Monday, December 24, 2012

THE MATTERHORN INTERVIEW – Review 2012: Alasdair Macleod “We are quite likely to have a failure on COMEX in the silver market”

Matterhorn Asset Management is very pleased that the Christmas 2012 Matterhorn Interview is with Alasdair Macleod. We know Alasdair as a man with a lot of common sense based on a long time hands on experience in the largest financial center of the world. So here it is; straight from the horse’s mouth. Enjoy the interview.
The renowned economist and financial analyst Alasdair Macleod looks back through the rear window of twenty-twelve and comments important events and developments such as “QE to infinity.” Moreover, he gives his expectations for 2013 in general and the gold and silver markets in particular.
alasdairmacleodAlasdair Macleod started his career as a stockbroker in 1970 on the London Stock Exchange, and learned through experience about things as diverse as mining shares and general economics. Within nine years Macleod had risen to become a senior partner at his firm. He subsequently held positions at director level in investment management, fund management and banking. For most of his 40 years in the finance industry, Macleod has been de-mystifying macro-economic events for his investing clients. The accumulation of this experience has convinced him that unsound monetary policies are the most destructive weapons that governments can use against the people. Accordingly, his mission is to educate and inform the public, in layman’s terms, what governments do with money and how to protect themselves from the consequences.
By Lars Schall
Lars Schall:  Shall we do a review of 2012 by season?
Alasdair Macleod: Yes.
L.S.:  Let’s look for the big stories last winter, spring, summer and fall. So, what in your experience was the big story last winter at the start of 2012?
A.M.: The short answer is the Federal Reserve Board extending zero interest rates until 2014, which was unheard of before. We have now got used to zero rates. And also the ECB started to abandon all sound money in order to support the Eurozone banking system and the weaker members. And that to me sets the tone for an eventual complete paper money collapse.
L.S.: Maybe you tell us a little bit about zero interest rates and what usually happens?
A.M.: Well, usually what happens is that the Central Bank manages interest rates at a level which it thinks is appropriate for the economy. In the case of the Federal Reserve Board, it is meant to balance the level of unemployment and the prospects for inflation by managing the interest rates. Now, in practice, that probably means that it sets it below what the market would normally be comfortable with or what the market would decide on its own.
But here we have a situation where the Federal Reserve Board has turned around and said, “We are going to keep interest rates frozen at zero until late 2014 at least. So, that basically means that the cost of borrowing is tied to that zero bound and there is no way that interest rates can go any lower. It is the end point of lowering interest points. Obviously, if you’re going to keep interest rates at that very low level, you’ve got to do two things: Firstly you’ve got to pump money into the system to keep rates at zero and secondly the Central Bank must satisfy any demand for money at that zero bound. And of course, the FED has been doing this, by buying government treasuries and injecting the money in payment for them into the banking system. The banks, where they have drawn down on their lending capacity, have not lent it into the economy but they have used it for financial speculation. So that’s why huge amounts of derivatives have been piling up. And the US banking system, believe it or not, is also exposed quite significantly to the Eurozone area.
L.S.: How did this exposure to the Eurozone arise?
A.M.: Well, it goes back to the beginning of this year when it was only people like you and I perhaps who worried about the possibility that Greece and Italy and Spain might be bankrupt. The average banker just looked at guarantees from the ECB, allowing them to turn 3 per cent or more on a Eurozone sovereign loan. So you end up with bank exposure to the Eurozone and the Eurozone banking system. At mid-year, according to the Bank for International Settlements, the BIS, the total was about $1.5 trillion. This was a very, very important development from the beginning of this year. The ECB at that time was insisting they were not going to print money, and they were going to be conservative in their lending policy. But under Draghi they’ve responded to a systemic banking problem and to politicians unable to deal with government finances in individual countries. And so it became obvious the ECB is the only institution in the Eurozone which can keep this show on the road. So the ECB has started to abandon all pretence at sound money. The hard-money Germans have either resigned or been basically over-ruled in the ECB. The euro, like the US dollar, is now a story of print, print, print. And then of course we had the Greek bail-out in January. The first of two bail-outs this year at least as far as I can recall.
L.S.: Yes.
A.M.: So that’s the first quarter. In the spring what caught my eye was the Target 2 settlement system. Suddenly Germany was on the wrong end of something like Euro 500 billion, reflecting capital flight into Germany from countries such as Greece, and also increasingly out of Spain, Italy and Portugal. Ordinary citizens in those countries began to worry about the safety of leaving money on deposit in their banks. The imbalances from capital flight today are reflected in the Bundesbank with 715 billion Euros, or one trillion dollars owed to it by other Eurozone national Central Banks. Total imbalances from capital flight within the Eurozone are now one trillion euros. So that to me was the second quarter’s feature. I think the third quarter was notable for the LIBOR manipulation story.
L.S.: Yes, we had.
A.M.: And that started with Barclays Bank and it was clear at the time, it wasn’t just Barclays but all the other major banks could well be implicated in this, from UBS to Royal Bank of Scotland. All sorts of big banks had an interest in supporting the value of their derivatives at artificial levels, otherwise their solvency margins looked bad. This is actually a major, major scandal, but it’s nothing compared with the economic damage from manipulation of interest rates by the Central Banks,  with zero interest rate policies. We now have LIBOR manipulation on top. The thing that upsets people is the banks pursuing what is obviously a vested interest in keeping their asset values, the price of the bonds and other things that they have on their balance sheets, high by manipulating LIBOR interest rates down. And that I think is a very, very big scandal. It is a global scandal that implicates central banks, which I am sure knew it was happening and knew how important a low LIBOR was to commercial bank balance sheets.
L.S.: Okay. So we enter again the fall and winter season.
A.M.: Yes. There are so many systemic dangers now but I think the story I’m going to alight on is one I wrote about recently about gold and silver on the COMEX. The bank participation report came out on the 4th of December, and I was able to complete the figures for this year. Bank shorts are at or near record levels. And what is interesting is that with the prices of gold and silver well below the all-time highs there are no profit-takers in the market to sell contracts to close their shorts. And in silver it is very, very alarming. This leads me to think that we are quite likely to have a failure on COMEX and in the silver market in particular.
If you have a failure in silver on COMEX then that is going to affect the gold futures market as well. The West’s central and commercial banks have suppressed the price of both gold and silver by supplying central-bank gold and increased short positions, making prices far too cheap. The result has been a massive transfer of gold and silver to Asia. This is the relevance of the point that you have been raising about Central Banks gold holdings, and it is also going to bring into question the solvency of the bullion banks who are short.
So, I think that while it may not be obvious to many people at the moment, when we look back at the fourth quarter we will see that the conditions were in place for a huge bear squeeze, for silver in particular. I would assume that the short position in gold is more controllable so long as Western Central Banks continue to make bullion available to the bullion banks that are short either on COMEX or with LBMA. But silver is different, nobody has it for sale. There is no silver around.
L.S.: Yes, there is no stock.
A.M.: No, exactly.
L.S.: And that’s the big difference?
A.M.: Yes, and this silver position could actually destabilize other derivatives in financial markets. I blame complacency on this matter on Keynesian economists and monetarists saying, “Oh well, gold is just a commodity”. It’s absolute nonsense, we are talking about the most important money to all mankind. If you go into Asia and you ask what is money you will be told, ”Gold and silver”, not rupees, not any paper currencies issued by governments. Gold and silver, that’s what they regard as money, that is where they put their savings. And that is why we are short of it.
L.S.: Can I interrupt you because I would like to bring it both together. The Yuan in China, there’s now a lot of talk about the Yuan being the next reserve currency and we see the Chinese buying gold like crazy. Do you think they have something in mind with backing up their currency with gold?
A.M.: Yes, I do. I think they do have a plan and we don’t know what it is, but we can guess. My starting point in this is that all the Chinese and Russian Marxian economists were taught that capitalism destroys itself. Now, whether you believe that or not isn’t the point, but the Chinese economists actually have this in mind. And they can see the dangers of the way the US dollar is going. We must also understand that the dollar is for security reasons not something they want to use for their international trade settlements. Remember that every dollar transaction done in the world is reflected in a bank account in New York. So, the Chinese want to get away from the potential control and the intelligence information that it gives America. They want to use a different settlement medium.
Now, they agreed about 10 years ago with the Russians to set up the Shanghai Cooperation Organisation (SCO), and the last unsatisfied objective of the SCO is to have a common trade settlement system between the members of the SCO, which at the moment are Russia, China, and the various “stans” in middle-Asia. But interestingly, the next wave of members who will join are India, Iran, Pakistan, Mongolia and Afghanistan (as soon as NATO has left). So you’ve really got the bulk of Asia’s four billion people and they’re going to be settling cross-border trade not with the dollar but with something else. They need to be gold-rich to give confidence to their currencies. I suspect that the Chinese Yuan will play a big role in Asia. What they’re doing with Iran is interesting. They’re settling net balances in gold and gold is being re-monetized in that sense. And I think that China has accumulated a lot more gold than they officially tell us. So they have the potential to use gold as money. I can see gold being re-monetized in the loosest sense for the largest internal market the world has ever seen. Believe me, it’s happening now.
L.S.: Okay, let me then connect another thing with this question. Do you think the Chinese will get paid in gold for perhaps helping out in the euro crisis. So they’re helping to prop up the euro and they get in turn some of the European gold?
A.M.: I don’t think China is going to get sucked into supporting the Euro, no, I don’t see that at all. What I think is possible is they would very much like to cash in Euro’s for gold. I am sure they would consider taking physical gold as collateral for Eurozone loans. But for now every time a Eurozone country goes to China and says “we’ll be very grateful for some of your money, the Chinese listen very politely and then just show them the door. China is not in that role as they’ve got enough of their own problems.
L.S.: Yes.
A.M.: And look at it also this way, the average European has a standard of living, perhaps ten times better than the average Chinese. China is not interested.
L.S.: Let us then talk about the three big stories in gold this year, and I think the one thing out of the different campaigns for repatriation of gold reserves into the respective countries.
A.M.: Yes. That was going to be my overall story for 2012, and that owes much to the work that you have done. Teasing out of the German authorities, exactly how much gold they think they have got and where, was a great achievement, a journalistic scoop. And what I particularly liked was not only did you manage to do that but you have encouraged others to do the same thing elsewhere. The journalist in Mexico who has got the Mexican Central Bank to talk. We now discover from Austria that the bulk of their gold is in England and not only that, but they earned 300 million Euro in leasing fees. What a mistake to tell us that!
L.S.: Yes, but can you elaborate on this. Why was it a mistake?
A.M.: Well, I think it was a mistake because the sensible thing for a Central Banker to do when asked questions about this, given that a lot of the gold has probably disappeared through leasing, is actually to say as little as possible. The real reason for having gold as part of your foreign reserves is to have the ultimate protection of it for your country and currency. Are you telling us, central bankers, that you have compromised that role by leasing it with the risk that it won’t come back? You know that must be the next question you journalists will ask.
