Christine Lagarde's chances of heading the IMF just took a another step back. Why? Because the firm whose alumni are about to be or already are in key posts at the Fed, the ECB and the BOC, has said (through its moutpiece Jim O'Neill who "can't see how the EUR should be above 1.40" even as Thomas Stolper et al see it going to 1.55 in a year) that it is not too crazy about having a European replacement for DSK, and that "it might be better if some leadership and authority came from outside of Europe with a fresh set of independent eyes" (supposedly the fact that Lagarde has had no formaly economic academic brainwashing is not a factor). In other words, Goldman has aligned itself with China, which has made it clear that it may be wise if the next IMF leadership "reflected the New World Order." As such, the largely symbolic IMF conclave just became very interesting: while the IMF is largely a figurehead with the real backstop organization always being the Federal Reserve, Goldman appears to have just voted alongside China... and thus against Europe and the US.
The book "Confessions of an Economic Hit Man" by John Perkins is easily one of the most engrossing pieces of non-fiction one can read to learn about the true drivers behind globalization, espionage, corporate cronyism, the emergence of such "artificial" organizations as the World Bank and the IMF, and most importantly, debt "enslavement", all as seen from an insider's view. It explains in simple words why over the past 40 years the developing world paradigm has been exploited as heavily as it has, why the BRIC concept was instrumental as a Red Herring to perpetuating the myth of endless growth, and why credit must always flow no matter what to keep the status quo in power. For those who have read the book, and for those who are on the fence about reading it, below we present the three part presentation by John Perkins at the 2006 Veterans for Peace National Convention in which he expounds on all the key ideas in his book, and does an extended Q&A covering topics not discussed previously. We urge everyone to spend at least a few minutes listening to Perkins who gives a unique and non-conflicted expert opinion on the primary force for why the the modern equivalent of enslavement is not by force, but by debt.
A week ago we presented the idea floated by once hyperinflationary Zimbabwe, oddly jeered by most, that the country is seeking to move to a gold-backed currency, adding, somewhat surrealistically, that the "days of the US dollar as the world's reserve currency are numbered." And if anyone should know a hyperinflationary basket case, it's Zimbabwe. Well, today this bizarre story just went fuller retard, after the country announced that it may exchange diamonds for gold "so that it can have a gold-backed currency, according to a recent proposal from the governor of Zimbabwe’s central bank." Indeed we speculated previously why: "Zimbabwe, a country rich in natural resources, took so long to figure out that it was nothing but a puppet in the hands of western monetary interests." Well, others are now getting this idea - Commodity Online reports that "The country is a resource hub: It sits on gold reserves worth trillions. It has the world’s second largest reserves of platinum, has got alluvial diamonds that can fetch the nation $2 billion annually and even boasts of chrome and coal deposits." And since Zimbabwe is now fully on board this whole "pioneering" thing perhaps it should just go ahead and create the first diamond-platinum backed currency. Just don't give China and Russia ideas about floating a new reserve currency that actually has real commodity backing. What's that, you say? They are launching one soon? Oh well.
The most anticlimatic news of the week is that, as everyone expected, DSK has resigned his post as IMF head. "“I want to devote all my strength, all my time, and all my energy to proving my innocence,” Strauss-Kahn said in a statement released by the Washington-based IMF four days after his arrest on sexual-assault charges. The fund said it will comment “in the near future” on the succession. Strauss-Kahn, 62, had been leading polls for France’s 2012 presidential election." And with his passage, the Feudal (as defined by El-Erian) "conclave" to pick his successor begins. Per Bloomberg: "European officials, who have picked IMF heads for 65 years under a deal that also gives the U.S. the lock on the top World Bank post, moved to retain the privilege, with Sweden backing French Finance Minister Christine Lagarde. Russia and South Africa have called for an emerging-market candidate, while some Asian policy makers suggested someone from their region." And now the specter of mutual assured destruction posturing shifts to selecting a desired candidate quickly. "Time is of the essence,” said Julie Chon, a senior fellow at the Washington-based Atlantic Council and former adviser to the U.S. Senate Banking Committee. “The longer the IMF allows the specter of uncertainty to hang over its leadership, the more exposed it becomes to the jittery actions of sovereign debt and foreign-exchange traders who have been speculating on what the leadership vacuum means for their portfolios."
