We Are Change San Antonio Targets Black Friday

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Oblivious 😉

Europe Sinking Fast

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The good being dragged down by the bad or the domino affect. Call it what you will as peakprosperity take a look at the growing crisis in Europe.

You don’t have to be an economic genius to understand that the perpetual uncertainty over the Eurozone’s future has led to a widespread freeze on industrial investment and development. Industrial production is collapsing at an accelerating rate, falling 7% year-on-year in Spain and Greece, 4.8% in Italy, and 2.1% in France. The downtrends for industrial production are readily apparent in the chart below:

The businesses that are doing well are in the stronger countries.

The businesses that are doing well (and there are some) are those businesses with strong balance sheets and solid export order books for non-Eurozone markets; unfortunately, they are concentrated in countries like Germany, Holland, Finland, and Austria. They are not located where they can contribute to economic progress in Spain, Italy, Greece, or France, and so they are not adding to the tax revenue desperately sought by those governments.

Then there is always Greece.

Despite the recent deal worked out with Greece, the old cliché about kicking the can down the road is close to becoming no longer possible. Deferring the inevitable is only a political option so long as there is no immediate damage from doing so. But this is no longer true in the Eurozone, where political procrastination is now identifiably responsible for social unrest. It’s not just the trade unionists in revolt; now it is the middle classes as well. Doctors and teachers in Greece do not get paid anymore, and it is going that way in Spain, with regional governments surviving by simply not paying their bills. Government is destroying society, proving the falsity of the heretofore accepted belief (in Europe, anyway) that government makes society better. But then, anyone who has bothered to read Hayek’s The Road to Serfdom will not be surprised.

What was not anticipated in Hayek’s masterpiece is the divided state that is emerging. Greece is part of a larger EU and Eurozone bureaucracy and cannot achieve statist ends by turning her citizens into serfs. The government itself is subservient to higher authorities and is now having that medicine applied to it by its peers. Every visit by the Troika (collectively the European Central Bank (ECB), International Monetary Fund (IMF), and the European Commission) screws the Greek government further towards its own serfdom.

Keep in mind just one thing: Greece is utterly broke and cannot escape that fact. All of the posturing by the three Troika members is designed to avoid facing this reality. The political elite drive this party line and rigidly conform to it. However, there is increasing unease among powerful elements in the background, and in particular, sound money advocates in the Bundesbank are deliberately pushing for different solutions than those pursued to date.

Weidmann: No solution for Greece.

Jens Weidmann, who is the Bundesbank’s chief and its representative on the ECB’s Governing Council, is remarkably outspoken on this issue. In a recent interview with the Rheinishe Post, Weidmann pointed out that the ECB and other national central banks in the Eurozone are now Greece’s largest creditors and cannot take a haircut on Greek debt. Furthermore, they cannot write off this debt, since that would amount to monetary financing, which is forbidden under Eurozone rules. So, he concludes, the ECB is trapped.

Is Greece the dry run for the others?

The concern, obviously, is that Greece is a dry run for Spain and Italy. It is also, as I argue below, a dry run for France, which is in terrible shape and deteriorating rapidly. This is why the protector of German savers, Herr Weidmann, is worried. He is signalling that the precedents set in dealing with Greece will ultimately destroy Germany.

The ideal for the EuroZone would be

In my last article for PeakProsperity.com, I argued that Germany, not Greece, should and will leave the Eurozone, perhaps taking Holland, Finland, Luxembourg, and Austria with her. It has always been clear that this is the last thing the political elite would consider, but unless Mrs Merkel reconsiders her position, she will be overruled by the Bundesbank, and perhaps also her own finance minister, Wolfgang Schäuble, who is known to be extremely concerned.

ECB has manipulated bonds in an effort to keep the price low but this can’t last forever.

The only reason these bond yields have fallen to thee low levels is because the ECB forced them there. But when these yields rise, which they probably will because there is little doubt the ECB’s manipulation cannot succeed for very long, the accumulation of TARGET2 imbalances on the Bundesbank’s book will quickly exceed €1 trillion.

And there is a further problem. One of the reasons French ten-year government bond yields are only 2.1%, and have even been briefly negative for her six-month bills, is that some of the capital flight out of Spain and Italy has been deposited in French banks, only to be then lent on to the French government.

France itself is going to be a major problem.

