US money slump flashes warnings as economy contracts

The US seems caught in a Japan-style trap, endlessly masking the effect by stealing a little extra growth from the future with artificial stimulus

The concern is that this recovery may die of old age after five years Photo: AP

 

 

The US economy contracted sharply in the first quarter and bond yields have been falling at the fastest rate since the recession scare two years ago, in signs that bond tapering by the Federal Reserve is biting more than anticipated.

The slowdown comes as a key indicator of the US money supply flashes slowdown warnings, though the picture remains murky after extreme weather conditions over the winter.

Output fell at an annual rate of 1pc, led by a 7.5pc fall in business spending following the expiry of tax concessions. The tax rules had brought forward investment in 2012 and 2013, leading to a cliff-edge drop this year.

“We think there is more to this than just weather. Our leading indicators were already weakening late last year,” said Lakshman Achuthan, from the Economic Cycle Research Institute (ECRI).

“We may get a snap-back in the second quarter but I don’t see us reaching escape velocity. The economy is below stall-speed, according to the Fed’s own model,” he said.

Chris Williamson, from Markit, said the GDP investment data are volatile and can be distorted by shifts in the oil and gas industry. He said the US manufacturing and services PMI index rose at the fastest pace for three years in May while unemployment claims have fallen to the lowest since 2007, pointing to a solid recovery. “The acid test of economic resilience will be how the data settle after the second quarter,” he said.
ECRI said the housing recovery has rolled over and is now in a “cyclical downswing”, with the building permits for single-family homes falling to a three-year low. There will be less “fiscal drag” this year as austerity fades but this is more than offset by the drag of excess inventory.
Mr Achuthan said the economy may muddle through, but recoveries have been getting weaker with each cycle for the past 40 years. The US now seems caught in a Japan-style trap, endlessly masking the effect by stealing a little extra growth from the future with artificial stimulus.
Data from the Centre for Financial Stability in New York show that growth of the “Divisia M4” money supply slowed abruptly to 1.6pc in April, down from 6pc in early 2013.
Divisia M4 is a dynamic measure that aims to capture shifting uses of money. It is has been one of the best weather vanes over recent years, signalling economic health a few months ahead.
Professor William Barnett, a former Fed official now at the University of Kansas, said the weak M4 figures are a sign that the US is not recovering properly, leaving the Fed with a grim choice as it tries to wean the economy off emergency policies that are themselves causing havoc. “The Fed faces a 'Catch 22' decision. I am glad I am no longer on the Board's staff,” he said.
The Fed has cut its bond purchases from $85bn to $45bn a month, and is expected to halt quantitative easing altogether by October as it pares back $10bn at each meeting. The taper is clearly chipping away at a key prop of the economy. The stock of narrow M1 money has not grown for four months, and M1 velocity has fallen to an all-time low of 6.3.
John Hathaway, from the Tocqueville Gold Fund, said the Fed may find it cannot extricate itself from QE without aborting the recovery. “The US economy is quite anaemic. There's a good chance that they may have to reverse their course on tapering,” he told CNBC.
US Treasuries have fallen to an 11-month low of 2.41pc, dropping 60 basis points since January in a pattern that would normally signal a slowdown.
Jan Loeys, from JP Morgan, said the strange action in the bond markets is causing a “growing unease among investors that something is not right about the world economy”, but it may merely be the result of very low inflation and therefore benign.
Former Fed chairman Ben Bernanke said recently that long-term yields would never reach 4pc again in his lifetime, portraying a changed world where nothing returns to normal.
The concern is that this recovery may die of old age after five years, even though it has been the weakest expansion since the Second World War, failing to close the output gap or bring the long-term unemployed back into the workforce. The Fed fears it has exhausted its arsenal. “It is too awful to think about what will happen in the next recession, so nobody does,” said Mr Achuthan.

 

Corporations Destroying US Economy

The proven ability of the nation’s wealthiest individuals and corporations to collude with the federal government in order to avoid paying massive amounts in federal taxes, says economist and Nobel laureate Joseph Stiglitz, is not simply unfair and unprecedented but is actually destroying the broader economy and the nation’s once-heralded prosperity.

In an interview with journalist Bill Moyers that airs Friday in which they discuss his new white paper(pdf) on the same topic written for the Roosevelt Institute, Stiglitz describes how the current tax code actually encourages large multinational corporations to invest abroad, hire people abroad, and keep their earnings abroad.

And because these multinationals use their outsized political influence to literally write the tax code and bend financial regulations to fit their interests, says Stiglitz, it has created a nearly complete distortion of the nation’s real economic possibilities. As he explains to Moyers:

You know, there’s a lot discussion going on about we have a budget of deficit. And we have to slash this, and slash that, and cut back education, and cut back research, things that will make our economy stronger, cut back infrastructure.
And I think that’s counterproductive. It’s weakening our economy. But the point I make in this paper is it would be easy for us to raise the requisite revenue. This is not a problem. This is not as if it’s going to oppress our economy. We could actually raise the money and make our economy stronger. For instance, we’re talking about the taxation of capital. If we just tax capital in the same way we tax ordinary Americans, people who work for a job, who pay taxes we pay on wages.

If we eliminate the special provisions of capital gains, if we eliminated the special provisions for dividends we could get, over the next ten years, over, you know, approximately $2 trillion. And those are numbers according to the CBO. And so, we’re talking about lots of money.

Watch the Moyers’ interview with Stiglitz:

And it’s not like there’s nothing to be done with that $2 trillion or more in revenue that Stiglitz says could be generated if the top one percent simply paid what the average American pays in terms of income tax and if corporations were stripped of their preferential “subsidies” and “incentives” which he has long argued should be called what they really are: corporate welfare.
“Our country needs, faces a lot of challenges,” argues Stiglizt. “Twenty million Americans would like a full-time job and can’t get one. We have growing inequality. We have environmental problems that threaten the future of our planet. I think we can use our tax system to create a better society, to be an expression of our true values.”
In the white paper, titled Reforming Taxation to Promote Growth and Equity (pdf), Stiglitz’s argument is that even before the financial crisis that took hold in 2008, it’s not as though the average American or the economy overall was being particularly well-served by the increasing slant of the tax code to favor large corporations and the wealthy.
Though not a new idea, Stiglitz says that it’s imperative people realize the economy has long been run by perverse incentives and that the rules fueling these incentives are not natural laws of the economy or that thing called “the free market” but the direct result of corporate control of the political and legislative process.
What many tax-dodging corporations do might well be “legal,” admits Stiglitz, but the reality is that they “use their lobbyists to make sure that the law gives them the scope to avoid taxes. So, this argument, ‘Oh, we’re only doing what the law allows,’ is disingenuous. The fact is … their lobbying helped create this law that allows them to escape taxes, pushing the burden of taxation on ordinary Americans.”
And the result, of course, the reason that the rest of the economy is burdened by this behavior and these systems of perverse incentives, he continued, is because “somebody has to make up the difference. I mean, we can’t survive as a society without roads, infrastructure, education, police, firemen. Somebody’s going to have to pay these costs.”
And that “somebody,” as is known all too well by low-income and working-class America, is the rest of the population–sometimes now referred to as the 99%.
In his newly published paper that addresses these issues and calls for a new progressive tax code and end to preferential ‘corporate welfare,’ Stiglitz concludes:

We can reform our tax system in ways that will strengthen the economy today, address current economic and social problems, and strengthen our economy for the future. The economic agenda is clear. The question is, will the vested interests which have played such a large role in creating the current distorted system continue to prevail? Do we have the political will to create a tax system that is fair and serves the interests of all Americans?

