Guest Post: Whitewashing The Economic Establishment

Submitted by John Aziz of Azizonomics

Whitewashing The Economic Establishment

Brad DeLong makes an odd claim:

So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.

Larry Summers? If we’re going to base our economic policy on trusting in Larry Summers, should we not reappoint Greenspan as Fed Chairman? Or — better yet — appoint Charles Ponzi as head of the SEC? Or a fox to guard the henhouse? Or a tax cheat as Treasury Secretary? Or a war criminal as a peace ambassador? (Yes — reality is more surreal than anything I could imagine).

The bigger point though, as Steve Keen and Randall Wray have alluded to, is that DeLong’s list is the left-wing of the neoclassical school of economics — all the same people who (to a greater or lesser extent) believed that we were in a Great Moderation, and that thanks to the wonders of modernity we had escaped the old world of depressions and mass unemployment. People to whom this depression — judging by their pre-2008 output — was something of a surprise.

Now the left-wing neoclassicists may have done less badly than the right-wing neoclassicists Fama, Cochrane and Greenspan, but that’s not saying much. Steve Keen pointed out:

People like Wynne Godley, Ann Pettifors, Randall Wray, Nouriel Roubini, Dean Baker, Peter Schiff and I had spent years warning that a huge crisis was coming, and had a variety of debt-based explanations as to why it was inevitable. By then, Godley, Wray and I and many other Post Keynesian economists had spent decades imbibing and developing the work of Hyman Minsky.

To my knowledge, of Delong’s motley crew, only Raghuram Rajan was in print with any warnings of an imminent crisis before it began.

DeLong is, in my view, trying to whitewash his contemporaries who did not see the crisis coming, and inaccurately trying to associate them with Hyman Minsky whose theory of debt deflation anticipated many dimensions of the crisis. Adding insult to injury, DeLong seems unwilling to credit those like Schiff and Keen (not to mention Ron Paul) who saw the housing bubble and the excessive debt mountain for what it was — a disaster waiting to happen.

The most disturbing thing about his thesis is that all of the left-neoclassicists he is trying to whitewash have not really been very right about the last four years at all, as DeLong freely admits:

The third surprise, however, may be the most interesting. Back in March 2009, the Nobel laureate Robert Lucas confidently predicted that the US economy would be back to normal within three years. A normal US economy has a short-term nominal interest rate of 4%. Since the 10-year US Treasury bond rate tends to be one percentage point above the average of expected future short-term interest rates over the next decade, even the expectation of five years of deep depression and near-zero short-term interest rates should not push the 10-year Treasury rate below 3%.

Yet we are supposed to take seriously the widely proposed solution? Throw money at the problem, and assume that just by raising aggregate demand all the other problems will just go away?

As I wrote back in August 2011:

These troubles are non-monetary: military overspending, political and financial corruption, public indebtedness, withering infrastructure, oil dependence, deindustrialisation, the withered remains of multiple bubbles, bailout culture, systemic fragility, and so forth.

These problems won’t just go away — throwing money around may boost figures in the short term, but the underlying problems will remain.

I believe that the only real way out is to unleash the free market and the spirit of entrepreneurialism. And the only way to do that is to end corporate welfare, end the bailouts (let failed institutions fail), end American imperialism, and slash barriers to entry. Certainly, cleaning up the profligate financial sector would help too (perhaps mandatory gladiatorial sentences for financial crimes would help? No more paying £200 million for manipulating a $350 trillion market — fight a lion in the arena instead!), as would incentives to create the infrastructure people need, and move toward energy independence, green energy and reindustrialisation.

Then again, I suppose there is a silver lining to this cloud. The wronger the establishment are in the long run, the more people will look for new economic horizons.

Roubini Confident Europe’s Born Again Virigns Will Not Satisfy Germany

In an excellent summary of the world's interconnected nature, reliance on everyone else to solve their problems, and Europe's epicentric catastrophe, Nouriel Roubini joined Bloomberg TV's Tom Keene for some serious truthiness and doomsaying. From the 'slowdown/recession becoming a depression' to 1930s CreditAnstalt comparisons and Germany's lack of trust that a few years of abstinence will regain peripheral Europe's virginity, the original Dr. Doom along with Ian 'G-Zero' Bremmer offer much food for thought as to the various scenarios as investors anxiously await an expected central bank response to the 19th failed summit and how "we will be lucky if we end up like Japan" as he concludes: "It’s getting worse, there’s already a sovereign debt crisis, a banking crisis, a balance of payment crisis, an economic crisis and all of those things together are getting worse."




Roubini on the European Redemption Fund proposal:

“It is a limited proposal for e-bonds that will only be temporary for 20 years with all sorts of caveats. The Germans and Merkel have said no. Why? They worry about three things. one is about moral hazard. they say if we could agree on these things there will not be enough effort by Italy and Spain. Secondly is a time consistency problem. If you agree on that stuff and then they don’t deliver, then Germany is going to take a lot of risk. Three, there is a huge amount of credit risk the Germans will take by backstopping both the debt on one side and the deposits. The Germans say moral hazard, time inconsistency and credit risk—I don’t want to do it.  They say, ‘you lost your virginity. Now you sign a contract; you say, 'I'm a born-again virgin.' Be abstinent for the next two years. Show me your soul and two years from now, we're going to get married. But today, I commit to marriage today? Forget it.’ The Germans don’t believe and they don’t trust the periphery.”

Roubini on how to get decisive action in the euro zone:

“The European leaders already had 18 summits of the leaders in the past two years. The last summit, the headline newspaper was the leaders decided to postpone key decisions. Now there are 19 summits. Now they're supposed to come up in one summit with a political union, with a banking union, with a fiscal union, with a transfer union, with a growth compact and resolve the problems that haven’t been resolved for years.  Changes are the Germans are want to say no to European-wide deposit insurance.”

Bremmer’s view on global problems:

“First of all, I see that irrespective of whether you are a Democrat or a Republican in the United States, you are basically telling the Germans, “come on guys, you have to do something.”  But we’re not going to play a role in that. I look at the Chinese government despite that they are awash in liquidity right now.  They’re not prepared to actually provide any concrete support for the Europeans, so the Europeans must do this themselves.  We’re not going to act as the lender of last resort for the euro zone.  At the same time, I see plenty of other global problems banging along where everyone is kicking the can down the road.  The willingness to kick the can right now for the United States, Japan, Europeans, the Chinese, has been an elite motif really since 2008.”

Roubini on the persistency of real economy slowdown:

It’s not just a slowdown…The recession will become a depression. Output has fallen from the peak 15% in Greece.  The same thing in Spain...This could become like Japan, but worse. Japan did not have a sovereign debt crisis because it was a net creditor country. But all of these countries are net debtors. They would be lucky to end up in stagnation like Japan. It’s getting worse, there’s already a sovereign debt crisis, a banking crisis, a balance of payment crisis, an economic crisis and all of those things together are getting worse.”

Roubini on German leadership:

“There is this gap between them saying we don’t want to take all this credit risk of backstopping of $3 trillion of Spanish and Italian debt.  We don’t want to take all the credit risk of backstopping all the deposits of the euro zone.  But then the other side says, unless you do something about it, in spite of our fiscal effort, the spreads are so high, the disintegration fragmentation of the banking system is becoming worse, and therefore we’re going to end up in a complete cliff. The German one side the one guarantees that these guys do enough reform and austerity, the other side says we’re doing it, but spreads are so high that it’s become unsustainable.”

Bremmer on whether Germany is removing itself from the conversation in Europe:

“I would not go that far. I do think they are engaged in a very difficult negotiation…The fact that the Germans at this point are not yet prepared to accept the kind of economic fixes that are required does not tell as much about their ultimate predisposition. They have their own domestic constituencies they have to play with.  They also have very strong political constituencies across the euro zone that are acting in a very intractable way. We’ve seen some forms of German capitulation over the course of the past months…Who is to say that there will not be dramatically more capitulation when they’re actually forced to do it.”

Roubini on what matters most right now politically:

“All of it matters in the sense that we're kicking the can down the road. The Europeans do not want to make the decisions and there will be political elections in Germany, Italy and other parts of Europe. We have the U.S. presidential election and until then, we’re not going to do anything about our fiscal problem.  In China, there is a stall right now because of the leadership transition that happens once in a decade and important decisions about their growth model has to be done. The problem is that every part of the world is kicking down the road to 2013. At this time we’re reaching a point in which by next year, you could be in a scenario in which we hit a brick wall, and then euro zone breaks up, in the U.S. you have a fiscal cliff, in China the landing could be hard and in the Middle East you could have a war. That is a perfect storm.

Roubini on the complexity of the central banks response:

“Everyone is going to do more monetary easing…We live in a world in which the problems of the advanced economies are not problems of liquidity. Banks have plenty of liquidity. The problems are fundamental solvency. So just throwing money at it implies that the loss will continue to collapse and banks will hold extra money in the form of excess reserves. The credit mechanism is broken and there is no creation of growth in most advanced economies. So it doesn’t affect real economic activity.”

Roubini on Merkel saying euro bonds are “the wrong way” and whether she was speaking to European leaders or voters in Germany:

“She was talking to both of them. The trouble is if there is not going to be an agreement on some point on having e-bonds I think the situation in Europe is going to become disorderly. Italy and Spain were are doing massive fiscal adjustment, but their spreads are still very high… At some point the Germans will decide, do I take the credit risk of backstopping Spanish and Italian debt in exchange for some loss of national fiscal sovereignty by Italy and Spain in which case the euro zone has a chance to survive. Otherwise, this will become disorderly in the next few months.”

