Friday, June 28, 2013

Peter Schiff: Fed To Ramp Up QE, Phony Recovery Will Evaporate

Food Stamp Issue Derails Farm Bill as Recipients at Record High

Yahoo NewsroomYahoo News – by Siemond Chan | The Exchange
Last week’s dramatic defeat of the farm bill in the House put a fresh emphasis on the issue of food stamps in the U.S., just as the number of recipients for the program sits at a record high.
The 195-234 vote against the $500 billion farm policy bill, a version of which the Senate passed earlier this month, came amid congressional disagreements regarding cuts to theSupplemental Nutrition Assistance Program, or SNAP. Keen focus was placed on an amendment put forth by Republican Rep. Steve Southerland, which required beneficiaries to sign up for employment-training programs in order to continue receiving food stamps. Many Democrats, who may have been willing to OK the $20 billion in food-stamp cuts the House version included, balked at the amendment, and only 24 ultimately voted for passage of the bill. Another dysfunctional-family blame game between the GOP and Democrats ensued as the defeat provided a serious blow to House Speaker John Boehner.
What will happen next with the farm bill, which has been operating under rolling extensions since the the old bill’s 2008 expiration, remains to be seen. But its failure to thrive in the face of the food-stamp fight comes as the number of U.S. citizens receiving this benefit, at 47.7 million as of March of this year, exceeds the entire population of Spain, the sixth-most-populous country in the European Union.
Enrollment in SNAP has soared by 70% in the past five years; the U.S. shelled out a record $74.6 billion on the program in 2012, more than double what was spent in 2008, when the financial crisis hit in full force toward the end of the year. The U.S. officially exited the Great Recession, which began in 2007, in June of 2009. Since then, the economy has experienced a slowly churning recovery — with plenty of hiccups — marked by an increase in payroll levels, a slow-and-steady housing comeback and a massive pop in equities that’s been at least partially fueled by unprecedented monetary stimulus.
But amid the recovery, the U.S. has also seen an increase in poverty levels, which the Census Bureau puts at 15.9% of the total population, or close to 50 million citizens. The Census Bureau puts close to 50 million Americans, or 15.9% of the total population, at or below the poverty level. In 2008, that figure was 13.2% of the population. And, while the unemployment rate has fallen from 10.1% at its Great Recession peak to 7.6% in May, 11.8 million Americans still remain without work, while 4.4 million are among the long-term unemployed.
Along with a push from many states to encourage more eligible people to apply for the federally funded SNAP program, the rise in food-stamp recipients can also be traced to rules with roots in former President Bill Clinton’s sweeping 1996 welfare overhaul. The rules allow for a slight relaxing in the income and asset tests for eligible food stamp recipients, meaning they can apply for such benefits before they wipe out all their savings and need even more assistance. The Obama administration encouraged states to ease these rules during the financial crisis, in an attempt to stem rising poverty rates in a critical economic hardship environment. So while the gross monthly income for an eligible household (with three members) must generally be at or below 130% of the poverty line (around $23,800 annually), and assets must typically not go above $3,250, exceptions can be made. For example, a recent Wall Street Journal article interviewed a SNAP recipient who had more than $5,000 in savings but was still eligible for the program.
As the article points out, the relaxed rules are “one reason why SNAP appears to have evolved from a program that rose and fell with the unemployment rate to a more permanent feature of the landscape.”
Almost 75% of of SNAP beneficiaries are families with one or more child; more than one-quarter of homes that receive food stamps include senior citizens or people with disabilities. The typical SNAP recipient received about $133.41 in benefits per month in fiscal year 2012. — Rebecca Stropoli
Rise in number of Supplemental Nutrition Assistance Program (food stamp) recipients. Source: USDA.

'I applied for 60 jobs but got nothing': As graduate starts unpaid internship, the number of shelf stackers with a degree DOUBLES in just six years

  • Nearly one student in ten was unemployed six months after graduating
  • Women graduates fare better than men in the job market, data suggest
  • But two-thirds of graduates still make it into 'professional' occupations

  • Poorly paid: Former bar worker and graduate Tom MacDonald who has been struggling to get a job
    Poorly paid: Former bar worker and graduate Tom MacDonald who has been struggling to get a job
    Tom MacDonald spent nine months working in a hotel bar on the minimum wage after graduating last year.
    Mr MacDonald, 22, who gained a 2.1 degree in medical and veterinary biochemistry from Swansea University, repeatedly applied for graduate jobs in finance.
    He obtained a few interviews but was unsuccessful and was forced to move back to his parents’ home in Rochester, Kent.
    He said: ‘I applied for about 15 to 20 graduate jobs, but eventually just needed anything.
    'While I was at the hotel, I must have applied for about 40 graduate schemes.’
    Mr MacDonald worked up to 13 hours a day at Brands Hatch Place Hotel in Kent, receiving £6.19 an hour.
    He said: ‘Working for minimum wage made doing a degree feel like a waste of time.’
    Last week he secured a three-month paid internship with a London commodities company, although the placement does not guarantee him a permanent job.
    The number of new graduates taking menial jobs such as shelf stackers and rubbish collectors has almost doubled in six years, official figures reveal.
    Some 9,695 – six per cent of those looking for jobs – took up posts that did not require degrees after leaving university in 2012.
    These included working as bar staff, waiters and waitresses, hotel porters, couriers, mail sorters and window cleaners.
    This compares with the 5,460, or four per cent of students, who ended up in these  ‘elementary occupations’ six months after graduating before the recession in 2007, according to the Higher Education Statistics Agency.
    The figures also showed that women are faring better than men in the job market.
    Is it worth the effort? Figures published today showed 20,000 students were unemployed six months after getting their degrees, with men more likely to be out of work than women
    Is it worth the effort? Figures published today showed 20,000 students were unemployed six months after getting their degrees, with men more likely to be out of work than women
    More than one in ten (10.9 per cent) of male graduates whose whereabouts were known six months after they finished their first degree were jobless, compared to 7.2 per cent of women.
    The statistics will be particularly alarming for undergraduates who started degree courses last September, when tuition fees tripled to £9,000-a-year. It has been estimated that some could leave saddled with debts of £30,000. Overall, more than 20,000 – nine per cent – of graduates were out of work after failing to gain even menial jobs six months after completing their degree in 2012. This is the same proportion as 2011.
    Among the graduates who did secure employment, 36 per cent – 57,785 – were classified as being in ‘non-professional’ jobs.
    This included 745 working as plant and machine operatives, 21,025 who ended up in sales, 10,555 who were working in the leisure industry, 1,980 in skilled trades and 13,785 in secretarial jobs.
    Among the 9,695 graduates working in the ‘elementary occupations’, 1,990 came from creative arts and design degree courses and 1,300 from biological sciences.
    BA in photocopying studies: More than a third of new graduates working in the UK were in 'non-professional' jobs that did not necessarily require a degree, like office junior, the most recent figures showed
    BA in photocopying studies: More than a third of new graduates working in the UK were in 'non-professional' jobs that did not necessarily require a degree, like office junior, the most recent figures showed
    One in five – 145 – of the graduates who became plant operatives were from the creative arts. There were 1,760 students from social sciences degree courses working as secretaries, along with 2,895 from business and administrative studies and 1,575 from biological sciences.
    The statistics were based on a survey of more than 400,000 2012 UK and EU graduates. This included 232,110 full-time first degree holders.
    HESA said there had been some minor changes to the occupational classifications made by the Office for National Statistics but comparisons could still be made.
    Pete Mercer, a National Union of Students vice-president said: ‘Under-employment is a growing problem, particularly for those at the beginning of their careers. Students and graduates are ready to take a real role in creating the jobs and economy we need, and have the skills to do it, but need some support from government and business.’

