Wednesday, December 8, 2010

Collection Call

Dave Galland, Managing Director
The Casey Report

Hello, is this Japan I’m speaking to?

Yes. (tentative). May I ask who’s calling?

It’s the ACME collection agency. We’re calling today because of your outstanding obligations.

Is there a problem?

We’re hoping not, but your creditors are beginning to worry you won’t be able to keep up with your debt service.

Oh. Why the sudden concern?

It was an item in a recent RMB Currency Trader. And I quote:
    The Land of the Rising Sun has the dubious distinction of sporting the highest debt-to-GDP ratio of any industrialized nation in the world. Now greater than 200%, Japan’s relative debt load is bigger than that of Greece, Spain, Portugal or the US. Japan needs to borrow over 50% of GDP this year just to stay afloat, according to the International Monetary Fund (IMF), and its financing needs are expected to reach almost 60% of GDP next year. (See graph below.) Its strength has been somewhat befuddling, especially considering this growing burden of debt. Why has the Japanese currency been so strong? Because despite all of the yen’s problems, Japan runs a trade surplus. Traders view that surplus as a source of funding which can be used to pay down Japan’s skyrocketing debt, making the yen seem like a “flight-to-quality” currency despite appearances. However, Japan’s strong currency is beginning to affect Japan’s ability to export. Competition from China and rising Asian powers such as Vietnam is also beginning to take its toll. Japanese industrial output fell 1.9% in September after dropping 1% in August.

Care to comment, Japan? Japan? Are you there? Hello? Hello?

David again. As you can see from the chart (above), even though Japan has managed to stay off the radar of the mainstream financial media, the country’s economy is in a real mess. And, for the record, the U.S. is in no great shakes, either, not when you consider the neighborhood it’s in, in the above chart.

As we have discussed at length in The Casey Report, while the eurozone is back in the soup just now, Japan could very well be the next black swan to lay an egg on the global economy.

Heretofore, Japan has been able to avoid the worst consequences of its many debts and obligations – but that may soon change. In addition to the exports referenced above, the country’s high internal savings rates have provided crucial support for the Japanese government’s energetic issuance of debt at low rates. But as you can see in the chart below from our own Bud Conrad, those internal savings – like exports – are now in decline.

The upshot of this is that the Japanese government will increasingly have to turn to external buyers to finance its many obligations. That, in turn, will require competing with sovereign debt offering better yields.

Japan’s extreme borrowing needs over the next couple of years are, at this point, locked in – which almost certainly means that Japanese interest rates will rise – potentially by a lot – relative to the near zero yields now on offer.

Yet it should be obvious from the IMF data that Japan simply can’t afford to have the cost of servicing its massive debt rise even a little, let alone a lot. Which is another way of saying that something has to break, and soon.

Another way to view the situation is by looking at the trend for yields being offered by Japan’s largest competitor for new borrowings, the U.S. As you can see in chart here – which ran in today’s edition of Things That Make You Go Hmmm – yields are clearly moving up.

It all begins to get a bit circular when you consider that Japan’s aggressive financing needs make it likely the country will have to dial back its participation in future auctions of U.S. Treasuries. It would not surprise me if they followed China’s lead in reducing the U.S. paper now held in reserve. That, in turn, could lead to even higher U.S. rates, and even higher rates for Japan. Or it could lead to more monetization of U.S. Treasury debt by the Fed, which in turn leads to Mr. Market demanding higher yields to compensate for the rising potential of inflation.

This Gordian Knot of the interconnected global financial system makes it essential for investors to not only monitor your own house for signs of fire, but to watch your neighbor’s as well. In the case of Japan, smoke is starting to leak out from under the door.


To figure out the correct moves for your investment portfolio, it is not enough to focus on the domestic economy. In today’s interlinked global economy, the troubles of one country can spread like wildfire to others. Every month, The Casey Report analyzes big-picture trends to glean the best profit opportunities for subscribers. Try it for 3 full months, with money-back guarantee.

« Geithner Announces Plans To Sell Remaining Citigroup Shares At $12 Billion Profit »

Dean Baker: Don't believe the Treasury hype...

And for the record, Citigroup received $45 billion in TARP funds, a $306 billion taxpayer guarantee of assets, billions in FDIC-backed debt, ultra-cheap access to the credit markets by virtue of being government owned, hundreds of billions from TALF, TAF and other Fed programs at near-zero rates, plus billions from the Fed's ZIRP policies, and QE purchases. Is there anything I've missed?

This theme of lying about bailout paybacks is becoming a habit for Geithner and his corporate Treasury pets:


Source - AP

WASHINGTON — The government said late Monday it had reached a deal to sell its remaining holdings of Citigroup common stock and will end up turning a profit of $12 billion on its bailout of the giant bank.

The Treasury Department said that a final offering of about 2.4 billion shares of Citigroup Inc. common stock had been priced at $4.35 per share. With the proceeds of the sale, the government will have realized $57 billion on its bailout package for the big bank.

Citigroup received $45 billion in taxpayer support late in 2008 in one of the largest bank rescues as the government struggled to contain the worst financial crisis to hit the country since the 1930s.

Of the $45 billion in taxpayer support provided to Citigroup, $25 billion was converted to a government ownership stake that the Treasury has been selling off since last spring. The bank repaid the other $20 billion in December 2009.