The Spailout Has ALREADY Failed … Before the Ink Has Even Dried

The market rallied for a couple of hours on news of the $100 billion dollar Spanish bailout (which everyone is calling the Spailout) … and then crashed.

Bloomberg notes:

U.S. stocks fell, following the biggest weekly rally in the Standard & Poor’s 500 Index this year, as optimism over Spain’s bailout plan gave way to skepticism it will succeed in halting the debt crisis.




“The Spanish deal is another Band-Aid,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. He spoke in a telephone interview. “Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less.”

CNBC writes:

Stocks accelerated their selloff in the final minutes of trading to close down more than 1 percent across the board Monday, as initial euphoria over Spain’s bank bailout fizzled and amid ongoing fears over a global economic slowdown.




“A lot of people were concerned over the size of the bailout—we were expecting something closer to 150-200 billion [euros] and we only got 100 billion,” said Phillip Streible, senior commodities broker at RJO Futures. “So once traders started to digest [the news], they started to take profit or sell into that rally because they think that in another 3 to 6 months, Spain’s going to have to come back and ask for additional money.”

Zero Hedge says:

As evidenced by today’s reaction to the bailout, which had a half life of 2 hours, and was a complete failure in 6, the market is learning much, much faster than expected.

This “Spanic” over the Spanish crisis is occurring even before the ink has dried.

Nobel economist Joe Stiglitz pointed out the Ponzi scheme nature of the whole bailout discussion:

Europe’s plan to lend money to Spain to heal some of its banks may not work because the government and the country’s lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said.


“The system … is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government,” Stiglitz said in an interview.




“It’s voodoo economics,” Stiglitz said in an interview on Friday, before the weekend deal to help Spain and its banks was sealed. “It is not going to work and it’s not working.”

Credit Suisse’s William Porter writes:

“It’s all about Spain”, so now we are cutting to the chase. Recapitalization of the banks versus funding the sovereign is of course a semantic issue given the nature of the interplay. But it enables the attempted finesse we describe below.


“Portugal cannot rescue Greece, Spain cannot rescue Portugal, Italy cannot rescue Spain (as is surely about to become all too abundantly clear),  France cannot rescue Italy, but Germany can rescue France.” Or, the credit of the EFSF/ESM, if called upon to provide funds in large size, either calls upon the credit of Germany, or fails; i.e, it seems to us that it probably cannot fund to the extent needed to save the credit of one (and probably  imminently two) countries that had hitherto been considered “too big so save” without joint and several guarantees.

Porter says that either France of the EFSF/ESM will fail in 2 months.

Press Association notes today:

Spain became the fourth country after Greece, Ireland and Portugal to turn to the eurozone rescue fund for financial help.

Of course (to no one’s surprise) Italy is next in the cross-hairs of debt crisis.

Many of us have been forecasting how this was going to play out since 2008.

For example, we noted in 2010:

It is now common knowledge that there is a potential domino effect of European sovereign debt contagion in roughly the following order:


Greece → Ireland → Portugal → Spain → Italy → UK




It is also now common knowledge that while Greece and Ireland have relatively small economies, there will be real trouble if the Spanish domino falls.




As Nouriel Roubini wrote in February:

But the real nightmare domino is Spain. Roubini refers to the Spanish debt problems as “the elephant in the room”.


“You can try to ring fence Spain. And you can essentially try to provide financing officially to Ireland, Portugal, and Greece for three years. Leave them out of the market. Maybe restructure their debt down the line.”


“But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain. Spain is too big to fail on one side—and also too big to be bailed out.”


With Spain, the first problem is the size of its public debt: €1 trillion. (Greece, by contrast, has €300 of public debt.) S

pain also has €1 trillion in private foreign liabilities.


And for problems of that magnitude, there simply are not enough resources—governmental or super-sovereign—to go around.

And as I’ve previously pointed out, Germany and France – the world’s 4th and 5th largest economies – have the greatest exposure to Portuguese and Spanish debt. For more on the interconnections between Euro economies adding to the risk of contagion, see this and this.


While it is tempting to assume that the Eurozone bailouts mean that creditor nations which have managed their economies well and saved huge amounts of excess reserves which they lend out, Sean Corrigon points out that the European bailouts are a Ponzi scheme:

Under the rules of this multi-trillion shell game, the sovereigns guarantee the ECB which funds the banks which buy the government debt which provides for everyone else’s guarantees.

(America is no different: Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that America is running a giant Ponzi scheme as well….


It didn’t have to be like this. The European nations did not have to sacrifice themselves for the sake of their big banks.

As Roubini wrote in February:

“We have decided to socialize the private losses of the banking system.




Roubini believes that further attempts at intervention have only increased the magnitude of the problems with sovereign debt. He says, “Now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns.”


Essentially, the super-sovereigns underwrite sovereign debt—increasing the scale and concentrating the problems.


Roubini characterizes super-sovereign intervention as merely kicking the can down the road.


He says wryly: “There’s not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone.” [Others have made the same point]


But, despite the paper shuffling of debt at the national level—and at the level of supranational entities—reality ultimately intervenes: “So at some point you need restructuring. At some point you need the creditors of the banks to take a hit —otherwise you put all this debt on the balance sheet of government. And then you break the back of government—and then government is insolvent.”

Indeed, the world’s foremost banking authority warned in 2008 that this would happen:

As I pointed out in December 2008:

The Bank for International Settlements (BIS) is often called the “central banks’ central bank”, as it coordinates transactions between central banks.


BIS points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:

The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.

In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don’t have, central banks have put their countries at risk from default.



But They Had No Choice … Did They?


But nations had no choice but to bail out their banks, did they?


Well, actually, they did.


The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach (as are other central bankers).




BIS slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, “the use of gimmicks and palliatives”, and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”.

Remember, America wasn’t the only country with a housing bubble. The world’s central bankers let a global housing bubble development.  As I noted in December 2008:

The bubble was not confined to the U.S. There was a worldwide bubble in real estate  .Indeed, the Economist magazine wrote in 2005 that the worldwide boom in residential real estate prices in this decade was “the biggest bubble in history“. The Economist noted that – at that time – the total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years – an increase equal to the combined GDPs of those nations.


Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.


And the bubble in commercial real estate is also bursting world-wide. See this.

BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed’s open market operations). Indeed, the bailouts create a climate of moral hazard which encourages more risky behavior. Nobel prize winning economist George Akerlof predicted in 1993 that credit default swaps would lead to a major crash, and that future crashes were guaranteed unless the government stopped letting big financial players loot by placing bets they could never pay off when things started to go wrong, and by continuing to bail out the gamblers.


These truths are as applicable in Europe as in America. The central bankers have done the wrong things. They haven’t fixed anything, but simply transferred the cancerous toxic derivatives and other financial bombs from the giant banks to the nations themselves.

And Europe – like the U.S. – has made the cardinal sin of covering up fraud, so that the wound can never be cleaned, but will just infect the patient.  Indeed, the sepsis is killing the patient.

Demand in Asia and “Semi Official Buyer of Gold” On ‘Roubini Dip’

From GoldCore

Demand in Asia and “Semi Official Buyer of Gold” On ‘Roubini Dip’

Gold’s London AM fix this morning was USD 1,585.50, EUR 1,221.87, and GBP 984.17 per ounce. Yesterday's AM fix was USD 1,627.00, EUR 1,250.77 and GBP 1,008.99 per ounce.

Silver is trading at $28.77/oz, €22.27/oz and £17.92/oz. Platinum is trading at $1,506.75/oz, palladium at $613.20/oz and rhodium at $1,300/oz.

Gold dropped $31.90 or 1.95% in New York yesterday and closed at $1,606.80/oz. Gold gradually fell again in Asian and European trading and looks set to test support at $1,580/oz.

Cross Currency Table – (Bloomberg)

Gold hit a 4 month low today despite deepening worries that the political upheaval in Greece may sink the country into chaos and endanger the euro zone's efforts to end the debt crisis – possibly leading to contagion and or a monetary crisis.

Some decent demand from South East Asia has been reported at the $1,600/oz level and there are also reports from Reuters of a “semi-official buyer of gold” emerging “on dip below $1,600/oz”. 

Gold’s weakness yesterday may have been again due to dollar strength and oil weakness - oil is now below $97 a barrel (NYMEX). It may also have been due to wholesale liquidation which created a new bout of "risk off" which has seen global equities and commodities all come under pressure.

However, gold’s weakness yesterday was also contributed to by more unusual trading activity. As trading in New York got underway, there was an unusually large bout of selling with some 6,000 gold futures contracts sold in minutes and this led to gold's initial $10 fall to the $1,615/oz level.

Momentum driven algorithm trading may have then led to follow through selling and the initial sell off may have emboldened tech traders to sell more leading to the falls below $1,600/oz. 

Given strong store of wealth demand from the Middle East and China (as seen in figures yesterday), long term buyers will use this sell off to again accumulate bullion.

Greece’s problems coupled with France’s election of socialist candidate Francois Hollande as President creates a disruption of old Franco German alliances.  Hollande and the socialist victory in France will likely be positive for gold as he favours looser fiscal and monetary policies in the EU. 

Spot gold hasn’t seen these levels since early January and the next level of support for gold is $1,580/oz and then $1,545/oz – the low on December 29th 2011.


As has been the case in the early stages of nearly all bouts of sharp risk aversion in recent years the initial beneficiaries have been the dollar, US debt and German Bunds, while gold was more correlated with the euro and riskier assets. 

However, gold’s correlations with risk assets have been short term in recent years. Gold has fallen less than other risk assets, based and then recovered and seen sharp recovery gains soon after the initial falls.