In a report released yesterday titled "Multipolarity: The New Global Economy", that other "bailout" organization, the World Bank, says that due to the developing world's pronounced greater growth curve through 2025 (expected to grow at 4.7% compared to 2.3% for the developed countries), the outcome will be that "The balance of global growth and investment will shift to developing or emerging economies." More importantly, as the FT summarized, a "different international monetary system will gradually evolve, wiping out the US dollar’s position as the world’s main reserve currency." As a result of these "inevitabilities" (which will be interested to see how they are attained considering according to a recent report, the world will need to double its debt to double it GDP, so where all this new debt will come from we don't really know), there are three potential scenarios: i) A status quo centered on the US dollar, ii) A system with the Special Drawing Rights (SDR) as the main international currency, iii) A multicurrency system. And while this obviously covers every possible outcome so absolutely no value added there, the WB is focused on outcome iii and believes that the dollar will gradually shift away from its current position of reserve currency prominence. This is not surprising: after all it is none other than World Bank president Robert Zoellick who recently predicted a return to the gold standard and an end to USD hegemony. Our advice to Bob: stay away from penthouse suites at the Sofitel.
- Al Qaeda names Egyptian militant Adel as interim chief - Al Jazeera (Reuters)
- Geithner: U.S. must deal with budget woes or pay more (Reuters)
- Pressure mounts on Strauss-Kahn to quit (FT)
- IMF issues stark warning to Greece on fiscal goals (Reuters)
- Europe Aims to Keep IMF Job After Strauss-Kahn (Bloomberg)
- The eurozone after Strauss-Kahn (Martin Wolf, FT)
- U.S. mulls White House aide Lipton for IMF No. 2 job (Reuters)
- Could Greece be the next Lehman Brothers? Yes – and potentially even worse (Guardian)
- Moody's Cuts Rating of Four Major Australian Banks (WSJ)
- Fed seeks annual US bank stress tests (FT)
- Mideast peace bid needed more than ever (Reuters)
- World Bank sees end to dollar’s hegemony (FT)
U.K. unemployment claims rose in April at the fastest pace since January 2010, showing the very fragile nature of the recent tentative economic recovery. Government spending cuts, austerity measures and accelerating inflation are clearly beginning to impact embattled consumers. In the U.S., stagflation is also an increasing, if unacknowledged, threat as the classic symptoms of inflation - slow growth, high unemployment and inflation are present. Weak U.S. factory output and home building data yesterday suggests that the world's largest economy is slowing down again. Official inflation figures in the U.S. remain benign but hedonic adjustments and many adjustments to the methodology of calculating inflation in the last 20 years mean that that the Consumer Price Index is no longer an accurate measure of real inflation in the economy. This macroeconomic risk coupled with continuing geopolitical risk is supportive of gold continuing to receive safe haven demand. The launch of the new Hong Kong Commodity Exchange will result in Asia having an even bigger say in prices of commodities and precious metals. The exchange is backed by China’s biggest bank and a Russian tycoon and will challenge established markets and exchanges in Europe and the U.S.
And even as Bernanke continues to believe he can take away inflation with a 15 minute wave of his magic wand, the downstream effect persist. The UN's Food and Agriculture Organization reported that April food prices rose once again, from 231 to 232.1, putting it at the second highest compared to the all time high peak hit in February. Bloomberg reports: "“There seems to be some easing for a lot of commodities, but whether this is demand rationing, we have to wait and see,” Abdolreza Abbassian, a senior economist at the FAO, said before the report. “If the weather is good, if plantings expand, I think we could see some relief in food prices." Granted, in April various food commodities have seen their prices drop: "Sugar prices slumped 18 percent in New York last month, while milk futures fell 1.8 percent in Chicago, U.S. wholesale beef prices dropped 3.4 percent and pork declined 2.2 percent. Wheat prices rose 5 percent in Chicago after falling the previous two months and corn jumped 9.1 percent." Yet the drop has not been uniform: "Corn has almost doubled in the past 12 months on speculation that more planting in the U.S., the world’s largest grower, won’t be sufficient to rebuild global stocks. Wheat surged 57 percent over the same period and soybeans gained 39 percent as flooding ruined crops in Canada and Australia and drought reduced harvests in Russia and Europe. Of the grains, corn “is the most worrisome,” Abbassian said in a statement. “We would need above-average, if not record, yields in the U.S.,” however, “plantings so far have been delayed considerably due to cool and wet conditions on the ground,” he said." On the other hand, as most know, a far bigger issue is that prices tend to be sticky on the upside once they begin rising. And a cursory check in local retail stores confirms that any price drop has yet to impact the US proper.
