#1 Freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.
#2 The average price of a gallon of gasoline has risen by more than 50 cents over the past two months. This is making things tougher on our economy, because nearly every form of economic activity involves moving people or goods around.
#3 Reader’s Digest, once one of the most popular magazines in the world, has filed for bankruptcy.
#4 Atlantic City’s newest casino, Revel, has just filed for bankruptcy. It had been hoped that Revel would help lead a turnaround for Atlantic City.
#5 A state-appointed review board has determined that there is “no satisfactory plan” to solve Detroit’s financial emergency, and many believe that bankruptcy is imminent. If Detroit does declare bankruptcy, it will be the largest municipal bankruptcy in U.S. history.
#6 David Gallagher, the CEO of Town Sports International, recently said that his company is struggling right now because consumers simply do not have as much disposable income anymore…
“As we moved into January membership trends were tracking to expectations in the first half of the month, but fell off track and did not meet our expectations in the second half of the month. We believe the driver of this was the rapid decline in consumer sentiment that has been reported and is connected to the reduction in net pay consumers earn given the changes in tax rates that went into effect in January.“
#7 According to the Conference Board, consumer confidence in the U.S. has hit its lowest level in more than a year.
#8 Sales of the Apple iPhone have been slower than projected, and as a result Chinese manufacturing giant FoxConn has instituted a hiring freeze. The following is from a CNET report that was posted on Wednesday…
The Financial Times noted that it was the first time since a 2009 downturn that the company opted to halt hiring in all of its facilities across the country. The publication talked to multiple recruiters.
The actions taken by Foxconn fuel the concern over the perceived weakened demand for the iPhone 5 and slumping sentiment around Apple in general, with production activity a leading indicator of interest in the product.
#9 In 2012, global cell phone sales posted their first decline since the end of the last recession.
#10 We appear to be in the midst of a “retail apocalypse“. It is being projected that Sears, J.C. Penney, Best Buy and RadioShack will also close hundreds of stores by the end of 2013.
#11 An internal memo authored by a Wal-Mart executive that was recently leaked to the press said that February sales were a “total disaster” and that the beginning of February was the “worst start to a month I have seen in my ~7 years with the company.”
#12 If Congress does not do anything and “sequestration” goes into effect on March 1st, the Pentagon says that approximately 800,000 civilian employees will be facing mandatory furloughs.
#13 Barack Obama is admitting that the “sequester” could have a crippling impact on the U.S. economy. The following is from a recentCNBC article…
Obama cautioned that if the $85 billion in immediate cuts — known as the sequester — occur, the full range of government would feel the effects. Among those he listed: furloughed FBI agents, reductions in spending for communities to pay police and fire personnel and teachers, and decreased ability to respond to threats around the world.
He said the consequences would be felt across the economy.
“People will lose their jobs,” he said. “The unemployment rate might tick up again.”
#14 If the “sequester” is allowed to go into effect, the CBO is projecting that it will cause U.S. GDP growth to go down by at least 0.6 percent and that it will “reduce job growth by 750,000 jobs“.
#15 According to a recent Gallup survey, 65 percent of all Americans believe that 2013 will be a year of “economic difficulty“, and 50 percent of all Americans believe that the “best days” of America are now in the past.
#16 U.S. GDP actually contracted at an annual rate of 0.1 percentduring the fourth quarter of 2012. This was the first GDP contraction that the official numbers have shown in more than three years.
#17 For the entire year of 2012, U.S. GDP growth was only about 1.5 percent. According to Art Cashin, every time GDP growth has fallen this low for an entire year, the U.S. economy has always ended up going into a recession.
#18 The global economy overall is really starting to slow down…
The world’s richest countries saw their economies contract for the first time in almost four years during the final three months of 2012, the Organisation for Economic Co-operation and Development said.
The Paris-based thinktank said gross domestic product across its 34 member states fell by 0.2% – breaking a period of rising activity stretching back to a 2.3% slump in output in the first quarter of 2009.