These recovery gains are often seen while equity and commodity markets have continued to fall. Similar patterns may be seen in markets again in the coming days and weeks and short term gold weakness should again be used to ease into an allocation to gold.

Nouriel Roubini has again taken to Twitter to engage in his semi annual bout of name calling and frequent suggestions that gold is a bubble and that gold will fall in price. He has been doing so since gold rose above $1,000/oz in 2008.

Overnight he tweeted how “Gold getting close to fall below 1600. In which caves are the gold bugs hiding...?”

Nouriel Roubini ‏ @Nouriel

Gold getting close to fall below 1600. In which caves are the gold bugs hiding...? 

This continues the recent meme regarding gold investors and store of wealth bullion buyers being ‘bugs’, people or animals who ‘hide’ in ‘caves’ or are “uncivilised” people.

Attacking the ball and not the man is a way to avoid engaging in real debate regarding the merits of gold as a diversification and as an academically and historically proven safe haven – one that has protected people both throughout history and again in recent years.

It is interesting that Roubini has not written a paper on gold nor has he conducted an interview about gold or written an article about gold in recent years. He confines his simplistic, ill informed anti gold comments to Twitter where he can be brief and not have his faulty thoughts and logic examined.

From a contrarian perspective, Roubini is a gift as his name calling and anti gold comments almost always coincide with an intermediate low in the gold price.

Prudent diversifiers are advised to buy this latest dip - what could be termed the ‘Roubini dip’ - as many have done overnight and this morning – including store of wealth buyers in Asia and central bank monetary diversification buyers.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

XAU/EUR 1 Year Chart – (Bloomberg)

(Bloomberg) -- Gold to Rebound to $1,700 an Ounce This Year: Technical Analysis

Gold will rally to $1,700 an ounce later this year after trading below $1,600, according to technical analysis by Barclays Plc.

“The metal may slip to about $1,580 an ounce and then $1,525 an ounce, a level close to the weekly low seen in late December, before rebounding to $1,700 an ounce, the high seen in late March,” Dhiren Sarin, chief technical strategist for Asia Pacific at Barclays, said today by phone from Singapore.

Bullion has climbed 1.8 percent this year after a 10 percent increase in 2011, the 11th consecutive annual gain as investors sought to diversify from equities and some currencies amid concern over Europe’s debt crisis and expectations that central banks will add further stimulus, boosting haven demand.

“About the rebound to $1,700, it’s a bit of wait and watch but $1,580 is a potential place where buyers may come in and $1,525 to $1,530 area is another potential area,” he said, referring to levels singled out in Fibonacci analysis.

XAU/GBP Currency Chart – (Bloomberg)

Gold fell as much as 0.7 percent to the lowest level since Jan. 4 and traded at $1,594.05 an ounce at 12:13 p.m. Tokyo time, losing for a third day as Greece’s leaders struggled to form a government, increasing concern that the region’s debt crisis will escalate and boosting the dollar as a haven.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

Gold, Silver Tumble as Deadlock in Greece Drives Dollar Higher – Business Week

Gold dips to 4-month low on Greece uncertainty – Reuters

Gold, Silver Tumble as Deadlock in Greece Drives Dollar Higher - Bloomberg

Global shares, commodities retreat on Greek uncertainty – MSN

Silver Forecasters Bullish as Funds Retreat From Slump - Bloomberg


Ron Paul Has a Gold Ally in the Buffett Family – The Street

Mauldin: End of the Debt Supercycle Draws Near – Casey Research

Did He Just Call You “Uncivilized”? –Agora Financial

Economic Alert: If You’re Not Worried Yet…You Should Be – Zero Hedge

"Uncivilized" China Quietly Building Gold Reserves As Gold Imports From HK Soar By 587% In First Quarter – Zero Hedge

Why Civilized People Buy Gold - GoldSeek

News That Matters


Eurozone unemployment has surged to a record level, highlighting the region’s weakening economy in the face of fiscal austerity measures and its increasing divergence from the US. Joblessness across the 17-country region hit 10.9 per cent of the workforce in March, the highest since the euro was launched in 1999, with much of the increase focused on crisis-hit southern Europe, particularly Spain, and among the young.


French President Nicolas Sarkozy aggressively attacked François Hollande in a keenly anticipated television debate on Wednesday night but apparently failed to do serious damage to his Socialist challenger, who fought back blow by blow. The two candidates, meeting in the only face-to-face confrontation of the campaign ahead of Sunday’s presidential election, frequently exchanged bad-tempered barbs as they wrangled over the state of France’s economy, the eurozone crisis and the proper conduct of the country’s head of state.


Britain’s poisonous relations with Brussels erupted on Wednesday as George Osborne, the chancellor, refused to defend watered-down EU bank rules that would make him “look like an idiot”. The bad-tempered exchanges at a late-night meeting of European finance ministers risked scuppering agreement on a 600-page law to implement the Basel III international accord on bank capital.


Repairing the economy and regulating banks is “the biggest challenge the Bank [of England] has faced for decades,” Sir Mervyn King said on Wednesday in a speech in which he conceded for the first time he should have “shouted from the rooftops” about risks before the financial crisis. Giving a lecture for the BBC, the bank’s governor conceded that it had missed the growing signs of fragility in the economy because it thought that controlling inflation was sufficient for a stable economy and failed to imagine the “scale of the disaster that would occur when the risks crystallised”.


Hopes that infrastructure spending might boost the global economy have been hit by a sharp first-quarter slowdown in the market for project finance. The market, which funds projects in areas such as railways, hospitals, airports and power generation, has contracted amid pressures on bank balance sheets and regulatory changes.

Essential Chart update here

Most Asian stock markets fell Thursday after disappointing data from Europe and the U.S. revived concerns about the global economic outlook, hurting exporters. Regional currencies were generally weaker as the U.S. dollar rose on safe-haven flows. A weak reading on U.S. private-sector hiring and data showing euro-zone’s manufacturing sector shrank at the sharpest pace in almost three years in April disheartened investors. Australia’s S&P/ASX 200 was flat, South Korea’s Kospi Composite dropped 0.1% and New Zealand’s NZX-50 fell 0.4%. Markets in Japan were closed for a holiday. Dow Jones Industrial Average futures were up two points in screen trade.


Energy producers are showing the first significant signs of scaling back their natural-gas output, responding to a glut that has driven prices to the lowest level in more than a decade. Exxon Mobil Corp., Encana Corp. and ConocoPhillips, among the country’s largest natural gas producers, said in recent days they reduced production in the first quarter and pledged to reduce drilling further in coming months. And government data earlier this week showed output in February had the biggest percentage drop in a year. The production decline could be the beginning of a trend that would help alleviate what has been


The Northern Mariana Islands, a U.S. territory in the Pacific Ocean, managed to recover from brutal World War II battles, but its public pension fund couldn’t recover from the financial crisis. The islands’ retirement system on April 17 became the first U.S. public pension fund to seek bankruptcy protection. The reasons cited for the pension fund’s collapse are numerous, ranging from exceedingly generous benefits, to inadequate contributions to the fund by the islands’ government, to what some retirees allege in a lawsuit was bad investment advice from the fund’s advisers, Bank of America Corp.’s BAC -1.81%Merrill Lynch.


Manufacturing activity in the U.S. and Asia expanded in April, by contrast, as the fiscal crisis and austerity programs took a toll on the euro zone. The manufacturing PMI for the euro zone slumped to 45.9 in April from March’s 47.7. That was weaker than the preliminary reading and the lowest index level since June 2009. Economists had forecast the index would be unchanged from the 46.0 preliminary reading.

Hiring has slowed down, with private-employment gains in April the weakest in seven months, according to a report released Wednesday by payrolls-processor Automatic Data Processing Inc. Private-sector employment increased 119,000 in April, the lowest result since September, led by the service-providing sector and small and medium businesses, according to ADP . The April gain is down from average monthly employment increases of about 200,000 in the first quarter of 2012, according to ADP.


The U.S. economy could retreat into stagnation in 2013 and ultimately cast the nation into the second half of a double-dip recession, high-profile economist Nouriel Roubini said Wednesday. Speaking at the Milken Institute’s Global Conference in Beverly Hills, Calif., Roubini noted that real wages for U.S. workers are not growing and that America’s crushing debt is strangling growth. That translates into possible fiscal decay in which GDP will be “lucky” to grow 2% this year and faces the prospect of retreating into near-zero growth next year, according to Roubini.


After warmer weather and the timing of Easter boosted retailers’ sales in March, colder weather along the East Coast toward the end of the month likely slowed sales in April, analysts said. Ahead of retailers’ same-store sales reports on Thursday, analysts expect sales in April to rise 1.5%. That compares with an 8.7% gain in the year-earlier period, Retail Metrics data showed. In March, sales excluding a decline at drugstore chain Walgreen Co. jumped 6.5%, with about two-thirds of retailers topping estimates.

China’s non-Manufacturing Purchasing Managers’ Index (PMI) showed on Thursday that the services sector cooled last month, retreating from March’s ten-month high to hit 56.1 in April. The softer reading underscores the two manufacturing PMI figures for April – one official, one from HSBC – which showed weakness among smaller enterprises despite improved headline figures. The ChinaFederation of Logistics and Purchasing revised its index last month to reflect seasonal adjustments, with the revision helping push the March index to 58, the highest since May, 2011.


Brent crude for June delivery edged up 11 cents to $118.31 per barrel by 22:19 EDT (0219)GMT, after falling more than 1 percent in the prior session. U.S. oil eased 12 cents to $105.10 after dropping nearly 1 percent on Wednesday. Brent and U.S. crude’s percentage losses in the previous session were the biggest since mid-April.


