"I realised that I was part of something that was doing far more harm than good... The NSA routinely lies in response to Congressional inquiries about scope of surveillance in America. The NSA is intent on making every conversation and every form of behaviour in the world known to them.... What they're doing" poses "an existential threat to democracy."
- Edward Snowden, 29, PRISM Whistleblower
Following on from our annual update on the wealth (re)distribution of nations, we thought it important to look at the other side of the household balance sheet - that of 'debt' to see just how much 'progress' has been made in the world. In the aftermath of the credit crisis (and the ongoing crisis in Europe), government debt levels continue to rise but combining trends in household debt highlights countries that have sustainable (and unsustainable) overall debt levels - and thus the greatest sovereign debt problems. Whether the 'number' is from Reinhart & Rogoff or not, the reality is that moar debt is not better and the nations with the highest debt-per-capita may surprise many. Critically, despite the rise in 'wealth' from 2000-2008, the ratio of debt-to-net-worth rose on average by about 50% (and in many nations continues to rise). The bottom line - in almost all countries, government liabilities exceeded government financial assets in 2011, leaving the government a net debtor.
House prices - with respect to both levels and changes - differ widely across OECD countries. As a simple measure of relative rich or cheapness, the OECD calculates if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) are above their long-term averages, house prices are said to be overvalued, and vice-versa. There are clearly some nations that are extremely over-valued and others that are cheap but as SocGen's Albert Edwards notes, it is the UK that stands out as authorities have gone out of their way to prop up house prices - still extremely over-valued (20-30%) - despite being at the epicenter of the global credit bust. Summing up the central bankers anthem, Edwards exclaims: "what makes me genuinely really angry is that burdening our children with more debt to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing." It's not different this time.
The store of wealth demand is not just from Chinese ‘aunties.’ There remains an under estimation of the demand coming from wealthy Chinese and high net worth and ultra high net worth individuals (HNWs and UHNWs).
This has not been commented upon or analysed but we have direct experience of wealthy Chinese people looking to store gold in Hong Kong and Switzerland, as have other storage providers.
- BIS lays out "simple" plan for how to handle bank failures (Reuters) - Are we still holding our breath on Basel III?
- Deficit Deal Even Less Likely - Improving U.S. Fiscal Health Eases Pressure for a 'Grand Bargain' Amid Gridlock (WSJ)
- IRS Faulted on Conference Spending (WSJ)
- Deadly MERS-CoV virus spreads to Italy (CNN)
- Turkish PM Erdogan calls for calm after days of protests (Reuters)
- Financial system ‘waiting for next crisis’ (FT)
- Russia to send nuclear submarines to southern seas (Reuters)
- China Nuclear Stockpile Grows as India Matches Pakistan Rise (BBG)
Here is what is shaping the global capital markets.
Neil Macdonald of the CBC recently did an investigative piece on central bankers and what they’re doing to the world’s economies. Mark Carney was featured heavily. He told Macdonald, “there is no secret cabal orchestrating things,” despite CBC’s own findings earlier in the program. Central bankers around the world meet in Basel, Switzerland for secretive meetings. Of course, central banks have – and have always had – enormous power that remained more-or-less hidden until 2008. A paradigm shift is occurring where a large number of people (particularly young people) are questioning their assumptions. Some of them are even beginning to read economists like Ludwig von Mises and Murray Rothbard. The “economics” of central bankers can now be revealed for what it truly is: statistical propaganda. Not only is the “Keynesian school” of economics unsound – the entire social science is bunk. Only the Austrian tradition can explain economic phenomena in such a way that makes common sense, scientific. Carney is asking us to trust him. This cannot be done. He is not speaking truth; he is speaking nonsense.
Back in 2010 we started an annual series looking at the (re)distribution in the wealth of nations and social classes. What we found then (and what the media keeps rediscovering year after year to its great surprise) is that as a result of global central bank policy, the rich got richer, and the poor kept on getting poorer, even though as we predicted the global political powers would, at least superficially, seek to enforce policies that aimed to reverse this wealth redistribution from the poor to the rich (a doomed policy as the world's legislative powers are largely in the lobby pocket of the world's wealthiest who needless to say are less then willing to enact laws that reduce their wealth and leverage). Now that the topic of wealth distribution (or rather concentration) is once again in vogue, below we present the latest such update looking at a global portrait of household wealth. The bottom line: 29 million, or 0.6% of those with any actual assets under their name, own $87.4 trillion, or 39.3% of all global assets.