All the major economies of the OECD – the US, Japan, Germany, France, Italy and the UK – have already reported falls in output at the end of 2012, with the thinktank noting that the steepest declines had been seen in the European Union, where GDP fell by 0.5%. Canada is the only member of the G7 currently on course to register an increase in national output.
#19 Corporate insiders are dumping enormous amounts of stockright now. Do they know something that we don’t?
#20 Even some of the biggest names on Wall Street are warning that we are heading for an economic collapse. For example, Seth Klarman, one of the most respected investors on Wall Street, said in his year-end letter that the collapse of the U.S. financial system could happen at any time…
Published on December 3, 2012 at 1:41 am
Last update on December 3, 2012 at 11:05 am
By Allie Kolechta
High temperatures in the Austin area have already broken records during December, after November also brought record high temperatures and, for the first time in decades, no rain in Austin for the entire month.
Austin saw no measurable rainfall in November, according to reports compiled on the Austin-Bergstrom Airport Area by the National Weather Service Southern Region Headquarters. According to the report, this is the first year Austin has had only trace amounts of rainfall in the month of November since 1970, more than four decades ago.
Record highs were set on Nov. 1 at 88 degrees and Nov. 3 at 87 degrees. High temperatures reached into the 80s on 15 days in November, and lows never reached freezing. The most days it has reached 80 degrees in the area in November was in 1931, with 17 days in the 80s.
Temperatures Saturday hit 83 degrees, breaking the daily record of 82 degrees set in 1954. The high reached 80 degrees Sunday, and is forecast to hit 83 degrees Monday. Previous December highs were 84 degrees Dec 2. 2007 and 86 degrees Dec. 3 1995.
As of the end of November, the Austin area and 81 percent of the state was in a drought classified as moderate or worse, the second of five classifications for drought severity, according to the U.S. Drought Monitor. 54 percent of the state was in a drought classified as severe or worse, 25 percent was classified as extreme or worse and 8 percent was classified as exceptional.
Printed on Monday, Dec. 3, 2012 as: Record-high climate continues in winter
You have to really question what passes for financial analysis these days. One financial show was discussing the recent increase in consumer debt as something positive. In the same breath this person also said that households increased savings. Now think about this statement. If you financed a $2,000 vacation on your credit card but increased savings by $500 did your balance sheet improve? Of course not. Let us not even dive into the fact that most of the recent consumer debt increase has come at the hands of student debt which is already in a massive bubble. We are simply repeating the same mistakes with a different soundtrack. We are trying to get out of a debt led crisis with more debt. The facts even show this and we have compiled some of the more troubling data by putting the entire debt market into perspective here. Is it really possible to solve a problem based on too much debt with more debt?
The total market of debt shows our addiction to borrowed money
We flat out have an addiction to borrowing. Total market debt is now up to an astonishing $53 trillion and continues to grow. Take a look at this frightening data:
In 2001 total credit market debt was up to $28 trillion. Today it is now well above $53 trillion and inching closer to slapping on another trillion dollars this year. If you look at Greece as a microcosm of the bigger issue, you realize they are treating a solvency issue as if it were a liquidity issue. Let us be absolutely clear that all of this debt will never be paid off. This warrants repeating:
“The $53 trillion in total credit market debt will never be fully repaid.”
In essence the total debt markets are growing even though the debt will never be paid off. Since most thinking people get this, the banking sector is leveraging central banks to basically print money since no person would lend money out knowing they would never be paid back. Do people really think we are going to pay off our $15 trillion national debt when our deficits look like this:
We’ve been running continuous budget deficits since the late 1970s. We had a brief respite when it came to having a surplus with the tech boom but that was blown out the window completely with the real estate mania. Contrary to what most will say, deficits do matter and massive deficits really matter.
Let us be abundantly clear that the total market debt is incredible. You now start having this challenging race where you are trying to avoid having your total debt surpass your annual GDP. The US has passed that mark and so have many other countries. The results in the long-run are never positive especially when people wise up and start asking for their money back. Since most don’t have the funds, they pay for it via inflation and a devaluation of their currencies. A few articles have circulated where Greece is trying to enforce stronger tax collections yet their system on collecting taxes is so corrupted that they have no way of achieving this without completely revamping the system.