Treasury said that with the pricing of the last 2.4 billion shares of common stock on Monday, it would receive $31.8 billion from the sale of common stock plus another $2.9 billion in interest and dividends.

The $57 billion total also includes $20 billion from Citigroup's December 2009 repayment of TARP money and another $2.2 billion from the sale of trust preferred securities held by the government.

"By selling all the remaining Citigroup shares today, we had an opportunity to lock in substantial profits for the taxpayer and avoid future risk," said Tim Massad, the Treasury official who heads up the bailout program.

"With this transaction, we have advanced our goals of recovering TARP funds, protecting the taxpayer and getting the government out of the business of owning stakes in private companies," Massad said in a statement.

Treasury had disposed of about 5.3 billion shares at an average price of $4.05 before Monday's pricing of the remaining shares. With the pricing of $4.35 for the shares offered on Monday, Treasury's average price for its entire 7.7 billion shares of common stock will turn out to be $4.14.

Monday's deal, for which Morgan Stanley acted as bookrunning manager, is expected to close on Friday, Treasury said. Citigroup is paying the underwriting fees.

Citigroup common stock closed at $4.45 in trading Monday and has ranged from a low of $3.11 to a high of $5.07 over the past 52 weeks.

Continue reading...


More detail is here:

At least we know Jim Rogers loves Tim Geithner, right..?...


Crude jumps above $90 on cold snap, dollar

NEW YORK - U.S. crude oil futures prices rose sharply on Tuesday, pushing above $90 a barrel for the first time in 26 months as cold weather boosting fuel demand and the dollar's weakness kept oil lifted.

Optimism that Ireland will pass an austerity budget on Tuesday helped lift the euro against the dollar.

U.S. stock futures were boosted by a deal struck by U.S. President Barack Obama with Republicans to extend Bush-era tax breaks for two years.

Northwest and northeast Europe are expected to continue to have below normal temperatures and above normal energy demand the next several days.

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Take-Away Bank Day calls for Cash Run of Mass Destruction

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"Printing Money Never Worked In History" - Jim Rogers on CNBC 12/07/10

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« Jim Rogers: The Federal Reserve Is A Pawn Shop (CLIP) »

Video: Jim Rogers - Recorded September, 2010

"We have Bernanke who is running the Federal Reserve who does not know what he is doing. We have a very serious problem on our hands and it's gotten much much worse. The man is taking $400 billion on to the Federal Reserve balance sheets -- of dicey loans, bad debt. I mean he is turning the Federal Reserve into a pawn shop. You have something bad that you cannot sell, take it to the Federal Reserve. He'll lend you treasury bonds against it. Some day somebody has to pay for this and you know who this somebody is -- my little girl, you, me. I mean it's gonna be the American taxpayer that's gonna have to pay for this. And it's gonna cause many many many more problems for the American economy for all of us."

MUST SEE: Gentle Jim Rogers brings the Asian Pain down upon Geithner...


« Chris Whalen: "We Understand Bank Of America's Problem - They Are Completely INSOLVENT!" (Video) »

Video - Chris Whalen - Recorded yesterday

Much to absorb, though it's not entirely new material if you follow Whalen.

  • "We understand what the problem is for Bank of America. They are insolvent. They still have huge losses to take on their mortgage book, and balance sheet. They also have to deal with everyone wanting them to buy-back mortgages."
  • "By this time next year the majority of home sales will be involuntary - more foreclosure sales than normal sales."
  • "We haven't seen the peak of foreclosures yet. That will come 12 months from now."
  • "California will default on its debt."
  • "A whole slew of sovereign defaults in Europe. There is no growth."
  • "QE and QE2 are just hidden subsidies for the big banks."
  • "Bank of America is in the worst shape of any U.S. bank."
  • "Bank of America senior bondholders will have to take a hit, convert debt into equity."
  • "There is no doubt they will have to be restructured."
  • "Ireland is small. Wait until we get to Spain."


« 32 Seconds Of Nassim Taleb Kicking Bob Rubin's Ass (Video) »

Video: Taleb slams Rubin and Citigroup...

  • "It's not Socialism, it's not Capitalism. It's the worst of both."
  • "The truck driver is paying taxes to subsidize Robert Rubin's bonus."

The Black Swan, Nassim Taleb points out how taxpayers paid for the losses at Citigroup AND subsidized Bob Rubin's bonuses. Taleb also brings up two of my favorite topics of conversation: pitchforks and clawback. OK, I imagined the pitchforks. But why SHOULDN'T we claw back Bob Rubin's bonuses, Taleb demands to know.

Good question, Mr. Taleb. I'm sure we could think of other candidates for clawback, too: Paulson, Thain, Prince, O'Neil, Casanno, Blankfein, et al.


'Irish people owe nothing to banks & billionaires - refuse to pay now!'

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Fortress Islands: US pushes Koreas to War?

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Rage Against Cash Machine: Bank Run Day take-away to trash financial terror?

