Perspectives on the global economic changes

[Austin]

Bernanke Shocker: "No Rate Normalization During My Lifetime"

Forget all talk about "dots", "6 months", or any other prognostication from the Fed's new leadership about what will happen in the near and not so near future. For the real answer prepare to shelve out the usual fee of $250,000 for an hour with the Chairsatan, or read Reuters' account of what others who have done so, have learned. The answer is a stunner.

"At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate, the Fed's main benchmark interest rate, to rise back to its long-term average of around 4 percent in Bernanke's lifetime. "Shocking when he said this," the guest scribbled in his notes. "Is that really true?" he scribbled at another point, according to the notes reviewed by Reuters."

[vic]

Yes, and even the crash of 2008 was accurately predicted.

[Neshant]

The profession of economics runs neck to neck with sorcery as a science these days.

It has zero credibility.

Right now they are desperate to keep inflating and give the impression they can keep printing forever.

But the reality is the market will eventually put a stop to that and start demanding the debt already accumulated be repaid. That's when the fun begins as bankers & economists suggest to govt that govt initiate a grab of savings, wages & pensions of the people and cancel more govt services to keep the banking "industry" solvent.

[panduranghari]

Strongly recommend this video by Jim Rickards.

http://www.hedgeyetv.com/v/1019/real-co ... onomy-more

If no time watch from 22 mins.

[Austin]

The $12 Trillion Ticking Time Bomb

[Altair]

http://www.zerohedge.com/news/2014-05-2 ... rgest-bank
China Signs Non-Dollar Settlement Deal With Russia's Largest Bank

Slowly - but surely - the USD's hegemony is being chipped away whether by foreign policy faux pas, crossed red-lines, or economic fragility. However, on Day 1 of Vladimir Putin's trip to China it is clear that the two nations are as close as ever. VTB - among Russia's largest banks - has signed a deal with Bank of China to pay each other in domestic currencies, bypassing the need for US Dollars for "investment banking, inter-bank lending, trade finance and capital-markets transactions." Kirill Dmitriyev the head of Russia’s Direct Investment Fund notes, "together it’ll be possible to discuss investment in various projects much more efficiently and clearly," as Russia's pivot to Asia continues to gather steam.

[TSJones]

http://www.zerohedge.com/news/2014-05-2 ... rgest-bank
China Signs Non-Dollar Settlement Deal With Russia's Largest Bank

Slowly - but surely - the USD's hegemony is being chipped away whether by foreign policy faux pas, crossed red-lines, or economic fragility. However, on Day 1 of Vladimir Putin's trip to China it is clear that the two nations are as close as ever. VTB - among Russia's largest banks - has signed a deal with Bank of China to pay each other in domestic currencies, bypassing the need for US Dollars for "investment banking, inter-bank lending, trade finance and capital-markets transactions." Kirill Dmitriyev the head of Russia’s Direct Investment Fund notes, "together it’ll be possible to discuss investment in various projects much more efficiently and clearly," as Russia's pivot to Asia continues to gather steam.

While you are crowing about this agreement think about this: As long as Russia and China sell to each other what they need, then their monetary agreement works. However if they need to buy something from the world then they had better be able to come up with another form of payment for example, the dollar, the euro or the yen. Or perhaps gold? It's the same with the agreement China and Nigeria. Nigeria has oil and China has various trade goods. It works as long as China has something that Nigeria wants. It's sort of like being in a small town and having to shop at the company store because the only thing you have to buy with is the company script.

[ashish raval]

The $12 Trillion Ticking Time Bomb

Some of the arguments don't hold ground in this article. These rate hike only affects the short term swaps. Long term swaps are already priced taking in to account long term view. All that federal reserve is doing by keeping interest rate low is raiding people's pensions and savings and putting it into mortgage and businesses by keeping the rates low. Traders would love volatility in the interests rate market.

[RoyG]

While you are crowing about this agreement think about this: As long as Russia and China sell to each other what they need, then their monetary agreement works. However if they need to buy something from the world then they had better be able to come up with another form of payment for example, the dollar, the euro or the yen. Or perhaps gold? It's the same with the agreement China and Nigeria. Nigeria has oil and China has various trade goods. It works as long as China has something that Nigeria wants. It's sort of like being in a small town and having to shop at the company store because the only thing you have to buy with is the company script.

Dollar trade is decreasing at a steady 1% a year.

When the roti is too hot, nibble along edges.

You don't understand the game.

[panduranghari]

The $12 Trillion Ticking Time Bomb

Some of the arguments don't hold ground in this article. These rate hike only affects the short term swaps. Long term swaps are already priced taking in to account long term view. All that federal reserve is doing by keeping interest rate low is raiding people's pensions and savings and putting it into mortgage and businesses by keeping the rates low. Traders would love volatility in the interests rate market.

Are you forgetting something?

