European Central Bank ‘asphyxiating’ Greece - Varoufakis

Greek Finance Minister Yanis Varoufakis (Reuters / Alkis Konstantinidis)

Greek Finance Minister Yanis Varoufakis said the European Central Bank is holding cash-strapped Athens in a choke-hold in order to push through negotiations on the country’s bailout program.
The European Central Bank has essentially cut Greece off from short-term lending, which makes borrowing more expensive for the already heavily-indebted nation. If Athens doesn’t strike a deal with Brussels, they will lose emergency assistance funding from the ECB.
“The ECB in my opinion is pursuing a policy that can be considered asphyxiating toward our government,” Varoufakis was quoted by Reuters as saying in an interview with Greece’s Mega TV.
Varoufakis is expected to join Prime Minister Alexis Tsipras in Paris on Thursday for talks with the OECD on Athens’s proposed government reforms.

READ MORE: Eurozone backs Greek reforms, enabling €172bn rescue extension
At the same time, officials from the European Commission, the European Central Bank, and the International Monetary Fund are visiting Athens to examine the financial state of the country.
Greece has said it will not request a third bailout, and that is wants to get a reduction on its debt, but European creditors still demand it is paid in full.
The EU came to Greece’s rescue in 2010 and 2014 with two bailouts totaling €240 billion, but saddled Athens with stringent austerity measures.
In February, Greek and eurozone officials agreed to extend the bailout by 4 months. Without more money from the EU, Greece won’t be able to continue chipping away at its massive €316 billion debt.

Gut punch to Germany

Greece has lodged an official complaint with the German finance ministry after Wolfgang Schaeuble described Yanis Varoufakis as “foolishly naive” in his dealings with the media.

Germany’s Bundestag okays Greece’s bailout extension

German Finance Minister Wolfgang Schauble shot back by saying Varoufakis had squandered the trust of the Germans.
“Mr. Schaeuble has told me I have lost the trust of the German government; I have told him that I never had it. I have the trust of the Greek people,” Varoufakis said.
Jens Weidmann, a policymaker at the European Central Bank and head of Germany’s Central Bank, echoed similar views on an interview with Bloomberg News Friday.
Schauble has openly blamed Greece for its own failed banks, and has threatened the European Central Bank could switch off emergency funding.
In the last five years, the Greek economy has lost a quarter of its value, and more than one in three Greeks live below the poverty line. Unemployment continues to hover near 30 percent, and nearly double for the young.

China-IMF talks underway to endorse yuan as global reserve currency

China is pushing for the International Monetary Fund to endorse the Chinese yuan as a global reserve currency alongside the dollar and euro.


A senior Chinese central bank official said Thursday that the country is “actively communicating” with the IMF on the possibility of including the yuan, or RMB, in the basket of the Special Drawing Rights (SDRs).

Including the yuan in the SDR system would allow the IMF to recognize the ascent of the world’s second-biggest economy while aiding China’s attempts to diminish the dollar’s dominance in global trade and finance.

“We hope the IMF can fully take into account the progress of RMB internationalization, to include RMB into the basket underlining the SDR in foreseeable, near future,” said Yi Gang, vice governor of the People’s Bank of China.

However, China will be patient until conditions are ripe, Yi said at a press conference on the sidelines of the ongoing annual parliamentary session.

In late 2015, the IMF will conduct its next twice-a-decade review of the basket of currencies its members can count toward their official reserves.

SDRs are international foreign exchange reserve assets. Allocated to nations by the IMF, an SDR represents a claim to foreign currencies for which it may be exchanged in times of need.

Although denominated in US dollars, the nominal value of an SDR is derived from a basket of currencies, with, specifically, a fixed amount of Japanese yen, US dollars, British pounds and euros, without RMB.

China would need to satisfy the Washington-based lender’s economic benchmarks and get the support of most of the other 187 member countries.

To become a currency included in the SDR basket, the trade volume of goods and services behind that currency will be evaluated, the Chinese Central Bank official explained on Thursday, stressing that RMB has no problem in this regard. But he said views are divided on whether the RMB is a freely usable currency.

“No matter whether and when the RMB will be included in the SDR basket, China will push on with its financial sector reform and opening-up,” Yi said.

The yuan became the world’s No. 2 currency for trade finance globally in 2013, and overtook the Canadian and Australian dollars to enter the top five world payment currencies in 2014, according to global transaction services organization SWIFT.