But France, as I argue later in Part II of this article, is itself a basket case, only not yet widely recognised as such because it has benefited from this capital flight from Spain and Italy.

At some stage, probably in the next six months, these accumulated deposits in the French banks will, in turn, seek a safer home elsewhere – and where else but in the German banks? And so the Bundesbank faces the prospect of a second wave of capital flight and escalating TARGET2 imbalances.

Of course, this would not matter if it was certain that no one was leaving the Eurozone, and the TARGET2 system was constructed on the assumption that no one ever would. One could argue that Greece leaving would not be too much of a problem, other than the precedent it would create. This is why it is so important to keep Spain and Italy in the system.

…..

After all, TARGET2 is a settlement system with offsetting cash creation and destruction carried out by the national central banks on delegation from the ECB. But nonetheless, it is understandable that the sound-money guardians at the Bundesbank are increasingly alarmed at the progression of events.

To borrow from Dirty Harry, it leaves those tied to Europe’s future pondering a seminal question: “Do I feel lucky?” Well, do ya?

Source: peakprosperity.com

Argentina Won’t Repay Bondholders From Default 10 Years Ago Despite US Court Ruling

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Despite US courts ruling that Argentina must pay bondholders who own defaulted bonds (related to $100 billion default 10 years ago), the Argentinian Finance Minister has announced this won’t happen as debt payments are immnue to US laws.

BUENOS AIRES, Nov 18 (Reuters) – Argentina will not pay creditors who own defaulted bonds despite a U.S. federal appeals court ruling in favor of the holdout creditors, the economy minister was quoted as saying in an interview published on Sunday.

The 2nd U.S. Circuit Court of Appeals in New York last month ruled that Argentina discriminated against bondholders who refused to take part in two debt restructurings as the nation tried to recover from a $100 billion default a decade ago. The decision upheld a ruling by U.S. District Judge Thomas Griesa.

The South American country appealed that ruling, and on Friday told Griesa that sovereign debt repayments made outside the United States are immune to U.S. law and seizures by holdout bondholders.

“Argentina is responsible and will fulfill all commitment it has made to its creditors. … Our creditors are all those who participated in the two restructuring proposals in 2005 and 2010,” economy minister Hernan Lorenzino told newspaper Pagina 12.

“We’re going to continue to oppose any alternative that goes beyond that. We’re going to continue presenting and defending our position to each legal entity.”

The judge is expected to give a speedy response, given that Argentina is due to start making $3.3 billion worth of payments to exchange bondholders starting Dec. 2.

Argentina and holdout bondholders that refused to join massive debt swaps in 2005 and 2010 are in a long-running battle over payment, an outgrowth of the country’s roughly $100 billion default nearly 11 years ago.

“Argentina reiterated to judge Griesa that the decision taken about pari passu (equal treatment) cannot prejudice creditors who entered the debt swaps,” Lorenzino was quoted as saying.

Last month’s ruling sparked fears that U.S. courts could ultimately inhibit debt payments to creditors who accepted terms of the restructuring, out of consideration for investors who rejected Argentina’s terms at the time.

“We’re going to continue our legal defense in all areas possible, including in the United States’ Supreme Court,” Lorenzino added.

 

Source: Reuters

Argentina Close To Default

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With protests growing in Argentina against the Government the CDS shows a 60% chance of default in weeks according to ZeroHedge.

Dear Buenos Aires: we have three words of advice – “hide yo’ catamarans” (before Paul Singer comes and collects them all once you default again in what the market now deems is inevitable to occur in the next few weeks). 5Y CDS on Argentina just reverse-Baumgartnered to over 3000bps (49/53% upfront) and short-dated CDS imply a 60% probability of default (assuming a 25% recovery).

The Argentinian government under Cristina Kirchner is deeply unpopular and in recent weeks there has been a growing unrest.

Angry over inflation, crime and corruption, hundreds of thousands of Argentines of all ages flooded the capital’s streets for nearly four hours to protest against President Cristina Fernandez in Argentina’s biggest anti-government demonstration in years.

Protests were reported right across Argentina and beyond its borders.

A spokesman for Buenos Aires’ Justice and Security Ministry estimated the demonstrators in the capital at 700,000 people. Other demonstrations were held on plazas across Argentina, including in major cities such as Cordoba, Mendoza and La Plata, while protesters massed outside Argentine embassies and consulates from Chile to Australia.