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Athens on Fire: Cars torched in fierce Greece street battle

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Euro at risk of collapse, says Treasury watchdog as economic crisis sweeps Continent

  • Eurozone finance ministers insist £635 billion bailout fund is big enough to deal with debt crisis
  • Irish budget debate begins in Dublin
  • Debt-laden government's £5 billion cost-cutting package to slash social welfare

The Euro is at risk of collapse as economic crisis sweeps the continent, Britain’s independent Treasury watchdog warned last night.

‘General consensus’ is that currency unions ‘eventually fail’, Professor Steve Nickell, a senior member of the Office for Budget Responsibility, told MPs on the powerful Treasury Select Committee.

And the OBR’s chairman, Robert Chote, added: ‘We are not assuming a cataclysmic outcome for the eurozone but, as Steve said, monetary arrangements come and monetary arrangements go.’

Destined to fail? Leading economists point out that currency unions have a history of eventually collapsing

Destined to fail? Leading economists point out that currency unions have a history of eventually collapsing

The admission by the leading economists came as eurozone finance ministers held an emergency meeting in Brussels to discuss possible measures to shore up the single currency.

Greece and Ireland have already been forced to accept bailouts – with Britain making its own £3.2billion direct loan to Ireland.

Warning: Professor Steve Nickell

Warning: Professor Steve Nickell

There are fears Portugal and Spain may be next to go cap in hand for assistance from the EU and the International Monetary Fund.

Professor Nickell added: ‘Of course there is a possibility it will collapse, but at the moment it is not something to which I would assign a high probability.’

Both he and Mr Chote warned that the OBR had not incorporated into its forecasts any attempt at working out what would happen to the UK economy if the euro imploded.

Prof Nickell, a former member of the Bank of England’s Monetary Policy Committee which set interest rates, said he ‘would be quite happy’ to do so ‘if we felt it was a real concern’.

The OBR may have to take into account ‘very low’ growth in the eurozone in its next forecasts before the March 23 budget, he added.

Mr Chote also denied that the OBR’s forecasts for the UK economy were too rosy.

In its report last month it revised upwards its prediction for growth for 2010 to 1.8 per cent from 1.2 per cent.

Mr Nickell added that he believed it ‘very unlikely’ there would be further dramatic falls in house prices.

Meanwhile, top European officials yesterday insisted they have enough financial firepower to deal with Europe's government debt crisis - but they id not rule out increasing the bailout fund in the future.

Jean-Claude Juncker, who chaired a meeting of the eurozone's 16 finance ministers on Monday, said that there wasn't any immediate need to increase the £635 billion financial backstop despite concerns that it just isn't enough.

The fund is for eurozone governments in danger of running out of money.

Relaxed: Chancellor George Osborne, Spanish Finance Minister Elena Salgado and Belgian Finance Minister Didier Reynders in Brussels yesterday

Relaxed: Chancellor George Osborne, Spanish Finance Minister Elena Salgado and Belgian Finance Minister Didier Reynders in Brussels yesterday

'For the time being, there's no need to increase,' Juncker said after the meeting.
The big fear in the markets is that Portugal and Spain will join Greece and Ireland in needing a financial lifeline - and that Europe might not have enough bailout money available to cope.

In May, eurozone governments and the International Monetary Fund set up the giant financial backstop for the currency bloc.

The majority is managed by the European Financial Stability Facility, which can issue up to £332 billion in bonds guaranteed by eurozone governments.

The EU's executive Commission can lend an additional £50 billion, while the IMF has said it would contribute up to £211 billion.

The idea behind the facility was to reassure bond markets that countries would be able to pay - and halt the selloff of government bonds.

Klaus Regling, who heads the EFSF said that Ireland's £72 billion bailout agreed last month will use up less than 10 per cent of the total backstop.

'There are sufficient resources left to deal with other relevant cases,' Regling said.

In Ireland, the Government unveiled the most feared budget in living memory.

The massive £5 billion cost-cutting package slashed social welfare, including jobseekers and child benefit.

A man walks past fresh graffiti in Dublin against the IMF Bailout as Ireland braces itself for today's budget

A man walks past fresh graffiti in Dublin against the IMF Bailout as Ireland braces itself for today's budget

Government ministers' salaries will be cut as the government takes on a four-year battle to restore the state's crippled finances.

Public spending will be reduced by £3.8 billion while taxes will raise an extra £1.3 billion.

Prime minister Brian Cowen's shaky coalition will try to impose the cuts with only a two-seat majority.

But the embattled government received a boost yesterday after an independent TD, whose support is crucial, said he would back the cuts.

Michael Lowry, Tipperary North TD, said he would put the country first despite a potential backlash from his constituents.

The veteran politician said that after talks with the government he was satisfied that the old-age pension would be protected, along with free travel and electricity for the elderly.

Mr Lowry said his fellow backbench independent, Kerry's Jackie Healy-Rae, was also expected to back the budget, due to be unveiled in the Dail by finance minister Brian Lenihan mid-afternoon.

The potentially savage package comes just over a week after the government revealed it was taking an £72 billion bailout from the International Monetary Fund/Europe.

Irish budget

Irish Independent MP Michael Lowry outside Leinster House last night, where he gave a crucial press statement supporting the Government in today's budget

Mr Cowen's crippled coalition government has suffered widespread criticism for the move by a public angry at the perceived surrender of the state's hard-won economic sovereignty.