    Three years study for this? Around 9,695 graduates were working in 'elementary occupations', taking jobs as hospital porters, waiters, bartenders, road sweepers, window cleaners and shelf stackers
    Three years study for this? Around 9,695 graduates were working in 'elementary occupations', taking jobs as hospital porters, waiters, bartenders, road sweepers, window cleaners and shelf stackers
    A spokesman for the University and College Union, added: ‘If we are to have any chance of being a major player on the global stage we need to be investing in skills at both university and college level.’
    Meanwhile university applications fell after the cap on tuition fees was raised last September. Figures show that overall entry rates in England – where fees were the highest – slumped by 51,000 in just 12 months.
    The Universities and Colleges Admissions Service (Ucas) said that this ‘substantial’ 13 per cent decline in numbers last September was directly associated to the rise in the cost of a degree.
    Some suffered significantly sharper declines, with even members of the prestigious-experiencing a drop in admission rates.

    The Expendables: Major corporations rely on temporary workers who have little protection

    By Pro Publica
    Thursday, June 27, 2013 9:38 EDT
    Female hanging over file crate looking sleepy (Shutterstock)
    • 35

    By Michael Grabell, ProPublica
    It’s 4:18 a.m. and the strip mall is deserted. But tucked in back, next to a closed-down video store, an employment agency is already filling up. Rosa Ramirez walks in, as she has done nearly every morning for the past six months. She signs in and sits down in one of the 100 or so blue plastic chairs that fill the office. Over the next three hours, dispatchers will bark out the names of who will work today. Rosa waits, wondering if she will make her rent.
    In cities all across the country, workers stand on street corners, line up in alleys or wait in a neon-lit beauty salon for rickety vans to whisk them off to warehouses miles away. Some vans are so packed that to get to work, people must squat on milk crates, sit on the laps of passengers they do not know or sometimes lie on the floor, the other workers’ feet on top of them.
    This is not Mexico. It is not Guatemala or Honduras. This is Chicago, New Jersey, Boston.
    The people here are not day laborers looking for an odd job from a passing contractor. They are regular employees of temp agencies working in the supply chain of many of America’s largest companies 2013 Walmart, Macy’s, Nike, Frito-Lay. They make our frozen pizzas, sort the recycling from our trash, cut our vegetables and clean our imported fish. They unload clothing and toys made overseas and pack them to fill our store shelves. They are as important to the global economy as shipping containers and Asian garment workers.
    Many get by on minimum wage, renting rooms in rundown houses, eating dinners of beans and potatoes, and surviving on food banks and taxpayer-funded health care. They almost never get benefits and have little opportunity for advancement.
    Across America, temporary work has become a mainstay of the economy, leading to the proliferation of what researchers have begun to call “temp towns.” They are often dense Latino neighborhoods teeming with temp agencies. Or they are cities where it has become nearly impossible even for whites and African-Americans with vocational training to find factory and warehouse work without first being directed to a temp firm.
    In June, the Labor Department reported that the nation had more temp workers than ever before: 2.7 million. Overall, almost one-fifth of the total job growth since the recession ended in mid-2009 has been in the temp sector, federal data shows. But according to the American Staffing Association, the temp industry’s trade group, the pool is even larger: Every year, a tenth of all U.S. workers finds a job at a staffing agency.
    The proportion of temp workers in the labor force reached its peak in early 2000 before the 2001 slump and then the Great Recession. But as the economy continues its slow, uneven recovery, temp work is roaring back 10 times faster than private-sector employment as a whole 2013 a pace “exceeding even the dramatic run-up of the early 1990s,” according to the staffing association.

    4 Ways to Ignore the State

    [Editor’s Note: The following is by TDV Oregon Group Moderator, Josh White, and appeared in the June edition of TDV Homegrown.]

    When I set out to write this article it started as a project to sell Oregon to freedom loving people, however that is a bit like trying to sell Alcatraz to a bunch of bootleggers. I am not of the same caliber as some of the other contributors. I don't have insight into investments, I can't tell you which countries are more free than others, and I can't write about the virtues of entrepreneurship. What I do bring to the table is a bottoms-up view of how the below-average earner ignores, circumvents, and undermines the state's power.

    Here in the grand ole USSA, and Oregon specifically, our not so benevolent overlords often use taxation as a social engineering tool. They tax our gas so we won't drive, and then tax our ID when we choose not to drive. If there is a "Social Ill", the answer seems to be theft. One of the biggest areas that many people lose their hard-earned capital is booze. Who doesn't love a beer at the end, or in the middle, of the day? Unfortunately alcohol is not only a taxed product,but many of the companies have a state-enforced monopoly on the sale and production. The state gets a cut from the sale of the alcohol and another cut for the sale of the container, and in places like Oregon the state owns every liquor store within its territory. In the United States, buying beer is supporting the state, but all is not lost! I am sure there are a few of you who know where I am going with this, but stay with me this is only our first stop on the layman's road to autonomy. You can have your beer, wine, and even whiskey, all without giving Uncle Sam what he claims is his due.

    Home Brewing
    Home brewing is an easy process that is right up the anarchist alley. A whole book could be written about the art and science of brewing, and a multitude have been. I am just here to give you a quick and easy recipe to get you out the door and into a state-free buzz.

    Peach Cinnamon Mead (Honey Wine)
    This mead is a mixed category mead. It is a combination Metheglin (with spices) and Melomel (with fruit). If you have never tried mead, you are in for a pleasant surprise. The flavor is mild and can be as sweet or as dry as you like. For this mead the flavor will turn out rather sweet.

    3lbs raw local honey

    2 locally grown peaces

    2 sticks organic (or at least real) cinnamon

    1 gallon of water (preferably spring or well, but filtered tap water will do)

    2.5 to 5 grams of champagne yeast (I used lalvin baking yeast for my first batch, and it was fine)

    1 large pot

    2 gallon jugs (preferably glass, but thoroughly sanitized plastic water jugs will do ONLY USE THEM ONCE!)

    1 airlock (a party balloon with one or two pin holes in the top is the poor man's version)

    1 cheese cloth

    1 funnel

    After cleaning your work space slice your peaches into wedges, add one hole peach and one cinnamon stick to your pot with ½ of your gallon of water. Bring this to a rolling boil and reduce heat to a simmer. You are going to let this simmer until you have reduced its volume by just over half. Let this cool to room temperature. After this has cooled to room temperature it is time to prepare your must, in a cup or bowl bring a quarter cup of water to about 80°F/26°C dissolve your yeast and 3 tsp sugar, when the yeast becomes active combine your reduction, honey, and yeast into the rest of your water. Gently aerate the mixture by shaking the jug with the cap on. Put your airlock, or balloon over the mouth of your jug and store in a warm, dark dry, place for two weeks. After two weeks of fermentation filter the mixture through the cheesecloth into your clean empty jug and seal with the air lock. After six weeks your fermentation should be done, you now have a gallon of mead, without Uncle Sam intervening. For more on this you can check out any of the Homebrew forums, but my favorite is

    Home brewing is really only one way that we, that is capital-challenged people, ignore the state. Many of us use simple cryptography to hide our day-to-day conversations from any number of alphabet agencies. The crypto-anarchy community today uses things like PGP cryptography, and TOR and other methods that the average person either does not have the know how, or perhaps the time, to use. However there are some services, my favorite are free, that give easy access to real privacy. Through services such as “Redphone” for android, and “textsecure” we can cut our metadata footprint merely to a piece of data that says “an anonymous user with this app contacted another user with this app”. This security isn't needed because we are doing something untoward. It is important because our lives are our own, and no one should be privy to our conversation unless they have our express permission. These free apps may be found here.