[Austin]

Marc Faber: "The System Is Very Vulnerable," Brace For A "General Asset Deflation"

With global debts 30% higher than they were at the 2007 crisis peaks, enabled by the money printing of central banks, Marc Faber warns that the "asset inflation" of the last years is not reflective of the broad growth seen in the 70s. "The system is still very vulnerable," he warned as investors are exuberant over "hot new issues" just as they were in 2000 and fears "excessive speculation" means investors should brace for a "general asset deflation." Emerging markets are relatively cheap to the US and Europe, he notes, but it is too early; there is nothing to like about low treasury yields but they are good to offset risk. As the market soared recently, fewer and fewer stocks are making new highs and this internal weakness (lack of breadth) and the breakdown in so many 'loved' stocks says the drop is coming sooner rather than later...

[Austin]

Eurasian Economic Union to be open for newcomers — deputy PM

ST. PETERSBURG, May 23. /ITAR-TASS/. The future Eurasian Economic Union to be sealed on the paper in Astana on May 29 will be open for newcomers, Russian First Deputy Prime Minister Igor Shuvalov told the St. Petersburg International Economic Forum on Friday.

The document was now being completed, he said. If the presidents of Russia, Belarus and Kazakhstan sign the agreement it will be ratified this year, “and the new integration stage will start on January 1, 2015”.

The integration was not a closed process but open for new members, said the deputy prime minister.

“Our chief goal is to build the Eurasian Economic Union not only with common economic space with the EU but also more closely entwined into the fabric of the Asia Pacific,” Shuvalov said. Only then the Russian economy would be strong, and its partners in the Customs Union (Belarus and Kazakhstan) would get what they deserve, he added.

The Western countries feared integration organizations in the post-Soviet area, one of them the US, though it is establishing free trade zones itself.

“The US believes it has certain strategic national goals, and everybody who opposes them is an enemy,” Shuvalov said. “But somehow, they see our true goal of post-Soviet integration, economic integration to make us economically stronger and richer as something alien for us, which they should fight. But it is our strategic aim," he added.

[Neshant]

The US govt is keeping interest rates below the real rate of inflation by buying its own bonds secretly behind the scenes.

Just recently Russia dumped 30+ billion in US Treasuries which was promptly bought up by some mystery buyer in Belgium. Nobody knows who's buying all these money losing govt bonds.

____

The Fed Is The Great Deceiver
— Paul Craig Roberts and Dave Kranzler
May 12, 2014

Is the Fed “tapering”? Did the Fed really cut its bond purchases during the three month period November 2013 through January 2014? Apparently not if foreign holders of Treasuries are unloading them.

From November 2013 through January 2014 Belgium with a GDP of $480 billion purchased $141.2 billion of US Treasury bonds. Somehow Belgium came up with enough money to allocate during a 3-month period 29 percent of its annual GDP to the purchase of US Treasury bonds.

Certainly Belgium did not have a budget surplus of $141.2 billion. Was Belgium running a trade surplus during a 3-month period equal to 29 percent of Belgium GDP?

No, Belgium’s trade and current accounts are in deficit.

Did Belgium’s central bank print $141.2 billion worth of euros in order to make the purchase?

No, Belgium is a member of the euro system, and its central bank cannot increase the money supply.

So where did the $141.2 billion come from?

There is only one source. The money came from the US Federal Reserve, and the purchase was laundered through Belgium in order to hide the fact that actual Federal Reserve bond purchases during November 2013 through January 2014 were $112 billion per month.

http://www.paulcraigroberts.org/2014/05 ... g-roberts/

[Neshant]

According to this article, the plan is to devalue the USD by pegging it to the SDR. The whole fiat money racket is thereby moved one level higher to the IMF - firmly in the hands of unelected banking goons who peddle the SDR.

If true, its astounding how accurately the author of book "The Creature from Jeckyl Island" has predicted events decades ago. i.e. That national currencies will fail and the whole scheme will be moved to an international currency where the electorate of countries have no say... with that scheme failing as well in due course.

_____
Who Is The New Secret Buyer Of U.S. Debt?

In the past several months, the Fed taper of QE and subsequently U.S. bond buying has coincided with steep declines in purchases by China, a dump of one-fifth of holdings by Russia, and an overall decline in new purchases of U.S. dollars for FOREX reserves.

The U.S. is in desperate need of a benefactor to purchase its ever rising debt and keep the system running. Strangely, a buyer with apparently bottomless pockets has arrived to pick up the slack that the Fed and the BRICS are leaving behind. But, who is this buyer?

At first glance, it appears to be the tiny nation of Belgium.

While foreign investment in the U.S. has sharply declined since March, Belgium has quickly become the third largest buyer of Treasury bonds, just behind China and Japan, purchasing more than $200 billion in securities in the past five months, adding to a total stash of around $340 billion.

This development is rather bewildering, primarily because Belgium’s GDP as of 2012 was a miniscule $483 billion, meaning, Belgium has spent nearly the entirety of its yearly GDP on our debt.