_________________________________

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License. Common Dreams

New Jersey Cop: Bosses target young drivers, want ticket quotas

MORRISTOWN, N.J. — A cop who said he refuses to profile young drivers for tickets has filed a lawsuit saying he's been passed over for promotions and overtime because of his actions.

Patrolman Robert Wysokowski, 43, of the Mendham Township Police Department filed suit Wednesday in Superior Court here under New Jersey's Conscientious Employee Protection Act, also known as the Whistleblower Law. He seeks promotion to sergeant, punitive and compensatory damages for "all lost benefits, wages and rights," and damages for emotional distress.

Wysokowski contends that he has consistently met department standards on enforcement of motor vehicle laws but beginning in 2005, under now-former Police Chief Thomas Costanza, he was told he had to "increase his numbers." The suit said that in 2005, Steven Crawford, who was then a sergeant but now is chief, advised Wysokowski to "seek out and target younger drivers for motor vehicle stops."

GOP Proposal Would End Door-to-Door Postal Service Delivery

Neighbors in Nashville are reacting to news that a bill in Congress could knock mail carriers off their feet. In a move to 'save' the U.S. Postal Service up to $2 billion a year Congress is looking at a bill that could eliminate most door to door mail deliveries by mail carriers on foot. Many of those deliveries would be converted to apartment-style grouped mailboxes instead. Those who want their door to door service to continue would have to pay for it themselves.

‘Very Bad News For Dollar’: The Biggest Energy Deal In History Could Be The Catalyst That Leads To The Greenback Losing Its Place As The World’s Reserve Currency – Economists

The biggest energy deal in history could be the catalyst that leads to the greenback losing its place as the world’s reserve currency. That’s the opinion of a range of economists commenting on Russia and China’s 400 billion dollar natural gas agreement. James G. Rickards, senior managing director at Tangent Capital, joins RT to discuss this issue.

James Rickards ‘Inflation Is Coming As It Is The Only Way The U.S. Can Pay It’s Debt

Published on May 28, 2014

The biggest energy deal in history could be the catalyst that leads to the greenback losing its place as the world’s reserve currency. That’s the opinion of a range of economists commenting on Russia and China’s 400 billion dollar natural gas agreement. James G. Rickards, senior managing director at Tangent Capital, joins RT to discuss this issue.

 

Inflation Rates On The Rise

EU Wants to seize money from All European Banks on a Flat Rate Basis

The European Banking Crisis is beyond description. A leak has come out that the Commission will simply seize money from all the banks on a flat rate basis benefiting the banks that have lost money from trading at the expense of the small savings banks. Wolfgang Schäuble (born 1942) is Germany’s Federal Minister of Finance. He is a German career politician of the Christian Democratic Union (CDU) party. Schäuble has come out disagreeing with the EU Commission saying that the seizure should be proportional to any individual bank’s risk. He wisely realizes that a one-size-fits-all in banking could set off a massive liquidation crisis. The local banks that were not involved in trading will have to pay for the big ones. That way, the EU Commission gets everyone’s accounts.

http://deutsche-wirtschafts-nachrichten.de/2014/05/27/gegen-schaeuble-eu-will-banken-abgabe-auch-von-kleineren-banken/

http://armstrongeconomics.com/2014/05/28/eu-wants-to-seize-money-from-all-european-banks-on-a-flat-rate-basis/

The SAFE act will not be guaranteed by government and they will count on insurance companies being unable to produce guaranteed returnsIts a rolling story – happening more and more locations!!

* Reform moves bond assets from private to state fund

* Some equity assets to gradually move to state as well

* Changes seen reducing Polish public debt by 8 pct of GDP

* Funds say moves could be unconstitutional

* Warnings that private pension funds could be wiped out

By Dagmara Leszkowicz and Chris Borowski

WARSAW, Sept 4 Poland said on Wednesday it will transfer to the state many of the assets held by private pension funds,slashing public debt but putting in doubt the future of the multi-billion-euro funds, many of them foreign-owned.

The changes went deeper than many in the market expected and could fuel investor concerns that the government is ditching some business-friendly policies to try to improve its flagging popularity with voters.

The Polish pension funds’ organisation said the changes may be unconstitutional because the government is taking private assets away from them without offering any compensation.

Announcing the long-awaited overhaul of state-guaranteed pensions, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings.

He said that what remained in citizens’ pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.

The reform is “a decimation of the …(private pension fund) system to open up fiscal space for an easier life now for the government,” said Peter Attard Montalto of Nomura. “The government has an odd definition of private property given it claims this is not nationalisation.”

http://www.jsmineset.com/

Government Has Contemplated Seizing Pension Money for Over a Decade

As long ago as the Clinton regime, Alicia Munnell, an economist at the Federal Reserve Bank of Boston who was appointed Assistant Secretary of the Treasury for Economic Policy, the position I had held in the Reagan administration, advocated confiscating 15 percent of private pension funds on the basis of the argument that the pensions had accumulated tax free.

The writing is on the wall for private pensions. Once the dollar becomes too weakened by the printing of vast amounts of them in order to finance Washington’s budget deficit and to support the solvency of “banks too big too fail,” QE will have to end. Desperate for money to fill the gap, Washington will turn to confiscation of private assets should any be left after the coming economic collapse.

http://www.washingtonsblog.com/2013/10/government-has-contemplated-seizing-pension-money-for-over-a-decade.html

Governments To Steal Your Bank Account? 

When asked “What happened in Cyprus? Is that going to happen in other countries?”, Mike Maloney simply answered “Absolutely.”

Rick Rule expanded “The idea that we have, that we are absolved of responsibility for our own financial future – in other words: if we’re stupid enough to put money in a bank, that has too poor of an equity slice, the bank goes upside down….we’re unsecured creditors of a moron, which makes us a double moron. We ought to be punished for that stupidity.” 

- Rick Rule

Taxman has power to raid your bank accounts 
Commons Treasury committee raises concerns about powers of HMRC to remove cash from bank accounts without a court order 


UK:

A Treasury plan to allow HM Revenue and Customs to remove cash from bank accounts without a court order is “very concerning” because of its history of mistakes, a Commons committee said. 

In a consultation document this week, HMRC said the “direct recovery” powers could be used to take money from joint accounts. 

The tax authorities admitted this week that about 17,000 people a year would be targeted under the new measures, set out in the Budget and designed for use against people who owe them money.

http://www.telegraph.co.uk/finance/personalfinance/10818323/Taxman-has-power-to-raid-your-bank-accounts.html

No Dhimmi

1 in 6 American Men Between Ages 25-54 Are Not Working

Startling charts from the Republicans on the Senate Budget Committee about male participation in the labor force, particularly men between the ages of 25-54:

“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began,” the Republicans on the Senate Budget Committee claim.

