Wall Street Journal

More bailouts and QE, until Beethoven writes the 10th Symphony.

• China carrier a show of force as Japan tension festers (Reuters)
• Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
• China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
• Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
• When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
• Italy's Monti Downplays Sovereignty Risk (WSJ)
• Portugal swaps pay cuts for tax rises (FT)
• Madrid faces regional funding backlash (FT)
• Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
• Race Focuses on Foreign Policy (WSJ)
• China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)

• World on track for record food prices 'within a year' due to US drought (Telegraph)
• Foxconn halts production at plant after mass brawl (BBC)
• Germany Losing Patience With Spain as EU Warns on Crisis Effort (Bloomberg)
• Fed Recovery Doubts Spur Investor Bid for Treasuries (Bloomberg)
• Japan protests as Chinese ships enter disputed waters (Reuters)
• In Shark-Infested Waters, Resolve of Two Giants Is Tested (NYT)
• China jails Wang Lijun for 15 years (FT)
• China closes in on Bo Xilai after jailing ex-police chief (Reuters)
• European Leaders Struggle to Overcome Crisis Stalemate (Bloomberg)
• Politicians 1: Austerity 0 - Portugal Gives Ground on Worker Contributions (WSJ)
• Obama Controls Most of His Money as Republicans Have More (Bloomberg)
• Coeure Says Not Clear That Further ECB Interest-Rate Cut Needed (Bloomberg)
• France Seeks Labour Overhaul (WSJ)

If yesterday it was the Middle East's turn to escalate, today it is the Far East, aka Pacific Rim, where China and Japan both remind the world nothing has been fixed in the diplomatic snafu between the two countries over a barren rock in the East China Sea. First, it was China, which on the front page of the biggest daily Xinhua, over the weekend, demanded that Japan immediately stop infringing upon its "territorial sovereignty. To wit: "China asked Japan to immediately stop all acts that harm China's territorial sovereignty, Foreign Ministry spokesman Hong Lei said late Saturday, after some Japanese landed on the Diaoyu Islands. Hong said the Japanese landed on the Diaoyu Islands Friday evening with the excuse of preventing Taiwanese activists from landing on the islets. "It is a severe infringement upon China's territorial sovereignty, and the Chinese government has lodged solemn representations and strong protests to the Japanese side," Hong said in a statement." Other headlines make it quite clear that it is in China's interest to stir populist anger at Japan instead of seeking an amicable resolution. What, however, was the most important article in today's Pacific Rim press is this one which has nothing to do with Japan, and everything to do with China's expanding zone of influence: "China's top security official on Saturday made a surprise visit to Afghanistan, the first time in 46 years that a Chinese leader set his foot on the soil of this landlocked Asian country."

After the financial debacle caused by a thieving and uncontrolled Thug-elite (banksters, Wall Street, moneyed interests), helped in part by a society ready to be courted by its very own ugly greed, this time in real estate, one would think the electorate would have economics as the prime, if not the sole focus when casting a ballot in this next presidential election.  And that would entail castigating politicians, or parties, who could be justly blamed for such debacle and for embracing globalization without a viable plan for those Americans who would be left behind without living-wage jobs; while rewarding politicians, or parties, who offer a reasonable way out, not just of the present mess we are in, but of the impending uglier mess which looms in the horizon.  But that would be taxing reality in a nation which has failed to charge Wall Street criminals, for the most part Republicans; in a nation where Bill Clinton, the godfather of American globalization, continues to be held in high esteem by a clueless Democrat party.