    The third way that one can best ignore the state is in what you eat and how you get your food. I am constantly recommending to my friends and acquaintances that they begin a garden, even in a highly urban location this is easy to do. Square foot gardening is a great place to start. I have grown herbs, tomatoes, carrots, peas, and even watermelons on my apartment balcony. I don't have to worry about what the government says is safe to eat because I grew my food myself. Herbs and vegetables are also great for barter and can help build ties with neighbors and other local growers, and the best mojitos are made with home-grown mint.


    One of the of the overlooked parts of ignoring the state, especially by anarchists, is that of community. We live in and among statists, they are part of our community, and here is the dirty little secret: Many of them hate taxes and intrusions as much as we do. If we are to ignore, and undermine the state we need to have connection to the community. I gave a recipe for mead above, it doesn't do you any good to go to Wal-Mart and buy the honey and yeast, that is still buying into the state. You need to know your local farmer, beekeeper, and whomever else is a local producer. Many of these people are small business owners, entrepreneurs, and as free people we can help spread this by simply offering to trade hard currency, or labor, for their goods.

    Many of us ignore the state already, the state plays a minor role in our day-to-day lives, we ignore laws, we ignore cops, and we live as free as we can. We can use agorism to encourage others to do so, and in doing so spread freedom. Every Saturday my town has a “Saturday Market”, a farmers market and an artisans market, and every Saturday I go down with a handful of silver and try to make purchases of fresh vegetables, honey, and crafts. As I do this people ask questions, many about why I am not giving them “real money”, and I have seen many merchants begin to accept this hard currency. It is not the lure of “tax-free income”, or “no rulers” that wins these people over, it is simply economic reliability. They can see that my silver is holding its value better than the Federal Reserve notes that others are handing them, and they want more stability in their lives. We can make our stands, and preach the virtue of non-aggression, but it building relationships locally that will cause change. It is creating free markets where there are none, that will help people free themselves.

    I started this hoping to make some grandiose statements, and present new and exciting ideas to TDV readers, but I have come to the realization that I don't have more than a small town anarchists point of view on ignoring the state. I can't tell you how to live off grid, I don't have new insights on mutually beneficial exchange. All I can say is to ignore the state you need two things. Firstly you need to know how to do things for yourself, how to grow, or make food stuff, or create opportunities for those that do, and secondly you need to have community. In that spirit I hope that people reading this will take up gardening, home brewing, guitar, what ever, and use those skills to trade with and bolster the independence of your neighbors.

    For more engaging and informative articles like this, geared towards fostering a healthier, happier life, please subscribe to TDV Homegrown.
    Josh White is an Anarcho-Capitalist out of Eugene, Oregon. Eugene is a wonderful place for peaceful people of all stripes, Located only a few hours from Portland, and a stone's throw from the cascades the Willamette Valley is an ideal location for urbanites and homesteaders. If you have any questions about Eugene don't hesitate to ask at

    A New Beginning Without Washington’s Sanctimonious Mask — Paul Craig Roberts

    A New Beginning Without Washington’s Sanctimonious Mask
    Paul Craig Roberts
    It is hard to understand the fuss that Washington and its media whores are making over Edward Snowden. We have known for a long time that the National Security Agency (NSA) has been spying for years without warrants on the communications of Americans and people throughout the world. Photographs of the massive NSA building in Utah built for the purpose of storing the intercepted communications of the world have been published many times.
    It is not clear to an ordinary person what Snowden has revealed that William Binney and other whistleblowers have not already revealed. Perhaps the difference is that Snowden has provided documents that prove it, thereby negating Washington’s ability to deny the facts with its usual lies.
    Whatever the reason for Washington’s blather, it certainly is not doing the US government any good. Far more interesting than Snowden’s revelations is the decision by governments of other countries to protect a truth-teller from the Stasi in Washington.
    Hong Kong kept Snowden’s whereabouts secret so that an amerikan black-op strike or a drone could not be sent to murder him. Hong Kong told Washington that its extradition papers for Snowden were not in order and permitted Snowden to leave for Moscow.
    The Chinese government did not interfere with Snowden’s departure.
    The Russian government says it has no objection to Snowden having a connecting flight in Moscow.
    Ecuador’s Foreign Minister Ricardo Patino responded to Washington’s threats with a statement that the Ecuadorian government puts human rights above Washington’s interests. Foreign Minister Patino said that Snowden served humanity by revealing that the Washington Stasi was violating the rights of “every citizen in the world.” Snowden merely betrayed “some elites that are in power in a certain country,” whereas Washington betrayed the entire world.
    With Hong Kong, China, Russia, Ecuador, and Cuba refusing to obey the Stasi’s orders, Washington is flailing around making a total fool of itself and its media prostitutes.
    Secretary of State John Kerry has been issuing warnings hand over fist. He has threatened Russia, China, Ecuador, and every country that aids and abets Snowden’s escape from the Washington Stasi. Those who don’t do Washington’s bidding, Kerry declared, will suffer adverse impacts on their relationship with the US.
    What a stupid thing for Kerry to say. Here is a guy who once was for peace but who has been turned by NSA spying on his personal affairs into an asset for the NSA. Try to realize the extraordinary arrogance and hubris in Kerry’s threat that China, Russia, and other countries will suffer bad relations with the US. Kerry is saying that amerika doesn’t have to care whether “the indispensable people” have bad relations with other countries, but those countries have to be concerned if they have bad relations with the “indispensable country.” What an arrogant posture for the US government to present to the world.
    Here we have a US Secretary of State lost in delusion along with the rest of Washington. A country that is bankrupt, a country that has allowed its corporations to destroy its economy by moving the best jobs offshore, a country whose future is in the hands of the printing press, a country that after eleven years of combat has been unable to defeat a few thousand lightly armed Taliban is now threatening Russia and China. God save us from the utter fools who comprise our government.
    more @

    Jim Sinclair – Fiat Currency is for spending, Gold is for Saving

    Sinclair discusses the Coming Crash of the Western Banking Civilization, Global Economy, U.S. Dollar, Bail in’s, $50,000.00 Gold if Comex Fails and more….

    Stunning Images From China: Ten Thousand People Waiting In Line To Buy Gold

    Sometimes one must see to believe, in this case believe just how massive the raw demand for the shiny, barbarous relic is in China during times of relative monetary stability (in this case the Dragon Boat Festival). Now assume runaway inflation as we saw in 2011 China, which may be unleashed by something as catalytic as the PBOC once again deciding to inject liquidity in its suffocating banking system and to revive growth in the stalling economy.
    June 11, ten thousand people line up in front of a gold shop to buy gold. The buyers lined up during the three day Dragon Boat Festival.

    Source Caixin.