L.S.: Yes.
A.M.: And of course, to that they all clam up. So I think it was a mistake for the Austrian Central Bank to admit it. And the most recent story has been the Netherlands where it has just been revealed by the Central Bank after lots and lots of pressure that they have got 50 per cent of their gold in New York, they’ve got 20 per cent in Canada, 20 per cent in London and 10 per cent — only 10 per cent — in Amsterdam.
L.S.: So we come to the question what is a gold reserve. I would say a gold reserve is gold that you have in your possession and at your disposal at any time?
A.M.: Yes, a central banker has actually got to be able to go down into the basement, into the strong room, and count it.
L.S.: Yes.
M: It’s as simple as that.
L.S.: In Germany for example this is not the case. So what do they have. They have no gold reserve, what do they have, what kind of hybrid?
A.M.: There was a time when it made sense, with the Russian bear on the doorstep, for Germany to store her gold in New York or London or Paris. But things have changed, that’s no longer the case and they really should move it back. And I just can’t see the circumstances that have occurred or should occur for Germany whereby she needs to dispose of any of the gold, nor to keep any of it near the markets. It looks like the Bundesbank instead of physical gold has counterparty promises from the Fed, Bank of England and the Banque de France. This should be clarified.
Now, if you ask me about France I would say that France is theoretically bust, I can certainly see them selling gold in order to pay some of their debts or for emergency funding or something. Perhaps using it as collateral for loans. But for Germany it doesn’t make any sense at all, let alone have gold in any form in Paris. And I suspect that the Central Bankers in Germany have also had quite a tough time keeping gold out of the hands of various German chancellors, but that is another story.
L.S.: The argument now is, for example, that you have the gold in New York to trade with it. When you are trading with your gold reserve, what does this say?
A.M.: Well, it tells me that you’re not actually looking after it or keeping it for what it’s meant for. And if you are leasing it, then you’re being a party to a scheme which keeps the gold price, and therefore the value of your gold reserves low. Central Banks that go into leasing have lost sight of the whole point of having gold reserves.
L.S.: Why is it interesting for some parties to have a low gold price and what is the connection between the gold price and the bond market and the setting of interest rates.
A.M.: Okay, there’s quite a long story to that aspect.
L.S.: Can I challenge you?
A.M.: Yes, if we go back to the Nixon shock in 1971, the Americans decided that the Bretton Woods system of gold convertibility only for Central Banks (and the IMF and the World Bank) had to come to an end because they did not have enough gold to stem the losses resulting from dollar repatriation by the Banque de France and various other Central Banks. So, from that moment the US Treasury and the Federal Reserve Board tried to demonetize gold completely and they ran a campaign of saying that gold was old-fashioned; it was not money anymore. The dollar is king, the dollar is money and you can ignore gold.
And initially, they tried to hit the gold price to persuade speculators that gold is yesterday’s money. That failed spectacularly when the Bull Market in gold easily absorbed all the bullion the Americans sold. After that in the 1980s and 1990s, leasing developed. Gold leasing was the basis of the carry trade. A bullion bank gets a Central Bank to lease it some gold for an annual rate about a half, maybe three-quarters of a per cent. The Bullion Bank sells it into the market and with the proceeds goes and buys government short-dated bonds which at that time yielded say 5 or 6 per cent, so they got a very nice turn on that money. And they were meant to cover themselves through the London market from a producer who wanted to sell the gold forward so that he could fix the cash flow for his operations.
But what we don’t know other than by indirect analysis is to what extent these leasing operations were actually closed out by mine deliveries. Most of the gold that they sold in the 1980s and 1990s from this leasing ended up being fabricated into jewellery. And I think it was estimated that up to 90 per cent of the gold sold into the bullion market was actually going into jewellery in one form or another. That was the “raison d’être” if you like for the Central Banks trying to remove gold entirely from the financial system. I guess that the gold carry trade is now considerably reduced, because the interest rate spread is no longer there.
The other aspect of the relationship with bond yields is that physical gold doesn’t yield any interest. So, if bond yields are high, then there is a penalty for holding gold. If on the other hand interest rates are low there is no penalty and gold becomes more attractive. And that basically I think would sum up the relationship of gold with bonds.
L.S.: But now we see a move to declare gold a non-risk asset.
A.M.: Yes.
L.S.: Is this maybe also one of the big stories this year?
A.M.: Yes, it’s a very interesting one, because I think they’re trying to stop regulatory arbitrage, bearing in mind that derivatives markets have already accepted gold as collateral for margin purposes. And this was after some lobbying by the London bullion market. If they did nothing to stop regulatory arbitrage from bank balance sheets, it would encourage growth in shadow banking, which for regulators is not desirable. And now that the banks in America have been asked the question as to whether they think it will be a good idea to have gold as a collateral with zero or minimum haircut then of course they are bound to say yes. So I think it’s a done deal.
L.S.: It’s very important for the price, right?
A.M.: Well, I think in time it will be, because I would expect a number of bankers to begin to worry about the value of fiat currencies and it therefore makes sense to have a certain amount of asset allocation on their balance sheets in gold, just to give them protection. Gold will be on every banker’s radar screen.
L.S.: So gold will then also become a big story in 2013?
A.M.: I think it will be a story of 2013. But how important; I don’t know Lars. At this stage what I see is a potential failure in the precious metals markets. I think it’s far more important to worry about that. You know, they’re not going to get their gold and silver if this happens.
L.S.: Yes, sure. And then let us switch to the third big story in gold for 2012, and this has everything to do with Iran. They were kicked out of the SWIFT system and what did they do then?
A.M.: Well, I found this interesting because it first started with America banning the use of dollars for Iran’s payments. And that meant that no Iranian Bank and no other bank trading with Iranian counter parties could operate a dollar account because under the Nostro/Vostro correspondent system, all those dollar accounts are actually in New York, and they can be vetted and banned from that point. So the Americans turning around and saying, “No dollar settlements for Iran” is a done deal. But then you have the SWIFT system based in Brussels, which does all international currency transfers, and that was stopped.
So you have a situation where Iran, a future member of the Shanghai Cooperation Organisation and major exporter of oil to China India and Turkey, cannot be paid for its oil in dollars or any other currency. So, Iran has had to resort to external settlements in gold. This is bound to spur China on to increase her own desire for gold over dollars. She’s probably producing more gold than the World Gold Council figures actually reflect. Anyway, I am sure that not only has she been accumulating all her own production but we know China and her citizens have been buying gold whenever it is offered from elsewhere. We also know that they have invested in gold mining capacity outside China, both in Australia and also Africa. Here we have a country which is quite evidently preparing itself for the time when gold comes back as money and paper money, at least in the West, becomes useless. And all China’s suspicions that this is going to happen have not been diminished by American’s treatment of Iran.
L.S.: Yes, exactly. And so India is now paying for Iranian oil with gold.
A.M.: Yes. As I understand it India’s trade with Iran works on a net settlement basis in gold. But having said that, the collapse of the Iranian rial must have dampened Iran’s imports substantially, so Iran is probably earning a lot of gold from its oil, some of which it’s not having to give up against foreign imports.
L.S.: Now we come to your expectations for 2013, and let us begin with silver. Would you agree with me that this is the most explosive market there is, not just compared to gold but compared to all other markets?
A.M.: Absolutely. You’ve got the banks’ short position on COMEX which cannot be covered. According to the most recent bank participation reports, the banks are short of nearly 300 million ounces of silver. When you bear in mind this is an industrial metal, the vast bulk of silver consumption from mining and recycling supply goes into biocides, solar panels, electronics, et cetera. You have only 100 million ounces annually left over for investors. The short position for the banks on COMEX is three times that 100 million ounces.
There’s no way this can be covered without a price rise sufficient to kill off significant industrial demand, because there are no strategic reserves to draw on. The only country which might have strategic reserves is China but otherwise there are no reserves. And I think that the only way in which the banks’ shorts could be closed out is after a price hike which would lead to billions of dollars of losses for these banks. There will be a market crisis, and I think that they will have to suspend trading in silver and agree a settlement procedure for long and short contracts. And if that happens, it will be well over $50 an ounce. But remember, other exchanges will continue to price silver if Comex suspends, which will not help Comex resolve the problem if the price continues to rise elsewhere.
L.S.: It’s also a very difficult situation for the European banking system, right?
A.M.: Yes, it is. Last year the election of President Hollande added to this crisis because he has taken France away from the path of austerity and reverted to old-fashioned central planning and socialism. The result is that very quickly the French economy is beginning to collapse. And France in my view is at least as bust as Greece, Italy or Spain and it’s only a matter of time before that is realised in the markets. I think that is certainly an important development for 2013. At some stage in 2013, I expect Eurozone residents to turn away from the euro in favour of gold.
More generally, I would say that the systemic risks for next year are the Euro-zone, Japan (which might surprise you but note that in Japan the dissaving from elderly savers is now getting to the point where it’s reflected in a trade deficit which will lead either to higher interest rates or a lower yen). So, those are two problems for the banks – you’ve also got the precious metals market which we have already mentioned and I think is going to be the big surprise for everyone. And I know that the response to the Eurozone and Japanese problems is central banks around the world will print whatever it takes to stop this affecting their banks and bringing the banking system down. The US economy, with higher taxes, seems certain to disappoint as well. Going into 2013 I do not see progress, only problems, and a global banking system that is constantly on the verge of collapse. And if the banking system goes down, you bring down the currencies as well.
L.S.: That’s likely for sure. Okay, and with this background, what do you expect for the gold market in 2013?
A.M.: I expect it to be considerably higher because I would expect it to reflect the increased systemic risks and the quickening pace at which the systemic risks are likely to develop. I think it is going to be truly frightening or could be truly frightening. That is the outlook; but in the short run we also have a systemic shortage of bullion in the West which can only be resolved with higher prices, far higher prices in the case of silver.
L.S.: One last question; one gold story of 2012 was of course that we saw much more discussion about the gold standard in comparison to the past. Do you think this will increase and how do you view this debate?
A.M.: I think the people who are pushing for a gold standard are just indulging in wishful thinking. I really do not see a gold standard working at all, because the fact of the matter is the central banks want the flexibility to continue to issue currency without any restrictions whatsoever. As soon as you bring in a gold standard, if it’s going to mean anything at all, you impinge on that flexibility. It won’t happen, I think you can forget it.
L.S.: Do you think in 2013 we’ll go further down the road of decline?
A.M.: I’m very, very pessimistic about where we’re going, Lars. I think eventually we’re going to have a complete breakdown in value for paper currencies. I think they will become valueless and it will give me no pleasure at all to be sitting on my savings in gold and silver at a time when everyone else is impoverished. That appears to be the prospect as we go through 2013 and beyond.
L.S.: That’s the sad truth. Nevertheless, I thank you very much for this interview!
A.M.: No, not at all, it’s my pleasure!

