BIS

With headlines crowing of gold's worst year since 1981 as a signal that the status quo is winning and proof positive that fiat-currency naysayers must be wrong, it would appear that the rest of the world's central banks (and banks) have used the price depreciation to stack the precious metal. As Bloomberg reports,

*RUSSIAN BANKS BOUGHT 181.4 TONS OF RUSSIAN GOLD IN 2013: RIA
*RUSSIAN BANKS BOUGHT ALMOST 90% OF RUSSIA 2013 GOLD OUTPUT: RIA

This 5.834 million ounce addition (8.3% YoY) is more than double that of Russia's central bank additions in 2013 with Bitcoin-favoring Sberbank piling up 48.5 tons alone in 2013.

Sir Halford Mackinder’s 1904 speach in which he outlined his “Heartland Theory” was a founding moment for geo-politics. He argued that control of the Eurasian landmass (Europe, Asia and the Middle East), which contained the bulk of the world’s population and natural resources, was the major geo-political prize. As time passed, energy (first crude oil then natural gas), became increasingly integral to this concept and its strategic significance cannot be overstated. Remarkably, Mackinder’s theory has remained equally valid, if not more so, in the modern era - although key “pivot areas” for exercising control have evolved. In addition to Central Asia and Trans-Caucasus in Mackinder’s day, the oil producing nations of the Middle East took on increasing importance in the “New Great Game”. We see a “New New Great Game” emerging.

December 23rd, 1913 is a date which will live in infamy.  That was the day when the Federal Reserve Act was pushed through Congress.  Many members of Congress were absent that day, and the general public was distracted with holiday preparations.  Now we have reached the 100th anniversary of the Federal Reserve, and most Americans still don't know what it actually is or how it functions.  But understanding the Federal Reserve is absolutely critical, because the Fed is at the very heart of our economic problems. Since the Federal Reserve was created, there have been 18 recessions or depressions, the value of the U.S. dollar has declined by 98 percent, and the U.S. national debt has gotten more than 5000 times larger.  This insidious debt-based financial system has literally made debt slaves out of all of us, and it is systematically destroying the bright future that our children and our grandchildren were supposed to have. The truth is that we do not have to have a Federal Reserve.  The greatest period of economic growth in U.S. history was when we did not have a central bank.  If we are ever going to turn this nation around economically, we are going to have to get rid of this debt-based financial system that is centered around the Federal Reserve.  On the path that we are on now, there is no hope.

Yesterday it was the US Treasury's Financial Crimes Enforcement Network that tightened its grip on businesses that accept Bitcoin. Today, it is China, where the world's largest Bitcoin exchange by trading volume, BTCChina announced that he had received word from "above" that his platform would no longer be able to accept renminbi from BTC buyers. "As of right now, we have received notice from our third-party payment company that they will disallow customers from making deposits into our exchange," Bobby Lee, a former Yahoo developer who co-founded BTCChina this year, told the Financial Times.  The result, not surprisingly, is an overnight crash in BTC, which crashed by 50% from $900 two days ago to just $455 hours ago.

Zero Hedge users mostly agree the financial system will implode.  It doesn't take more than high school math skills to calculate that the current debt based money system has implosion built in, and it's guaranteed (this is one rare case we can use such a word in finance!), because at some point, not enough new money can be created to pay off an ever increasing debt base.  Collapse is a mathematical certainty.

For the last year or two, European banks have engaged in the ultimate of self-referential M.A.D. trades - buying the sovereign debt of their own nation in inordinate size to maintain the ECB's illusion of control (even as their economies collapse and stagnate) while referentially obtaining the funding for said purchase from the ECB by repoing the purchase back to the central bank, usually with no haircut to mention. Today though, as The FT reports, a top official at the European Central Bank has signalled it will try to force eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.

The FSB's first chairman was Mario Draghi, current President of the European Central Bank, while its current chairman is Mark Carney, Governor of the Bank of England. The inclusion of Financial Market Infrastructures means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in including exchange traded funds.

