31 July 2010

Butler: JP Morgan "Covering Its Silver Shorts Like Crazy"

JP Morgan holds a massive short position in silver, some of which it is said to have inherited as a concentrated speculative position from Bear Stearns. Retreats from such overextended positions are never easy, and therefore never straightforward. Having such a position can be very profitable in the short term since it gives one remarkable control over the paper price of a commodity, paricularly if the regulators are willing to turn a blind eye to certain trading practices.

If it is indeed reducing its oversized short positions, JP Morgan will undoubtedly attempt to 'smack the price' on occasion even as it covers, to prevent the specs and hedge funds from taking too much leash to the long side. This will help to prevent them from provoking a disorderly rout and, God forbid, a 'short squeeze.' In these managed markets, the major players tend to respect each other's turf, so one has to wonder who might take them on.

The 'deadline' if any that they might face is prospective position limits to be imposed and more transparent reporting required by the CFTC. Given the past history, it is most likely that JPM will not be overly inconvenienced by them in the short term. Ted has always been the optimist with regard to regulatory reform and willingness to 'do the right thing.' I also believe this will happen, but slowly. Still, it does seem as though the darkest hour is always before the dawn, and the last few weeks have been disheartening for the metals bulls, as demonstrated in the sentiment indicators.

Let's see what happens in the market and take our cues from that.

"JP Morgan Chase, the big short in the silver market, is "covering like crazy," silver market analyst Ted Butler remarks in his weekly interview with Eric King of King World News.

Butler thinks that both silver and gold turned around this week and he wonders whether, in light of the new financial regulation law, MorganChase will ever come back to shorting silver so much.

Butler also is very encouraged by the comments of Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission and the promise of position limits in the precious metals markets." Chris Powell, GATA

You can listen to the interview with metals analyst Ted Butler at the King World News Internet site here.

The Committee to Defraud the World

To say now that 'No one knew' or 'I was mistaken' or 'I was just doing as I was told' is another in a series of lies and deceptions that have supported one of the greatest frauds in the history of the world.

But this is not history. This episode of fraud is still playing itself out now. And to fail to understand the depth and breadth of this madness is to place oneself in peril, and in the power of those who are twisting the Western economic and political system even now to satisfy their lust for wealth and power. You are only successful if you can keep what you kill.

Glass-Steagall fell after a decade long campaign involving hundreds of millions in lobbyist money spread lavishly around the Congress, led by Sanford Weil of Citibank, supported by key banking and political figures in the Congress and at the Fed. It involved Senator Phil Gramm, who helped to put a stake in the heart of the financial regulatory process under the Reagan free markets banner, and who recently said the problem is that the middle class were a bunch of whiners. As did his wife Wendy, who as the chairperson of the CFTC had exempted Enron from regulatory oversight, and then left to take a position there on its board of directors.

Like the Mortgage Backed Securities scandal it involved surprisingly few principal players, like Alan Greenspan and Robert Rubin, who used their power and influence to silence and ostracize critics, and promote a climate of reckless disregard for the public trust under the meme of 'efficient markets' and deregulation. This might have been an innocent policy error if it did not involve premeditated theft on a massive scale, followed by cover ups, denials, and a control fraud that exists even today.

But it also involved literally thousands of collaborators and enablers, from mainstream media people, economists, analysts, and other thought leaders to politicians and regulators who saw that it was to their advantage to at least passively support this scheme which they knew very well was a fairy tale, a fraud, class warfare by a new name, but were able to hide their own guilty consciences behind self-serving rationalization and the shield of plausible deniability.

History, and hopefully the justice system, will sort this all out. It is difficult, even now, to get one's mind around the enormity of it. This is its most powerful weapon. Who could be such monsters, so amoral, so destructively sociopathic? Future generations will regard it as an episode of madness, driven by a few people in a tight circle of self-reinforcing thought, people with remarkably similar cultural and educational backgrounds, driven by a consuming lust for power, that were able to dupe and delude an entire nation made vulnerable by propaganda, a co-opted press, and apathy.

In the meanwhile all the great mass of people can do is to watch, and wait, and seek to protect themselves from these ravening wolves grown increasingly desperate, as their arrogance comes to a tragic fall. They can vote out incumbents, but the parties choose the candidates, and too often they resemble competing crime families of special interests more than pillars of a representative government, saying one thing to get elected and doing another thing once in office.