Spot gold edged down 0.3 percent to $1,647.69 an ounce by 23:21 EDT (0321 GMT), extending losses from the previous session. U.S. gold also inched down 0.3 percent to $1,648.70. Though gold is traditionally seen as a safe haven and attracts investors during economic and political turmoil, it has moved largely in tandem with riskier assets in recent months.

U.S. Treasury Secretary Timothy F. Geithner said further appreciation in the yuan is important to aid a reshaping of China’s economy as significant as the nation’s opening of its markets in the 1970s. “A stronger, more market-determined” currency would “reinforce China’s reform objectives of moving to higher value- added production, reforming the financial system and encouraging domestic demand,” Geithner said today at U.S.-China talks in Beijing. “Future economic growth will require another fundamental shift in economic policy” akin to that of more than 30 years ago, he said.


Temasek Holdings Pte., Singapore’s state-owned investment company, sold $2.48 billion of shares in Bank of China Ltd. and China Construction Bank Corp. (939) less than a month after raising its holdings in their larger rival. Temasek received about $1.24 billion selling 3.1 billion Bank of China shares at HK$3.13 apiece, according to a term sheet obtained by Bloomberg News, a 4 percent discount from the close in Hong Kong yesterday. The firm also got a similar amount divesting 1.6 billion shares in China Construction Bank at HK$5.99 each, another document shows, 2.8 percent lower than the stock’s close yesterday.


Asian policy makers are set to announce the doubling of a $120 billion reserve pool as officials step up efforts to shield the region from global financial shocks. Finance ministry and central bank officials from Japan, China, South Korea and 10 Southeast Asian nations are gathering in Manila today to finish the plan to boost the so-called Chiang Mai Initiative Multilateralization agreement to $240 billion. The expansion of the foreign-currency pool by Asean+3, as the group is known, will make it “more effective as a liquidity safety net,” Philippine central bank Governor Amando Tetangco said yesterday.

The European Central Bank will leave rates on hold on Thursday and continue to assess the impact on the economy of two rounds of cheap, 3-year funding for banks, analysts told CNBC, warning that the bank’s ability to fight the crisis is waning. The funding operations, launched in December and at the end of February, were welcomed by many analysts, who argued that they stabilized Europe’s banking system and prevented a credit crunch.They enabled banks in troubled periphery countries to access funds.

As concerns over Iran spike, Roubini expects oil prices to keep rising. And while he thinks there will be a worldwide shift toward natural gas, it won’t happen soon enough to calm fears over Iran. “People are too optimistic about how fast the revolution in natural gas will happen,” said Roubini. The infrastructure simply can’t be built or rebuilt to make it feasible for cars, trucks and trains to use natural gas in the next 12 to 24 months. A more reasonable time horizon, he said, would be 20 to 30 years. Political instability in the Middle East will also keep pressure on oil prices. “The entire Middle East is a mess, and it’s not just Iran and Israel,” said Roubini. “The Arab spring will become an Arab winter.”

Federal Reserve Governor Daniel Tarullo on Wednesday urged the Securities and Exchange Commission to move forward with efforts to reform the $2.5 trillion money market fund industry, arguing that new regulations are necessary to limit future systemic risk. “The combination of fixed net asset value, the lack of loss absorption capacity, and the demonstrated propensity for institutional investors to run together make clear that [SEC Chairman Mary] Schapiro is right to call for additional measures,” said Tarullo in New York at a Council on Foreign Relations event.

The slowing economies of China and other emerging nations are stunting foreign demand for U.S. goods, jeopardizing one of the Obama administration’s most ambitious economic initiatives. In his 2010 State of the Union address, President Obama set a goal to double U.S. exports in five years — from $1.58 trillion in 2009 to $3.15 trillion by the end of 2014. With the world coming out of recession then, exports rebounded strongly at first — soaring 16.7% in 2010 and nearly 15% last year to $2.1 trillion, putting the U.S. ahead of schedule in meeting its goal. A growing number of economists and trade experts say that performance is unlikely to be matched this year — or next — with much of Europe in a mild recession and two of the world’s largest emerging economies, China and India, decelerating from a torrid pace of double-digit annual expansion.

Growth in the UK construction sector slowed in April, according to a closely-watched survey. The Markit/CIPS construction purchasing managers’ index came in at 55.8, down from March’s 21-month high of 56.7. Any figure over 50 suggests growth in the sector. There is particular interest in the sector after its slowdown in the first three months of the year was partly blamed for the economic growth figure that pushed the UK back into recession.

George Osborne has warned the European Union that Britain will refuse to sign up to “idiotic” proposals that would water down tough international rules on bank capital requirements. During angry exchanges, the Chancellor told a meeting of Europe’s finance ministers on Wednesday night that EU measures to implement “Basel III” bank rules would be ridiculed by financial markets and the banking sector because it so clearly failed to enforce clear and tough rules. “We are not implementing the Basel agreement as anyone who will look at this text will be able to tell you. I’m not prepared to go out there and say something that will make me an idiot five minutes later,” he said.


Sir Mervyn King has attacked Britain’s banks for bringing the country to the brink of ruin and demanded urgent reform to spare “our grandchildren” a similar fate. The Governor of the Bank of England has blamed the banks for the recession and stressed that an overhaul of the financial system, including the separation of retail banking from “risky investment banking”, was essential “to make our economy safer”.  The comments will pile pressure on the Chancellor not to cave into the banking lobby and to press ahead with planned legislation to ringfence retail banking by 2015.

Sales of new vehicles in Australia rose 6.6 per cent in April, from a year earlier, with another strong month for sport utility vehicles defying consumer caution elsewhere. The Australian Federal Chamber of Automotive Industries said total vehicle sales in April were 79,097, compared with 74,214 in the same month last year. Sales in April were down 19.0 per cent on March, which is typically a big selling month. Adjusted for seasonal factors, VFACTS estimated sales increased by a hefty 7.6 per cent in April from the previous month.

China’s yuan advanced to a record high against the U.S. dollar for a third consecutive trading day on Wednesday, but the currency is expected to rise more slowly over the long haul as economic growth weakens and trade surplus narrows. The central parity rate of the yuan, or Renminbi, strengthened 117 basis points to 6.2670 per U.S. dollar on Wednesday, according to the China Foreign Exchange Trading System. It followed record highs of 6.2829 and 6.2787 in the previous two trading days.


Air China on Wednesday launched a new regular flight between the southwestern city of Chengdu and the Indian city of Mumbai, marking the first direct air route between the Chinese mainland and the Indian economic center. The flight will take off every Monday, Wednesday, Friday and Sunday using an Airbus A319 aircraft, a spokesman from Air China’s southwest branch said. The flight takes about five hours, the spokesman said.


China, Japan and South Korea have agreed to enhance the regional trilateral financial cooperation during the 12th Trilateral Finance Ministers’ and Central Bank Governors’ Meeting of China, Japan and South Korea hold in Manila on Thursday. The senior financial officials of the three countries exchanged views on various issues, including the current macroeconomic situation and regional financial cooperation. The attendees reaffirmed their commitment to enhance trilateral financial cooperation and promote the bilateral currency swap arrangements among the three countries, which was considered to be significantly beneficial to stability of regional financial markets.


The unemployment rate in New Zealand in the first quarter was revised up Thursday to 6.7 percent of the labor force, putting the government on the defensive over its economic policies. Statistics New Zealand said it had revised the unemployment rate for the quarter to March up from 6.4 percent as the first rise in the jobless rate for a year. “This highlights that the number of people employed has increased at a greater rate than the number of people entering the working-age population. This rise in the employment rate was due to a rise in seasonally adjusted employment of 9,000 people (0.4 percent), coupled with no growth in the working-age population,” said a commentary to the agency’s quarterly Household Labour Force Survey.

Fresh orders boosted India’s manufacturing sector in April, a private survey showed, raising hopes of a pickup in factory output in the months ahead.  The HSBC Purchasing Managers’ Index inched up to 54.9 in April from 54.7 in March, after slowing for two successive months, according to data released on Wednesday. The results are derived from a survey of over 500 manufacturing companies by Markit. A reading of over 50 on the index shows expansion.


The Union government on Wednesday lifted a restriction on urea imports from Iran and asked the State Trading Corporation (STC) to modify its global tender that sought to debar bids by suppliers of Iranian origin. The government had imposed the restriction as it was under the impression that Iran has banned urea exports and participation of Iranian suppliers in bids, invited by STC, would lead to a delay in supplies of the crop nutrient. But the import restriction was removed after India’s ambassador to Tehran clarified that Iran was allowing selective shipments.

South Korea, China and Japan agreed Thursday to invest in each other’s government bonds, reaffirming their commitment to stabilizing the regional financial and currency markets, government officials said.

“We agreed to promote the investment by the foreign reserve authorities in one another’s government bonds, further strengthening our cooperation,” the financial ministers and central bank governors from the three nations said in a joint statement.


A free trade agreement (FTA) with China would benefit South Korea’s economy in the long term by helping boost the latter’s export volume, a report said Thursday. “South Korean exports to China fell sharply in the first four months of 2012, but a bilateral FTA should be very positive for the Korean economy in the long run,” Kwon Young-sun, an economist for Nomura International, said in the report.

