Bailout Über Alles

Friday, November 26, 2010

This is why German officials want a bailout of everybody "über alles" (above all else.)
Enjoy the weekend. It could be the last one with a 16 member strong Euro club.

CHART OF THE DAY: Why Germany And UK Insisted On The Irish Bailout

Wednesday, November 24, 2010

Chart courtesy Guardian. Click to enlarge.

China, Russia Boot The Dollar in Bilateral Trade

As another proof that EURUSD swings are merely a race to the bottom, China and Russia decided to boot Federal Reserve Notes (FRN) in bilateral trade. The move is designed to achieve a significantly bigger world market share in the currencies of the 2 countries.
From Chinadaily:

Gold Attempts To Break Out vs. Euro

Gold in Euros. Click to enlarge
Gold may be set for major break-out as the preying eyes of Eurozone investors turn from Ireland to Portugal, where spreads reached levels last seen in Greece before the EU/IMF bailout. The yellow metal rose 3% to €1,031 per ounce in the last 24 hours.
We are likely to see new record highs vs. both the $ and the € once gold clears the €1,050 handle again, proving a capital flight from all major fiat currencies.
This makes it clear that the winner in the currency wars will be the universally accepted currency of the last 2,800 years one more time again. Fiat Currencies are not floating. They only sink at different speeds.

Bankrupt Germany Now Plays The Terror (Hoax) Card To Distract From Homemade Financial Disaster And Re-Introduce Fascism

This post is essential reading for every liberty-loving human who opposes the trend of increasingly fascist governments that only focus on a bail-out of banks while completely ignoring that the people in the streets consider this the last priority in an environment where the once lauded social peace is in immediate danger to give way to a revolt of the sovereign in most European countries.
European politics has certainly descended to a new low when an essentially bankrupt Germany suddenly plays the terror hoax card to distract from the Eurosclerosis that is a direct result of irresponsible central bank policy coupled with profligate governments who have obviously totally disconnected from the needs and desires of the sovereign.
The military's involvement in the Afghanistan war is opposed by Afghans and Germans alike
Ruling with fear is a policy of tyrants but not a viable method for democratically elected governments who must not forget that historically all hardline leaders have only very rarely concluded life in peaceful retirement.
We Are All Debtors
To drive the point home: All of Europe is basically bankrupt when not even latest austerity measures help to rein galloping budget deficits that have grown to sizes that make it mathematically impossible to reduce them to sustainable levels again. Only unsuspecting politicians still hang on to a pipe dream that the Eurozone or the EU will manage to climb out of the debt hole in a foreseeable sluggish economy (at best) they had been so eager to dig in the first place.
Record unemployment almost everywhere will perpetuate soaring social expenditures and drastically rising yields will bring a European replay of the US municipal bond crash.
Remember: All Eurozone members operate on growing fiscal deficits and not a single country has such a thing called savings. We are all 4-level debtors: supranational, national, communal and in private!
Let's be realistic: There can be only one Japan in the world with a debt:GDP ratio of 200% and we have not seen the final outcome of this funny fiat money experiment.
Europe has 3 key problems that will not be solved easily and will require a rediscovery of frugality in the old world which certainly cannot be called the 1st world anymore:

Austria Blocks Funds For Greek Bailout

Tuesday, November 16, 2010

The Eurozone has another problem. While media attention focuses on Irish bailout talks, the Greek tragedy is about to bubble up again.
Following the publication of upwardly revised deficit figures for Greece, Austrian Finance Minister Josef Pröll announced on Tuesday that Austria is going to withhold a €190 million payment to Greece in December, citing unsatisfactory data and lower than projected tax revenues on behalf of Greece.
"From the current set of data we have there is no reason to release the December tranche from an Austrian perspective," Pröll said according to Austrian media reports before he left for Brussels.
Greek CDS widened to 980 basis points after Pröll's statement, albeit there were no offers.

