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I just finished reading Octopus by Guy Lawson, and it's one of those that fit the "I Couldn't Put It Down" category, much like Den of Thieves, published in 1992. It is the tale of Sam Israel, whom you may remember in 2006 was on the lam from his failed hedge fund/Ponzi scheme. He faked his suicide, was captured, and is now hanging out for the next couple of decades (with none other than Bernie Madoff) in a state prison named, of all things, Valhalla.

Moments ago, the FOMC members formalized their opinion on where inflation is heading: "Most members continued to anticipate that, with longer-term inflation expectations stable and the existing slack in resource utilization being taken up very gradually, inflation would run over the medium term at a rate at or below the Committee’s objective of 2 percent." The only conclusion one can derive from this is that since the perpetually wrong FOMC committee, which has never accurately predicted any one thing in its entire history, sees little to no inflation, inflation is most likely about to soar. A convenient independent confirmation of this assumption comes from none other than bond manager PIMCO which moments ago announce that it was adding to its gold holdings "on inflation concerns...as it bets that global inflation rates will pick up over the next three to five years." Specifically, "The Pimco Commodity Real Return Strategy Fund, which has about $20 billion in assets, has increased its gold holdings to 11.5% of total assets recently, from 10.5% two months ago, and has been adding to the position when gold prices dipped toward $1,500 a troy ounce, says Nic Johnson, the fund's co-portfolio manager." And with global asset managers allocating about 1% of their AUM to the precious metal, should the majority of them copycat PIMCO in this move, then gold would cross the psychological $2,000 barrier in minutes. The irony is that for a bond manager, which Pimco just happens to be the biggest in the world, inflation is your worst friend. So acknowledging its imminent creep, is hardly "talking one's book."

Hopes that today may finally see an increase in trading volatility and volume following yesterday's reversal session will likely be dashed as the event wasteland on the horizon continues for the third day in a row. As DB explains, the FOMC meeting minutes and Juncker’s visit to Athens are likely the two main sources for key headlines today. While backward looking and certainly predating Lockhart's hawkish comments from yesterday, the FOMC minutes today are expected to shed further light on the kind of policy currently under consideration and the economic conditions required before easing is warranted. One thing that will not be discussed is the circularity of launching more QE even as gas prices have never been higher on this day in history, soy and corn are back at all time highs, and the market trading at multi-year highs. As repeatedly explained before, the option for the FOMC include pushing out the targeted exit date for fed funds, providing “exit guidance” on balance sheet measures (i.e. asset sales), various mixes of additional balance sheet expansion (including the possibility of an open-ended QE program) and  cutting interest on reserves. It is virtually certain that none of these will be enacted at the Jackson Hole meeting in one week, 2 months ahead of the presidential election, but hope springs eternal.

The fact that labour mobility is low in Europe is indicative of a fundamental problem. In any currency union or integrated economy it is necessary that there is enough mobility that people can emigrate from places where there is excess labour (the periphery) to places where labour is in short supply. Now, there is free movement in Europe, which is an essential prerequisite to a currency union. But the people themselves don’t seem to care for utilising it. Why? I can theorise a few potential reasons people wouldn’t want to move — displacement from friends and family, moving costs, local attachment.  Yet none of those reasons are inapplicable to the United States. However there are two reasons which do not apply in the United States — language barriers and national loyalty. It is those reasons, I would suggest, that are preventing Europe from really functioning as a single economy with a higher rate of labour mobility. The people who built the Euro realised that such problems existed, but decided to adopt a cross-that-bridge-when-we-come-to-it approach. But long-term and deep-seated issues like language barriers and nationalistic sentiment cannot simply be eroded away in a day with an economic policy instrument. No bond-buying bazooka can smooth the underlying reality that Europe — unlike the United States — is not a single country.

