A regular feature back in 2010 when we had our first taste of global currency warfare as Brazil's finance minister accurately summarized when he said "a currency war has broken out" (and yes: currency war existed then, and especially in the 1930s which led to the Great Depression, long before the recent eponymous book came out desperate to take credit for this simplistic concept) were the global FX heatmaps which showed how any given currency is doing on any given day. Since currency warfare is now back and more violent than at any time in the past 80 years, it only makes sense to bring back a long-time reader favorite: the currency warfare heatmaps which show who, on any given day, is winning and losing, the global race to debase and in the process beggar all globalized and SWIFT-interlinked neighbors. But don't forget: in a relativistic fiat world, nobody can actually win the global race to debase. Well, not nobody: gold (and other precious metals) can, assuming it is not confiscated as it was the last time the US ended the global currency war with a 50%+ devaluation of the USD relative to gold... and promptly confiscated all gold.
In yet another victory for not bowing to the great-and-good of modern orthodoxy, Iceland has won a court ruling that enables it to repay billions of Euros (in failed bank deposits to the UK and Holland) on its own terms. Icesave collapsed in 2008 and left thousands of depositors, who had chased higher yielding deposits, with losses. The Dutch and British governments demanded prompt payment; Iceland denied, preferring (rationally) to repay what they could from the then-bankrupt entity. As RTE notes, Icelanders in referenda twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done, instead of the taxpayers of Iceland being force per se to fund this shortfall. The implication being: Bank deposit insurance schemes in the European Economic Area are NOT backed by government liability, neither explicitly nor implicitly - which could well reignite concerns of the much-hoped-for Europe-wide deposit-guarantees.
The 2008 crash resulted from the bursting of the biggest bubble in financial history, a ‘credit super-cycle’ that spanned more than three decades. How did this happen? Some might draw comfort from the observation that bubbles are a long established aberration, arguing that the boom-and-bust cycle of recent years is nothing abnormal. Any such comfort would be misplaced, for two main reasons. First, the excesses of recent years have reached a scale which exceeds anything that has been experienced before. Second, and more disturbing still, the developments which led to the financial crisis of 2008 amounted to a process of sequential bubbles, a process in which the bursting of each bubble was followed by the immediate creation of another. Though the sequential nature of the pre-2008 process marks this as something that really is different, in order to put the 'credit cuper-cycle' in context, we must understand the vast folly of globalization, the undermining of official economic and fiscal data, and the fundamental misunderstanding of the dynamic which really drives the economy.
"Why do we consider banks to be like holy churches?" is the rhetorical question that Iceland's President Olafur Ragnar Grimson asks (and answers) in this truly epic three minutes of truthiness from the farce that is the World Economic Forum in Davos. Amid a week of back-slapping and self-congratulatory party-outdoing, as John Aziz notes, the Icelandic President explains why his nation is growing strongly, why unemployment is negligible, and how they moved from the world's poster-child for banking crisis 5 years ago to a thriving nation once again. Simply put, he says, "we didn't follow the prevailing orthodoxies of the last 30 years in the Western world." There are lessons here for everyone - as Grimson explains the process of creative destruction that remains much needed in Western economies - though we suspect his holographic pass for next year's Swiss fun will be reneged...
It’s Not a Tax or Spending Problem … It’s a Devolution Into Lawlessness
Yes, it is the holiday season. Yes, you are unlikely to be taking action with your investments. Yes, the morphing of what is into what will be continues uninterrupted.
There were several developments over the weekend that will influence the direction of the the markets in the days ahead, with the usual caution about the impact of the thinness of conditions.
First, the major focus remains the US fiscal cliff. One of the most important ways in which the US fiscal crisis differs from those seen in Iceland, Greece, Portugal, Ireland is that it has not been triggered by a capital strike. Investors have not fled the US. Interest rates have not trended higher. It is not a fiscal crisis. It is a political crisis
- Obama Concessions Signal Potential Bipartisan Budget Deal (BBG)
- Cerberus to sell gunmaker after massacre (CNN)
- With New Offers, Fiscal-Cliff Talks Narrow (WSJ)
- Judge rejects Apple injunction bid vs. Samsung (Reuters)
- U.S. policy gridlock holding back economy? Maybe not (Reuters)
- President fears for Italy’s credibility (FT)
- Struggles Mount for Greeks as Economy Faces Winter (WSJ)
- Abe leans on BoJ in post-election meeting (FT)
- Bank of Japan to mull 2 percent inflation target as Abe turns up heat (Reuters)
- EU exit is ‘imaginable’, says Cameron (FT)
- Mortgage Risk Under Fire in Nordics as Bubbles Fought (BBG)
- Sweden cuts interest rates to 1% (FT)
- External risks impede China recovery, more easing seen (Reuters)
"There’s a problem with kicking the can down the road" - Ben Bernanke, (December 12 2012)... We’ve taken this quote out of context - Bernanke was actually talking about the fiscal cliff, and not monetary policy; but kicking the can down the road is exactly what Bernanke is doing in his domain. Instead of letting the shadow banking bubble burst and liquidate in 2008, Bernanke has allowed it to slowly deflate, all the while pumping up the traditional banking sector with heavy, heavy liquidity. The reduction in shadow liabilities remains a massive deflationary and depressionary force (and probably the main reason why a tripling of the monetary base has not resulted in very severe inflation). Trillions and trillions of liquidity later, Bernanke is barely keeping the system afloat. We chose the path of Japan (which has spent the last twenty years depressed) not the path of Iceland (which is emerging from its depression). We chose to kick the can down the road. The system is rotten, and the debt load is unsustainable.
