On May 10, 2000 a GATA delegation consisting of Reg Howe, Frank Veneroso, Chris Powell and Bill Murphy met with Denny Hastert, The Speaker of the House in the United States Congress; Spencer Bachus, the Chairman of the House Subcommittee on Domestic and International Monetary Policy; and Dr. John Silvia, the Chief Economist of the Senate Banking Committee. We presented each of them our 100 page "Gold Derivative Banking Crisis" document and personally delivered it to the staff of every House and Senate Banking Committee member.
Shinzo Abe's re-election on the basis of his monetary policy aggression plans have sent the JPY reeling (as he hoped for) and the NKY soaring - but it is his more aggressive perspective on patriotism that could lead to far greater problems. As the Chinese Academy of Social Sciences recently noted,all eyes are fixed on Abe as "Japan’s nationalization of the Diaoyu Islands destroyed the framework for keeping a balance, which means ‘shelving a conflict'," a Chinese diplomatic source said, adding that "China has no political methods to return the situation to the (pre-nationalization) state. Therefore, there are no other ways except for looking for a new framework." As a precondition for establishing the framework, an executive of the think tank said, "Prime Minister Shinzo Abe should not take actions that heighten the tensions further. It is the same as a game of go. If Japan escalates the conflict, China will be prepared to respond to the move." As a result, Japan-China relations will enter into a highly volatile period, ruining any hope of a resurgence in Japan's real economy, and more worryingly, the think-tank concludes, China's conflict with Japan is inevitable.
- Japan PM Abe wants to replace landmark war apology (Reuters) - to summarize Abe's strategy: crush the JPY even as China is alienated so much not a single Japanese export goes to Beijing. Brilliant
- Unthinkable Cuts Almost a Reality (WSJ)
- Signs of Negative Economic Impact Growing (WSJ)
- Carlyle Agrees to Buy Duff & Phelps for $665.5 Million (BBG)
- Greek retail sales slump deepens in October, recession bites (Reuters)
- Congress Dysfunction as Deadline Arrives Poses 2013 Risks (BBG)
- For Euro, All Eyes Are on Central Bank's Actions (WSJ)
- France Seeks New Path to High Tax (WSJ)
- Japan Rebuke to G-20 Nations May Signal Moves to Weaken Yen (BBG)
- Portugal braced for ‘fiscal earthquake’ (FT)
- Monti's reform path faces test beyond Italy elections (Reuters)
- South Korea’s Inflation Slows Even as Economy Gaining Momentum (WSJ)
- China factory sector strongest since May 2011 (Reuters)
The politicization of central banking continues unabated. The resurrection of Shinzo Abe and Japan’s Liberal Democratic Party – pillars of the political system that has left the Japanese economy mired in two lost decades and counting – is just the latest case in point. He argued that a timid BOJ should learn from its more aggressive counterparts, the US Federal Reserve and the European Central Bank. But will it work? Unfortunately, it appears that Japan has forgotten many of its own lessons – especially the BOJ’s disappointing experience with zero interest rates and QE in the early 2000’s. Not only is QE’s ability to jumpstart crisis-torn, balance-sheet-constrained economies limited; it also runs the important risk of blurring the distinction between monetary and fiscal policy. Massive liquidity injections carried out by the world’s major central banks – the Fed, the ECB, and the BOJ – are neither achieving traction in their respective real economies, nor facilitating balance-sheet repair and structural change. That leaves a huge sum of excess liquidity sloshing around in global asset markets. Where it goes, the next crisis is inevitably doomed to follow.
The U.S. federal deficit is now exceeding $1 trillion dollars every year —up from $161 billion in 2007, the last year before the financial crisis. Spending is up some $1 trillion, as outlays for Social Security, Medicare, Medicaid and other entitlements have increased by an amount equal to the entire 2013 military budget – a budget which may again surpass the combined military expenditure of every other nation in the world. U.S. unfunded liabilities are now estimated at between $50 trillion and $100 trillion and by the end of the decade (in less than just 7 years), runaway entitlement spending will require shutting down the military or crippling many other vital domestic spending programs to head off massive deficits that will likely lead to a dollar crisis and significant inflation. No matter what deal is eventually agreed, whether before or after the new year, it will at best nibble at the edges of the trillion dollar annual deficits that are being piled up. While all the focus has been on the so called U.S. ‘fiscal cliff’, amnesia has taken hold and many market participants have forgotten about the far from resolved Eurozone debt crisis – not to mention looming debt crisis in the UK and Japan.
With JPY bleeding lower once again overnight extending to 28-month lows against the USD (and the long-end of the JGB curve starting to show some signs of anxiety), it is perhaps timely to revisit Kyle Bass's five key reasons why Japan is the epicenter of the world's failed monetary policy experiment. In this excellent and much-requested summary 8-minute clip, Bass summarizes his Japan thesis and destroys several of the myths that talking-heads like to assign to the so-called widow-maker trade.
