Thursday, May 26, 2016

Visa’s CEO just threatened to go after PayPal ‘in ways that people have never seen before’

Photo Credit DeclanTM   Flickr Commons
Photo Credit DeclanTM Flickr Commons

(Jason Del Rey)  PayPal has long been both a friend and a foe to credit card companies. But to Visa CEO Charlie Scharf, it’s either one or the other.
At a tech conference hosted by JPMorgan Chase this week, Scharf said he wants PayPal to stop urging its users to fund their PayPal accounts with their bank accounts — a method called ACH — instead of debit or credit cards. Such an arrangement is more profitable for PayPal, but a problem for card companies like Visa.
I’ve been very, very clear on this one which is if you are a foe, you’re not a friend. And PayPal’s historic model, on the one hand, 50% of the volume is ACH, the other 50 percent is general purpose cards of which we’re half of it. So, they drive a lot of business our way. That’s supposedly the friend part of it.
The foe part is where they then use historically those transactions to do everything they can to get those to ACH where we and our clients get disintermediated from the transaction, the entire experience, and it causes tremendous customer service problems for the bank specifically.
He wasn’t done.
And so, anyone that’s trying to take your customers and disintermediate you is not a friend. And so, that’s the reality of the way we viewed PayPal historically. And so, we’ve said, listen, historically, they were the only game in town. But as we just talked about, there are lots of other opportunities for us to capture that share.
We’d love to figure out a different model with them where it’s consumer choice first whether or not disintermediating. If we can figure that out with them, great. We’ll think of them more as a partner. They need to do things differently in order to do that.
The other door is where we go full steam and compete with them in ways that people have never seen before. Because you’ve never seen us go target PayPal in the marketplace in any meaningful way.
Whoa boy. Emphasis mine on those last two sentences.
Scharf went on to say that those words shouldn’t be construed as a threat, but that’s sure what they sound like.
What would increased competition with PayPal look like for Visa? According to a note Autonomous Research partner Craig Maurer sent to clients, it could be several things.
Visa could get more aggressive with the rollout of its Visa Checkout payment method for e-commerce websites. It could step up promotion of Apple Pay and Android Pay, which don’t work with PayPal. And it could give discounts on transaction fees to companies that use things like fingerprint technology to make payments more secure — again, something PayPal doesn’t do.
“In conclusion,” Maurer wrote, “we continue to believe that investor expectations for a grand bargain between PayPal, Visa and MasterCard need to be shelved for at least the near-term, if not longer.”

WARNING: “You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”

by Lance Roberts
Over the last several weeks, I have discussed the markets entrance into the “Seasonally Weak” period of the year and thebreakout of the market above the downtrend line that began last year.
The rally from the February lows, driven by a tremendous amount of short covering, once again ignited “bullish optimism.” 
“Canaccord Genuity’s Tony Dwyer estimates the equity benchmark will end 2017 at 2,340, an increase of 15 percent from Wednesday’s closing level of 2,047.63, with half of the gains coming this year.”
But it is not just Tony that is buying into the “optimistic” story, but investors also as the number of stocks on “bullish buy signals” has exploded since the February lows.
While the “bulls” are quick to point out the current rebound much resembles that of 2011, I have made notes of the differences between 2011 and 2008. The reality is the current market set up is more closely aligned with the early stages of a bear market reversal.
It is the last point that I want to follow up with this week.
There is little argument that the bulls are clearly in charge of the market currently as the rally from the recent lows has been quite astonishing. However, as I noted recently, the current rally looks extremely similar to that seen following last summer’s swoon.
Well, here we are once again entering into the “seasonally weak” period of the year. Will the bullish hopes prevail? Maybe. But.

Warning Signs Everywhere

Many have pointed to the recent correction as a repeat of the 2011 “debt ceiling default” crisis. Of course, the real issue in 2011 was the economic impact of the Japanese tsunami/earthquake/meltdown trifecta, combined with the absence of liquidity support following the end of QE-2, which led to a sharp drop in economic activity. While many might suggest that the current environment is similar, there is a marked difference.
The fall/winter of 2011 was fueled by comments, and actions, of accommodative policies by the Federal Reserve as they instituted “operation twist” and a continuation of the “zero interest rate policy” (ZIRP). Furthermore, the economy was boosted in the third and fourth quarters of 2011 as oil prices fell, Japan manufacturing came back on-line to fill the void of pent-up demand for inventory restocking and the warmest winter in 65-years which gave a boost to consumers wallets and allowed for higher rates of production.

2015-16 is a much different picture. 

First, while the Federal Reserve is still reinvesting proceeds from the bloated $4 Trillion balance sheet, which provides for intermittent pops of liquidity into the financial market, they have begun to “tighten” monetary policy by ending QE3 and increasing the overnight lending rate. As shown below, the changes to the Fed’s balance sheet is highly correlated to the movements of the S&P 500 index as liquidity is induced and extracted from the financial system.
Secondly, despite hopes of stronger rates of economic growth, it appears that the domestic economy is weakening considerably as the effects of a global deflationary slowdown wash back onto the U.S. economy.
Third, while “services” seems to be holding up despite a slowdown in “manufacturing,” the service sector is being obfuscated by sharp increases in “healthcare” spending due to sharply rising costs of healthcare premiums. While thediversion of spending is inflating the services related part of the economy, it is not a representation of a stronger “real” economy that creates jobs and increased wages. 
Fourth, the US dollar, as I addressed in this past weekend’s missive, is back on the rise.
“Well, with the revelation of the recent FOMC minutes the worries about a June rate hike, as suspected, have indeed surfaced sending the US dollar spiking above resistance.”
If the Fed hikes rates in June, as is currently expected, higher rates will attract foreign money into US Treasuries in search of a higher yield. The dollar will subsequently strengthen further impacting commodity and oil prices, as well as increase the drag on companies with international exposure. Exports, which make up more than 40% of corporate profits, are sharply impacting results in more than just “energy-related” areas. This is not just a “profits recession,” it is a “revenue recession” which are two different things.
Lastly, it is important to remember that US markets are not an “island.” What happens in global financial markets will ultimately impact the U.S. The chart below shows the S&P 500 as compared on a performance basis to the MSCI Emerging Markets and Developed International indices. Notice the previous correlation in the overall indices as compared to today. Currently, the weakness in the international markets is being dismissed by investors, but it most likely should not be considering the ECB’s recent “bazooka” of QE which has clearly failed.

Lack Of Low Hanging Fruit

As I suggested previously, the “seasonally weak” period of the year may be a good opportunity to reduce risk as we head into the “dog days of summer.” 
“Does this absolutely mean that markets will break to the downside and retest February lows? Of course, not. However, throw into the mix ongoing high-valuations, uncertainty about what actions the Federal Reserve may take, ongoing geopolitical risks, concerns over China, potential for a stronger dollar or further weakness in oil – well, you get the idea. There are plenty of catalysts to push stocks lower during what is typically an already weak period.