Alasdair Macleod runs, a website dedicated to sound money and demystifying finance and economics. Moreover, he is a Senior Fellow at the GoldMoney Foundation

The truth is that politicians are telling lies

Government is simply unaffordable

The Chancellor makes much of his determination to cut benefits
The Chancellor makes much of his determination to cut benefits Photo: PA
Was 2012 the year when the democratic world lost its grip on reality? Must we assume now that no party that speaks the truth about the economic future has a chance of winning power in a national election? With the results of presidential contests in the United States and France as evidence, this would seem to be the only possible conclusion. Any political leader prepared to deceive the electorate into believing that government spending, and the vast system of services that it provides, can go on as before – or that they will be able to resume as soon as this momentary emergency is over – was propelled into office virtually by acclamation.
So universal has this rule turned out to be that parties and leaders who know better – whose economic literacy is beyond question – are now afraid even to hint at the fact which must eventually be faced. The promises that governments are making to their electorates are not just misleading: they are unforgivably dishonest. It will not be possible to go on as we are, or to return to the expectations that we once had. The immediate emergency created by the crash of 2008 was not some temporary blip in the infinitely expanding growth of the beneficent state. It was, in fact, almost irrelevant to the larger truth which it happened, by coincidence, to bring into view. Government on the scale established in most modern western countries is simply unaffordable. In Britain, the disagreement between Labour and the Conservatives over how to reduce the deficit (cut spending or increase borrowing?) is ridiculously insignificant and out of touch with the actual proportions of the problem. In the UK, the US, and (above all) the countries of the EU, democratic politics is being conducted on false premises.
Of course, once in power all governments must deal with reality – even if they have been elected on a systematic lie. As one ex-minister famously put it when he was released from the burden of office: “There’s no money left.” So that challenge must be met. How do you propose to go on providing the entitlements that you have sworn never to end, without any money? The victorious political parties of the Left have a ready answer to that one. They will raise taxes on the “rich”. In France and the United States, this is the formula that is being presented not only as an economic solution but also as a just social settlement, since the “rich” are inherently wicked and must have acquired their wealth by confiscating it from the poor.
Of course, the moral logic of this principle is absurd. The amount of wealth in an economy is not fixed so that one person having more means that somebody else must have less. But, for the purposes of our problem, it is the fault in the economic logic that is more important. The amount of money that is required to fund government entitlement programmes is now so enormous that it could not be procured by even very large increases in taxation on the “rich”. Assuming that you could get all of the rich members of your population to stand still and be fleeced (rather than leaving the country, as Gérard Depardieu and a vast army of his French brethren are doing), there are simply not enough of them to provide the revenue that a universal, comprehensive benefits system requires. And if all the French rich did stay put, and submit to President Hollande’s quixotic 75 per cent income tax, they would soon be too impoverished to invest in the supply side of the economy, which would undermine any possibility of growth.
Barack Obama knows that a tax rise of those proportions in the US would be politically suicidal, so he proposes a much more modest increase – an income tax rate of around 40 per cent on the highest earners sounds very modest indeed to British ears. But that is precisely the problem. If a tax rise is modest enough to be politically acceptable to much of the electorate, it will not produce anything like enough to finance the universal American entitlement programmes, social security and Medicare, into a future with an ageing population. There is no way that “taxing the rich” – that irresistibly glib Left-wing solution to everything – can make present and projected levels of government spending affordable. That is why Britain and almost all the countries of the EU have redefined the word “rich” to mean those who are earning scarcely twice the average wage, and pulled more and more middle-income people into high tax bands. Not only are there vastly more of them but they are far more likely to stand still and be fleeced, because they do not have the mobility of the truly rich.