China said the yuan has also been used as a reserve currency in some countries and regions.
http://thebricspost.com/china-imf-talks-underway-to-endorse-yuan-as-global-reserve-currency/#.VQHIBeEXdmS

Gold Up 11 Per Cent In Euros This Year As Currency Wars Intensify

by GoldCore
- Gold has risen 11% versus the euro in 2015
- Builds on 12% gains against the euro in 2014
- Sentiment poor despite reasonable performance
- Gold performing well considering significant gains in stocks and dollar
- Dollar centric view misleading
- Currency wars intensifying
- Complacency and hubris rife

Gold rose 12% against the euro in 2014 and so far in 2015, gold has risen a further 11% versus the euro. The euro has fallen 23% against gold since January 2014. Gold has risen from EUR 880 per ounce in January 2014 to EUR 1,090 per ounce today.

image: http://www.goldcore.com/ie/wp-content/uploads/sites/19/2015/03/goldcore_bloomberg_chart4_12-03-15.png?38af09
The dollar-centric nature of most financial media and the tendency to focus on gold solely in dollars would give one the impression that gold has been devastated this year.

In dollar terms gold has not fared terribly well, its true, but that is more a function of the surge in the dollar than of weakness in gold. Gold’s performance has been quite good considering the significant strength in the dollar and the gains seen in stock markets.

Gold has an inverse correlation with the dollar and stocks over the long term.
How much longer the stock and dollar boom can continue in the face of deteriorating macro-economic data – the worst since the 2008 crisis – is anyone’s guess. The Federal Reserve, like its other central bank counterparts, has done an incredible job in levitating markets and risk assets thus far.
The dollar has soared against most of the currencies in the world but has only eked out very small gains versus gold. Gold has fallen just 2.7% in dollar terms.
When measured against other currencies, gold has risen versus many major currencies. In fact, it has only suffered modest declines in a few currencies this year. Despite, all the negative gold sentiment against the backdrop of central banks globally racing to debase their currencies.
image: http://www.goldcore.com/ie/wp-content/uploads/sites/19/2015/03/goldcore_bloomberg_chart1_13-03-15.png?38af09

Priced in euros, gold opened the year at EUR 980.52. It quickly spiked to EUR 1,154.94 before what appears to be a 50% retrenchment. It then picked up again and at the time of writing, it is priced around the EUR 1,092 mark. So in Euro terms gold is actually up around 11% this year.

In GBP gold followed roughly the same pattern but did not rebound so well due to recent sterling strength and is currently trading slightly above its price at the start of the year.
We expect qold to be supported in the near term and to rise in the longer term as the ECB lurches into its QE program. The expectation that the ECB will inject massive liquidity into the financial system by buying up bonds en masse has been met with unquestioning enthusiasm.
image: http://www.goldcore.com/ie/wp-content/uploads/sites/19/2015/03/goldcore_bloomberg_chart2_13-03-15.png?38af09

We do not share this enthusiasm. The anticipation of this monetary experiment has already caused the euro to plunge. This should aid exporters in the coming months. But in the longer term it will lead to inflation as importers have to pay more for their raw materials and the public have to pay higher prices for imported goods.

Also of vital importance is that most central banks are involved in competitive currency devaluations.
Therefore, in the medium and long term, currency devaluations will be of little benefit to exporters as most central banks are engaged in the same ‘beggar thy neighbour’ trade and currency wars. So far this year twenty four central banks globally have lowered interest rates in a bid to weaken their currencies to aid their export sectors and create jobs and economic growth.
The haphazard manner in which this QE experiment is being executed in the EU is also concerning. In the absence of a truly centralised central bank it has fallen to national central banks to purchase the bonds that will create a sustainable recovery. The lack of oversight is ripe for abuse of the system.
The experiment has only been in operation for four days and already there are serious questions over whether it can be actually implemented as planned. Due to arcane accountancy rules governing the quality of bonds which may be purchased it appears that there simply may not be enough bonds to meet demand.
Given that the ECB flagged its intention to engage in QE long in advance, the bond markets have already factored in anticipated massive central bank purchases. If it turns out that the central banks cannot buy their expected allocation of bonds it will likely cause chaos in the bond markets.
The uncertainty now hanging over the European bond markets cannot have been alleviated by reports that Greek Finance Minister Varoufakis said on Tuesday that “Greece would never pay back its debts,” which was followed by Prime Minister Tsipras confirming that “Greece cannot pretend its debt burden is sustainable.”
Greece’s future in the Eurozone is still questionable. The BBC is now warning that Greece may be pivoting towards Russia. They report that a “drove of Greek cabinet members will be heading to Moscow” in May, a month before the current bail-out arrangement expires.

