The Fed's currency swap with the ECB is nothing more than a covert bailout for European banks. Philipp Bagus of Mises.com explains how the USD-funding crisis occurred among European banks inevitably leading to the Fed assuming the role of international lender of last resort - for which US taxpayers are told to be lucky happy since this free-lunch from printing USD and sending them overseas provides an almost risk-free benefit in the form of interest on the swap. Furthermore, the M.A.D. defense was also initiated that if this was not done, it would be far worse for US markets (and we assume implicitly the economy). The Fed's assurances on ending the bailout policy should it become imprudent or cost-benefits get misaligned seems like wishful thinking and as the EUR-USD basis swap starts to deteriorate once again, we wonder just how long before the Fed's assumed role of bailing out the financial industry and governments of the world by debasing the dollar will come home to roost. As Bagus concludes: "Fed officials claim to know that the bailout-swaps are basically a free lunch for US taxpayers and a prudent thing to do. Thank God the world is in such good hands." and perhaps more worryingly "The highest cost of the Fed policy, therefore, may be liberty in Europe" as the Euro project is enabled to play out to its increasingly centralized full fiscal union endgame.
Who will buy our debt in the coming months and years? Europe is saturated with debt and doesn’t have the means to purchase our debt. Japan is a train wreck waiting to happen. China’s customers aren’t buying their crap, so their economic miracle is about to go in reverse. The Federal Reserve cannot buy $1 trillion of Treasury bonds per year forever without creating more speculative bubbles and raging inflation in the things people need to live. The Minsky Moment will be the point when the U.S. Treasury begins having funding problems due to the spiraling debt incurred in financing perpetual government deficits. At this point no buyer will be found to bid at 2% to 3% yields for U.S. Treasuries; consequently, a major sell-off will ensue leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity. In layman terms that means – the shit will hit the fan. The Federal Reserve and Treasury will be caught in their own web of lies. The only way to attract buyers will be to dramatically increase interest rates. Doing this in a country up to its eyeballs in debt will be suicide. We will abruptly know how it feels to be Greek....The entire financial world is hopelessly entangled by the $700 trillion of derivatives that ensure mass destruction if one of the dominoes falls. This is the reason an otherwise inconsequential country like Greece had to be “saved”.
In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act? The authorizing legislation projected a body “to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes.” By now can we identify the operative phrase? Of course: “for other purposes.” As you prepare to mark the Fed’s centenary, may I urge you to reflect on just how far you have wandered from the intentions of the founders? The institution they envisioned would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash— temporarily. This it would do according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism— as today’s Fed seems to do at every available opportunity—but yield to it.
This chart tells millions of stories. That’s right: since 1984 (surely an appropriate year) while the elderly have grown their wealth in nominal terms, the young are much worse off both in inflation-adjusted terms, as well as nominal terms (pretty hard to believe given that the money supply has expanded eightfold in the intervening years). So why are the elderly doing over fifty times better than the young when they were only doing ten times better before? There is enough money to keep the economy flowing so long as there are opportunities for people to make themselves useful in a way that pays. With the crushing burden of overregulation and the problem of barriers to entry, these opportunities are often restricted to large corporations. These issues of youth unemployment and growing inequality between the generations are critically important. Unemployed and poor swathes of youth have a habit of creating volatility in response to restricted economic opportunity.
Gold Nears $1,700/oz After Bernanke QE Hints, OECD $1.3 Trillion Eurozone ‘Firewall’ And Despite Indian Gold StrikeSubmitted by Tyler Durden on 03/27/2012 07:43 -0400
Gold is targeting $1,700/oz after yesterday’s Bernanke QE hints and today’s urging by the OECD to boost the Eurozone ‘firewall’ by another $1.3 trillion. Gold is consolidating on yesterday’s gains today above the 200 day moving average (simple) at $1,687/oz after yesterday’s biggest daily gain since January. The gains came after Ben Bernanke warned of the risks to the fragile US economic recovery and signalled the Fed would keep interest rates low and further debase the dollar – boosting gold’s inflation hedging appeal. Gold is also likely being supported by the OECD’s warning that the debt crisis is far from over. The OECD said today that the euro zone's public debt crisis is not over despite calmer financial markets this year and warned that Europe's banks remain weak, fiscal targets are far from assured and debt levels are still rising. The OECD said that the eurozone needs to boost crisis ‘firewalls’ to at least $1.3 trillion. Gold likes the ‘trillion’ word and talk of ‘trillions’ and will be supported by the risk of the creation of trillions of more euros, pounds and dollars in the coming months. Indian jewellers are on strike to protest against a government levy on gold and the strike is entering its 11th day in most parts of India. It has brought gold imports to a near standstill from the world's biggest buyer of bullion in the peak wedding season. The Indian government for the second time in 2012 doubled the import tax on gold coins and bars to 4% along with an excise duty of 0.3 percent on unbranded jewellery.
