International Monetary Fund
The most likely path of collapse to take place within the U.S. includes economic destabilization caused by a loss of the dollar's world reserve status and petro-status. This fiscal crisis event will likely not occur in the midst of a political vacuum. The central banks and international financiers that created our ongoing and developing disaster are not going to allow the destruction of the American economy, the dollar, or global markets without a cover event designed to hide their culpability. They need something big. Something so big that the average citizen is overwhelmed with fear and confusion. A smoke and mirrors magic trick so raw and soul shattering it leaves the very population of the Earth mesmerized and helpless to understand the root of the nightmare before them. The elites need a fabricated Apocalypse. Enter Syria...
It’s a big mistake. Maybe some might say that the Fed altogether is a mistake itself. But, it’s made some big, ugly mistakes that don’t bare thinking about and yet there’s no understanding why they took those decisions.
- UN Insecptors to leave Syria early, by Saturday morning (Reuters)
- Yellen Plays Down Chances of Getting Fed Job (WSJ)
- JPMorgan Bribe Probe Said to Expand in Asia as Spreadsheet Is Found (BBG)
- No Section 8 for you: Wall Street’s Rental Bet Brings Quandary Housing Poor (BBG)
- Euro zone, IMF to press Greece for foreign agency to sell assets (Reuters)
- Brothels in Nevada Suffer as Web Disrupts Oldest Trade (BBG)
- U.S., U.K. Face Delays in Push to Strike Syria (WSJ); U.S., U.K. Pressure for Action on Syria Hits UN Hurdle (BBG)
- Renault Operating Chief Carlos Tavares Steps Down (WSJ)
- Vodafone in talks with Verizon to sell out of U.S. venture (Reuters)
- Dollar Seen Casting Off Euro Shackles as Fed Tapers (BBG)
The current external environment and consequence of past policies are limiting options for EM nations (most specifically Indonesia and India). Citi believes the best they can do now is to smooth the (inevitable) macro adjustment (weaker FX, higher risk premiums, slower growth) through improved policy credibility (to curb volatility and overshooting) and find offsets to portfolio flows to ease the pressure. The 4 choices of various rocks and hard places do not hold much hope for anything but further FX devaluation. As Citi's Matt King points out, what goes up (in terms of Emerging Market central bank FX reserves) risks coming back down with a thud... and in case you were wondering why India, Turkey, and Indonesia were the most-hammered...
Financial Times: "World Is Doomed To An Endless Cycle Of Bubble, Financial Crisis And Currency Collapse"Submitted by Tyler Durden on 08/28/2013 09:37 -0500
It's funny: nearly five years ago, when we first started, and said that the world is doomed to an endless cycle of bubble, financial crisis and currency collapse as long as the Fed is around, most people laughed: after all they had very serious reputations aligned with a broken and terminally disintegrating economic lie. With time some came to agree with our viewpoint, but most of the very serious people continued to laugh. Fast forward to last night when we read, in that very bastion of very serious opinions, the Financial Times, the following sentence: "The world is doomed to an endless cycle of bubble, financial crisis and currency collapse." By the way, the last phrase can be written in a simpler way: hyperinflation. But that's not all: when the FT sounds like the ZH, perhaps it is time to turn off the lights. To wit: "A stable international financial system has eluded the world since the end of the gold standard." Q.E.D.
The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm. As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009. As in the mid-2000’s, there is plenty of blame to go around this time as well. The Fed is hardly alone in embracing unconventional monetary easing. Moreover, the collapsing 'developing economies' all have one thing in common: large current-account deficits. A large current-account deficit is a classic symptom of a pre-crisis economy living beyond its means – in effect, investing more than it is saving. The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad. That is where QE came into play...
Overnight the emerging market rout continued, with the India Sensex down another 3.18%, the Philippines tumbling 4%, Jakarta down 3.7% and Dubai crashing 7%. A driving factor continues to be the fear over an imminent air campaign launched at Syria, leading both WTI and Brent higher by 1%, and gold finally breaking out above the $1400 tractor beam, and printing at $1412 at last check, a hair away from a 20% bull market from the lows. In other news, the market is once again "surprised" to learn that Summers, who as we have been showing for over three weeks is the frontrunner for the Fed chair, is the frontrunner for the Fed chair according to CNBC. Of course, there is nothing preventing this from being the latest trial balloon (and nothing that suggest Summers will actually be hawkish as conventional wisdom seems to think: the guy basically works for the financial sector) but futures aren't waiting to find out, and US traders are walking in this morning to a red screen with ES down just over 10 point and sliding. Any minute now the great unrotation from stocks into bonds (10 Year was 2.77% at last check) is about to be unleashed. And if Obama actually goes to war (without talking to Congress of course), watch the bottom fall from the market.