In Rome, about 50 protesters, all Argentine expats, held a noisy protest outside the consulate on Via Veneto, one of the city’s landmark streets. Among the slogans being shouted was “Cristina, go away.”

About 200 demonstrators braved rain in Madrid to bang pots outside the Argentine consulate.

Approval ratings plummeting in less than a year.

Fernandez easily won re-election just a year ago with 54 percent of the vote but saw her approval rating fall to 31 percent in a nationwide survey in September by the firm Management & Fit. The poll of 2,259 people, which had an error margin of about two percentage points, also said 65 percent of respondents disapproved of her opponents’ performance.

But it’s when people are hit in the pocket that people react and inflation is biting hard.

Inflation also upsets many. The government’s much-criticized index puts inflation at about 10 percent annually, but private economists say prices are rising about three times faster than that. Real estate transactions have slowed to a standstill because of the difficulty in estimating future values, and unions that won 25 percent pay hikes only a few months ago are threatening to strike again unless the government comes up with more.

Source: ZeroHedge, LasVegasSun

 

Eric Sprott: Central Banks Use Accounting Tricks To Hide Lack Of Gold

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Eric Sprott gave an interview on Bloomberg regarding Central Banks using accounting tricks to hide the missing gold from their reserves. Some of the transcript from Silverdoctors are below including link to video. Well worth a look.

Sprott simply destroyed the MSM pundits’ anti-gold arguments, stating that gold has beat the Dickens out of every other asset class over the last 12 years, and questioned whether the Western Central Banks have any physical gold left in the vaults, as the gold listed on their balance sheets includes gold receivables, which has been leased out and is gone for good.

Bloomberg kicked the interview off by asking Sprott whether he is as much a fan of precious metals today as he once was, ”given the fact that they’ve treated you so poorly over the past 18 months?”  Sprott replied:

A little history is probably important here.  Gold has gone from $250 to over $1700.  It’s beat the Dickens out of every other asset class over the last 12 years…To specifically answer your question, am I more optimistic today than I might otherwise be?  Absolutely.   I wrote an article recently questioning whether the Western Central Banks had any gold left.  We simply did a physical analysis of the people that are coming into the gold market and the changes that have happened since 2000, (and the supply of gold has not changed since 2000 on an annual basis, it’s still 4,000 tons).   When you look at the fact that the central banks used to sell 400 tons annually, now they buy 500 tons.  The ETF didn’t even exist in 2000, now they buy 300 tons a year. 

The Bloomberg host then interrupted Sprott to claim that this sounds like a conspiracy theory and asked for another reason to buy gold.  Sprott responded:

I could probably give you 20 reasons.  How about money printing?  QE1, QE2, QE3, LTRO, OMT’s, people are essentially debasing their currencies.  They’re not holding them in the esteem that they should, and it’s reflected in the fact that the price of gold’s gone up.  One of the issues we have with gold is the fact that it hasn’t performed well in the last 18 months…But People are flocking to goldWhen I look at the US Mint statistics for gold sales.  When I look at what the Chinese are doing in terms of imports of gold from Hong Kong into the mainland, they’re up 500 tons in the last 12 months in a 4,000 ton market!!  Imagine if the Chinese bought an extra 12% of the oil or wheat market this year!  Would they get it?  And who’s supplying the 500 tons?  We already had a market that was in balance!

Gold production is flat, and one might even argue that the gold miners may have trouble increasing production this year.  You’ve seen the disappointments of Barrick and Newmont, and many others are having issues.

The Bloomberg host then asked Sprott why the gold price hasn’t responded to those supply and demand factors.  Sprott responded:

Well, there’s two markets for gold.  There’s the paper market, the COMEX futures. You can have the annual gold production trade in two days on the paper market.  I focus on the physical market.  I want to see what people are doing with their money physically.  Are they continuing to buy more and more gold, year after year?  Every indication we have is that they continue to buy INCREASING AMOUNTS OF GOLD.  Sooner or later, (and ask Eric asked, how do the central banks sell gold without telling anybody?), they have a very simple way: Central banks have one line on their balance sheets for gold and gold receivables!  If they lease gold to a bullion dealer, that’s a receivable.  That gold has obviously been sold into the market, but we can’t tell what’s real gold and what’s receivable (on the central bank balance sheets).