Copper is often referred to as the PhD of commodities for, as JPMorgan's Ken Landon notes, "When companies ramp up production of various products, whether during or in anticipation of economic recovery, they demand more cooper." Gold, however, he adds, "is not sensitive at all to business-cycle demand. Its price is driven by the monetary environment." While Bloomberg's chart of the day prefers to take the short-term (last few weeks) view of the world to justify a bullish equity market call, we prefer to look at longer-term cycles and the message is extremely clear - manufacturers are anything but confident, are doing anything but buying copper in anticipation of demand, and despite gold's recent fluctuations it is anything but implying that the world's grand monetary policy experiment is slowing down. What we see from this chart is yet another clear fundamental divergence between Dr. Copper's take on the global economy and the US equity market's nominal recovery.
We have a new era dawning in Global Monetary policy. It is a new day with the monetary skies already red. Within 90 days the captains of monetary policy have steered the world into uncharted waters and on a course that history warns us against. Federal Reserve: QE3 "Unlimited" and QE4 within 90 days, ECB: OMT "Uncapped", BoJ: QE 10 and the newly elected Prime Minister Abe's mandate for "Inflation at any cost" BoE: UK's newly appointed BoE Governor, Mark Carney's Monetary Evan Rule targeting. These untested and newly commissioned captains all have PhD's from the finest Economic schools in the world, but they clearly have not studied nor grasped the key lessons of history. To any sane person, who has a grasp of what is presently occurring, it is obvious that the current state of affairs is unsustainable. The question is how long can the Monetary Captains' misguided policies keep us off the shoals of our economic destruction. How long can policies of "Extend and Pretend", Kick the Can Down the Road" or "Fake it Until You Make It" continue? The answer is likely unknowable, the certainty of it ending badly is not.
There are, according to USA Today, 364 items that need to be purchased to create the ultimate gift basket from the epic holiday song "The 12 Days of Christmas". Based on PNC Wealth's Christmas Price index, the cost of this basket is $107,300 in 2012 (up 6.1% year-over-year). Since 2001, when the Fed embarked upon its uber-expansionary monetary policy experiments, the cost of Christmas has risen over 40% faster than the Government's prescribed CPI (and if we use a different cost-base, since 2006, the cost of Christmas has risen 46% per year on average). And on an even more Bah! Humbug note, there is the important economic question of the Deadweight Loss of Christmas - i.e. gift-giving means consumption choices are made by someone other than the final consumer, with potentially sub-optimal micro-economic effects such as a mismatch with the recipient's preferences. This wonderfully positive report finds that between 10% and 33% of the value of gifts 'given' is destroyed through this inefficiency (with cash - or gold - the least impacted?). Happy Holidays, everyone!
Forget Facebook; Bob Pisani would be cock-a-hoop. Imagine the euphoria and excitement from a Fed IPO? What better way for the rich to get even richer than to buy shares in the world's most profitable hedge fund. And for those saying this is preposterous and that central banks should never trade publicly we bring you exhibit A: The Bank of Japan
As BOJ Holdings Surpass ¥100 Trillion, It Gets An Ultimatum: "Stop Being Independent Or Lose Your Independence"Submitted by Tyler Durden on 12/23/2012 12:22 -0500
2013, which is still a week away, is already off to a 'crazy pills' bang. Because while the bulk of the politipunditry is shocked, shocked, that it was dead wrong about the Cliff outcome which is now set to ram the country front and center on January 1, the most amusement appears to be emanating from the land of the rising sun, where the brand new PM just issued an ultimatum to the central bank, which can be summarized as follows: stop being independent, or we will change the laws and take away your independence.
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
Following Part 1 (History), and Part 2 (Interventionism), Part 3 provides a more technical look at the key features of the unadulterated gold standard. It could be briefly stated as a free market in money, credit, interest, discount, and banking. Another way of saying it is that there would be no confusion of money (i.e. gold) and credit (i.e. paper). Both play their role, and neither is banished from the monetary system. There would be no central bank with its “experts” to dictate the rate of interest and no “lender of last resort”. There would be no Securities Act, no deposit insurance, no armies of banking regulators, and definitely no bailouts or “too big to fail banks”. The government would have little role in the monetary system, save to catch criminals and enforce contracts.
First gun sales soared, then Wal-Mart ran out of guns, then parents, stunned by the popular response in the aftermath of the Newtown mass murder which saw the White House threaten to curb the Second Amendment and lead to an even more unprecedented scramble for guns and ammo, and seeing nothing but confusion (but lots of bickering meant to extract nothing but political brownie points) out of the government instead of any hope of actual protection, decided it was time for some vigilante protection. The end result: sales of bulletproof backpacks have soared, with sales exploding as much as 500% since Friday. And since the white line from a defensive to an offensive posture is very thin, it is likely only a matter of time before we get the first media report of a 6 year old armed with a 44 caliber during recess.
What creates real efficiency and competition are not eras of wealth and largesse, but eras of scarcity and change. A good analogy is that war creates better armies and better weapons, not prolonged periods of peace. Bernanke of course has zero understanding of what happens to large companies when financial reality is made irrelevant, and capital is made plentiful. (Growth and efficiency are by no means a logical result). This is what happens when academics who are deeply inexperienced in business run monetary policy designed to stimulate business. The market is going to bend him over the table and humiliate him eventually. And then all that capital that he injected into the market is going to evaporate, and a generation of Americans will be financially obliterated.