This is the approach of trouble when hubris is at its height, and the few feel they have everything to gain and nothing to lose, if only they can gain more power, and necessarily become more ruthless. They are trapped in a cycle of fear and greed. The fear provokes the lies and the cover ups, but the greed promotes the extension of the fraud and the theft, requiring even more lies and cover ups. The operative word is 'over reach,' in a classic late stage Ponzi scheme. This will undoubtedly add to the confusion as the truth is assaulted by the big lie.

The last vestiges of polite society are often shed as the downfall reaches it final conclusion, at the end, when all is revealed, at last. And so there will be great danger.

The Committee To Save the World
John Hathaway
July 2010

Eleven years ago, the cover of Time Magazine (right) featured Alan Greenspan, Robert Rubin, and Lawrence Summers posing heroically over the headline: “The Committee to Save the World.”

The sidebar was: “The inside story of how the Three Marketeers have prevented a global meltdown—so far.” The reverent tone of the 2/15/99 article strikes a note of discord in the sour investment climate of today. The article gushed: “In the past six years the three have merged into a kind of brotherhood………What holds them together is a passion for thinking and an inextinguishable curiosity about a new economic order that is unfolding before them..” In today’s less exuberant world, the picture, the headlines, and the content of the article are laughable and mildly irritating.

The “brotherhood” perfected the recipe of papering over market crises with layers of
debt financeable only by negative real interest rates. Their passion for thinking about the new economic order gave birth to capital markets more akin to casinos than rational allocators of capital. In the words of Ambrose Evans Pierce: “Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour.”

Subsequent iterations and mutations of world saving committees have become routine. The committee of Jean Claude Trichet, Angela Merkel and IMF Managing Director Strauss-Kahn attempted to rescue the euro, the euro zone, and by extension, the global financial system. Their effort came a scant two years after Henry Paulson, Timothy Geithner, and Ben Bernanke teamed up to rescue the mortgage market and the U.S. banking system. The price of these two bailouts alone exceeds $2.6 trillion and still counting.

In a December 23, 2007 Op-Ed piece penned for the NY Times, Harvard Professor Greg Mankiw wrote: “The truth is the current Fed governors, together with their crack staff of Ph.D. economists and market analysts, are as close to an economic dream team as we are ever likely to see.” Two years later, the number of those who still believe in the magical powers of policy making leadership has plummeted....

Read the rest here.

Five More Failed Banks Cost US Government an Additional $334 Million in Losses

The losses from the mortgage securities frauds and the subsequent bubble collapse continue to debilitate the US financial system, particularly the regional banks, in a slow bleed costing the US government additional millions each week. The public relations campaign promoting the idea that the bank bailouts are done and successful, and that the US made money on this egregious abuse of public monies is patently false, and probably can be described as corporatist propaganda.

The banks continue to mount a campaign to resist reform and regulation. They are taking advantage of the weakness of the Obama administration in failing to reform the banking system through liquidations and managed bankruptcies, including indictments and investigations as was seen in the Savings and Loan scandal.

It is difficult to continue to assume good intentions in this administration, or even mere incompetence. The objections put up by Geithner and Summers to the appointment of Elizabeth Warren as the head of the new consumer protection agency shows how reactionary they continue to be, and resistant to fundamental reforms.

American Banker
Failures on Two Coasts Stretch Toll for Year to 108

By Joe Adler
Friday, July 30, 2010

Five bank closures in four states Friday cost the federal government an additional $334 million in losses.

Regulators shuttered the $373 million-asset Coastal Community Bank in Panama City Beach, Fla., the $66 million-asset Bayside Savings Bank in Port Saint Joe, Fla., the $168 million-asset NorthWest Bank and Trust in Acworth, Ga., the $529 million-asset The Cowlitz Bank in Longview, Wash., and the $768-asset LibertyBank in Eugene, Ore. The failures brought the year's total to 108.

The hammered Southeast bore the brunt of the failure activity, as it has for so many Fridays since the financial crisis began. Twenty banks have been seized in Florida in 2010, while 11 have failed in Georgia so far this year.

The two Florida institutions that failed Friday went to one buyer: Centennial Bank in Conway, Ark. The acquirer agreed to take over Coastal Community's $363 million in deposits, Bayside Savings' $52 million in deposits and roughly all of the assets of both institutions.

The Federal Deposit Insurance Corp. agreed to share losses with Centennial on $303 million of Coastal Community's assets, and $48 million of Bayside Savings' assets. The two failures were estimated to cost the FDIC, respectively, $94 million and $16 million.

Meanwhile, the failure of NorthWest in Georgia was estimated to cost the agency nearly $40 million. The FDIC sold all of NorthWest's $159 million in deposits, and essentially all of its assets, to State Bank and Trust Co. in Macon. The acquirer agreed to share losses with the FDIC on about $107 million of the failed bank's assets.