Clearly, this is impossible, and someone, somewhere, is using Belgium as a proxy in order to prop up the U.S. But who?

http://www.alt-market.com/articles/2145 ... of-us-debt

[Neshant]

Its the beginning of the global SDR monetary system to which all national currencies will be pegged. Its all being decided by banking goons sitting in ivory towers and eCONomists who think they know what's best for everyone - with the people in these nations kept in the dark.

In return for the US giving up the dollar as the global currency of (oil) trade and devaluations of western currencies (which benefits heavily indebted and insolvent banks there), China and to a lesser extent India will be asked to join to the IMF controlled monetary racket. An upward revision of the Chinese yuan vs dollar in exchange for a greater % of yuan composition of the SDR is what the deal is.

Personally I think its a trap for the developing world as the IMF like the UN will be under the control of western countries regardless of what "reform" roadshow is rolled out. Oil trade will switch from dollars to SDRs as that will be pitched as a benefit to India since the Rupee constitutes the SDR. But what does it matter if all the oil fields from Iraq to the Gulf to Libya are controlled by western nations?

Interestingly many western countries are expanding their GDP numbers on paper with bogus statistics ahead of this SDR system - perhaps to have a greater % of the SDR's composition.

The most vile, undemocratic and sovereignty robbing scheme is about to unfold. If India does not find a way to avoid this, it too will be enslaved by it even while idiot Indian central bankers and Indian eCONomists just start towing the line that it will be good for India. Under no circumstance should the rupee be pegged to this.

____________

At issue is the global community’s efforts to align the IMF’s power structure to match changes in the distribution of strength in the global economy. Each country is assigned shares, or quota, to match its contribution to the world’s gross domestic product. The 2010 changes -- which, ironically, were prompted by President Barack Obama -- would give more clout to countries such as China and India and reduce the influence of some European nations whose relative share of global GDP has shrunk over time.

http://www.theglobeandmail.com/report-o ... e17949735/

[panduranghari]

Nishant
No SDR happening. The SDR talk is promoted by vested interests. It keep them in the business.

How will SDR be any better than what we have now?

Think long and hard on that one. "Virtual reserve currency" means something—like the SDR—that's primarily a unit of account for the purpose of providing monetary stability. But with the primary and secondary media of exchange becoming separate but symbiotic counterparts, stability will be automatically achieved, and a "commodity-based" super-sovereign unit of account comparing fiat M3 with a centrally managed gold price will be completely superfluous and unnecessary (i.e., as unused as the SDR).

The point is, there's a turn-key problem-solving system waiting in the wings. So whenever you hear anyone in the hard money camp or the Anglo-American press talking about something that sounds like the SDR with "gold backing" (watch out for that word "backing") don't buy it for a second. They simply don't have the full picture and, therefore, don't know what they're talking about when it comes to macro solutions. But even so, they're still right when they recommend that you get your butt out of that reclining black office chair and take personal responsibility for your wealth.

[Neshant]

How will SDR be any better than what we have now?

Think long and hard on that one. "Virtual reserve currency" means something—like the SDR—that's primarily a unit of account for the purpose of providing monetary stability. But with the primary and secondary media of exchange becoming separate but symbiotic counterparts, stability will be

Not sure what you're saying here dude. It seems very probable to me that the banking goons will migrate the globe to the SDR. It is the perfect scheme to render all their bad debt and underwater investments solvent once again - at the expense of someone else of course.

In order for the US to extinguish debt, it needs to devalue the USD. It cannot however devalue through a slow and steady process of printing money as it has. Bond holders will start dumping bonds sending yields upwards - thereby making US interests on debt unsustainably high. Already as I pointed out, the snake is eating its own tail. The US is secretly buying a lot of its own bonds behind the scenes to keep things propped up. That cannot continue forever.

The only way they can devalue drastically is if they do it suddenly and unexpectedly. I.e. Cheating a vast number of savers, pensioners, wage earners before they have time to take their hard earned wealth out of the dollar.

They need to devalue against the currencies of their creditors. However a devaluation against the Chinese yuan is essentially a default on debt owed to China - which China refuses to absorb. Hence all the yuan printing going on there to keep their currency pegged to the dollar.

The compromise is to enter into a global agreement - to enable the Chinese yuan and other currencies to become a part of the global trade/reserve currency (which dollar currently holds) in exchange for China removing its peg to the dollar and allowing its own currency to appreciate (which would damage its exports). That way the loss of purchasing power of US dollar bonds that China has accumulated and the damage to its export industries are offset by their gains in becoming a part of the new global currency of trade (SDR).

Oil for instance could be purchased in SDRs rather than dollars which is good for them since their currency comprises a part of the SDR.

The question is if US bankers and China benefit through this arrangement, who loses? To whom is this loss transferred to.

I do believe it will be savers, wage earners and pensioners primarily in the west who will suffer. They will see a massive drop in their living standard and a simultaneous increase in the cost of goods. Stock holders and land owners and anyone in debt will see their debts devalued away and will benefit.