Should you ‘sell in May and go away?’  That decision is entirely up to you. There is never certainty in the market, but the deck this summer seems much more stacked than usual against investors who are taking on excessive equity based risk. The question you really need to answer is whether the ‘reward’ is really worth the ‘risk?’”
While the recent rally has certainly been encouraging, it has failed to materially change the underlying momentum and relative strength indicators substantially enough to suggest a return to a more structurally sound bull market. (valuations not withstanding)
With price action still confirming relative weakness, and the recent rally primarily focused in the largest capitalization based companies, the action remains more reminiscent of a market topping process than the beginning of a new leg of the bull market. As shown in the last chart below, the current “topping process,” when combined with underlying “sell signals,” is very different than the action witnessed in 2011.
While I am not suggesting that the market is on the precipice of the next “financial crisis,” I am suggesting that the current market dynamics are not as stable as they were following the correction in 2011. This is particularly the case given the threat of a “tightening” of monetary policy combined with significantly weaker economic underpinnings.
The challenge for investors over the next several months will be the navigation of the “seasonally weak” period of the year against a backdrop of warning signals. Importantly, while the “always bullish” media tends to dismiss warning signs as “just being bearish,” historically such unheeded warnings have ended badly for individuals. It is my suspicion that this time will likely not be much different, the challenge will just be knowing when to leave the“party.”
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch

Spain’s Second Biggest Bank: “Europe is caught in a trap, It has to do something to boost its growth potential. But expansive monetary policy has led to negative interest rates, which are killing us.”

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

In Europe, banks are beginning to feel the side effects from the ECB’s negative interest rate policy (NIRP), which (among other things) is meant to weaken the euro, fuel inflation, force banks in riskier lending, and prevent Eurozone economies from buckling under the sheer weight of their sovereign debt.
But it doesn’t work. Inflation remains much lower than the ECB’s target headline rate of 2%, European sovereign debt continues to grow at an alarming rate, and bank lending remains anemic in most countries. And it could actually end up killing the patient, Europe’s biggest banks.
That’s what Francisco González, Executive Chairman of Spain’s number-two financial institution, BBVA, just warned in a speech at the Spring Membership Meeting of the world’s most powerful financial lobby organization, the Institute of International Finance (IIF).
“Europe is caught in a trap,” he said. “It has to do something to boost its growth potential. But expansive monetary policy has led to negative interest rates, which are killing us.
For BBVA, like most other European banks, the main problem with NIRP is the shrinking effect it has on its operating margins, which in turn puts unbearable pressure on its balance sheets. For example, when the Euribor is at zero, interest rates on variable rate mortgages are at next to zero. And these variable-rate Euribor-linked mortgages predominate in Spain’s mortgage market.
Until not so long ago, Spanish banks were insulated from this problem by the floor clauses they discreetly inserted into their mortgage contracts. These set a minimum interest rate — typically of between 3% and 4.5% — for variable-rate mortgages, even if the Euribor dropped far below that figure. That meant the banks enjoyed all the benefits of low-interest rate living with none of the drawbacks, which were exclusively reserved for Spanish mortgage holders.
All that changed in April when a Spanish judge ruled that the clauses were both abusive and lack transparency. The 40 banks implicated, including BBVA, now must reimburse clients all the money they’ve overcharged them since May 2013, and perhaps even since 2009. That could be as much as €10 billion. Also, as WOLF STREET reported at the time, in a delicious irony, all the banks that applied the floor clauses will now have to learn to survive without the one mechanism that protected them from the profit-shrinking effects of the ECB’s NIRP — just when the Euribor goes negative!
Cue Gonzalez’s public meltdown!
But BBVA’s problems are not just a result of ECB policy. The bank also has an unwieldy €16 billion exposure to the beleaguered global energy industry, making it the 8th most exposed bank to the sector in Europe after BNP, ING, HSBC, Credit Agricole, Barclays, Société Générale and Deutsche Bank. Unlike BBVA, however, these banks are all global systemically important financial institutions, meaning they’ll get bailed out (assuming they can get bailed out), and perhaps their stockholders and some of their creditors get bailed in, if things get really sticky.
Just as ominous for BBVA is the fact that 43% of its current reported exposure to the energy sector is in the form of junk bonds — compared to just 11% for Spain’s biggest bank, Santander.
BBVA obtains 68% of its profits from countries where oil and other commodities are vital for the economy. Through its subsidiary BBVA Bancomer, BBVA is the second biggest bank operating in Mexico, which accounts for 40% of the group’s profits. And in Mexico, things are looking decidedly grim for the state-owned, debt-laden oil giant Pemex. Bank of America-Merrill Lynch points out that BBVA has not divulged how much of the €30 billion it holds in Mexican corporate bonds or the €11 billion it holds in U.S. corporate bonds are concentrated in the energy industry.
Besides its acute exposure to the energy industry, BBVA has other problems to contend with, including heavy presence in emerging markets with struggling currencies, in particular Latin America and Turkey. Another serious threat it and most other Spanish banks face is the planned introduction of new rules in Europe that would set a limit on the sovereign bonds some banks can hold as eligible “risk-free” capital.
According to European Central Bank data, euro-area sovereign bonds accounted for just over 10% of banks’ assets in the Eurozone, or €2.73 trillion at the end of 2015 — over €300 billion more than at the end of 2014, on the eve of the ECB’s launch of its negative interest rate policy (NIRP). This trend is particularly acute in countries on the periphery, where banks’ balance sheets are overflowing with bonds of their individual sovereigns.
The rule change is being demanded by fiscally hawkish Eurozone countries such as the Netherlands, Finland and Germany, which want the system overhauled before forging ahead with a closer banking union, to the barely concealed horror of southern European bankers and politicians.
They include Santiago Fernandez de Liz, the chief economist for financial systems and regulation at BBVA, who cautioned earlier this year that applying a proposal of this kind in the Eurozone would risk “reigniting the fragmentation” of Europe’s financial markets, which just a few years ago almost put an end to the single currency.
Clearly BBVA has serious issues. But now its Executive Chairman has come out publicly against NIRP. Other bankers have also mumbled things to that effect. From a German banker, it’s one thing. But from a Spanish banker, whose bank is supposed to be one of the ECB’s prime constituency, it’s quite another. Banks like BBVA are the reason for QE, LTRO, and all the rest of the ECB’s alphabet soup creations. But now they are unhappy that they too — not just consumers, savers, and taxpayers — are having to pay the price for Europe’s failing financial system. By Don Quijones, Raging Bull-Shit

Jim Rogers Issues a DIRE WARNING – Trillions

Deutsche Bank: Defaults have already spread outside commodities

From Bloomberg:
Bond investors appear to have placed their faith in commodities exceptionalism, with many positing that the recent pick-up in U.S. default rates will defy historical trends and remain confined to that industry.
New research from Deutsche Bank AG pours cold water on that idea, arguing that there are already signs of contagion in junk-rated debt outside of the commodities space.
A look at previous peaks in default rates shows the potential for more pervasive corporate stress. While default rates were higher amongst particular sectors — such as telecoms in the early 2000s or financials during the 2008 crisis — the rate for junk bonds excluding these specialized industries also increased significantly.
“Default cycles of the past have never been about a single sector, or small group of sectors,” Oleg Melentyev and Daniel Sorid, Deutsche credit strategiests, said in the note. “Yes, cycles were always driven by concentrated distress but they always found their way to affect other areas of the market.”
The strategists highlight recent pressure in the retail sector, including the travails of Quicksilver Inc., American Apparel LLC, and Aeropostale Inc., as evidence that defaults have already taken place outside of the commodities realm.