Is this the lesson of a year of false economic hopes and cynical political deceptions? That governments will have to accomplish by stealth and betrayed promises what they did not dare to propose when running for office? Here in Britain, the Conservatives make much of their determination to cut welfare, as if out-of-work benefits were the heart of the government spending problem. But in fact, in the medium and long term, it is the state benefits that working people think of as a right that present a far more serious dilemma. The reality is that our ever-rising state pension and entirely free health care system are as unsustainable as social security and Medicare in the US. It is not going to be possible for the NHS, paid for by general taxation, to offer world-class modern medical provision – with its never-ending advances and innovations – into the indefinite future.
At some point, we will have to accept that government-funded health care will consist of subsidised core services to be topped up by the patient’s own insurance or personal funds, just as dentistry and opticians’ services are now. Similarly, pension provision will have to be largely the responsibility of the individual. The greatest contribution that government will be able make to these efforts will be in cutting personal taxes, thus leaving people with more money to pay for provision that they will be free to choose for themselves.
This is not an ideological argument about the moral advantages of a smaller state: it is simple economic necessity. As the man said, there’s no money left. And the only ways that anybody can think of for the state to get more of it are either futile (taxing the “rich”) or destructive of any possibility of recovery (more borrowing). What began as a banking collapse has turned into a crisis of democratic politics. Is this what we have to look forward to? The process of campaigning and voting will be an irrelevance: all parties will tell pretty much the same lies. Whichever one is marginally more credible than the others will gain power (probably in coalition with another bunch of liars), and then have to do what needs to be done in whatever desperate, underhand ways it can devise. Nobody will feel that he got what he voted for, because what he voted for was impossible. Not a happy thought to leave you with at Christmas. Sorry.

Chilling economic report strikes fear into CEOs

Over an early-morning coffee with the chief executive of a FTSE 100 business last week, talk turned to the outlook for 2013. Where I had expected some guarded optimism, instead I heard a chilling analysis.

Banks and other small business lenders are facing
Coupled with the huge debt burden are oversized public sectors and shrinking workforces. The larger the part the Government plays in the economy, the lower the levels of growth. 
The CEO said he had been reading a new paper from Boston Consulting Group headed “Ending the era of Ponzi finance”. The lessons he had taken from it were miserable.
The West was not going to find its way to the right economic path with a little tweaking at the edges, the CEO said. What is needed is a wholesale overhaul of the economic system to tackle record levels of public and private debt. Was anyone brave enough to do it, he wondered aloud.
I asked him to send me the report. He did.
The BCG study by Daniel Stelter which is doing the rounds of corporate C-suites does not pull its punches. In fact, its punches are really just a softening-up exercise for a barrage of kicks and painful blows aimed at anyone who thinks that kicking the can down the road is a suitable substitute for radical action.
At the heart of the analysis is the issue of debt. A report by the Bank of International Settlements, the study notes, found that the combined debts of the public and private sector in the 18 core members of the OECD rose from 160pc of GDP in 1980 to 321pc in 2010.

That debt was not used to fund growth – perfectly reasonable – but was used for consumption, speculation and, increasingly, to pay interest on the previous debt as liabilities were rolled over.
As soon as asset price rises – fuelled by high levels of leverage – levelled off, the model imploded.
The issue is brought into sharp focus by one salient fact. In the 1960s, for every additional dollar of debt taken on in America there was 59c of new GDP produced. By 2000-10, this figure had fallen to 18c. Even in America, that’s about a fifth of what you’ll need to buy a McDonald’s burger.
Coupled with the huge debt burden are oversized public sectors and shrinking workforces. The larger the part the Government plays in the economy, the lower the levels of growth.
A report by Andreas Bergh and Magnus Henrekson in 2011 – cited by BCG – found that for every increase of 10pc in the size of the state, there is a reduction in GDP of between 0.5pc and 1pc. Across Europe, the average level of government spending is 40pc of GDP or higher, and is as much as 60pc in Denmark and France. In emerging markets, it is between 20pc and 40pc. This gives non-Western economies an automatic growth advantage.
This material should be gripping politicians in Westminster, not just CEOs in central London. The size of the workforce is falling across the developed world, with the United Nations estimating that between 2012 and 2050 the working-age population in Western Europe will fall by 13pc. This comes at a time when we have a pension system not much changed since the era of the man who invented it – Otto von Bismarck.
What does the West need to do to right such fundamental imbalances?
Mr Stelter and his colleagues do offer some solutions. First, there has to be an acknowledgement that some debts will never be repaid and should be restructured. Holders of the debt, be they countries or companies, should be allowed to default, whatever the short-term pain of such a process.
In social policy, retirement ages will have to increase. People will have to work harder, for longer and should be encouraged to do so by changes in benefit levels that do little – at their present level – to reward work at the margin.
The size of the state should be radically reduced and immigration encouraged. Competition in labour markets through supply-side reforms should be pursued.
Where governments can proactively act – by backing modern infrastructure – they should. High-growth economies are built on modern railways, airports, roads and energy supplies. Allowing potholes to develop in your local roads is a symptom of a wider malaise and cash-rich corporates should be pushed, through tax incentives, to invest their money in developed as well as emerging economies. Energy efficiency – to save money, not the planet – should be promoted.
As Mr Stelter says, many chief executives might understand the problem but not see it as immediately relevant to them. Profit margins across Europe have returned to the levels of 2005. Money is cheap due to the printing presses of the central banks and ultra-low interest rates. Short-term, things look OK – there has been little real pain despite the efforts of some to portray every necessary efficiency move as a “cut” of calamitous proportions.
But in the end, business needs growth in the wider economy to flourish. There needs to be a radical rethink of the way the West organises itself. Many of the ideas of Mr Stelter and his team are the right ones, although the tax burden being what it is in the UK, many would find it hard to stomach the thought of more tax rises that the BCG report recommends. At some point the relationship between taxed income and willingness to innovate turns negative.
I would suggest the UK is very near that point.
BCG’s arguments are, of course, not new. In a recent programme on the Bank of England for BBC Radio 4, I interviewed the Oxford economist, Dieter Helm. “I think it’s important to understand there are very different views about what happened in the crisis,” he told me.
“Some people think that this was some kind of Keynesian event, that our problem after the crash was deficient demand and therefore what we had to do was stimulate the economy.
“In other words, where we were in 2006 in terms of our consumption and spending was perfectly sustainable.
“[But] what’s going on is a massive postponement exercise and I think that means that the sustainable level of consumption we will end up with will be lower than it would have been if we’d faced up to the reality of our economic mess that was created by the great boom of the 20th century and the enormous splurge of spending and asset bubble of the early years of the 21st century.”
As we know, George Osborne’s austerity plan is not actually much of a plan, with government debt levels increasing for the rest of this Parliament. But in politics, the choice is not simply between what is being proposed and
Shangri-La. It is about what is being proposed and the alternative – and the Labour alternative is more spending. Most people know which one we should be choosing so that worried FTSE 100 CEOs can sleep a little easier.

