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G20 Whacks the US & ABC News did it!
G20 “Wordsmithing”
I was hoping for some fireworks this weekend at the G20. I thought that
this would be a perfect opportunity to roast our boy, Ben Bernanke. At
this point in history the question, “Is US monetary policy contributing to global political instability?” has been asked and answered. The answer is “yes it is”.
The only question is to what degree. I was expecting that this issue
would be put on the table rather firmly by the economic leaders of the
world. That didn’t really happen. Or did it?
The wording of the final communiqué (they spent most of a night drafting
“acceptable” language) has some words that seem to be directed at Ben/
the USA: (Note: I edit out some the verbose language. Full text here)
We stressed the need to reduce excessive imbalances.
Interesting. This sounds like it is (as usual) directed at the Chinese.
The G20 agreed to come up with specific targets regarding those
“excessive imbalances”.
We agreed on a set of indicators that will allow us to focus on those persistently large imbalances which require policy actions.
Very interesting. What is suggested is that there will be names and
numbers established as to who actually has these “excessive imbalances”.
This information is supposed to be made available at the next G20 in
April. The G20 gives a hint on who will be on that list. The first
category is:
(i) Public debt and fiscal deficits; and private savings rate and private debt.
That category has little to do with China. This is directed squarely at the USA. The second category appears to be pointed at the Chinese:
(ii) and the external imbalance composed of the trade balance and net investment income flows and transfers.
What the grunts at the G20 argued about for 12 hours is which would come
first (i) or (ii). A shot at America, or a shot at China? America came first.
Both (i) and (ii) were mushed together with this:
Taking due consideration of exchange rate, fiscal, monetary and other policies.
To me this suggests that the G20 is equally upset with the US and China.
China’s exchange rate policy now ranks the same as the USA’s fiscal and
monetary policies as disruptive "excessive imbalances". As well it should.
No one really cares about the G20 meeting and their limply worded
communiqué. But it would be a mistake to ignore these signals. Over the
next few months we will see more of this. The leaders of the world will
be pointing their finger at the US for the problems that are exploding.
The “excess imbalances” of fiscal and monetary policy in the USA will
trump the exchange rate abuses of China.
Whether this is right or wrong is irrelevant. It's going to happen.
When it happens, this stink will force a change in US monetary policy.
(the fiscal side can’t be fixed short-term). In my view this means that QE3 is dead on arrival. If Bernanke tries to play this card the world will rise up against him. Obama will have no choice but to agree. If he wants to retain his role as a world leader.
Want some proof of this thinking? Down toward the bottom of the communiqué was this.
5. We discussed concerns about consequences of potential excessive commodity price volatility and asked our deputies to report back to us on the underlying drivers and consider possible actions.
There are many causes of the commodities price explosion that we are witnessing. At this point it is impossible to not include US monetary policies as a contributor.
There will be a report out to that effect before the next G20. That’s
in April. Not so long at all. Interesting to me is that this is exactly
the time frame that Bernanke MUST give us some information on his next policy step. His hands will be tied.
*************************************
ABC Done Hosni In??
I have been blaming Ben B for a fair portion of the problems in the Arab world. He deserves some heat. But so does ABC news.
That Hosni Mubarak and his family looted the till in Egypt is a surprise to no one. The question is, “How bad was that rip off?”
In the early days of the crisis in Cairo information came to light that
the amounts involved could be between 40-70 billion dollars.
I was staggered by this information. It implies that Hosni is
worth more than Bill Gates (57b) and Warren Buffet (45b). This was not
some feathering of the family nest. The suggestion was that this was the
crime of the century. The prior record was Madoff, but that was only
$20b. No wonder the crowds went wild. This comes to nearly $1,000 per person. It is twice the entire external debt of the country.
So where did the estimate of 40-70b come from? ABC News. They did it on 2/2, very early on in the Egyptian crisis:
I have been waiting for some confirmation of this story. There has been none. The ABC News story is not correct.
On Friday the Swiss government released information regarding the
holdings of the Mubarak family holdings in Swiss banks. The report was
oddly worded (typical Swiss obfuscation): (WSJ 2/20/2011)
ZURICH
-- Switzerland has frozen tens of millions of Swiss francs in assets
belonging to members of the former Mubarak regime in Egypt.Bern said late Friday that it had blocked "several dozens of millions of francs" belonging to figures associated with former Egyptian President Hosni Mubarak
Two things on this. (1) When the Swiss say it is “several dozen million” they are talking about an amount that is less than $30mm. (2) While it is likely that additional money will be found in Swiss banks, it is not going to take the total up by a big amount.
