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2013: Let The Currency Wars Truely Begin

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Up until now the G20 countries were shafting each other quietly through various means of currency devaluation. Many new terms for printing money were added to the lexicon. Lately the rhetoric has begun to get more aggressive. ZeroHedge writes of the Russia’s Central Bank Chief’s warning that “the world is on the brink of a fresh currency war”. Along with gold repatriation stories, 2013 is shaping up to be a tough year ahead for Central Bankers.

It will not come as a surprise to anyone who has spent more than a few cursory minutes reading ZeroHedge over the past few years (back in 2009, then 2010, and most recently here, and here) but the rolling ‘beggar thy neighbor’ currency strategies of world central banks are gathering pace. To wit, Bloomberg reports that energy-bound Russia’s central bank chief appears to have broken ranks warning that “the world is on the brink of a fresh ‘currency war’.” With Japan openly (and actively) verbally intervening to depress the JPY and now Juncker’s “dangerously high” comments on the EUR yesterday, it appears 2013 will be the year when the G-20 finance ministers (who agreed to ‘refrain from competitive devaluation of currencies’ in 2009) tear up their promises and get active. Rhetoric is on the rise with the Bank of Korea threatening “an active response”, Russia now suggesting reciprocal devaluations will occur (and hurt the global economy) as RBA Governor noted that there is “a degree of disquiet in the global policy-making community.” Critically BoE Governor Mervyn King has suggested what only conspiracists have offered before: “we’ll see the growth of actively managed exchange rates,” and sure enough where FX rates go so stocks will nominally follow (see JPY vs TOPIX and CHF vs SMI recently).

Via Bloomberg:

The world is on the brink of a fresh “currency war,” Russia warned, as European policy makers joined Japan in bemoaning the economic cost of rising exchange rates.

Japan is weakening the yen and other countries may follow,”

 …

 The push for weaker currencies is being driven by a need to find new sources of economic growth as monetary and fiscal policies run out of room. The risk is as each country tries to boost exports, it hurts the competitiveness of other economies and provokes retaliation.

 Yesterday “will go down as the first day European policy makers fired a shot in the 2013 currency war,” said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London.

 …

 The skirmish may lead to a clash of G-20 finance ministers and central banks when they meet next month in Moscow, three months after reiterating their 2009 pledge to “refrain from competitive devaluation of currencies.”

 While emerging markets have repeatedly complained about strong currencies as a result of easy monetary policies in the west, the engagement of richer nations is adding a new dimension to what Brazilian Finance Minister Guido Mantega first dubbed a currency war in 2010.

Source: ZeroHedge

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Bundesbank Looks For Its Gold Back From New York Fed – Who is Next?

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The move everybody suspected would happen one day has been reported by Handlesblatt that the Bundesbank is looking to repatriate its gold from the New York Fed. There has been much noise in Germany about auditing its gold within the New York Fed only to be rebuffed.  Indeed Germany will not be alone in repatriating its gold if this story proves to be true. Chavez started the trend but expect many more countries to follow quickly. Nobody wants to be the last man standing.

In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the “stability” of the entire monetary regime based on rock solid, undisputed “faith and credit” in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved. Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a “crazy, lunatic” dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most. In brief: this is a momentous development, one which may signify that the regime of mutual assured and very much telegraphed – because if the central banks don’t have faith in one another, why should anyone else? – trust in central banks by other central banks is ending.

Much more importantly, it is being telegraphed as such, with Buba fully aware of just what the consequences of this (first partial, and then full; and certainly full vis-a-vis the nouveau socialist regime of Francois Hollande which will soon hold zero German gold) repatriation will be in a global monetary arena, which is already scraping by on the last traces of faith in a monetary system that is slowly but surely dying but first diluting itself to oblivion. And in simple game theory terms, the first party to defect from the prisoner’s dilemma of all the bulk of global gold being held by the Fed, defects best. Then the second. Then the third. Until, in this particular case, the last central bank to pull its gold from the NY Fed and the other 2 primary depositories of developed world gold, London and Paris, just happens to discover their gold was never there to begin with, and instead served as collateral to paper gold subsequently rehypothecated several hundred times, and whose ultimate ownership deed is long gone.