“Although defenders of the current economy attribute shrinking labor force participation to the increasing pace of retirement of the Baby Boomer generation, these new statistics above confirm a trend that Barron’s recently diagnosed: ‘The ratio of those over 55 in the workforce actually ticked up’—in other words, older Americans are being forced to return to work in a poor economy to make ends meet while many younger Americans simply aren’t working at all. In short, there is an unprecedented supply of working-age Americans who do not hold jobs.”

Fears for Portugal's 'lost' generation

As a result of an economic downturn whose effects were compounded by government austerity measures, Portugal is now fearing for the future of its young, the jobless "lost generation".

Japan Hits the Skids

Mike Whitney

Plunging retail sales and rising inflation have rocked Japan’s anemic economy and cast doubt on the future of Abenomics. While the US Commerce Department announced that first-quarter growth in the United States had slipped into negative territory for the first time since 2011 (-0.1 percent), the news from Tokyo was even grimmer. Following a tax hike that began on April 1, retail sales have collapsed sabotaging far-right prime minister Shinzo Abe’s hope for a strong recovery and steering the economy towards another slump. According to Bloomberg News:

“Japan’s retail sales dropped at the fastest pace in at least 14 years… Sales in April declined 13.7% from the previous month, the trade ministry reported today… The drop-off follows a consumer splurge ahead of the April 1 tax increase, and highlights the task Prime Minister Shinzo Abe faces in steering the nation through a forecast contraction this quarter… The economy is forecast to shrink an annualized 3.4% this quarter.” (Bloomberg)

Economists around the world had cautioned Abe not to raise the consumption tax while the economy was still weak and wages were trending lower. But the urge to shrug more of the costs of government onto working people was too hard to resist. Abe pushed the tax hike through parliament, paving the way for yesterday’s retail meltdown. Check this out from Zero Hedge:

“Following last night’s record plunge in Japanese retail sales… Household Spending cratered 4.6% YoY – its biggest drop since the Tsunami… Industrial Production tumbled 2.5% MoM – also the biggest drop since the Tsunami (topped off by a) surge in Japanese CPI.” (Zero Hedge)

So while retail sales are dropping like a stone and wages continue to stagnate, inflation has suddenly burst onto the scene pushing up food and energy costs and increasing the hardship on Japan’s dwindling workforce. (inflation in April soared 3.4 percent on all items from a year earlier, while goods prices are up 5.2 percent) With debts and deficits piling up at an unprecedented pace and the economy slowing to a crawl, Abenomics is looking like an unmitigated catastrophe. This is from Testosterone Pit:

“Total retail sales in April plunged 19.8% from March and were down 4.4% year over year. (while)… “large retailers,” sales swooned 25.0% from March… At department stores, where people buy jewelry, designer clothing, or French purses, sales fell 10.6% year over year… In short, it was the largest decline in sales since March 2011, when the Great East Japan Earthquake and tsunami that killed over 19,000 people, brought commerce to a near-standstill.” (Testosterone Pit)

Abe’s retail bloodbath is the result of a class-based economic policy that attempts to shift more of the nation’s wealth to fatcat stock speculators, corporations and establishment elites while the working people shoulder more of the costs of funding the government. Behind the public relations hype about “fighting deflation”, Abenomics so-called “structural reforms” are nothing more than a full-on attack on the meager incomes of Japan’s working people, 37 percent of whom are limited to part-time work with no benefits, retirement, health care or security. For these people–who number in the millions–life has only gotten harder under Abe.

At the same time, corporate bosses and the IMF are encouraging Abe to implement unpopular economic reforms quickly before the economy slides back into recession. The anti-worker “third arrow” of Abenomics will further undermine job security and working conditions while cutting corporate taxes. According to the Japan Times, “The Cabinet is likely to approve this year’s growth strategy on June 27″ which will involve “corporate tax cuts…reforming public funding, utilizing foreign labor, promoting entrepreneurship and more women in the workforce, and revitalizing local economies.” In other words, tax breaks for big business, slashing public spending, more cheap foreign labor, tax incentives for startups, and “special strategic zones” where worker safety and other regulations are jettisoned so corporate kingpins can rake in more dough. Abe’s third arrow is a wish list for voracious CEOs and carpetbagging business tycoons whose only objective is to extract more wealth from the sweat of working people.

Abenomics has been particularly destructive for those living beneath the poverty line, Japan’s down-and-outs. Besides raising the national sales tax, Abe has cut welfare benefits to shore up the governments flagging finances. The policy has triggered a sharp uptick in the number of working poor. According to the Japan Times, “the number of part-time, temporary and other non-regular workers who typically make less than half the average pay has jumped 70 percent from 1997 to 19.7 million today — 38 percent of the labor force.” This is the crux of the problem that you will not read about in the business-friendly, pro-corporate dissembling media, that is, that Japan’s economy suffers from chronic lack of demand due to falling incomes, shitty wages and system that favors the upward distribution of wealth. All of these have gotten worse under the exploitative leadership of Shifty Shinzo, Japan’s all-time worst PM.

Naturally, the perennial squeeze on workers is having an impact on consumer spending and industrial output. Check this out from Reuters:

“Japan’s household spending in April fell at the fastest rate in three years in a sign that consumption could be slow to recover from an increase in the nationwide sales tax, raising questions over the pace of economic recovery.
Industrial production fell more than expected in April as companies cut output to avoid a pile up in inventories in the lull after the sales tax hike took effect…Industrial output fell 2.5 percent in April, more than a median market forecast of a 2.0 percent fall.” (Reuters)

To summarize: Industrial production, down. Manufacturing, Down. Wages, Down. Profits for Japan’s biggest and greediest corporations, Up, Up, Up!

Also, higher inflation coupled with droopy wages (wages dropped 0.1 percent year-over-year) have pushed consumer confidence to its lowest level since 2011. Recent data show that consumer confidence plunged to 37.5 percent, the worst since the right-wing Abe took office. Additionally, Japanese Prime Minister Shinzo Abe is about to drive the so called misery index, “which adds the jobless rate to the level of inflation, to its highest level since June 1981 when Japan was emerging from depression after the oil shocks of the 1970s.” (Bloomberg)

So while the media bimbos and their corporate taskmasters continue to applaud Abe’s willingness to destroy the economy and crush working people in the name of all-out class warfare, the results have been less than spectacular. In fact, the Japan’s economy is skittering headlong into another gigantic slump thanks to excessive monetary flim-flam, targeted tax gouging, and slavish pandering to the loafer class of moocher elites. Check this out from Roger Arnold at The Street:

“The essential policy tools of Abenomics are massive monetary and fiscal stimulus aimed at forcing the yen lower, which should cause exports to rise and domestic production to increase, leading to increased domestic job production and consumption: the virtuous cycle…
But it isn’t working…Abenomics is making the real economic and fiscal situations in Japan worse, not better. They are digging a bigger sovereign debt hole and accelerating the trajectory toward insolvency.” (Arnold: Abenomics’ Failure Is the Global Canary, The Street)

You bet it isn’t working, just like it’s not working in the United States or Europe or Canada or Australia or anywhere else the mercenary bank cartel has extended its hoary tentacles. Abenomics is failing because it was designed to fail. It was designed to do exactly what it does; transfer everything of value to a handful of crafty, self-serving freeloaders who have the political system by the balls and are extracting every last farthing they can before the economy collapses in a heap.

