Bank of England

While stating the somewhat obvious - that the Fed's actions will cause 'pain' when they (try to) stop QE - when it comes from a high-ranking officer of the establishment elite (as opposed to a tin-foil-hat-wearing, BLS-exposing, HFT-undermining, fringe blog) such as Goldman Sachs' President Gary Cohn, perhaps more mainstream will begin to question the one-way path we are on. Cohn's interview on Bloomberg TV ranged from his reading habits (Greg Smith's tell-all) to the world's central bank printfest and how "we will have to go through the pains of stopping QE" and from his views of the election status quo to the global economic malaise, he does so well on the reality front - until he shovels undying praise on Mario Draghi's back for his "spectacular job" - though admits he has not solved Europe's real problems.

There should be three objectives for a well-functioning monetary system: i) internal balance, ii) allocative efficiency and iii) financial stability. The international financial and monetary system (IFMS) has functioned under a number of different regimes over the past 150 years and each has placed different weights on these three objectives. Overall, this recent Bank of England paper finds that today’s 'fiat' system has performed poorly against each of its three objectives, at least compared with the Bretton Woods System, with the key failure being the system’s inability to maintain financial stability and minimize the incidence of disruptive sudden changes in global capital flows. There is little consensus in the academic literature, or among policymakers, on what are the underlying problems in the global economy which allow excessive imbalances to build in today’s IMFS and/or which impede the IMFS from adjusting smoothly to counteract these imbalances. Critically though, while the fiat money system we are currently does indeed exhibit lower GDP growth volatility (by design), it has dramatically more incidents of banking and currency crises than under a Gold Standard.

• U.S. Military Is Sent to Jordan to Help With Crisis in Syria (NYT)
• IMF Weighing New Loans for Europe (WSJ)
• Romney Targets Obama Voters (WSJ)
• China’s Central Banker Won’t Attend IMF Meeting Amid Island Spat (Bloomberg)
• Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’ (Bloomberg)
• German media bristles at hostile Greek reception for Merkel (Reuters)
• The End Might Be Near for Opel (Spiegel)
• IMF sounds alarm on Japanese banks (FT)
• Cash Tap Stays Dry for EU Banks (WSJ)
• Goldman in Push On Volcker Limits (WSJ)
• IMF Vinals: Further Policy Efforts Needed to Gain Lasting Stability (WSJ)
• King signals inflation not primary focus (FT)

• Italy rejects need for EU control (FT)
• ‘Worst US quarterly earnings since 2009’ (FT)
• Chinese firm helps Iran spy on citizens (Reuters)
• World Bank cuts East Asia GDP outlook, flags China risks (Reuters)
• Foxconn factory rolls on in spite of strike (China Daily)
• Economic recovery ‘on the ropes’ (FT)
• Japan Tries Cars That Make the Mini Look Maxi (Businessweek)
• Euro Finance Chiefs to Give Positive Greece Statement, Rehn Says (Bloomberg)
• Romney attacks drones policy (FT)
• Euro zone mulls 20 billion euro separate budget (Reuters)
• Hong Kong’s Leung Seeks Turnaround With Economy Focus (Bloomberg)
• RBA Keeps Some Documents Private in Securency Bribe Probe (Bloomberg)
• India Inflation to Remain at 7.5%-8% Till Early 2013 (WSJ)

Yeah, even if you do believe in math over magic, remember that even Harry Potter had his issues with it...