Anticipation of ECB QE has also caused European stock markets to rise considerably. These price rises have not been matched by a rise in earnings or dividends indicating a liquidity driven bubble in some European and other indices.

image: http://www.goldcore.com/ie/wp-content/uploads/sites/19/2015/03/goldcore_bloomberg_chart3_13-03-15.png?38af09
By some measures, US stock markets are more overvalued than they were in 2008.
The subprime bubble and meltdown of 2007 has now been surpassed by large bubbles in auto loans, student loans, many tech and biotech stocks, junk bonds and other sections of the bond market.

Compounding the risks is the fact that there is now $8 trillion more in public and private debt in just the United States alone.

The imbalances, distortions and malinvestment that caused the 2008 meltdown are much worse today than they were in 2008. As is the complacency and hubris.
And many of the same people who got us into this mess remain at the helm and are pursuing the same ultra loose monetary policies that got us into the debacle.
Given the risks of today – the euro and other currency QE experiments, competitive currency devaluations, currency wars, bail-ins, stock and bond market bubbles – gold will continue to protect and grow wealth over the long term.
Download Insight: Currency Wars: Bye Bye Petrodollar – Buy, Buy Gold

MARKET UPDATE

Today’s AM fix was USD 1,156.50, EUR 1,091.24 and GBP 779.58 per ounce.
Yesterday’s AM fix was USD 1,161.25, EUR 1,094.90  and GBP 774.48 per ounce.
Gold fell 0.06% percent or $0.70 and closed at $1,153.30 an ounce yesterday, while silver climbed 0.45% or $0.07 to $15.57 an ounce.
image: http://www.goldcore.com/ie/wp-content/uploads/sites/19/2015/03/goldcore_bloomberg_chart5_13-03-15.png?38af09

In Singapore, bullion for immediate delivery inched up 0.5 percent to $1,159.30 an ounce near the end of day trading.  The yellow metal has seen nine straight sessions of losses which equates to its longest losing streak since August 1973, when it fell for ten consecutive days.

 In London, spot gold is trading at $1,156.88 or up 0.24 percent. Silver is down 0.49 percent at $15.56 and platinum is up 0.45 percent at $1,123.42.
Gold Sentiment Very Poor As Speculators Sell Yet Bullion Demand Robust

Gold looks to be headed for its sixth weekly drop in seven weeks. Sentiment towards gold is quite negative after the recent price falls.
Gold has been pressurised by liquidations from the more speculative side of the market – with ETFs and in the futures market. Holdings in the SPDR Gold Trust, the world’s largest gold exchange-traded fund, fell 0.28 per cent to 750.95 tonnes on Thursday – the lowest since late January.
image: http://www.goldcore.com/ie/wp-content/uploads/sites/19/2015/03/goldcore_bloomberg_chart4_13-03-15.png?38af09

Unusually, the fund hasn’t seen any inflows since February 20 – see chart on flows into the ETF, and how it’s been tracking gold prices, although gold has fallen by much more than the ETF holdings.

Gold is weaker and yet, there has been very little liquidations of physical coins and bars and bullion demand in China and India remained robust in recent weeks and actually picked up this week.

Premiums in India remain close to $2 and in China they remain over $5 per ounce.
Reuters report that traders in Asia spoke of robust demand this week. “Demand has increased a little bit because of the drop in prices but there is no big rush,” said Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation.
Asian buyers again are using weakness in gold and silver prices to accumulate bullion.
U.S. Mint figures show demand has been robust in March. Sales of gold American Eagle coins by the U.S. Mint have been strong, already almost matching last March’s total (at 20,500 oz so far this month, vs 21,000 oz last year) and outstripping February’s (18,500 oz).

Silver American Eagle sales aren’t doing so well, however. Sales total 1.3735 million so far this month, compared to 3.022 million oz in February and 5.354 million oz in March 2014.
Interestingly, according to Amanda Cooper of Thomson Reuters posting in the Global Gold Forum:
“Until yesterday, gold had fallen for 8 days in a row, which is pretty steep going even for the gold market when it gets gloomy. The last time gold fell that many days in a row was March 2009.
A closer look at the chart reveals that gold has only ever fallen by that many days in a row three times since the gold standard was abolished in the 1970s. Since Reuters gold data began in 1968, gold has only fallen for 9 days once, back in August 1973.”
It is worth noting that in the months following the 8 days of falls in 2009, gold prices surged.Gold rose from $892 per ounce in March 2009 to over $1,200 per ounce just 8 months later in November 2009. This was a rise of nearly 35%. A similar rise today would see gold rise from $1,155 per ounce today to over $1,550 per ounce.

Caveat emptor and past performance is no guarantee of future returns.

