European Central Bank

• Greek Aid Payment Call Won’t Be Made Next Week, EU Official (Bloomberg)
• Eurozone faces brinkmanship on Greece (FT)
• Pressure Rises on Fiscal Crisis (WSJ)
• The JC Penney massacre continues (BBG) - In other news, any minute now Bill Ackman will get that 15x return...
• SEC left computers vulnerable to cyber attacks (Reuters) cue "back door Trojan" jokes
• Former Goldman trader accused of fraud (FT)
• Elizabeth Warren's Inadvertent Best Friends: Wall Street and Republicans (BusinessWeek)
• Zurbruegg Says Managing SNB Currency Reserves Is Major Challenge (BBG)
• Obama ally leads push on fiscal cliff (FT)
• Britain threatens to block banking union (FT)
• PBOC’s Zhou Says China’s Economy Improving as Data Due (Bloomberg)
• China slaps duties on steel tube imports (FT)
• Obama to Make Statement on Economic Growth, Cutting Deficit (Bloomberg)

Today’s AM fix was USD 1,715.00, EUR 1,347.42, and 1,075.84 GBP per ounce. 
Yesterday’s AM fix was USD 1,730.50, EUR 1,345.86, and GBP 1,080.75 per ounce.

Silver is trading at $31.85/oz, €25.10/oz and £20.00/oz. Platinum is trading at $1,546.75/oz, palladium at $607.30/oz and rhodium at $1,100/oz.

Gold rose $2.10 or 0.12% in New York yesterday and closed at $1,718.30. Silver hit a low of $31.209 then recovered in late trade but still finished with a loss of 0.56%.

• Obama and Romney Deadlocked, Polls Show (WSJ)
• NYC Commuter Week Faces Uncharted Ground as Storm Brews (Bloomberg)
• New York region struggles to move on a week after Sandy (Reuters)
• Europe's Bank Reviews Collateral (WSJ)
• Less circuses to pay for the bread? Time Warner Cable misses on falling demand (Reuters)
• Spanish unemployment total jumps by 128,242 as recession continues to take its toll on economy (Independent)
• Goldman Sachs Partner List Drops 31 Since February, Filing Shows (Bloomberg)
• China's mission impossible - a date for Hu's military handover (Reuters)
• German-Iranian trade booming (Jerusalem Post)
• Russia supplying arms to Syria under old contracts: Lavrov (Reuters)
• Russia endorses Egyptian-led regional group on Syria (Reuters)
• Election Winner Must Win Over Wall Street (Bloomberg)
• On Google, a Political Mystery That's All Numbers (WSJ)
• Richard Koo: explain to Americans why $22 trillion in debt in 4 years is good for them.. or something (FT)

China Quietly Becoming Gold Superpower

To us, the ECB's superficial, amusing take on BitCoin was merely a source of (Friday) humor.  To others, such as Tuur Demeester, the ECB's report on "Virtual Currency Schemes" which was merely a confused attempt to validate the Euro by bashing a prototype electronic currency that others have written far more informed articles on, has far more profound insights into central banker mentality. We are skeptical: the ECB has far more existential issues to worry about than whether people will be paying for that house in Calabria with BitCoin (they won't; at least not any time soon), such as how fast until Spain and Greece run out of rehypothecatable and repoable assets, that allow the ECB to continue creating its own version of electronic money (in this case named Euro) out of thin air. But for those seeking more than what meets the central-planner's eye (because what better ploy than to divert attention from where it truly needs to be focused: such as Spanish bonds for example getting a 0% haircut instead of 5%), here are some answers to the question whether "the CB’s toolbox have what it takes to contain a private, decentralised cryptocurrency? Or: Bitcoin seen through the eyes of a central banker."

Mario Draghi has reassured the world that no matter how much 'crap' collateral is taken on to the ECB's balance sheet, their risk management process is rigorous and ensures the safety of the entity's capital thanks to well-devised haircuts and collateral. Once again, it appears from a report in Die Welt (via Bloomberg), Draghi lied, as the ECB is now checking terms on some lending to Spanish banks that may have already contravened the ECB's mandate allowing overly generous terms to be offered on the Spanish banks' collateral. As Bloomberg notes, the issue surrounds EUR80bn relatively short-dated T-Bills which were wrongly classified as rated 'A' instead of the 'B' that agencies - except DBRS! - had assigned (a vast difference) - which would imply (if the ECB re-assigns the correct rating) the affected Spanish banks would have to produce up to EUR16.6bn in additional collateral (cash or quality collateral that is non-existent in Europe). This of course "casts doubt on the quality of the ECB's risk management" and merely serves to confirm the Juncker-ian lies we have come to expect from Europe's leaders (economic and political). As Die Welt notes: "Critical observers ask: who actually controls the ECB?"