Germany wants Britain in the EU, says Wolfgang Schäuble

Germany does not want to push Britain out of the European Union, but will not be “blackmailed” with the threat of an exit either, the country’s finance minister has warned.

Germany does not want to push Britain out of the European Union, finance minister Wolfgang Schäuble has insisted, but added that he would not be blackmailed with threats of a British exit either.
Amid fears that a tide of Euroscepticism could sweep London towards the exit, Mr Schäuble said that he wanted "more British involvement in Europe, not less". 
Amid fears that a tide of Euroscepticism could sweep London towards the exit, Wolfgang Schäuble urged Britain to avoid a referendum on EU membership that would create “uncertainty”.
“I would wish for more British involvement in Europe, not less,” he said in an interview with German newspaper Frankfurter Allgemeine Sonntagszeitung.
“We want to keep Britain in the EU and not push it out.”
However, Mr Schäuble cautioned that any attempt to “blackmail” Germany with threats of an exit would not be tolerated.
“Our British friends are not dangerous, but a referendum would create uncertainty,” he added.

Last week, UK prime minister David Cameron described a British secession as “imaginable”, even though he would be against the move.
Mr Cameron has faced increased pressure from Tory backbenchers to claw back more powers from Brussels. David Davis, the Tory eurosceptic MP, has called for the British public to be given the chance to vote for a major repatriation of powers from the EU by early 2014.
The White House has also waded into the argument, warning that Britain’s position on the world stage could be significantly weakened by an exit.
Mr Schäuble renewed his call for an EU president that was “directly elected by the people, like in France and America”.
Herman Van Rompuy, the current president of the European Council, was elected by the 27 leaders of the EU, even though he was the only candidate to run for the post, while the president of the European Commission, currently Jose Manuel Barroso, was chosen by the European Parliament.
Separately, Italian caretaker prime minister Mario Monti said that he would consider running for a second term in next February’s election.
Speaking at an end-of-year news conference, Mr Monti, who resigned on Friday after 13 months in office, said that if a party or coalition offered a credible programme that he supported, “I would be ready to offer my encouragement, advice and if necessary leadership.”
He warned that Italy’s next government must not make easy election promises or backtrack on reforms started by his technocrat administration.
“We have to avoid illusory and extremely dangerous steps backwards,” he said.
Mr Monti, who was appointed to lead an unelected government to save Italy from financial crisis, has faced growing calls to seek a second term.

The Grinches that Stole Chrtistmas in 2012

The lack of empathy of these people at the top. The think of their own power and the own increase in wealth. I do not think of these people as royalty. I do not think of them as nothing special. They are Robber Barons and frauds. The have taken over most of high finance by fraud and deceit holding humanity to a debt they do not owe for their own gain at everyone’s expense.
While these people will be warm by a fireplace this Christmas eve bragging how they have duped humanity and have utter contempt for the common person. They do not have our values. They have no sense for right or wrong. They have no pity for their fellow-man. They are psychopaths, sociopathic and narcissist. They have no thought of the consequences or how it will hurt other people.
They have caused people to lose their jobs. They have made many homeless. They say it is just good business to force people out of their homes and losing their jobs.  It is good business to them to make people lose it all and manipulate the price of food. They have played games with people’s lives. Many people will not have a Christmas this year because to the money junkies. It is good business no matter how many people were hurt. They want to take all the private retirement accounts from people who worked all their lives to save for their golden years. They say to steal is good business. It is not, it is wrong.
Here is the names of shame who have stole Christmas from America:
Loyd Blankfine- Goldman Sachs: The investment bank has been responsible for what is going on in Europe and in the states. They are the shareholder of the Federal Reserve Bank. The received government bailout money too.
Jamey Dimon – JP Morgan/Chase Bank: This investment bank has been responsible for manipulating the gold and silver markets. Also a share holder in the Federal Reserve Bank. The received government bailout money too.
Bank of America- Forecloses on homes they do not own or homes people who are not in default on their mortgage. They also charge customers with bogus overdraft fees. The received government bailout money too. Also a shareholder of the Federal Reserve bank.
Wells Fargo -They also stole homes from people they do not own. Charged customers with outrageous charges and bogus overdraft fees. Also a share holder in the Federal Reserve Bank. The received government bailout money too.
George Soros- A billionaire who has many warrants out for arrest worldwide for fraud for stealing money.

Bain capital Mitt Romney former firm that brought companies had factories shipped to china putting people out of work.
Speaker of the House John Boehner- Sold out the American people.
Majority Leader Nancy Pelosi- If she had her way would tax us 100 percent of our wages.
Barrack Obama- Has taken so many vacations and is working hard to wreck the economy of America by executive power of his office bypassing congress.
The House of Rothschild- They are responsible for wars and famines They have wrecked the economies of many nations to consolidate power by fraud.
The Rockefeller Klan- Have had a history of stealing the wealth of the people since the 1800s.
Ben Bernanke- The head of the Federal Reserve Bank. The master behind the these people pushing us all into hyperinflation stealing the wealth of the people by printing money out of thin air. The source of what is going on in the world.
Eric Holder and the other state Attorney Generals: They have failed to hold these bankers accountable for their fraud and theft of the wealth of the nation.
The Police officers who follow immoral laws- To those people who have sworn to uphold an defend the Constitution. They have aided and abetted in stealing homes. Created hardships for many people struggling because they had no insurance and registration. Towing away a car that might be their home. Shame on those officers for such callousness
These are the Grinches who stole Christmas’s from many Americans who have worked hard and played by the rules. The people who have lived honorable trying their best to raise their families honestly. Many children will be happy just to wake up in a warm bed Christmas morning or have a nice Christmas dinner.
Let 2013 be the year when economic justice prevails and these robber barons are arrested and convicted for their crimes against Americans. That would be one Christmas gift I be happy to receive is seeing all these money junkies behind bars.  The rule of law and divine Justice cannot be silent forever.

Financial Fraud in the Gold Market: Banks Pledge Same Gold to Numerous People

Banks Pledge Same Collateral Numerous Times

Big banks pledged the same mortgage to numerous people.
Similarly, big bullion banks borrow gold from central banks, and then rehypothecate it numerous times:
*         *        *

A 1999 study by the International Monetary Fund found that 80 central banks lent out 15% of their official gold reserves. Central banks now appear to have too little gold to meet their commitments.
And private banks are raiding allocated gold accounts.