While pervasively low interest rates around the world offer some hope to the exceptionalists, by potentially helping to ease corporate funding pressures and allowing companies to refinance their debt. The European Central Bank’s planned corporate debt-buying program has helped boost already hefty demand for corporate paper.
Still, Deutsche reckons that this time the debt cycle isn’t that different.
“A frequent argument is being made here how all problems are going to stay limited to commodity sector,” the analysts concluded. “Evidence like this, coupled with emerging credit pressures in retail and capital goods sectors, suggest a contained cycle to be a weak starting assumption.”


 With precious metal mining stocks finally taking a breather on Tuesday after a huge run up so far in 2016, we invited Bryan Slusarchuk, the President of K92 Mining Inc. to tell us about the upcoming IPO of this soon to be well known new gold producer. With Eric Sprott reportedly investing tens of millions into the junior mining stocks space, the timing appears to be right to leverage the inevitable rise in the global gold price with gold and silver producers.
Bryan says that central banker collusion will cause all paper currencies to lose their value and he predicts that citizens of the United States may soon understand what Venezuelans are now beginning to know: That a hyperinflationary collapse of a nation’s currency is a nightmare, and only those who have planned well for it will survive. “You have central banker collusion supporting one another’s paper currencies with more worthless paper currency reserves, that just doesn’t end well. That’s why it’s so important that investors consider gold and silver as part of their investment strategy,” Slusarchuk says.

Shell Announces Another Round Of Massive Layoffs


Oil prices are up, but the job losses just keep coming.
Royal Dutch Shell (RDSA) is the latest oil company to cut back, announcing 2,200 job losses Wednesday as it attempts to cope with “lower for longer oil.”
The latest round of cuts brings total job losses at the company to 12,500 since the start of 2015.
The Anglo-Dutch firm said the move is aimed at ensuring it’s competitive in a market rocked by low oil prices. Shell is also trying to cut costs after its £35 billion takeover of BG Group (BRGYY)was approved earlier this year.
“These are tough times for our industry and we have to take further difficult decisions to ensure Shell remains competitive through the current, prolonged downturn,” said Paul Goodfellow, vice president for UK & Ireland.

If you ever wonder what elites really mean by “helicopter money” — Jim Rickards


Eurogroup Agrees To Disburse €7.5BN To Greece Which Will Be Used To Repay Creditors

Once upon a time, markets trembled when Greek bailout implementation headlines were announced, which is what just happened if slightly ahead of our forecast schedule...
... and this time nobody cares. Well maybe the Greeks do, but by now even they realize that most of the "money" they receive will be used to repay creditors and especially the ECB, and they will see virtually none of it.
So, for them, or anyone else who cares, here are the key headlines and details as they come in. Few surprises from what had been leaked previously.
* * *
* * *
* * *
* * *
According to Bloomberg, the First set of measures includes:
  • Smoothening the EFSF repayment profile under the current weighted average maturity
  • Use EFSF/ESM diversified funding strategy to reduce interest rate risk without incurring any additional costs for former program countries
  • Waiver of the step-up interest rate margin related to the debt buy-back tranche of the 2nd Greek program for the year 2017
  • “Decision on the smoothening of the EFSF repayment profile and the reduction of interest rate risks should be taken as a matter of priority”
For the medium term, the Eurogroup expects to implement a possible second set of measures following the successful implementation of the ESM program:
  • Abolish the step-up interest rate margin related to the debt buy-back tranche of the 2nd Greek program as of 2018
  • Use of 2014 SMP profits from the ESM segregated account and the restoration of the transfer of ANFA and SMP profits to Greece (as of budget year 2017) to the ESM segregated account as an ESM internal buffer to reduce future gross financing needs.
  • Liability management - early partial repayment of existing official loans to Greece by utilizing unused resources within the ESM program to reduce interest rate costs and to extend maturities
  • If necessary, some targeted EFSF reprofiling (e.g. extension of the weighted average maturities, re- profiling of the EFSF amortization as well as capping and deferral of interest payments) to the extent needed to keep GFN under the agreed benchmark in order to give comfort to the IMF and without incurring any additional costs for former program countries or to the EFSF
For the long term, the Eurogroup also agrees on a contingency mechanism on debt which would be activated after the ESM program to ensure debt sustainability in the long run in case a more adverse scenario were to materialize
  • Such mechanism could entail measures such as a further EFSF reprofiling and capping and deferral of interest payments
Eurogroup mandated finance ministry officials from the currency bloc “to verify in the next few days the full implementation of the outstanding prior actions,” for the conclusion of the Greek bailout review, according to e-mailed statement following meeting of euro area finance ministers in Brussels.
EWG of finance ministry officials have been mandated to verify “in particular the corrections to the legislation on the opening up of the market for the sale of loans, and on the pension reform, as well as the completion of all prior actions related to the government pending actions in the field of privatization
Following full implementation of all prior actions and subject to the completion of national procedures, governing bodies of the euro area’s crisis fund ESM will approve EU10.3b disbursement of bailout loans to Greece
  • First sub-tranche of EU7.5b to cover debt servicing needs and to allow a clearance of an initial part of arrears as a means to support the real economy
  • “Subsequent disbursements to be used for arrears clearance and further debt servicing needs will be made after the summer”
  • “Disbursements for arrears clearance will be subject to a positive reporting by the European Institutions on the clearance of net arrears”
Eurogroup “recalls” Greece’s medium-term primary budget surplus target of 3.5%/GDP as of 2018
Ministers set benchmark of Greek debt sustainability:
  • Country’s gross debt financing needs, or GFN, “should remain below 15% of GDP during the post program period for the medium term, and below 20% of GDP thereafter”
* * *
And again, here is the punchline:
First sub-tranche of EU7.5b to cover debt servicing needs and to allow a clearance of an initial part of arrears as a means to support the real economy
In other words, virtually all the €7.5 billion Greece just got as part of its first tranche... will promptly be used to repay its creditors, as has been the case from day one
* * *
The short summary: Greece has promised to implement even more Draconian measures (which may or may not happen) in order to get money that was already promised to it, while the Eurogroup disburses just enough cash to cover the immediate funding needs of the creditors with a little left over to pay for government arrears while demanding even more austerity; future tranches may or may not be paid out if Greece complies with its promises (which will not happen) and meanwhile the Eurogroup says it may someday provide debt relief, once Greece ends its bailout program... which will never happen.