It would be very ironic, if the Bundesbank, which many had assumed had bent over backwards to accommodate Mario Draghi’s Goldmanesque demands to allow implicit monetization of peripheral nations’ debts has just “returned the favor” by launching the greatest physical gold scramble of all time.

A translated paragraph from Handlesblatt reads

The German Bundesbank is developing a new approach as to where its gold will be stored. According to exclusive information, to be fully announced on Wednesday, the bank will in the future hold less gold in the New York Fed, and no more hold in Paris (Banque de France). As a result, the distribution of German gold, of which 45% is held in New York, 13% in London, 11% in Paris and 31% in Frankfurt, is about to change.

ZeroHedge pointed out in its article, a number of speeches given by German officials outlying its trust for the New York Fed but asks what has happened since then.

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambigous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the “excellent relationship” between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can’t help but wonder what will happen to the price of gold: both paper and physical?

Source: ZeroHedge

George Soros Issues 3 month Warning For Europe

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After Robert Zoellick issued his warning, George Soros had to get in on the act. His full speech can be found on his website but ZeroHedge did a great analysis of it.

although Soros said

Germany and its central bank are unlikely to lead the way out of the euro zone debt crisis within three months time, after which it will be too late, U.S. billionaire George Soros said on Saturday.

….

Soros said he expected Greek elections in June to produce a government willing to stick by the current bailout agreements, but which would find it impossible to do so.

ZH replied with

We disagree: the next Greek elections will be merely a rerun of the first – lots of sound and fury, signifying no government, as the country becomes the next Belgium (as we noted here before the outcome of the first election was even known), ends up an anarchy state, without a government, as what little money the Treasury has goes to pay English-law bondholders, until finally there is nothing left. But that is neither here nor there, because at this point it is not about Greece any more:

But both Soros and ZH  agree on 3 months timeline.

Click for full ZeroHedge article.

Spain Heading For Full Collapse Of Economy (ZeroHedge)

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The Spanish economy reads like a disaster zone. The IBEX has fallen hugely. Check out the analysis from ZeroHedge.

Spain is about to enter a full-scale Crisis.

A few facts about Spain:

•    Total Spanish banking loans are equal to 170% of Spanish GDP.

•    Troubled loans at Spanish Banks just hit an 18-year high.

•    Spanish Banks are drawing a record €316.3 billion from the ECB

      (up from €169.2 billion in February).

Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: €65 billion left the Spanish banking system in March 2011 alone.

As bad as they are, even these data points don’t do justice to the toxic sewer that is the Spanish banking system.

Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.

How bad a state are the cajas in?

Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn’t have to reveal their loan to value ratios, the quality of collateral they took for making loans… or anything for that matter.

So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes the one that happened in the US look like a small bump.

Stock Market (IBEX)

If you don’t want to take my word for it, have a look at the Spanish stock market. It’s been in a free fall for over a month as Spain’s banking system teeters on the brink of collapse (remember they’re drawing over €300 BILLION in emergency loans from the ECB.

 

ZeroHedge reckon Spain has one month left before it takes everything with it.

With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.

Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?

Heck even Ben Bernanke and others have issued warnings that Europe could drag down the US banking system if it crumbles.

 

Spains Debt/GDP At 134%

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Mark Grant on ZeroHedge has broken through the official Spanish BS and calculated the debt/GDP figure at 133.8%.

Below is the breakdown for not only the national debt but also for the debt Spain owes in relation to commitments to the EU and ECB.

 

 

 

Spain’s GDP                                                $1.295 trillion

SPAIN’S NATIONAL DEBT

Admitted Sovereign Debt                                 $732 billion
Admitted Regional Debt                                   $183 billion
Admitted Bank Guaranteed Debt                     $103 billion
Admitted Other Sovereign Gtd. Debt               $ 72 billion
Total National Debt                                         $1.090 trillion

SPAIN’S EUROPEAN DEBT

Spain’s Liabilities at the ECB                           $332 billion
Spain’s Cost for the EU budget                       $ 20 billion
Spain’s Liabilities for the Stabilization Funds   $125 billion
Spain’s Liabilities for the Macro Fin. Ass. Fund $ 99 billion
Spain’s Guarantee of the EIB debt                  $ 67 billion
Spain’s Total European Debt                           $643 billion

————————————————————————————————–

Spain’s National and European Debt                $1.733 trillion

Spain’s OFFICAL debt to GDP Ratio                     68.5%

Spain’s ACTUAL Debt to GDP Ratio                  133.8%

Click here for breakdown of Germany’s debt/GDP of 140%.