The six billion euro package is the first phase of a four-year budgetary road map to raise £13 billion and plug the gap in the beleaguered economy.

Opposition party Sinn Fein accused Mr Lowry and Mr Healy-Rae of engaging in the worst kind of parochial politics.

Any potential excise and duty changes, including the price of petrol and alcohol will come into force from midnight and will have to be voted on in the Dail after the budget is unveiled.

The Social Welfare Bill, which gives legal effect to any budget changes in the dole or child benefit, is expected to be voted on by the end of the week while the finer details of the plan will be debated in the Finance Bill in the new year.

The budget marks the fourth time since October 2008 that the Fianna Fail/Green Party coalition government has been forced to introduce harsh measures to tackle the black hole in the public finances.

Lobby groups made a last ditch plea to Mr Lenihan to either save or make specific cuts, with the Irish Heart Foundation calling for a hike in the price of cigarettes.

But businesses said any price jump would lead to a corresponding increase in smuggling and damage retailers.

US-China tensions mount amid widening war exercises

A late night Sunday telephone call between US President Barack Obama and his Chinese counterpart Hu Jintao underscored the mounting tensions between the two countries in the wake of last month’s military clash between North and South Korea.

The White House and the Chinese Foreign Ministry each issued one-sided accounts of the telephone conversation, illustrating the deep gulf dividing Washington and Beijing over the crisis on the Korean peninsula.

The White House statement stressed that Obama had condemned the artillery attack carried out by North Korea on Yeongpyeong Island in the Yellow Sea on November 23, in which two South Korean soldiers and two civilians died. The US president demanded that the North Korean government in Pyongyang “halt its provocative behavior.”

“He urged China to work with us and others to send a clear message to North Korea that its provocations are unacceptable,” the statement said. “The president also highlighted the American commitment to the security of its allies in the region.”

For his part, Hu issued a stark warning. “Especially if not dealt with properly, tensions could well rise on the Korean peninsula or spin out of control, which would not be in anyone’s interest,” Hu was quoted as saying by the Chinese Foreign Ministry.

According to this account, Hu told Obama that China was “deeply worried” about the situation in the region.

While expressing China’s regret over the deaths in the artillery exchange, Hu made no condemnation of North Korea. Beijing has not affixed blame for the incident, which North Korea claimed was provoked by a South Korean military exercise that, according to Pyongyang, included the firing of South Korean artillery on Yeongpyeong Island into North Korean waters.

Yeongpyeong Island lies near the so-called Northern Limit Line, a maritime border that the US military unilaterally imposed at the end of the Korean War in 1953. North Korea has never accepted the division, insisting that the border should lie further south.

A series of military exercises in the region have continued to ratchet up tensions between the two Koreas as well as between Washington and Beijing.

On Monday, South Korea’s military launched week-long maritime live-fire exercises that involve shelling in 29 separate areas in waters off the Korean coast.

The South Korean Joint Chiefs of Staff stated that, while this round of exercises will not include artillery fire in the waters off Yeongpyeong Island, where the military confrontation with the North erupted last month, another live-fire exercise that will include the island is to be staged soon.

South Korea’s new defense minister, Kim Kwan-jin, dismissed North Korean warnings over the new war games. “I don’t care about North Korean responses and they are not worth considering,” he said.

Pyongyang on Sunday condemned the live-fire drills, charging that the South was “hell-bent on the moves to escalate the confrontation and start a war.”

Kim, a former army general, was installed as defense minister after his predecessor resigned amid charges in the media and government that he had not responded aggressively enough to the North Korean shelling of Yeongpyeong.

The new defense minister has issued a series of bellicose statements vowing to retaliate with even greater force against any new North Korean attack. New artillery fire, he threatened, would be answered by the South Korean air force bombing North Korea. “The principles of proportionality and necessity do not apply,” Kim said. “The extent to which we invoke the right of self-defense is until the enemy’s resolve to provoke is eliminated.”

He added, “If North Korea carries out a military provocation targeting our territory and citizens again [we] need to punish them with immediate and powerful reaction until they completely give in.”

Meanwhile, US and Japanese armed forces continued military exercises begun last Friday involving some 40,000 military personnel. The war games, led by the aircraft carrier USS George Washington and its battle group, include the simulated defense of an island—an exercise that seems pointedly directed at China, given the tensions between Beijing and Tokyo over disputed islands in the East China Sea. These tensions boiled over last September following Japan’s arrest of a fishing captain after a collision between his boat and Japanese coast guard vessels.

The exercises were significant for the participation of South Korean military observers. Relations between the two countries have been historically strained. Japan’s 35-year colonial occupation of Korea ended only with the Japanese defeat in World War II.

Tokyo is reportedly also preparing to issue a new rearmament plan directed against China and North Korea. According to Nikkei, the Japanese business daily, the new “National Defense Program Guideline,” the first to be issued since 2004, will call for a “dynamic defense capability” directed at countering China in the East China Sea. It will include proposals for expanding the country’s submarine fleet and increasing its number of warplanes.

Formally Japan’s post-World War II constitution forswears the maintenance of a military, but Tokyo has over the past five years introduced a series of constitutional and administrative changes paving the way for the military buildup of its Self-Defense Forces.