• Europe’s crisis will be followed by a more devastating one, likely beginning in Japan. (Simon Johnson)
• Porsche, Daimler Indicate Europe’s Car Crisis Spreading (Bloomberg)
• No progress in Catalonia-Madrid talks (FT)
• Hilsenrath speaks: Fed's Kocherlakota Shifts on Unemployment (WSJ) - luckily QEternity made both obsolete
• Lenders Reportedly Consider New Greek Haircut (Spiegel)
• Fed Officials Highlight Benefits of Bond-Buying (WSJ)
• ESM to Launch without Leverage Vehicle Options (WSJ)
• Japanese companies report China delays (FT)
• Borg Says Swedish Taxes Can’t Go Into Ill-Managed European Banks (Bloomberg)
• Greek Leaders Struggle With Spending Reductions (Bloomberg)
• Asian Stocks Rise as iPhone 5 Debut Boosts Tech Shares (Bloomberg)
• China government's hand seen in anti-Japan protests (LA Times)

• Obama, Romney tiptoe around housing morass as they woo voters (Reuters) ... just as ZH expected
• Poll Finds Obama in Better Shape Than Any Nominee Since Clinton (Bloomberg)
• Romney on Offense, Says Obama Can’t Help Middle Class (Bloomberg)
• Fed’s Fisher Says U.S. Inflation Expectations Rising (Bloomberg)
• Citigroup Warns Irish Investors to Plan for Losses (Bloomberg)
• Central Banks Flex Muscles (WSJ)
• China says U.S. auto trade complaint driven by election race (Reuters)
• Brussels sidesteps China trade dispute (FT)
• How misstep over trading fractions wounded ICAP's EBS (Reuters)
• Ex-CME programmer pleads guilty to trade secret theft (Reuters)
• Income squeeze will persist, says BoE (FT)
• South African miners return to work, unrest rumbles on (Reuters)

Since the very beginning of my public writings, I have leaned heavily towards the path of inflation, by which I mean money printing or its electronic equivalent, because even a cursory review of history will show that leaders have always chosen a little money printing today and the possibility of inflation tomorrow over the immediate pain of having to live within their means or with the consequences of their poor decisions. That was just a fancy way of saying 'humans will be humans,' and while our technology has advanced tremendously over the past few decades, our DNA blueprints are virtually identical to those found in people living 50,000 years ago.  History can tell us much. Our current predicament has its roots way back in the early 1980s, when something changed in our collective psyches that allowed us to abandon thrift and savings in favor of spending and borrowing.

As the FT reports today “In early scenes from Goethe’s tragedy, Mephistopheles persuades the heavily indebted Holy Roman Emperor to print paper money – notionally backed by gold that had not yet been mined – to solve an economic crisis, with initially happy results until more and more money is printed and rampant inflation ensues.”  The classic play highlighted, Weidmann argued, “the core problem of today’s paper money-based monetary policy” and the “potentially dangerous correlation of paper money creation, state financing and inflation”. In yesterday’s speech in Frankfurt, Goethe’s birthplace, he said: “The state in Faust Part Two is able at first to rid itself of its debts while consumer demand grows strongly and fuels a strong recovery. But this later develops into inflation and the monetary system is destroyed by rapid currency depreciation.” The name Mephistopheles as used by Goethe comes from the Hebrew word for destroyer or liar.   Mephistopheles is a fallen archangel, one of the 7 great princes of Hell and in Goethe’s ‘Faust.’ Mephistopheles is acting for his overlord Satan and seals the pact with Faust. Weidmann is suggesting that the ECB’s current monetary policies are a Faustian pact or a pact with the Devil and that they secure short term gain but will end in the disaster of rampant inflation.

• Deposit Flight From Europe Banks Eroding Common Currency (Bloomberg)
• BOJ eases monetary policy as global slowdown bites (Reuters)
• Stalled Rally Puts Pressure on Spain (WSJ)
• Missed Chances Stoke Skepticism Over EU’s Crisis Fight (Bloomberg)
• Germany's big worry: China, not Greece (Reuters)
• Goldman names new CFO, heralding end of an era (Reuters)
• Russia Demands U.S. Agency Halt Work (WSJ)
• Fed’s Dudley Says Easing Vital to Spur Too-Slow Growth (Bloomberg)
• Romney under fire from all sides (FT)
• Poland cuts red tape to spur growth (FT)
• IMF to Put Argentina on Path to Censure Over Inflation Data (Bloomberg)