Alan Wheatley, Global Economics Correspondent for Reuters has written a very interesting article, 'Analysis: China's currency foray augurs geopolitical strains’ where he emphasizes China’s desire to wean out the US dollar’s currency reserve status. China is actively taking steps to phase out the US dollar which will decrease volatility in oil and commodity prices and deride the ‘exorbitant privilege' the USA commands as the issuer of the reserve currency at the centre of a post-war international financial architecture which is now failing.   In 1971, U.S. Treasury Secretary John Connally said, "It's our currency and your problem". China is frustrated with what it sees as the US government’s mismanagement of the dollar, and is now actively promoting the cross-border use of its own currency, the yuan, or also called the renminbi, in trade and investment. China’s goal is to decrease transactions costs for Chinese importers and exporters. Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, said Beijing wants to see a better-balanced international monetary system consisting of at least the dollar, euro and yuan and perhaps other currencies such as the yen and the Indian rupee. "The shortcomings of the current international monetary system pose a big threat to China's economy," he said. "With more alternatives, the margin for the U.S. would be greatly narrowed, which will certainly weaken the power basis of the U.S."

In a post entitled 'Mugabenomics: Inflation in UK Higher than in Zimbabwe,' Guido Fawkes points out how the Liberal Democrats Vince Cable once warned that Quantitative Easing (QE) was “Mugabenomics.” This was prior to coming to power and a swift u-turn which would make even the most slippery politician proud. Remember when Vince Cable warned that Quantitative Easing (QE) was “Mugabenomics”? Vince flip-flopped on that even before he joined the coalition.  Guido Fawkes then reminds its readers about the time when George Osborne said “Printing money is the last resort of desperate governments when all other policies have failed.”  Alas as the blog rightly warns, "In government Osborne has overseen the printing of more money than any other Chancellor in British history. A quarter of the national debt – all this government’s overspending – has been bought by the Bank of England via QE."  “So it is not a shock that inflation in Zimbabwe (3.63%) is now lower than inflation in the UK (3.66%, August 2011-July 2012).” Those who have been warning about this monetary madness for some years are gradually being proved right

Tonight's session has been even more boring than yesterday's, when nothing happened. Several data points came out of Europe, some better than expected, some worse, but all massively beaten down to where any uptick is merely a dead cat bounce. Retail sales in the euro zone rose 0.1 percent in August from July, when they also gained 0.1 percent. From a year earlier, sales dropped 1.3 percent. A composite PMI of manufacturing and services industries in the euro area fell to 46.1 in September from 46.3 in August, Markit Economics said. That’s above an initial estimate of 45.9. The problem is that the PMIs of the most notable countries: Germany (at 49.7 on expectations of 50.6, lowest since March 2006), France (45.0, down from 46.1, and below consensus of an unchanged print -keep a close eye on this suddenly fast-motion trainwrecking economy), Spain, UK and Sweden all missed badly. In the U.K., where the services PMI dropped to 52.2 in September from 53.7 in August. But don't call it a stagflation: it's been here for years - U.K. retail prices rose 1 percent in September from a year earlier after a 1.1 percent gain in August, the British Retail Consortium said. Some additional data via BBG - Britons injected a net 9.8 billion pounds into their housing equity in the second quarter, the Bank of England said. Elsewhere, one central bank that refuses to join the global easefest is, not surprisingly, Iceland’s central bank kept the sevenday collateral lending rate unchanged at 5.75 percent for a second meeting. None of this has been able to move the futures which are net flat with Treasuries steady, before the US ISM Services number (est. 53.4 from 53.7), the total joke of an indicator which is the ADP Employment (est. 140k from 201k) but which wrong as it always is, is the only advance hint into Friday as traders prepare for Friday’s nonfarm payrolls report (est. 115k, unemployment rate rising to 8.2%).

The financial crisis of 2008 shook politicians, bankers, regulators, commentators and ordinary citizens out of the complacency created by the 25-year "great moderation". Yet, for all the rhetoric around a new financial order, and all the improvements made, many of the old risks remain (and some are far larger). The following 'story' suggests a scenario based on an 'avoidable history' and while future crises are not avoidable, being a victim of the next one is.

"John Banks was woken by his phone at 3am on Sunday 26th April 2015. John worked for Garland Brothers, a formerly British bank that had relocated its headquarters to Singapore in late 2011 as a result of..."