The latest South Korean and Japanese exercises come on the heels of a US-South Korean deployment in the Yellow Sea in which the US carrier battle group also participated.

Meanwhile, Admiral Mike Mullen, the chairman of the US Joint Chiefs of Staff, traveled on Monday to South Korea in another show of military support for the US ally.

Beijing has condemned the military exercises. A statement issued by the Chinese Foreign Ministry last week warned, “Brandishing force cannot solve the issue. Some are playing with knives and guns, while China is criticized for calling for dialogue. Is that fair?”

The Chinese government has called for an emergency meeting of the principals in the Six-Party Talks aimed at the denuclearization of the Korean peninsula—the two Koreas, China, Japan, Russia and the US. The governments of South Korea, Japan and the US have all rejected the proposal, insisting that the talks cannot be resurrected without prior concessions from North Korea.

Instead, the Obama administration convened a meeting in Washington Monday between Secretary of State Hillary Clinton and her South Korean and Japanese counterparts to condemn “provocative attacks from North Korea.”

“We are committed to our partners and we are committed to the preservation of peace and stability in Northeast Asia and on the Korean peninsula,” Clinton said.

Coming in the wake of the three countries’ rejection of the call for the emergency talks between the six-party participants in Beijing, the gathering had the appearance of anti-China bloc.

It was accompanied by sharp anti-Beijing rhetoric from US foreign policy officials.

“The Chinese embrace of North Korea in the last eight months has served to convince North Korea that China has its back and has encouraged it to behave with impunity,” a senior administration official told the Washington Post. “We think the Chinese have been enabling North Korea.”

The Post reported, “The accusations mark a further deterioration of the tone and direction of the U.S. relationship with Asia’s emerging giant.” The paper added that the Obama administration’s “position now that China is in effect partially to blame for the problems is new.”

For its part, China’s People’s Daily pointed to the deteriorating relations between Washington and Beijing with an opinion column published Monday entitled “How should China handle America’s ‘return to Asia’?”

Beginning with a reference to the recent appearance of the US aircraft carrier battle group in the Yellow Sea, the column pointed to Washington’s attempt to “implement various sanctions, restrictions and inhibitions on China,” to its demands for currency revaluations and its intervention in the territorial disputes between China and its neighbors in the Diaoyu Islands and the South China Sea.

The growth of China to the status of the world’s second largest economy, the column indicates, is “instinctively seen by the United States as a direct or indirect challenge to its hegemonic status.”

While concluding that China should adhere to a policy of “peaceful development and international cooperation”, the column adds, “However, China’s foreign policy will of course advance with the times, namely that China will adjust the policy at the proper time according to its own will.”

Underscoring the sharp economic and political contradictions underlying the mounting tensions, People’s Daily also reported Tuesday that a new “Sino-Korean industrial park” is being created in Chongqing with an initial investment of $950 million. The deal was reached at a meeting Monday that included delegations from the Chinese and South Korean governments as well as representatives from large Korean conglomerates, including Samsung, Hyundai, LG, SK and Pohang Iron and Steel.

The industrial park, the report said, would provide Korean capital with “a positive platform to enter the interior regions of China and to further enhance the Sino-Korean economic and trade ties.”

FED's $100 Billion Problem

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J.P. Morgan Getting Squeezed In Silver Market? (SLV, JPM)

It is widely known that J.P. Morgan (NYSE: JPM) holds a giant short position in silver. Furthermore, some observers are accusing the bank of acting as an agent for the Federal Reserve in the market - every tick higher in the price of silver undermines confidence in the U.S. Dollar. A lower silver price helps keep the relative appeal of the U.S. dollar and other fiat currencies high.

By selling massive amounts of paper silver in the futures market, JPM has been able to suppress the price of the precious metal. It is believed that these short positions are naked (i.e. they are not backed by any physical silver). In fact, reports indicate that JPM is short more paper silver than physically exists in the world.

An article by Max Keiser which appeared in the Guardian on December 2, 2010 claims that the size of the short position is 3.3 billion ounces of silver.

In recent days, rumors have been swirling on the internet that JPM's massive short position is about to blow up in their face in the form of an almighty short squeeze and potential COMEX default as large traders demand physical delivery of silver that COMEX does not have in their vaults.

J.P. Morgan is currently under investigation by the CFTC for allegedly manipulating the price of silver. The investigation into the bank can be traced back to November 2009 when London metals trader and whistleblower Andrew Maguire contacted the CFTC to report market manipulation prior to it actually occurring.

Maguire had been told by J.P. Morgan commodity traders that the bank was manipulating the price of silver and subsequently reported this to the CFTC. He also gave the CFTC two days' notice about an impending silver manipulation that would take place around the Nonfarm payrolls number on February 5, 2010.

The manipulation played out EXACTLY as Maguire had predicted. You can find the emails between Maguire and Ramirez here. Shortly after this information came to light, the whistleblower was involved in a bizarre hit and run accident in London which caused him and his wife to be hospitalized.

The price of silver has absolutely exploded in recent months as these reports have surfaced and it is clear that blood is in the water. The predator (J.P. Morgan) has now become the prey. Every tick higher in the price of silver brings more pressure on the bank to cover their short position. This in turn puts more upward pressure on the silver price.

