International Monetary Fund
"My country can cry all it likes about yesterday’s referendum vote in eastern Ukraine, but we set the process in motion by sponsoring the overthrow of an elected Kiev government that was tilting toward Russia and away from NATO overtures. The president elected in 2010, Viktor Yanukovych, might have been a grifter and a scoundrel, but so was his opponent, the billionaire gas oligarch Yulia Tymoshenko. The main lesson that US authorities have consistently failed to learn in more than a decade of central Asian misadventures: when you set events in motion in distant lands, events, not policy planners at the State Department, end up in the driver’s seat."
Despite popular belief, very few things in our world are exactly what they seem. That which is painted as righteous is often evil. That which is painted as kind is often malicious. That which is painted as simple is often complex. That which is painted as complex often ends up being disturbingly two dimensional. Regardless, if a person is willing to look only at the immediate surface of a thing, he will never understand the content of the thing. This fact is nowhere more evident than in the growing “tensions” between the elites of the West and the elites of the East over the crisis in Ukraine. The centralization of power is best achieved during moments of bewildering calamity. The conjuring of crises is one of the oldest methods of elitist dominance. Not only can they confuse and frighten the masses into malleability, but they can also ride to the public’s rescue as heroes and saviors later on. The Hegelian dialectic is the mainstay of tyrants.
A month ago, it was alleged, that Ukraine - under cover of night - loaded its gold reserves onto a plane and shipped them off (for safekeeping) in the US, as the potential price of 'liberation'. So how ironic that, given the massive gas debts that Ukraine owes to Russia (and prepayments pending), and sizable bond maturities pending, the first thing that Ukraine's National Bank governor will be buying with his freshly minted loan from the IMF is... buy a billion dollars of gold.
While there may be some confusion about why massive bond buying greeted yesterday's "better than expected" loss of 209 jobs in the 25-54 age group, dragging stocks down, the answer is actually very simple: there is a war in the Ukraine.
When one thinks of Switzerland, banking comes to mind easily but gold doesn’t as much. But, "it is said that the Swiss only love money... this is not true. They also love gold." A full two-thirds of the world’s gold goes through Switzerland and, in an average year, it refines grossly 70% of the world’s gold. Six of the gold refiners on the LBMA Good Delivery list make for 90% of global volume, and four of those are in Switzerland. Up until 1992, the Swiss franc’s 40% backing by gold was written in the country’s Constitution. When Switzerland became a member of the IMF it had to abandon this backing by gold. Today, Swiss citizens have asked for a referendum to be called in order to get back to that backing. As Gilles Labarthe wrote, "Switzerland is for gold what Bordeaux is to wine."
Oil prices have increased recently as tension in Ukraine has escalated and raised concerns about the risks of disruption in Russian energy exports. There is a risk that the security situation in the east Ukraine will worsen even further ahead of the 25 May elections. As Nordea notes, Russia is as important an oil exporter to Europe (of both crude and refined products) as it is a gas exporter, and the consequences of a cut in Russian oil supplies could be as grave since the global oil market has little back-up capacity to lean on. As a result, a halt in the oil deliveries from Russia to Europe will spark a sharp spike in oil prices (potentially to $150/bbl) and in a worst case scenario an oil crisis and European recession (and major slowdown in global growth) and US shale oil or an SPR release will prevent the spike.
Challenging a Sacred Cow of Banking Dogma
China May Actually Have Surpassed U.S. in 2010 or 2011
Bad Government and Central Bank Policy Are the MAIN CAUSE of Runaway Inequality
It seems every bubble is coming back. 5 Years after Zimbabwe abandoned the Zim Dollar (in favor of the US Dollar) after inflation surged to 500 billion percent the year before (according to the IMF), Bloomberg reports that Robert Mugabe's ruling party is considering reintroducing the local currency as it struggles to meet its monthly wage bill. "If they bring back the [Zim] dollar it will quickly deteriorate to worse than then, we’ll have nothing," warns one businessman as the appeal of reviving the Zimbabwe Dollar - allowing the government to print money to meet its needs - is surely outweighed by the lessons of the past. "We'll just die - we can't go back to 2008," but it seems governments never learn and memories are short. Get long wheel-barrows.
It seems Russia won't have to wait too long for the billions that Ukraine owes it for energy supplies past, present, and future pre-billings. Bloomberg reports that:
*IMF STAFF SAID TO BACK $17B UKRAINE LOAN
*IMF STAFF SAID TO SEEK APRIL 30 BOARD MEETING ON UKRAINE LOAN
The always-accurate staff at the IMF project a mere 5% contraction in Ukraine's economy (so that means more like 15%).
Too much testosterone in the room? Heard that all before. It’s the adolescent-like traders that were battling with levels of testosterone and cortisol, pounding on their chests like Tarzan swinging through the trees in the jungle of the financial markets that brought the world down too.
The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the IMF and the World Bank (which are dominated by the U.S. and the EU), according to RBTH. As WSJ reports, the U.S. would lose its veto power on the International Monetary Fund's executive board under a plan being considered by some emerging economies. The countries are fed up with the United States' failure to ratify a four-year-old deal to restructure the emergency lender. Yet more loss of credibility on the global stage and, as Brazil's FinMin Mantega sums up, "the IMF cannot remain paralyzed and postpone its commitments to reform."
We realize the future for blogging was bright, but this bright? Moments ago, Bloomberg View, Bloomberg's in house blogging operation, announced that El-Erian had joined it as a columnist. And just like that Mohamed has his own unedited venue in which to spill all the dirt on his former employer.
With Ukraine no longer paying for Russian gaz, and with Gazprom making it clear Kiev has to a) first pay the overdue $2+ billion in invoice and then b) prepay some $5 billion in gas until the end of the year of Europe gets it, it was only a matter of time before the US Treasury stepped in and paid off part or all of Gazprom's demands. That time is now, when moments ago Jack Lew announced a $1 billion loan guarantee for Ukraine - very much the same way that the US provided billions in loan guarnatees for the now long overthrown Mursi regime in Egypt. And in other news, many more "costly" and "damaging" US sanctions are surely headed Russia's way any second now.