The irony is that banking goons who made bad bets on leveraged crap and who are now insolvent end up being made whole through wealth stolen from those who've had to earn it.

I don't know how gold or other currencies will fare but I'm sure banking goons have it in their interest to supress the price of gold while they bamboozle entire nations into the SDR system.

[panduranghari]

Neshan't ji a very generic comment. Not targeting you specifically. Just in the spirit of discussion.

So often in commentaries of this sort that propose a “solution”, the author is strangely obsessed with the notion of replacing the dollar (as a reserve currency unit) with simply another institutional emission of similar ilk (such as currencies of other nations, SDRs, bancors and whatnot). Their avoidance of any meaningful discussion of the most obvious remedy is almost pathological in the extreme. To be sure, we don’t need to invent any manner of universal reserve currency to fill the role of a unit of account because that role is already served in a fully functional capacity for any given country by its own monetary unit.

What IS desperately needed, however, is a universally respected reserve asset capable of filling our current void with a reliable presence that serves as a store of value. And far from needing to be conjured or created by complex international committees, that asset is already in existence and held in goodly store by central bankers and prudent individuals around the world — it’s known as gold.


I am CERTAIN that from amid the ruins of a chaotic financial crisis that was brought about by its own complexity, a degree of sanity will prevail, and gold as a freely floating asset will arise in stature as THE important element of global monetary reserves. The floating aspect is the vital evolutionary improvement over all previous structural monetary failures which tried to use a gold standard at a fixed price (i.e., unit of account) perversely joined to the very elastic money supply of any given country’s banking system.

[Neshant]

I don't know why you keep talking about gold.

The objective of the SDR is NOT to look for remedies to the present failing national fiat system from the point of view of the saver, wage earner, pensioner..etc. The SDR is solely for the benefit of banking goons who are currently insolvent and want to be made whole again by transferring their loss to someone else. They also need a means to continue to perpetuate their control of the system free of electorates in any country and with other countries locked into rules - which is what the SDR is all about.

The banking "industry" which is a parasitic middleman does NOT want gold or anything they cannot control to take on a global monetary role as they would be out of a job. So please not another word about how or why we need to be using gold.

I am already aware of the virtues of gold to the saver. But what the oligopoly wants in not what's best for the saver. They want what's best for themselves which is robbing the saver.

As for it not happening, its already happening. Read the article I posted from the Globe & Mail.

[panduranghari]

I don't wish to get into a mud slanging match with you. As I stated in my earlier post- the avoidance of any meaningful discussion on the most obvious solution to the problem is pathological to the extreme.- how true is that.

I read your lined post. Twice.

Then I read your commentary on it.

Hence I said SDR is not happening.

The reason for using currency rather than gold at both the micro and macro levels is that it is easily and cheaply reversible, because you expect temporary imbalances to be reversed in the short run. There are no transaction, transportation, storage or insurance costs, and the temporary nature of short-term imbalances reduces other well-known risks like currency risk, default and the unknown. Short term imbalances need to be accounted for, not settled. And that's what the SDR is, a unit of account that takes multiple currencies into consideration. It is for accounting, not settlement. And we don't need an SDR nor do we need a Dollar nor an euro. Every country has their own currency which can function exactly as an SDR would function.

I wrote elsewhere this-

What the 1922 Genoa Conference did was to institutionalize the "sterilization" of gold for the rest of the world through the reserve structure of the international banking system. And this bit of genius was decided by a "committee of experts" from 34 different countries. India was represented too by the Raj. Here we can find more information about the money still owed to India by Britain. They did this by introducing paper gold—or paper promises of gold—into the international banking system as reserves equal to the gold itself. This wasn't the first paper gold, but it was the first time that specific paper gold (that from New York and London) was used as an equal reserve upon which credit can be expanded. What is acceptable as international reserves is critical because trade settlement is a function of the reserves. This conference was the birth of the IMF and it's financial system.

In 1922, they officially changed the old gold standard into the new "gold exchange standard". The stated purpose was "the stabilization of the general price level" which you can feel free to read as code for sterilizing the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and Monetarism (est.1956).

With the gold mostly staying put in London and New York, and paper promises of gold flowing as equal base money elsewhere, the monetary base was effectively duplicated. Credit could now expand without ever having to contract, at least not because of the unwanted flow of gold. But of course that's not how it actually works in practice. What Raghuram Rajan, Chidambaram or Montek Ahluwalia do not get is that The "unwanted" flow of gold is not the cause, but the effect of real imbalances (physical, not monetary ones) between international production and consumption. So, obstructing the adjustment mechanism of real gold settlement set the world up for periodic busts, economically destructive punctuations and regular currency devaluations.

Now we are back to where we were. From a medical perspective:

Signs- rising debt levels, increasing defaults
Symptoms- people doing many jobs to earn more as most pay pittance
Diagnosis- debt based economy ends up impoverishing the yesterday's middle classes.
Treatment- move away from debt to settlement of debts. No long term deficits allowed.

