United Kingdom

Based on the the budget, Fitch has placed the United Kingdom's AAA taing on Watch Negative (for future downgrade): The RWN reflect the latest economic and fiscal forecasts published by the Office for Budget Responsibility (OBR) that indicate that UK government debt will peak later and at a higher level than previously expected by Fitch. GBPUSD snapped 50 pips lower but is reverting a little now - US equities shrug (just another piece of AAA collateral nearer biting the dust).

• Cyprus targets big depositors in bank plan  (FT)
• Merkel Vents Anger at Cyprus Over Bailout Plan as Deadline Looms (BBG)
• Russia rebuffs Cyprus, EU awaits bailout "Plan B" (Reuters)
• Russia Rejects Cyprus Bid for Financial Rescue as Deadline Looms (BBG)
• Cyprus unveils shake-up as the clock ticks (FT)
• Remember Italy? Italy’s stalemate unnerves investors (FT)
• Credit Suisse CEO pay jump to fuel banker bonus debate (Reuters)
• Kuroda Rebuts Reflation Naysayers as BOJ Action Looms (BBG)
• Fund Manager Says 'Whale' Trade Was a Bet (WSJ)
• House averts government shutdown, backs Ryan budget (Reuters)
• Hong Kong Homes Face 20% Price Drop as Banks Raise Rates (BBG)

The Troika has run roughshod over the rule of law. By calling for a universal bail-in of depositors (the securest part of bank capital ladder) before extracting money from shareholders, junior and subordinated bondholders, the EU bureaucrats and IMF have unilaterally ripped up the legal framework for property rights. This is a truly worrying and frightening progression – actually regression – in economic freedom. Unfortunately bank depositors (savers) have long been under the misguided impression that they are potentially immune from a bank collapse, with the State providing a safety net in the form of deposit guarantees up to a declared sum.  I would argue that individuals, partly due to government propaganda in the good times, have long since forgotten – or indeed have never understood – that once you deposit your money into a bank, you give up your right to ownership, ie, It’s a LOAN! An asset which is lent out multiple times as is the agreed practice under fractional reserve banking, clearly has a risk of no return, albeit a seemingly a low risk when confidence and trust is high in the economic system... The bail-in announcement for the Cypriot banks late Friday night was one of those events when we all look back and think that was the beginning of the end of the real global financial crisis. This should leave any individual in Europe under no illusion that the political elite will enact whatever it deems fit to protect their positions in the name of the euro and their own positions of power.

• More black smoke over Vatican: No decision on pope in second day (NBC)
• PBOC Chief Says China Should Be on ‘High Alert’ on Inflation (BBG) - just as predicted last fall
• California Seizes Guns as Owners Lose Right to Keep Arms (BBG)
• U.S. Tax Cheats Picked Off After Adviser Mails It In (BBG)
• In 2012, Samsung spent $401 million advertising its phones in the U.S. to Apple's $333 million (WSJ)
• Coca-Cola probed over mapping in China (FT) - accused of ‘illegally collecting classified information’
• Italy's Bond Sale Meets Tepid Demand (WSJ)
• U.S. Steps Up Alarm Over Cyberattacks (WSJ)
• Mugabe takes on Zimbabwe's Generation X (Reuters)
• Mars Rover Finds Conditions Once May Have Supported Life (BBG)
• Oil demand hit by China refinery outages (FT)
• Big Sugar Is Set for a Sweet Bailout (WSJ) DOA to buy 400,000 tons of sugar to stave off a wave of defaults by sugar processors
• Spectre of stagflation haunts UK (FT)
• As Republicans seek identity, conclave highlights divisions (Reuters)

Despite reassurances from Draghi this morning, the truth of the matter is that cross-border capital flows - which reflect the degree of integration in the global financial system - have plunged in recent years. As of the end of 2012, cross-border capital flows - including lending, foreign direct investment, and purchases of equities and bonds - remain more than 60% below their peak. In the decade up to 2007, Europe accounted for half of the growth in global capital flows, reflecting the increasing integration of European financial markets. But today the continent’s financial integration has gone into reverse. Clearly, cross-border lending, which dominated capital flows in the years leading up to the crisis, has proven to be short term and can dry up quickly.

The political balance has changed substantially over the last year, from the cosy days when Merkel met Sarkozy and Monti kept the Italians in order. Germany faces full elections in September this year, and it will be difficult for Chancellor Merkel to win, given that her party, the Christian Democrats, did badly in the local German elections in January. The German voter has generally been more concerned with Germany’s relative economic success, bringing low unemployment, than the intractable problem of supporting other Eurozone nations. Given Merkel’s political difficulties, she is likely to be slow to subscribe Germany’s full commitment and can use the excuse that she can only be expected to match the other large contributors – who are by the way, France, Italy, and Spain. It is likely to be a political virtue for her to take a tougher line. It would therefore be a mistake to think that Germany is going to continue to fund profligate governments. Since the ECB has already created the precedent (quote from Mr Draghi: “Whatever it takes”), the ECB will have to end up creating the money required.

From his perch in the United Kingdom, Alasdair Macleod provides an update on the ongoing economic crisis in Europe, which -- while largely absent from headlines in the US of late - continues to worsen. Due to bloated state-run programs and extreme malinvestment, EU governments find themselves in a box. Economic growth has stalled, and no amount of intervention seems able to get it going again. So in order to keep their economies moving forward, they are becoming increasingly rapacious in extorting tax revenues from wherever they can find them. This, of course, is strangling the private sector. And so a vicious cycle ensues.