    Grains (corn, soybeans, etc.), U.S. futures prices:

    Payday lenders face official crackdown after watchdog exposes 'deep-rooted' problems

    Payday lenders have been referred to the Competition Commission after the Office of Fair Trading uncovered what it called ‘deep-rooted’ problems within the industry.
    The OFT said it had made the referral because it suspects payday lenders of engaging in practices that ‘prevent, restrict or distort competition.’
    The watchdog found ‘fundamental’ problems within the industry including loans becoming far more expensive than struggling borrowers had expected, which it said could not be dealt with by existing laws.
    Investigation: Payday lenders like Wonga face an investigation by the Competition Commission
    Investigation: Payday lenders like Wonga face an investigation by the Competition Commission
    The OFT decision comes after a large-scale investigation into the £2billion industry, including spot checks on household names such as Wonga.
    It comes just days after Thisismoney revealed Wonga had hiked the annual interest it charges on loans from an already astronomical 4,214 per cent to a truly gargantuan 5,853 per cent.
    But the payday lender claimed the rise was a sign borrowers are paying less.
    The whopping increase in Wonga's annual percentage rate - the rate which represents the yearly cost of holding the debt -  was down to the average loan period falling. The company said that the period of time that borrowers are taking to repay its loans has fallen from an average of 30 days to 15.
    The OFT meanwhile pointed to the fact that lenders are competing on availability and speed of loan approvals, rather than how much such loans will ultimately cost borrowers.
    It said: ‘The competitive pressure to approve loans quickly may give firms an incentive to skimp on the affordability assessment which is designed to prevent irresponsible lending and protect consumers.
    ‘The OFT is also concerned about business models that appear predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges’.


    The Competition Commission has previously intervened to get to the heart of problems like the Payment Protection Insurance mis-selling scandal.
    Unlike the Office of Fair Trading, the Commission can impose direct remedies on markets if it finds issues which are stifling competition and mean consumers are paying over the odds.

    The OFT can refer markets to the Commission for an in-depth investigation under the Enterprise Act.

    The Commission can then decide whether any feature or combination of features in a market prevents, restricts or distorts competition.

    The Commission can free up competition by either taking direct action itself or recommending that other bodies do something.
    It has previously stepped in to prevent a repeat of the harm done to consumers by the PPI mis-selling scandal.
    PPI is the most-complained about product that the financial ombudsman has ever seen and more than £16billion has been put aside so far by the industry to compensate consumers.
    The Commission recommended severe restrictions on the sale of PPI policies, including stopping lenders from selling the insurance at the same time as granting a loan.
    Clive Maxwell, OFT chief executive, said: ‘Competition appears not to be working properly in the payday lending market, allowing firms to profit from making loans that cannot be paid back on time.
    ‘We have seen evidence of financial loss and personal distress to many people.
    ‘The Competition Commission can now conduct a detailed investigation to get to the root causes and, if necessary, use its far reaching powers to fix the payday lending market.’
    The OFT identified four specific areas of concern, namely that:
    • Current practices make it difficult for consumers to identify or compare the full cost of payday loans, undermining competition over price for loans.
    • There are barriers to switching between lenders when loans are rolled over that prevent other lenders competing for business.
    • There are variable levels of compliance with relevant laws and guidance leading to firms that do invest time and effort complying being at a competitive disadvantage to firms that do not.
    • A significant proportion of borrowers have poor credit histories, limited access to other forms of credit while borrowers often had a ‘pressing need’ to borrow. The cost of the loan may therefore be a less significant factor for borrowers, which may weaken competition on price between lenders.
    The Commission has powers to ban or limit products and shake up whole markets. Tough new regulator the Financial Conduct Authority will oversee the market from next April.
    The FCA's powers will include the ability to place a ‘possible cap’ on interest rates and ban or limit the number of rollovers lenders are allowed to offer, the OFT said.
    Mr Maxwell told BBC Radio 4's Today programme: ‘We think there are fundamental problems in this market. In short, competition isn't working. It's allowing firms to profit from making unaffordable loans that can't be repaid on time, which is causing financial loss and distress to some people.
    ‘The sorts of difficulties we've found include difficulties for borrowers to compare the full costs of loans in some circumstances and the difficulties for borrowers to switch lender at the point of rolling over a loan.
    ‘We don't think changes can be made under existing laws and guidance. Rather, we think that the Competition Commission in looking at this can bring forward solutions if it finds problems.
    ‘It could, as it has in other markets, ban a particular product or a feature of a product to make that market work more effectively.’
    High street: Pay day lenders have opened up on town centre high streets up and down the country in the last five years
    High street: Pay day lenders have opened up on town centre high streets up and down the country in the last five years
    Stella Creasy, the Labour MP for Walthamstow, who has led a campaign against the payday lending industry for the past two years welcomed the OFT referral.
    She said: 'I'm pleased the OFT has referred legal loan sharking to the Competition Commission for investigation- it’s time to end the myth that there are a few bad apples and recognise the way the entire industry works is causing problems for millions of British consumers.
    ‘The Commission can look not just at individual companies, but what a lack regulatory measures such as a cap on the cost of credit does to the affordability of loans.
    ‘Now that this inquiry will happen, I also hope those promoting these companies will also support a moratorium on doing so until we know the outcome of the Competition Commission's investigations.
    'Given the debt and misery involved for those affected by this unfair market its time to put the needs of British consumers first'
    Charities and consumer groups, many of whom have seen rocketing numbers of people struggling with payday loan debt, also welcomed the OFT's decision, although some questioned why action had not come sooner.
    Citizens Advice chief executive Gillian Guy said its evidence has found that in two-thirds (64 per cent) of cases loans come without any checks to make sure the borrower can afford to repay.
    She said: ‘The industry is in desperate need of a transformation from predatory firms to a


    240: The number of payday lenders in the market
    £2billion: The estimated worth of the sector
    50: The number of payday lenders that were warned by the trading watchdog to get their house in order or face being shut down
    12: The number of weeks the Office of Fair Trading gave lenders to show they had addressed the problems it had found
    30: The number of payday lenders' websites that emphasised speed and quick access to cash over cost out of the 50 looked at by the OFT
    £270: The typical size of a payday loan
    12 or more: The number of consecutive rollovers some payday customers had in the most severe cases found by OFT inspectors
    17:  The number of lenders out of the 50 inspected by the OFT that were found to actively promote rollovers in marketing material or at the point of sale as a "feature" of the loan
    50: The percentage of payday lenders' revenues that the OFT found came from 28 per cent of loans which are rolled over or refinanced at least once
    19:  The percentage of payday lenders' revenue that came from 5 per cent of loans which were rolled over or refinanced four or more times, according to the OFT's findings.
    38: The number of lenders out of the 50 inspected by the OFT that failed to comply with at least one of the complaint-handling rules of the Financial Ombudsman Service
    7,221: The number of people who sought help from debt charity StepChange last year who had five or more payday loans
    5,853: The APR (annual percentage rate) advertised on loans from Wonga
    responsible short-term credit market.’
    Richard Lloyd, executive director of consumer group Which? said the market is ‘rife with poor practice’.
    He said: ‘This is a market where lenders are not competing fairly with each other on price but instead use speed and ease of access to entice customers into deals they cannot afford, so it is right to get the Competition Commission to investigate.
    ‘People under financial pressure being given high cost loans in minutes without proper affordability checks is a recipe for disaster.’
    Delroy Corinaldi, external affairs director at debt charity StepChange said: 'Our evidence points to widespread structural problems in the payday lending market and this investigation is crucial to establishing whether the payday loan market itself is causing unnecessary harm to consumers.
    'There are a number of questions that this investigation needs to establish answers to, including whether the payday loan industry is making excessive profits at the expense of responsible lending.
    'However, today’s decision cannot be used as an excuse by regulators to postpone dealing important areas where the payday loan industry is failing consumers.
    'This investigation needs to work in parallel with actions to address problems we are seeing now, including widespread irresponsible lending and aggressive debt collection measures'.
    Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents the major short-term lenders operating in the UK, said:  'The CFA and its members have always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards. 
    'However, no other sector has faced such intense scrutiny in such a short space of time. We would have preferred the inquiry to have been deferred to allow the significant improvements that lenders have made to take effect before the industry faced further judgement.
    'We urge the Competition Commission to take this into consideration during its inquiry.'