Technically, "High Yield" is no longer the appropriate name for the riskiest credit issuance since the average coupon has declined to where Investment Grade used to trade in the years before the New Normal. It is therefore only appropriate that as part and parcel of this record high yield bond issuance surge levering the riskiest companies to the gills with low interest debt, that there is also a scramble between underwriters to become as competitive as possible. And, sure enough, as Bloomberg Brief reports, "the underwriting fees disclosed to Bloomberg on U.S. junk bond deals average 1.276 percent for the year to date, the lowest since our records began. The prior low was set in 2008, when fees averaged 1.4 percent." 2008... that was when the last credit bubble burst on unprecedented demand for junk bonds: we are confident the bubble apologists will find some other metric with which to convince everyone that reality, and the Fed's Stein, have it all wrong.

• Glass-Steagall Fans Plan New Assault If Volcker Rule Deemed Weak (BBG) ... "if"? The banks control the legislators and regulators...
• Cellphone data spying: It's not just the NSA (USA Today)
• Major tech companies push for limits on government surveillance (Reuters)
• Shanghai Warns Kids to Stay Indoors for Seventh Day on Smog (BBG)
• Protesters fell Lenin statue, tell Ukraine's president 'you're next' (Reuters)
• Everyone must be flying private these days: EADS to cut 5000-6000 jobs, close Paris HQ in restructuring (FT)
• Big Players Trade 'Upstairs' (WSJ)
• There’s no way to tell how many people who think they’ve signed up for health insurance through the U.S. exchange actually have (BBG)
• Slower China inflation reduces worries of tighter policy (Reuters)

In every organization, including the Chinese Communist Party, there are forces of movement and forces of order.  The forces of movement have moved into ascendancy in China and this was signaled by establishment of the special economic zone in Shanghai and the program emerging from recent Third Plenary Session.  However, the uncertainty over implementation kept domestic and foreign investors cautious.

As we said back in March, when Bitcoin's parabolic rise first started, it was only a matter of time before first one, then all central banks take on Bitcoin for the simple fact that it present too great a threat to the fiat system. Sure enough, on the chart below of BTC China it is quite clear just at what point overnight the People's Bank of China announced that Bitcoin is simply a virtual commodity and "isn't a currency with any real meaning" (paraphrasing Alan Greenspan), and that it officially bans financial companies from Bitcoin transactions.

UPDATE: BTC has rallied 26% off its lows in the last 55 minutes

From it's gold-matching highs at $1242 on Thursday night, the price of Bitcoin has collapsed over $400 (32%) to $840 on heavy volume. Of course, this is only a one-week low for the exuberant digital currency but still a significant plunge (as its smaller brethren Litecoin has collapsed 51% from its highs). Interestingly, this drops the price of Bitcoin in USD below the 'arb'-based price of Bitcoin in China ($965). It seems, all coincidence aside, that the BIS infamous plunge-protection-team has been re-trained...

Shortly after 1amET this morning, someone with no apparent fiduciary duty to their client's for best execution or any apparent trade allocation expertise decided it was time to dump 1500 contracts into an entirely illiquid gold futures market. The 150,000 ounce notional sell order ($184.5 million), captured graphically by Nanex, sent the price down $10 instaneously, tripped the exchange's circuit breakers and halted the market's trading for 20 seconds (once again). This is now the 4th market halt in the past 3 months (and this time on no news whatsoever), as the manipulative monkey-hammerings from who knows whom (BIS?) is becoming increasingly obvious.

Paper gold in the developed world may trade based on the whims of marginal momentum chasers, and of course, the daytrading mood of the BIS gold and FX trading desk, but when it comes to physical gold and China's appetite for it, one word explains it best: unstoppable.

In the 1977 Eagles song, Hotel California, a luxury hotel appears inviting and offers a tired traveller comforting relief from his journey. It turns out to be something of a nightmare, however, and he finds that "you can check out anytime you like, but you can never leave". BNP's Paul Mortimer-Lee asks "does that sound a little bit like QE and the Fed?" The FOMC signalled its intention to check out of QE at its June meeting, but by September, it found it could not leave. Is that not just like QE1 and QE2, the scheduled ends of which had to be reversed within relatively short periods? The question now is whether or not we should expect repeated market obstacles to a QE3 exit. Why? Because, as we have noted numerous times, flows matter.