If you think Europe is done just look at Portugal since they are next in the debt grinder queue:
To the debt increase in the US
The access to easy debt creates massive amounts of bubbles. We saw this in housing and now we are seeing it here in the US with the giant higher education bubble:
Keep in mind this is only a tiny part of the student debt market. This year we will surpass $1 trillion point for student loan debt. I believe this will be another crisis that will hit and many indebted students are already feeling this. Many are being sucked into paper mill for-profits that are essentially scam factories that raid the government backed student loan funds. They lobby Congress to make it easier for them to report horrific placement data and change the metric on default reporting so it doesn’t look as atrocious. Even with these softballs from our bought out politicians, the data is still horrible.
A debt bubble cannot be solved with more debt. That should be obvious just like saying savings increased but people went into more debt should cause you to pause. Yet few in the financial media ever take a timeout and many missed the tech bubble bust, the housing bubble bust, and gear up because they will miss the other debt bubble bust as well.
“Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.”
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December 1, 2012
The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslim countries–wars that have benefitted only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending.
The hoax is the propaganda that the fiscal cliff can be avoided by reneging on promised Social Security and Medicare benefits that people have paid for with the payroll tax and by cutting back all aspects of the social safety net from food stamps to unemployment benefits to Medicaid, to housing subsidies. The right-wing has been trying to get rid of the social safety net ever since Franklin D. Roosevelt constructed it, out of fear or compassion or both, during the Great Depression.
Washington’s response to the fiscal cliff is austerity: spending cuts and tax increases. The Republicans say they will vote for the Democrats’ tax increases if the Democrats vote for the Republican’s assault on the social safety net. What bipartisan compromise means is a double-barreled dose of austerity.
Ever since John Maynard Keynes, economists have understood that tax increases and spending cuts suppress, not stimulate, economic activity. This is especially the case in an economy such as the American one, which is driven by consumer spending. When spending declines, so does the economy. When the economy declines, the budget deficit rises.
This is especially the case when an economy is weak and already in decline. A declining economy means less sales, less employment, less tax revenues. This works against the effort to close the federal budget deficit with austerity measures. Instead of strengthening the economy, the austerity measures weaken it further. To cut unemployment benefits and food stamps when unemployment is high or rising would be to provoke social and political instability.
Bread Lines of the Modern Era– The Great Recession IF all EBT recipients shopped at only Walmart Super Centers for ALL their SNAP benefits, then this is how the Bread Line would look each month– 14,588 people. There are 3051 Walmart Super Centers in USA and 44,510,598 participants in SNAP (2011), making the average SNAP line at each Walmart at 14,588 people. The Modern Era’s Bread Lines are not visible because the business is handled discreetly through EBT Cards. According to this Food Stamps report pg 16-17, Walmart receives half of all SNAP dollars in Oklahoma. Walmart is the largest retailer in America. Short Facts: 47% of Food Stamp participants are children. 78.6% of all SNAP participants are in metropolitan areas. 93.2% of all SNAP benefits go to US citizens. Only 4% are self-employed. (CLICK IMAGE FOR SOURCEPAGE)
Some economists, such as Robert Barro at Harvard University, claim that stimulative measures, the opposite of austerity, don’t work, because consumers anticipate the higher taxes that will be needed to cover the budget deficit and, therefore, reduce their spending and increase their saving in order to be able to pay the anticipated higher taxes.
In other words, the Keynesian effort to stimulate spending causes consumers to reduce their spending. I don’t know of any empirical evidence for this claim.
Regardless, the situation on the ground at the present time is that for the majority of people, incomes are stretched to the limit and beyond. Many cannot pay their bills, their mortgages, their car payments, their student loans. They are drowning in debt, and there is nothing that they can cut back in order to save money with which to pay higher taxes.
Many commentators are complaining that Congress will refuse to face the difficult issues and kick the can down the road, leaving the fiscal cliff looming. This would probably be the best outcome. As the fiscal cliff is a result, not a cause, to focus on the fiscal cliff is to focus on the symptoms rather than the disease.