    GM to Invest $691 Million in Mexico

    Breitbart – by Wynton Hall
    General Motors Co. (GM) announced on Wednesday that it will spend $691 million to build and expand its factories in Mexico.
    GM Mexico President Ernest Hernandez said the move will boost Mexican employment and development.  
    “The automotive sector is today one of the pillars of the national economy, representing more than 20 percent of manufacturing GDP and continues to be, for many reasons, a fundamental industry in attracting investments to productive sectors of the economy,” said Hernandez.
    GM says it plans to open a new factory in Silao and enhance its San Luis Potosi facilities.
    “GM is about to reach 78 years in Mexico and we celebrate it with this new investment, which means more employment and development opportunities for the regions,” said Hernandez.
    Early this month, the Los Angeles Times reported that American taxpayers lost nearly $10 billion on the GM taxpayer-funded bailout.

    All Wars Are Bankers' Wars

    World Bank: Money Laundering Criminals | Interview with Whistleblower Karen Hudes

    Abby Martin talks to Karen Hudes, former senior executive at the World Bank, about her experience blowing the whistle on the high level corruption within the international financial system and how her story was censored.

    World's first GM babies born

    by MICHAEL HANLON, Daily Mail
    The world's first geneticallymodified humans have been created, it was revealed last night.
    The disclosure that 30 healthy babies were born after a series of experiments in the United States provoked another furious debate about ethics.
    So far, two of the babies have been tested and have been found to contain genes from three 'parents'.
    Fifteen of the children were born in the past three years as a result of one experimental programme at the Institute for Reproductive Medicine and Science of St Barnabas in New Jersey.
    The babies were born to women who had problems conceiving. Extra genes from a female donor were inserted into their eggs before they were fertilised in an attempt to enable them to conceive.
    Genetic fingerprint tests on two one-year- old children confirm that they have inherited DNA from three adults --two women and one man.
    The fact that the children have inherited the extra genes and incorporated them into their 'germline' means that they will, in turn, be able to pass them on to their own offspring.
    Altering the human germline - in effect tinkering with the very make-up of our species - is a technique shunned by the vast majority of the world's scientists.
    Geneticists fear that one day this method could be used to create new races of humans with extra, desired characteristics such as strength or high intelligence.
    Writing in the journal Human Reproduction, the researchers, led by fertility pioneer Professor Jacques Cohen, say that this 'is the first case of human germline genetic modification resulting in normal healthy children'.
    Some experts severely criticised the experiments. Lord Winston, of the Hammersmith Hospital in West London, told the BBC yesterday: 'Regarding the treat-ment of the infertile, there is no evidence that this technique is worth doing . . . I am very surprised that it was even carried out at this stage. It would certainly not be allowed in Britain.'
    John Smeaton, national director of the Society for the Protection of Unborn Children, said: 'One has tremendous sympathy for couples who suffer infertility problems. But this seems to be a further illustration of the fact that the whole process of in vitro fertilisation as a means of conceiving babies leads to babies being regarded as objects on a production line.
    'It is a further and very worrying step down the wrong road for humanity.' Professor Cohen and his colleagues diagnosed that the women were infertile because they had defects in tiny structures in their egg cells, called mitochondria.
    They took eggs from donors and, using a fine needle, sucked some of the internal material - containing 'healthy' mitochondria - and injected it into eggs from the women wanting to conceive.
    Because mitochondria contain genes, the babies resulting from the treatment have inherited DNA from both women. These genes can now be passed down the germline along the maternal line.
    A spokesman for the Human Fertilisation and Embryology Authority (HFEA), which regulates 'assisted reproduction' technology in Britain, said that it would not license the technique here because it involved altering the germline.
    Jacques Cohen is regarded as a brilliant but controversial scientist who has pushed the boundaries of assisted reproduction technologies.
    He developed a technique which allows infertile men to have their own children, by injecting sperm DNA straight into the egg in the lab.
    Prior to this, only infertile women were able to conceive using IVF. Last year, Professor Cohen said that his expertise would allow him to clone children --a prospect treated with horror by the mainstream scientific community.
    'It would be an afternoon's work for one of my students,' he said, adding that he had been approached by 'at least three' individuals wishing to create a cloned child, but had turned down their requests.

    Investors to pay for bank failures – EU

    Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem talks to journalists during a joint news conference with Portuguese Finance Minister Vitor Gaspar in Lisbon May 27, 2013.(Reuters / Jose Manuel Ribeiro)
    Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem talks to journalists during a joint news conference with Portuguese Finance Minister Vitor Gaspar in Lisbon May 27, 2013.(Reuters / Jose Manuel Ribeiro)

    European Union finance chiefs agreed Thursday investors and wealthy depositors will foot the bill for bank bailouts, in a break with the past convention of burdening taxpayers.
    If pursued, bailout strategy, shareholders, bondholders and depositors with more than 100,000 euro will share the financial strain of saving a bank. Deposits under 100,000 will be protected.
    Under the new protocol, which would come into effect in 2018, countries would be obliged to absorb 8 percent of a bank’s liabilities, with some leeway thereafter.
    The next time a big bank fails, governments will make sure “that shareholders and creditors are liable first and foremost,” German Finance Minister Wolfgang Schaeuble told reporters.
    Rescuing banks will not be less painful for political leaders and institutions, who can now just take bank deposits instead of hiking taxes.
    French Finance Minister Pierre Moscovici said France got “what we wanted” from the blueprint, and Danish Economy Minister Margrethe Vestager called the deal a “balanced compromise.”
    The Irish, whose taxpayers paid nearly $40 billion to bail out Anglo Irish Bank, are happy that the new status quo will be bail-ins, not bail-outs. Banks will have to bail themselves out.
    Other ministers were happy to have a universal strategy to address dealing with troubled banks.
    "If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill," Dutch Finance Minister Jeroen Dijsselbloem said.
    Germany has previously indicated it disagrees with a universal plan to deal with bailouts across the continent, and has warned having such a strong central banking authority goes against standing treaties.
    “It took a long time and it was arduous and it was intense,” German Finance Minister Wolfgang Schaeuble said, without publicly voicing Germany’s previous qualms over the structure.
    It is highly unlikely Chancellor Merkel will agree to such a banking union before the election in September.
    The European Central Bank will officially take over supervision of eurozone banks next year. Last year it provided 1 trillion euros of cheap three-year loans to struggling banks.
    Under the new umbrella, banks will be able to receive direct loans from the European Stability Mechanism, a eurozone bailout fund. The European Banking Authority was set up in 2011 to integrate rules across the EU and has secured a new supervisory function. All 17 currency member states support the motion, but some fear an all-too-powerful central bank.
    By next week, the 27 member states need to choose a governing body, or executor, to carry out the task.
    The legislature’s text grants nations a clear right to nationalize failing banks, if the step is seen as essential to preserve financial stability.
    Switzerland, Norway, and other non-EU countries within Europe will still have jurisprudence over how to deal with bank failures.