The profit motive

• Nothing has changed and things have just gotten worse: Europe Banks Fail to Cut as Draghi Loans Defer Deleverage (Bloomberg)
• Mitt Romney secret video reveals views on Obama voters (BBC)
• Romney Stands by Government-Dependent ‘Victims’ Remark (Bloomberg)
• Video shows Libyans helping rescue U.S. ambassador after attack (Reuters)
• Fannie Mae paid BofA premium to transfer soured loans-regulator (Reuters)
• Northrop to shed nearly 600 jobs (LA Times)
• LOLmarkets: Retail Currency Traders Turn to Algorithms (WSJ)
• U.K. Royal Family Wins French Ruling on Kate Photos (Bloomberg)
• Nevada recluse dies with $200 in bank, $7 million in gold at home (LA Times)
• Gap Between Rich and Poor Grows in Germany (Spiegel)
• Chicago teachers meet Tuesday to decide whether to end strike (Reuters)
• Australia's Fortescue wins debt breather, shares soar (Reuters) ... a deal which ultimately will prime equity and unsecureds by $4.5 billion in secured debt
• Ford car sales fall 29% in Europe (FT)

• Anti-Japan demonstrators protest in New York City (China Daily) ...and the propaganda: Younger generation feels wave of emotions (CD)
• And the retaliation: Obama to launch auto trade case against China (Reuters)
• Spanish Banks Bleeding Cash Cloud Bailout Debate (Bloomberg)
• Chicago teachers extend strike (Reuters); Emanuel Promises He’ll Sue to End Chicago Teacher Strike (Bloomberg)
• China hurts own credibility with Xi's vanishing act (Reuters)
• European Squabbling on Euro Crisis Solution May Test Rally (Bloomberg)
• Two South Africa mines reopen, most don't (Reuters)
• Finance Industry Warns of ‘Cliff Effect’ in ECB’s Bond Plan (Bloomberg)
• China struggles to cure the violent ills of health system (Reuters)
• QE3 is for Main Street, except... it isn't: QE3 hit by mortgage processing delays (FT)
• Probe focuses on JPMorgan's monitoring of suspect transactions (Reuters)
• As explained here before: Spanish Bonds Decline as EU Policy Makers Clash on Bank Plan (Bloomberg)

Global financial markets are awash in hundreds of trillions of dollars worth of derivatives. By some estimates, the total amount exceeds one quadrillion. Derivatives played a central role in the 2008 credit crisis, as they had a brutal multiplying effect on the magnitude of the carnage. As a bad asset was written down, oftentimes there were derivative contracts written against it that resulted in total losses 10x greater than the initial write-down. But what exactly are derivatives? How do they work? And have we learned to treat these "weapons of mass financial destruction" (as Warren Buffet colorfully coined them) any more carefully in the aftermath of the global financial crisis? Not really, claims Janet Tavakoli, the danger behind derivatives doesn't lie in their existence, she stresses, but when abused, derivatives can create massive damages. So at the root of the "derivatives problem" is control fraud - the rampant unchecked criminal action by influential players on Wall Street.

Bernanke took the plunge yesterday by embarking on QE3 or what would be better described as “Currency Debasement 3”. Improving the U.S. job market and therefore economy was the reason given for the extremely radical measures. However, the scale of the open ended monetary commitments suggests the Fed is worried about another Great Depression and an economic collapse. The move was described as "stunningly bold" by some analysts as it is "open ended" with Bernanke pledging to print or electronically create, with no time limit, an extra $40 billion every single month until the labour market improves. This is the frightening vista we have been warning of for some time. It means that should the US economy enter a recession and or depression, which still seems very likely, that the Fed will continue printing money and debasing the dollar thereby leading to dollar devaluation and inflation - potentially virulent inflation on a par with or worse than that seen in the 1970's. We had long said that QE3 was inevitable - the question was when rather than if. Indeed, we had said that given Bernanke's closeness to Wall Street we expected that QE4, QE5 etc.  were likely.  The "open ended" nature of this new round of QE as enunciated yesterday means that the Fed could if it wished or believes it is necessary print unlimited quantities of dollars.