The Swiss government has this number to the penny, there will be no
significant surprises. If the Mubarak money in Switzerland is less than
$50mm there is no way the total could add up to $70b.
The most significant clarification comes from non other than ABC News. Their top investigative reporter, Brian Ross had this to say on 2/11:
I can tell you from personal involvement that Ross is an SOB, he also gets his numbers right. The initial reports by ABC on 2/2 were way out of line.
Would it have mattered if at the beginning of the crisis in Egypt that
information on his wealth outside the country were accurately reported? Maybe. I think so.
You hear a lot of criticism about the financial blogs. That there is
information that has not been properly vetted. The funny thing is that
this criticism always comes from the mainstream media. Nothing could be farther from the truth. In the case of Egypt, ABC’s faulty reporting contributed to a change in government.
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Trade imbalances are not sustainable.
They also naturally correct over time with the surplus currency appreciating and the deficit currency depreciating until trade flows balance again.
These natural adjustments are hindered and trade imbalances grow to dangerous proportions if the surplus country wont allow its currency to appreciate.
I'm part of no problem except that of trying to count what is unaccountable as long as its hidden in vaults outside official bank harem circles. As for ABC network reporting and razing red rashes world-wide amongst angst plutocrats its not my line, as I'm not Fox News, nor Rupert Murdoch, lord of right to right and king of write to bite like a pit-bull on a dark night duty, nor his wife (or his poodle, or his yankee doodle).
Your glee at hoping that americans start suffering even more has been obvious from your first postings.
An 8 week kettle calling a 3 week pot black...
One wonders just how 'influential' ABC news is on the streets of Cairo and where ABC news would have gotten their $40-70 billion figure if not from some 'anti' Mubarak Egyptian source. It wasn't as if the Mubarak family fortune was the stuff of legend.
In any event it looks like Bahrain will be the key test of US diplomacy. Our ability to manage events in Egypt was always going to be limited but Bahrain is a US satrapy 100%. After the Sheik took back the streets from the Shia protesters it would appear the US has prevailed upon him to be 'nice' and the protesters are back in Pearl square. We 'own' the outcome now.
Not only that, but one must wonder how much more kindly people with a per capita income of $250/month would react to know Hosni 'only' stole $15B rather than $70B. I am all for calling out the lamestream media but I don't think in this instance the inaccuracy made a great difference to the outcome.
Has anyone freakin' asked them where they got the freakin' number?
Hey, Bruce...
I think Bernanke will resign soon.
Not a chance. The court is still out. I am more concerned about Glasssteagal returned and replacing
the SEC with people who have the ability to put safety
back to the markets. They are over their heads and
do not have a clue of what to do or how to do it.
Hate to break it to ya, it was a valiant try, but your wishes are pure fairy dust.
When I watched Bernanke during his testimony to the House Budget Committee, I thought he looked like a man on the verge of a breakdown. There was the point were he totally screwed up the answer to China's holding of Treasuries (he said it was around 25%, or approx $2 trillion and then squirmed as he realized how dumb his answer was). At one point, I had to turn the volume down to take a phone call and just watching the body language suggested he was an emotional wreck. Here's a man, an academic, that had a belief as to how America could have recovered more quickly from the Great Depression. The bankers liked the guy, because he looked like a avuncular school teacher, what with the beard and all, they knew they could manipulate him and his theories, to give them what they needed. This was no Volker, who'd tell them to go fuck themselves, and would be tough, this was little Ben. All through this crisis, Bernanke has looked for support from "the real world", to give him confidence in his ideas. The problem is, the nearest he's got to the real world is the bankers, who are supportive of whatever makes them money. So, I reckon Bernanke may have recently woken to the fact he's been played, and that actually QE/ ZIRP is not fixing the underlying problems -
government deficits (made this even worse)
trade balances (what's the point, you can't export what you don't make)
employment (Fed policies support big vs small business, thus doing more for employment in China than the US. And why would multinationals hire Americans, they'll just have to pay more interest on their debt)
housing (it was a bubble, the houses are just not worth that much and people cannot afford them. Add to the unemployment and demographic shift, there's no way this turns around for years, maybe decades)
deflation vs inflation (trying to create aggregate inflation to counteract deflation of specific assets leads to nasty price rises in essentials such as food and energy, and a state pro-inflationary policy leads investors to pile into commodities, thus risking margin compression.)
