Financial Market Report For October 13, 2011
1) … The rally in world stocks, ACWI, and world small cap stocks, VSS, stalled as the world signs of a Credit Breakdown manifested.
A deficit of Trust, a Trust Deficit, formed as investors turned away from financials as JP Morgan and Morgan Stanley announced their quarterly performance. Credit is seen evaporating as Bloomberg reports Libor Diverges Most Since 2009 as Europe Leads. And Reuters reports Issuance Rumours Fuel China Bank Funding Concerns. The chart of China Financial, CHIX, shows the dramatic capital flight from China banks prior to this weeks rally.
The day started with AP reporting Stocks Off In Europe In Overnight Trading As Investors Await More Detail On Plan To Handle Debt Crisis. “The period of good feelings may well be drawing to a close," said Stephen Lewis at Monument Securities in London. "This is because the tight timetable that the November G20 meeting imposes will leave little more time to settle intractable problems. Devising a roadmap, that is, an analysis of what needs to be done, is the easy part. To come up with viable measures will be more difficult."
Bloomberg reports Oil Declines a Second Day on Outlook for Fuel Demand; Brent Spread Widens. Oil dropped for a second day in New York as investors speculated that fuel consumption will falter on signs of a weakening global economy. And Corey Rosenbloom reports Crude Oil Moves into Daily Resistance. As price entered (tested) the $86 price target, a clear Negative Momentum Divergence undercut the rally into $86, that’s not something you want to see if you expect price to continue its rally. In addition, this morning’s breakdown of the 15-min EMA and trendline structure, roughly at $85, is a sell signal, and as of this writing, price appears to be confirming this sell/hedge/protect signal.
Late in the day, I observed bearishness in the stock market, as I wrote the currency yield curve, RZV:RZG, is manifesting bearish. and the Optimized Carry ETN, ICI, is showing a hammer at 200 day average, suggesting that the current risk trade and carry trade rally is over. This is confirmed as the Yen, FXY, is rising, and the yen carry trades, such as DBV:FXY, and CEW:FXY, are performing bearishly. The US Dollar 200% EFT, UUP, has fallen to support at 200 day moving average, which suggests that the recent rally in world currencies, DBV, and emerging market currencies, CEW, is over.
Market Watch reports JP Morgan leads financials down after results. The Too Big To Fail Banks, RWW, Financials, XLF, European Financials, EUFN, Banks, KRE, KBE, and IAT, Investment Bankers, KCE, are performing bearishly. Blackstone, BX, Morgan Stanley, MS, Goldman Sachs, GS, JP Morgan, JPM, are falling. Lender Capitol One, COF, is falling. The leading carry trade banks, and leading European banks, BSBR, ITUB, BBD, BMA, BBVA, BFR, FBP, IBN, HDB ,WF, UBS, NBG, STD, RBS, DB, as a group, are performing bearishly. Tyler Durden reports Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, And Having Capital Shortfall. The UK bank, RBS, and The German bank, DB, have the greatest capital shortfall. In today’s trading DB is falling 5% and RBS 6%.
Silver mining stocks, SIL, are often a canary in the stock market coal mine; they are also yen carry trade investment driven; in as much as these are trading lower, they suggest an end to a rally.
Gold mining stocks, GDX, are performing bearishly as well. I point out that at market turns, the HUI Precious Metals, GDX, and the 30 Year US Government Bond, GDX, always make market turns lower together; and today the ratio of GDX:EDV, is turning lower, suggesting that both stocks and bonds are going lower. The ratio of basic materials, IYM, to US commodities, USCI, IYM:USCI, has hit resistance and is turning lower. Likewise the ratio of materials, XLB, to commodities, DBC, XLB:DBC, has hit resistance and is turning lower, suggesting that the materials rally is over. About the only bright spot is semiconductors, XSD, which is up 4%.
The charts of safe haven stocks show their topping out; these include, Celgene, CELG, Bristol Meyer Squibb, BMY, Dollar Tree, DLTR, Kimberly Clark, KMB, Bed Bath and Beyond, BBBY, Starbucks, SBUX, General Mills, GIS, Ross Stores, ROSS, Dollar General, DG, and Interntional Business Machine,IBM.