If you’re in the 1 percent, the system works just swell. For everyone else, not so much.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

Republished with permission of the author.

Eurasian Economic Union nail in US coffin: Analyst

Russian President Vladimir Putin (R), Belarusian President Alexander Lukashenko (C) and Kazakh President Nursultan Nazarbayev walk before a meeting of the Eurasian Economic Council in Minsk, Belarus, April 29, 2014.

The formation of an economic union between Russia and two former Soviet republics will further weaken the waning hegemony of the United States, an analyst writes for Press TV.

“The economic union signed…between Russia and its near neighbors, Belarus and Kazakhstan, spells another nail in the coffin of the waning US global hegemony,” Finian Cunningham wrote in a recent article.
He was referring to the Eurasian Economic Union a treaty for whose establishment was recently signed by Russian President Vladimir Putin, Belarus President Alexander Lukashenko, and Kazakh President Nursultan Nazarbayev on Thursday.

Cunningham said the United States is sinking “inexorably to a watery grave” as power is shifting from West to East in the world, adding, “Washington will find that it is not just swimming against the tide of history; it is drowning.”

He stated that the union is harbinger of a “paradigm shift” in the world economy and international relations.

“This shift heralds the rise of the European-Asian axis and the further demise of the crumbling US-dominated West,” he wrote.

Work on the treaty started in November 2011 at the first summit on the Supreme Eurasian Economic Council, when the presidents of Russia, Belarus and Kazakhstan adopted a declaration on the Eurasian economic integration, which became a “road map” for the development of integration cooperation.
Cunningham said the US government is “quaking-scared” about the “strategic union” taking shape between Russia and its neighbors.
He said Washington has spared no efforts to prevent any “new realignment in global relations.”
“The current US state-sponsored terrorism in Syria and Ukraine are part of this nefarious effort of sabotaging,” Cunningham said.
KA/HSN/SS

Strange Inconsistencies in the $134.5 Billion Bearer Bond Mystery

Here’s yet another huge financial story that has been virtually blacked out by the US financial media. Although on the surface, this story appears to be a non-event, if we consider some of the released facts about this case, you will understand why I consider it to be a huge story. On June 8th, the Asia News reported the following story:

“Italy’s financial police (Guardia italiana di Finanza) has seized US bonds worth US 134.5 billion from two Japanese nationals at Chiasso (40 km from Milan) on the border between Italy and Switzerland. They include 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollars each. Italian authorities have not yet determined whether they are real or fake, but if they are real the attempt to take them into Switzerland would be the largest financial smuggling operation in history; if they are fake, the matter would be even more mind-boggling because the quality of the counterfeit work is such that the fake bonds are undistinguishable from the real ones.”

Here are just a few fascinating facts about this case (at least they are being reported as “facts” at this current time):
(1) Though the smugglers have been identified in the press as “Japanese nationals” there has yet to be any confirmation if the smugglers were indeed Japanese or of some other ethnicity. How difficult is it to confirm the ethnicity of the smugglers and why is this information being kept secret?
(2) According to a brief Bloomberg article regarding this story, the seized bearer bonds allegedly were dated as of 1934. Since bearer bonds in denominations of $500 million did not exist in 1934, the bonds were deduced as fake, though the Italian police are still waiting for a declaration regarding the bonds’ authenticity from the SEC. There is something truly “off” about this declaration. How can the quality of the forged bearer bonds be so meticulous that they “are indistinguishable from the real ones”, yet the people involved in the alleged forgery so ill-informed as to not date the bearer bonds with a more recent year that would not immediately identify them as fraudulent? How hard would it have been to date the bearer bonds with a more recent year? An equivalent analogy would be if an expert art forger meticulously re-created a Picasso oil canvas and then erroneously signed the work with the wrong artist’s name. This story just does not add up.

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$6 Trillion In US Bonds Seized In Zurich, Said To Pose "Severe Threats To International Financial Stability"

Back in the summer of 2009, a peculiar story circulated when two Japanese individuals were arrested trying to smuggle $134 billion in US bonds into Switzerland from Italy. The story quickly died down after it was subsequently reported that the bonds were merely fake bearer bonds. Nobody heard much about it since then. Until today, when out of the blue we get a new story which blows that one out of the water. According to Bloomberg, "Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt." From here the story just gets weirder: "The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said. The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. Officials for the embassy didn’t have an immediate comment." ...And weirder: "The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police." ...And really, really weird: "The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement." Ok great, however one thing we don't get is just how can $6 trillion in glaringly fake bombs be a "threat to international financial stability."
More from Bloomberg:

The financial fraud uncovered by the Italian prosecutors in Potenza includes two checks issued through HSBC Holdings Plc in London for 205,000 pounds ($325,000), checks that weren’t backed by available funds, the prosecutors said. As part of the probe, fake bonds for $2 billion were also seized in Rome.

HSBC spokesman Patrick Humphris in London declined to comment when contacted by telephone.

Phony U.S. securities have been seized in Italy before and there were at least three cases in 2009. Italian police seized phony U.S. Treasury bonds with a face value of $116 billion in August of 2009 and $134 billion of similar securities in June of that year.

The U.S. Secret Service averages about 100 cases a year related to bonds and other fictitious instruments.

As a reminder, total US debt in circulation is just over $10 trillion. So if the allegedly "fake" bonds were sufficiently threatening to put international financial stability at risk, just what is going on here?
Some more from the BBC:

US officials confirmed that the bonds were counterfeit.

Fake US securities have been seized in Italy before and there were at least three cases in 2009.

But this case is on a different scale to previous investigations as the fake bonds have a value equivalent to almost half of the entire US debt pile.

"Everything began with an investigation into mafia clans in the Vulture-Melfese area in the southern Basilicata region," said Giovanni Colangelo, the head of the prosecutor's office in Potenza.

Here is what the bonds look like:

And here is where they were kept:

First Germany, Now Austria Demands An Audit Of Its Offshore Held Gold

First it was Germany, now another AAA-rated European country is starting to get concerned about its hard assets.
Overnight Bloomberg reported that following in Bundesbank's footsteps, Austria will audit its gold reserves located in the UK, which represent 80% of its total gold holdings. This gold reserve reviews held at Bank of England in London will be first conducted by external auditors, Christian Gutleder, a spokesman for the Austrian central bank, says via telephone.
As a reminder, Austria held 80% of its roughly 280 tons of gold in U.K., according to last annual report.
Gutleder explained that the Central bank has checked its reserves regularly in the past, adding that gold reserves haven’t changed since 2007. Which begs the question: why check them now then? 
According to the official explanation that review comes after euro-skeptic Freedom Party demanded more transparency, repatriation of reserves. Perhaps it is time to rename the Euroskeptic party into the "we doubt our gold is where you say it is" skeptics. A better explanation was provided by the Austrian Trend magazine, which said that "the measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold."
Joking aside, with Euroskeptics across Europe ascendent, we wonder which central European nation will be the first to uncover that its gold is no longer where it is supposed to be (that most certainly includes the Banque de France).
Some more color from Goldreporter.de:

Austria is planning to send auditors to the Bank of England in order to verify the existence of Austrias gold reserves stored in british vaults.