10 Of 16 Euro Countries Exceed Inflation Limit Of 2%

Next stumbling block for the Euro: Inflation.
According to Eurostat Eurozone consumer prices rose 1.9% YOY (pdf) in October (September 1.8%, October 2009 minus 0.1%) and came close to the European Central Bank's inflation target of 2%. This is the highest value in 2 years and contradicts EU Commission president Jose Manuel Barroso who said only a day earlier that the Euro is a stable currency.

10 of the 16 European countries using the Euro already exceed the ECB's annual inflation limit of 2%. The lowest annual rates were observed in Ireland (-0.8%), Latvia (0.9%) and Slovakia (1.0%), and the highest in Romania (7.9%), Greece (5.2%) and Estonia (4.5%)
Prices accelerated fastest for transport (+4.5%), alcohol and tobacco (+3.2%) and housing (+3.2%.)
Oil's recent spurt to $88 and coming higher taxes in context of the austerity packages that will be felt in 2011 guarantee a further steepening of the inflation curve. The lowest annual rates were observed for communications (-1.1%), recreation & culture (0.1%) and clothing (0.4%).

A Brilliant Explanation of Quantitative Easing i.e. Money Printing

Saturday, November 13, 2010

Under Bush, Bernanke only blew up the US economy. Under Obama he is on the way to ruin the whole world. And Goldman Sachs collects fees on all transactions.
Worth watching to the last second (h/t John Hempton.)

41 Facts About Central Banks No Longer Taught In US Schools

Friday, November 12, 2010

Today, most American students don't even understand what a central bank is, much less that the battle over central banks is one of the most important themes in U.S. history.
The truth is that our nation was birthed in the midst of a conflict over taxation and the control of our money. Central banking has played a key role in nearly all of the wars that America has fought. Presidents that resisted the central bankers were shot, while others shamefully caved in to their demands. Our current central bank is called the Federal Reserve and it is about as "federal" as Federal Express is. The truth is that it is a privately-owned financial institution that is designed to ensnare the U.S. government in an endlessly expanding spiral of debt from which there is no escape. The Federal Reserve caused the Great Depression and the Federal Reserve is at the core of our current economic crisis. None of these things is taught to students in America's schools today.

In 2010, young Americans are taught a sanitized version of American history that doesn't even make any sense. As with so many things, if you want to know what really happened just follow the money.

The following are 41 facts about the history of central banks in the United States that every American should know....
  1. As a result of the Seven Years War with France, King George III of England was deeply in debt to the central bankers of England.
  2. In an attempt to raise revenue, King George tried to heavily tax the colonies in America.
  3. In 1763, Benjamin Franklin was asked by the Bank of England why the colonies were so prosperous, and this was his response....
    "That is simple. In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one."
  4. The Currency Act of 1764 ordered the American Colonists to stop printing their own money. Colonial script (the money the colonists were using at the time) was to be exchanged at a two-to-one ratio for "notes" from the Bank of England.
  5. Later, in his autobiography, Benjamin Franklin explained the impact that this currency change had on the colonies....
    "In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed."
  6. In fact, Benjamin Franklin stated unequivocally in his autobiography that the power to issue currency was the primary reason for the Revolutionary War....
    "The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the prime reason for the Revolutionary War."
  7. Gouverneur Morris, one of the authors of the U.S. Constitution, solemnly warned us in 1787 that we must not allow the bankers to enslave us....
    "The rich will strive to establish their dominion and enslave the rest. They always did. They always will... 
    They will have the same effect here as elsewhere, if we do not, by (the power of) government, keep them in their proper spheres."


Wednesday, November 10, 2010

China and the USA: They are not enemies but frenemies with dependent economies.

Everything Is Up Except This Funny CPI Stuff

Looking at the graph below, depicting year-to-rate price rises in commodities, I am only left with one question: If almost everything rose 4% and much more, how can this funny US Consumer Price Index be at only 1.1% annually? Something's got to give here and I bet it will not be commodity prices.

