and excessive debt, because tax revenue suffers if wages and profits drop.

People who haven’t thought much about the situation often believe that we can simply get along without our current economy. If we think about the situation, we would lose a great deal if we lost the connections that our current economy, and the financial system underlying it, offers. We as humans cannot “do it alone”–pull out metals and refine them with our bare hands, dig deeper wells, or keep up fossil fuel extraction. Re-establishing needed connections in a totally new economy would be a massive undertaking. Such connections are normally built up over decades or longer, as new businesses are formed, governments make laws, and consumers adapt to changing situations. Without oil, we cannot easily go back to horse and buggy!

Unfortunately, much of the writing related to dissipative structures and the economy is in French. François Roddier wrote a book called Thermodynamique de l’évolution on topics related to this subject. Matthieu Auzanneau writes about the issue on his blog. Roddier has a presentation available in French. One paper on a related topic in English is Energy Rate Density as a Complexity Metric and Evolutionary Driver by E. Chaisson. Causal Entropic Forces by Wissner-Gross and Freer provides evidence regarding how  societies self-organize in ways that maximize entropy.

The IPCC’s Message Isn’t Really Right 

We are bumping up against limits in many ways not modeled in the IPCC report. The RCP2.6 Scenario comes closest of the scenarios shown in providing an indication of our future situation. Clearly the climate is changing and will continue to change in ways that our planners never considered when they built cities and took out long-term loans. This is a problem not easily solved.

One of the big issues is that energy supplies seem to be leaving us, indirectly through economic changes that we have little control over. The IPCC report is written from the opposite viewpoint:  we humans are in charge and need to decide to leave energy supplies. The view is that the economy, despite our energy problems, will return to robust growth. With this robust growth, our big problem will be climate change because of the huge amount of carbon emissions coming from fossil fuel burning.

Unfortunately, the real situation is that the laws of physics, rather than humans, are in charge. Basically, as economies grow, it takes increasing complexity to fix problems, as Joseph Tainter explained in his book, The Collapse of Complex Societies. Dissipative structures provide this ever-increasing complexity through higher “energy rate density” (explained in the Chaisson article linked above).

Now we are reaching limits in many ways, but we can’t–or dare not–model how all of these limits are hitting. We can, in theory, add more complexity to fix our problems–electric cars, renewable energy, higher city density, better education of women. These things would require more energy rate density. Ultimately, they seem to depend on the availability of more inexpensive energy–something that is increasingly unavailable.

The real issue is the danger that our economy will collapse in the near term. From the earth’s point of view, this is not a problem–it will create new dissipative structures in the future, and the best-adapted of these will survive. Climate will adapt to changing conditions, and different species will be favored as the climate changes. But from the point of view of those of us living on the planet earth, there is a distinct advantage to keeping business as usual going for as long as possible.  A collapsed economy cannot support 7.2 billion people.

We need to understand what are really up against, if we are to think rationally about the future. It would be helpful if more people tried to understand the physics of the situation, even if it is a difficult subject. While we can’t really expect to “fix” the situation, we can perhaps better understand what “solutions” are likely to make the situation worse. Such knowledge will also provide a better context for understanding how climate change fits in with other limits we are reaching. Climate change is certainly not the whole problem, but it may still play a significant role.




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Caption Contest: Magnum PI-MCO

Add a 70s style moustache (and a red Ferrari) and BusinessWeek’s Bill Gross cover is the spitting image of Tom Selleck’s infamous investigator… but the analogies run deeper as the PIMCO front-man continues to search for his next steps and figure out the past

  • *GROSS ON EL-ERIAN: “I THOUGHT I KNEW HIM BETTER”
  • *GROSS SAYS FOR MOST PART, “I’M THE PERSON I THOUGHT I WAS”

Very philosophical – but as the cover asks “is he really such a jerk?”

 

 

As Businessweek concludes:

Gross served in the Navy during Vietnam, and he can’t help referring to what he learned there about making quick decisions and not bothering about whether others understand or agree. “We want to have a fighting team that sinks the other navy ships, as opposed to a fighting team that’s happy and has to man the lifeboats,” he says. “That’s the danger in this—it’s not all love and kisses and cheesecake dessert.”