Bespoke Investment Group asks Three Strikes For the Fed? It has been three weeks now since the Fed formally announced its $400 billion Operation Twist program on September 12th. If early indications are a sign of what's to come, however, this will be the third straight time the Fed has tried and failed to lower long-term interest rates through the Treasury market. While one could argue that yield declined ahead of each of the prior announcements due to the fact that each move was widely telegraphed, at face value it appears that the Fed's attempts to lower long-term interest rates have been futile. The Bespoke Chart of US Ten Year Treasury Yield from September 2008 to October 2011 shows that $TNX has now bottomed out.
And Reuters reports The Federal Reserve's latest easing program is fiscal, not monetary policy, and does not have much credibility, Philadelphia Federal Reserve Bank President Charles Plosser said on Wednesday. Treasury debt issuance could undo much of the effect of the Fed's attempt to lower borrowing costs, known as 'Operation Twist', Plosser said. "It doesn't have a whole lot of credibility attached to it," Plosser said in response to an audience question at the Zell/Lurie Real Estate Center at Wharton.
Robert Wenzel suggests that soon coming price inflation will drive the Interest Rate on the US Treasury, $TNX, higher, as he writes 30-Year Mortgage Rate Jumps to 4.12%. The implication of this position is that M2, will continue to rise, I believe that M2 will drop, now that the perceived flight to safety in US Government Treasuries is over, and Operation Twist is being placed into effect, and a trade war is underway between the US and China.
Simon Black relates Thailand: Not Letting A Good Crisis Go To Waste. Parts of Thailand have experienced terrible flooding lately, and much of the country’s production shut down as a result. Thailand makes everything from tire factories to hard disk drive manufacturers to rice… and given the slowdown in the economy, it couldn’t have come at a worse time.
Not to worry, though, the government has a plan to fix it. Let me explain: Thailand’s central bank is sitting on roughly $212 billion in net foreign reserves right now. That’s up 37% from last year and nearly 80% from 2009. Curiously, it all starts with Ben Bernanke. When Ben Bernanke conjures trillions of new dollars out of thin air for QEx, that money has to end up somewhere… usually the Treasury Department or banks. (you may recall that banks were able to swap their worthless toxic securities for Bernanke’s worthless dollars– a truly bizarre trade…) As funds make their way into the banking system, money managers often deploy those new dollars overseas to developing markets where the expected rate of return is much higher than in developed economies.
Thailand is one of the largest economies in Asia and is capable of absorbing large capital flows. Neighboring Laos, for example, only has a $6 billion economy. You can’t move $10 billion into Laos without seriously moving the needle. Conversely, Thailand’s GDP is $247 billion, making it more suitable for large investments.
Even with the size of Thailand economy’s, though, the inflow of foreign funds has pressured the Thai baht. As Thailand is an export-oriented economy, nobody here wants a strong baht.
Thailand’s central bank has aggressively fought the baht’s appreciation. Taking a page from Bernanke’s playbook, the bank has suppressed interest rates below the rate of inflation while simultaneously creating billions of new currency units with which to buy all the new US dollars flowing into the country.
This is how the bank ended up with an 80% surge in foreign reserves from 2009– it simply printed new baht to purchase the newly printed dollars.
Thai people are not fooled by this trickery. Unlike brainwashed westerners who believe in their worthless paper, Thai people know that fiat money is a scam. Even the poorest Thais occasionally buy a few grams of gold with whatever savings they can scrap together on expectations of inflation. They’ve turned out to be right; prices are rising. All of the new money ends up somewhere, and with interest rates below the rate of inflation, businesses, consumers, and banks all have an incentive to constantly redeploy funds. The real estate sector has been the net beneficiary of this frenzy. Hell, everyone knows it’s a bubble… the government, the developers, and even all but the most dim-witted customers. Developers are feverishly building as quickly as possible, sacrificing quality for speed, so that they can finish and collect the customer’s money before the bubble bursts. It’s like watching a live game of musical chairs.
Thailand now finds itself between a rock and a hard place. On one hand, the country is faced with rising inflation and a number of bubbles. On the other, it faces a declining economy. Orders from China, Europe, and the US have slowed, and the domestic economy isn’t developed enough to tighten the slack.
Production shutdowns from the recent flooding certainly haven’t helped. The government’s solution? Print money and put it directly into people’s pockets by overpaying peasant rice farmers.