The US economy has two serious diseases, and neither one is too much welfare spending.
One disease is the offshoring of US middle class jobs, both manufacturing jobs and professional service jobs such as engineering, research, design, and information technology, jobs that formerly were filled by US university graduates, but which today are sent abroad or are filled by foreigners brought in on H-1B work visas at two-thirds of the salary.
The other disease is the deregulation, especially the financial deregulation, that caused the ongoing financial crisis and created banks too big to fail, which has prevented capitalism from working and closing down insolvent corporations.
The Federal Reserve’s policy is focused on saving the banks, not on saving the economy. The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.
Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. The banks are too busted to lend, and consumers are too indebted to borrow.
However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve.
Already there is evidence of central banks and individuals moving out of dollars into gold and silver bullion and into other currencies of countries that are not hemorrhaging debt and money. According to John Williams of Shadowstats.com, the US dollar as a percentage of global holdings of reserve assets has declined from 36.6% in 2006 to 28.7% in 2012. Gold has increased from 10.5% to 12.8% and other foreign currencies except the euro increased from 38.4% to 44.4%.
Russia, China, Brazil, India, and South Africa intend to conduct trade among themselves in their own currencies without use of the dollar as reserve currency. The EU countries conduct their trade with one another in euros, and although not reported in the US media, Asian countries are discussing a new common currency for trade among themselves.
The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.
This means that the price of the dollar is threatened.
Concern over the dollar means concern over dollar-denominated financial instruments such as stocks and bonds. The Chinese hold some $2 trillion in US financial instruments. The Japanese hold about $1 trillion in US Treasuries. The Saudis and the oil emirates also hold large quantities of US dollar financial instruments. At some point the move away from the dollar also means a move away from US financial instruments. The dumping of US stocks and bonds would destabilize US financial markets and wipe out the remainder of US wealth.
As I have previously written, the Federal Reserve can create new money with which to purchase the dumped financial instruments, thus maintaining their prices. But the Federal Reserve cannot print gold or foreign currencies with which to buy up the dollars that foreigners are paid for their US stocks and bonds. When the dollars in turn are dumped, the exchange value of the dollar will collapse, and US inflation will explode.
The onset of hyperinflation can be as sudden as the collapse of a currency’s exchange value.
The real crisis facing the US is the impending collapse of the US dollar’s foreign exchange value. The US dollar’s value in relation to silver and gold has already collapsed. In the past ten years, gold’s price in US dollars has increased from $250 per ounce to $1,750 per ounce, an increase of $1,500. Silver’s price has risen from $4 per ounce to $34 per ounce. These price rises are not due to a sudden scarcity of gold and silver, but to a flight from the dollar into the two forms of historical money that cannot be created with the printing press.
The price of oil has risen from $20 a barrel ten years ago to as high as $120 per barrel earlier this year and currently $90 a barrel. This price rise has come about despite a weak world economy and without any supply restrictions other than those caused by the attempted US occupation of Iraq, the Western assault on Libya, and the self-harming Western sanctions on Iran, impacts most likely offset by the Saudis, still Washington’s faithful puppet, a country that pumps out its precious life fluid in order to save the West from its own mistakes. The moronic neoconservatives wish to overthrow the Saudi Arabian government, but what more faithful servant has Washington ever had than the Saudi royal house?
What can be done? For a number of years I have pointed out that the problem is the loss of US employment, consumer income, GDP, and tax base to offshoring. The solution is to reverse the outward flow of jobs and to bring them back to the US. This can be done, as Ralph Gomory has made clear, by taxing corporations according to where they add value to their product. If the value is added abroad, corporations would have a high tax rate. If they add value domestically with US labor, they would face a low tax rate. The difference in tax rates can be calculated to offset the benefit of the lower cost of foreign labor.
As all offshored production that is brought to the US to be marketed to Americans counts as imports, relocating the production in the US would decrease the trade deficit, thus strengthening belief in the dollar. The increase in US consumer incomes would raise tax revenues, thus lowering the budget deficit. It is a win-win solution.