Another Brilliant Analysis on Why Trump Will Beat Clinton

by Michael Krieger,
Screen Shot 2016-05-24 at 10.10.35 AM
A Clinton match-up is highly likely to be an unmitigated electoral disaster, whereas a Sanders candidacy stands a far better chance. Every one of Clinton’s (considerable) weaknesses plays to every one of Trump’s strengths, whereas every one of Trump’s (few) weaknesses plays to every one of Sanders’s strengths. From a purely pragmatic standpoint, running Clinton against Trump is a disastrous, suicidal proposition.
– From February’s post: Why Hillary Clinton Cannot Beat Donald Trump
The best “why Hillary Clinton can’t beat Donald Trump” articles tend to be written by liberal-leaning Bernie Sanders supporters. These people can’t stand Trump, yet find it impossible to ignore the obvious flaws and rampant cronyism inherent in Her Majesty. This dislike of both frees such thinkers from distracting bias and provides for refreshing analysis and a unique perspective on 2016.
The latest example of such commentary comes courtesy of author Anis Shivani, writing at Salon. The piece is titled, Donald Trump is Going to Win: This is Why Hillary Clinton Can’t Defeat What Trump Represents, and it explores a less discussed angle of the psychic differences between the two candidates in the eyes of voters. I found the opening paragraphs of the piece to be the most interesting:
The neofascist reaction, the force behind Trump, has come about because of the extreme disembeddedness of the economy from social relations. The neoliberal economy has become pure abstraction; as has the market, as has the state, there is no reality to any of these things the way we have classically understood them. Americans, like people everywhere rising up against neoliberal globalization (in Britain, for example, this takes the form of Brexit, or exit from the European Union), want a return of social relations, or embeddedness, to the economy.
The Trump alliance desires to remake the world in their own image, just as the class representing neoliberal globalization has insisted on doing so. The difference couldn’t be starker. Capitalism today is placeless, locationless, nameless, faceless, while Trump is talking about hauling corporations back to where they belong, in their home countries, fix them in place by means of rewards and retribution, like one handles a recalcitrant child.
Trump is a businessman, while Mitt Romney was a businessman too, yet I predict victory for the former while the latter obviously lost miserably. What is the difference? While Trump “builds” things (literal buildings), in places like Manhattan and Atlantic City, places one can recognize and identify with, and while Trump’s entire life has been orchestrated around building luxury and ostentatiousness, again things one can tangibly grasp and hold on to (the Trump steaks!), Romney is the personification of a placeless corporation, making his quarter billion dollars from consulting, i.e., representing economic abstraction at its purest, serving as a high priest of the transnational capitalist class.
In the present election, Hillary Clinton represents precisely the same disembodiedness as Romney, for example because of her association with the Clinton Foundation. Where did the business of the state, while she was secretary of state, stop, and where did the business of global philanthropy (just another name for global business), begin, and who can possibly tell the difference? The maneuverings of the Clinton Foundation, in the popular imagination, are as arcane as the colossal daily transactions on the world’s financial exchanges.
Everything about Clinton—and this becomes all the more marked when she takes on the (false) mantle of speaking for the underclass, with whom she bears no mental or physical resemblance—reeks of the easy mobility of the global rentier class. Their efficacy cannot be accounted for, not through the kind of democratic process that is unfolding before our eyes as a remnant of the American founding imagination, her whole sphere of movement is pure abstraction.
In this election, abstraction will clearly lose, and corporeality, even if—or particularly if—gross and vulgar and rising from the repressed, will undoubtedly win. A business tycoon who vigorously inserted himself in the imaginations of the dispossessed as the foremost exponent of birtherism surely cannot be entirely beholden to the polite elites, can he? Trump is capital, but he is not capital, he is of us but also not of us in the way that the working class desires elevation from their rootedness, still strongly identified with place and time, not outside it. After all, he posed the elemental question, Where were you born?
To boil down the above paragraphs into my own words: Clinton represents a cold, corrupt, rent-seeking technocrat; a skilled operator within the callous, abstract phantom economy, while Trump, for all his flaws, has come to symbolize the disintegrating real economy. A place of blue collars and bricks and mortar; a place where people still work with their hands and come drenched with perspiration, their pants covered in dust. While the reality of Trump is completely distinct from what he represents, he pays homage to that world, and versus someone as discredited and phony as Hillary Clinton, this will be sufficient (although it wouldn’t work as well if his opponent was Bernie Sanders, who exudes authenticity and empathy for those Americans left behind).
While we’re on this topic, I think the Twitter habits of the two candidates also speaks volumes. If you follow @HillaryClinton and @realDonaldTrump, you’ll know that these two accounts couldn’t be more different. Hillary’s account is so calculated and phony, it’s actually hard not to constantly mock. It frequently tweets in fluent Spanish, and even tweets while she’s onstage speaking during a live debate. The only genuine thing about it is that the content is as sterilized, vacuous and stuffy as her public persona.
In contrast, Trump’s Twitter handle provides endless entertainment. It doesn’t feel formal or overly calculated, and no matter what you think of him or the content itself, it’s extremely refreshingly to see a leading candidate for the U.S. Presidency confident enough in himself to just let it fly on social media for everyone to see. In fact, his Twitter account is so legendary, it’s been a subject of consistent speculation.  In April’s article, How Donald Trump Tweets, the New York Timesnoted:
The exact source of Donald Trump’s tweets has long been a matter of speculation. The tweets are so consistent with his persona that it’s hard to imagine anyone else coming up with them. But where in his busy schedule of making America great again does Mr. Trump find time to tweet?
At a CNN town hall moderated by Anderson Cooper on Tuesday, he cleared things up. “During the day, I’m in the office, I just shout it out to one of the young ladies who are tremendous,” Mr. Trump said. “I’ll just shout it out, and they’ll do it.” After about 7 PM, however, he operates Twitter himself.
Love him or hate him, you have to respect the fact the guy actually tweets for himself.
Now let’s get back to Anis Shivani’s article. His conclusion is that Trump will win because at least he speaks to the angst of a certain disenfranchised segment of the population, while Hillary Clinton basically believes everything is fine and promises she’ll continue along Obama’s destructive path. He also notes that nothing will really change under Trump and he’s basically just paying lip service to the underclasses.
Unfortunately, I tend to agree. As I noted in the concluding lines to last week’s post, Donald Trump’s True Colors Emerge as He Snuggles up to Wall Street:
Trump’s support of repealing Dodd-Frank tells you all you need to know. A Trump Presidency will see Wall Street felons who should be in prison, running as wild and free as ever.
He will be the same thing to distressed working class whites that Obama was to the black community. A fake messiah and a shyster.
Now here’s Anis Shivani:
For the market to exist, as classical economics would have it, there must be free buyers and sellers, competitive prices, a marketplace that remains fixed and transparent, and none of these elements exist anymore in the neoliberal economy, which seeks to stamp out the last vestiges of resistance in the most forgotten parts of the world. In fact, the market has created—in the ghost towns of the American Midwest, for example—a kind of sub-Saharan desolation, in the heartland of the country, all the better to identify the completeness of its project in the “successful” coastal cities. Trump is a messenger from the most successful of these cities, and his very jet-setting presence, in the middle of empty landscapes, provides an imaginary access point.
When Trump’s masses see Clinton tacking to the middle—as she undoubtedly will, rather than go for the surefire path to victory by heading left, by picking Bernie Sanders for example—the more they will detest it, which will push her only further in their direction, not in the direction that can bring victory. Clinton, because of her disembodied identity in the placeless global economy, cannot make a movement toward the direction of reality, because the equations would falter, the math would be off, the logic would be unsustainable. And that is the contradiction that the country can easily see, that is the exposed front of the abstract market that will bring about its supposed reckoning in the form of Clinton’s defeat. 
But the reckoning, again, will be pure fiction. Trump is not a fascist father figure, he is not the second coming of Mussolini, he is the new virtual figure who is as real as reality television, which is even more recessive and vanishing compared to Ronald Reagan’s Hollywood fictions. The field of action in which Trump specialized for a long time before the nation, as dress rehearsal for the current (and final) role, was one where, at least to outward appearances, the presence of surplus capital was acknowledged and taken for granted, and aspirants competed to know more about it and to desperately work on its behalf.
But to get back to death, Trump’s campaign has been successful so far, and will surely be victorious in the end, because he is the only one who has brought death back into the discourse.
The only people identified with death today on the global scene—the only people not part of the market and not able to be part of it—are terrorists, undocumented immigrants, the homeless and the mentally ill, those who have no claims to success in the market. Trump’s people want to make sure—from the purest feeling of shame known to politics—that they are not of the unchosen ones, they want to enforce a radical separation between their kind of shame, which they think is unwarranted, by excluding illegal competition, by constructing literal walls to keep out the death-dealers, by overruling the transnational party elites who have sold them out.
Trump is vocally identifying the death aura, prodding the working class to confront the other, which is as alienated and excluded as itself, but which the working class likes to imagine is the irreconcilable other. By forcing this confrontation he has put himself in the winner’s seat.
Let us note the rise of suicide among white working-class men and women, of all ages. This—like the other deals in death that the market fails to name—is an assertion of independence from the market.
Think again of Trump’s initiation of his campaign with the idea of the wall, and calling those who break through the wall rapists and murderers. And compare it to Clinton’s opening gambit of giving identifiable personalities to the clear winners in the transnational race to acquire and embody capital, paraded one after the other in her first campaign commercial. And then think of the culture warriors, both on the left and the right, as perceiving every threat as a personal attack on their very being, their very existence, no matter how trivial the offense (hence the revealing term “micro-aggressions), exactly as the Trump proletariat reacts to attacks on their identity, as they have been trained to respond after decades of rampant identity politics. Now consider, in the face of these three competing tendencies, the market’s pure victory; because all three games are being played out on its terms, it is the preordained winner. And yet, I would say, Trump must win, he has to win, to give the element he represents, of the three mentioned here, a degree of equality with the other two. The spectacle must be kept interesting after all.
What is common between the “multitudes” who show up for the Trump and Sanders rallies? Both constituencies are rebelling against the empire of capital, the empire of the market (whether the right calls it the New World Order or the left calls it free trade), and they show up naming empire as such. In this election campaign, whoever names the empire of the market wins (Trump, or Sanders had he been able to overcome the barriers erected by the Democratic party), and whoever hides its name (Clinton), loses. 
I expect Trump to take a national lead shortly and never relinquish it until the end. It will be easy if he keeps the libertine and destructive aspects of himself in perfect balance, seesawing from one to the other, as he has so far, appealing to an elemental fear in the country, torn apart by the abstraction of the market, to which Clinton has not the faintest hope of responding. He only has to use one distinctively non-misogynist, concretely unifying, morose five-letter word in the debates: NAFTA. A pure market abstraction that has turned out to be not so much an abstraction.
At the end of the day, I think the following Tweet from February summarizes Clinton vs. Trump perfectly:

Helen Chaitman-Criminal Bankers Threaten Entire World Economy, Big Bank Customers Destroyed in Next Economic Meltdown

 Attorney Helen Chaitman, who represents victims of the Bernie Madoff $65 billion fraud, contends the big banks are like mobsters. Chaitman says, “There is no question about it. They operate illegally because they can generate huge profits by doing so. They go from one crime to another, and when they get caught committing one crime, nobody gets fired. Nobody disgorges bonuses. They just take those people and put them in a new area where they haven’t yet been prosecuted.”
What will happen to the customers of the big banks in the next financial meltdown? Chaitman warns, “The customers will be destroyed, and if the banks still have enough money to buy Washington, the government will protect them just like it has since 2008.”
Join Greg Hunter as he goes One-on-One with Helen Chaitman, author of the new book “JP Madoff.”

Is There In Fact A Massive Shortage of Physical Silver Metal Developing in the Market?

 Throughout 2015’s Severe Retail Investment Silver Shortage, Skeptics Claimed That Silver Itself Was In Abundant Supply & the Shortage Was Merely a Production Issue.
Is There In Fact A Massive Shortage of Physical Silver Metal Developing in the Market?
Renowned Silver Expert David Morgan Joined the Show to Present the Cold Hard Data:

Currency War Resumes - China Devalues Yuan To 5-Year Lows

After a brief hiatus from the ongoing currency wars, China fired another salvo at The Fed tonight by devaluing the Yuan fix to 6.5693 - its weakest against the USD since March 2011. After eight days higher in a row for The USD Index, it seems PBOC has turned its currency liberalization plan off, stabilizing the broad Renminbi basket (which has been steadily devalued) and turning its attention to devaluing against the USD. Having unleashed turmoil in August (pre-Sept FOMC) and January (post Dec rate-hike), it appears the rising rate-hike probabilities jawboned by The Fed are decidedly disagreeable to "authoritative persons" in China.

The Yuan Fix was driven down to March 2011 lows...

“It could be because the authorities want to alleviate some of the depreciation pressure before the Fed interest rate decision in June," said Christy Tan, head of markets strategy at National Australia Bank Ltd. in Hong Kong. "If there are signs of panic dollar buying, the PBOC will step in."
As it seems maintaining some 'stability' against the USD has lost its appeal as the USD surges once again...

What the chart above shows is that the Chinese currency (red) has been devaluing in an orderly and quiet manner for much of the year while maintaining the appearance of stability against the USD (blue). That appears to have changed now and the last time turmoil started to ripple through the CNHUSD markets - it didn't stop until Tom Cook lied to Jim Cramer and The PPT rescued the world.
The irony of the apparent stability in the broad-based Renminbi basket (while devaluing against the USD) is that it comes after a desperate China has reportedly given up on its liberalization goals. As The Wall Street Journal notes,
Behind closed doors in March, some of China’s most prominent economists and bankers bluntly asked the People’s Bank of China to stop fighting the financial markets and let the value of the nation’s currency fall.