Under the government’s new plan, local farmers will receive the equivalent of roughly 40% more than the market price for rice. Anyone who slept through high school economics can tell you that price controls don’t work. This is the stuff that feeds inflation, creates shortages, and misallocates production resources. Needless to say, there are global implications when one of the world’s biggest producers and exporters goes down the path of inflation. This is exactly what happens when a government with access to cheap credit meets with an opportunity to launch a populist agenda. As President Obama’s former Chief of Staff Rahm Emanuel said, “You never want a serious crisis to go to waste.” Thailand’s flooding is a crisis, no doubt. Populist-driven inflation will be an even greater economic crisis. Make no mistake, when inflation comes home to roost in North America, it will be exported from countries like Thailand. This is an early sign that Mr. Bernanke is about to get some of those dollars back.
I am more concerned about asset deflation, than I am concerned about price inflation. Yes, I am more concerned about a rising 10 Year Interest Rate, $TNX, and a rising 30 Year Interest Rate, $TYX, from deleveraging out of US Government bonds, ZROZ, EDV, TLT, caused by sovereign stress, and loss of debt sovereignty, as seen in the Flattner ETF, FLAT, falling, and the Steepner ETF, STPP, rising; and about disinvesting out of World Government Bonds, BWX, and Emerging Market Bonds, EMB, caused by debt deflation, that is, falling world currencies, DBV, and falling emerging market currencies, CEW. The 10 30 Yield Curve, $TNX:$TYX, is steepening, opening the door for bond vigilantes to start capital depletion of US Treasuries. The world is passing through peak credit. Lee Adler writes in Financial Sense Foreign Central Banks Selling US Treasuries At Unprecedented Levels.
Tyler Durden reports 30 Year Bond Prices At Record Low Yield As China Flees, Direct Purchases Soar The "benefit" of Operation Twist for the long end shone through today as the Treasury priced $13 billion in a 30 Year reopening, which came at a record low yield of 3.12%: this was 4 basis points inside the When Issued of 3.16% so at first sight the auction was a stunning success, confirmed by the second highest Bid To Cover in the auction history of 2.94. Perhaps. The only problem is when one looks at the internals, where just like yesterday, the most prominent observation was the total collapse in the Indirect Bid, which accounted for just $3.7 billion of the take down or 28.7% of the total, less than the Direct portion which despite having plunged in all other recent bond auctions soared to a virtual record 29.5% of the total auction (less than just the 29.6% from March 2010). And now the question again arises: are the Directs merely London-based offshore entities doing China's bidding away from the Indirect bidder spotlight, or, is this some other operation that kicks in every time when a plunge in Indirects is expected, such as over the past two days with China seemingly doing all it can do show it is telegraphing a plunge in interest for US paper. We will know more today when at 4:30 pm the Fed discloses its most recent custodial Treasury holdings for the past week. In the meantime, the Primary Dealers and the Directs have the long-end firmly under control.
A run on money market funds, MMFs, can easily happen from any number of causes, one of which is liquidity evaporation, and concern over collateral, as well as rising interest rates. The money market funds can easily break the buck, that is their steady one dollar value, at any time.
Shaun Richard of Mindful Money writes on the timely issue of Central Bank Foreign Exchange Liquidity Swaps. A major theme of this week, and something rarely discussed in the main stream media over the weekend is that the first tender for the US dollar swaps is only on Wednesday. I expect for some banks at this time these will be the equivalent of finding an oasis in a desert! Such are the stresses at this time that one of those most in need Dexia has collapsed before it even got there. And Shaun Richard writes the helpful article A Guide To Central Bank Foreign Exchange Liquidity Swaps where he writes on US Dollar FX Liquidity Swaps.
Bloomberg reports Libor Diverges Most Since 2009 as Europe Leads. Rates at which the world's banks say they can borrow from each other in dollars are diverging by the most in more than two years, a sign European leaders are still struggling to contain the region's debt crisis. The gap between the highest and lowest reported fixings by 19 contributing banks contributing to the three-month London interbank offered rate reached 18.5 basis points yesterday, the widest since September 2009. And Bloomberg reports Swaps Registrants Would Have to Vouch for Capability in SEC Rule. Securities-based swap dealers and large swap participants would need to have senior officers certify their ability to participate in the $601 trillion market under registration rules proposed by the U.S. Securities and Exchange Commission. SEC commissioners voted 3-1 yesterday to seek comment on a Dodd-Frank Act rule that calls on firms to certify operational and compliance capabilities and ensure trades aren’t conducted by people who are “statutorily disqualified.”