- Fed Seen Pumping Up Assets to $4 Trillion in New Buying (BBG)
- China New Loans Trail Forecasts in Sign of Slower Growth (BBG)
- U.S. "fiscal cliff" talks picking up pace (Reuters)
- Insider-Trading Probe Widens (WSJ)
- U.K.'s Top Banker Sees Currency Risk (Hilsenrath)
- Three Arrested in Libor Probe (WSJ)
- Nine hurt as gunmen fire at Cairo protesters (Reuters)
- Egyptian President Gives Army Police Powers Ahead of Vote (BBG)
- Pax Americana ‘winding down’, says US report (FT)
- Japan Polls Show LDP, Ally Set for Big Majority (DJ)
- HSBC to pay record $1.9 billion U.S. fine in money laundering case (Reuters)
Iceland went after the people who caused the crisis — the bankers who created and sold the junk products — and tried to shield the general population. But what Iceland did is not just emotionally satisfying. Iceland is recovering, while the rest of the Western world — which bailed out the bankers and left the general population to pay for the bankers’ excess — is not. Iceland’s approach is very much akin to what I have been advocating — write down the unsustainable debt, liquidate the junk corporations and banks that failed, disincentivise the behaviour that caused the crisis, and provide help to the ordinary individuals in the real economy (as opposed to phoney “stimulus” cash to campaign donors and big finance). And Iceland has snapped out of its depression. The rest of the West, where banks continue to behave exactly as they did prior to the crisis, not so much.
To think it took a really ugly economic number, such as the Services PMI reported last night, to stir the Chinese stock market out of a hypnotic drift lower, and push it up by 2.7%. Why? Because in the New Normal bad economic news means hope that central banks get involved, and as we have explained the ongoing SHCOMP collapse is purely a function of the PBOC remaining on the sidelines. Last night, rumors (very unfounded and very incorrect) that the central bank would intervene put a stop to the drop. Sadly, as the PBOC has no intention of ending its ultra-short term reverse-repo driven market support strategy, the bounce will be very short lived. However, that coupled with more jawboning out of the BOJ that it would act, if it has to (whether under Abe or Noda), sent the JPY even weaker, and futures ramping on tiny overnight volume which wiped out all the previous day's losses.
You've probably noticed the cookie-cutter format of most financial media "news": a few key "buzz words" (fiscal cliff, Bush tax cuts, etc.) are inserted into conventional contexts, and this is passed off as either "reporting" or "commentary" depending on the number of pundits sourced. Correspondent Frank M. kindly passed along a template that is "officially deny its existence" secret within the mainstream media. With this template, you could launch your own financial media channel, ready to compete with the big boys. Heck, you could hire some cheap overseas labor to make a few Skype calls to "the usual suspects," for-hire academics, hedge fund gurus, etc. and actually attribute the fluff to a real person.
There was one, just one, country that escaped the bankster Mutually Assured Destruction singularity force field in 2009 and after destroying the financial overhang and starting from scratch, has become a paragon of growth in the New Global Depressionary Normal. Iceland (profiled most recently here). As such, what Iceland says is signal, and what the legacy masters of the abovementioned New Normal repeat day after day, is recurring noise. Here is the signal: when Icelanders were asked if they should join the EU, this is what they responded:
- YES - 27.3%
- NO - 57.6%
If you often wonder why ‘free market capitalism’ feels like it is failing despite universal assurances from economists and political pundits that it is working as intended, your intuition is correct. Free market capitalism has become a thing of the past. In truth free market capitalism has been replaced by something that is truly anti-free market and anti-capitalistic. The diversion operates in plain sight. Beginning sometime around 1970 the U.S. and most of the ‘free world’ have diverged from traditional “free market capitalism” to something different. Today the U.S. and much of the world’s economies are operating under what I call Monetary Fascism: a system where financial interests control the State for the advancement of the financial class. This is markedly different from traditional Fascism: a system where State and industry work together for the advancement of the State. Monetary Fascism was created and propagated through the Chicago School of Economics. Milton Friedman’s collective works constitute the foundation of Monetary Fascism. Today the financial and banking class enforces this ideology through the media and government with the same ruthlessness of the Church during the Dark Ages: to question is to be a heretic. When asked in an interview what humanities’ future looked like, Eric Blair, better known as George Orwell, said “Imagine a boot smashing a human face forever.”
As we noted last week, the US, long considered the standard bearer for economic freedom among large industrial nations, has experienced a rather remarkable plunge in economic freedom over the last decade. This excellent infographic summarizes what factors drove us here, which countries are on the rise, and why we are more like Venezuela, Argentina, and Iceland than many would like to believe.