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Putting The “Bank Loans Are Rising & Animal Spirits Are Reviving” Meme In Context

Much has been made of the "sharp acceleration" in bank lending in the last few months promulgated by the status quo huggers that 'animal spirits are reviving' and, despite a collapse in equity market valuations for 'growth' stocks, that escape velocity growth and that so-longed-for surge in Capex is just around the corner. However, when put in context… when looked at over more than a few months, and when considered against the typical economic cycle… this is anything but sustainable and merely reflects on the inventory-stacking mal-investment debacle of Q4 that is now unwinding en masse as hoped for 'aggregate demand' shows no signs of appearing.

Submitted by Lance Roberts of STA Wealth Management,

In a recent posting on Business Insider, reference was made to a chart by Liz Ann Sonders discussing a recent surge in bank loans and leases as a sign of impending economic recovery. 

"Over the past 15 weeks there has been a sharp acceleration in bank lending, which is now growing at an 8.6% annual rate, and could suggest animal spirits are reviving," she said."

The problem is that the chart is completely out of context.  Is this spurt in activity historically relevant? Have such increases previously led to surges in economic activity or inflation? Or, is this activity just an anomaly that will rectify itself in the months ahead?

While Ms. Sonders certainly presents an interesting point, by taking the data out of context it potentially leads to a misdiagnosis of the issue. The chart below is a long term view of the bank loan and lease data as compared to both the economy and the velocity of money as an indicator of potential inflationary pressures.

What we see is, as would be expected, that businesses respond to changes in the economy on a lagged basis. Business owners, and individuals, do not generally jump out to take on credit until they are sure the economy is recovering and vice-versa.

The recent uptick corresponds with the economic push in the last quarter of 2013. It is very likely, given the recent economic weakness both domestically and internationally, that the recent surge in activity may well be very short lived.

As peak hope fades…

 




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Rich-Poor Comfort Divide Surges To 2-Month Highs

Following Fed Governor Tarullo’s comments this week on central bank policies and the recovery benefiting high-income earners disproportionately – potentially damaging the “nation’s democratic heritage”, we thought it ironic that this week’s Bloomberg Comfort Index data showed that the rich (high incomes) just got a whole lot more comfortable and the poor (low incomes) got a whole lot less comfortable. In fact, the rich-poor comfort divide jumped back to 2-month highs.

This is the first major divergence since early December.

 

Though, we suspect, once the “rich” look at their brokerage statements this weekend things might change a little…

 

Source: Bloomberg




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72% Of Greeks Need More Work To Make Ends Meet

Almost 10 million out of 43.7 million part-time workers in the European Union were under-employed in 2013. As Bloomberg Brief’s Niraj Shah notes, based on Eurostat’s Labour Forces Study, a record 72 percent of Greek part-time workers wished to work more hours compared with 4.2 percent in the Netherlands.

 

 

Maybe the Dutch should lay some more people off to lower their bond yields? As we explained in great detail here, the Greek “recovery” is a mirage and these numbers do not lie.

Source: Bloomberg Briefs ( @economistniraj )




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Why The Standoff At The Bundy Ranch Is A Very Big Deal

Submitted by Michael Krieger of The Liberty Blitzkrieg blog,

If you haven’t been following the unfolding drama at the Bundy Ranch about 80 miles northeast of Las Vegas you need to start now. The escalating confrontation between irate local residents and federal agents of the Bureau of Land Management (BLM) has the potential to take a very dangerous turn for the worse at any moment, as hundreds of militia members from states across the country are expected to descend upon the area and make a stand with 67-year-old Nevada rancher Cliven Bundy.

Before I get into any sort of analysis about what this means within the bigger picture of American politics and society, we need a little background on the situation. The saga itself has been ongoing for two decades and the issue at hand is whether or not Mr. Bundy can graze his 900 head of cattle on a particular section of public lands in Clark County. Cliven Bundy has been ordered to stop on environmental grounds to protect the desert tortoise, but he has stood his ground time and time again. As a result, the feds have now entered the area and are impounding his cattle. According to CNN, Between Saturday and Wednesday, contracted wranglers impounded a total of 352 cattle. The Bundy family, as well as a variety of local residents have already had confrontations with the BLM agents. Tasers have been used and some minor injuries reported. Most significantly, militia members from across the country have already descended upon the area and it seems possible that hundreds may ultimately make it down there.

