Bank of England

• IMF Demands Partial Default for Cyprus (Spiegel)
• Boehner's 'Plan B' Gets Pushback (WSJ)
• Beijing criticises US ‘political checks’ (FT)
• White House Said to Tell Business Groups Talks Stall (BBG)
• NYSE tries to get hitched again: IntercontinentalExchange in talks to buy NYSE (Reuters) -> N-Ice coming?
• Greece faces ‘make or break’ year (FT)
• Fed rejects idea of consensus forecasts, "maybe forever": Fisher (Reuters)
• Rajoy Drives Spanish Revolution With Low-Cost Manufacture (BBG)
• Italian Senate Set for Budget Vote Before Monti Resigns (BBG)
• BOJ Loosens With Pledge to Review Inflation Objectives (BBG)
• Bowing To Abe, BOJ To Review Price Goal (WSJ)

• Republicans put squeeze on Obama in "fiscal cliff" talks (Reuters)
• Inquiry harshly criticizes State Department over Benghazi attack (Reuters)
• Banks See Biggest Returns Since ’03 as Employees Suffer (BBG)
• Italy president urges election be held on time (Reuters)
• Bank of England Says Sterling Hurting Economy (WSJ) - there's an app for that, it's called a Goldman BOE chairman
• China slowdown hits Indonesian farmers (FT)
• China dispute hits Japanese exports (FT)
• Market to get even more monopolized by the HFT king: Getco wins Knight with $2 bln sweetened offer (Reuters)
• MF Global Cases Focus on 'Letters' (WSJ)
• UBS fined $1.5 billion in growing Libor scandal (Reuters)
• Spotlight swings to interdealer brokers (FT)
• China Widens Access to Capital Markets (WSJ)
• With Instagram, Facebook Spars With Twitter (WSJ)

Credit expansion, wrote the great Austrian economist Ludwig von Mises, is not a nostrum to make people happy. "The boom it engenders must inevitably lead to a debacle and unhappiness." That seems a pretty accurate summary of the current situation for the western economies: a debacle, and unhappiness. Von Mises also wrote that "The final outcome of the credit expansion is general impoverishment." And, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse." It seems to us that we may be fast approaching the tail end of a 40-year experiment in money. The conventional financial media continue to keep central bankers on their pedestal; such thinking is astounding for the rest of us who know the Emperor's new clothes when we see them.

In March 2012, Okayama Metal & Machinery became the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Okayama manages pension funds for about 260 small and mid-sized companies in the Okayama area. "By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible." Of its 40 billion yen ($477 million) in assets, the fund has invested around ¥500 million-¥600 million in gold, he said. Initially, the fund aims to keep about 1.5% of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”. Other pension funds in Japan are following their lead according to the Wall Street Journal. Japanese pension funds are diversifying into gold "largely to mitigate the damage from possible market shocks"... Mitsubishi UFJ Trust and Banking Corporation said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.

• Obama Concessions Signal Potential Bipartisan Budget Deal (BBG)
• Cerberus to sell gunmaker after massacre (CNN)
• With New Offers, Fiscal-Cliff Talks Narrow (WSJ)
• Judge rejects Apple injunction bid vs. Samsung (Reuters)
• U.S. policy gridlock holding back economy? Maybe not (Reuters)
• President fears for Italy’s credibility (FT)
• Struggles Mount for Greeks as Economy Faces Winter (WSJ)
• Abe leans on BoJ in post-election meeting (FT)
• Bank of Japan to mull 2 percent inflation target as Abe turns up heat (Reuters)
• EU exit is ‘imaginable’, says Cameron (FT)
• Mortgage Risk Under Fire in Nordics as Bubbles Fought (BBG)
• Sweden cuts interest rates to 1% (FT)
• External risks impede China recovery, more easing seen (Reuters)

Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the "return of inflation" to 'Brixit' and from the "BoJ buying Euro-are bonds" to a "US housing recovery stall out" - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.