Full Video Interview

Source: Silverdoctors

UK: Bank of England Has New Money Printing Trick

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You can always count on bankers to find new ways of bending accounting rules but in this case the Bank of England is now able to supply the UK Government with £35bn via the back door at the same time it has announced a halt to QE.

 

 

 

So now we know why the Bank of England’s Monetary Policy Committee called a halt to more Quantitative Easing this week – it’s because the Chancellor and the Governor of the Bank of England have concocted a backdoor way of doing the same thing.

The latest little (actually quite big at a tidy £35bn) money printing wheeze comes about as close to outright monetising of government spending as it is possible for the Bank of England to go without simply creating the money and handing it by the lorry load to the Treasury, a la Weimar.

What the Treasury has decided to do is take the accumulated interest payments on the stock of government debt the Bank of England has bought under quantitative easing, and credit it to the Government’s books rather than the Bank of England’s. The total is £35bn, of which the government intends to take £11bn this financial year and £24bn next.

This obviously helps the deficit in these two years quite a lot, creating space, should the Chancellor wish to take it, to ease back a little on the fiscal squeeze. For instance, he might choose to take the shadow Chancellor’s advice and further delay a scheduled increase in fuel duties. It also makes it easier for Mr Osborne to meet his fiscal mandate of eliminating the structural deficit within five years. Even the supplementary target of falling debt as a percentage of GDP by the end of the parliament – the one which City forecasters now widely believe Osborne will miss without further austerity – is marginally benefited by the latest piece of sleight of hand. It’s as if Osborne has died and been reborn as Gordon Brown, who famously manipulated his own fiscal rules to destruction.

The Government excuses its actions by saying that it is only bringing itself into line with practice in Japan and the US, the other major economies to be practicing substantial QE right now. It might also be argued that to the extent the European Central Bank indulges in bond purchases, it practices something quite similar too.

In any case, you might reasonably think that it doesn’t really matter how the government accounts for the interest on the Bank’s stock of gilts. Since the Bank of England is 100pc owned by the Treasury, the government has in essence only been paying interest to itself, so why not just stop the charade and save the money?

Wrong, wrong, wrong. The justification for keeping the interest is that it creates a buffer to fund expected losses on the gilts when the Bank of England comes to unwind its quantitative easing programme. These losses are now going to have to be met by the government directly at some stage in the future. Alternatively, the government could simply ignore them or write-them off. The Government is transferring the losses from today until tomorrow. The thin line which separates monetary from fiscal policy is being crossed in a way which substantially undermines the Bank of England’s claim to independence.

Source: Telegraph

Turkish PM Calls For Gold Standard

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The Turkish PM, Erdogan has called for a return to the Gold Standard in a scathing attack on the IMF. Interesting that the call for the use of gold as money is becoming more mainstream.

Prime Minister Recep Tayyip Erdoğan states that instead of ruling the world under the pressure of the dollar the IMF should switch to using gold.

During his stay in Indonesia, Prime Minister Recep Tayyip Erdoğan brought up an interesting suggestion for the International Monetary Fund.

Stating that although IMF assistance may appear to be a prescription for some nations, in fact quite the opposite, the fund has often caused serious problems for countries in trouble, Erdoğan asks why it is that the fund uses dollars instead of gold.

Expressing that he doesn’t feel it is right for the IMF to act according to one nation’s currency, Erdoğan states, “The IMF extends aid on a who, where, how and on what conditions bases. For example, if the IMF is under the influence of any single currency then what, are they going rule the world based on the exchange rates of that particular currency?

Why do we not switch then to a monetary unit such as gold, which is at the very least an international constant and indicator which has maintained its honor throughout history. This is something to think about.”

IT IS IMPERATIVE THE IMF AND OECD CHANGE

Explaining that Turkey had to pay a heavy price for the agreement they made with the IMF, Erdoğan stated, “We have not made a stand-by agreement for the past three periods. In April, we will have zeroed out our debt completely and we have no intentions of working with the IMF again.”

Prime Minister Erdoğan went on to state: “One would hope that the IMF would help countries in trouble, however at present this is not the case. This is what we need to achieve.”

Erdoğan also said he believed the United Nations, the International Monetary Fund, the Organization for Security and Co-operation n Europe (OSCE) and the Organization for Co-operation and Development (OECD) need to all undergo a reform.

Source: Sabah

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