To me, the argument of who is right and who is wrong in this situation is the least interesting part of the story. I have noted time and time again that the feds are becoming increasingly out of control and belligerent to American citizens. We know the stories (think Aaron Swartz) and we know the overall trend trend. However, the reason the Bundy Ranch confrontation is so interesting, is that for whatever reason this particular incident seems to be striking a chord of dissent. It is often times the most random, unforeseen and innocuous things that spark social/political movements. This standoff has it all.

From CBS News:

LAS VEGAS (CBS Las Vegas/AP) — Militia groups are rallying behind a rancher whose cattle are being seized by the federal government.

The Las Vegas Review-Journal reports that two militia members from Montana and one from Utah have arrived at Cliven Bundy’s ranch.

“We need to be the barrier between the oppressed and the tyrants,” Ryan Payne of the West Mountain Rangers told the Review-Journal. “Expect to see a band of soldiers.”

 

Payne said that militias from New Hampshire, Texas and Florida are likely to join and stand with Bundy and stay at his ranch.

 

“They all tell me they are in the process of mobilizing as we speak,” Payne told the Review-Journal, adding that hundreds of militia members are expected.

 

Lawmakers are adding their voices into the fray, criticizing the federal cattle roundup fought by Cliven Bundy who claims longstanding grazing rights on remote public rangeland about 80 miles northeast of Las Vegas.

 

Sen. Dean Heller of Nevada said he told new U.S. Bureau of Land Management chief Neil Kornze in Washington, D.C., that law-abiding Nevadans shouldn’t be penalized by an “overreaching” agency.

 

Republican Gov. Brian Sandoval pointed earlier to what he called “an atmosphere of intimidation,” resulting from the roundup and said he believed constitutional rights were being trampled.

The fact that a U.S. Senator and the Governor are publicly coming out agains the feds is in my opinion a very big deal and may signal the beginning of a true fracturing in the social fabric. Something that I have been expecting for many years.

Heller said he heard from local officials, residents and the Nevada Cattlemen’s Association and remained “extremely concerned about the size of this closure and disruptions with access to roads, water and electrical infrastructure.”

 

The federal government has shut down a scenic but windswept area about half the size of the state of Delaware to round up about 900 cattle it says are trespassing.

 

Sandoval said he was most offended that armed federal officials have tried to corral people protesting the roundup into a fenced-in “First Amendment area” south of the resort city of Mesquite.

 

The site “tramples upon Nevadans’ fundamental rights under the U.S. Constitution” and should be dismantled, Sandoval said.

People being rounded up like cattle in these bullshit “First Amendment areas” is completely unacceptable.

BLM spokeswoman Kirsten Cannon and Park Service spokeswoman Christie Vanover have told reporters during daily conference calls that free-speech areas were established so agents could ensure the safety of contractors, protesters, the rancher and his supporters.

 

Meanwhile, federal officials say 277 cows have been collected. Cannon said state veterinarian and brand identification officials will determine what becomes of the impounded cattle.

The kindling for social upheaval has been growing in America for quite some time. Disrespectful and ignorant statements from billionaire oligarchs like Sam Zell only make it worse. The question in my mind has always been what will the catalyst be to spark the brushfire? Will it be the Bundy Ranch? We’ll have to wait and see.

Personally, I hope cooler heads prevail and there is no violence, because once you head down the road of violent confrontation between the people and the feds you are opening up a can of worms that will not easily be bottled up again. In such a situation, everybody loses. However, my long-term fear is that unless the government and its puppet masters on Wall Street and elsewhere in big business change course, social upheaval will prove inevitable, whether the Bundy Ranch sparks it, or some other incident down the road. These are troubled times and they are likely going to get worse before they get better.

This picture basically says it all:

Bundy ranch

Full article here.

+++++++++++

The latest news is a 'win' for Bundy for now…

The gathering of rancher Cliven Bundy's cattle in northeast Clark County has been stopped by the director of the Bureau of Land Management.

 

Bundy is meeting this morning with Clark County Sheriff Doug Gillespie to discuss a possible solution to his dispute with the BLM.

 

Metro Officer Jesse Roybal confirmed that Gillespie was in the Bunkerville area this morning to meet with Bundy.

 

The BLM had been using contract cowboys to round up Bundy's 900 head of cattle that have been grazing over 600,000 square acres in northeast Clark County for more than 20 years without his payment of grazing fees.