    Just like Cyprus

    The precedent was set after Cyprus requested an EU bailout and aid was dependent on the country’s agreement to levee account holders with more than 100,000 euro, which will likely result in a loss of 30 percent in savings.
    The Cyprus scenario marked the first time depositors were forced to contribute to the bank’s bailout and now it is set to become the norm.
    Many analysts had pointed to Cyprus as an isolated case, as their debt was heavily a result of bad Greek bonds, and a hyper-inflated banking sector, almost eight times as large as the country’s GDP.
    Tax-payer funded bailouts have been the source of public discontent, and the accord is seen as a move to ameliorate political relations in the EU.

    California man faces 13 years in jail for scribbling anti-bank messages in chalk

    Reuters / Fred Prouser
    Reuters / Fred Prouser

    Jeff Olson, the 40-year-old man who is being prosecuted for scrawling anti-megabank messages on sidewalks in water-soluble chalk last year now faces a 13-year jail sentence. A judge has barred his attorney from mentioning freedom of speech during trial.
    According to the San Diego Reader, which reported on Tuesday that a judge had opted to prevent Olson’s attorney from "mentioning the First Amendment, free speech, free expression, public forum, expressive conduct, or political speech during the trial,” Olson must now stand trial for on 13 counts of vandalism.
    In addition to possibly spending years in jail, Olson will also be held liable for fines of up to $13,000 over the anti-big-bank slogans that were left using washable children's chalk on a sidewalk outside of three San Diego, California branches of Bank of America, the massive conglomerate that received $45 billion in interest-free loans from the US government in 2008-2009 in a bid to keep it solvent after bad bets went south.
    The Reader reports that Olson’s hearing had gone as poorly as his attorney might have expected, with Judge Howard Shore, who is presiding over the case, granting Deputy City Attorney Paige Hazard's motion to prohibit attorney Tom Tosdal from mentioning the United States' fundamental First Amendment rights.

    "The State's Vandalism Statute does not mention First Amendment rights," ruled Judge Shore on Tuesday.
    Upon exiting the courtroom Olson seemed to be in disbelief.

    "Oh my gosh," he said. "I can't believe this is happening."
    Tosdal, who exited the courtroom shortly after his client, seemed equally bewildered.

    "I've never heard that before, that a court can prohibit an argument of First Amendment rights," said Tosdal.
    Olson, who worked as a former staffer for a US Senator from Washington state, was said to involve himself in political activism in tandem with the growth of the Occupy Wall Street movement.
    On October 3, 2011, Olson first appeared outside of a Bank of America branch in San Diego, along with a homemade sign. Eight days later Olson and his partner, Stephen Daniels, during preparations for National Bank Transfer Day, the two were confronted by Darell Freeman, the Vice President of Bank of America’s Global Corporate Security.
    A former police officer, Freeman accused Olson and Daniels of “running a business outside of the bank,” evidently in reference to the National Bank Transfer Day activities, which was a consumer activism initiative that sought to promote Americans to switch from commercial banks, like Bank of America, to not-for-profit credit unions.
    At the time, Bank of America’s debit card fees were among one of the triggers that led Occupy Wall Street members to promote the transfer day.

    "It was just an empty threat," says Olson of Freeman’s accusations. "He was trying to scare me away. To be honest, it did at first. I even called my bank and they said he couldn't do anything like that."
    Olson continued to protest outside of Bank of America. In February 2012, he came across a box of chalk at a local pharmacy and decided to begin leaving his mark with written statements.

    "I thought it was a perfect way to get my message out there. Much better than handing out leaflets or holding a sign," says Olson.
    Over the course of the next six months Olson visited the Bank of America branch a few days per week, leaving behind scribbled slogans such as "Stop big banks" and "Stop Bank"
    According to Olson, who spoke with local broadcaster KGTV, one Bank of America branch claimed it had cost $6,000 to clean up the chalk writing.
    Public records obtained by the Reader show that Freeman continued to pressure members of San Diego’s Gang Unit on behalf of Bank of America until the matter was forwarded to the City Attorney’s office.
    On April 15, Deputy City Attorney Paige Hazard contacted Freeman with a response on his persistent queries.

    "I wanted to let you know that we will be filing 13 counts of vandalism as a result of the incidents you reported," said Hazard.
    Arguments for Olson’s case are set to be heard Wednesday morning, following jury selection.

    Europe strikes deal to push cost of bank failure on investors

    Eurogroup chairman Jeroen Dijsselbloem waits to address the European Parliament's Economic and Monetary Affairs committee to discuss the way in which assistance to member states has been conducted, particularly Cyprus, in Brussels May 7, 2013. REUTERS/Francois LenoirReuters – by John O’Donnell and Robin Emmott
    (Reuters) – The European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.
    After seven hours of late-night talks, finance ministers from the bloc’s 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of saving a bank.  
    The deal is a boost for EU leaders, who meet later on Thursday in Brussels, and can show that they are finally getting to grips with the financial crisis that began in mid-2007 with the near collapse of Germany’s IKB.
    “For the first time, we agreed on a significant bail-in to shield taxpayers,” said Dutch Finance Minister Jeroen Dijsselbloem, referring to the process in which shareholders and bondholders must bear the costs of restructuring first.
    The rules break a taboo in Europe that savers should never lose their deposits, although countries will have some flexibility to decide when and how to impose losses on a failing bank’s creditors.
    “They can affect German savers just as well as they can affect any other investor in the world,” German Finance Minister Wolfgang Schaeuble said after the meeting.
    Taxpayers across much of Europe have had to pay for a series of deeply unpopular bank rescues since the financial crisis that spread across the bloc to threaten the future of the euro.
    The European Union spent the equivalent of a third of its economic output on saving its banksbetween 2008 and 2011, using taxpayer cash but struggling to contain the crisis and – in the case of Ireland - almost bankrupting the country.
    But a bailout of Cyprus in March that forced losses on depositors marked a harsher approach that can now, following Thursday’s agreement, be replicated elsewhere.
    French Finance Minister Pierre Moscovici signaled that ministers also agreed to French demands that the euro zone’s rescue fund, the European Stability Mechanism, can be used to help banks in the 17-nation currency area that run into trouble.
    “It makes the whole thing coherent,” said Moscovici. “It creates a solidity for the system and a system of solidarity,” he told reporters.
    Under the rules, which would come into effect by 2018, countries would be obliged to distribute losses up to the equivalent of 8 percent of a bank’s liabilities, with some leeway thereafter.
    Europe can now focus on building the next pillar of a project to unify the supervision and support of banks in the euro zone, known as “banking union.”
    But thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.
    The European Commission, the EU executive, is expected to unveil its proposal for a new agency to carry out this task of “executioner” as early as next week, officials said.
    “The most important discussion has yet to start and that is how decisions on restructuring will be made,” said Nicolas Veron, a financial expert at Brussels-based think tank Bruegel. “It’s premature to say that Europe is getting its act together.”
    Many Europeans remain angry with bankers and the easy credit that helped create property bubbles in countries including Ireland and Spain, which then burst and plunged Europe into a recession from which it has yet to recover.
    Earlier this week, Ireland’s deputy prime minister attacked “arrogant” executives at a failed bank who had mocked government efforts to tackle the country’s banking crisis.
    In the tapes published by an Irish newspaper, the collapsed Anglo Irish Bank’s then-head of capitalmarkets was asked how he had come up with a figure of 7 billion euros for a bank rescue, responding that he had “picked it out of my arse.
    Unlike the United States, which moved swiftly to deal with its problem banks, Europe has been reluctant to close those whose credit is crucial to the economy and with which governments have close political ties.
    This should change as soon as the European Central Bank takes over the supervision of euro zone banks from late next year, completing one pillar of banking union.
    The ECB will run checks on banks under its watch. This new EU law on sharing losses could be used as the blueprint for closing or salvaging those banks it finds to be weak.
    The second leg of banking union would be the resolution authority to shutter banks or restructure them. But the pace of progress depends in large part on Germany, which is reluctant to agree to such a move ahead of elections in September.
    “Before the German Bundestag elections, Chancellor Angela Merkel will not agree to a far-reaching banking union,” Austrian Chancellor Werner Faymann said in an interview.
    (Additional reporting by Ilona Wissenbach; Editing by Lisa Shumaker)