Most of the clearly evident financial problems that surround us today stem from one cause - Debt Saturation. Most, intuitively, sense this to be a correct assessment but few can either prove it or articulate it to the less sophisticated. Let me arm you to be the "Nostradamus" amongst your friends and colleagues in explaining the problem and what the future therefore foretells. However, let me make it very clear, this will not make you popular. Smart maybe, but highly likely to make you unwanted at the social gatherings of the genteel.... In your new role as 'Nostradamus' to your friends you can safely predict a decade ahead to be a secular bear market in financial assets, in real terms. Nominal values may not show this clearly but it will be very evident in the reduced standard of living most Americans will experience. You are going to have to work harder and harder, for less and less to survive at a lower and lower standard of living. This will all be required to support the annual $9T debt bondage we have assumed as our politicos add additional 'stimulus' to a suffocating and debt saturated global economy.
Another sign of the increased appreciation of gold as an important asset came from Germany today where Angela Merkel’s budget speaker and his opposition counterpart have urged Portugal to consider selling their gold. Norbert Barthle, Germany’s governing coalition budget speaker and his counterpart Carsten Schneider from the Social Democrats, the biggest opposition party urged Portugal to consider selling some of its gold reserves to ease its debt problems. They called for a review of Portugal’s request for financial aid to include gold and other potential asset sales. The German lawmakers did not specify who should buy the gold from the Portuguese central bank but given the challenges facing Germany and the Eurozone it is likely that the Bundebank and the ECB would be willing buyers – if the gold is not already encumbered due to Portugal’s membership of the Eurozone. Meanwhile creditor nation central banks continue to accumulate gold reserves as seen with the breaking news from the Financial Times that the central bank of Mexico has been diversifying their currency reserves (largely in dollars) into gold with the purchase of 100 tonnes of gold bullion in February and March.
Gold Robust Despite Death of Bin Laden, Geopolitical Risk Remains Elevated due to MENA And Increasingly PakistanSubmitted by Tyler Durden on 05/03/2011 08:32 -0400
The Bin Laden death will likely prove to be a brief, but welcome, distraction for the Obama administration and other governments who are confronting an extremely difficult economic situation with deepening inflation, the euro zone debt crisis and the deteriorating economic situation and nuclear catastrophe in Japan. Gold is a barometer and is sensing that the Bin Laden death and burial at sea is a mere sideshow when compared to the real macroeconomic, monetary and geopolitical risk facing the world today. Even at these price levels, demand for gold remains robust, particularly in India (see News), China and Asia.Silver remains vulnerable to further short term weakness and the concentrated shorts may attempt to press their advantage after the CME raised margins once again. However, the very sound supply demand fundamentals mean that long term physical buy and hold buyers will continue to be rewarded. Leveraged speculation should as ever be avoided with gold and particularly silver as intervention and manipulation can result in short term sharp price drops which can wipe out those trading with margin or leverage. Bullion buyers buying with cash and not debt are not subject to these losses and are thus “strong hands” who can ride out price pullbacks and be rewarded for their long term prudence.
Excessive Leverage Helped Cause the Great Depression and the Current Crisis ... And Government Responds by Encouraging MORE LeverageSubmitted by George Washington on 04/29/2011 13:37 -0400
The Fed may be talking like Smokey the Bear, but it continues to hand out matches trying to increase leverage ...
We are right on track for the next American revolution but it's a slow train so grab those fish while you can, my friends - you may need them to barter with down the road!
- Most Dealers See Fed Keeping Rates Near Zero (Reuters)
- Japan Economic Data Underscore Impact of Disasters (WSJ)
- China’s Population Flocks to Cities, Grows Older, Census Shows (Bloomberg)
- China Property Slowdown Poses Growth Risks, World Bank Says (Bloomberg)
- Asian Currencies to Appreciate Against Greenback in Second Half, ‘Mr Yen’ Says (Taipei Times)
- Syria's Assad Facing Dissent over Deraa Crackdown (Reuters)
- Spain Calls Draghi ‘Excellent’ Choice for ECB President, Isolating Merkel (Bloomberg)
- German Unemployment Falls Below 3 Million to 19-Year Low (Bloomberg)