"The latest numbers that we have received, in particular from Germany, are encouraging, whether it's manufacturing, whether it's service activity, whether it's exports. That is heading in the right direction, but it needs to be sustained over time. And I'm crossing fingers for the eurozone..."
Schaeuble and Merkel have very recently confirmed what was leaked a month ago - that Greece will likely get yet another 'helping hand' aid program. Some have noted that this may be financed using EU funds instead of additional loans from EU-area countries (or the IMF) yet Merkel's comments (perhaps playing to her electioneering needs) appeared to dismiss this - prompting talk of a 'bail-in' based on the new normal 'template' applied to Cyprus. Greece has so far received two bailout packages totaling EUR240 billion (with about EUR22 billion still to be released) which is 130% of Greece's GDP (which stands at EUR186.2 billion) and while the thord package appears smaller (for now) at EUR10.9 billion (based on IMF funding gap forecasts), this covers only the period through 2015 (and we know how accurate the IMF has been in the past with its hockey-sticks). Greece remains mired in the sixth year of a recession with more than 6 out of 10 young people unemployed.
Even after seven years of writing macroeconomic analysis and bearing witness to astonishing displays of financial and political stupidity by more “skeptics” than we can count, it never ceases to amaze us the amount of blind faith average Americans place in the strength of the U.S. dollar. One could explain in vast categorical detail the history of fiat currencies, the inevitable destruction caused by inflationary printing and the conundrum caused when any country decides to monetize its own debt just to stay afloat - often, to no avail. The dollar is no more invincible than any other fiat currency in history. In some ways, it is actually far weaker than any that came before. The dollar is entirely reliant on its own world reserve status in order to hold its value on the global market.
The truth behind the saying "never let a crisis go to waste" transcends both time and space, and it most certainly has no problem crossing the border into India, which over the past weeks has found itself in full monetary crisis, and whose currency is plunging to fresh record lows on a daily basis forcing its central bank to scramble with both tightening and QE at the same time. And if the influential Hindu Business Line, is correct, India's crisis is about to become someone's opportunity. Potentially for that someone which over the past two months has found themselves in a huge physical gold shortage as the now constantly negative GOFO rates confirm. Because according to Royal Bank of India sources cited by the HBL, India is now considering leasing out the 200 tonnes of gold it bought from the International Monetary Fund in 2009.
India has no proposal to lease gold bought from the IMF according to India’s Economic Affairs Secretary, Arvind Mayaram. His comments came in a text message.
The influential in India, Hindu Business Line newspaper, had reported earlier that the government will consider leasing out 200 tons of gold bought from IMF in 2009, citing finance ministry officials it didn’t identify.
With strains in the LBMA gold market, further pressure may be being applied to India to now help with supply after their recent draconian attempted measures to restrict demand.
If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others. The number that we are talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system. When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up. When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in.
While Abe and Kuroda-san would be jubilant, the powers that be in India are none too happy at the 44% devaluation in their currency in the last 2 years (and 17% collapse in the last 3 months) as capital floods out of the once potential growth-engine of the world economy. Accelerating in the last few days amid capital controls and gold importation bans, Taper-based carry unwinds appear to have exaggerated initial flows and driven the USD to over 63 Rupee (and all-time record low). India's Sensex stock market is down 11% in the last 3 weeks to 11 month-lows (as fast money exits in a hurry) and the beleaguered bond market has imploded from a 7.1% yield in May for the 10Y to 9.25% now (its highest since 2001). Food prices rose at 9.5% YoY (vegetable +47% YoY) and fuel at 11.3% YoY sparking grave concerns across the nation of social unrest and bringing back memories of the 1990s - when the government was forced to ask the IMF for a loan to rebuild foreign reserves. Current efforts at stemming the tide have done little to stall the liquidity withdrawal and look to squeeze growth to a lowly 4.8% YoY.
For the past five years Greece, stuck in its worst depression in history with two-thirds of work eligible youths unemployed, has been actively blaming all of its problems on "(f)auxterity" even as we said all along that the Greek problems have nothing to do with how much money its government spends and everything to do with corrupt, complicit and frequently criminal politicians. Today we got the latest confirmation that we were correct after the Greek finance minister Stournaras asked for the resignation of the Greek privatisation agency chief, Stavridis, following a newspaper report that he traveled on the private plane of a businessman who just bought a state company with Stavridis' blessings.