It is not clear if JPM has been actively trying to reduce their exposure or not - but something is definitely going on. The price of the widely traded iShares Silver Trust ETF (NYSE: SLV), which tracks the spot price of the precious metal is levitating.

On August 23rd, the SLV closed at $17.61. The ETF closed on Friday at $28.60 and the price of silver is now trading at 30 year highs. Over the last three months, SLV is up over 47%.

In the overnight futures session on Sunday night, silver is currently trading 2.27% higher at $29.935. SOMETHING IS GOING ON. Making matters worse for JPM is the fact that a viral campaign (Crash JP Morgue Video) to buy physical silver and "crash" the bank is now spreading like wildfire on the internet. Just Google Crash J.P. Morgan Buy Silver.

Furthermore, it appears that significant physical silver shortages are developing in the marketplace and the metal is being sold well over spot where it is available.

Shortly after popular financial blog ZeroHedge posted the "Crash The JP Morgue" video (linked to above), the website which created the video,, reported that it was sold out of inventory and will not be taking new orders until December 6.

Another recent report suggests that JPM may truly be on the ropes with their short silver position and are attempting to hedge themselves by buying $1.5 billion worth of copper. According to the Telegraph, the bank has bought "between 50% and 80%" of the 350,000 tonnes in reserve at the London Metal Exchange. The idea being that if metals prices continue to rise, JPM's profits on its long copper position will help offset continued losses on its silver shorts.

ZeroHedge opines that "JP Morgan is now intent on cornering the copper market, as the monopolist firm stretches its FRBNY-facilitated muscles in an attempt to stem the massive losses incurred via its silver short."

Readers who are interested in learning more about this story are encouraged to do follow up research and post comments. Those who wish to participate in squeezing the living daylights out of JPM, may want to consider buying physical silver, silver futures and SLV.

Keep a close eye on this market during the coming week...

« Map Of U.S. States By Home Foreclosures »


Cantona's call for run on the banks causes French alarm

Politicians condemn football star but thousands pledge to withdraw cash

FRENCH ministers and bankers have issued warnings that an appeal by Eric Cantona, the former Manchester United footballer, for people to withdraw all their money from banks could propel France into economic chaos.

The footballer turned actor raised eyebrows -- and in some cases a laugh -- when he first made the suggestion in October.

But with three days to go before the great bank pullout and with hundreds of thousands having viewed the online call of 'King Eric' -- his football nickname -- the 'joke' is wearing thin for France's government and the country's top banks.

Francois Baroin, the budget minister, panned the idea as more "tragic" than comic, while Christine Lagarde, the finance minister said: "He is a magnificent footballer, but I'm not sure we need to pay heed to all his suggestions," she said.

Baudoin Prot, the chief executive of BNP Paribas, France's largest bank, said Mr Cantona's call was "totally irresponsible", adding: "It goes against anything that could assure the functioning of the economy."

Mr Cantona outlined his bank-crash plan in a video interview with the regional French newspaper, 'Presse Ocean'.

"What is the system?" asked the man famous for his philosophical asides. "It revolves around the banks. The system is built on the power of the banks, so it can be destroyed through the banks.

"The three million people in the street, they go to the bank, withdraw their money and the banks collapse.

That's a real threat, there's a real revolution."

It would be a quick, painless blow, he claimed, adding: "No weapons, no blood, nothing at all. Then we'll be listened to."

Mr Cantona's appeal inspired Geraldine Feuillien and Yann Sarfati, a Belgian screenwriter and French director, to create the website, which is calling for a withdrawal of money on Tuesday.

They have opened a Facebook site in France, where 32,000 people have signed up to the cause. A further 25,000 say they might withdraw their cash.

"What Eric Cantona said, I had been thinking for a while," said Miss Feuillien. (© Daily Telegraph, London)

- Henry Samuel in Paris

Irish Independent

BoI phone, online and ATM services disrupted by technical fault

Bank of Ireland customers are being affected by a technical fault, which is disrupting access to the bank's telephone and online services.

There is also a restricted cash service at the bank's ATMs.

The group said all branches remained open, but also with a temporarily restricted cash service.

Bank of Ireland credit card transactions are unaffected, and technical staff are working on the problem.

French Letter Revolution on December 7 2010

Après les grèves pour les retraites, voici les grèves qui se préparent pour les banques (Argent réel en caisse 2 % ) .

Voici la lettre.

Chère banquière, cher banquier,

Here is the letter (badly translated, but I'm rusty en Englaise ...)

After the strikes for the retirements, here the strikes that get ready for the banks (real Money in cash register 2%).
Dear banker, dear bankers,
By the presents, I held simply to mean you that "we" are during the course of what you done with our money and that we are less divided that you can think it… Only we know henceforth that your "employers" influence the political world-wide one while checking the monetary and betraying transmission thus the nations and the common good by the corruption and the Speculation.
I have few means and I cannot participate in this spontaneous and peaceful citizen initiative while depriving you of the my finances, but know that to count of this day some citizens decided to take their destinies in hand while withdrawing their liquidités, by closing their current accounts and save of your damned private banks, one knows it, under the stateless and selfish yoke of an elite.
This first act will be can be marginal, but it will amplify himself. The citizen that I am desires that the transmission of the change no longer is under "checks" private but comes back to the nation, sovereign, that she rediscovers the essential and basic right the transmission of his changes and of the "management" his inflation…
This action wants itself and has an origin: apolitical, out union, free, legal, peaceful, far themes racialistes and outside of the religious and philosophical convictions Of every participants:
Together and met under this only banner: STOP BANK!!