The second part to the solution is to end the expensive unfunded wars that have ruined the federal budget for the past 11 years as well as future budgets due to the cost of veterans’ hospital care and benefits. According to ABC World News, “In the decade since the Sept. 11, 2001 terrorist attacks on the World Trade Center, 2,333,972 American military personnel have been deployed to Iraq, Afghanistan or both, as of Aug. 30, 2011 [more than a year ago].” These 2.3 million veterans have rights to various unfunded benefits including life-long health care. Already, according to ABC, 711,986 have used Veterans Administration health care between fiscal year 2002 and the third-quarter of fiscal year 2011. http://abcnews.go.com/Politics/us-veterans-numbers/story?id=14928136#1
The Republicans are determined to continue the gratuitous wars and to make the 99 percent pay for the neoconservatives’ Wars of Hegemony while protecting the 1 percent from tax increases.
The Democrats are little different.
No one in the White House and no more than one dozen members of the 535 member US Congress represents the American people. This is the reason that despite obvious remedies nothing can be done. America is going to crash big time.
And the rest of the world will be thankful. America along with Israel is the world’s most hated country. Don’t expect any foreign bailouts of the failed “superpower.”
Few people realize that the debt ceiling is aligning right on track with the fiscal cliff. Total public outstanding debt is now at $16.369 trillion and is only $63 billion away from breaching the limit. Not a coincidence that the fiscal cliff is also on the horizon. In essence, we are addicted to debt. However US households have been on a multi-year long process of deleveraging yet this is not being asked from banks or governmental institutions. Of course we knew this was coming. Anyone that was honestly objective realized that we were on an unsustainable path. Yet the name of the game is now about kicking the can furiously down the road so it falls beyond or line of vision. Then we act surprised when we arrive at the can and it has only gotten heavier with debt. So as we are T-minus a few days from the fiscal cliff, let us examine the debt ceiling.
Debt ceiling being breached
We are fast approaching the debt ceiling:
As stated, we are $63 billion away from hitting this. This week another $26 billion will be added courtesy of a few auctions so we will hit this before the New Year. Debt has been expanding at a furious pace:
snowball. The reality is, the only way out of these mountains of debt is through a slow methodical inflation. The Fed is not even shy about admitting this. Why else would they be digitally printing money with no fear? They realize the debt destruction of American households is enough to offset the trillions of extensions and side programs that are being offered to the banking system. But after years of this, we are now seeing spillover effects via housing bubbles, student loan bubbles, food price hikes, healthcare costs soaring, and other items of that nature all in line with stagnant incomes.
An interesting parallel is looking at US households. Instead of adjusting to lower incomes in the 1990s and 2000s, US households decided to go into massive debt. Yet that access to debt has now been breached. In essence, US households hit their own debt ceiling and fiscal cliff:
It is rather clear where the deleveraging started to happen. This is now a typical recession. This is shifting the landscape of how much debt households can really take on. Yet for government and banks, there doesn’t seem to be a limit although globally we are starting to see peak debt situations. Many countries are having issues even servicing their interest payments let alone thinking about paying back the debt they owe. These bailouts are simply methods of extending lines of credits to pay off already existing lines.
US households are clearly facing the grim reality that maybe they were not as wealthy as they once thought. After all, many do not even have enough for retirement and millions will completely rely on Social Security for years to come. This works well when you have a small older population with a large healthy working young population. Today we have a larger older population with a young less affluent population, with many not even working unfortunately.
So here we are hitting another debt ceiling limit right on time for the fiscal cliff. Combine this with 47 million Americans on food stamps and you need to ask yourself if this really sounds like an economic recovery.
“In our global society, only money gives a few people access to power which in return allows the very same people the possibility to accumulate even more wealth.”