How will SDR treat the disease? Krugman, Stieglitz and assorted E-con-artists can fool us but it can't be done all the time.

Even if SDR arrives, in what way are we not delaying the inevitable?

[Neshant]

We are talking past each other.

I really have no time to elaborate but below is a clip of Jim Rickards talking about the issue. You need to fast forward to 26 mins into the clip when he starts talking about the IMF, SDRs and how bankers hope to migrate countries of the world into that enterprise of theft.

The reason for the SDR is because national central banks have run out of room to print their way out of insolvency. The insolvency is that of private banks which have gambled & lost and want to be made whole again at anyones' expense - except their own.

The SDR is meant to address the issue of how to transfer massive private bank losses onto the citizenry without ending up in a currency/trade war with other countries through unilateral currency devaluation.

The SDR is all about how private banks may continue to live off the productive and control the fruits of their labor. Its nothing about whether this new monetary system is sustainable, fair to producers, or anything else which is what you're talking about.

[svinayak]

One-million mark notes used as notepaper, October 1923.


http://thirdparadigm.org/doc/45060880-W ... y-Dies.pdf

When Money Dies: The Nightmare of the
Weimar Collapse
by ADAM FERGUSSON
WILLIAM KIMBER — LONDON, 1975

[Christopher Sidor]

^^^^
At the end of WW-I the victors demanded payment from the defeated in terms of war reparations. The defeated i.e. germany could not pay back. So they printed money like crazy. The Victors were warned that their actions were leading Germany down the path of ruin but they still insisted on getting their so called "rightful" reparations. France went as far as to occupy the industrial heartland of Germany to enforce what it called its "legal claim". This directly along with the great Depression directly led to rise of Hitler and ensuring blood bath. France would pay dearly for its 2 year of occupation of Ruhr.

[TSJones]

^^^^
At the end of WW-I the victors demanded payment from the defeated in terms of war reparations. The defeated i.e. germany could not pay back. So they printed money like crazy. The Victors were warned that their actions were leading Germany down the path of ruin but they still insisted on getting their so called "rightful" reparations. France went as far as to occupy the industrial heartland of Germany to enforce what it called its "legal claim". This directly along with the great Depression directly led to rise of Hitler and ensuring blood bath. France would pay dearly for its 2 year of occupation of Ruhr.

never mind the fact that germany got reparations and territory at the end of the franco-prussian war of 1870.

[Austin]

May be IMF SDR or not but Gold will play a big role , Something at work here

Putin says Russia and China need to secure their gold and currency reserves

Russia and China need to ensure their gold and currency reserves are secure, Russia's President Vladimir Putin told foreign journalists at the St Petersburg International Economic Forum.

"For us (Russia and China) it is important to deposit those (gold and currency reserves) in a rational and secure way," he said. "And we together need to think of how to do that keeping in mind the uneasy situation in the global economy."

Putin also said China and Russia will consider further steps to shift to use of national currencies in bilateral transactions. (Reporting by Alexei Anishchuk and Paul Ingrassia, writing by Jason Bush)

[SK Mody]

Prostitution and Illegal drug sales to be used for GDP in Italy:
http://sbarrkum.blogspot.in/2014/05/pro ... es-to.html

[Austin]

Makes good read on US Housing Market with interesting chart

Washington’s Housing Ponzi: 4 Graphs Which Reveal The Fed’s Play On Greater Fools

[Austin]

Just Two Charts

The 2 words "collapsing" and "unsustainable" do not conjure images of confidence-inspiring animal spirits or all-time highs in stocks... and yet European earnings expectations have utterly collapsed from their exuberant early year levels and the gap between earnings growth in the US and revenues tumbling is entirely unsustainable. But then - none of this 'fundamental' malarkey matters: we've got the Fed 'put' and the Draghi 'promise'.

European Earnings expectations... (down is not good)...


Unsustainable US earnings-revenues gap...


http://www.zerohedge.com/news/2014-05-2 ... two-charts

[Austin]

Why High Debt, Low Savings And Falling Productivity Block “Escape Velocity”

Each year since the recession officially ended in the summer of 2009, Wall Street and Washington have tried to dupe investors into believing a second half recovery was in store for the stock market and economy. However, this promise has failed to come into fruition each year, as annual GDP growth has not reached north of trend growth (3%) since 2005. But, with the hope that investors have a perennial case of amnesia, these cheerleaders are yet again trumpeting the illusion that economic growth is about to surge.

The year 2014 didn’t start off so good for those who desperately want investors to be convinced the economy has healed from the Great Recession. After posting annual GDP growth of just 1.9% for all of 2013, which was much lower than the 2.8% growth experienced during 2012, this year started off with annualized GDP growth of only 0.1% for Q1. This means GDP growth for Q2 has to be near 5% just to produce the same 2.5% growth pace experienced back in 2010.