Prime Minister Vladimir Putin said his stint in the job sometimes felt like getting an education, as he bid farewell to his Cabinet on Wednesday at its final session. Before approving higher taxes on the gas industry, Putin in a speech thanked the ministers for helping the country to withstand the battering of the global economic crisis. His inauguration for a third presidential term just days away, he conceded that his previous experience of running the country as president wasn’t always sufficient for the hard choices of the past four years. “It was also a special test and a special schooling for me,” he said, speaking almost without looking down at the prepared statement. “I sometimes had the impression that I was taking some advanced training courses.”

Economy Minister Shamseddin Hosseini said on Tuesday that a cabinet approval to import 24 billion dollars of basic goods this year (which began on March 20) will have “no negative effect” on domestic production. First Vice President Mohammad Reza Rahimi announced on Monday that the cabinet has approved a bill allocating 24 billion dollars for importation of basic goods such as rice, cooking oil, meat, rice, etc. The announcement came as food prices has started rising over the past few weeks. he announcement faced some criticism by some economic experts and officials including Akbar Hashemi Rafsanjani, the Expediency Council chief.


Roubini’s Bearish Forecast Is Bullish For Gold

From GoldCore

Roubini's Bearish Forecast Is Bullish For Gold

Gold’s London AM fix this morning was USD 1,722.00, GBP 1,095.98, and EUR 1,310.30 per ounce.

Yesterday's AM fix was USD 1,713.00, GBP 1,091.10, and EUR 1,300.59 per ounce.

In Asia this morning gold fell from its seven week high as traders took profits ahead of US Gross Domestic Product data to be released later today (1.30GMT).  Gold investors were happy with the Fed's decision to keep interest rates low, but now the focus will again be on the eurozone and hopes for a solution to Greece's debt debacle.

Gold will still be supported by central banks who add to their reserves, plus strong Asian interest from investors and consumers.

Gold rallied to $1,729.76 on Thursday, its strongest since December, but was still well below the record of $1,920 reached in September 2011.  Silver is on track for nearly a 20% rise this January, its biggest gain since last April.

Economist, Nouriel Roubini, who predicted the 2008 financial crisis, outlined the following predictions at a conference in NYC on Jan. 19th.   He said, “Rising commodity prices, uncertainty in the Middle East, the spreading European debt crisis, increased frequency of “extreme weather events” and U.S. fiscal issues are “persistent” problems that will continue to spur market volatility and sway asset prices in the global economy.

This is great news for gold. Goldman Sachs noted in a report on Jan. 13th that futures will advance to $1,940 an ounce in 12 months.  Morgan Stanley forecasts the yellow metal will climb to a record of $2,175 by 2013, said analysts Peter Richardson and Joel Crane in their research report.

Futures for February delivery rose 2.1% to $1,700.10 today on the Comex in New York. This is the  highest closing price seen since early December.  

For breaking news and commentary on financial markets and gold, follow us on Twitter.

Gold dips after rally; heads for fourth week of gains

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Gold eases off highs to end flat

Hedge Fund Guru Sees Gold Price Soaring

Will gold extend its gains for 12th straight year?

Guest Post: Gold Bonds: Averting Financial Armageddon

The Mind Set Of The Zero Hedge Gang

I really wanted to stay away from giving the folks that write for Zero Hedge any more credit than they deserve, (or don’t for that matter on occasion) but today’s piece on Nouriel Roubini deserved some discussion.  In fairness let me say right off the bat that they did not bash Roubini over his comments, instead they just quoted verbatim what had been said by Goldcore, a gold biased website. However, it would be at least responsible in part if they also decided to quote or research the opposing view.  (I use the word “they” because there are many contributors to the site that post under the Tyler Durden handle…if you haven’t figured it out already, given the sheer quantity and content of the material)

Many gold bugs and precious metals bugs for that matter, have recently found home at Zero Hedge and in no small part is this feeling due to the constant doom and gloom postings of the various writers that write under the Tyler Durden pen name.  I must admit I too was a gold and silver bug buying as much of the metals as I could when silver was below $15.00 and gold was below $1,000.  Readers of my blog will know this.  I was a massive supporter of the two. I still follow the two metals closely and closer of late but will not shy away from changing my views if the situation calls for it.

I was not afraid to call it like it was and if it meant going against what I liked then so be it.  I felt I had a responsibility that if I wrote about gold and silver and how I felt they would rise in price from the levels where I first wrote about, then I had an obligation to also write about them when I thought they may be in trouble.  I have often stuck my neck out on the line with advice for readers to go short or long various plays that I liked.  Not all were correct but without trying to sound to pompous, I think I nailed the precious metals top.  Only time will tell.

The piece today takes aim at economist Nouriel Roubini who tweeted asking gold bugs where the $2,000 gold price was?  (Roubini Asks of ‘Goldbugs’ on Twitter “Where is 2,000?”)     In fairness, Nouriel’s comments were a low blow given that gold is really getting hammered today but I can see his side of the argument. He was often blasted about his anti-gold/silver comments.  I guess today was payback for him.  However, Nouriel’s views are not unfair given that many people including myself warned when gold made the double top that we could be in for a massive decline in the price of the yellow metal but many die-hard “investors” failed or would not take their blinders off. 

Perhaps its sour grapes that I am writing this piece. If you read my blog regularly you know by now that I was banned at Zero Hedge for warning some of the tin-foil hat crowds over there that gold and silver were about to be beaten up pretty badly before the October crash. I was absolutely killed on the comment boards over there because THAT was not part of the normal thinking of that abnormal crowd. I have reached out to the many Tylers on that site asking for reinstatement or for at the very least, a reason as to why I was banned.  Someone over there didn’t like what I had to say and before you know it, I was banned from being able to post there.  The folks at ZH have yet to reply to my emails asking to explain their actions and give me a reason for being banned.  They don’t have to .. but at the very least … they should ‘man-up’.   It just goes to show how cowardly and gutless they really are, having the freedom to write whatever sensational and sometimes bullshit laden posts without ever having to be accountable for their misguided comments.  Maybe going after one of the Tylers for his/her comments about the Canadian Banks … with facts I may add, led to the ban.  Hey … I showed-up the main guy…a big no-no over there.

At the very least I have asked someone there to ‘man-up’, grow some hair on their balls and reply to me with an explanation as to why my comments were removed and why I was banned for warning the tin foil hat crowd that frequents that site to sell their metals and wait out the coming storm of liquidity driven selling.

Back to the point though … just check out some of the comments that followed ZH’s re-post of the GoldCore piece …. keep in mind… these guys supposedly know why they are investing in precious metals.

      • I was in diapers but didn't gold get chopped from $200 to $100 in the early 70's!! Wait it out and keep the powder dry!!!
      • Metals on sale! Stock up now!
      • SWRichmond asks of Roubini "Where is the recovery? Where is the money the banks stole? Where is the sovereign bailout for EU? Where is the U.S. balanced budget?
      • What a moron.
      • The man is dangerously stupid.
      • id like to slap this guys' 5 fathers
      • The more its a dip the more buying power in silver! Im gonna buy more silver!
      • Okay ZH troopers look sharp.........lock 'n load.......we at war now bitchez.
      • Fuck off Roubini.
      • Physical delivery prices NOT dropping - stock-numbers very low. Rumors haeraeus bullion NOT DEVLIVERABLE FOR UNKNOWN TIMES.
      • Screw that ETF-chartpricing. Doesn't matter.
      • Decouple_me_harder.
      • My feeling is that with these artificially low prices, the central banks are loading up on PMs before the inevitable decoupling with the paper market.

If these comments don’t speak to some of the mindless drivel that is often spewed at that site then I don’t know what else does.  You see, the folks at Zero Hedge have an agenda and that agenda is clear notwithstanding the fact that they will never admit to it.  Some of their posts are irresponsible and some may lead investors down the wrong path.  However, they often sound their own horn as well which is hypocritical of them to go off on a tangent when other sound off on their own calls.  They only want THEIR word to be out there and anything else to them is insignificant.  Doom and gloom attracts visitors which in turn attracts advertising revenue.  That’s the bottom line.

Also, for a site that has attracted the very people that irresponsibly post the comments posted above, (you know, the silver to the moon crowd who sees the end of the world as we know it) nobody there had the balls to stick their neck out on the line to warn readers that it might be time to sell.  The people that run that site have no problem posting information about “potentially” fraudulent Chinese companies (perhaps after they themselves loaded up on the short side before posting such posts to their readers) but they never seem to want to warn readers about potentially parabolic tops in the gold and silver sectors.  You see… this would confuse their silver hoarding followers.   I’ve noted more frequency in the number of their posts making into the Metropole Cafe newsletter (published by GATA’s Bill Murphy) and perhaps they don’t want to lose that added exposure. Who knows … however, much of the information posted at ZH is at times irresponsible. 

The issue I have with ZH has intensified since I can no longer get on their site to post any rebuttals to the sometimes idiotic commentary provided.  Granted much of what is posted there is sincerely thought provoking but some of the stuff also requires opposing points of view.  It really is too bad that their often biased views are not allowed to be rebutted without the dissenter quickly labelled a troll. Then again, if the multiple Tyler’s of that site want the allegiance of Max Keiser’s silver army then so be it. 

However the fact remains that they did a disservice to their readers by not pointing out to them that the metals looked in real danger of further collapse while allowing all the bullshit banter as noted above to continue on their site.  So it’s convenient to post a long winded piece about Nouriel Roubini’s shot at gold bugs (and I admit I am a bug too) but we will never see their often wrong projections slammed because, quite frankly, you aren’t allowed to unless you do so on your own site as I am doing in this post.

Freedom of Speech only goes so far with ZH’s gang.  You are free to speak as much as you want…just don’t step on any of the various Tylers’ toes. 