Guest Post: Welcome To The United States of Orwell, Part 1: Our One Last Chance to Preserve the Bill of RightsSubmitted by Tyler Durden on 03/26/2012 11:53 -0400
We have one last chance to restore at least a part of the Bill of Rights. Some members of Congress awakened from their fund-raising somnambulance and proposed the Due Process Guarantee Act which would restore the Bill of Rights to its proper place in US law. So do one thing today for the nation and its liberties: contact your representative and senators to press them to support this bill. Ask them which military or law enforcement agencies requested that Congress nullify the Bill of Rights with the NDAA. Advise them to do the correct thing for once in their sordid little careers and vote for the Due Process Guarantee Act. This page lists other articles about the NDAA and also provides links to find your representative and Senators: It's treason. Call it what it is.
In an interview with Louis James, the inimitable Doug Casey throws cold water on those celebrating the economic recovery. "Get out your mower; it's time to cut down some green shoots again, and debunk a bit of the so-called recovery."
FRB Propaganda educational countermeasures brought to you by the Banzai7 Institute...
Bernanke's splendiferous defense of all things holy and Central-Bank-like this afternoon has a little for everyone - if you spent the time to listen/read his entire lecture. For those who did not, perhaps the following word-cloud sums up his perspective - and its odd subliminal messaging. The words Gold and Standard appear more times than Central and Bank; the words Policy and Economy are almost equal in number and very close together in this 'randomized' word-cloud; Collateral and Essential appear infrequently but oddly proximate when the random hand of Worldle is applied; the Dollar got its rightful tiny mention; and the Inflation-Deflation debate will rage on - as Inflation slightly outnumbered Deflation but the randomizer did its job and strangely placed Inflation next to Bad and Deflation next to Great. There was no mention of Oz, Unicorns, Beard-Trimmer, Ron Paul, or Those-Bloody-Bears-On-YouTube.
While it has no chance of passage, the GOP 2013 budget, details of which have been leaked by the WSJ, proposes slashing corporate and individual tax rates, collapsing the current six tax bracket system into just two tiers (10% and 25%), lowering top corporate tax rate to 25% and scrapping the anachronism that is the AMT, or Alternative Minimum Tax. Finally, the proposed plan would nearly eliminate U.S. taxes on American corporations' earnings from overseas operations: something which companies with foreign cash would be rather happy to hear. Needless to say, Democrats will promptly dead end this budget in the Senate: "The proposal, to be offered by Rep. Paul Ryan (R., Wis.), who has become the Republicans' leading figure on budget issues, has little chance of becoming law soon. While likely to be welcomed by House GOP rank-and-file members, it would be rejected by the Democratic-controlled Senate."
Watching your debates and speeches of late, it is clear that you are all (with possibly the exception of Ron Paul) missing the point and only continuing to widen the gap between the US Government and the American people.
South Africa's gold output fell again in January and was down a very large 11.3% in volume terms in January. Annual gold production is set to be close to 220 tonnes which is a level of gold production not seen since 1922 (see chart below). The falls were seen only in the gold market with production of other minerals holding up with total mineral production down only 2.5% compared with the same month last year. South Africa as recently as two decades ago was the world's largest producer of gold by a huge margin. Only 40 years ago South Africa produced more than 1,000 tonnes of gold per annum but will only produce some 220 tonnes in 2012. Production peaked in 1970 and has been falling steadily and sharply since. The nearly 80% fall in South African gold production has led to it being recently overtaken by China, Australia and the U.S. It is now even at risk of being overtaken by Russia. The massive 11.3% decline in South Africa was more than even that seen in December when gold output fell by 8.2%. The continuing output decline is due to many of the country's biggest gold mining operations having reached the ends of their lives and having closed down.
Do not, for one minute, believe that the folks involved in the Crisis will get away with it. The only reason why we haven’t yet seen major players get slammed is because no one wants the system to crumble again. And the only way for the system to remain propped up is for the Powers That Be to appear to have things under control and be on good terms with one another. However, eventually things will come unhinged again. When this happens, the relationships between Wall Street, the Fed, and the White House will crumble to the point that some key figures are sacrificed.
While he does have some new philosophy (at X% off MSRP of course, coming to a Kindle near you) to preach, Nassim Taleb's re-emergence from the darkness of the media spotlight starts with a bang: "I realized that something wrong is going on, and only one candidate 'Ron Paul' seems to have grasped the issues and is offering the right remedies". He was given quite a lengthy period to proselytize as he outlines the Big Four problems he sees with the USA (and for that matter the world): Deficits (metastatic governments), The Fed, Militarism, and non-Bailouts (what is fragile should break early). As Ron Paul notes, "It's an illusion that the USD can bailout the world", Taleb makes many interesting, though a little murmur-some for our liking, points like "you don't gamble with hyperinflation" and his comparison between the US and the Soviet Union will surely raise some headlines as he rants of the growing divide between public and private employees standards of living, our "need to do something drastic about it" and on Obama/Government and deficit reduction that "the whole thing is rotten".