The U.S. health care system is a giant money making scam that is designed to drain as much money as possible out of all of us before we die.  In the United States today, the health care industry is completely dominated by government bureaucrats, health insurance companies and pharmaceutical corporations. At this point, our health care system is a complete and total disaster.  Health care costs continue to go up rapidly, the level of care that we are receiving continues to go down, and every move that our politicians make just seems to make all of our health care problems even worse. At the same time, hospital administrators, pharmaceutical corporations and health insurance company executives are absolutely swimming in huge mountains of cash.  Unfortunately, this gigantic money making scam has become so large that it threatens to collapse both the U.S. health care system and the entire U.S. economy.

And another AAA-club member quietly exits not with a bang but a whimper:

MOODY’S DOWNGRADES UK’S GOVERNMENT BOND RATING TO Aa1 FROM AAA

Someone must have clued Moody's on the fact that the UK is about to have its very own Goldman banker, which means consolidated debt/GDP will soon need four digits. In other news, every lawyer in the UK is now celebrating because come Monday Moody's will be sued to smithereens. Cable not happy as it tests 31 month lows, which however also explains why the Moody's action has another name: accelerated cable devaluation. Those who heeded our call to short Cable when Goldman's Mark Carney was appointed are now 1000 pips richer. Also, please sacrifice a lamb at the altar of Goldman: It's the polite thing to do.

Confused what the earlier released statement by the G-7 means? Fear not, because here comes Goldman with a post-mortem. And just in case anyone puts too much credibility into a few sentences by the world's developed nations (whose viability depends in how quickly each can devalue relative to everyone else) in which they say nothing about what every central bank in the world is actually doing, here is a history of four years of G-7 statements full of "affirmations" and support for an open market exchange policy yet resulting in the current round of global FX war, confirming just how 'effective' the group has been.

The purpose of keeping accurate accounts is to quantify net worth at any given point in time – as well as the change from a prior date. It goes without saying that the measure used, money, should be constant if comparisons over time are to mean anything. Only then do prices of capital goods, consumer goods and services truly reflect their changing values, giving important signals to businessmen. With unstable fiat money market signals lose much of their meaning. But those of us who understand that currency devaluation only serves to defraud the majority of society must be alarmed that the governments of nearly all the advanced economies are racing each other to rob their citizens in this way. Instead of bringing about a Lazarene recovery in the economy, this approach is already failing, because the very basis of economic calculation is being destroyed. Who knows the value of anything anymore? We do however know the inevitable outcome of this lunacy, and it is not good.

• CAT beats ex-Chinese fraud: $1.91, Exp. $1.70; Warns 2013 could be a "tough year"; sees 2013 EPS in $7.00-$9.00 range, Exp. $8.54, sees Q1 sales well below Q1, 2012
• Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’ (BBG)
• Monte Paschi seeks new investor as scandal deepens (Reuters)
• Assault Weapons Ban Lacks Democratic Votes to Pass Senate (BBG)
• Toyota Again World's Largest Auto Maker (WSJ)
• Curious why all those Geneva Libor manipulators moved to Singapore? Bank probes find manipulation in Singapore's offshore FX market  (Reuters)
• Japan eased safety standards ahead of Boeing 787 rollout (Reuters) - so like Fukushima?
• Goldman is about to be un charge: Osborne cools on changing inflation target (Telegraph)
• Abe Predicts Bump in Revenue as Japan Emerges From Recession (BBG) - actually, "hopes" is the correct verb here
• Toxic Smog in Beijing Fueling Auto Sales for GM, VW (BBG)
• Fed waits for job market to perk up (Reuters) ... any minute now that S&P to BLS trickle down will hit, promise
• BofA shifts derivatives to UK (FT)

The 2008 crash resulted from the bursting of the biggest bubble in financial history, a ‘credit super-cycle’ that spanned more than three decades. How did this happen? Some might draw comfort from the observation that bubbles are a long established aberration, arguing that the boom-and-bust cycle of recent years is nothing abnormal. Any such comfort would be misplaced, for two main reasons. First, the excesses of recent years have reached a scale which exceeds anything that has been experienced before. Second, and more disturbing still, the developments which led to the financial crisis of 2008 amounted to a process of sequential bubbles, a process in which the bursting of each bubble was followed by the immediate creation of another. Though the sequential nature of the pre-2008 process marks this as something that really is different, in order to put the 'credit cuper-cycle' in context, we must understand the vast folly of globalization, the undermining of official economic and fiscal data, and the fundamental misunderstanding of the dynamic which really drives the economy.

The economy as we know it is facing a lethal confluence of four critical factors - the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge. Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. This acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects. The relentless shortening of media, social and political horizons has resulted in the establishment of self-destructive economic patterns which now threaten to undermine economic viability.

HSBC has quietly moved into acquiring large amounts of silver bullion. The bank has secured another deal to buy silver bars from KGHM which brings their total purchases of silver from KGHM alone in the last 12 months to $876 million or PLN 3.65 billion. KGHM is one of the largest producers of silver in the world and is the second-largest producer of refined silver in the world. They produce silver bars registered under the brand KGHM HG that are attested to by “Good Delivery” certificates issued by the London Bullion Market Association and the Dubai Multi Commodities Centre. Listed metals producer KGHM signed an estimated PLN 1.67 billion deal on 2013 sales of silver to HSBC, KGHM said in a market filing yesterday. The deal puts the total value of deals between KGHM and HSBC in the last 12 months to PLN 3.65 billion or $876 million, the filing read.  KGHM is one of the largest companies in Poland and one of the largest mining & metallurgy companies in the world.