GRAPH: Commodity price changes year-to-date as of November 9. Chart courtesy (Click to enlarge)

Germany Unwittingly Adopts A Silver Standard Due to Soaring Price

Monday, November 08, 2010

Silver's sky-shot to a new 30-year high of $27.73 per ounce has led to a new phenomenon in Germany. For the first time in history it is theretically possible to buy two last series of silver coins with a denomination of €10 and a silver content of 0.535 ounces for less than the silver equivalent. According to a report in German Daily "Welt" the soaring silver price has forced the German government to bring forward the starting time of sales of the 2 commemorative coins into October to save face. The coins now have a value of €10.66 but have to be sold at the denominated Euro value.
As this story is widely circulating in Germany it can be expected that these coins will be sold out by tomorrow.
Germany's time on a theoretical silver standard - the country was on a bi-metallic standard before the Weimar Republic in the 1920s - won't last long, though.
In order to counter soaring silver prices and keep the denominated value below the silver value the country has announced it will reduce the silver content to 10 grams or 0.3215 ounces in its commemorative silver coin line from January 2011.

List of Per Capita Official Gold Holdings

As World Bank president Robert Zoellick has unleashed gold's latest ascent to a new record high of $1,405.30 per ounce with his vision of a world returning to a gold standard here some facts based on per-capita-figures.
Total gold above ground is estimated at 160,000 tons or 5.144 billion ounces.
Divide this figure by a world population of 6.88 billion and you arrive at 0.75 ounces per capita.
A list compiled from World Gold Council data and Wikipedia population figures shows only 11 of the biggest gold holding nations come in above above the cutoff point at 0.75 ounces per capita.
In medieval times a man's life was considered to have the value of one ounce of gold. This was the price to get somebody off the gallows.

TABLE: In the world of official gold holdings Europe still sits comfortably on top, mixed together with resource-rich countries. These are the 30 countries with the biggest absolute official gold reserves listed by grams/ounces of gold per capita.
The table above is probably misleading, though. It only accounts for official central bank gold holdings which are estimated to be around 20% of total gold above ground. Even this figure is not undisputed. French investment house Cheuvreux suspected in 2006 (pdf) that central banks have secretly sold off or leased 10,000 to 15,000 tons, effectively halving their reserves.

Who Holds The Other 80%?

A Timeline of Gold's History As A Currency

Reuters has written up this handy timeline of gold's history as a currency going back to 1,500 BCE. This Lydian coin depicted to the left was the first bullion coin and weighs 4.71 grams, has a diameter of 13mm at its widest, and at 4mm, is thick as a nugget. It likely consists of about 55 percent gold, 43 percent silver, 2 percent copper, and trace amounts of lead and iron. It trades between $1,000 and $2,000 in numismatic cercles and has never devalued to zero purchasing power.

    Following is a timeline on gold's use as medium of exchange.

Atlantic Currency War From German Perspective: The United States Lived On Borrowed Money For Too Long

An interview with German Finance Minister Wolfgang Schäuble guarantees an entertaining week with wild FX swings. Schäuble bashes not only Ben Bernanke's QE2 in German weekly "Der Spiegel" but also lambasts Treasury Scretary Geithner for blaming Germany's trade surplus for America's economic woes.
The World Bank dropped another bombshell, essentially recommending a Bretton Woods 3 with gold as a "reference point" for valuations. Read on to find out why a gold standard would be the last life ring for the ailing dollar and could see the USA and several European countries as the winner in the coming real currency war between gold and fiat money.
Schäuble in his own words on transatlantic competitiveness:
The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses.
His other bombshell concerns QE2, essentially saying that Fed Chairman Ben Bernanke is not motivated by reason:
I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don't recognize the economic argument behind this measure.
Schäuble may be right that US corporations sit on cash hoards, but QE2 will flow exclusively into Geithner's revival of Weimar economics in his desperate effort to save Wall Street.
Morgan Stanley noted immediately after the announcement of QE2 that the "money" is earmarked to support Treasuries almost all along the curve. The chart implies that investors shun longer dated maturities, realizing that record low yields do not fit into times of a crumbling US economy.