I am concerned about a credit bust coming from credit evaporation and from sovereign default and about the collapse of both investment banking and banking in general, as leaders are likely to announce bank nationalizations when they see that bank reorganization is not possible. Reuters reports Europe Eyes Bigger Greek Losses For banks and AP reports Greek Debt Haircut May Exceed 60 Percent. The demand for bank recapitalization is proving to be a hoax and a ploy as Financial Times reports France Ready To Give Banks Public Capital.
Of note, Tyler Durden reports Rompuy And Barroso Announce €440 Billion EFSF Fully Functional; Now, How Do They Expand It To €3 Trillion? It was none other than Le Figaro, mouthpiece of the country that has the most to lose from the inability to ring fence a Greek fallout, that said yesterday: "The euro area reflects one of several options to increase by up to five times, or more than 2500 billion euros, the firepower of its relief fund for countries in financial difficulty (EFSF), said on Wednesday AFP European sources." In other words, the target number is now known, and nobody is ashamed to put it out there: between €2.5 and €3.5 trillion. The only question is what form it will take: yesterday it was a bank, today it is an insurance "fund", tomorrow who knows - gotta keep those rumors a surprise after all: they don't call the EFSF the modern version of the Swiss Army Bailout knife for nothing.
Furthermore, I am very concerned about mission creep at US Federal Reserve, which came through the Dodd Frank legislation, as the New Democrat Coalition announced the Financial Services Task Force Working Group On Regulatory Modernization Is Established. Edward Wyatt of the NYT brings us current on creeping tyranny in article Fed Oversight of Nonbank Financial Companies Is Weighed. Earlier this year, the Treasury Department released its Blueprint for a Modernized Financial Regulatory Structure, which calls for comprehensive regulatory reform to reflect the complexity and overlap of today’s financial markets.
Frankly, the New Democrat Coalition and the Federal Reserve oversight of Financial Companies is to a regulatory capture, as the Project For A New American Century, PNAC, is to blood for oil and control of Iraq.
Doug Wilson writes The Tyranny Movement began in earnest at the turn of the last century in 1913. The “Money Trust” as found to exist in a report by the United States House of Representatives Subcommittee on Banking and Currency, entitled: Investigation of Financial and Monetary Conditions in the United States managed to drive the final nails into the coffin of the American Constitutional Republic. The victory was secured with the passage of the Federal Reserve Act in December of 1913, which created the 3rd Central Bank of the United States.
The primary motivator was a desire by the “Money Trust” to regain its lost monopoly over the nation’s monetary policy and larger influence over the government as a whole while fostering an endless cycle of credit, ergo debt.
A Federal Reserve financial services regulatory reform coup is underway; it is similar to the Jekyll Island coup that established the US Federal Reserve Bank. The end result will be totalitarian rule manifesting as state corporatism, austerity measures, and debt servitude. Totalitarian Collectivism is America’s, Canada’s and Mexico’s future, as all countries world wide will be merged into regional economic government. Albert Nerenberg writes in the Montreal Gazette that Our world is now ruled by finance. Its presence has displace real value in the economy. The world tomorrow will be ruled by diktat of the sovereigns as national sovereignty is waived and regional economic government is established.
News reports bring us current on the European Sovereign Debt Crisis. The WSJ reports Spain banks hit by S&P, Fitch downgrades.The Big Picture Blog reports Europe’s Stressed Out Banks and the WSJ reports ECB Chief: Europe Is Epicenter of Crisis and Bloomberg reports European Banking Risks Are 'Rapidly' Growing, Swedish FSA's Andersson Says. Risks to Europe’s bank industry are “rapidly” mounting as the fallout of Greece’s debt crisis engulfs the whole region, said Martin Andersson, director- general of Sweden’s Financial Supervisory Authority. “We don’t see any positive signs,” Andersson said in an interview in Stockholm yesterday. “Things are getting worse and, of course, then you’re more concerned about liquidity and solvency.”
Soon out of Sovereign Armageddon, a credit bust and global financial breakdown, One Leader, the Sovereign, and his banker, the Seignior, will arise to speak for and to the Eurozone, which will be transformed into a Federal Europe as leaders meet in summits and wiave national sovereignty, and implement a Fiscal Union, empower the ECB as a bank, and develop a common European Treasury.