They got nowhere. “The primary task is to maintain stability,” said one central-bank official, according to previously undisclosed minutes of the meeting reviewed by The Wall Street Journal.

The meeting left little doubt China’s top leaders have lost interest in a major policy shift announced in a surprise move just nine months ago. In August 2015, the PBOC said it would make the yuan’s value more market-based, an important step in liberalizing the world’s second-largest economy.
In reality, though, the yuan’s daily exchange rate is now back under tight government control, according to meeting minutes that detail private deliberations and interviews with Chinese officials and advisers who spoke with The Wall Street Journal about the country’s currency policy.
On Jan. 4, the central bank behind closed doors ditched the market-based mechanism, according to people close to the PBOC. The central bank hasn’t announced the reversal, but officials have essentially returned to the old way of adjusting the yuan’s daily value higher or lower based on whatever suits Beijing best.
The flip-flop is a sign of policy makers’ deepening wariness about how much money is fleeing China, a problem driven by its slowing economy. For now, at least, officials believe the benefits of freeing the yuan are outnumbered by the number of threats... though we note that a 3% depreciation of the yuan could add $25.6 billion to Chinese companies’ annual interest payments on dollar debts, according to estimates by analysts at BNP Paribas.
So the question is - will the Yuan turmoil ripple through markets enough to spook The Fed once more and dissolve what little credibility they have left or will Janet and her henchmen stand up to the foreign forces, hike rates to spit their own face, and deal with the aftermath through some more Citadel-driven VIXtermination? With VIX futures near record shorts and S&P futures at their longest in almost 2 years - there's not much easy leveraged money to squeeze there - like there was in August.

Microsoft lays off hundreds as it guts its phone business


Microsoft is signalling the end of its Nokia experiment today. After acquiring Nokia’s phone business for $7.2 billion two years ago, Microsoft wrote off $7.6 billion last year and cut 7,800 jobs to refocus its phone efforts. Microsoft is now writing off an additional $950 million today as part of its failed Nokia acquisition, and the company plans to cut a further 1,850 jobs. Most of the layoffs will affect employees at Microsoft’s Mobile division in Finland, with 1,350 job losses there and 500 globally. Around $200 million of the $950 million impairment charge is being used for severance payments.
These latest job cuts mean that the majority of former Nokia employees are no longer working at Microsoft. Microsoft plans to complete most of its job cuts by the end of the year. A small number of employees will remain in research and development roles, and Microsoft has a sales subsidiary in Finland that won’t be affected by the reductions. Microsoft originally hired 25,000 Nokia employees as part of its acquisition. Microsoft’s “streamlining” of its smartphone business comes just a week after the company announced it’s selling its feature phone business to FIH Mobile, a subsidiary of Foxconn, for $350 million.
“We are focusing our phone efforts where we have differentiation — with enterprises that value security, manageability and our Continuum capability, and consumers who value the same,” says Microsoft CEO Satya Nadella in a statement. “We will continue to innovate across devices and on our cloud services across all mobile platforms.”
Nadella announced a “more effective and focused phone portfolio” almost a year ago, and one that focused on three areas: business, value phones, and flagships. Microsoft is refocusing its phone efforts once again, and it’s clear Microsoft is scaling back even further. “We’re scaling back, but we’re not out!” admits Terry Myerson, Microsoft’s head of Windows and devices, in an internal email. Myerson also adds that Microsoft’s “phone success has been limited to companies valuing our commitment to security, manageability, and Continuum, and with consumers who value the same.”

CBC Investigates Panama Papers confirm Canadian billionaire and university benefactor as mystery man in global bribery case

McGill and York need better 'due diligence' after accepting donations from embattled tycoon, critic says

By Zach Dubinsky, CBC News Posted: May 25, 2016 5:00 AM ET Last Updated: May 25, 2016 5:00 AM ET
British-Canadian metals magnate Victor Dahdaleh, second from right, greets Prime Minister Justin Trudeau in London in November, as Canadian High Commissioner Gordon Campbell, left, and Bank of England Governor Mark Carney, centre, look on. Dahdaleh still moves in the highest echelons of political and corporate power after his involvement in an international bribery scandal.
British-Canadian metals magnate Victor Dahdaleh, second from right, greets Prime Minister Justin Trudeau in London in November, as Canadian High Commissioner Gordon Campbell, left, and Bank of England Governor Mark Carney, centre, look on. Dahdaleh still moves in the highest echelons of political and corporate power after his involvement in an international bribery scandal. (Canada-U.K. Chamber of Commerce) 

He has hobnobbed with the Queen and Bill Clinton. Donated a small fortune to Canadian universities. Runs a billion-dollar global business empire. And glides effortlessly in the highest echelons of corporate and political power.
Now, a joint CBC/Toronto Star investigation based on the Panama Papers provides the closing chapter in a years-long saga involving Canadian tycoon Victor Dahdaleh, which saw him battle criminal charges and a billion-dollar lawsuit on two continents over an international bribery scandal — all the while forging close ties with a trio of Canadian universities.
The huge leak of offshore financial records reveals Dahdaleh, a 72-year-old Jordanian-born metals magnate, is indeed, as long suspected, the mysterious middleman known in U.S. court documents as "Consultant A" — described as having handed out tens of millions of dollars in inducements to officials at a Persian Gulf smelting company in exchange for supplier contracts that went to one of the world's biggest aluminum conglomerates.
Victor Dahdaleh with Bill Clinton
Dahdaleh has donated as much as $5 million US to the Clinton Foundation and is a friend of the former U.S. president. (Facebook)
Dahdaleh denies any wrongdoing and was acquitted in a British criminal trial, but his client, a unit of aluminum industry heavyweight Alcoa, pleaded guilty to a U.S. bribery charge in 2014 as a result of the scandal. With its parent company, it paid one of the biggest-ever anti-corruption penalties in American history — $384 million US.
The settlements between the U.S. government and Alcoa describe "Consultant A" as follows:
  • Starting in 1989, Alcoa's Australian subsidiary hired Consultant A to help secure a long-term contract to supply an aluminum ingredient called alumina to Bahrain's national aluminum-smelting company, Alba. "The relationship with the consultant was designed to generate funds that facilitated corrupt payments to Bahraini officials," according to agreed findings in the case.
  • By 2002, instead of invoicing Alba directly, Alcoa of Australia was routing the paperwork through two offshore companies controlled by Consultant A called AAAC and Alumet. AAAC marked up the price of the alumina to Alba by $79 million US between 2002 and 2004.
  • Beginning in 2005, Consultant A's companies bought alumina from Alcoa of Australia and sold it onward to Alba, pocketing a mark-up of $188 million US through 2009, though never actually handling any of the material.  
  • Consultant A used some of the mark-up revenues "to enrich himself" and some to make "$110 million in corrupt payments to Bahraini officials." Recipients included a senior Bahraini official, directors and management of Alba, and a senior member of Bahrain's royal family.  
The Panama Papers leave no doubt Dahdaleh is the wheeler-dealer Consultant A. Among the leaked records is a March 2007 email he sent to Panamanian law firm Mossack Fonseca, where he declares: "This email confirms... my capacity as the owner and director of Alumet," one of the offshore companies used to route the alumina. Numerous other files identify him as Alumet's owner.
Dahdaleh was never charged in the U.S., but was charged with eight counts of corruption, conspiracy and money-laundering in Britain, where he lives, in 2011.