The chart below, which is a time series showing the total "Gold Held by the US Treasury and the Federal Reserve" (which for all intents and purposes are interchangeable), demonstrates vividly the moment when the US government enacted Executive Order 6102, aka the "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States" order which criminalized the possession of monetary gold "by any individual, partnership, association or corporation." But not the government of course. Spot the moment after which gold confiscation by the US government (also known as a 40% USD devaluation) from its citizens was legalized.

It may come as a surprise to some of our younger readers, that the Eurozone, and its associated currency, is merely the latest in a long series of failed attempts to create a European currency union and a common currency. Three of the most notable predecessors to the EUR include the Hapsburg Empire, the Soviet Union, and Yugoslavia. Obviously, these no longer exist. Just as obvious, all of these unions, having spent time, energy, money, and effort to change the culture and traditions of member countries and to perpetuate said unions, had no desire, just like Brussels nowadays, to see these unions implode. The question then is: what happened after these multi-nation currency unions fails. VOX kindly answers: "they all ended with disastrous hyperinflation."

Since sickcare is fiscally and demographically unsustainable, it will eventually be replaced by something that is sustainable. Our only choice is to either let the current system collapse and then start pondering sustainable alternatives, or begin an honest discussion of sustainable alternatives before sickcare implodes in insolvency. In the spirit of openly discussing a variety of sustainable, systemic healthcare options, we present this essay by correspondent "Ishabaka" M.D. on how to cut our current (18% of GDP) healthcare spending by 50%.

Just under two years ago, Meredith Whitney made a much maligned, if very vocal call, that hundreds of US municipalities will file for bankruptcy. She also put a timestamp on the call, which in retrospect was her downfall, because while she will ultimately proven 100% correct about the actual event, the fact that she was off temporally (making it seem like a trading call instead of a fundamental observation) merely had a dilutive impact of the statement. As a result she was initially taken seriously, causing a big hit to the muni market, only to be largely ignored subsequently even following several prominent California bankruptcies. This is all about to change as none other than Warren Buffett has slashed half of his entire municipal exposure, in what the WSJ has dubbed a "red flag" for the municipal-bond market. Perhaps another way of calling it is the second coming of Meredith Whitney's muni call, this time however from an institutionalized permabull.

Buy everything I say without limit. Leverage each purchase to the maximum allowed under the law. The markets will only go up and not down and 100,000 is the next stop for the S&P. It is to be Dow without Jones, assets without liabilities and wealth without poverty. The Middle Class has been evacuated and everyone is wealthy beyond belief. It is just there, of course, that the truth lies in this merry old land, “beyond belief.”

"I like fantasy---it wakes up the brain cells.”

- Dr. Seuss

And to think that the market could have learned its lesson by now. Following the planting of an unsourced, glaringly obvious ECB propaganda report such as that attempted yesterday in Der Spiegel, in which nothing of substance was in fact enacted or even proposed (as rate caps is merely a regurgitation of ideas thrown out previously in the summer and fall of 2011), peripheral bonds once again tightened on absolutely nothing, with the Spanish 10 Year now back in the 6.30% territory, over 100 bps inside where it was a month ago. On not a single enacted reform or actual ECB action. Of course, it was a matter of hours before the German FinMin put an end to this latest rumor, and sure enough an hour ago a spokesman for the German FinMin said they were unaware of any ECB plan to target bond spread. Perhaps because there are none? And of course, if there were, the Germans would promptly put an end to what is my implication an open-ended bond buying program without conditionality: something that worked like a "charm" last summer with Italy. And just to make sure Germany's message was read loud and clear, here is the Bundesbank turning on the "just say 9" machine.