How to Create Employment and Stimulate the Economy? Obama's Tax Deal is not the Answer

How Effective Would a Payroll Tax Holiday Be In Spurring Employment and Stimulating the Economy?

Obama's tax deal with Republicans extends the Bush tax cuts for the wealthy for another 2 years.

As Bloomberg notes, Obama said that "he still believes the nation can’t afford to permanently extend the top tax rates".

But as Mish points out:

Of course the last extension was "temporary" and the next extension will be "temporary" as well.

Obama's plan would also extend aid for the long-term unemployed for another 13 months.

And the payroll tax (which funds Social Security and Medicare) would be cut by 2 percentage points during 2011 in an effort to help spur hiring.

Will cutting the payroll tax really help to spur hiring?

The Center on Budget and Policy Priorities argued in January 2009 that it wouldn't.

Suspending employees’ payroll taxes would immediately translate into higher take-home pay for workers. Suspending employers’ payroll taxes, by contrast, would put cash into companies’ coffers, where it is likely to sit as long as sales are weak and factories are operating below full capacity. Indeed, according to the Congressional Budget Office [here's the CBO report], suspending employer’s payroll taxes is “not a particularly cost-effective method of stimulating business spending: Increasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more, because production depends on the ability to sell output”. In other words, firms will not hire (or retain) more workers than it takes them to produce the goods and services they can sell. Simply giving them a general tax break is unlikely to affect their hiring or investment in most cases, and thus would be largely ineffective as stimulus.

Standard economic analysis suggests that over the long run, a permanent reduction in the employer payroll tax would increase wages, as competition forced employers to pass on the benefits of the tax cut to their workers. But a two-month holiday on the employer share of the payroll tax would not have that effect: according to the Congressional Budget Office, “[s]uspending the employers’ portion of the tax for a short period of time is unlikely to alter wage rates by very much and so would not alter consumers’ resources very much.” Firms generally would not raise wages for two months and then cut them, and the reduction in wage costs would be too brief to make it worthwhile for employers to increase hiring. Instead, businesses would likely retain all or nearly all of the benefits from the tax holiday.

Would infusing cash into businesses in this manner constitute effective stimulus? Probably not. The primary problem that employers face in a recession is a shortage of demand for their products, not a shortage of cash. Therefore, most firms would likely keep much or all of any tax windfall they receive — or pass it on to shareholders and business owners, two groups that tend to have higher incomes and thus quickly spend relatively little of any additional income they receive.


The Urban-Brookings Tax Policy Center estimated that in 2006, 51.2 percent of payroll taxes were paid by the top 20 percent of tax units.

(Obama is proposing a year-long payroll tax holiday, not the 2 months discussed by CBPP. I'm not sure how much difference CBPP would find in an additional 10 months).

But as Annie Lowrie noted in September:

The Congressional Budget Office examined (PDF) the effectiveness of a variety of tax cuts this winter [in an updated report], and found payroll tax cuts to be a good option, compared with, say, extending tax cuts for the wealthiest Americans. Moreover, they have positive impacts on employment — and the sustained high rate of joblessness remains the biggest drag on the American economy and a pressing public-policy issue.

According to the CBO, a payroll tax cut is about 25 to 33 percent more stimulative than providing a refundable tax credit for lower- and middle-income households, for instance.

As I noted in 2008, Mark Zandi - chief economist for Moody's - calculated which stimulus programs give the most bang for the buck in terms of the economy:

Zandi lists a cut in payroll taxes as being less stimulating to the economy than food stamps, unemployment benefits (which Obama extended), infrastructure, and aid to the states, but more stimulating than tax cuts and tax rebates.

The Washington Post's Ezra Klein turned to Zandi in July for updated figures on the effects of a payroll tax holiday:

Zandi's most recent number estimate of the per-dollar economic impact of a payroll tax holiday is $1.24. This is a relatively high figure, but there are a number of better options, including expanding food stamps, work share programs, direct aid to states and a jobs tax credit.

Klein ran a back-of-the-envelope cost-versus-benefit analysis of a partial payroll tax:

As Zandi's numbers suggest, the stimulative benefit is just slightly greater than the budgetary cost.


With better options, such as work sharing or food stamps expansion, available, it's not clear to me that the focus should be on payroll tax relief.

And see this.

The $100bn blunder: Fed forced to 'quarantine' one billion $100 bills after printing error makes them worthless

A printing problem with the new high-tech $100 bills has forced government printers to shut down production - and to quarantine more than one billion of the notes.

The flawed notes represent more than ten per cent of the U.S. currently on the entire planet.

They are being stored in giant vaults at Fort Worth in Texas and in Washington, DC, as the Federal Reserve desperately tries to resolve the problem.