At one point, a judge found he had breached his bail terms by meeting with a prosecution witness (the Crown alleged witness intimidation), and Dahdaleh had his bail temporarily revoked and was sent to jail for a month.
Ultimately, he was acquitted in 2013 when the case against him collapsed. Unrelated to the earlier witness meeting, two key prosecution witnesses failed to show up to testify and another changed his evidence.
Dahdaleh's defence never denied he paid the inducements but, under a U.K. criminal doctrine known as "principal's consent," said the payments weren't corrupt or illicit because they were known about and approved by Bahraini officials and were part of normal business practice at the time in the country.
Victor Dahdaleh with Nelson Mandela
Dahdaleh has rubbed elbows with numerous world leaders, including Nelson Mandela. (Facebook)
Separately, Dahdaleh settled a billion-dollar U.S. civil lawsuit filed by Alba alleging conspiracy, corruption and fraud by him, Alcoa and another defendant out of court for an undisclosed amount.
In response to questions from CBC and the Toronto Star, Dahdaleh's spokesman Timothy Bell called the outcome of the British court case "final" and said the U.S. plea deals involving Alcoa "do not detract from" it. He added that names were anonymized in the plea deals "for sound reasons of fairness and justice," but did not answer specific questions about Dahdaleh's identity as Consultant A.
"Mr Dahdaleh has never been convicted of any offence in any court in the world," Bell said in an email.
Under a new British law passed in 2010, however, Dahdaleh would not have been successful with the "principal's consent" defence, said Julian Knowles, a British lawyer and expert in commercial crimes.
"It's clear under the 2010 act, even if a public official has the OK from his higher-ups, it's a crime," Knowles told the Star in an interview. "His case is an example of why we changed our law, because there were so many loopholes."

Universities honour embattled magnate

While the legal drama over the Alcoa bribery scandal was playing out in U.S. court since 2008 and in Britain since 2011, Canadian universities continued to honour Dahdaleh.
He personally arranged for former U.S. president Clinton to receive an honorary degree from McGill University in 2009 and was a dignitary on stage during the ceremony, in which he placed the doctoral sash over Clinton's shoulders and then hugged him.
Dahdaleh has also sat on the board of the McGill University Trust, the school's British fundraising arm, since 1995 without interruption and has been a significant financial supporter.
McGill did not reply to questions about when it first learned of the allegations against Dahdaleh and whether it was appropriate for him to have been a dignitary at the Clinton ceremony while facing bribery accusations. The university also did not say whether it has considered dismissing Dahdaleh from the McGill University Trust.
York University president Mamdouh Shoukri shakes hands with businessman Victor Dahdaleh
York University president Mamdouh Shoukri, left, shakes hands with Dahdaleh in October after he donated $20 million to the school. York later announced it would name an institute and building after him. (York University)
Last December, St. Francis Xavier University in Nova Scotia awarded Dahdaleh an honorary doctorate. The citation mentioned his global business dealings but also his philanthropy, to Canadian universities and other causes.
The same month, York University in Toronto announced it would create a new Dahdaleh Institute for Global Health after he donated $20 million.
Neither St. Francis Xavier nor York replied to multiple queries about what they knew of the allegations against Dahdaleh and how that might have shaped decisions to honour him.
"There was clearly in this particular case some serious questions about the ethical behaviour of this individual ... I think all the institutions have to practise a bit more due diligence," said David Robinson, executive director of the Canadian Association of University Teachers, which represents 68,000 university professors and academic staff in Canada.
"If there's any concerns about violation of ethical standards or any other legal issues, donations should be rejected. I think it sullies the name of a university or college if it's associated with an unsavoury business or character."

Why Greece is top of Germany's to-do list - again

Why Greece is top of Germany's to-do list - again
Unemployed Greek workers with symbolically chained hands march on May 1st in Athens. Photo: DPA

German leaders spent much of the first half of 2015 wrangling Europe into a deal that would – they hoped – allow Greece to pay off its debts by restructuring its economy and making deep cuts to public spending.
But almost a year later the stricken Mediterranean country is once again top of the agenda at meetings of the Eurogroup (finance ministers of countries that use the Euro single currency) – with the latest set for Tuesday afternoon.
What's the story so far?
A major aim in 2015 was to prevent those who had lent money to Athens from having to accept a 'haircut': financial jargon for a cut in the amount they could expect to be repaid.
Germany, as one of the biggest lender countries and a dominant figure in the Eurozone single currency area, was at the heart of the negotiations. Public and political opinion in the Federal Republic were dead set against giving the Greeks any leeway.
MPs in the Bundestag (German parliament) did end up voting through a bailout package last July – but only because Finance Minister Wolfgang Schäuble promised there would be no haircut and that the International Monetary Fund (IMF) was on board with the plan.
Finance Minister Wolfgang Schäuble has been tough on Greece throughout its financial woes. Photo: DPA
But in a paper published on Monday the Washington-based IMF has changed its tune, saying that it now disagrees with Schäuble and that Greece should get relief from its debts.
Unless something changes soon, the IMF economists argue, Greece will owe 175 percent of its annual GDP to creditors by 2020 and 260 percent by 2060 – making its debt completely unsustainable.
What's been going on in Greece?
Greece's left-wing prime minister, Alexis Tsipras, has spent the best part of a year implementing the reforms demanded by Greece's creditors as a condition for lending more cash.
Just this week MPs agreed to raise taxes on petrol, tobacco and telecoms services in a bid to raise more money.
That's on top of severe cuts to the country's pensions and social systems that have already been passed, as well as privatizations of many government-owned businesses and assets.
Lawmakers in Athens also recently agreed a package of yet deeper cuts that will only come into effect if the country does not meet its savings targets.
Greek Prime Minister Alexis Tsipras has become a veteran of knife-edge votes in the Athens parliament. Photo: DPA
All of this has been going on against a background of fierce protests against the cuts - and many votes in parliament have passed with only single-digit majorities as Tsipras has faced revolts from his own MPs.
And the cuts have yet to have the intended effect of allowing the economy to grow.
In fact, output has shrunk, meaning that the debt burden is ever more difficult for Athens to bear.
What does Greece need now?
Greece needs €3.67 billion by July for debt repayments to the European Central Bank (ECB) and the IMF.
According to Bloomberg, on the table on Tuesday is €11 billion, the latest tranche of the €86 billion bailout agreed last year.
But it can only be paid out if Eurogroup finance ministers agree at their meeting that Greece has lived up to its reform commitments.
"European leaders get the message that Greece is sticking to its promises," Tsipras said on Sunday. "Now it's their turn."
What's the hold-up?
Following the IMF's dramatic entry into the debate over debt relief, Schäuble has held firm to his insistence that there should be no cuts to Greek debt before 2018.
Story continues below…

Europe gets its first modern Russian-made airliners

A cabin crew member of Russian carrier Aeroflot poses in front of a Sukhoi Superjet 100 airplane © Pascal Rossignol
United Aircraft Corporation says the first Russian Sukhoi Superjet 100 (SSJ100) plane has been delivered to its inaugural European customer Irish airline CityJet.
Under the $1 billion contract, CityJet will lease 15 SSJ100 airplanes with an option for an additional 16 aircraft. The Irish airline will receive three aircraft in 2016, and the rest from 2017 onwards.