The Austrian accountability office will sent a delegation to London in order to check on Austrias gold reserves stored in vaults at the Bank of England. This is reported by Austrian magazine Trend. The measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold.

“I acknowledge the request. Any grocery store is obliged to do inventory once a year. It is the only way of getting rid of these unreasonable allegations”, Ewald Nowotny, Governor of the National Bank of Austria tells Trend.

Austria officially owns 280 tonnes of gold of which 17 percent are kept in vaults inside the country. Around 150 tonnes are estimated to be stored in London.

In recent years doubts about the existence and the quality of Germanys monetary gold stored at the New York Fed and the Bank of England were raised by a rising number of skeptics. In January the Bundesbank eventually announced plans to repatriate most of Gemanys gold reserves until 2020.

So first Germany (which at this rate may repatriate its gold held in New York, London and Paris some time in the year 3000, now Austria... Who's next to confirm that all those doubts about infinite rehypothecation of physical gold with countless beneficiaries of paper receivables will be the next conspiracy theory to become conspiracy fact, after last week's surprising announcement that Barclays (the first of many) had manipulated paper gold prices on at least one occasions in the past decade.

40% of EU citizens can't afford a vacation

Taking one week off from work per year is now considered a luxury for European workers.

According to data from Eurostat, four out of ten EU citizens don't have the money to take one week off and spend it anywhere else than at home.

The data also shows that even in the richer north, a major part of the population has great economic problems and is on the edge of poverty. In Sweden, 10% of the population will have to skip a vacation, compared to 14% in Denmark, 17% in the Netherlands, and 22% in Germany.

The new data, combined with new information from the German statistics office published last week, reports that one third of the German population can't afford to pay unexpected costs for repairs, or for new items, if the amount exceeds around €1,000, has received attention in German media.

BlackRock CEO says leveraged ETFs could "blow up" whole industry

BlackRock Inc Chief Executive Officer Larry Fink is pictured at a business roundtable meeting of company leaders and U.S. Republican Presidential candidate Mitt Romney in Washington in this June 13, 2012 file photo.

Credit: Reuters/Jason Reed/Files

(Reuters) - BlackRock Chief Executive Officer Larry Fink said on Wednesday that leveraged exchange-traded funds contain structural problems that could "blow up" the whole industry one day.
Fink runs a company that oversees more than $4 trillion in client assets, including nearly $1 trillion in ETF assets.
"We'd never do one (a leveraged ETF)," Fink said at a Deutsche Bank investment conference in New York. "They have a structural problem that could blow up the whole industry one day."
Fink spoke during a conversation with Deutsche Bank co-CEO Anshu Jain in a broader discussion about regulating financial companies. ProShares, a leading leveraged ETF firm, disagreed with Fink's remarks.
"Leveraged ETFs are well regulated, transparent products and there is no credible evidence that they have any harmful effect on the markets or our industry," said Tucker Hewes, a spokesman for ProShares.
Leveraged ETFs account for 1.2 percent of the $2.5 trillion in global ETF assets under management. At the end of April, there were nearly 270 leveraged ETF funds with $30.3 billion in assets, said Deborah Fuhr, managing partner of ETF research firm ETFGI LLP. A leveraged ETF uses financial derivatives and debt to amplify the returns of an underlying index. Some leveraged ETFs have become more aggressive, ramping up risk and potential returns, as the ETF industry gains popularity with individual and institutional investors.
Leveraged ETFs have attracted $1.8 billion in net new assets during the first four months of 2014, Fuhr said.
They are showing up more as buy-and-hold investments in the portfolios of retail investors, as financial advisers grow more comfortable recommending them, and first gained a foothold among traders who wanted an investment vehicle to make fast and enhanced bets on big index moves or the direction of gold prices, for example
Last year, when the Standard & Poor's 500 Index rose 32 percent, the $348 million Direxion Daily S&P 500 Bull 3x Shares ETF gained 118.9 percent, or nearly quadruple the S&P 500's gains.
Last month, Direxion Funds launched two leveraged ETFs with three times exposure to the daily direction of gold prices. Direxion Daily Gold Bull 3X Shares ETF, for example, seeks 300 percent of the daily performance of the Comex Gold Futures benchmark.
The industry's largest leveraged ETF is the ProShares UltraShort 20+ Year Treasury, which has about $4 billion in assets.
Fink said he believes regulators should focus on the structure of financial products.
"If you want to create a safer and sounder marketplace, it has to be at the product level," Fink said.
U.S. Securities and Exchange Commission staffers have issued warnings about leveraged ETFs, though no action has been taken to curb their availability. Regulators say individual investors may not realize that the investment products are designed to achieve their performance objectives on a daily basis rather than over the long term.
(Reporting By Tim McLaughlin; Editing by David Gregorio and Tom Brown)

Russia invites Argentina to BRICS summit, ratifies support in Malvinas case

Source: BAH(Argentina)

Foreign Minister Héctor Timerman met in Moscow with his Russian counterpart Sergi Lavrov who confirmed a formal invitation to Argentina to take part in a BRICS summit to be held in Brazil next month. The Kremlin also ratified its support to Buenos Aires in its long-standing dispute against the United Kingdom over the sovereignty of the Malvinas Islands.
According to official reports, Timerman “thanked very specially the ratification of Russia’s support” to Argentina which has been calling London to abide by the UN resolutions that urge both parties to sit at the negotiating table and discuss the sovereignty of the British-seized territories.
Meanwhile, Levrov’s office confirmed the invitation to Argentina to attend a summit of the so called BRICS countries – Brazil, India, China, Russia and South Africa -, in social media. Furthermore, minister Levrov said Russian leader Vladimir Putin will likely meet with President Cristina Fernández de Kirchner and other Latin American heads of state during Putin’s upcoming visit to the region.
Today’s gathering took place at the Spiridonovka Palace in Russia’s Foreign Ministry where Argentina’s Timerman assured the “strategic association” between both countries “is based in a common vision about the essence of international relations, values and objectives of common well-being that both nations are building.”
The officials were reported to have discussed both the global and regional situation, “assuming that international conflicts have a sustainable solution” if political leaders work toward “the strengthening of a solid multilateral system based in cooperation and mutual collaboration and the non-intervention in states’ domestic affairs through economic, political or military means.”
Buenos Aires informed as well that Timerman “stressed Argentina’s position against double-standard” messages, alluding to the condemnation of Western powers of the referendum recently held in Crimea while same sectors supported the 2012 voting in the Malvinas Islandas where inhabitants there reaffirmed their decision to remain British.
At the Moscow gathering, Héctor Timerman and Sergi Levrov signed a Joint Declaration over the deployment of weapons, thus ratifying their pro-disarmament and anti-proliferation stance.
“Regarding economic relations, the necessary aspects to continue intensifying bilateral trade, promoting as well investment and joint projects, were also addressed,” it was officially reported, with Minister Timerman highlighting the “growing south-south cooperation Argentina carries out” and “proposing to include Russia in triangular cooperation projects” which Levrov considered “an excellent opportunity for joint cooperation, specially for Latin America and Africa.”
Read More @ Source

3 WTF Charts

Bad breadth, flaccid flow, and bonds bid - what could possibly go wrong?