The word, will and way of the Sovereign, and the Seignior, will replace sovereign nations and sovereign debt, as sovereign authority. Diktat, austerity measures, and structural reforms will provide seigniorage, that is moneyness. People will be amazed by this and place their faith and trust in it; they will give their full allegiance to it. The Seignior might be Mario Draghi. Associated Press reports Draghi urges speedy reforms to spur growth, or Italy will be swept into debt crisis. And Bloomberg reports Draghi urges Italy to implement austerity to avert spiral. And The Telegraph reports Mario Draghi fears Italy risks a debt spiral without drastic steps to cut spending and restore confidence in public finances.
Structural reforms will be made to national labour law. The Constitutional right to not be terminated from a state job in Greece will be abrogated. Renee Maltezou of Reuters write Constitutional Crisis Looms: Greece to tackle difficult task of firing state workers.
Bank reorganization will be the order of the day: banks will be nationalized, that is integrated with the government and be known as the government bank or gov bank for short.
Under Neoliberalism, fiscal sovereignty came from sovereign nations issuing sovereign debt. But under Neoauthoritarianism, where nations have lost their sovereign debt authority, the Sovereign and the Seignior will have fiscal sovereignty. Credit will not come from the securitization of debt; but rather from the word, will and way of sovereigns and stakeholders appointed from industry and government. Lending will only go firms that are key to the region’s security and prosperity.
I’ve consistently recommended that one buy and take personal possession of gold bullion as a means of wealth accumulation and preservation. Frank R. Suess writes in Mountain Vision Beware Of Big Brother Tantrums. What we are observing today is a flood of government bureaucracy and intervention that, while offered under a cloak of ‘economic rescue and consumer protection´, is but an increasingly aggressive drive for tax money and power by fundamentally socialistic and desperate politicians. They will not be stopped by any constitution or law. If need be, they will ignore or change the law to achieve their goals. As a free individual and as an investor, you must be aware of and considerate of this trend.
Tyler Durden writes on the crack up boom in gold noting the investment demand for gold as a safe haven investment. Global Money Supply And Currency Debasement Driving Gold Higher Developing China’s M2 money supply has been rising by a large 20% and Russia’s by a very large 30%. Even developed countries such as Switzerland have seen money supply growth of 25%. In order to fight economic problems brought about due to too much debt, debt based paper and electronic currency has been created at historically high levels. There is no sign of this abating any time soon given the scale of the global financial and economic crisis.
Nature economist Elaine Meinel Supkis writes in article Swiss Banking Gnome Explains Art Of Paper Fiat Currency The glory of paper money is its portability and this is due to it being the representation for real goods or the fulfillment of various contractual deals. It is easy to exchange which is why it is all about ‘exchange rates’ and other language signifying money as being representative for other things entirely different from money’s actual, theoretical and physical form.
The IMF is an international bank run by the colonialist powers in Europe and the US. This bank, run by people pre-selected by the Bilderberg gang, lends money, mainly American fiat dollars printed up by the Federal Reserve out of thin air, to ‘bail them out of economic trouble’ but in reality, this money is a way of purchasing land, industries, commodity sources and the labor of the entire nation which is now in debt to the IMF. They then have to do what the IMF tells them to do and what is ordered is a sell-off of all valuable public services and systems such as roads, bridges, ports, transport systems, communication systems such as television and phone services, government stuff like parks, land, military bases, etc.
The IMF then orders wage cuts, seizure of pensions, revaluation of everything downwards, reduction or elimination of social services, the unemployment of state and local workers and then everyone pays off the IMF, collectively. The money to do this is ‘free’ as far as the US is concerned. We are the basic ‘central bank’ for the world here! We just make up money out of thin air, lend it to everyone and then the elites here get to collect all the goodies that fall into their laps from countries that can’t pay for these loans made in free funny money.
With a central bank like the SNB, the financing works differently. First, the SNB’s borrowed capital is largely made up of banknotes in circulation and banks’ sight deposits at the SNB.5 Together, these two components form the monetary base. This cannot be compared to borrowing by conventional companies. The SNB pays no interest on these liabilities, they have no fixed term, and the ‘loan amount’ can in principle be set by the SNB.6 Thus, there are no obligations comparable to those under a loan agreement for private companies. Since, moreover, banknotes and sight deposits are legal tender, these liabilities are also not callable in the strict sense, but can only be swapped against each other – as legal payment instruments of equal value.