US Presidents Murdered By The Rothschild Banking Cartel

Lincoln's Private War: The Trail of Blood
Lincoln's Birthday gives us an appropriate opportunity to examine some deep American traditions which may also give us some unusual insights into the "principalities and powers" of Ephesians Chapter 6.
Abraham Lincoln worked valiantly to prevent the Rothschild's attempts to involve themselves in financing the Civil War. 
Interestingly, it was the Czar of Russia who provided the needed assistance against the British and French, who were among the driving forces behind the secession of the South and her subsequent financing. Russia intervened by providing naval forces for the Union blockade of the South in European waters, and by letting both countries know that if they attempted to join the Confederacy with military forces, they would also have to go to war with Russia.
The Rothschild interests did succeed, through their agent Treasury Secretary Salmon P. Chase, to force a bill (the National Banking Act) through Congress creating a federally chartered central bank that had the power to issue U.S. Bank Notes. Afterward, Lincoln warned the American people:
"The money power preys upon the nation in time of peace and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. I see in the near future a crisis approaching that unnerves me, and causes me to tremble for the safety of our country. Corporations have been enthroned, an era of corruption will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people, until the wealth is aggregated in a few hands, and the republic is destroyed. "4
Lincoln continued to fight against the central bank, and some now believe that it was his anticipated success in influencing Congress to limit the life of the Bank of the United States to just the war years that was the motivating factor behind his assassination.
The Lone Assassin Myth is Born
Modern researchers have uncovered evidence of a massive conspiracy that links the following parties to the Bank of Rothschild:5 Lincoln's Secretary of War Edwin Stanton, John Wilkes Booth, his eight co-conspirators, and over seventy government officials and businessmen involved in the conspiracy. 
When Booth's diary was recovered by Stanton's troops, it was delivered to Stanton. When it was later produced during the investigation, eighteen pages had been ripped out. These pages, containing the aforementioned names,were later found in the attic of one of Stanton's descendants.
>From Booth's trunk, a coded message was found that linked him directly to Judah P. Benjamin, the Civil War campaign manager in the South for the House of Rothschild. When the war ended, the key to the code was found in Benjamin's possession.
The assassin, portrayed as a crazed lone gunman with a few radical friends, escaped by way of the only bridge in Washington not guarded by Stanton's troops. 
"Booth" was located hiding in a barn near Port Royal, Virginia, three days after escaping from Washington. He was shot by a soldier named Boston Corbett, who fired without orders. Whether or not the man killed was Booth is still a matter of contention, but the fact remains that whoever it was, he had no chance to identify himself. It was Secretary of War Edwin Stanton who made the final identification. Some now believe that a dupe was used and that the real John Wilkes Booth escaped with Stanton's assistance.
Mary Todd Lincoln, upon hearing of her husband's death, began screaming, "Oh, that dreadful house!" Earlier historians felt that this spontaneous utterance referred to the White House. Some now believe it may have been directed to Thomas W. House, a gun runner, financier, and agent of the Rothschild's during the Civil War, who was linked to the anti-Lincoln, pro-banker interests.
The Federal Reserve
Another myth that all Americans live with is the charade known as the "Federal Reserve." It comes as a shock to many to discover that it is not an agency of the United States Government. 
The name "Federal Reserve Bank" was designed to deceive, and it still does. It is not federal, nor is it owned by the government. It is privately owned.7 It pays its own postage like any other corporation. Its employees are not in civil service. Its physical property is held under private deeds, and is subject to local taxation. Government property, as you know, is not.
It is an engine that has created private wealth that is unimaginable, even to the most financially sophisticated. It has enabled an imperial elite to manipulate our economy for its own agenda and enlisted the government itself as its enforcer. It controls the times, dictates business, affects our homes and practically everything in which we are interested.
It takes powerful force to maintain an empire, and this one is no different. The concerns of the leadership of the "Federal Reserve" and its secretive international benefactors appear to go well beyond currency and interest rates.
Andrew Jackson
Andrew Jackson was the first President from west of the Appalachians. He was unique for the times in being elected by the voters, without the direct support of a recognized political organization. He vetoed the renewal of the charter for the Bank of the United States on July 10, 1832.
In 1835, President Andrew Jackson declared his disdain for the international bankers:
"You are a den of vipers. I intend to rout you out, and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning."8
There followed an (unsuccessful) assassination attempt on President Jackson's life. Jackson had told his vice president, Martin Van Buren, "The bank, Mr. Van Buren, is trying to kill me...."9
Was this the beginning of a pattern of intrigue that would plague the White House itself over the coming decades? Was his (and Lincoln's) death related by an invisible thread to the international bankers?
James Garfield
President James Abram Garfield, our 20th President, had previously been Chairman of the House Committee on Appropriations and was an expert on fiscal matters. (Upon his election, among other things, he appointed an unpopular collector of customs at New York, whereupon the two Senators from New York--Roscoe Conkling and Thomas Platt--resigned their seats.)
President Garfield openly declared that whoever controls the supply of currency would control the business and activities of all the people. After only four months in office, President Garfield was shot at a railroad station on July 2, 1881. Another coincidence.
John F. Kennedy
President John F. Kennedy planned to exterminate the Federal Reserve System. In 1963 he signed Executive Orders EO-11 and EO-110, returning to the government the responsibility to print money, taking that privilege away from the Federal Reserve System.10
Shortly thereafter, President John F. Kennedy was assassinated.11 The professional, triangulated fire that executed the President of the United States is not the most shocking issue. The high- level coordination that organized the widespread coverup is manifest evidence of the incredible power of a "hidden government" behind the scenes. (Sound preposterous? Read Kill Zone, by Craig Roberts for an update on the events in Dealey Plaza.)
The Trail of Blood Continues
In the 70's and 80's, Congressman Larry P. McDonald spearheaded efforts to expose the hidden holdings and intentions of the international money interests. His efforts ended on August 31, 1983, when he was killed when Korean Airlines 007 was "accidentally" shot down in Soviet airspace. A strange coincidence, it would seem.
Senator John Heinz and former Senator John Tower had served on powerful Senate banking and finance committees and were outspoken critics of the Federal Reserve and the Eastern Establishment. On April 4, 1991, Senator John Heinz was killed in a plane crash near Philadelphia.12 
On the next day, April 5, 1991, former Senator John Tower was also killed in a plane crash. The coincidences seem to mount.13
Attempts to just audit the Federal Reserve continue to meet with failure. It is virtually impossible to muster support for any issue that has the benefit of a media blackout.14 (The bizarre but tragic reality that the American people suffer from a managed and controlled media is a subject for another discussion.)
Beginning of a Series
For many years, numerous authors have attempted to sound the alarm that there exists a hidden "shadow government" that actually rules America. Most of us have dismissed these "conspiracy theory" views as extremist and unrealistic. However, when I had the opportunity to have lunch with Otto von Habsburg,15 Member of the European Parliament, he made two remarks that caught my attention. The first was: "The ignorance in America is overwhelming." Indeed, the contrast in general awareness of world affairs between the average American and the average European is striking.
It was his second observation that really provoked me: "The concentration of power in America is frightening."16 As a reasonably circumspect senior executive, having spent three decades in international finance and viewing America as a broadly based representative democracy, his remark shocked me. It prompted me to do some more homework. The results of my inquiries are most disturbing. 
1. Wardner, James W., The Planned Destruction of America, Longwood Communications, 397 Kingslake Drive, DeBarry, FL, 1994. [IMG]A "must read."
2. Roberts, Craig, Kill Zone, Consolidated Press International, 1994. Fascinating expos, on the assassination of John F. Kennedy. Paul, Ron, The Ron Paul Survival Report (a newsletter by a former congressman on monetary issues, personal survival, etc.), P.O. Box 602, Lake Jackson, TX, 77566.
(A comprehensive list of similar resources is also included in the notes to The Vortex Strategy, Volume 2.)
1. Briefing Packages Iron Mixed with Clay: The Emergent European Suprastate; Mystery of Babylon; Daniel's Seventy Weeks; et al.
2. 2 Corinthians 2:11.
3. Ephesians 6:12.
4. Roberts, Archibald E., Bulletin--Committee to Restore the Constitution, Feb. 1989, p. 6; H.S. Kennan, The Federal Reserve Bank, p. 9; James W. Wardner, The Planned Destruction of America, p. 23.
5. Roberts, Craig, Kill Zone, p. 170.
6. Thomas W. House was the father of "Colonel" Edward Mandell House who later became the key player in the election of Woodrow Wilson and the passage of the Federal Reserve Act.
7. Lewis vs. United States, Ninth Circuit Court, Apr. 17, 1982.
8. Roberts, Archibald E., Bulletin--Committee to Restore the Constitution, Feb. 1989, p. 5.
9. Schlesinger Jr., Arthur M., The Age of Jackson, Mentor Books, NY, 1945, p. 6-7.
10. Roberts, Craig, Kill Zone, Typhoon Press, Consolidated Press International, 1994, p. 189.
11. For a current summary of what really happened at Dealey Plaza, read Craig Robert's Kill Zone.
12. Kah, Gary H., En Route to Global Occupation, Huntington House Publishers, Lafayette, LA, 1992, p. 19.
13. ibid., p. 18.
14. ibid., p. 19-20.
15. His father ruled Europe until the end of the Austrian-Hungarian Empire in 1918.
16. Personal UPDATE, November 1993, p. 4-8.

This Is How The Banksters Took Control Of You!!!