The Only Way to Save the Economy: Break Up the Giant, Insolvent Banks

  Break Up the Giant, Insolvent BanksPainting by Anthony Freda: The Government Created the Giant Banks

As MIT economics professor and former IMF chief economist Simon Johnson points out, the official White House position is that:

(1) The government created the mega-giants, and they are not the product of free market competition


(2) The White House needs to “regulate and oversee them”, even though it is clear that the government has no real plans to regulate or oversee the banking behemoths


(3) Giant banks are good for the economy

This is false … giant banks are incredibly destructive for the economy.

We Do NOT Need the Big Banks to Help the Economy Recover

Do we need the Too Big to Fails to help the economy recover?


The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion:

  • Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
  • The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
  • Economics professor and senior regulator during the S & L crisis, William K. Black
  • Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer – who was Ben Bernanke’s thesis adviser at MIT – say that – at the very least – the size of the financial giants should be limited.

Even the Bank of International Settlements – the “Central Banks’ Central Bank” – has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.


This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.

And as I noted in December 2008, the big banks are the major reason why sovereign debt has become a crisis:


 BIS points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:


The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.


In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don’t have, central banks have put their countries at risk from default.

Similarly, a study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:


Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.


Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.




All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

The big banks have been bailed out to the tune of many trillions, dragging the economy down a bottomless pit from which we can’t escape. See this, this, this and this. Unless we break them up, we will never escape.

If We Break Up the Giants, Smaller Banks Will Thrive … And Loan More to Main Street

Do we need to keep the TBTFs to make sure that loans are made?


USA Today points out:

Banks that received federal assistance during the financial crisis reduced lending more aggressively and gave bigger pay raises to employees than institutions that didn’t get aid, a USA TODAY/American University review found.




The amount of loans outstanding to businesses and individuals fell 9.1% for the 12 months ending Sept. 30, 2009, at banks that participated in TARP compared with a 6.2% drop at banks that didn’t.

Dennis Santiago – CEO and Managing Director of Institutional Risk Analytics (Chris Whalen’s company) – notes:

The really shocking numbers are in the unused line of credit commitments of banks to U.S. business. This is the canary number I like to look at because it is a direct expression of banking and finance confidence in Main Street industry. It’s gone from $92 billion in Dec -2007 to just $24 billion as of Sep-2010. More importantly, the vast majority of this contraction of credit availability to American industry has been by the larger banks, C&I LOC from $87B down to $18.8B by the institutions with assets over $10B. Poof!

Fortune reports that smaller banks are stepping in to fill the lending void left by the giant banks’ current hesitancy to make loans. Indeed, the article points out that the only reason that smaller banks haven’t been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth for the nation’s smaller banks represents a reversal of trends from the last twenty years, when the biggest banks got much bigger and many of the smallest players were gobbled up or driven under…


As big banks struggle to find a way forward and rising loan losses threaten to punish poorly run banks of all sizes, smaller but well capitalized institutions have a long-awaited chance to expand.

BusinessWeek notes:

As big banks struggle, community banks are stepping in to offer loans and lines of credit to small business owners…


At a congressional hearing on small business and the economic recovery earlier this month, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks…


Indeed, for the past two years, small-business lending among community banks has grown at a faster rate than from larger institutions, according to Aite Group, a Boston banking consultancy. “Community banks are quickly taking on more market share not only from the top five banks but from some of the regional banks,” says Christine Barry, Aite’s research director. “They are focusing more attention on small businesses than before. They are seeing revenue opportunities and deploying the right solutions in place to serve these customers.”

Fed Governor Daniel K. Tarullo said:

The importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks…


For example, while the number of credit unions has declined by 42 percent since 1989, credit union deposits have more than quadrupled, and credit unions have increased their share of national deposits from 4.7 percent to 8.5 percent. In addition, some credit unions have shifted from the traditional membership based on a common interest to membership that encompasses anyone who lives or works within one or more local banking markets. In the last few years, some credit unions have also moved beyond their traditional focus on consumer services to provide services to small businesses, increasing the extent to which they compete with community banks.

Thomas M. Hoenig pointed out in a speech at a U.S. Chamber of Commerce summit in Washington:

During the recent financial crisis, losses quickly depleted the capital of these large, over-leveraged companies. As expected, these firms were rescued using government funds from the Troubled Asset Relief Program (TARP). The result was an immediate reduction in lending to Main Street, as the financial institutions tried to rebuild their capital. Although these institutions have raised substantial amounts of new capital, much of it has been used to repay the TARP funds instead of supporting new lending.

On the other hand, Hoenig pointed out:

In 2009, 45 percent of banks with assets under $1 billion increased their business lending.

45% is about 45% more  than the amount of increased lending by the too big to fails.

Indeed, some very smart people say that the big banks aren’t really focusing as much on the lending business as smaller banks.

Specifically since Glass-Steagall was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives and other speculative bets, the banks’ own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.

Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don’t really need credit in the first place. See this and this.

So we don’t really need these giant gamblers. We don’t really need JP Morgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.

The Fortune article discussed above points out that the banking giants are not necessarily more efficient than smaller banks:

The largest banks often don’t show the greatest efficiency. This now seems unsurprising given the deep problems that the biggest institutions have faced over the past year.


“They actually experience diseconomies of scale,” Narter wrote of the biggest banks. “There are so many large autonomous divisions of the bank that the complexity of connecting them overwhelms the advantage of size.”

And Governor Tarullo points out some of the benefits of small community banks over the giant banks:

Many community banks have thrived, in large part because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms. Their business model is based on an important economic explanation of the role of financial intermediaries–to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.


A small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks.

It is simply not true that we need the mega-banks. In fact, as many top economists and financial analysts have said, the “too big to fails” are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole.

The Failure to Break Up the Big Banks Is Causing Rampant Fraud

  Break Up the Giant, Insolvent Banks

Painting by Anthony Freda:

Top economists and experts on fraud say that fraud is not only widespread, it is actually the business model adopted by the giant banks. See this, this, this, this, this and this.

In addition, Richard Alford – former New York Fed economist, trading floor economist and strategist – showed that banks that get too big benefit from “information asymmetry” which disrupts the free market.

Nobel prize winning economist Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market:

“The main problem that Goldman raises is a question of size: ‘too big to fail.’ In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information.”


Further, he says, “That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that’s why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you’re going to trade on behalf of others, if you’re going to be a commercial bank, you can’t engage in certain kinds of risk-taking behavior.”

The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets – making up more than 70% of stock trades – but which also let the program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See this, this, this, this and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).

Goldman also admitted that its proprietary trading program can “manipulate the markets in unfair ways”. The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government’s blessings.

In other words, a handful of giants doing it, it can manipulate the entire economy in ways which are not good for the American citizen.

The Failure to Break Up the Big Banks Is Dooming Us to a Derivatives Depression

All independent experts agree that unless we rein in derivatives, will have another – bigger – financial crisis.

But the big banks are preventing derivatives from being tamed.

We have also pointed out that derivatives are still very dangerous for the economy, that the derivatives “reform” legislation previously passed has probably actually weakened existing regulations, and the legislation was “probably written by JP Morgan and Goldman Sachs“.

As I noted last year

Harold Bradley – who oversees almost $2 billion in assets as chief investment officer at the Kauffman Foundation – told the Reuters Global Exchanges and Trading Summit in New York that a cabal is preventing swap derivatives from being forced onto clearing exchanges:


There is no incentive from the moneyed interests in either Washington or New York to change it…


I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus. Everybody is afraid to regulate them.

That’s bad enough.

But Bob Litan of the Brookings Institute wrote a paper (here’s a summary) showing that – even if real derivatives legislation is ever passed – the 5 big derivatives players will still prevent any real change. James Kwak notes that Litan is no radical, but has previously written in defense in financial “innovation”.

Here’s a good summary from Rortybomb, showing that this is yet another reason to break up the too big to fails:

Litan is worried about the “Dealer’s Club” of the major derivatives players. I particularly like this paper as the best introduction to the current oligarchy that takes place in the very profitable over-the-counter derivatives trading market and credit default swap market. [Litton says]:


I have written this essay primarily to call attention to the main impediments to meaningful reform: the private actors who now control the trading of derivatives and all key elements of the infrastructure of derivatives trading, the major dealer banks. The importance of this “Derivatives Dealers’ Club” cannot be overstated. All end-users who want derivatives products, CDS in particular, must transact with dealer banks…I will argue that the major dealer banks have strong financial incentives and the ability to delay or impede changes from the status quo — even if the legislative reforms that are now being widely discussed are adopted — that would make the CDS and eventually other derivatives markets safer and more transparent for all concerned…


Here, of course, I refer to the major derivatives dealers – the top 5 dealer-banks that control virtually all of the dealer-to-dealer trades in CDS, together with a few others that participate with the top 5 in other institutions important to the derivatives market. Collectively, these institutions have the ability and incentive, if not counteracted by policy intervention, to delay, distort or impede clearing, exchange trading and transparency


Market-makers make the most profit, however, as long as they can operate as much in the dark as is possible – so that customers don’t know the true going prices, only the dealers do. This opacity allows the dealers to keep spreads high…


In combination, these various market institutions – relating to standardization, clearing and pricing – have incentives not to rock the boat, and not to accelerate the kinds of changes that would make the derivatives market safer and more transparent. The common element among all of these institutions is strong participation, if not significant ownership, by the major dealers.


So Bob Litan is waving a giant red flag that the top dealer-banks that control the CDS market can more or less, through a variety of means he lays out convincingly in the paper, derail or significantly slow down CDS reform after the fact if it passes.