 

Neil Kornze, director of the BLM, made the following statement this morning:

 

"As we have said from the beginning of the gather to remove illegal cattle from federal land consistent with court orders, a safe and peaceful operation is our number one priority. After one week, we have made progress in enforcing two recent court orders to remove the trespass cattle from public lands that belong to all Americans.

 

"Based on information about conditions on the ground, and in consultation with law enforcement, we have made a decision to conclude the cattle gather because of our serious concern about the safety of employees and members of the public.

 

"We ask that all parties in the area remain peaceful and law-abiding as the Bureau of Land Management and National Park Service work to end the operation in an orderly manner.

 

Ranching has always been an important part of our nation’s heritage and continues throughout the West on public lands that belong to all Americans. This is a matter of fairness and equity, and we remain disappointed that Cliven Bundy continues to not comply with the same laws that 16,000 public lands ranchers do every year. After 20 years and multiple court orders to remove the trespass cattle, Mr. Bundy owes the American taxpayers in excess of $1 million. The BLM will continue to work to resolve the matter administratively and judicially."




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Ukraine Prepares Military Response To Russian “Act Of Aggression”; Fears Specter of “Gas Wars”

Following more firefights and government building seizures amid the so-called “liberation of Southeast Ukraine,” the Maidan’s demands that the government not “give up like in Crimea” appear to be resonating woth leadership. Ukraine’s interior minister Arsen Avakov has declared: The Ukrainian authorities consider the events of the day as a display of external aggression from Russia,” adding that, “”Units of the interior and defense ministries are implementing an operational response plan.” Russia was quick to respond with threats of war action if Ukraine suppresses pro-Russia ‘self-defense’ forces. As Reuters adds, with the crisis escalating militarily, the specter of “gas wars” is looming with Ukraine’s Energy Minister declaring, “we are probably steering towards Russia turning off its gas provision.”

 

 

 

 

And as Reuters reports,

Armed separatists took virtual control of a city in eastern Ukraine on Saturday and Kiev prepared troops to deal with what it called an “act of aggression by Russia”.

 

Pro-Russian activists carrying automatic weapons seized government buildings in Slaviansk and set up barricades on the outskirts of the city. Official buildings in several neighboring towns were also attacked.

 

 

“The Ukrainian authorities consider the events of the day as a display of external aggression from Russia,” Interior Minister Arsen Avakov said in a statement.

 

“Units of the interior and defense ministries are implementing an operational response plan,” he added.

Which it seems Russia is quick to respond to…

 

 

 

Which leaves the threat of “gas wars” imminently hanging in the air…

With the crisis in Ukraine still unresolved, the gas dispute threatens to affect millions of people across Europe.

 

 

Russia is demanding Kiev pay a much higher price for its gas, and settle unpaid bills. Russian state-owned gas giant Gazprom and its Ukrainian counterpart, Naftogaz, are in talks, but the chances of an agreement are slim.

 

“I would say we are coming nearer to a solution of the situation, but one in the direction that is bad for Ukraine,” Ukrainian Energy Minister Yuri Prodan said in an interview with the German newspaper Boersenzeitung

 

We are probably steering towards Russia turning off its gas provision,” he was quoted as saying.

 

That raised the specter of a repeat of past “gas wars”, when Ukraine’s gas was cut off with a knock-on effect on supplies to EU states.

And The US quickly got involved…

Washington backed Kiev’s assessment that Moscow was responsible. “Worrisome violence in … Ukraine today. Russia again seems to be behind it,” State Department spokeswoman Jen Psaki said on Twitter.

And of course, here is the YouTube proof that Washington needed…




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The World Economy At A Glance

Despite bond yields at record lows, stock markets at record highs, and a general ‘faith’ that we are heading towards a Keynesian utopia of escape velocity growth (despite IMF downgrades and the reality of current data), the following table of the world’s PMIs is your handy cocktail-party cheat sheet for ‘smart’ discussion of soft-survey-based economic progress… UK, Ireland, and UAE are the fastest growers while France, Italy, and the broad Eurozone are contracting at the fastest pace.

 

Source: Bloomberg Briefs

 

and just the manufacturing indices…

 

All that green and investors demand that the world’s central banks are either on the verge of more easing or talking about more easing? What are they so afraid of?




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