Spain 2012 Deficit Slippage Looms as Recession Deepens

Spain will struggle to meet its 2012 deficit target as a contracting economy hinders the impact of the deepest budget cuts in the nation’s democratic history, Deputy Budget Minister Marta Fernandez Curras said.
“It will be difficult, but who says it’s impossible?” Curras told reporters in Madrid yesterday evening after Budget Ministry data showed the central-government’s shortfall through November was 4.37 percent of gross domestic product.
Curras said the social security system, combining Spain’s tax-funded pensions and unemployment insurance, is expected to register a gap of around 1 percent of output in 2012. The central government and social security together have a full-year deficit goal of 4.5 percent.
For now, Prime Minister Mariano Rajoy’s government has ruled out seeking European aid to curb a surge in borrowing costs while acknowledging Spain may miss its deficit target. The Brussels-based European Commission suspended its budget-cut prescriptions for the nation last month as the euro region sank into a recession.

No Need

Rajoy said on Dec. 14 that Spain hasn’t sought aid because it doesn’t need it. Spanish exports rose 8.7 percent in October from a year ago after gaining 0.5 percent the previous month, Economy Ministry data showed today. Spain’s trade deficit is down 28 percent over the first ten months of the year as declining labor costs helped make the nation’s products more competitive.
The yield on Spain’s 10-year benchmark bond rose three basis points to 5.26 percent at 1:24 p.m in Madrid, compared with a euro-era high of 7.75 percent on July 25, a day after Spain signed conditions for as much as 100 billion euros in European loans for its banks, and a day before European Central Bank President Mario Draghi pledged to defend the euro. The spread with similar German maturities widened five basis points to 3.86 percentage points.
The European Union has set Spain an overall deficit target of 6.3 percent of GDP for this year, after overspending swelled to 9.4 percent in 2011. That includes the balance from the 17 semi-autonomous regions, 8,000 municipalities and the Social Security.

Too Early

“The data are in line with the economic situation we are going through,” Curras said. “I myself would like to know today how much tax receipts will amount to at the end of the year, but it’s too early to say.” It’s difficult to forecast the deficit to the exact decimal place, she said.
Total tax receipts collected by the state in the first 11 months of 2012 rose 1.1 percent on a cash basis. The government increased income tax in February and value-added tax in September to slow a drop in revenue. The euro area’s fourth- largest economy is due to shrink for a sixth straight quarter in the three months through December.
Central government spending rose 0.1 percent on a cash basis, boosted by a 16.3 percent surge in interest payments to 25.5 billion euros and a 3.2 increase in transfers including social security funding and payments to the regions. Curras said an increase in revenue and a drop in spending should reduce the deficit this month.

Public Aid

While public aid to recapitalize the banking sector may be included in the deficit, Curras said it is a one-time item that won’t be taken into account by the European Commission to assess whether the nation is complying with the targets it has been set under a so-called “excessive deficit procedure.”
In a separate statement, the Social Security Ministry said the pensions system registered a surplus of 0.26 percent of GDP in the first 11 months, down from 0.60 percent a year earlier. The figure doesn’t include the balance from the unemployment- benefits system and the data are not comparable with Spain’s deficit target.
Rajoy said last week he couldn’t predict what the deficit will be this year. In a Bloomberg Survey of 18 estimates, economists see it at 7.55 percent of GDP, followed by 6 percent next year, again overshooting its EU target, set at 4.5 percent of output.
While unemployment is already the highest in the EU, above a quarter of the workforce, economists expect the recession to worsen to 1.5 percent in 2013, three times as much as the government’s official forecast, after 1.4 percent in 2012, according to 37 estimates.

Christmas food handouts double as millions face 'financial precipice'

Debt-ridden households could kill off economic recovery when interest rate rises, says Resolution Foundation

Food bank
Volunteers at food banks aim to tackle 'hidden hunger' - that affecting people who refuse to accept free food because they think it carries a stigma. Photograph: Christopher Thomond for the Guardian
The number of people who will turn to food banks for sustenance is expected to double this Christmas, as a new report warns that millions more families face a financial "precipice" due to high personal debts, flatlining wages and future interest rate rises.
With three new food banks opening every week in the UK, the charity that oversees Britain's 292 emergency outlets, the Trussell Trust, says it expects to feed 15,000 people over the Christmas fortnight alone, almost double the number last Christmas.
At the same time, a study published by the Resolution Foundation, an independent thinktank, says millions of households with low to middle incomes will be pushed close to the edge if they are unable to reduce their debts, including mortgages, before the cost of borrowing returns to more normal levels.
Volunteers who are giving up part of their holiday to help run food banks – from students to pensioners and representatives of local businesses – will be out in record numbers across Britain this week, distributing food to those who cannot afford a decent Christmas. Their aim is also to tackle "hidden hunger" – that affecting people who refuse to accept free food because they think it carries a stigma.
The Resolution Foundation report exposes how millions of families, unable to pay off debts, are facing a crisis if interest rates are pushed up in coming years to keep inflation down.
Matthew Whittaker, senior economist at the Resolution Foundation and the author of the report, On Borrowed Time?, said: "Debt levels are a major concern for a substantial number of families struggling under a burden of repayments, even as things stand.
"There is a very real prospect that borrowing costs will rise more quickly than incomes and that lenders will become less flexible over repayments. Many households are already in a very exposed position, even with interest rates on the floor, so even small changes in the financial outlook could have a dramatic effect.
"All this threatens to make the burden unbearable for many debt-loaded households, particularly those on lower incomes. This would be dangerous at any time, but it looks especially so in the current era of frozen wages, under-employment and faltering living standards."
Figures published last week by the Bank of England showed that 3.6 million households – 14% of the total – now spend more than a quarter of their income on debt repayment, including mortgage costs. The Bank also says that up to 1.4 million households (12% of those with mortgages) are in special measures with their bank, having asked for temporary deals from their lenders.
The RF report shows that debt is distributed unevenly across income groups, with those in the poorest 10% of households spending on average 47% of their monthly income on debt repayments, compared with 9% for the richest 10%.
It also highlights how 2.4 million households with a mortgage (one in five) are spending more than 25% of their gross income on mortgage repayments alone – at a time when interest rates are at just 0.5%. Before the debt boom of the 2000s, only 15% of households were in this position, even when interest rates were as high as 7%.
The debt problem is likely to be all the more serious for struggling families because wages and household incomes are likely to stagnate over the next few years. The RF suggests that the average full-time wage will rise no higher in real terms than its 2000 level of £26,200 until at least 2017 – down from a peak in 2009 of £29,000.
Few economists expect interest rates to rise in the near future – almost certainly not in 2013 – but after that the Bank of England would be under pressure to raise rates to see off the threat of inflation were the economy to show signs of recovery.
The report notes the delicate balance that the Bank – under its newly appointed governor, Canadian Mark Carney – will have to strike between controlling inflation through raising interest rates and creating a risk of mass mortgage default and increased bankruptcy rates, which could combine to derail any nascent recovery in the economy.
The report says: "The prospect of interest rates rising and forbearance [special arrangements people set up with banks to help them through] being removed while incomes continue to stagnate heightens the risk of future defaults. Such an outcome may yet slow down, or stall, economic recovery: at some tipping point the micro issue becomes a macro one. In this eventuality, we may find that the green shoots of recovery just sprouting in the UK economy prove to be living on borrowed time."