If you thought we’d at least get our arms around credit default swap reform from a financial reform bill, you should read this report from Litan as a giant warning flag. In case you weren’t sure if you’ve heard anyone directly lay out the case on how the market and political concentration in the United States banking sector hurts consumers and increases systemic risk through both political pressures and anticompetitive levels of control of the institutions of the market, now you have. It’s not Matt Taibbi, but it’s much further away from a “everything is actually fine and the Treasury is in control of reform” reassurance. Which should scare you, and give you yet another good reason for size caps for the major banks.

53246864840716464 2380196514216991388?l=georgewashington2.blogspot The Only Way to Save the Economy:  Break Up the Giant, Insolvent BanksMoreover, the big banks are still dumping huge amounts of their toxic derivatives on the taxpayer. And see this.

Why Aren’t They Be Broken Up?

So what is the real reason that the TBTFs aren’t being broken up?

Certainly, there is regulatory capture, cowardice and corruption:

  • Joseph Stiglitz (the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action
  • Economic historian Niall Ferguson asks:
    Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].
  • Manhattan Institute senior fellow Nicole Gelinas agrees:
    The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span
  • Investment analyst and financial writer Yves Smith says:
    Major financial players [have gained] control over the all-important over-the-counter debt markets…

    It is pretty hard to regulate someone who has a knife at your throat.

  • William K. Black says:
    There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

    Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well. There have been no prosecutions of the chief executives of the large nonprime lenders that would expose the “epidemic” of fraudulent mortgage lending that drove the crisis. There has been no accountability…

    The Obama administration and Fed Chairman Ben Bernanke have refused to investigate the nature and causes of the crisis. And the administration selected Timothy Geithner, who with then Treasury Secretary Paulson bungled the bailout of A.I.G. and other favored “too big to fail” institutions, to head up Treasury.

    Now Lawrence Summers, head of the White House National Economic Council, and Mr. Geithner argue that no fundamental change in finance is needed. They want to recreate a secondary market in the subprime mortgages that caused trillions of dollars of losses.

    Traditional neo-classical economic theory, particularly “modern finance theory,” has been proven false but economists have failed to replace it. No fundamental reform can be passed when the proponents are pretending that there really is no crisis or need for change.

  • Harvard professor of government Jeffry A. Frieden says:
    Regulatory agencies are often sympathetic to the industries they regulate. This pattern is so well known among scholars that it has a name: “regulatory capture.” This effect can be due to the political influence of the industry on its regulators; or to the fact that the regulators spend so much time with their charges that they come to accept their world view; or to the prospect of lucrative private-sector jobs when regulators retire or resign.
  • Economic consultant Edward Harrison agrees:Regulating Wall Street has become difficult in large part because of regulatory capture.

But there is an even more interesting reason . . .

The number one reason the TBTF’s aren’t being broken up is [drumroll] . . . the ‘ole 80?s playbook is being used.

As the New York Times wrote in February:

In the 1980s, during the height of the Latin American debt crisis, the total risk to the nine money-center banks in New York was estimated at more than three times the capital of those banks. The regulators, analysts say, did not force the banks to value those loans at the fire-sale prices of the moment, helping to avert a disaster in the banking system.

In other words, the nine biggest banks were all insolvent in the 1980s.

Indeed, Richard C. Koo – former economist at the Federal Reserve Bank of New York and doctoral fellow with the Fed’s Board of Governors, and now chief economist for Nomura – confirmed this fact last year in a speech to the Center for Strategic & International Studies. Specifically, Koo said that -after the Latin American crisis hit in 1982 – the New York Fed concluded that 7 out of 8 money center banks were actually “underwater” and “bankrupt”, but that the Fed hid that fact from the American people.

So the government’s failure to break up the insolvent giants – even though virtually all independent experts say that is the only way to save the economy, and even though there is no good reason not to break them up – is nothing new.

William K. Black’s statement that the government’s entire strategy now – as in the S&L crisis – is to cover up how bad things are (“the entire strategy is to keep people from getting the facts”) makes a lot more sense.


News That Matters


Citic Securities, China’s biggest publicly-traded brokerage, raised HK$13.2bn ($1.7bn) selling shares at the low end of a revised price range in Hong Kong, Bloomberg reports, citing two people with knowledge of the matter. The Shanghai-listed company sold 995.3m shares at HK$13.30 each,

Anadarko Petroleum has asked advisers to sound out potential buyers for a collection of its Brazilian oil assets in a deal that could be worth up to $5bn, in the latest attempt by oil and gas explorers in the region to attract investment,

Banks are being discouraged from big project-finance deals by new global capital rules and the eurozone crisis, the FT says, citing market participants who say infrastructure schemes will increasingly be funded by investors. Standards ordered by the Basel committee of international regulators will make large long-term loans harder to hold on banks’ balance sheets,

Market expectations for US inflation have dropped to their lowest level in a year and are now below the Federal Reserve’s unofficial target, as investors respond to the central bank’s latest attempt to stimulate the economy,


Europe’s banks are seeking increasingly creative ways to finance themselves as they attempt to make up for a dearth of traditional debt funding amid market turmoil, the reports the FT. Banks have rushed to issue covered bonds in record numbers this year,

A split has opened in the eurozone over the terms of Greece’s second €109bn bail-out with as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger writedown on their Greek bond holdings,


China intends to suspend some military exchanges with the US, in the first concrete sign of the fallout from Washington’s decision to provide a $5.9bn arms package to Taiwan, reported the FT. “I think they have indicated that they’re going to suspend or to cancel or postpone a series of […] military-to-military engagements,” a senior US administration official told reporters on Monday,
Japan’s Nikkei Stock Average was up 0.2%, Australia’s S&P/ASX 200 rose 0.8%, South Korea’s Kospi Composite was 0.3% higher. The Shanghai Composite Index was up 0.2%, Hong Kong’s Hang Seng Index fell 0.7%, while India’s Sensex was flat. Southeast Asian markets, which plunged recently on global growth worries, were mixed. Indonesia’s stock market was up 1.5%, while Thailand’s SET index was off 0.8%. Both markets plumbed multi-month lows in recent sessions.

Greece’s parliament approved a new property-tax law in a closely watched vote Tuesday, taking a key step in the country’s efforts to secure further aid from its international creditors and avoid default. The measure was approved with 155 votes in favor and 142 votes against, narrowly surpassing the 151-vote majority required for passage in the Greek body. Three lawmakers abstained.

Apple Inc. invited reporters to an iPhone-related event Oct. 4, setting the stage for the widely anticipated launch of its latest smartphone. On Tuesday, Apple sent reporters an email with the message, “Let’s talk iPhone,” inviting them to an event at its Cupertino, Calif., headquarters. Apple has traditionally held an event in the early fall to update iPod products, as well as its iTunes digital music jukebox software. Apple shares recently were up $2.14 at $405.31.

Industrial & Commercial Bank of China Ltd. said it could raise up to $11 billion from debt markets over the next nine months, in the latest effort by a major Chinese bank to replenish capital amid widening concerns about potential bad loans. The bank, one of the world’s largest by assets, has already raised 170 billion yuan ($20 billion) from the capital markets over the past two years. During that period, China’s major banks raised more than $100 billion from equity and debt markets both locally and in Hong Kong. Tougher capital requirements are set to be implemented next year

Top Russian officials sought Tuesday to reassure investors alarmed by the sudden removal of long-serving Finance Minister Alexei Kudrin, predicting a rebound for the ruble even as the central bank said it spent $2.36 billion on Monday to shore up the slumping currency. The International Monetary Fund, meanwhile, warned that heavy government spending could threaten Russia’s economic stability if global conditions worsen. The IMF echoed Mr. Kudrin’s own concerns, which precipitated his ouster on Monday by President Dmitry Medvedev for insubordination after the minister voiced them publicly over the weekend.

An extraordinary dry spell in the market for long-term European bank funding is amplifying pressure on policy makers to devise a solution to the Continent’s banking crisis. For the past three months, European banks have been largely unable to sell debt at affordable prices to investors, who are wary of the banks’ vulnerability to risky euro-zone government bonds and other loans.

Wall Street is glued to a gauge of trading fear that has surprisingly few trades behind it. In recent years, credit-default swaps—contracts that give the buyer the right to collect a payment from the seller if a borrower defaults on its obligations—have risen from obscurity to an avidly tracked barometer of the financial health of everything from Bank of America Corp. to Greece. In some cases they have even come to serve as a stand-in for stock quotes when U.S. exchanges are closed.
Australian house prices fell in the latest quarter and are likely to remain soft through the next year, a survey out Wednesday showed. House prices fell 2.4% in the September quarter of 2011, accelerating from a drop of 2% in the June quarter, according to a survey by National Australia Bank, released Wednesday.  By state, prices fell 3.8% in Victoria, 3.2% in Queensland, 2.9% in South Australia and the Northern Territory, 1.1% in New South Wales and 0.8% in Western Australia, the survey showed.

A strong Australian dollar is the new status quo, Prime Minister Julia Gillard said Wednesday as her government begins a major study on the impact for Australia of Asia’s burgeoning economic strength. Canberra has commissioned a White Paper titled “Australia in the Asian Century” to examine the economic, political and strategic change underway across China, India, Korea, Japan and the rest of Asia. The publication of the findings is due in the middle of 2012. “This rapid growth in much of Asia will change the social and economic, strategic and environmental order of our world,” said Gillard in a key note speech.
Spot gold fell $13.11 to $1,635.79 an ounce by 0304 GMT, down for a fifth day in six. It had tumbled to a two-month low of $1,534.49 on Monday — down from a lifetime high around $1,920 an ounce struck in early September. futures dropped more than 1 percent to a low around $1,633, while other precious metals tracked bullion lower, with silver falling more than 2 percent.