All central banks talk about these swaps. The IMF tracks these swaps. They are discussed greatly since all of these swaps depend on the floating fiat value of the US dollars created out of thin air by the Federal Reserve, to close all international deals. Like any swap market system, the relative value of everything depends entirely and only on the people making swaps agreeing on the value of these swaps. Supposedly, the floating fiat currency value for swaps are determined by open FX markets. These, in turn, are SUPPOSED to not be manipulated by the central bankers but has been grossly manipulated for many years.
Indeed, this is the root cause of the present collapse of the international banking system: the open swap markets of all currencies has been totally corrupted and utterly manipulated to the point, it is now collapsing. And the core of the collapse is due to the floating fiat currency status of the US dollar. It has flooded the planet with trillions of trade dollars that is rapidly approaching the point of unsustainability. The US has also flooded the planet with military dollars. We have bases in virtually every country excluding Russia and China (two major exclusions!) Yesterday, China, Russia pledge closer cooperation on world stage.
They just announced they will reform the UN Security Council. And Russia is going to join the aply-named Shanghai Cooperation Organization. This is also a military alliance. China is the world’s #1 holder of sovereign wealth and Russia is in the top ten holders. The US is dead bottom in this matter. Switzerland is also a sovereign wealth nation, by the way. So the Swiss, like the Germans, have a lot more in common with Russia and China and nothing in common with the US when it comes to international finances.
Today, Switzerland is playing catch-up to sovereign wealth nations like Japan, Russia and China. The floating fiat currency system has ravaged their own trade with the world because their currency became relatively ‘too strong’ for exports. They had to basically weaken their own currency so that it would cease destroying their sovereign wealth holdings via being too strong. This is simple to understand: the weaker the currencies are in your own holdings, the less value it has in world markets. So these foreign funds being held become increasingly worthless RELATIVE to your own currency. The upshot that scares governments is simple: trade flows one way, into one’s own country! Then, all industries depart! The US has seen this happen for 50 years and is nearly bankrupt as a nation, stripped of ative ownership of nearly all resources and industries.
The SNB is legally entitled to settle outstanding claims by creating Swiss francs ‘out of thin air’, so to speak. Thanks to this autonomy – the ‘banknote-issuing privilege’ – the SNB never suffers from a liquidity shortage. If the SNB has to repay an SNB Bill – its own debt certificate – that falls due, it simply credits the sight deposit account of the commercial bank in question. Vice versa, it can always issue securities such as SNB Bills in order to reduce liquidity in the system.
Averaged out over the long term, central banks always make profits, which are often referred to as ‘seigniorage’. With these profits, central banks can always rebuild their equity levels after losses. The main reason for their ability to achieve profits is that central banks – unlike private companies – can normally finance their assets virtually for free, thanks to their banknote-issuing privilege.
This is true. Very true. Alas, there is a severe and dangerous downside to this ‘seigniorage’. History is quite clear about this: all rulers are tempted to tamper with the value of their ‘money’. They do this to pay mainly for wars and building ridiculous, huge palaces. Eventually, they are tempted to make more and more money out of thin air and the more they do this, the more the money loses value. There is no escaping this. This is all ‘free’ so infinity is the limit when all one has to do is add zeros to the money’s value!
And countries sometimes plunge into the infinity abyss. The US has, for a long time. The only reason the dollar has any value at all at this point is simple: all our trade partnes have sucked up all of these excess trillions of dollars and now hold them in their own accounts to protect themselves from imports! Yes, it is to stop imports. They use their FOREX holdings to keep their own currencies cheaper than these madly-created US dollars. When we saw world markets crash in 2008, the Federal Reserve handed out literally $6+ trillion in free loans at ZIRP rates to international and national central banks in order to keep this sytem running for a little longer (it is doomed to collapse).
The Federal Reserve has virtually no FOREX holdings, the US has negative sovereign wealth. Big time. Yet, both lent the world many trillions of dollars in one fell swoop simply by emailing (basically) all other banks in distress and writing a blank check with lots of zeros. These were backed by the value of everything in America, all the loans, all the possessions of all the people, everything. This can be done to the Swiss people, too! Their own central bank is desperate to weaken the value of their money. The people enjoy a higher standard of living if their currency is strong for then they can buy anything they want and travel easily around the world.