"Greece set a precedent for 'Here's what you're going to get, take it or leave it'" is how the WSJ summarizes an analyst's 'shocked' thoughts on the growing game of 'call my bluff' being played among beggars being choosers. Belize is surprise surprise running out of money to pay its debts and is insisting that creditors forgive 45% of what they are owed - OR allow it to delay any debt payments for 15 years (yes, seriously, read that again) - leaving a default on the country's $543.8mm almost inevitable. Three things stand out to us: 1) the nation's government shunned bondholders by simply posting a note on its website that it would be 'skipping a payment' as opposed to telling creditors directly; 2) none other than 'Long GGBs are the slam-dunk trade-of-the-year' Greylock Capital are "mystified" that yet another trade has gone pear-shaped adding that they are "sure every country could benefit from not paying their debt but this isn't the way to do it!"; and 3) this would be one of the worst restructuring terms ever as the "Greek effect" could inspire other countries to pursue restructurings on more favorable terms - especially given that: "Even if you don't need a restructuring you can force one upon bondholders because it's so hard to recover money from a sovereign who won't pay,"

The deleveraging trap is a catch-22; while debt remains excessive, economic activity remains subdued, and while economic activity remains subdued, generating more production than consumption to pay down debt is extremely difficult. As we have seen in Japan — where the total debt load remains above where it was 1991 — fundamentals can remain depressed for years or even generations. Certainly, the modern debt jubilee isn’t going to cure the culture that led to the excessive debt. Certainly, it won’t wash away the vampiristic TBTF megabanks who caused the GFC and live today on bailouts and ZIRP. Certainly, it won’t fix our broken political or financial systems where whistleblowers like Assange are locked away and fraudsters like Corzine roam free to start hedge funds. And certainly it won’t wash away the huge mountain of derivatives or shadow intermediation that interconnect the economy in a way that amplifies small shocks into greater crises.

The modern “debt jubilee” is characterised as “quantitative easing for the public”. It has been boiled down to a procedure where the central bank does not create new money by buying the sovereign debt of the government. Instead, it takes an arbitrary number, writes a check for that number, and deposits it in the bank account of every individual in the nation. Debtors must use the newly-created money to pay down or pay off debt. Those who are not in debt can use it as a free windfall to spend or “invest” as they see fit. This, it is said, is the only way left to restart economic “growth” and finally get the spectre of unending financial crisis out of the headlines. It is the latest of a long string of “print to cover” remedies.

In four months the debate over America's Fiscal cliff will come to a crescendo, and if Goldman is correct (and in this case it likely is), it will probably be resolved in some sort of compromise, but not before the market swoons in a replica of the August 2011 pre- and post-debt ceiling fiasco: after all politicians only act when they (and their more influential, read richer, voters and lobbyists) see one or two 0's in their 401(k)s get chopped off. But while the Fiscal cliff is unlikely to be a key point of contention far past December, another cliff is only starting to be appreciated, let alone priced in: America's Demographic cliff, which in a decade or two will put Japan's ongoing demographic crunch to shame, and with barely 2 US workers for every retired person in 2035, we can see why both presidential candidates are doing their darnedest to skirt around the key issue that is at stake not only now, be every day hence.

While the Achilles heel to the endless "economic data" BS coming out of China may be its electric production and demand, both of which show a vastly different picture than what the Beijing politburo's very wide brush strokes paint, the US itself is not immune from indicators that confirm that anything the BEA dishes out should be taken with a grain of salt. One data set that we showed recently that paints a drastically different (read slowing) picture of the US economy which we noted recently is railcar loading of waste and scrap for the simple reason that "The more we demand, the more waste is generated by that production." Of course, the propaganda manipulation machinery only focuses on the "entrance" of production, and completely ignore the "exit." But an even far more important metric of the general health of the US economy may be none other than broad energy demand, in the form of petroleum deliveries and gasoline demand. If this is indeed the relevant metric to observe, then things are about to get far, far worse. As Dow Jones notes: "U.S. petroleum deliveries, a measure of demand, fell by 2.7% in July from a year earlier to the lowest level in any month since September 2008, the American Petroleum Institute, an industry group, said Friday." It gets worse: "Demand in the world's biggest oil consumer, at 18.062 million barrels a day, was the weakest for the month of July since 1995, the API said. Year-to-date demand is down 2.3% from the same period in 2011."