The negative divergences are mounting...
Breadth is not at all supportive...

h/t Brad Wishak of NewEdge

"Smart money" Flow is decidely the wrong way...


And bonds are well bid...


BTFWTF - it could only be a non-economic indiscriminate buyer of last resort... the desperate to shrink their float and flatter EPS - corporate buybacks.

Current Economic System is “Pure Fiction”

Former Bundesbank Vice-President Recommends Gold, Says Current Economic System is “Pure Fiction”
Anyone who is thinking clearly knows the economic system fostered by central banks is totally and completely out of control.
Repetitive rounds of QE, competitive currency debasement, interest rates at zero, and sponsorship of the internet bubble followed by the housing bubble, followed by the current stock market bubble is proof enough.
So, what I am about to report is really nothing but common sense, except for the fact that it comes from an unusual place, where one does not normally hear such discussions.
Jürgen Stark, former vice president of the Bundesbank, and also former chief economist of the ECB (unofficial title) says “The System is Out of Control“. Via translation from Libre Mercado, here are a few snips.

Stark, until recently one of the big hawks central bank of Germany for his fierce defense of monetary orthodoxy, resigned in late 2011 for his outright rejection to the purchase of government bonds by the ECB launched the president of the institution Jean Claude Trichet. Since then, Stark has used his rare, but valuable public appearances to warn of the risks associated with the current policy of central banks to the crisis.
In a conference organized by the Ludwig von Mises Institute in Germany, recommended to protect the attendees directly against a probable collapse of the global monetary system. Stark spoke openly.
Stark noted that central banks, including the ECB, “have completely lost all ability to control and perspective on the economic situation.”
The monetary system was saved in 2011 through concerted action by major central banks worldwide. But, according to Stark, the whole system is “pure fiction”. The monetary authorities have been groping since 2008 to avoid a second Lehman Brothers, but if happen, “the system will not survive,” he warned.
The problem is the monetary model itself. That is, the printing of paper currency without real backing and the multiplier by which the commercial banks can expand credit-uncontrolled without prior savings. Stark recommended allocating part of this fictional savings to investment in traditional “safe havens” such as gold or silver.
Also, in another lecture delivered last week in Paris, Stark noted that the fragile recovery in Europe is not due to the absence of monetary and fiscal stimuli (low rates, debt purchase, etc..) and (more government spending) but the slow deleveraging and lack of structural reforms.
Far from helping, the loose monetary policy of the ECB is hampering the recovery, as advanced free market on multiple occasions. The key to growth, create jobs and end the crisis on solid foundations, as Stark, is to increase competitiveness. And to do so, “we must continue gaining flexibility. Progress has been made, but still not enough. The situation has improved, but the crisis is not over.”
“the probability of default, as is reflected in the markets are too low,” he added. The expert was critical of the downside risks caused by the fall in spreads and insurance against default (CDS), as attributes, especially the artificial ECB action.
“Capital appreciation has grown stronger euro. But the crisis markets are distorted. We should not be too happy with what happened,” he mused.

System is Pure Fiction
Stark is preaching to the choir, but it is appreciated. One does not normally hear such statements from central bankers or even ex-central bankers.
That said, his statements would carry more weight if he was still with the Bundesbank. I wish Stark never left.
Supposedly Stark Left for Personal Reasons but it’s easy to discern he was fed up with being the only member of the ECB with a clue.
You can only beat your head against the wall so many times before you lose all sense of hope and finally your mind.
Original Source: MISH’S Global Economic Thend Analysis

US Food Inflation Running at 22%

Chriss Street writes for Breitbart:

After five years of the federal government telling the public that despite a $3.5 trillion increase in monetary expansion, the inflation rate is below +2%, the Department of Agriculture (DOA) just warned the American public that the consumer price index for food is up by 10% this year.
The DOA tried to blame food inflation on the drought conditions in California, but last year’s drought was worse and food prices fell by -6%. The real problem is Federal Reserve monetary stimulus is stimulating inflation. I reported in "Food Price Inflation Scares the Fed” two months ago that commodity food costs were exploding on the upside. Given the lag in commodity costs impacting prices on grocery store shelves, annual U.S. food inflation is now running at +22% and rising.

Directive Outlines The President To Use Military Force Against Domestic Unrest

Japanese retail is in a downward spiral and its not due to weather. Initial jobless claims in the US are near 2007 levels. GDP was revised and shrank by -1%, exclude Obamacare and it fell to -2%. New gun bill being proposed to tell on your friends and relatives if they seem angry or violent. New information about a directive that give the President the authority to use military force on US citizens. US troops in Afghanistan are being replaced by contractors. Moscow and Beijing will use national currency to pay for goods. The propaganda is now being pushed that Iran has been cyber spying and attacking the US, it even mentions the attacks on power grids. Be prepared for a false flag.

Gold Vulnerable To Manipulative Sell Off In June – Bargain Hunters Delight

by GoldCore

Today’s AM fix was USD 1,254.00, EUR 921.04 and GBP 749.33 per ounce.
Yesterday’s AM fix was USD 1,254.00, EUR 921.04 and GBP 749.82 per ounce.

Gold fell $2.85 or 0.2% yesterday to $1,255.29/oz. Silver slipped 0.03 cents or 0.2% to $18.99/oz.

Gold suffered its fourth straight losing session yesterday leading to a 4% fall for the week.

Gold in US Dollars – 1 Minute, 5 Days – (Thomson Reuters)

Gold bullion in Singapore traded sideways around the $1,258/oz level prior to a bout of concentrated selling at the open in London (0800 BST) saw gold quickly fall from $1,257/oz to $1,253/oz.

The move lower this week would appear to be technically driven as there was no negative headline data, obvious reasons for price falls or indeed evidence of physical gold selling. Indeed, the mood music for gold is quite positive – especially the worsening situation in Ukraine and attendant geopolitical risk.

One plausible factor for gold’s weakness is the ever increasing, “irrationally exuberant” appetite for risk globally which may be impacting gold. Yesterday, the poor U.S. GDP number, which was much worse than analysts had forecast, did not lead to the bounce in gold that one would have expected. Nor did it lead to weakness in permanently levitating stock markets which continued on their merry way higher.

The simplistic view that the U.S. economy’s poor performance in the first quarter is purely weather related remains prevalent. This is despite increasing evidence that the U.S. consumer is struggling and close to being tapped out. The latter scenario is likely the case which will prove bullish for gold in the long term.