So, what has Bernanke achieved - well, we are half way back to an equity bubble, which has generated fantastic paper profits for those who are invested, leaving the majority confused or angry. And of course, there has been no collapse in Treasuries, but that may still be to come. Bernanke now realizes there is no way to gently unwind his programs, adn whatever disaster he thought he was preventing, he has guaranteed a worse one at a later date.
However, I don't think they will let him resign. Nobody else is going to take the job, so they are going to lock him in his cabin and make him go down with the ship.
whoops double post. sorry folks.
Ben's made some mistakes and he knows it. Knows he's lost the long end, knows he's getting increasingly boxed in with a political climate turning against him.
Probably also realizing his models are frakked about now.
On top of that, he can only hope for a pancake landing in housing at best, but more likely it will be worse.
Nevermind derivatives and the level of complexity surrounding him while he juggles a bowling ball, chain saw, and a goldfish in bowl.
Oh, and on top of that history will probably label him responsibile for this craptastic mess here and abroad.
So yeah, Ben's looking a bit weary these days.
I do give him props for juggling this mess for as along as he has. (That doesn't mean I agree with his decision making BTW).
Oh and we can probably assume things are far worse than they are.
Which is why it might be interesting if ZH had an open thread on ideas, that is REALISTIC ideas on how to fix this, or at least engineer a softer landing.
No offense, but that's a bit like asking for solutions once the ICBM's are already in the air...
The Bernank comes across as someone who has little if any confidence in himself and what he is doing....It is actually painful to watch/listen to him--his tonality, body language etc...He has fudged more than one basic question, (his statement on backwardation in the oil markets a few years back was classic (see http://exploitthemarket.com/blog/backwardation-contango-why-the-confusio... )--his knowledge of how markets work in the real world is limited....
Unless he gets his act together, the upcoming hearings will be brutal for him. They (FED economists) are severely underestimating Ron Paul, he knows more about monetary economics & economic history than most Phds out there (the hearings will be interesting to say the least). Yes, Greenspan was a major bubble blower, and say what you want about him- but he certainly came across differently.....
+1111
That was a heck of an analysis...
You ought to expand it a little and ask Tyler to guest post this...
If the Bernank resigns... then the new guy makes him the fall guy, the scapegoat...
I think the Bernank will stay based on his proven track record as a useful idiot...
If Bernanke resigns it would be a very BAD sign -- for all of the reasons pointed out above. A scapegoat would be needed. The severity of the problem will be directly proportional to the idiocy of the replacement. When the shoeshine boy knows that the Fed Head is a tool then the game is over.
If the Bernank resigns... then the new guy makes him the fall guy, the scapegoat...
I think the Bernank will stay based on his proven track record as a useful idiot...
Too late for that, he's already the fall guy....from the last chairman.
So Ben's "puts" from 2000-2005 were what...flair?!
Just more of the same.
You seem to be (deliberately or otherwise), missing the central point of the article on the (alleged) misuse of the $70B figure Falak and it's relevance in razing expectations (and that's not a spelling mistake)!
You're certainly not offering any solutions, are you part of the problem?
For some reason he enjoys the idea that america will collapse. Do you work here in the USA falak? Where do you work? Do you like living in the USA? Is there some other place you wish to be falak?
Where the fuck do you work because you seem to have 25+ posts on every article at ZH at all times of the day and night?
Doncha know that 6 people tag-teaming the site can do that?
Good Catch :-) It really is important not to let the lamestream (mockingbird infested) news bash the great reporting by bloggers and get away with trying to obscure the fact that they are not only out of touch and perpetually behind the curve but tools tools tools.... Chris Mathews I'm lookin' at you here pal...
Bruce, how do you know that the Swiss government has the number to the penny? Each bank has its own computer system. Those accounts are all likely numbered accounts and they could have been opened years ago at any number of smaller Cantonal and private Swiss banks. Do you think that the Swiss government just sends out a request and all the Swiss banks just instantly know whether it is a Muburak family account? What if Muburak owns a trust in someother country (say Cayman Islands) that has funds under the trust's name in Switzerland, would the Swiss government know this instantaneously? It took UBS 2 years with hundreds of high paid accountants and lawyers to dig up the names 4500 customers who had trusted the bank (who UBS stabbed in the back), do you really think they have identified ever penny in 2 weeks?
