Hong Kong

Everyone knows that Italy's unelected PM, Mario Monti, is a former Goldman Sachs International 'advisor.' As such, it is only natural that being part of the banking cartel he would do everything in his power to promote an inflationary agenda, one that seeks ECB bond monetization intervention, (another central bank headed by a former Goldmanite of course), perpetuates the status quo, and one that naturally contravenes everything that German citizens have been pushing for in their desire to avoid the risk of another hyperinflationary episode. Especially if, as is well-known, resolving Europe's problems, however briefly, facilitates an Obama re-election campaign because as conventional wisdom is also catching on, should Europe implode before November, Obama's reelection chances plunge accordingly. And yet, even as Goldman's tentacles had spread all over Europe (as seen here), conventional wisdom was that Goldman's influence in Germany was relatively muted.

Wrong.

Bloomberg News may be the most read news source in the world, but as of today, it is no longer available in China. Why? According to Bloomberg TV News Editor Denise Pellegrini, all it takes is for some investigative reporting exposing the dirty laundry, or in this case the even dirtier assets of one Xi Jinping - "the man in line to be China’s next president." In "Xi Jinping Millionaire Relations Reveal Fortunes of Elite" Bloomberg writes: "Xi warned officials on a 2004 anti-graft conference call: “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.” As Xi climbed the Communist Party ranks, his extended family expanded their business interests to include minerals, real estate and mobile-phone equipment, according to public documents compiled by Bloomberg. Those interests include investments in companies with total assets of $376 million; an 18 percent indirect stake in a rare- earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company." That a country's will seek to block the internet when the wealth of its humble leaders is exposed is expected. However, what is unexpected is that the hidden assets of China's president in waiting are rather easily discovered is troubling: it means Goldman has still much work to do in China, and much more advisory work to the country's elite over how to best hide its assets in various non-extradition locations around the world under assorted HoldCos. Just like in the US. The good news, for GS shareholders, however, is that this indeed provides a huge new potential revenue stream.

What few media pundits seem to grasp is that when our trade deficits transfer hundreds of billions of dollars to other nations, those dollars have to end up in dollar-denominated assets like bonds, stocks or real estate. Many people have missed the difference between dollars used to settle accounts and dollars held as a result of trade deficits. Many of those emotionally wedded to the belief that the U.S. dollar is doomed gleefully grabbed onto the news that China and Japan will swap currencies directly (yen and yuan) rather than intermediate the trade with U.S. dollars. This was mistakenly seen as a nail in the coffin of the USD. If I am in Japan and I have yuan due to trade with China, and I want to exchange those yuan for yen, I only need USD for about 10 seconds to intermediate the exchange. Cutting out the USD simply cut the exchange costs and lowered the daily trading volume of the USD. This reduction in the transactions needed to exchange yuan for yen did nothing to change the dollars held by China or Japan as a result of their trade surpluses with the U.S. This also didn't lower the amount of assets or credit (debt) denominated in USD. In other words, the effect on the value of the dollar is trivial. No matter how many exchanges the USD sitting in overseas accounts are pushed through, they still end up in dollar-denominated assets somewhere.

There are now reports that the Reserve Bank of India (RBI) is likely to clamp down on gold bullion coin sales by banks as the rising bullion imports are adding pressure to the current account deficit and weakening the rupee.  

Western central banks and mints will not be clamping down on gold bullion coin sales in the near future as demand for gold and silver bullion coins fell in Q1 2012.

• France to Lift Minimum Wage in Bid to Rev Up Economy (WSJ)... weeks after it cut the retirement age
• Merkel Urged to Back Euro Crisis Measures (FT)
• Monti lashes out at Germany ahead of summit (FT)
• Italy Official Seeks Culture Shift in New Law (WSJ)
• Migrant workers and locals clash in China town (BBC)
• Romney Would Get Tough on China (Reuters)
• Bank downgrades trigger billions in collateral calls (IFRE)
• Gold Drops as US Data, China Speculation Temper Europe (Bloomberg)

With so much economic doom and gloom out there, it’s easy to forget that there are actually some bright spots in the world. I’ve spent the last few days in one of them– Georgia. Perhaps most famous for being continually stomped on by Russia, this place has suffered severe hardship practically since independence from the Soviet Union in the early 1990s. In 2005, Georgia was shut out of the Russian market, it’s largest trading partner. It happened again in 2006. Then, of course, you may remember the Russian military invading Georgia (do you see the theme here?) in August 2008 in support of the breakaway republic of Abkhazia in northwest Georgia. Russian forces rolled across the border, occupied several key areas in the country, and bombed the hell out of Tbilisi just for good measure. The damage is still visible to this day. Yet despite so many challenges, Georgia has finally turned the corner and become one seriously exciting economy with some seriously compelling opportunities.