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By Gilbert Mercier
NEWS JUNKIE POST
Jan 19, 2012 at 8:41 pm
A Crisis of Ontology
The deadly disease of our global capitalist system is rather easy to understand from a philosophical standpoint. The crisis is ontological, a profound existential turmoil. Human beings are currently defined and valued by what they have, not by what they are. The quantitative aspect of our lives is in the forefront of all human interactions-either between groups or individuals within a group-while the qualitative aspect has been pushed aside, not even on the back burner of our collective consciousness, but literally into the trash of our social interactions. Usually, people are gauged by their assets, incomes, and cars they drive not by evaluating what contributions they make to the common good. We live in a world where a person is defined by quantity not quality, and it is probably our biggest systemic problem.
This is reflected by countless examples in the popular culture with expressions such as “show me the money”, “money talks” or the famous line in Brian De Palma’s “Scarface”: “First you get the money, than you get the power”. Poor kids, dreaming of a better future, are constantly bombarded by the spectacle of the “bling, the cool cribs, the fancy rides and the sexy babes” which are the trademarks of most Hip Hop music videos. Money is always center stage in this out of reach universe of “players” which regardless of any tangible cultural meaning serve as heroes and role models for the disenfranchised. It is the deadly equation of money= success + happiness + self respect =power. The same toxic component motivates some of the brightest and best educated young people in the United States to opt for a career on Wall Street instead of becoming doctors, engineers or scientists.
In our global society, only money gives a few people access to power which in return allows the very same people the possibility to accumulate even more wealth. A typical example of this vicious cycle is the constant revolving door between investment banks, such as Goldman Sachs and the highest jobs at the US Treasury Department. Top finance executives with a taste for power- such as Hank Paulson or Larry Summers- under the premises of an interest in “public service”, work for governmental branches for a few years, then go back to their extremely lucrative jobs in finance, and so on.
Anxiety Rising: Occupy Versus Fear and Paradigm Paralysis
Some people are still living under the pretense that “things” in our broken global system will eventually fix themselves up spontaneously by some kind of miracle. Of course it will not happen, and this model is, by essence, the definition of magical thinking. Recently, a Haitian woman, interviewed for the occasion of the second anniversary of the earthquake, said that she was “putting her trust in god not in people” to rebuild Haiti from the horrific disaster. With a rising uncertainty and global anxiety building up like a pressure cooker, most people are scared and either try to escape reality by putting their heads in the sand or are convinced that the global system can be salvaged by making changes from within.
But, what they refuse to see is that following this model of a “business as usual” mentality impair their judgments and lock them into the box of paradigm paralysis. Even so most people feel that we have already entered an extraordinary period of global paradigm shift, the fear of the unknown makes them want to hang on to a system in advance state of decay. More people worldwide are getting aware of the fact that it is not a question of if the system will collapse but rather when.
The global Occupy movement has two functions in this process: firstly, to be the main catalyst for systemic change, secondly, as one of the architects setting up the foundations for a new global system where quality not quantity shall finally prevail in human relationships. Turning what seems to be Utopian into a reality is the challenge, and it is what this brave new world is all about. It is only a question of reaching a certain critical mass, and of developing the psychological ability to welcome the unknown, without fear, and to enter into uncharted territories.
“Britain’s banks face a financial black hole of up to £60bn from regulatory demands, hidden losses, and potential mis-selling costs that threaten to jeopardise future growth, the Bank of England has warned.”
By Philip Aldrick, Economics Editor
6:46PM GMT 29 Nov 2012
In its Financial Stability Report (FSR), the Bank revealed that the big four lenders – RBS, Lloyds, Barclays and HSBC – may need to take £15bn of extra provisions on consumer loans and European debt, “a further £4bn-£10bn” to cover fines and customer compensation, and “between £5bn and £35bn” to meet regulatory risk standards.
The Bank of England has just crossed the line into straight government financing (Click for Article)
Sir Mervyn King, the Bank’s Governor, said the potential losses distorted the “picture of banks’ health” and that lenders may have to “raise capital or take steps to restructure”. He added: “The danger to be avoided is that of inadequately capitalised banks holding back our recovery.”
However, he stressed that no more taxpayer money would be put on the line. “It was made very clear that the Treasury did not want to put more into the state-owned banks,” he said.
Markets have lost confidence in the banks due to their “complex and opaque” numbers and, to recover investors’ trust, lenders need to set aside capital for “expected losses” and for potential compensation and fines over customer mis-selling and Libor rigging, the Bank said. Risk levels also need to be calculated more prudently.