Gold premiums in India almost halved this week on the belief the new government will ease restrictions on imports of the precious metal thereby increasing demand. Indian premiums fell to $30-$40 an ounce over the global benchmark, from $80-$90 last week, dealers told Reuters.

In China, gold premiums ticked slightly higher this week but remain at  around $3 per ounce. Chinese premiums have remained depressed this week, which suggests demand in China has not yet picked up on this week’s price weakness.

Special Notice Regarding Reduction In Premiums: Gold Bars Reduced To 1.6% Premium - Click Here

Technically, gold is vulnerable to a further fall to test what appears to be a double bottom between $1,180/oz and $1,200/oz. This is particularly the case in the very short term, in other words, today and early next week.

It is worth considering seasonal trends and June is traditionally one of the weakest months for gold (see heatmap). Gold’s 5 year and 10 year average performance in June is negative.

Gold Seasonality Chart – Heatmap (Bloomberg)

It is also worth considering last year’s performance. Gold saw massive concentrated selling in April and further weakness in May – from $1,476/oz to $1,386/oz. Then June saw gold fall again, from $1,386/oz to the $1,200/oz level at the end of June which marked the end of the 2nd quarter, 2013.

This is a time when traders, investors and the media take stock and evaluate the relative performance of various assets. If one were attempting to paint the tape through price manipulation, one would aim to have gold lower at mid year and year end. This is exactly what happened.

This had the effect of greatly reducing “animal spirits” in the gold market and snuffing out the potential for rallies given the very significant global demand that was occurring, especially in China.

Gold then bounced sharply in July and August prior to giving up some of those gains in September, trading sideways in October and then trading lower in November and December prior to the what appears to be the second bottom – exactly at year end 2013 (see chart below).

Gold in U.S. Dollars, Daily, 2 Year – (Thomson Reuters)

Momentum is a powerful force and the short term trend is down and therefore further weakness in the coming days and in June is quite possible.

However, gold’s 14-day relative-strength index fell to 31.2 yesterday. The RSI is an important tool in a traders arsenal. These are the lowest levels since December and being near the 30 level indicates we are due a bounce soon.

Gold frequently sees weakness and bottoms soon after options expiration which took place Tuesday. Also, $1,200 should remain support as the $1,200 level is the average cost to produce an ounce of gold globally.

The fundamentals are continuing and heightened geopolitical risk and robust global demand as seen in the recent World Gold Council data. Chinese demand has fallen somewhat in recent weeks but there is now the possibility of the return of Indian gold demand with the newly elected Modi government in India.

While gold is vulnerable technically to further weakness, its fundamentals remain sound. Some of the important gold related stories and developments this week which could yet propel gold higher include Putin’s declaration that Russia and China need to secure their gold and foreign exchange reserves and China’s plans to launch a physical ‘Global Gold Exchange’.

Overnight, ANZ Bank confirmed the story that it is seeking participation in the new international gold exchange in Shanghai. ANZ China CEO was quoted in the Wall Street Journal as saying “we are very keen to play a role in such a setup.”

Currency wars are heating up again and some of the key developments in recent days and weeks are gold bullish.

In recent weeks, Russia dumped a record amount of US treasuries and Russia’s central bank buys 28 metric tonnes of gold worth $1.4 billion in April alone. Last week Russia and China announced a landmark economic agreement which includes a natural gas deal worth $400 billion and increasing use of their own currencies in bilateral trade.

This week Putin said Russia and China need to secure their gold and currency reserves and Russia set  up the Eurasian Economic Union with Belarus and Kazakhstan. Armenia are to join within a month and Kyrgyzstan within a year.

This comes against a backdrop of China openly calling for a de-Americanization of the world in recent months and China, Russia, Iran and 21 other countries signing an agreement bolstering cooperation to promote peace, security and stability in Asia.

China is buying natural resources and hard assets globally and investing in infrastructure in Africa and West Asia in order to extract these natural resources. China is importing unprecedented amounts of physical gold and senior Chinese policy makers and officials have gone on record regarding how they view gold as in important strategic and monetary asset.

Thus, while gold is vulnerable to weakness in the short term, the smart money is again accumulating and will use this latest bout of selling to acquire gold at what will in time be seen as bargain prices.

All fiat currencies including the dollar, euro and pound are vulnerable to devaluations. As one astute commentator said on Twitter this week, being able to acquire cheaper gold given the state of the world today is “like being given discounts on life-rafts on the Titanic …”

Special Notice Regarding Reduction In Premiums: Gold Bars Reduced To 1.6% Premium - Click Here

First Detailed Swiss Trade Gold Stats: Asia Is Main Export Market

by Gold Silver Worlds

The data on Swiss trade in precious metals for January 2014 have been broken down by country for the first time in 30 years, report swissinfo.ch and vaterland.li. It shows that Switzerland imports most of its gold, silver and precious coins from the UK, while its main export markets are in Asia. Total exports were over 5.3 billion euros in January, while imports were worth almost 6 billion euros.

The press release by the Swiss Federal Customs Administration has the breakdown by country. Source: Swiss Customs press release, exchange rate via oanda.com.

The data also shows that that trade in gold bars grew rapidly after around 2005, and that Switzerland now exports gold bars worth over CHF 100 billion a year. Swiss trade in gold bars, billion CHF. Source: Swiss customs press release.

No explanation is given in the press release for this sudden growth since 2005. Given that Switzerland is a commodities hub and not a producer there was most likely a change in trade regulations or taxation around this time.

Original source: SNBCHF.com

Gold & Silver Bears In Command, Technical Posture Deteriorating: Wyckoff | Kitco News

Kitco News speaks with Jim Wyckoff, following continued pressure on gold, to see where he thinks the metal is headed. “Near-term technical posture of the gold market has deteriorated significantly,” he says. “The bears are still in firm technical command of both gold and silver.” Wyckoff also says that although tensions in the Ukraine have simmered down, there is still violence there that traders should keep an eye on. Tune in now to hear his market ratings as well as key levels for both gold and silver. Kitco News, May 29, 2014.

Capitalism’s Image Problem

Binoy Kampmark

Capitalism has always had an image problem. A public relations make-over had to be done of its rather dark image during the Cold War. The term “free enterprise” was preferred, giving the impression that accumulating capital and chasing it was a matter of initiative and creative impulse.  With the end of the Cold War, the chest thumping began.  De-regulation became de rigueur. The 1990s was the Greenspan-Clinton era, one where the very idea of institutional control over capitalist excesses was not merely to be frowned upon, but dismissed altogether. Accumulation became synonymous with creativity.

The City of London has been the focal point of such supposed creativity.  When the bulging and burgeoning bubble burst towards the end of 2007, the City, with its bankers and traders, became the focal point of ire and consternation. Banks were socialised. Bailouts were arranged. Reforms were suggested and financial regulations imposed.  Laws in Britain were passed increasing jail terms for up to seven years.