As Barron's notes in this recent interview, Marc Faber view the world with a skeptical eye, and never hesitates to speak his mind when things don't look quite right. In other words, he would be the first in a crowd to tell you the emperor has no clothes, and has done so early, often, and aptly in the case of numerous investment bubbles. With even the world's bankers now concerned at 'unsustainable bubbles', it is therefore unsurprising that in the discussion below, Faber explains, among other things, the fallacy of the Fed's help "the problem is the money doesn't flow into the system evenly, how with money-printing "the majority loses, and the minority wins," and how, thanks to the further misallocation of capital, "people with assets are all doomed, because prices are grossly inflated globally for stocks and bonds." Faber says he buys gold every month, adding that "I want to have some assets that aren't in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable."
While most of the headlines this week have centered on Syria, Sweden (and Switzerland), Turkey has been cooking and today has broken into full-scale riots. As Reuters reports, Turkish police fired tear gas and water cannon on Friday at demonstrators in central Istanbul, wounding scores of people and prompting rallies in other cities in the fiercest anti-government protests for years. The growing unrest centers on disquiet at the authoritarianism of Prime Minister Tayyip Erdogan and his Islamist-rooted Justice and Development Party (who just visited Obama). "We do not have a government, we have Tayyip Erdogan ... Even AK Party supporters are saying they have lost their mind, they are not listening to us." The protests somewhat surprisingly were sparked by the uprooting of trees but rapidly escalated (as seen below) into riot police, water cannon, and tear gas battles as protesters exclaim, "we're fed up... we don't like the direction the country is heading."
"QE detractors... see something quite different. They see QE as not responding to the collapse in the money multiplier but to some extent causing it. In this account QE – and the flatter yield curves that have resulted from it – has itself broken the monetary transmission mechanism, resulting in central banks pushing ever more liquidity on a limper and limper string. In this view, it is not inflation that’s at risk from QE, but rather, the health of the financial system. In this view, instead of central banks waiting for the money multiplier to rebound to old normal levels before QE is tapered or ended, central banks must taper or end QE first to induce the money multiplier and bank lending to increase."
Ireland has seen its youth unemployment rate drop for 10 of the last 11 months and has dropped to a 'mere' 26.6% - the lowest since July 2010 - in what is truly the only possible silver lining in today's absolutely dreadful data release. All four of the other PIIGS nations now have broken the dismal Maginot Line of 40% youth unemployment with Italy finally joining the club (Italy 40.5%, Portugal 42.5%, Spain 58.2%, and Greece 62.5%). What is even more concerning is that not only are these rates extremely high but they are accelerating with all four of these dark nations seeing their rates rising faster than in recent months (this was the 2nd fastest rise in Greek youth unemployment ever). Overall, Europe's youth unemployment rate continues to march higher (to 24.4%) having not fallen for 24 months, but it is Spain that is the 'winner' with 41 consecutive months without a drop in youth unemployment. With welfare benefits running dry, and Sweden and Switzerland already running hot, we fear this summer may bring the much-feared unrest so many have been concerned about.
When even the political elite are voicing concerns about the possible social implications of youth unemployment rates in Europe being so egregiously high, you know that there are problems. The question many have is that until now riots have been few and far between (most notably Sweden and Switzerland recently); so why are the main areas of massive unemployment not seeing the widespread chaos? The answer, perhaps unsurprisingly, is in government handouts but as Stratfor notes, time is running out for the benefit-beholden generation and perhaps the governments will finally see what so many have been fearful of.
- South China Sea tension mounts near Filipino shipwreck (Reuters)
- OECD cuts economic forecasts as eurozone drags on growth (FT)
- Switzerland frees banks to settle U.S. tax evasion cases (Reuters)
- U.S. Says Firm Laundered Billions (WSJ)... no, it's not HSBC, also: Free Corzine!
- Ardent conservative Bachmann to not seek re-election to Congress (Reuters)
- Russia faults U.S. over 'odious' Syria rights resolution (Reuters)
Price action in the foreign exchange market. Discuss.