But the recent Retail Sales report for April showed an increase of just 0.1% from the prior month–so much for a strong rebound from the winter’s weather–and not good news for those that need investors to believe in the fantasy of robust growth in order to keep them supporting stock prices at these levels.

The sad truth is that this year’s GDP growth won’t produce results any better than those years following the credit crisis. The reason being, our leaders don’t understand where growth comes from and/or are unwilling to take the painful steps necessary to achieve it.

Unfortunately, most of those that inhabit D.C. are economic illiterates; and Wall Street enables Washington with alacrity in order to keep the party going. They fail to realize that U.S. GDP growth is stuck in neutral because an economy needs low and stable tax and interest rates; and benign inflation to generate productivity and strong growth. This is the only foundation from which sustainable and healthy growth can be built. And those conditions are virtually impossible to maintain when the U.S. economy is currently carrying a debt level equal to 330% of GDP—the exact level it was at the precipice of the Great Recession.

In order for an economy to grow it needs savings and investment to enhance productivity. The savings rate in the U.S. was well into the double digits before the abolition of the gold standard in 1971. It has now cratered down to 3.8%, which is 1.3 percentage points away from an all-time low and very close to the same level it was leading up to the credit crisis.

Indeed, many conditions are eerily reminiscent to those that led up to the collapse of the economy in 2008. Spreads between corporate bonds and Treasuries are razor thin once again and yield starved investors, backed by a Put from global central banks, are even willing to own a 10-year Greek bond that now yields just 6%. This is despite the fact that the Greek 10-year yielded near 40% just two years ago; and after the nation subjected owners of these bonds to over a 50% reduction in the principal. But history and fundamentals don’t matter when investors are convinced, now more than ever, that money printers around the world stand ready to guarantee that asset prices won’t be allowed to fall—at least not very far.

Of course, one thing—the really important thing—is much worse now than it was at the start of the Great Recession. Debt levels have exploded across the globe. For examples; Chinese government, corporate and household debt is now about 250% of GDP, up from around 145% in 2008; and U.S. debt has soared by $7 trillion since the Great Recession began. But what else would you expect to occur when governments have the hubris to believe they can repeal recessions by endlessly borrowing massive amounts of money from their central banks.

An economy just can’t become more productive when the savings and investment dynamic is broken. And the way it breaks is when investors become aware that; tax levels must significantly increase to help service debt, interest rates face extreme upward pressure because inflation risks have soared, and when investors also understand that the currency’s purchasing power will destroyed in an attempt to lower the value of the nation’s debt. Under this unfriendly economic environment, investment in capital goods dries up and productivity rates fall. This is why productivity during Q1 of this year fell at a 1.7% annual rate.

Those are the genuine reasons why robust growth has been a phantom for the last six years. And the economy will continue to disappoint until governments allow a healthy deleveraging to take place in both the public and private sectors. Asset prices need to fall, bad debts need to be restructured, and central banks need to allow the market to set interest rates.

Until then, we will struggle with huge volatility in tax and regulatory policies, interest rate levels and currency valuations. This is also the main reason why April’s labor force participation rate for Americans between the ages 25 to 29 hit the lowest level since 1982, when the Bureau of Labor Statistics started tracking such data. Old people can’t afford to retire and young people are dropping out of productive society—that’s the sorry truth behind the decline in the labor force.

However, another phantom recovery this year will be especially troubling for U.S. equities. Stock prices didn’t care so much that GDP was anemic when the Fed was expanding credit at a trillion dollar annual pace. But, in just a few months the Fed’s QE program will hopefully be finished. And asset prices may finally start to undergo a painfully-necessary correction.

For instance, perhaps by allowing free markets forces to work, first-time home buyers may once again be able to afford a new house, rather than being constantly outbid by hedge funds. Case in point, a study was recently done by real estate researcher Trulia that showed only 25% of homes for sale in the New York area are affordable to middle class buyers. Shockingly enough, the recent response from government to this second bubble in real estate in the last six years is to force Fannie Mae and Freddie Mac to further expand the amount of lending in the housing market! It seems all we have learned since the 2008 economic crisis is how to make the same mistakes as before, but to a much greater extent.

Nevertheless, investors need to take advantage of this brief moment of sanity from the Fed, because it should not last very long. The Fed’s tapering of bond purchases should provide an excellent opportunity to acquire assets at a significant discount to the bubble-like valuations seen today. Unfortunately, the economy is now completely addicted to zero percent interest rates and the endless expansion of Fed credit. Once Ms. Yellen realizes the Fed’s number one enemy (deflation) will be the result of ending QE, get ready for an inflation quest the likes of which America has never endured before.

Michael Pento is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Published at Pento Portfolio Strategies.

[AbhiJ]

US to fine $10B to French Bank BNP Paribas

The US is seeking more than $10bn from French bank BNP Paribas to settle charges it violated US sanctions on Iran, Sudan and Cuba, according to reports.