It takes a brave or foolish investor to buy after such price falls and we always caution never to “catch a falling knife.”
However, an attractive buying opportunity looks set to soon present itself.
Dollar, pound and euro cost averaging into a physical position remains prudent.
Updates and Award Winning Research Here

Marc Faber: The Fed Is As Clueless As Everyone Else Who Watches CNBC

What Happens to the Stock Market if the U.S. Follows the World into Recession?

by Charles Hugh-Smith
History is rather unkind to blind faith in central banks, just as the rising U.S. dollar and stagnant sales are being very unkind to corporate profits.
The quasi-religious faith that central banks can push stock markets ever higher regardless of real-world realities may well be tested in 2015-2016. The global economy spiraling into recession (a.k.a. a period of slow growth–heh) raises two questions:

1. Can the U.S. economy decouple from the global economy, i.e. keep expanding production, sales, income and payrolls while the rest of the global economy falters?

2. What happens to the U.S. stock market if/when the U.S. follows the rest of the world into recession?
My colleague Dave P. at Market Daily Briefing has posted information on a recession detector based on the work of economists Chauvet and Piger.
In essence, the model considers four data series: real personal income, nonfarm payrolls, industrial production and real final sales (as a percentage of change). If all four are rising, the probability of recession is low.
If all four roll over and decline, the probability of recession (generally defined as a decline in gross domestic product for two consecutive quarters) approaches 100%.
This makes intuitive sense: if personal income, industrial production, real final sales and payrolls are all declining, how can GDP continue expanding?
For context, let’s start with a chart I published earlier this week of new manufacturing orders–which look unambiguously recessionary:
image: http://www.oftwominds.com/photos2015/new-orders2-3-15a.png

Here is a chart of real final sales (as a percentage of change) and the S&P 500 (SPX). The percentage of change of real sales declined for four years in the 2000s while the stock market soared–a remarkably long-lasting divergence.

Note that real final sales remained in positive territory (i.e. were still expanding, albeit at a pace of 1% or so) even as the U.S. economy slid into recession in early 2008.
image: http://www.oftwominds.com/photos2015/retail-sales3-15.png

Industrial production has yet to roll over–but this may be merely a time lag in the data, as it’s difficult to see how the recent drop in oil/gas employment won’t eventually show up in industrial production as wells are capped and drilling rigs are idled.

image: http://www.oftwominds.com/photos2015/indpro-SPX3-15.png

Many aspects of manufacturing are dependent on either global growth or the expansion of highly risky debt–for example, subprime auto loans. What happens to auto sales when the subprime auto loan bubble bursts?

Payrolls have also been rising steadily for over five years–a period of time that exceeds the previous expansion of nonfarm employment in the 2000s. By any measure, the current period of payroll expansion is long in tooth.
image: http://www.oftwominds.com/photos2015/payrolls-SPX3-15.png

Put another way–how many more millions of waiters/waitresses/bartending jobs can the U.S. economy generate? How many jobs are dependent on exports, which are being pressured by the soaring U.S. dollar? What happens to job growth as corporate profits plummet?

I didn’t publish the personal income chart because this data series is highly suspect, for reasons explained by Zero Hedge in The Mystery Of America’s Missing Wage Growth Has Been Solved: the wages of the lower 4/5ths of the employed are stagnant or down; only the top 20% registered any gains in real income.
There is undoubtedly a Pareto distribution in these gains, meaning 80% of the income gains enjoyed by the top 20% went to the top 20% of that 20%: in other words, most of the income gains went to the top 5% of the managerial/technocrat class–it was not evenly distributed to the entire top 20%.
What predictive value is there in income data when the vast majority of the income gains have flowed to the top 5%, a few crumbs thrown to the next 15% and the bottom 80% received no real gains in income or actually saw their income decline in real terms?
Regardless of income, history shows that stocks crater when payrolls, industrial production and real final sales all tank. The current euphoria for stocks has several components: one is soaring corporate profits, and the other is quasi-religious faith in the power of central banks to keep stocks lofting higher in a complete disconnect from fundamentals such as sales, profits, production or payrolls.
History is rather unkind to blind faith in central banks, just as the rising U.S. dollar and stagnant sales are being very unkind to corporate profits.