The decision was taken after last week’s meeting of the Financial Policy Committee. In the most dramatic intervention since the £67bn bail-out of lenders from RBS to Lloyds, the proposal will see regulators from the Financial Services Authority sent into banks and building societies to ensures losses are properly declared by March next year.
However, the Bank declined to put a single number on the scale of potential recapitalisations, stressing that it would depend on the FSA judgement on each individual bank. Sir Mervyn added: “The problem is manageable, and is already understood at least in part by markets.”
Bank shares reacted favourably as fears of a worse outcome proved unfounded. Barclays shares closed up 1pc at 244.6p, RBS was 1.5pc higher at 299p, and Lloyds rose 1.5pc to 46.64p. Jason Napier, an analyst at Deutsche Bank, said: “Overall, the FSR is in line with our expectation, and in areas the report is better than we had feared.”
The plan could lead to a shake-up of the industry with rights issues, asset sales, and disposals – so long as they “do not hinder lending to the real economy”.
Barclays has already raised $3bn (£1.8bn) in contingent capital, Royal Bank of Scotland has previously been asked by the regulators to consider selling its US operation Citizens, and Lloyds Banking Group is rumoured to be looking at the disposal of its stake in wealth manager St James’s Place.
Sir Mervyn said: “The recommendation we have made will soon get the banks back to a position where they can support our economic recovery.”
The Bank also released separate data yesterday showing that write-offs by UK banks fell to £3.5bn in the third quarter from £4bn in the previous three months – well below the peak of £6.3bn in 2011 and the lowest since 2009. Citi’s economist Michael Saunders said: “The drop may be a symptom of increased banking forbearance and reluctance to face losses .”
SPOILER: DO-NOT-FALL-FOR-THAT!! This all-coming ‘goldrush’ is artificially supported in order to actually KEEP the US Dollar’s status-quo in tradings – that is, until it finally collapses.
I repeat: BEWARE. Do not fall for that trick, as it’s what banks would like the most. That’s exactly why they pay people like this to write essays like these.
I warned ye.
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Marc Howe | November 30, 2012
On the eve of the implementation of the Basel III capital rules governing the world’s largest financial institutions veteran investor Eric Sprott points to gold as the most convenient and over-looked solution to the global banking system’s woes.
The Basel Committee on Banking Supervision, responsible for devising guidelines for the world’s leading financial institutions, has spent the past four years since the Great Financial Crisis drafting a new set of international banking regulations to prevent the recurrence of similar catastrophes.
The new rules are slated to take effect on 1 January 2013, yet only months prior to their scheduled implementation they have already triggered refractory responses – particularly in the United States, due to their complexity and adverse impact on profits.
In a trenchant essay on the new regulations Sprott highlights what he believes to be one of their chief defects – their treatment of gold as an asset class.
Sprott notes that Basel III regulators cling to the notion that AAA-government securities should comprise the preponderance of high quality liquid assets which banks are required to hold.
Such securities are no longer esteemed by the financial community as safe harbor holdings due to the sovereign risk issues blighting a number of indebted nation-states, as well as the propensity of governments to issue blithely issue debt.
According to Sprott, precious metals such as gold could be the solution to the instability of the global banking system were they conferred with a heightened liquidity profile under the new Basel III framework.
Sprott writes that this would “open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate.”
Non-Western central banks have already cottoned on to this and included gold as a key component of their foreign exchange reserves, while two banking jurisdictions in particular – Turkey and China – “have openly incorporated gold into their capital structures.”
The People’s Bank of China recently made remarks which would imply that the government wishes to capitalize on their growing gold stockpile by integrating the domestic market with the international market, and Sprott speculates that China “may have already cornered most of the world’s physical gold supply” in anticipation of the day that Western banks realize that the precious metal is preferable to Treasuries.
Certainly the folks at Gazprom are having a good snicker, reveling in the mockery that has been made of what should have been a landmark Ukraine-Spain gas deal that would have loosened Russia’s gas grip on Kiev.