Brent crude fell below $107 on Wednesday, after sharp gains a day earlier, weighed down by a stronger dollar as investors sought refuge in the greenback amid lingering concerns over a debt crisis in the euro zone. Brent futureslost 98 cents to $106.16 a barrel by 12:56 a.m. EDT, after falling more than a dollar earlier. U.S. crude shed $1.32 to $83.12 a barrel. Oil prices jumped more than 3 percent on Tuesday.

Americans worried about their incomes as they struggled to find work in September, holding consumer confidence near 2-1/2-year lows and pointing to weak spending in the months ahead. Other reports on Tuesday on regional manufacturing and services showed some improvement this month, and house prices stabilized in July, supporting hopes that slow growth will continue as long as Europe’s debt crisis does not escalate. But depressed consumer and business sentiment is holding back recovery. The Conference Board, an industry group, said its index of consumer attitudes was little changed at 45.4 this month from 45.2 in August. Economists had expected a rise to 46.0.
Russian President Dmitry Medvedev hardened his stance on military spending, the issue that triggered Alexei Kudrin’s exit as finance minister, as he seeks to bolster his chances of becoming prime minister next year. Government officials who question the president’s plan to boost defense spending must quit or “work elsewhere,” Medvedev said yesterday. Russia “isn’t a banana republic” and must maintain a military that reflects its status, he said.

The South Korean government approved a plan by the head of the nation’s ruling party to visit North Korea this month in a further sign that ties may be warming between the two civil war foes. Hong Joon Pyo and four other members of President Lee Myung Bak’s Grand National Party were cleared for the visit yesterday, the Unification Ministry said in an e-mailed statement. Hong will travel to the Gaeseong industrial complex close to the border, where South Korean companies have factories using North Korean labor, and meet with business owners there, the statement said.
The stock market’s three-day rally is at risk of tripping up on new hurdles from Europe. The S&P 500 has gained 3.4 percent so far this week, after last week’s 6.5 percent decline. But it would have been higher, were it not for a Financial Times story published ahead of Tuesday’s market close, highlighting disagreement among euro zone countries over the Greek bailout and the role of the private sector. “It seems like it was kind of a vapor run today. To see us give some of it back on some of the same vapor — month end and quarter end trading — does not seem like a stretch,” said Keefe Bruyette trader Pete McCorry.

Global markets have been whipsawed in recent weeks as uncertainty over Europe’s debt situation persisted. But renowned investor Jim Rogers says the U.S. economy has more serious problems than Europe. “Europe has a few bad, bankrupt states, so does America. We’ve got Illinois which is bigger than Greece, we’ve got California, we’ve got New York, you know those are pretty big states that have serious economic problems. We have pension plans in America that are terribly under water,” Rogers told CNBC on Tuesday. According to Rogers, the U.S. has deeper structural problems than Europe as well as higher debt levels.

The U.S. economy is on a “knife’s edge” between growth and contraction, and if it were a dashboard, it would be flashing “watch out, danger ahead on all gauges,” Dallas Federal Reserve Bank’s top economist said Tuesday. “The economy is moving along at stall speed,” Dallas Fed research director Harvey Rosenblum told a forum sponsored by the greater San Antonio Chamber of Commerce. “Unless we start moving a little bit faster, we are at a tipping point where things may not go the right way.” The U.S. jobs engine has lost momentum and could be set for further “backtracking,” Meanwhile, he said, there is also a “credible” risk of rising inflation
German Chancellor Angela Merkel said Tuesday she is confident Germany will support Greece and that she wanted the country to remain in the euro zone, according to media reports, following a meeting in Berlin with Greek Prime Minister George Papandreou. The Greek prime minister, for his part, said he was ready to lead Greece toward economic stability and that targets laid out by the European Union, International Monetary Fund and European Central Bank will not be change.
Russian Prime Minister Vladimir Putin has named Anton Siluanov as acting finance minister after Alexei Kudrin’s dramatic departure from government. Announcing the appointment to his cabinet, Mr Putin said it had been agreed with President Dmitry Medvedev. Mr Kudrin resigned after publicly declaring he would not sit in a cabinet led by Mr Medvedev, set to swap roles with Mr Putin next year. Mr Siluanov, 48, was deputy finance minister under Mr Kudrin from 2005, and responsible for overseeing the budgets of Russia’s 83 regions. According to his biography on the finance ministry’s website, he graduated from the Moscow Finance Institute in the 1980s, specialising in finance and credit.
Germany and America were on a collision course on Tuesday night over the handling of Europe’s debt crisis after Berlin savaged plans to boost the EU rescue fund as a “stupid idea” and told the White House to sort out its own mess before giving gratuitous advice to others.

Most advanced economies are lapsing back into recession, while the US is already in the throes of an economic contraction, according to Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC.

Henry Kravis, the co-founder of private equity firm KKR, said America must focus on cutting spending, less than two weeks after President Barack Obama aimed new taxes at the industry. “I happen to believe we have a spending problem,” the 67-year-old billionaire said. “In America we don’t have a revenue problem.” As part of the $447bn (£285bn) jobs plan he presented earlier this month, Mr Obama has proposed raising $18bn from the private equity industry and venture capitalists by taxing the carried interest, or profits-based part of their pay, as ordinary income rather than the more lightly taxed capital gains.

George Papandreou, the Greek prime minister, said on Tuesday that Athens will live up to its austerity commitments as he urged European nations to “stop the cacophony and work more in harmony” to deal with the debt crisis.

Chancellor George Osborne will miss his deficit reduction target as he faces lower growth and higher unemployment than officially forecast, according to Pimco, the world’s largest bond house. Giving his take on economic prospects over the medium term, Mike Amey, managing director and head of sterling portfolios, said: “We don’t believe that UK real GDP is going to average 2.75pc in 2012 to 2015.
Brazil’s booming economy has the local car industry in high gear, which the government wants to protect from popular Asian imports by slapping hefty tariffs on rising rivals. Though many economic analysts fear the move will hurt Brazil’s reputation, the tariff shift approved this month was a major victory at least for the powerful local automobile sector.
The Chinese currency Renminbi, or the yuan, strengthened 137 basis points against the greenback on Wednesday, with the central parity set at 6.3623 per U.S. dollar, according to the China Foreign Exchange Trading system. Dealers said the market sentiment is improving as the U.S. and European stock markets rallied for a second day running Tuesday on hopes that leaders are preparing a major response to the eurozone debt crisis.

Combined profits of China’s industrial enterprises of scale rose 28.2 percent year-on-year to 3.23 trillion yuan (about 504.4 billion U.S. dollars) in the first eight months, the National Bureau of Statistics (NBS) said Tuesday. From January to August, the main business sales revenue of the industrial enterprises of scale — referring to enterprises with annual sales revenue exceeding 5 million yuan each — surged 29.9 percent from a year earlier to hit 53.17 trillion yuan, said the NBS.
With a weight of 37.90 per cent in the Index of Industrial Production (IIP), the eight core infrastructure industries posted a lower of growth of 3.5 per cent in August this year as compared to 4.4 per cent achieved in the same month of 2010. Accordingly, the cumulative growth rate of the eight industries — crude oil, petroleum refinery products, natural gas, fertilizers, coal, electricity, cement and finished steel — during the April-August period of 2011-12 works out to 5.3 per cent, down from the 6.1 per cent expansion notched up during the five-month period of the previous fiscal year.

Seeking to expand their economic cooperation and broad-base their trade basket, India and Myanmar on Tuesday agreed to set a $3 billion trade target to be achieved by 2015 from the existing $1.5 billion. This was decided at fourth meeting of Joint Trade Commission which was attended by the Union Commerce Minister, Anand Sharma, and the Myanmar’s Minister of Commerce, U. Win Myint
Some more color on today’s Shiller figures, and don’t forget the Long Term Chart at the bottom…. Data through July 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed a fourth consecutive month of increases for the 10- and 20-City Composites, with both up 0.9% in July over June. Seventeen of the 20 MSAs and both Composites posted positive monthly increases;Las Vegas and Phoenix were down over the month and Denver was unchanged. On an annual basis, Detroit and Washington DC were the two MSA that posted positive rates of change, up 1.2% and 0.3%, respectively. The remaining 18 MSAs and the 10- and 20- City Composites were down in July 2011 versus the same month last year. After three consecutive double-digit annual declines, Minneapolis improved marginally to a decline of 9.1%, which is still the worst of the 20 cities.


„I Am Jim Rogers And I Support Ron Paul“

Ron Paul has another illustrious supporter - Jim Rogers. The Quantum fund co-founder, who has been spot on about pretty much everything for the past 3 years (see Roubini Versus Rogers Is Right Debate for 2010: Investor Jim Rogers thinks gold will double to at least $2,000 an ounce. Economist Nouriel Roubini says that’s “utter nonsense.” As these well-known market personalities duke it out, they’re doing us a favor by highlighting a critical debate: Which is the bigger threat -- inflation or deflation?), not to mention gold (to the amusement of such Keynesian soundbites recorded for posterity as the following: "Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense"), and especially inflation (perhaps the only thing that will prompt a chuckle out of Gadaffi and Mubarak these days is someone telling them that their multi-decade reigns are over due to hyperdeflation and plunging food prices), was caught on tape voicing his endorsement of the only sane person who can possibly do something for this country. "In this election if Ron Paul gets anywhere near the nomination I would certainly support him. He is the only one that I've seen in American politics that seems to have a clue about what's going on." Zero Hedge agrees on all counts.

h/t Boiler Room

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