    China Riots: Mobs Attack Police In Xinjiang

    At least 27 people have been killed and three others injured after knife-wielding gangs went on the rampage through a town in far western China, according to state media.
    The Xinhua news agency said mobs attacked police stations, a local government building and a construction site in the Turpan Oasis in the Turkic-speaking Xinjiang region.
    Nine police officers and security guards, as well as eight civilians, were killed before police shot dead 10 of the attackers.
    The death toll from the unrest was the worst in the restive region since July 2009, when nearly 200 people were killed in riots in the regional capital Urumqi, involving local predominantly Muslim Uighurs and ethnic Han Chinese.
    Xinhua said Wednesday's unrest erupted at about 6am in the remote township of Lukqun, about 120 miles southeast of Urumqi.
    Gangs attacked officials and civilians, stabbing people and setting fire to police vehicles, Xinhua reported.
    Residents told Sky News there was a heavy police presence in the township. Search results for the words Xinjiang and Lukqun, in both English and Chinese, were unavailable on Chinese search engines.
    A map showing the location of the Turpan Oasis in Xinjiang
    A map showing to location of the Turpan Oasis in Xinjiang
    The reasons for the attacks were not immediately clear, but Xinjiang has been the scene of numerous violent incidents in recent years.
    The region is home to a large population of Uighurs, and the influx of China's Han majority has led to unrest.
    Many Uighurs, who have ethnic links to central Asia, accuse the Chinese government of placing restrictions on their culture, language and religion.
    They also claim Beijing has encouraged the numbers of Han Chinese to rise in order to reduce the Uighurs' dominance.
    China says it grants Uighurs wide-ranging freedoms and is fighting separatist terrorists in the region. It also claims to be modernising the region, which has for many years been seen as a backwater.
    In 2011, the China National Petroleum Corp announced it had started large scale exploration of an oil field around Lukqun, which is thought to be the world's deepest heavy oil reserve.
    In that same year, 113 oil wells were opened. Local people claim the water level has dropped in the last few years.
    The report also said three rioters had been seized, and the police pursued fleeing suspects, although it did not say how many.

    Retail Investor Nightmare: The Bond Fund Rout

    Wolf Richter
    The bond selloff didn’t surprise anyone. Investors knew that it would happen, would have to happen. Gurus of all stripes had predicted for years that it would happen, that the ridiculously low yields weren’t sustainable, that the Fed would eventually have to back off – only to watch with a mix of helpless frustration and ironic bemusement as the Fed or some other central bank opened the spigot even wider.
    Meanwhile, investors decided to brush off the razzmatazz and just hang in there until it would happen, then get out in the nick of time. And they rode up the most gigantic bond bubble in history. But real cracks appeared in the Treasury market last fall when yields rose despitethe Fed’s announcement of QE infinity designed to repress yields.
    So, on April 30, it became official. In light of sky-high corporate bond prices and record low yields, billionaire Wilbur Ross of WL Ross & Co. warned during a panel discussion of the long-term issues in bond la-la land. This – whatever was coming down the pike – wouldn’t be just a brief dip that you could buy. A mountain of debt had been issued in recent years at artificially low rates, thanks to the Fed’s machinations. It would have to be refinanced in a few years at much higher rates. “There’s a tremendous amount of interest-rate refinancing risk being built up,” he said. “We’re just building a bigger and bigger time bomb.”
    Others chimed in. Joshua Harris, co-founder and chief investment officer of private-equity powerhouse Apollo Global Management, offered this tidbit of immortal wisdom to the still euphoric bondholders: “run – do not walk!”
    And they did. All at the same time. It stopped the crazy feeding frenzy for yield. It turned the junk-bond bubble into a rout overnight. That “time bomb” would hit them the hardest. There’d be defaults. Value would just vanish. These risks are worth taking, if yields are high enough. But they weren’t. As the average yield on junk bonds hit a record low of 5.24% on May 9, investors opened their eyes [my take: The Day The Big Fat Junk-Bond Bubble Blew Up]. By June 26, it had jumped to 7.02%. And it’s just the beginning. The chart shows this vicious 6-week spike:

    Even some of the least risky and most liquid paper out there, Treasuries, started diving in early May. Last week, the 10-year note experienced its worst selloff since June 2009 – the depth of the Financial Crisis! On Monday, yields hit 2.66% – up from 1.66% on May 2, and more than double the August low of 1.3%! Now they’ve settled a bit, at 2.58%. Investors are contemplating losses of over 10% since early May – in what is considered one of the most conservative investments around.

    Those who own actual bonds, and don’t sell them, will be able to ride out the storm – assuming the issuer doesn’t default – patiently collecting puny coupon payments and allowing inflation to eat into their investment. But most retail investors, when they buy bonds, buy bond funds. And there, the massacre has been brutal: $48 billion have been yanked out of bond mutual funds so far in June.
    Bond fund investors have a problem that holders of actual bonds don’t have: if your bond fund gets hit by massive waves of redemptions, you can’t ride out the storm without losses!
    At first, a bond fund typically uses its cash cushion to deal with redemptions and then sell bonds gradually. Fund investors might not know the difference. But during big waves of redemptions, such as those recently, bond funds scramble to sell what they can sell into an increasingly illiquid market. So they’re selling Treasuries and their most liquid high-quality corporates – where losses are relatively small. The best stuff first.
    Even in good times, corporate bonds can be fairly illiquid. There may be days and sometimes weeks or even months between trades of a particular issue. So marking illiquid bonds to market on a daily basis, when there is no discernible market, can be tricky.
    But when bond prices drop, liquidity dries up further. The gap between what sellers want and what buyers are willing to pay becomes so wide that many bonds essentially stop trading – unless there is a forced sale! Hit with a wave of redemptions, a bond fund might have to sell less liquid bonds for whatever it can get for them – much less than the “market value” on its books. With each sale, the fund recognizes the loss. And as the fund dips deeper into its illiquid lower-quality bonds, particularly junk bonds, during the worst bouts of a selloff, losses accelerate. Investors get spooked and bail out. Hence, more redemptions. And more losses. It’s the reverse of the Fed-inspired feeding frenzy. The reverse of the wealth effect.
    In the worst cases, such as the formerly $14-billion Schwab YieldPlus Select Fund, now defunct, it ends in a bloodbath. Even well-managed bond funds can have some ripples. Bond funds that realize losses while they’re forced to sell at the worst moment can’t recuperate those losses even if bonds – those that don’t default – rise again. Those gains go to whoever was on the other end of the transaction. And the buy-and-hold bond fund investor ends up holding the bag.
    In an environment of rapidly rising interest rates, bonds with long maturities require nerves of steel and the willingness to sit on a crummy investment for years, or even decades. But bond funds can be outright treacherous – yet, in another display of Wall Street genius, it’s the conservative retail investor who gets lured into them.
    It was the day when Private Equity firms – the smart money, the great beneficiaries of the Fed’s money-printing and bond-buying binge – announced their intentions to the rest of the world. The heavy hitters were there, and they let fly some pungent words. In short, they were “selling everything that’s not nailed down.” It was greeted with incredulity. Turns out, they weren’t kidding. They saw what was coming. Read…. The Smart Money Is Dumping “Everything That’s Not Nailed Down”