US to deploy newest weapons to Asia-Pacific

The United States plans to deploy some of its newest warships and other high-tech weapons to the Asia-Pacific as part of a strategic shift to the region, a US defense official said Wednesday.
The Pentagon will send P-8 submarine-hunting aircraft, cruise missiles, Virginia-class submarines, coastal combat ships and F-35 fighter jets to Asian ports and bases in coming years, the senior official told reporters
"What you're seeing is part of a bigger effort, the Pacific theatre will get the newest weapons systems first," he said, speaking on condition of anonymity.
The Pentagon has promoted a tilt to Asia after a decade of ground wars in Iraq and Afghanistan, reflecting concern over China's growing military power and its assertive stance in territorial disputes with its neighbors.
The United States already plans to deploy more than half of its fleet to the Asia-Pacific and to station four littoral combat ships -- speedy new vessels designed to operate near coastlines -- for rotational deployments in Singapore.
Defense Secretary Leon Panetta said Tuesday that the stealthy F-35 Joint Strike Fighter, which is still in development, could be deployed at the Iwakuni air station in Japan's Yamaguchi prefecture by 2017.
Washington also is providing Japan with another powerful X-band radar to bolster its missile defenses, a move announced in September.
Vietnam, the Philippines and other countries in Southeast Asia are locked in escalating territorial disputes with China and have sought to bolster military ties to Washington to counter Beijing's influence.
The senior US defense official, recounting recent talks in Southeast Asian capitals, said governments were watching closely to see how China's new political and military leadership will handle the territorial arguments.
"There was palpable concern and deep concern" over Beijing's recent actions on the South China Sea, the official said.
He was referring to tough new maritime rules from China's Hainan province, a controversial map in new Chinese passports and allegations that Chinese fishing boats cut the seismic cables of a Vietnamese geological survey vessel.
Hainan province adopted new regulations last month allowing local police to board and expel foreign ships entering waters it considers under Chinese jurisdiction.
And Beijing infuriated its neighbors by issuing new passports containing a map showing its claim to nearly the whole of the South China Sea.

Currency Wars Expand Their Battlefield

The price of gold has been in decline over the past few weeks. Despite the Federal Reserve launching a fourth round of quantitative easing, the precious metal can not seem to stem the heavy selling pressure. However, long-term investors are not likely to be deterred by the short-term price action as central banks around the world continue to engage in currency wars.
In a recent speech at the Economic Club of New York, Bank of England Governor Mervyn King predicted a continuation of currency wars next year. He explains, “I do think 2013 could be a challenging year in which we will, in fact, see a number of countries trying to push down their exchange rates. That does lead to concerns. Will other countries react in kind? What will happen? The policies pursued by countries for domestic purposes are leading to tension collectively.” He also adds, “There are limits to how far monetary policy can be effective in the very long run shifting spending for the future to today.”

At this point in the war, central banks are still trying to find their limits. Over the past six years, the maestros of the printing presses have injected the financial system with roughly $11 trillion and show no signs of slowing down. At its two-day policy board meeting, the Bank of Japan decided to increase its asset purchase program for the third time in only four months. The central bank effectively launched QE10 by expanding the monetary easing weapon by 10 trillion yen to 101 trillion yen. Including the latest move, the BOJ has expanded its quantitative easing program five times this year. “Japan’s economy is weakening further and is expected to remain weak for the time being,” explained the central bank, according to Reuters.
The bond buying expansion was widely expected as Shinzo Abe, the country’s new prime minister from the Liberal Democratic Party, recently won his election in a landslide. He has promised to stimulate the economy with a large spending package and is a strong advocate of monetary easing by the BOJ. In addition to QE10, the central bank pledged to review its “medium to long-term price stability” at its next meeting in January. The BOJ currently has a 1 percent inflation target, but is expected to implement a 2 percent target, as demanded by Abe.
The Federal Reserve already has a 2 percent inflation objective and recently explained in its latest Federal Open Market Committee statement that it will tolerate higher inflation as long as longer-term inflation expectations continue to be well anchored. While the BOJ does not technically have an unlimited bond purchasing program officially in place like the Federal Reserve and European Central Bank, there appears to be little limit in how much the BOJ can ease, so far.
When central bankers intervene and manipulate financial markets it distorts investment decisions and creates capital misallocations. The full effects of monetary easing will likely not be known for years, but some investors are taking caution ahead of time. As the WSJ reported earlier this week, a small number of pension funds in Japan are starting to invest in gold in order to “mitigate the damage from possible market shocks.” Gold is currently trading near multi-month lows, but corrections like this are not uncommon and precious metals still remain as a viable way to diversify a portfolio against currency wars.
Copyright Wall St Cheat Street All rights reserved.

The Real Transfer of Wealth: From Manufacturing to Government (with Infographic)

There has been a clear transformation taking place within the American economy for quite some time, but most dramatically in the 21st century.

The story centers around industry. Creators of the infographic posted below worked with InetSoft, as well as data obtained from the U.S. Department of Commerce, Bureau of Economic Analysis to look at the shift in percentage of U.S. GDP as made up by various industries over the first decade.

Their numbers and conclusions, at least in terms of statistical relevance, seem to reveal the impact that increasing centralized government control has had on the economic fabric of America.

This infographic further echoes what many independent economists and analysts have noted: there is demonstrable evidence showing how America's foundation of entrepreneurial independence has been eroded by creeping bureaucracy and collectivism.

The production capacity of a solid manufacturing base (in a free market) fosters independence; the declining productivity of a country through the sacrifice of its manufacturing guarantees dependence.

As infographic creators note:

Looking at the data, some interesting trends emerged. Among them were the fact that U.S. manufacturing accounted for 14.2% of the GDP in the year 2000. By 2011 manufacturing had declined to the point that it only represented 11.5% of the GDP.
Based on estimates of a $15 trillion dollar GDP in 2011, manufacturing would have created an extra $404 billion dollars, they conclude. Where did this money go? Into the government sector:
Conversely, some sectors of U.S. Industry represent a much larger share of the GDP now than they did in 2011. Among them are government (up 1% or $149 billion dollars) and educational/healthcare/social services (up 1.9% or $284 billion dollars). 
We can see it here:
How the American Economy has Changed in the 21st Century [Infographic]
© 2012 InetSoft Technology Corp.

The conclusion is inescapable: the changes noted above have not improved the overall economic condition of America, they have imperiled it. This, coupled with the massive looting that has taken place by the shadow banking system colluding with government is sending future generations on a path toward indentured servitude.

The Bureau of Labor Statistics Overview of the 2008-2018 Projections shows that since government has now co-opted health care, finance, insurance, and information, it will hold fully 30% of all future employment growth, far outweighing any private sector.

When the number one growth industry is government, it is likely to lead to a place very far away from what the the founding fathers of the country had in mind.

Please view the video below to see how things end if not immediately corrected:

Read other articles by Activist Post Here

[71] Americans Living an Illusion, 2012 Misses, 2013 Predictions

Banking: thousands of customers switch their accounts out of the big five

Co-operative bank branch in Chester 
 Building societies, credit unions and co-operatives benefit as anger over scandals turns to action
The Co-operative bank has seen the number of people switching to its current accounts jump by 43% over the past year. Photograph: Ian Dagnall/Alamy
Consumers are deserting major high-street banks in unprecedented numbers after a slew of revelations about unethical behaviour, according to data from the Move Your Money campaign.
Building societies, credit unions and co-operatives have all reported a sharp rise in new business over the past 12 months as the reputation of the major banks has taken a hammering.
Laura Willoughby, Move Your Money's chief executive, said: "Anger with the banks is turning into action. This year British banks have been exposed for exploiting their customers, starving the economy of credit and flouting the law."
Credit unions – small, usually locally based savings groups – have attracted almost 20,000 new accounts in the past six months, according to Move Your Money, while ethical banks Triodos, Ecology and the Charity Bank have all reported a jump in customers.
Building societies saw 78,000 customers sign up for savings accounts in the third quarter alone after Barclays was implicated in the Libor-fixing scandal, which has spread to engulf several other banks.
"Customers are clearly far more interested now in the way financial services companies are run," said a spokeswoman for the Building Societies Association. "Putting that into the mix alongside interest rates and service has been positive for mutuals like building societies."
The Co-operative bank, which will treble the size of its network next year when it takes over 632 Lloyds branches, has seen the number of people switching to its current accounts jump by 43% over the past year.
Move Your Money urges savers to shift their accounts from the so-called big five – Barclays, HSBC, Santander, Lloyds Banking Group and RBS – to ethical or mutually owned alternatives.
The government has sought to boost competition in the banking market as a way of improving the performance of the big players. Business secretary Vince Cable said: "One of the biggest things is competition: getting new banks in to challenge the others."
Andrew Tyrie, the Conservative MP chairing the parliamentary commission on banking standards, said last week: "The latest revelations of collusion, corruption and market-rigging beggar belief".