New Draft EU Treaty On Stability Is Toothless

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Two articles appeared today on the proposed draft of the EU treaty on growth and stability. According to ZeroHedge, it’s completely toothless:

the entire fiscal treaty is toothless from the ground up as every breach of deficit targets will always be attributed to “exceptional circumstances.”

…….

in the impossible event that a country is found to have breached deficits due to non-exceptional circumstances, what does the EU do? Why it punishes the country by making the deficit even bigger, by up to 0.1% of GDP. Because there is nothing like teaching a deficit transgressor a lesson, than by forcing what caused the punishment in the first place to get even worse…

Only in Europe.

Mike Shedlock writes on his blog that the reason the treaty was watered down in the first place was because the Irish government feared it would have a referendum to pass it, so requested that it be watered down to enable it to be ratified by the Irish Government without having to put it to its angry voters with a referendum.

The treaty hammered out by French President Nicolas Sarkozy and German Chancellor Angela has been watered down to complete meaningless with new provisions that would allow countries to “temporarily deviate from the rules in case of an unusual event” or in “periods of severe economic downturn.”

He quotes from an Irish Independent article

The Irish government is likely to face a court challenge if it decides not to hold a referendum on a new European fiscal treaty, potentially plunging the country and Europe into months of legal uncertainty.

Sinn Féin, the fourth largest party in Ireland’s parliament, told The Financial Times on Thursday that the party had sought legal advice on the issue and was “seriously and actively considering” making a challenge to the Irish Supreme Court.

finally

so behind the scenes Irish conspirators working with the EU have put in language that waters down the treaty hoping to do two things.

  1. Water down the treaty so that it does not have to be voted on
  2. Change the rules of the treaty later quietly, after the fact, with majority rule votes or other procedures

Give the Voters a Chance

The very last thing the unelected EU officials want is a public vote on anything. They intend come hell or high water to make their socialist nanny-zone state complete with a bureau of nightmarish regulations and agencies governing virtually every aspect of everyone’s lives.

 

$10 TRILLION Liquidity Injection Coming?

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Following on the back of a post yesterday from ZeroHedge that on Feb 29th the LTRO could reach €1trn, now we have Credit Suisse’s William Porter report that the LTRO figure could be as high as €10 trn.

After all both S&P and now Fitch expect Greece to default on March 20 (just to have the event somewhat “priced in”). Which means that in an attempt to front-run the unprecedented liquidity scramble that will certainly result as nobody has any idea what would happen should Greece default in an orderly fashion, let alone disorderly, the only buffer is having cash. Lots of it. A shock and awe liquidity firewall that will leave everyone stunned. How much. According to Credit Suisse the new LTRO number could be up to a gargantuan, and unprecedented, €10 TRILLION!

The implications are the EURUSD go below parity, stocks and gold to take off, US manufacturing crippled and FX war.

all bets will be off as the ratio of the ECB to the Fed assets, a correlation which would imply a sub parity level on the EURUSD would gut corporate earnings in the US, all merely to prevent the disintegration of the Eurozone. And while this event will be welcomed by the Fed initially as it will send stocks exploding to potentially all time highs (and gold to well over $2000/ounce), it will cripple the US manufacturing model unless the Fed immediately responds in kind, and prints outright, and unsterilized, a non-trivial comparable amount. In other words, the world could very well enter the final round of global coordinated currency devaluation, aka FX war, together.

So what happens if the Greeks default?

Needless to say, if Credit Suisse is even 20% correct in its estimates, and the more we think about it, the more plausible it is that 20 days ahead of the Greek default the ECB will bend over to provide every last penny European banks may need, and then some, to firewall exposure fall out (since none except for UniCredit actually did a capital raise and we all saw what happened then), then all bets are truly off. Should the ECB indeed escalate events to this degree, then we are about to leave the paradigm started with the late 2008 bailout of Lehman, and enter one in which every incremental swing in the global socio-economic sinewave could well be the last.

 

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