BNP is locked in talks with the Justice Department, but the lender wants to pay less than $8bn, the Wall Street Journal claimed.

How should this be read w.r.t. French - US relations?

Also, Swiss Bank was fined for helping in evasion of taxes in America, in one case which went for a century undetected.

But in a separate case last week involving a bank helping thousands of Americans avoid taxes, Switzerland's Credit Suisse pleaded guilty to one felony charge and was fined $2.6bn, but was allowed to keep its banking license.

[Austin]

Well that depends how much the bank made in these so called illegal transaction , If the banks made says 10's or 100's of Billion USD over period of years and all they have to pay 2 or 10 Billion USD then its just a slap on the wrist. Just plead guilty pay small fine pretend sorry and move on.

[vic]

Without fall of asset prices and cooling down of crude oil costs, USA will be trapped into slow grinding de industrialization.

[TSJones]

US to fine $10B to French Bank BNP Paribas

The US is seeking more than $10bn from French bank BNP Paribas to settle charges it violated US sanctions on Iran, Sudan and Cuba, according to reports.

BNP is locked in talks with the Justice Department, but the lender wants to pay less than $8bn, the Wall Street Journal claimed.

How should this be read w.r.t. French - US relations?

Also, Swiss Bank was fined for helping in evasion of taxes in America, in one case which went for a century undetected.

But in a separate case last week involving a bank helping thousands of Americans avoid taxes, Switzerland's Credit Suisse pleaded guilty to one felony charge and was fined $2.6bn, but was allowed to keep its banking license.

In the US as in most countries, banking is a highly regulated business. If you are going to open a bank in the US then you MUST FOLLOW US LAWS while doing business in the US. If you don't want to follow US laws THEN DON'T OPEN UP A BANK BUSINESS IN THE US. BNP Paribas and Credit Suisse want to do business in the US very badly. Then they must follow US banking regs as they were sworn to do when they were granted membership in Club Federal Reserve.

[panduranghari]

Well that depends how much the bank made in these so called illegal transaction , If the banks made says 10's or 100's of Billion USD over period of years and all they have to pay 2 or 10 Billion USD then its just a slap on the wrist. Just plead guilty pay small fine pretend sorry and move on.

Quite right. It's just the cost of doing business. The bank sters account for all these fines anyway. If caught they are willing to pay. If not caught, the money reserved for litigations and fines goes into the bonus. It's a win-win for them. Us mere mortals if given this opportunity, would take it. Obviously, we are mortals, we don't get such opportunities.

[panduranghari]

Jurgen Stark - chief economist to ECB gives a stark warning

(OroyFinanzas.com) - The former chief economist of the European Central Bank (ECB) and vice president of the Bundesbank, Jürgen Stark, delivered an extremely important speech to those attending his lecture at the Bayerischer Hof in Munich, last Saturday. In his lecture Stark recommended to protect against a possible collapse of the global monetary system.

The framework where the conference was delivered suitable to make speeches like this. The organizer, the Ludwig von Mises Institute in Germany and therefore direct language about the risks that embodies the present system may be used. According to Stark, the central banks "have completely lost all ability to control and perspective on the economic situation."


The current monetary system was saved "in extremis" in 2011 through concerted action by all major central banks. According to Professor Stark, "the whole system is based on pure fiction, groping since 2008 to avoid a second Lehman, which if it happens, the system will not survive."

The bottom line is the sequence of events in recent years but precisely the same system is called into question. Paper money, plus printed without a real backup such as the production of goods and services in the economy can grow without control of the Central Bank given the transmission mechanisms of monetary policy and the monetary multiplier. Commercial banks, at any time and under any circumstances, can create money by issuing bonds.

[Austin]

The current monetary system was saved "in extremis" in 2011 through concerted action by all major central banks. According to Professor Stark, "the whole system is based on pure fiction, groping since 2008 to avoid a second Lehman, which if it happens, the system will not survive."

Which is the 2011 event "in extremis" he is talking about ? Any thing other than 2008 QE ?

[panduranghari]

Greek bailout.

[Philip]

Putin's EEU, "EurAsian Economic Union" is a bold move,in an attempt to bring together economically former Soviet bloc states ,into a club where Russia with its vast reserves of oil and gas,mineral wealth,et al,can assist in a regional eco development of the member states. Subsidised energy supplies,as was provided to Ukraine might be very welcome to some states.The inclusion of the word "Asian" is intriguing,because it offers a far wider reach of this eco club beyond the East European states and could include many former Russian republics.At the moment the EU is in deep crisis as recent EU elections have brought to the fore many "Euro-sceptic" parties of the far right ,fed up with the Brussels bureaucracy dominating their individual ways of life.
One sees the Central Asian states who are alarmed at Islamist terrorism via the Taliban enter their region via Af-Pak,warming up to the idea too.Even Afghanistan could join and imagine what the repercussions would be if we see another Rupee-Rouble deal sometime in the future .Could SAARC too become an eco unit like the EEU with ties to it? The possibilities are exciting.