GRAPH: The Fed will bolster 5- to 10-year maturities, essentially buying all the net issuance of US government debt. Chart courtesy Morgan Stanley.
In terms of Ponzinomics the Fed does the right thing in trying to create a financial perpetuum mobile based on ever expanding credit: The Treasury prints bonds which it exchanges for the "money" the Fed prints.
As long as everybody believes in the illusion that it will work; it will. I doubt it though, as history lacks a successful example where a nation printed its way out of debt.
QE2 can also be seen as an attempt to hold down risk premiums i.e. interest rates. The coming wave of government bond issues in what is wrongly called the 1st world will guarantee a yield race to the upside as investors will emphasize the risks in their buy-side analysis.
One does not need a calculator to see the disparity between a disastrous financial environment on both sides of the Atlantic while interest rates hover at record lows. Recent explosions in Greek and Irish spreads are only an appetizer of what is to come next year.
The Wall Street Journal has this number of the week.
$10.2 Trillion in Global Borrowing

Governor: Cyber Attack on Austrian And Other Central Banks

Friday, November 05, 2010

Oesterreichische Nationalbank (OeNB), the central bank of Austria has come under a cyber attack earlier this week, Governor Ewald Nowotny told journalists on Thursday after the ECB council meeting press conference. It appears that hackers tried to gain access to the OENB's intranet. It was not said whether they succeeded and to what degree.
According to a 12-liner in Austrian daily "Der Standard" Nowotny disclosed that other central banks had been under attack as well. He attributed the attack to a student's hoax.
I am not buying this down-playing of such an incident in the days of the biggest financial crisis in history.

The Immediate Results of QE2 And the ECB Meeting

Thursday, November 04, 2010

Monsieur Bernanke and Mister Trichet have been at work. While the Fed takes action by digitizing another $600 billion the ECB remains on autopilot and leaves interest rates unchanged while continuing its government bond purchase programm.
Here are the results of the actions of the high priests of forever expanding debt:

GRAPH: Gold is only short a few bucks from its record high of $1,388 reached on October 14. Expect another upleg towards $1,500 in the next big move that is guaranteed as the world's prudent investors flock to the truly global currency of the past 2,800 years.

Ben "Weimar" Bernanke Sets Stage For The Dollar's Collapse

Word has probably gotten around that the Federal Reserve will buy another $600 billion in US Treasuries in the next 8 months. This figure coincides with the net issuance of US debt and is proof that the USA will go the way of the Weimar republic which is the most famous example where a country tried to substitute dwindling revenues with money fresh off the printing press.
What is different this time is the circumstance that the USA's downward spiral finds an equal counterpart in Europe. Both Federal Reserve Notes (FRN) and the Euro will continue their race to the bottom against that 2,800 year old international currency aka gold.
As the Fed's holdings of total domestic debt will grow to $2.6 Trilion or roughly one fifth of GDP, Ben "Weimar" Bernanke has shifted into the next gear of Ponzinomics where a system can only be kept alive by continuously growing. Stop the inflow of fresh money and it will collapse. It has never been different in history. As QE2 confirms expectations that the Fed will continue on the path of monetary inflation the USA will find itself beyond the point of no return.
Now the question shifts to timing the inevitable as only one thing in QE2Infinity will change: the zeroes.
We are now in the 4th year of the crisis, taking the subprime meltdown in August 2007 as a starting point.
Adding in the political factor that the result of US midterm elections effectively guarantees a political stalemate there is not much hope for any meaningful reforms that would lead to a path of more sustainable budget deficits and a deleveraging in the banking sector.
Bernanke now has added another $600 bilion to the debt balls he already juggles. Once foreign investors will demand higher yields for increasingly risky US debt it is very likely he will not be able to keep them all aloft.

Wikinvest Wire