When their currency is weakened, they can’t do this. When the Japanese yen suddenly rose in value, after negotiations with the US back in the Reagan years (the Plaze Accords), the world was suddenly flooded with millions of Japanese tourists. When their economy collapsed in 1992, they vanished and we now have a record number of Japanese living overseas but this is only due to Fukushima. They are refugees, not tourists. Japan to offer 10,000 free trips to foreigners to boost tourism industry because of Fukushima and the strong yen, no one is visiting Japan anymore.
So, the populace enjoys life high off the hog when their currency is strong but this destroys their own economic base over time so governments move hard to weaken their currencies, mainly against the dollar though Switzerland, buried in the center of the EU and not an EU nation, has to be weaker than the euro. So sybriatic choices must be limited for the people of the Cantons of Switzerland (it, like the EU, is a confederation) while their export markets are protected by a wall of higher prices for imports thanks to weakening the currency.
To weaken a currency, a central bank does two things: accumulates government debts instead of selling this overseas (Japan has been #1 in this area, holding more government debt in the central bank than even the US!) and printing lots and lots of money via lending it to exporters. The US does all of this, too, except we don’t also do what Switzerland and Japan does: a culture of not buying foreign goods and a system of price controls, all totally not run by the government but via conspiracy at home, that encourages people to buy only home-produced goods. Japan, under a very strong yen situation due to many, many factors (no one could keep up with the weakening dollar as the Fed printed trillions of it and shipped it all overseas!) has seen manufacturing exit the country at the speed of light, lately.
Soon, it will all be gone as desperate industrialists and business people relocate and they are doing this at hyper speed due to Fukushima as well as the strong yen.
He, Thomas J. Jordan, Vice Chairman of the Governing Board, Swiss National Bank, is complaining about doing what China and Japan have done for a generation in China and three generations in Japan: you have to buy lots and lots of foreign currency and hold all of this in the FOREX hole in the ground so that your currency will be sufficiently weak to encourage exports and prevent imports. Since the US prints money like mad, this is very hard to keep up since the US is the fulcrum for all world currency valuations. This didn’t benefit the US, it has destroyed our nation, but we enjoyed the ability to tour other countries and buy luxuries during the epic US dollar dominance years.
Japan was mired for two decades in this grinding depression at home. Few can buy foreign goods. Wages have fallen for years and years. The value of homes has dropped since people can’t afford to ‘move up’ in home buying since everyone’s wages are falling. Consumer lending has collapsed. Families are no longer being built very much so the birth rate is also collapsing. Switzerland worries about inflation but Japan has exported its own inflation via its massive dollar holdings while not spending at home, has created a curious depression that is causing ZIRP rates to spread even as US trade dollars STILL continue to flood the world..
Many Swiss are worried about eliminating their gold hoard. They should be worried sick. Jordan loves the floating fiat currency regime system. He was put in power to stop the strong Swiss mark and to make it easier to export goods. The gold reserves made it too strong. Germany, France, etc, all can hoard gold till the cows come home since NONE OF THIS IS ATTACHED TO THE EURO! The euro, much more than the US dollar, totally floats! It has no FOREX basis which is why it shot upwards so fast in value in the last 10 years compared to the dollar.
Which has killed EU exports to the US. The EU wants a weak euro. They can’t manipulate it except one way: print more and more and more euros via lending money to the PIIGS nations. Except Germany has to hold all the downside to these debts and this scares the German populace BUT NOT THE BANKERS THERE! They fear this a lot and are louder and louder, demanding a return to German Mark sovereignty. They, not Greece, will kill the euro.
Even as the US slits its own throat, China warns of trade war ahead of U.S. currency vote. This trade war is going to be nasty. China has some very dangerous weapons. One of the greatest is its debt/dollar hoard. All it has to do is dump this mess into the lap of all world economic systems and our own system will totally and completely collapse. The Pentagon knows this, the US elites know this, the Federal Reserve knows this.
This is why all of them are frantically preparing for WWIII. We hope to bomb our way out of this mess. Japan won’t exist once this is over. Europe probably will also be uninhabitable. So would parts of China and the US. Maybe we will all die. We don’t know. We better not find out the hard way.