On another vein, if Switzerland is a neutral country, shouldn't it be neutral in affairs like this? In WWII, Hitler insisted that the Jews had destroyed Germany and demanded their account information while the allies demanded that all Nazi accounts were frozen. Today, many muslims would insist that all Jew bank accounts were frozen while the US would insist that all Al Queda supporters bank account's were frozen. Shouldn't a "neutral" country stay out of this financial score keeping?
Like you say, each bank has its own computer system. They know who has what money. Keep in mind that it is THE LAWS OF SWITZERLAND that produced this result. The Swiss have very specific rules regarding disclosure of "Potentate" money. This is years old. It came after the very embarrassing episode with Emelda Marcos. She stashed cash in Swiss banks. There was a big stink about it and the Swiss had to pay off the Philippine government.
The banks are obligate to keep tight records on this. The Swiss banks do not break Swiss law. On something like this, if they lied, they would lose their bank license.
No, I don't think any bank should be a shield for illegal activity. There is a big difference between a person's right to secrecy and banking practices that make it easy for pirates, gun runners, drug kingpins and yes, Potentates.
"Illegal"? The world cannot even agree on what the meaning of "terrorism" is. Are you saying that not paying taxes to an lying and theiving unlawful government is "illegal"? In the real world the difference between legall and illegal is completely dependent on who is in charge. What part of "neutral" don't you understand?
Right, just like American banks don't break American laws...
Great insights as always, Bruce. WRT QE3 being DOA...it does appear the box is closing in on Bernanke. However, I don't think we can rule it out when you consider the Obama budget and that nasty, not so little, $1.7T deficit. Pull that liquidity and rates are going up to fund that beast....thoughts?
What great insights did you garner from the post?
What makes you feel that the holdings in Swiss banks is the totality of Mubarak's wealth? He had 18 days, to shove it to all corners of the planet. Also, his sons have their separate wealths since several years. I beg to disagree, knowing the financial clout of arab princes, the Mubarak clan is higher than the 1-5 billion $ stated. Maybe not the 70 billion $, I grant you that.
We shall see. The numbers will come out. If the Swiss side of the equation is less than $50mm the total can't be in the billions. Either way it has NOTHING to do with $70b. That was a very bad headline number. The Swiss numbers are for the entire "clan".
with a grain of salt, but from DEBKA:
"
Hosni Mubarak and his family have moved a large part of their assets – guesstimated at between $20 and $70 billion - from European banks to Saudi Arabia and the United Arab Republics against personal guarantees from King Abdullah and Sheik Al Nahyan to block access to outside parties.This is reported by Gulf and West European sources. Tunisian ex-ruler Zein Al Abdain Ben Ali received the same guarantee when he fled his country and received asylum in the oil kingdom.
A Swiss financial source commented: "If he had any real money in Zurich, it may be gone by now."
According to debkafile's sources, the transfers took place on Feb. 12-13."
http://www.debka.com/article/20666/
Bruce, do you contribute to another blog besides ZH? I always enjoy the content of your posts.
Why can't the total be in the billions? There are approx 60 offshore jurisdictions where Mubarak could have hidden his ill-gotten gains. Your comment further down about Switzerland's apparent 'transparency' after the Marcos episode is surely a red flag for any despot to avoid Switzerland and use more opaque jurisdictions. While the Swiss number may come out, good luck to any investigators trying the navigate blind trusts with flight clauses in other offshore jurisdictions.
US$ 70 billion is still a lot of money to hide, even if you spread it between 60 jurisdictions. And even though the exact location of all this wealth is not transparent to the public, it will be known to someone, as placing so much capital involves a lot of middlemen, which means Mubarak could end up being in hospital in a 'grave condition' just like his Tunisian colleague. Forget about money, where's Mubarak himself?
most of it is just in AAPL stock...
Thanks Bruce always read your posts! Here's what all the "imbalances" come down to and the world is going to have to deal with -
http://www.youtube.com/watch?v=B2jwYmXuJio (Rebel Meets Rebel - Nothin' to Lose)
Not really.