“The Government Has Bought Into the Notion that Too Big to Fail Is Too Big to Jail”

Queen Elizabeth II and Prince Phillip visited the Bank of England’s gold vault and wonders like most people how the things got so bad.   Back in 2008, when the monarch visited the London School of Economics she described the credit crunch as ‘awful.’ .  Fast forward to 2012, the heart of Europe’s  4 year-old debt crisis while the Queen of England hears a financial expert compare the debt crisis to a flu epidemic or an earthquake, as hard to predict. This comparison is truly patronizing and an insult to the Queen’s intelligence. Although I am not English have some respect for your elders, especially your Queen, Britons!  Pensioners in England can recall hard times during the World War when items like sugar were a luxury.  In this new era of credit you have people complaining if they can’t borrow to have their new BMW financed to match their Cotswold’s country house or Spanish holiday home. The Queen was informed that since financial risk has been managed better (need we mention Libor?) than it was in the past, people became complacent.  She smiled and said, ‘But people had got a bit...lax, had they?’  Her Royal Highness also suggested that the Financial Services Authority may not have been hard-line enough in its policing. She said: ‘The Financial Services – what do they call themselves, the regulators – Authority, which was really quite new … it didn’t have any teeth.’ It’s rather ironic that the tour showed the gold vault since a good portion of the UK gold reserves were sold off from 1999-2002, when gold prices were at their lowest in 20 years. 

Global Central Banks agree to another year of access to FRBNY FX Swap Lines

The drainage of AAA quality collateral contonues as S&P cuts it outlook on the United Kingdom to negative...

• *BANK OF ENGLAND OUTLOOK TO NEGATIVE FROM STABLE: S&P
• *UNITED KINGDOM OUTLOOK TO NEGATIVE FROM STABLE BY S&P

more as we get it...

• Bernanke Wields New Tools to Reduce Unemployment Rate (BBG)
• Home Seizures Rise as Banks Adjust to Foreclosure Flow (BBG)
• EU Backs Release Of Greek Aid (WSJ)
• Democrats Confident They Have 'Cliff' Leverage (WSJ)
• Americans Back Obama Tax-Rate Increase Tied to Entitlement Cuts (BBG)
• Goldman flexes tentacles: Treasury open to Carney radicalism (FT)
• Launch Fuels Asia Security Concerns (WSJ)
• BOJ’s Unlimited Loan Program Seen Open to Use by Hedge Funds (BBG) - there are Japanese hedge funds?
• Abe Set to Face Manufacturing Gloom as Japan Contracts (BBG)
• US and UN condemn N Korea rocket launch (Guardian)
• Eurozone agrees common bank supervisor (FT)
• Berlusconi Adds to Italy Turmoil by Signaling He’d Step Aside (BBG)

Regardless of the reasons, Ben’s got a major problem on his hands. That problem is the fact that Treasuries are on the verge of breaking their upward sloping trendline. If Treasuries begin to collapse at a time when the Fed is buying up over 70% of debt issuance, then the Great Treasury Bubble is finally about the burst:

When two weeks ago Mark Carney was appointed head of the Bank of England (despite his firm denials of any interest in the position) many were surprised. Not us: we were certain the former Goldmanite, and incidentally current head of the Bank of Canada, would lead the world's oldest central bank. We were even more convinced Carney would become BOE head after on November 8 the Bank of England halted QE as its "potency was questioned." Needless to say to the banker sponsors of the MIT monetary genius diaspora (as profiled previously), there is nothing more terrifying than the prospect of an end of electronic money conceived literally out of thin air, and debiting it into perfectly willing excess reserve accounts at any/all banks. So what is a statist financial system caught in the final days of its existence and desperate to extend its life as long as possible to do? Why, appoint the one person who would turn this "disastrous" conclusion on its head, and promptly proceed with doing exactly the opposite: printing like a drunken Hewlett Packard laserjet.

Ever get the feeling that the entire global economy is one big experiment conducted by several former Keynesian economists from MIT with a bent for central planning, who sit down in conspiratorial dark rooms in tiny Swiss cities and bet it all on green until they double down so much nobody even pays attention to the game? No? You should. Jon Hilsenrath, of all people, explains why.

• Here come the low margin products: Apple Tests Designs for TV (WSJ)
• Obama and Republicans Trade Offers to Avert Fiscal Crisis (BBG)
• Carney broaches dumping inflation target (FT)
• Bernanke Critics Can’t Fight Bonds Showing No Inflation (BBG)
• Corporate Taxes on Table in Cliff Talks (WSJ)
• US business chiefs back tax rise (FT)
• Greece Confident Bond Buyback Needed for Aid Succeeded (BBG)
• New Faith in Europe's Banks (WSJ)
• European Bank Sees Little Room for Rate Cuts (WSJ)
• North Korea Claims Success in Rocket Launch (WSJ)