When the US Dollar is ultimately dethroned as the world's reserve currency (and finally gets rid of all those ridiculous three letter post-Keynesian economic "theories") nobody will have seen it coming. Well, nobody except for the following headlines: ""World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees." And while the expansion of the "dollar exclusion zone" was actually quite glaring to anyone who dared to look, one thing was obvious: it was confined to Asia. No more courtesy of the following FT headline: "Brazil and China agree currency swap." More: "Brazil has provided a vote of confidence in China’s efforts to promote the renminbi as a reserve currency by becoming the biggest economy yet to agree a swap deal with Beijing. Brazil and China announced the R$60bn (US$29bn) local currency swap after a bilateral meeting between Wen Jiabao, the Chinese premier, and Dilma Rousseff, Brazil’s president, on the sidelines of the Rio+20 environmental summit in Rio de Janeiro."

"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.

• Prepare for Lehmans (sic) re-run, Bank official warns (Telegraph)
• Fed Seen Extending Operation Twist While Avoiding Bond Buying (Bloomberg)
• US Watchdog Hits at ‘Risky’ London (FT)
• G20 Bid to Cut Cost of Euro Borrowing (FT)
• Romney Says Rubio Being Examined as Possible Running Mate (Bloomberg)
• Hollande Says Worth Exploring ESM Bond Buys (Reuters)
• US Upbeat After Eurozone Debt Crisis Talks (FT)
• BOJ Members Say Japan Could Be ‘Adversely Affected’ by Europe (Bloomberg)
• China Steps Said to Grow Bond Market, Add Issuer Scrutiny (Bloomberg)
• How Asia Will Fare if Europe Cracks (WSJ)

• Greek Banks Under Pressure (WSJ)
• France Seeks Eurozone Stability Package (FT)
• Germany Dashes Eurozone Expectations (FT)
• Geithner Says European Leaders Know They Must Do More (Bloomberg)
• In Athens, Party Aims to Delay Austerity (WSJ)
• Rajoy Battles ECB for Loans; Monti Appeals for EU Action (Bloomberg)
• Nokia Slashes 10,000 Jobs, Cuts Outlook (WSJ)
• H-1B Visas Hit the Cap, Sending Companies to Plan B (Businessweek)
• Swiss National Bank Vows to Defend Currency Floor (WSJ)
• Euro Crisis Deeper With Moody’s Downgrading Spain, Cyprus (Bloomberg)
• When all else fails... Truckers As Leading Indicator Show Stable U.S. Economic Growth (Bloomberg)

• How original: Syria prints new money as deficit grows (Reuters)- America is not Syria
• Former SNB head Hildebrand to become BlackRock vice chairman (FT)
• Osborne says Greece may have to quit euro (Reuters)
• Osborne Risks the Wrath of Merkel (FT)
• China second-quarter GDP growth may dip below 7 percent - government adviser (Reuters)
• Italian Borrowing Costs Surge at Auction of 1-Year Bills (Bloomberg)
• Greeks withdraw cash ahead of cliffhanger vote (Reuters)
• Merkel’s Choice Pits European Fate Against German Voter Interest (Bloomberg)
• Italy Tax Increases Backfire as Monti Tightens Belts (Bloomberg)
• Dimon says JPMorgan failed to rein in traders (Reuters)

All you can read.

What are capital controls? Simply, capital controls are policies which restrict the free flow of capital into, out of, through, and within a nation’s borders. They can take a variety of forms, including:

• Setting a fixed amount for bank withdrawals, or suspending them altogether
• Forcing citizens or banks to hold government debt
• Curtailing or suspending international bank transfers
• Curtailing or suspending foreign exchange transactions
• Criminalizing the purchase and ownership of precious metals
• Fixing an official exchange rate and criminalizing market-based transactions

Establishing capital controls is one of the worst forms of theft that a government can impose. It traps people’s hard earned savings and their future income within a nation’s borders. This trapped pool of capital allows the government to transfer wealth from the people to their own coffers through excessive taxation or rampant inflation… both of which soon follow.

All you need to know.