Everyone wondered how Russia would respond to Ukraine’s attempt at gas independence. But this is what happens when you mess with Gazprom.
It was a horrible moment for Ukraine on Monday—all the more horrible because the whole event was televised—when the historical $1.1 billion deal it was about to sign with Spain’s Gas Natural Fenosa turned out to be fake.
Why was the deal historical? It would have secured $1.1 billion in investment for the construction of Ukraine’s first liquid natural gas (LNG) terminal on the Black Sea and a pipeline connecting the country’s vast gas network to the terminal.
More to the point, this would enable Ukraine to import by tanker up to 10 billion cubic meters of European gas at a price 20% cheaper than Gazprom. Even more to the point, it would be a major first step toward reducing Ukraine’s dependence on Russia.
The deal was that investors had apparently signed agreements through a newly formed consortium for the construction of the $1.1 billion LNG terminal.
Here’s how the ill-fated signing ceremony went down:
While Ukrainian Prime Minister Mykola Azarov and Energy Minister Yuriy Boyko were cutting the ribbon on the construction of the terminal in a live televised ceremony, the country’s investment chief, Vladislav Kaskiv, was attending the official investment signing ceremony elsewhere, also via live video feed. This is where walls caved in very suddenly.
Signing on behalf of Fenosa was one Jordi Sarda Bonvehi. At the 11th hour, Fenosa let it be known that they have no idea who Bonvehi is and that he certainly does not represent the company in any way. Fenosa apparently had no idea it was signing a landmark agreement with Ukraine.
Kiev was necessarily taken aback, and Bonvehi remained conveniently silent at the signing ceremony once the news broke out.
Of course, what no one knows is how Ukrainian authorities were led to believe—during multiple rounds of negotiations—that Bonvehi was a Fenosa representative.
The story being bandied about by authorities in Kiev is now that Bonvehi was under the impression that Fenosa would sign the deal with Ukraine and that he would be given the authority to sign the deal retroactively.
But Fenosa denies it has ever considered such a deal and continues to deny any relationship at all with Bonvehi.
So where does that leave us? It leaves Ukraine in the lurch. There is no way it can fund this terminal on its own, despite its claims to the contrary. We probably don’t have to look much further than Gazprom and the Ukrainian oligarchy to find where this beautifully crafted charade was hatched.
In the meantime, Bonvehi—if such a person of that name even exists—remains elusive. No one knows who he really is or who he really works for.
More than anything, it’s an advertisement for due diligence.
“Force majeure, a contract clause that frees parties from liability due to an event outside of their control, for the facility.”
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Published November 26, 2012
Dow Jones Newswires
CME Group Inc. (CME) on Monday said that Manfra, Tordella and Brookes Inc., one of the exchange’s gold depositories, will not be able to delivery metal as the lower Manhattan company deals with “operational limitations” almost a month after the arrival of Hurricane Sandy.
MTB, one of five depositories licensed to deliver gold against CME’s benchmark 100-troy ounce gold contract, held 29,276 troy ounces of gold and 33,000 troy ounces of palladium as of Nov. 23, according to data from CME subsidiary Comex.
In a notice to customers on Monday, CME declared force majeure, a contract clause that frees parties from liability due to an event outside of their control, for the facility.
CME said that individuals holding MTB warrants, or certificates for a specific lot of metal stored in the depository, may receive gold delivered from Brinks Co. (BCO) in New York. MTB is responsible for any additional costs incurred by customers receiving metal from Brinks, CME said.
“This shouldn’t have a material impact on the way market participants are doing business,” a CME spokesman said. “They’ll still contact MTB if they want to take delivery on contracts,” and MTB will arrange for delivery through Brinks.
In a notice posted to its website dated Nov. 12, MTB said the firm “sustained substantial damages” following Hurricane Sandy’s arrival in New York City on Oct. 29, and had curtailed its operations.
The force majeure will remain in effect until further notice from the exchange, the CME said. The delivery period for CME’s December-delivery precious metals futures begins on Friday.
The End Of All Crossroads 