So with world central banks printing paper money day and night it is no surprise that Gold is now emerging as the ultimate currency: one that cannot be printed. Indeed, Gold has broken out against ALL major world currencies in the last ten years. The below chart prices Gold in Dollars (Gold), Euros (Blue), Japanese Yen (Red) and Swiss Francs (Purple):

Since the 2008 financial crisis the foundations of the global economy have been in repair, translating into a prolonged period of economic frailty. Against this backdrop, social and political tensions have increased between citizens and government, international institutions and governments, and individual nation states. The European debt crisis remains the largest challenge facing the global economy. A negative resolution emanating from the world’s largest economic bloc would cause harmful ripple effects worldwide in global trade flows. More importantly, it could also mark a paradigm shift in international relations, dealing a critical blow to what has been a relentless trend towards liberalism since the end of World War II, while providing fecund ground for a resurgence in realist ideology. Interestingly though, constructivism may be at the forefront in explaining the current dilemma between the European core and its periphery. It would also be wise to ponder the idea of whether a supranational government could exist. Proceeding down a path with a likely dead end would consume precious resources and lead to widespread suffering among every day citizens.

The euro debt crisis in Europe has presented Germany with a unique opportunity to lead the world away from monetary destruction and its consequences of economic chaos, social unrest, and unfathomable human suffering. The cause of the euro debt crisis is the misconstruction of the euro that allows all members of the European Monetary Union (EMU), currently 17 sovereign nations, to print euros and force them on all other members. Germany is on the verge of seeing its capital base plundered from the inevitable dynamics of this tragedy of the commons. It should leave the EMU, reinstate the deutsche mark (DM), and anchor it to gold.

In a somewhat mind-blowing 'gotcha' this evening (that we saw coming from the moment the words left his lips), the Greek finance minister has been forced to admit he's a lying cheat drop claims that he had secured a two-year extension for debt repayments and an agreement with creditors over EUR13.5bn in proposed austerity measures - because HE HADN'T! As The Guardian reports, Stournaras played to stereotype perfectly (the Greeks only got in the euro thanks to off-market currency swaps to reduce debt optics off-balance sheet) by lying once again (if you lie big enough it has to stock, right?). The U-turn - which he was forced to make after Germany denied the deal (yes Zee Germans again the only ones that anyone should be listening to) - caused chaotic scenes in parliament. As we have vociferously described, and Mr. Panos confirmed, the leverage is all with the Greeks (as much as the world does not want to admit it) as one Greek official said (frighteningly honestly!):

"Even if the troika give us a negative report, what are they going to do? Are they really going to not give us the installment [to keep Greece's economy afloat] two weeks before the US elections, with everything that entails – default, bankruptcy, global market turmoil? These labour reforms will turn our country into Bangladesh. They have no fiscal benefit and will actually derail the adjustment program. The political system will collapse if we impose them. The troika is demanding that we commit suicide!"

I realize that the situation in Europe can be very confusing. Aside from the fact that we’re dealing with over 20 different countries all with their own respective economies and debt issues, we also have the European Central Bank and the numerous bailouts and bailout funds (the LTRO 1 and 2, the EFSF, the ESM and now the OMT) to keep track of.

For all those wondering why next time Mario Draghi will need to pull a "Merkel Lampoons Greek Vacation" next time he comes to Berlin, and is accompanied by 7,000 policemen, here is the Goldmanite's full speech, with the five key lies highlighted for general consumption.

We’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.

Usually the Troika is held responsible for all things evil in Europe, but as Die Welt notes, the latest demand that all senior officials at the Ministry of Finance (including all current Greek tax inspectors) be fired by Friday (over corruption and incompetence concerns) has been greeted more positively by many. "The Troika is the only hope to purge this country of the gangs that plunder it - the ONLY hope!" is how one Skai TV commentator summed up the move, adding that "it would be nice if we could read one day that all presiding judges are dismissed." The plan to "collect record amounts of money in record time" involves the interviewing of 2235 new tax investigators (with no written exam!) who will be judged on how much money they bring in (with minimum quotas) and maximum tenure of one year before re-applying. The new plan is likened to 'medieval tax collectors' and the tax-collectors union, unsurprisingly upset at this new plan, added that the Troika never had to face "a destitute pensioner who cannot pay his tax bill." With rumors of government resignation and re-election, the external pressure and internal strife are coming to a head rapidly.

By now everyone knows, even the mainstream media, that in Europe if one is a member of the oligarchy, "when it becomes serious, you have to lie" as the unelected viceroy of neofeudal Europe Jean-Claude Juncker said once upon a time, back when Greece and Spain were still "fine." Everyone also knows that judging by politican commentary and statement, in Europe it has been very serious for the past 3 years, as the lies have not ended. In fact, the more insolvent a country, the more serious it got, and the more gruesome and unbelievable the lies emanating thereof were. The one place where lying was at least somewhat contained was Europe's paymaster, Germany, which now is actively vying to not only not cede banking supervision to the ECB, but is seeking to displace the central bank in the budget and FX central planning category with a push to be elected budget commissioner and FX tsar. Eventually it will get its wish, but more when we cross to that bridge. Which is why it is surprising that today, German financial magazine Spiegel calls out none other than German FinMin Wolfi Schauble for doing precisely what Juncker was caught doing 2 years ago. Lying.