If it was excessive liquidity and the Fed that is driving up global commodity prices then how do you explain the following inconvenient facts:
http://www.indexmundi.com/commodities/?commodity=iron-ore&months=12
Did iron ore prices not get the ZH memo that their prices should rise during QE2 and should drop between QEs? :-)
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...
http://news.nationalgeographic.com/news/2010/08/photogalleries/100810-ru...
http://www.independent.co.uk/news/business/news/russian-wheat-export-ban...
Did global food prices not get the ZH memo that they were supposed to rise after QE2 was announced? :-)
http://online.wsj.com/article/SB1000142405274870468060457611042377734929...
Did these Chinese farmers not get the ZH memo that it was only US banks that are supposed to engage in speculative price increases and hoarding? :-)
If it was excessive liquidity and the Fed that is driving up global commodity prices then how do you explain the following inconvenient facts:
Iron ore commodity prices actually dropped during QE2 and rose when there was no QE going on
Here's an inconvenient fact for you. Iron ore did not react to QE2 because there is no highly liquid, tradeable instrument (i.e. spot or future) OTC or exchange-traded to the underlying. QE2 impacts commodities (oil, gold, wheat, etc.) where there is a large and liquid trading market for the underlying.
Please see my answer here:
http://www.zerohedge.com/article/g20-whacks-us-abc-news-did-it#comment-9...
The iron ore observation is a good one, but I think this observation actually supports the conclusion that QE2 has resulted in forcing money out of Treasuries and into assets perceived as inflation shields. Iron ore does not have liquid tradeable futures like those available for copper, aluminum, ags, precious metals, etc. Also, the storage network for iron ore is not as developed as the networks for the paper-traded commodities. The divergence in behavior of the two is telling.
http://liquidinvestor.blogspot.com/
QE2 forcing money out of bonds is certainly true, and I made that point numerous times. (Check my posting history)
(It was also the intention of the Fed to force liquidity out of bonds - because as we've seen it in Japan, bonds accelerate deflation.)
You do not get an 'inflation shield' by buying commodity derivatives though. You have to roll over every 3 months or so, which, if supply/demand causes contango is an expensive business. You can certainly make a lot of money speculatively but it's not an inflation shield:
Check all the agri and oil ETFs. There's not a single one that was able to track the real value of the underlying commodity for longer than a year. Why? Due to massive rollover costs.
(Pretty much the only ETF that can more or less track the underlying commodity are precious metal ETFs. Why? Because the underlying commodity can be bought and it can be stored relatively cheaply and the cost of storage of the inventory can be put into the spread and into other financing costs.)
You may get a shield against resource supply squeezes and avoid the rollover costs only by buying the commodity physically and storing it.
Which was my point all along in this discussion.
The more of your post I review, the more convinced I become that you are a Govtroll. Dissent is great here and I believe appreciated. Lockstep moron troll speak though is so fucking cheap as to have no value. It's like dirt or shit. Enough already.
Can you say QE1? Can you further say that the inflation from QE2 is yet to come?
Your assertions that liquidity is guilt-free are no more convincing than people who claim it is the sole source of inflation with abundant evidence of supply shocks around.
Two components of a compound problem of which one exacerbates the other.
Riddle us this, MCT: why all the margin hikes on the commodity exchanges?
Riddle me: why did none of those margin hikes (as reported on ZH in detail) have any negative effects on the price of gold and silver, if it's financial speculation (and excess liquidity) that is driving up prices?
The reason is simple: cornering commodities markets needs access to supply or demand channels (preferably supply channels) and needs physical buffering. Hiking the margins has no effect on those who have buffered up physical supplies - it only affects those with paper gold - but paper gold is created in pairs, one buy side sucker for every sell side sucker - so it's a zero sum game by the time the futures contract expires.
Also, arguably precious metals are easier to manipulate because there's such huge stocks of unused commodities lingering. Oil and food gets consumed within a few months of it being produced. Gold can stay around forever and there's literally years and years of gold production buffered in vaults.
So food (and oil) gets exposed to supply and demand forces in a much more direct way.
Why doesn't a lemonade fire-brigade help in a forest fire?
So riddle me, why did you bring up the 'margin hikes' argument in the first place, if, when confronted with its (non-)effects on prices, you now declare that they are to be ignored as they are only 'lemonade fire-brigades'? :-)