The industry has been less than enthusiastic. According to Christine Lagarde, managing director of the International Monetary Fund, “a fierce industry pushback” by the financial sector has retarded the drive to reform.  Instability remains.  Financial misconduct continues.  “Some prominent firms have been mired in scandals that violate the most basic ethical norms.”  Listening to Lagarde at the inclusive capitalism conference in London, one might think that even the term “reform” might have been far-fetched, given that the industry had “not changed fundamentally in a number of dimensions since the crisis.”

In a broad sense, Lagarde was meditating on the subject of “inclusive capitalism” as problematic.  When the chief of the IMF, an organisation often brutal in its account keeping, ponders such terms, something is moving about in the waters.  “So is ‘inclusive capitalism’ an oxymoron? Or is it the response to Marx’s dire prediction that will lead to capitalism’s survival and regeneration – to make it truly the engine for shared prosperity?”

Signs Of Fading Confidence In The Central Banking Premise

The US stock market indices are at all-time highs.  Is confidence strong in both the US dollar and the stock markets?  Or is it confidence that the Federal Reserve, via newly “printed” dollars, will support the market?
The global monetary system is based upon confidence in the full faith and credit of insolvent governments, but not on hard assets like gold or oil.  That should encourage people to question the credibility and viability of fiat currencies.
There has been much discussion about the amount of gold that remains in western central bank vaults – real physical, unencumbered gold.  Based on exports, Asian demand, shipments via Switzerland, imports into Hong Kong, and a dozen other sources, there is good reason, in my opinion, to question how much gold remains in London, New York, and Fort Knox.  Confidence in the credibility of bankers, central banks, and governments is weakening.
Does Germany still confidently believe their gold remains in the vaults at the NY Fed after being told it would take 7 years to return that gold?
What about the request from Austria to audit their gold held at the Bank of England?  Would such a request occur if confidence in central banks was solid and unshakable?  Is there good reason to question that the Austrian gold is actually in the vaults?  Or has it been shipped to Switzerland, melted down, and sold to China?  We may never know but such unanswered speculation does not inspire confidence.
The unwillingness of central banks and governments to audit the physical gold bars and publish the results also does not inspire confidence.  Inquiring minds ask “why?”
Rob Kirby: “There’s been a breakdown in trust (between central banks) …. This is now a distinct pattern, and I expect it will accelerate as time goes on.”
What about the confidence in the US dollar in creditor countries like China, Japan and Russia?  Is declining confidence in the dollar the explanation for why the Federal Reserve has been buying more than half of all Treasury debt?  What would happen to the dollar if the Fed were not buying most of that Treasury paper?  What will happen to the purchasing power of the dollar, euro, and yen if their respective central banks continue “printing” currencies?
Governments in the US, Europe and Japan are spending their unbacked digital currencies as if those currencies can be created in nearly infinite quantities.  Of course they can be created easily, but what will be the cost to their economies, the savings of their citizens, and confidence in the viability of their currencies?
Interest rates are at generational lows.  The US 10 Year Note yields about 2.6%.  That sounds like investors maintain a great deal of confidence in both the dollar and the US government.  Or is there another story – such as the Fed buying most of the debt and suppressing interest rates?  Do YOU have enough confidence in the dollar that you would lend actual savings to the US government for 10 years at less than 3% per year?  What about lending to Spain, Italy, Greece and Japan?
Confidence is fragile – slowly earned and quickly lost.  Are we losing confidence in:

• Fiat currencies, backed by nothing but faith and credit;
• Central banker assurances that the gold is still there;
• Economies running on fumes and supported by central banker bond monetization;
• Foreign policy that alienates foreign governments;
• Promises, promises, and more promises;
• Quantitative Easing and “printing money?”

How much confidence do YOU have in digital Euros versus gold coins in your hand?

GE Christenson  |  The Deviant Investor

U.S. economy shrank at 1 percent pace in first quarter

 

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The US economy shrank for the first time in three years in the first quarter, underscoring its struggle to gain momentum nearly five years after exiting recession, data showed Thursday.
Economic output as measured by gross domestic product (GDP) fell at an annual rate of 1.0 percent in the first quarter, the Commerce Department said, sharply revising lower the initial estimate of 0.1 percent growth.
The Commerce Department’s revision was much worse than analysts expected; the consensus estimate was a 0.5 percent decline.
It was the second time the world’s largest economy has contracted since officially exiting severe recession in July 2009. GDP fell 1.3 percent in the 2011 first quarter.
“Negative GDP growth is rare in expansions, declines of more than a couple of tenths rarer still and two declines of one percent in one expansion unheard of until now,” said Chris Low of FTN Financial.
“It’s a reminder that the growth trajectory is flatter than normal, a consequence of an ongoing credit squeeze that has dragged on so long it is easy to forget how unique it is compared to past decades.”
The start of the year was marked by unusually severe winter weather in large parts of the country that disrupted transportation and kept many Americans hunkered indoors.
Analysts view the slump as largely weather-related after the economy grew 2.6 percent in the 2013 fourth quarter.
The Commerce Department said the first-quarter weakness was more than accounted for by a marked decline in inventory investment, especially by motor vehicle dealerships.
Inventory investment was revised down, particularly in retail trade, manufacturing, mining, utilities and construction.
Stripped of the inventory investment factor, GDP grew 0.6 percent in the first quarter, slightly below the 0.7 percent gain initially estimated.
Imports, which subtract from GDP, were revised higher.
Also contributing to the fall in GDP were declines in exports, business investment, state and local government spending and housing investment.
“Ouch. The bad news is that the headline GDP number is worse than consensus, but the good(ish) news is that almost all the hit is in the inventory component,” said Ian Shepherdson of Pantheon Macroeconomics in a research note.
- Second-quarter rebound seen -
Analysts said the drop in inventory investment sets the stage for more investment in the second quarter. “We still think Q2 growth of about 3.0 percent is a decent bet,” said Shepherdson.
The White House noted the first-quarter downward revision was due almost entirely to the lower estimate for the “highly volatile” inventories category.
The updated data show the economy “continues to recover from the worst recession since the Great Depression,” said Jason Furman, President Barack Obama’s chief economic adviser, in a statement.
“The president will do everything he can either by acting through executive action or by working with Congress to push for steps that would raise growth and accelerate job creation,” he said.
The Commerce Department also reported corporate profits tumbled 9.8 percent in the first quarter from the fourth quarter, the largest decline since the fourth quarter of 2008 in the midst of the financial crisis.
Corporate profits had increased 2.2 percent quarter-over-quarter in the final three months of 2013. Over the last four quarters, they were down 3.0 percent.
The Federal Reserve has shrugged off the weak first quarter as largely weather-related as it continues to taper economic stimulus amid the modest recovery.
The Fed has lowered its asset purchases from $85 billion a month in December to $45 billion in May in a measured series of $10 billion cuts, with the expectation the quantitative-easing program will be exited before the year ends.

Inflation Heating Up, Fed Should Raise Interest Rates Soon

On today’s show: Signs that inflation is heating up in the U.S. economy, and why the Fed is unlikely to hike rates in time to counter it. Plus, Brian recaps Tuesday’s sell-off in the gold market.