    In Gold We Trust 2013 – Long Term Gold Price Target $2,230

    The new edition of the “In GOLD We TRUST” report is out. In his 7th report precious metals analyst Ronald Stoeferle takes an holistic view on the latest developments in the gold market. Mr. Stoeferle has set up his own gold fund recently at Incrementum Liechtenstein AG.
    This edition of the report is characterized by a focus on the monetary aspect(s) of gold, a subject which remains highly underexposed in almost every report of major financial institutions. Because of the unprecedented global monetary policy experiments the need for monetary insurance has never been greater. The consensus could be convinced that the gold bull market has ended but In GOLD we Trust 2013 points to the fundamental arguments why the gold bull market remains intact.
    Furthermore, this edition is the first which contains a quantitative model of the gold price. The model justifies a considerable risk premium to current price levels, even if small probabilities of occurrence of extreme scenarios are modeled. Based on conservative assumptions, the long-term price target is $2,230.
    In this article we present the key highlights of the In GOLD we Trust 2013 edition.

    Summary of the report

    In the course of the recent gold crash, the market has once again demonstrated to holders of gold its tendency to maximize pain. The cascading price collapse beginning in mid-April had a standard deviation of more than five. Since trading volume was extremely high, the sell-off fulfilled all the requirements for a ‘panic low’.
    We think that the correction that has been in train since September 2011 exhibits strong similarities to the ‘mid cycle correction’ of 1974 to 1976. That phase was similar to the current one, especially with respect to the marked disinflation backdrop, rising real interest rates and extreme pessimism regarding gold-related investments.
    Since 2008 there have been more than 500 interest rate cuts around the world. Never before has there been such a low interest rate framework on a worldwide basis. Due to the level of debt reached in the meantime, the level of real interest rates is bound to remain negative, respectively low. This means that there is a solid foundation for future gold price increases.
    The gold mining industry is currently going through a major period of change. It appears as though the industry is in the process of altering its priorities. We believe that the new commitment to transparent cost reporting, greater financial discipline and shareholder value is a crucial – if quite late in coming – insight by the sector. From a sentiment perspective, gold mining stocks are probably “the ultimate contrarian play”.
    Due to the clearly positive CoT data as well as extremely oversold conditions we assume that a bottoming process will soon begin. Regarding the sentiment situation, we see anything but euphoria in gold. Skepticism, fear and panic never signal the end of a long term bull market. We therefore judge that our long-term price target of $2,300, first stated several years ago already, continues to be realistic.

    Reasons for the recent gold price decline

    Ronald Stoeferle attributes several factors to the latest violent gold price decline:
    • disinflation
    • the outlook of QE being tapered and eventually exited
    • rising real interest rates
    • partly declining money supply (especially ECB)
    • record high short positions
    • backwardation since April 5, which has intensified
    • rising opportunity cost of owning gold due to the rally in stocks
    • ETFs: the majority of the outflows were from the SPDR gold trust ETF, in order to switch to rallying stocks
    • tightening credit spreads
    • cascading sell orders by trend-following systems once technical support of $1,530 was violated
    • increasingly negative analyst opinions (among other s, Goldman Sachs, Credit Suisse, etc)
    Furthermore, the correction that has been in train since September 2011 exhibits strong similarities to the mid cycle correction of 1974 to 1976. That period is similar to the current one specifically on account of marked disinflation, rising real interest rates and extremely high pessimism regarding investment in gold.
    gold price correction 1974 1976 today investing Disinflation is being cited as an important driver for the gold price decline. The following chart shows a monetary disinflation. It represents the combined balance sheet totals of the Federal Reserve, the ECB, the Bank of England and the Bank of Japan.
    balance sheets fed ecb boj boe investing The long term downtrend of most currencies relative to gold has flattened recently. The following chart shows how the downtrend of the equal-weighted currency basket has moved away from its trendline. A similar phase was already in evidence in 2003 and 2004. Nevertheless, the relative weakness of gold versus the basket must be monitored closely going forward.
    gold basket currencies 2000 2013 investing

    Gold’s role in a portfolio

    Since August 15th 1971 – the beginning of the new monetary era – the annualized return of the gold price amounts to 8.95%. The real appreciation of gold versus the dollar amounts to 4.7% per year on average. The attractive risk-return profile can also be discerned in the graph below. What can also be gleaned is that productive assets – such as for example the S&P 500 Index  – exhibit a stronger return over the long term than gold. In our opinion, that is definitely to be expected over longer periods of time, due to the value-adding characteristics of companies. In the short to medium term however, the risk-return profile can easily turn in favor of gold – especially in times of monetary policy uncertainty.
    gold annual return volatility 1970 2013 investing

    Re-monetization of gold in the financial and monetary system

    The renaissance of gold in classical finance continues. Recent evolutions as cited by the report:
    • OMFIF , a global think tank for central banks and sovereign wealth funds, argues in favor of a remonetization of gold.
    • A growing number of initiatives demand repatriation and a credible audit of state-owned gold reserves.
    • The demands for gold-backed bonds are growing ever louder.
    • A study commissioned by the European parliament points out that gold-backed bonds would be far more transparent, attractive and fair for investors than government bond purchasing programs.
    • Central bank gold purchases amounted to 534 tons last year.
    • China is the most important critic of the dollar’s currency hegemony today. China wants to establish the renminbi as the dominant currency among emerging markets. This assumption is confirmed by statements made by Chinese officials.

    Structural indebtedness

    Western economies are not able to achieve surpluses even in times of economic prosperity. This is a systemic problem as compound interest makes debt grow exponentially. As soon as debt and debt service costs rise faster than income, the vicious circle of over-indebtedness begins.  Currently the industrial nations continue to be faced with the highest levels of public debt in peacetime. In the US, the Government Accountability Office sees fiscal policy on a path that is intractable in the long term .
    The strongly declining marginal utility of additional units of debt can be seen in the following chart. While from 1947 to 1952, every additional dollar of debt still created $4.61 in GDP growth, this has declined to 8 cents since 2001. This also explains why stimulus programs can by now only produce anemic growth. As soon as the doses of debt are no longer progressively increased, and even reduced, the withdrawal symptoms will be painful.
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    Going forward, financial repression in all its different facets is expected to gain in importance. That should be regarded as a terrible long term strategy, as it will only achieve redistribution and will not bring any solution to the problem.
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    A quantitative model of the gold price – scenario analysis

    The report takes a unique approach in calculating gold price targets based on the two most important monetary parameters: “central bank balance sheet” and “implied gold coverage ratio.” All details are on pages 40 to 47. The forecast is based on four different scenarios related to the future trend of Quantitative Easing (QE):
    1. Exit QE according to plan (25% probability): Fed puts the brake on QE (‘tapering’), then stops QE and begins with the exit.
    2. QE tapering and stabilization (30% probability): Fed tapers QE, subsequently stops it, but leaves the balance sheet stable thereafter.
    3. QE continues (30% probability): The asset purchases continue for at least the next 24 months at the current level.
    4. QE accelerates (15% probability): Negative economic developments and/or problems in the banking sector result in an increase of the current level of QE purchases.
    gold price long term target 2230 investing
    Using the described scenarios and probabilities, the model calculates a long term value of $2,230 for an ounce of gold. The underlying assumption is that there will be a gradual increase of gold’s monetary role.