Economist Tells Congress: U.S. May Be in ‘Worse Fiscal Shape’ Than Greece

(CNSNews.com) -- The U.S. has a $210 trillion “fiscal gap” and “may well be in worse fiscal shape than any developed country, including Greece,” Boston University economist Laurence Kotlikoff told members of the Senate Budget Committee in written and oral testimony on Feb. 25.
“The first point I want to get across is that our nation is broke,” Kotlikoff testified. “Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today.
"Indeed, it may well be in worse fiscal shape than any developed country, including Greece," he said. (See Kotlikoff---Testimony-to-Senate-Budget-Committe.pdf)
In January, Fitch downgraded Greece, whose debt-to-Gross Domestic Product (GDP) ratio is 175 percent, from Stable to Negative.
“This declaration of national insolvency will, no doubt, shock those of you who use the officially reported federal debt as the measuring stick for what our country owes,” Kotlikoff told committee members who are considering President Obama’s proposed budget for Fiscal Year 2016.
“After all, federal debt in the hands of the public is only 74 percent of GDP. Yes, this is double the debt-to-GDP ratio recorded a decade ago. But it’s still a far cry from Italy’s 135 debt-to-GDP ratio or Greece’s 175 percent ratio.”
However, using the Congressional Budget Office’s July 2014 75-year Alternate Fiscal Scenario projection, Kotlikoff calculated that the U.S.' “fiscal gap” –which he defines as "the difference between our government's projected financial obligations and the present value of all projected future tax and other receipts" - is actually much higher than those of either Italy or Greece.
“We have a $210 trillion fiscal gap at this point,” Kotlikoff told the senators, which amounts to 211 percent of the U.S.’ $18.2 trillion GDP, making it higher than Greece’s 175 percent debt-to-GDP ratio.
The fiscal gap is “16 times larger than official U.S. debt, which indicates precisely how useless official debt is for understanding our nation’s true fiscal position,” said Kotlikoff, a former senior economist on President Ronald Reagan’s Council of Economic Advisers.
“Stated differently, the overall federal government is 58 percent underfinanced,” Kotlikoff testified.
“By way of comparison, the Social Security system, taken by itself, is 33 percent underfinanced.” Last year, Kotlikoff testified on Capitol Hill that the Social Security system was in “significantly worse financial shape than Detroit’s two pension funds taken together.”
Kotlikoff said that not counting “off book” liabilities like Social Security give lawmakers and the public a false sense of the nation’s true fiscal condition.
“What economics tells us is that we can’t choose what to put on the books. All government obligations and all government receipts, no matter what they are called, need to be properly valued in the present taking into account their likelihood of payment by and to the government,” Kotlikoff testified.
“Successive Congresses, whether dominated by Republicans or Democrats, have spent the postwar accumulating massive net fiscal obligations, virtually all of which have been kept off the books,” he noted.

Boston University economist Laurence Kotlikoff (Wikipedia)

“Congress’ economically arbitrary decisions as to what to put on and what to keep off the books have not been innocent,” he continued, criticizing what he called “the Enron-type accounting that’s been going on for decades under both parties.”
“A positive fiscal gap means the government is attempting to spend, over time, more than it can afford,” Kotlikoff explained, adding that every year of delay in addressing the problem makes it that much harder to close the fiscal gap.
For example, starting now, eliminating the fiscal gap would require an immediate 58.5 percent increase in all federal taxes or a 37.7 percent permanent, across-the-board decrease in federal spending.
But if the government waits 30 years, it would require a 77 percent tax increase or a 46.5 percent cut in spending by 2045 to eliminate the fiscal gap.
“Spending six decades raising or extending transfer payments and cutting or limiting taxes helped members of Congress get reelected. But it has placed our children and grandchildren under a fiscal Sword of Damocles that gravely endangers their economic futures,” said Kotlikoff, co-author of The Coming Generational Storm: What You Need to Know About Our Nation’s Economic Future, which was published in 2005.

The NY Fed missed the housing bubble, Libor, London Whale, & more. The Fed Board of Governors has finally had enough.

If you ranked all of government’s financial regulators on how they handled Wall Street’s crime wave during the Great Recession and its aftermath, most of them would wind up tied for last place. But then just under them would be the New York Federal Reserve.
This is the agency Tim Geithner ran during the Bush Administration. It’s the one thatmissed the housing bubble, bailed out AIG, and made sure all of the mega-banks owed money on credit default swaps got paid out at 100 percent. This is the agency a former employee named Carmen Segarra secretly taped to show how officials there rolled over for Goldman Sachs after finding evidence of potential wrongdoing. It’s the one that learned about JPMorgan Chase’s risky practices in the office that made the catastrophic “London Whale” trade four years before that blew up, and did absolutely nothing to investigate or put a stop to them. It’s the one that got early reports of theLibor scandal , the largest rigging of interest rates in world history (literally, a trader at Barclays Bank told a New York Fed official, “We know that we’re not posting, um, an honest rate.”), and did nothing but write a letter to British regulators, telling them to deal with it.

MORE:

http://www.vice.com/read/after-years-of-incompetence-new-york-bank-regulators-are-losing-power-to-washington-309