A global Eurasia war appears certain as ABC News Obama: Iran will 'pay a price' for alleged assassination plot. Bill Van Auken, WSWS US steps up sanctions and threats against Iran over alleged terror plot. The White House announced new sanctions against Iran, while Vice President Biden warned that “nothing has been taken off the table” in the US response to an alleged plot to assassinate the Saudi ambassador in Washington. And AFP West trying to spread Iranophobia Khamenei Says
Love grows cold in the age of deleveraging. AP reports Acropolis Closed As Greek Strikes Spread. And WSWS reports Greece’s Health System Faces Collapse. Compared with 2007, i.e., before the crisis—2009 saw a significant increase in people reporting that they did not go to a doctor or dentist despite feeling that it was necessary”. This 15 percent increase in people not going to a doctor or dentist was mostly due “to long waiting times,” the letter notes.
“There were about 40 percent cuts in hospital budgets, understaffing, reported occasional shortage of medical supplies, and bribes given to medical staff to jump queues in overstretched hospitals,” they write. “We noted a significant rise [14 percent] in the prevalence of people reporting that their health was bad or very bad.”
This is despite the decline in the number of people able to obtain sickness benefits owing to budget cuts. Further reductions to access and the level of benefits “are to be expected once austerity measures are fully implemented,” they add.
In conclusion the researchers state, “Overall, the picture of health in Greece is concerning. It reminds us that, in an effort to finance debts, ordinary people are paying the ultimate price: losing access to care and preventive services, facing higher risks of HIV and sexually transmitted diseases, and in the worst cases losing their lives.”
Major pharmaceutical corporations have imposed an embargo on Greek public hospitals. Last year, two leading drug companies withdrew supplies after the government announced it would slash the price of all medicines by 25 percent as a component of 1.2 billion euros in budget cuts. Danish pharmaceutical company Novo Nordisk—the world’s leading supplier of state-of-the-art insulin for diabetics—announced it would withdraw its supplies. Another Danish firm, Leo Pharma, gave the Greek government three months’ notice of its intention to stop supplying a number of its medicines.
This crisis was only overcome when PASOK bowed to pressure from the drug companies and restored prices to near their previous levels.
Greece’s debt crisis has drastically worsened over the last year. With the government unable to pay the debt it owes to the pharmaceutical giants, another company, Swiss firm Roche, announced last month that it will stop delivering drugs to indebted hospitals. Public hospitals already cannot provide adequate amounts of life saving medical materials, including vitally needed drugs and blood.
Veizis commented on the sadistic nature of such attacks that are “being imposed by the government without any impact assessment of what will happen.”
This can only get much worse as the number of hospitals, serving a population of 11 million, is cut from 133 to 83. The EUObserver points out, “This will reduce the number of clinical units from 2,000 down to 1,700, limiting to 30,000 the number of functional beds—or 80 percent of estimated needs.”
Nikitis Kanakis, the head of the Medecins du Monde, said that this represented a “deepening humanitarian crisis”. Of 30,000 patients the group has attended to in the last year, some 35 percent are Greek citizens, up from 10 percent in 2010. Of these, nine percent are children.
Kanakis told the EUObserver, “Amongst some children and the elderly, signs of mild malnutrition have begun to appear. This is mostly amongst migrants, but Greek citizens as well. There is a problem also not just with the amount but the quality of the food.”
“What we know is that amongst the new measures for 2012, the troika [European Union, IMF and European Central Bank] has asked that there no longer be exceptions to the €5 fee to visit a hospital. Things will certainly get worse next year,” he added.
During their trip to Athens last week, officials from the troika demanded more austerity, including structural reforms lowering the minimum wage of €750 and breaking up national collective bargaining contracts. Last year PASOK made the first inroads against collective agreements when it passed legislation allowing employers to bypass the contracts and demand their employees accept lower wages.
2) … In today’s news
AP reports Farmers celebrate approval of free trade deals
AP Belarus KGB gets tough new powers as anger grows.
AP Romney trade plan aims to hit China, open markets. Mitt Romney is outlining trade policies he says are aimed at punishing China's trade practices and opening more markets around the world for American goods. In a speech at Microsoft's headquarters Thursday, Romney is to call for additional trade agreements, a new free-trade zone among countries that agree to respect intellectual property rights and for new punishments for China if the country doesn't allow currency markets to value the yuan. China's government controls the value of its currency against the dollar, a practice that U.S. manufacturers say hikes the price of American goods in China by 40 percent. Romney is also criticizing President Barack Obama for not being tough enough on China. Democrats say Obama has repeatedly pressured China to stop manipulating its currency.