http://rt.com/op-edge/162416-eurasian-e ... -union-eu/
Eurasian Economic Union is wake-up call for US

Patrick L Young is expert in global financial markets working in multiple disciplines, ranging from trading independently to running exchanges.
Published time: May 30, 2014 08:28

Russian President Vladimir Putin (R), Kazakh President Nursultan Nazarbayev (C) and Belarus President Alexander Lukashenko shake hands during a meeting of the Eurasian Economic Union in Astana May 29, 2014. (Reuters / RIA Novosti / Mikhail Klimentyev)

The Eurasian Economic Union is a historic deal and represents a pivot to the East, global financial markets expert Patrick Young told RT. The new union will force the EU to be more competitive and will be a wake-up call for US.

On Thursday, Russia, Belarus, and Kazakhstan signed the Eurasian Economic Union which will come into effect in January 2015. The new bloc will cut down trade barriers and comprises of over 170 million people, making it the largest common market in the former Soviet space.

RT: Just how big a deal is this?

Patrick Young: This is a very interesting deal. It is one huge step, part of the pivot to the East that Russia has been behind, and of course we have seen in recent weeks really come together. Think about it this way — amongst these three countries alone in the customs union they’ve had over the last few years they’ve increased their trade between themselves by the equivalent of the entirety of Russia’s trade with the US. It has multiple possible impacts - some possibilities for every business, small and large, whether you are sitting in Minsk or Almaty, or wherever you are in Russia to profit from the opportunity. Eurasian economic union is a new power-trading bloc. It has many resources, a huge number of people. We are talking about 170 million people - 1.5 percent of the world’s population. They are covering thought 15 percent of the world’s land, 20 percent of the world’s gas resources, 15 percent of the world’s oil resources and a great deal of industry and also agriculture.

RT: Europe is Russia’s biggest trading partner at the moment, should it be worried?

PY: Europe has to start looking at things from the competitive sensible perspective. Europe was not going to be the only union in the world, just as the same as NAFTA in America was never going to be the only trade agreement there. Europe needs to understand the idea that just because you happen to be on the eastern fringes of the European Union, it doesn’t automatically mean that you are going to try to fight your way into the EU as it currently is. Why not go with something like this Eurasian union, where you’ve got effectively all the benefits of the first stage of the European economic community, i.e. free trade, but you don't have to worry about the silly regulation, plutocratic red tape, which plunged the EU community into crisis.

RT: What impact will this have on US economy?

PY: This is a high wake-up call. This is part two or part three for the US over the course of the last few weeks. Obviously the gas pipeline deal – that was the whole pride of Siberia project – was absolutely fascinating. The point about whether America needs to get worried is:

a) America needs to realize that just because it is the world’s largest economic power; it is no longer the uni-power in the world in terms of economics. Russia and the rest of the world have alternatives in how they trade.
b) And the most significant thing - and this is a very long-term trend for the US - is that none of it will be conducted in US dollars. People will find another way to trade. That is a big impact because the US dollar reserve currency status is the thing whereby it is the most dominant money on Earth ultimately is under threat. As soon as US dollars are under threat, the hegemony of the US project is going to find itself in problems. This is a big pivot and the US ignores it at its peril long term.

Putin develops plan for economic union of former Soviet states
http://www.independent.co.uk/news/world ... 62359.html

[panduranghari]

So Russia is not going to play ball with BIS. BIS tried hard to get Russia into Eurozone. All hopes are 'Tout Fini'. We must also look at 400B$ GAS deal between Russia and China in the same light of this. Recent agreement between Russia-China to use local currency bypassing Dollar is perhaps another piece in the jig saw. Will Russia extend this gesture towards India? I hope he will.

What will be fun to watch is, Russia turning off gas supplies to Europe. It will finish off Euro.

Currency was Ended through monetary unions, dissolution or other reforms in 184 countries
Why - Voluntary monetary unions such as the Euro in 1999, or creation of the US dollar in 1792.
Currency was Ended through acts of independence in 94 countries
Why - Acts of former colonial entities renaming or reforming their currency
Currency was Destroyed by hyperinflation in 156 countries
Why - Currency destroyed through over-issuance by the government.
Currency was Destroyed by acts of war in 165 countries
Why - Currency deemed no longer valid through military occupation or liberation.

Every 40 odd years we have a currency reset when a new currency replaces the current one. History has a message for us: No fiat currency has lasted forever. Eventually, they all fail. Either a military coup, break up of a Eurozone country or state failure can cause the Euro to collapse. Absence of energy could very well lead to state failure.

[Neshant]

In the US as in most countries, banking is a highly regulated business. If you are going to open a bank in the US then you MUST FOLLOW US LAWS

There has not been a single banker who has gone to jail for trillions of losses from 2008 onwards.

Banking is by and large a criminal enterprise.