It appears that JPM and HSBC's monopoly in the warehousing of tungsten gold is coming to an end. Just two weeks after QEternity was announced, it has become obvious that the only things, literally, that will matter in the future are the ABCDs: Anything Bernanke Can't Destroy. And as a result of a surge in physical purchases, buyers need to store their metal somewhere. Sure enough, one of the the UK's most insolvent banks - Barclays - is more than happy to provide its brand spanking new warehousing services, with the opening of what will be on of Europe's largest PM vaults. From Dow Jones: "Barclays has opened its first precious metals vault in London in a bid to satisfy growing client demand for bullion as a store of value, the bank said Thursday. The vault, which houses gold, silver, platinum, palladium and rhodium and began operating earlier this month, is one of the largest in Europe. While the bank already has extensive trading and clearing capabilities, this is the first time that Barclays has been able to offer its own precious metals storage facility to its customers, having previously relied on third-party storage." Of course, if and when the scramble comes and everyone demands their gold from the vault located in an unknown location, but somewhere in the inner loop of London's M25, Barclays will just say "Ooops." But we will cross that bridge when we get to it.

These days every pundit and his barber are suddenly central banking gurus and monetary transmission mechanism experts, but while some of them may have an educated guess as to the reality of the matters at hand, none can envisage that which the Fed is able to.  What is almost never considered by most wanna-bees  is that no one in the world has access to as many economic and financial data sets, metrics, and indicators, and the synthesis thereof, as the United States Federal Reserve.  Ben may make mistakes, but he is no fool.  When he acts, he either sees present reason to do so, or he is bracing for a future shock. It is just a matter of time before markets lose complete faith in the recklessness of central planning Ponzi artists.

• Europe’s crisis will be followed by a more devastating one, likely beginning in Japan. (Simon Johnson)
• Porsche, Daimler Indicate Europe’s Car Crisis Spreading (Bloomberg)
• No progress in Catalonia-Madrid talks (FT)
• Hilsenrath speaks: Fed's Kocherlakota Shifts on Unemployment (WSJ) - luckily QEternity made both obsolete
• Lenders Reportedly Consider New Greek Haircut (Spiegel)
• Fed Officials Highlight Benefits of Bond-Buying (WSJ)
• ESM to Launch without Leverage Vehicle Options (WSJ)
• Japanese companies report China delays (FT)
• Borg Says Swedish Taxes Can’t Go Into Ill-Managed European Banks (Bloomberg)
• Greek Leaders Struggle With Spending Reductions (Bloomberg)
• Asian Stocks Rise as iPhone 5 Debut Boosts Tech Shares (Bloomberg)
• China government's hand seen in anti-Japan protests (LA Times)

What Do Economic Indicators Show?  What Do Economists Say?

Meet the man, who many say (most of whom correctly) has been running pretty much everything from deep behind the scenes.

The BoJ obediently submitted to pressure from stimulus addicted markets and announced yet another expansion to its JGB buying program. The program now stands at JPY 80trl, the expansion impacts only JGBs and T-Bills, both of which will be monetized by a further JPY 5trl. As a result, risk assets rallied overnight in Asia and in turn supported European equity markets in early trade. However, the half life of the latest policy easing action from the BoJ proved to be very short-lived and as the session progressed, the risk on sentiment quickly subsided. As such, as we enter the North American cross over, equity markets in Europe are seen lower, led by tech and financial stocks.  Elsewhere, Bunds topped yesterday’s high and look set to make a test on the 140.00 level should the sentiment deteriorate further. Nevertheless, peripheral bond yield spreads are actually tighter today, with the Spanish 10y bond yield spread tighter by 9bps and the shorter dated 2y bond tighter by 24bps vs. German equivalent. EUR/USD and GBP/USD edged lower throughout the session, currently trading in close proximity to intraday option expiry levels at 1.3000 and 1.6200 respectively. Going forward, the second half of the session will see the release of the latest housing data, as well as the weekly DOE report.