Red-faced: Bureau of Engraving and Printing manager Kevin Brown displays a new $100 bill at the World's Fair of Money in Boston in August. Now a flaw with the new bills has halted production

Red-faced: Bureau of Engraving and Printing manager Kevin Brown displays a new $100 bill at the World's Fair of Money in Boston in August. Now a flaw with the new bills has halted production

Meanwhile printers have begun reprinting the old $100 notes - without the high-tech security features and still bearing the signature of George W Bush's treasury secretary, Hank Paulson - in order to prevent a cash flow crisis.

With the holiday shopping season in full swing, authorities are scrambling to do everything they can to keep U.S. cash flowing.

'There is something drastically wrong here,' one source told CNBC. 'The frustration level is off the charts.'

No glory: The bills were due to be the first that bore the signature of Barack Obama's Chairman of the Federal Reserve Timothy Geithner, pictured here in Washington last month

No glory: The bills were due to be the first that bore the signature of Barack Obama's treasury secretary Timothy Geithner, pictured here in Washington last month

The new high-tech bills were initially scheduled for release in February of 2011. They were due to be the first in circulation that bore the signature of President Obama's treasury secretary, Timothy Geithner.

The new notes were to feature new sophisticated security features such as a 3D security strip and a colour-shifting image of a bell.

The features - announced with great fanfare by the Treasury Department and the Federal Reserve - were designed to foil counterfeiters.

But it turns out those who designed the new notes may have been flying too close to the sun, for the process of producing them in their billions with all the new security features is so complex that it has foiled the government printers.

CNBC sources claimed that printers have produced 1.1billion of the new bills - but those bills are unusable because of a creasing problem.

The paper folds over during production - revealing a blank, unlinked portion of the bill face.

After printing, officials discovered that some of the new bills have a vertical crease that, when the sides of the bill are pulled, unfolds and reveals a blank space on the face of the bill.

At first glance, the bills appear completely printed - but they are not.

Another source claimed that at the height of the problem up to 30 per cent of the bills rolling off the presses included the flaw. As officials are not certain exactly which of the notes are flawed, it means that all of the notes that have been printed are having to be quarantined - all $110 billion of them.


The printing of American dollar bills is a long and convoluted process.

The paper on which all U.S. bank notes are printed is manufactured and supplied by Crane & Company.

The company has supplied the government with paper continually since 1879.

The Treasury Department and its Bureau of Engraving and Printing handle the design and production of the bills.

However they do not get much of the glory: As the currency is actually issued by the Federal Reserve, each note is emblazoned with the phrase 'Federal Reserve Note'.


More than a decade of research has gone into the security features on the redesigned $100 bill.

The Treasury has already redesigned the $5, $10, $20 and $50 notes.

The new $100 bill features a blue, 3D security strip that pictures bells that change to 100s as the strip is tilted.

The ribbon is woven into the paper, not printed on it, which is why it is the focus of speculation as a potential cause of the paper creasing problem on the printing presses.

The note also features another colour-shifting image, of a bell inside an inkwell. The bell shifts color from copper to green as the bill is tilted.

The sheer numbers are staggering. Authorities estimated that sorting through the enormous pile of bills by hand could take 20 to 30 years.

Instead they are developing a mechanised way of sorting the usable notes from the flawed ones - a process that they hope will only take a year. There was no estimate on how much the sorting process will cost.

A government source told CNBC that the total supply of U.S. currency on the planet is $930billion in bank notes.

A view of Fort Worth in Texas. Many of the faulty bills are being stored in giant vaults there as the government develops a way to sort through them

A view of Fort Worth in Texas. Many of the faulty bills are being stored in giant vaults there as the government develops a way to sort through them

The defective bills - which are the most costly ever produced - will simply have to be burned. The American taxpayer paid 12 cents to produce each note, roughly twice the cost of previous bills, meaning roughly $120million is about to go up in flames.

The Fed issued a press release on October 1 announcing a 'delay in the issue date' of the new bills due to a 'problem with sporadic creasing of the paper'.

But, until now, the full extent of the problem - and its cost - has largely been hidden from public view.

Officials are trying not to assign blame - publicly at least.

But sources claim the finger-pointing has already begin. 'The Fed’s very unhappy, and the Bureau of Engraving and Printing is taking a beating unnecessarily,' CNBC quoted one official as saying.

'Somebody has to pay for this.'

Exposed: A $7-billion carbon scam

by Anthony Watts at

Here’s more clear evidence that the Carbon Trading industry is doomed. Not only has carbon trading been halted in the USA due to lack of a market and ludicrously low prices of a nickel per ton, now it has been learned that in Denmark, more than 7 billion dollars has been lost due to the faulty system. Next step, Nigerian email system.
From Lawrence Solomon at the Financial Post:
Scam artists from around the world, capitalizing on lax regulations at the Danish emissions trading registry, have made off with an estimated $7-billion over the last two years, according to Europol.

Denmark’s Office of the Auditor General is now investigating the fraud, which occurred after the Danish registry dropped requirements that carbon traders be documented. While allowing a free-for-all served the carbon market on the short term, by appearing to inflate the interest in carbon as a commodity, it ultimately backfired when much of the trading proved to be phony.

This story, greatly underreported, came to me via a Norwegian reader, Geir Hasnes, who has translated one of the few press reports to have appeared. His translation appears here.
Read more:

Read more by Anthony Watts at

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