First Sukhoi Superjet 100 delivered to CityJet!!!!  @cityjet
Sukhoi will provide CityJet with technical support through a 12-year service agreement.
“The delivery of our first SSJ100 is an important milestone for CityJet as we begin our fleet renewal program. This is a fantastic aircraft and we look forward to introducing our customers to its high level of comfort and efficiency in the coming years,” said Pat Byrne, Executive Chairman of CityJet.
Last year the Dublin-based company chose the SSJ100 to enhance its fleet and network development program. CityJet’s fleet renewal and expansion comes as a result of the company’s strong performance in 2015.
CityJet will continue its long-standing wet lease contract with Air France-KLM using the Superjets.
READ MORE: Egypt, Denmark to buy Russian Sukhoi airliners
The 98-seat SSJ100 has been developed by the Sukhoi Civil Aircraft Company. It is an advanced and cost-effective commercial aircraft which can operate on short-to-medium range routes. It has a range of 4,500 kilometers.
Sukhoi is currently negotiating with the Egyptian airline EgyptAir to supply up to 40 SSJ100 aircraft. According to media reports, Danish airline Greenland Express is also in talks with Sukhoi to buy five Superjet planes.

The Choice For Venezuela Is Stark: Either Print Money and Fail or Establish Sound Money (USD to the Rescue?)

by Charles Hugh-Smith 
There are a number of reasons why adopting the USD is a natural choice for any Venezuelan government that is not bent on self-destruction.
Let’s start our analysis of Venezuela’s economic plight with two exhibits:Exhibit A is a chart of the market (free) exchange rate of the Venezuelan Bolivar and the U.S. dollar (USD), and Exhibit B is a chart of the USD.
Back in 2003, when the writing was already on the wall, one USD bought 1.6 Bolivars. Today, it takes over 1,000 Bolivars to buy one U.S. dollar. Though the official rate is 10 Bolivars to one USD for subsidized goods and 416 to the USD for everything else, the street exchange rate is 1,050 Bolivars to the dollar.
(The official exchange rate has multiple levels, creating multiple layers of confusion and opportunities for graft/corruption.)

While Venezuela’s currency was in a free-fall to oblivion, a fundamental revaluation of the U.S. dollar pushed the USD up about 20% in the past two years.

Once a currency is mortally wounded, the government has a stark choice:either print more money and try to stimulate a dying economy by spending the fast-depreciating money, or relinquish the dead currency and establish a sound currency that will attract capital to the country’s economy.
There are only two paths: either the state/central bank creates or borrows money into existence in an attempt to “print and deficit-spend our way to prosperity,” or the state accepts sound money that it cannot print or borrow into existence. This stability soon attracts private capital.
If the state/central bank attempts to create capital by printing or borrowing money into existence, private capital will flee because the writing is on the wall: the currency and economy are doomed. You can create currency out of thin air, but you can’t create sound money out of thin air or real capital out of thin air.
If the state/central bank surrenders the money-printing press, and accepts the limitations of a currency it can’t print into hyper-inflation, then private capital will enter the economy because it can trust that the currency can’t be devalued by politicos or the central bank.
I was interested in a recent article on Zero Hedge, Will Venezuela Be Forced To Embrace The Dollar?, for it followed my suggestion of four years ago that Greece should adopt the U.S. Dollar as its new currency (May 14, 2012).
There are a number of reasons why adopting the USD is a natural choice for any Venezuelan government that is not bent on self-destruction.
Adopting the U.S. dollar would deprive the Venezuelan state of its power to devalue its currency. The basic idea behind devaluing one’s currency is to boost one’s exports by making one’s goods cheaper in other currencies.
But since Venezuela has few exports other than oil, which typically trades in USD, there is no export-driven reason to devalue the currency.
A gold-backed currency would be sound money, but does Venezuela have enough gold left to back a new currency? Perhaps, but if there are pervasive doubts about the state’s policies and the ability of the Venezuelan economy to survive its present woes, everyone will quickly convert their currency into gold, and the nation’s gold reserves would quickly be depleted.
Many people see the ability to devalue a currency as necessary to attract investment. The basic idea here is that if a currency gets cheap enough, foreign capital will smell a bargain and flood into the country, boosting growth.
I think this is absolutely backwards: what capital will sniff out is the possibility that a cheap currency will get even cheaper. As I always note, no nation has ever devalued its way to prosperity or influence. Devaluing one’s currency impoverishes every holder of the currency, which invariably includes the bottom 99.9% of your population.
The practicalities also favor the U.S. dollar. With $1.4 trillion of actual physical cash in circulation globally, there is enough USD cash to grease daily commerce in Venezuela, which has about 30 million residents and a GDP of $131 billion (at the official exchange rate, about the size of Nevada’s economy) or purchasing power parity (PPP) GDP of about $500 billion, about the size of North Carolina’s economy.
The USD is already recognized and used as money in Venezuela (and virtually every other nation on the planet), and so the infrastructure is already set up to maintain a pricing mechanism in USD.
The current government of Venezuela has failed. That much is obvious. The only unknown is what sort of governance eventually replaces it and at what cost in human lives and suffering.
The new government, whether it labels itself Socialist, Communist, free-market or a hybrid of various ideologies, would immediately establish sound money and financial stability by adopting the U.S. dollar as its currency.
Since the USD is already a global currency, the new government would not need the American state’s permission; it could announce the adoption, bank the dollars being paid for Venezuelan oil and get about reorganizing the economy for the betterment of Venezuela’s people based on a currency that is recognized as a means of exchange everywhere.
A Radically Beneficial World: Automation, Technology and Creating Jobs for All is now available as an Audible audio book.

RIGGED: 5 Banks Sued for Manipulating $9 Trillion Bond Market Prices!

Second half rally is coming – here’s why: Technician…
The Stock Market Will Make New Highs This Year – Barron’s…
Corporations Are Sitting on $1.7 Trillion in Cash – Bloomberg…
Five banks sued in U.S. for rigging $9 trillion agency bond market | Reuters…
Spain’s debt now worth more than value of the economy…
Poll: Two-thirds of US would struggle to cover $1,000 crisis…
San Jose housing prices: County’s median hits $1 million for first time – San Jose Mercury News…