Elsewhere, the FDIC sold all of The Cowlitz Bank's $514 million in deposits to Heritage Bank of Olympia, Wash., which paid a 1% premium. Heritage also acquired about $329 million of the failed bank's assets, and will share losses with the FDIC on about $161 million of those assets. The FDIC estimated the failure will cost $69 million.

Home Federal Bank in Nampa, Idaho, paid a 1% premium to assume all of LibertyBank's $718 million in deposits, and agreed to acquire $420 million of its assets. The FDIC and Home Federal will share losses on $300 million of those assets. The failure's cost was estimated at $115 million.

30 July 2010

Guest Post: Inside the New GDP Numbers - Consumer Metrics Institute

"The 2010 contraction is now clearly worse than the "Great Recession" was at the same point in their respective time lines. And we don't see a bottom forming yet."

Consumer Metrics Insitute
Inside the New GDP Numbers

July 30, 2010

On July 30th the Bureau of Economic Analysis ('BEA') released its "advance" estimate of the annualized growth rate of the U.S. Gross Domestic Product ('GDP') during the 2nd quarter of 2010. Per their report, the GDP grew during the quarter at an annualized rate of 2.4%, down from 3.7% in the 1st quarter of 2010. Several points from the report merit comment:

► Readers familiar with prior GDP reports will be more surprised by the reported 1st quarter growth as by the new 2nd quarter number (which had been leaked by Mr. Bernanke last week), since only last month the Q1 of 2010 was supposedly growing at a 2.7% rate. Why did the Q1 number suddenly get altered upward by 1%? The BEA quietly revised the 1st quarter inventory adjustment up to a level that represents a 2.64% component within the revised 3.7% figure, with 1st quarter "real final sales of domestic product" now reported to be growing at a modestly improved 1.06% annualized clip, compared to the 0.9% number reported last month. In short, factories were piling on inventory at a substantially higher rate than previously thought, while the "real final sales" remained anemic.

► The 2.4% figure will garner all of the headlines, but the more important "real final sales of domestic product" continues to be weak, growing at a reported 1.3% annualized rate. The real cause for concern is that the reported inventory adjustments dropped from a 2.64% component in the revised 1st quarter to a 1.05% component during the 2nd quarter. If factories have begun to realize that end user demand remains anemic, the inventory adjustments could well go negative soon, pulling the reported total GDP down with it.

Chart 1

The BEA revised much more than the first quarter of 2010. They revised down 2009, 2008 and 2007 as well. Apparently the "Great Recession" has been worse than our government has previously reported. And the recovery's brightest moment, Q4 2009, has been revised down from 5.6% to 5.0%. Similarly Q3 2009 dropped from 2.2% to 1.6%. And so on. The bottom of the recession was shifted back one quarter, with Q4 2008 now reported to have contracted at a -6.8% rate, revised down from the previously reported -5.4% rate. Most quarters of 2007, 2008 and 2009 have been revised down substantially, shifting the recession shown in the chart above back in time.

► The new GDP report shows that the current gap between the consumer demand that we measure and the BEA's reported number continues to grow as factories build their inventories in anticipation of a strong recovery. If factories curb their enthusiasm during the third quarter, the BEA's "advance" estimate for Q3 2010 might be brutal, just 4 days before the U.S. mid-term election.

We understand that economists want to ultimately get the numbers right, even if it is three years after the fact. We applaud the BEA for their efforts. But we also understand people who are concerned about quiet governmental revisions to history.

Back to the real world: our Daily Growth Index has dropped to new recent lows, and it is now contracting at a -3.4% rate.

Chart 2

This contraction rate puts the trailing 'quarter' nearly into the 5th percentile among all quarters since 1947, meaning that only about 1 in 20 quarters officially recorded by the BEA since then has been worse. Our "Contraction Watch" places this movement into the perspective of the 2006 and 2008 contractions:

Chart 3

The 2010 contraction is now clearly worse than the "Great Recession" was at the same point in their respective time lines. And we don't see a bottom forming yet.

SP 500 September Daily Chart; Gold Daily and Weekly Charts; Silver Weekly Chart

SP futures failed at overhead resistance, but still have not yet taken out support, and the important pivot, to the downside.

Still it was a low volume weak ending to the month of July.

Gold held the all important support and came roaring back today, rallying as the selling for the option expiry and Comex contract rollover are done.

It is hanging around the important 1180 level, but taking out 1200 and sticking it is quite important.

So in summary, a very nice rally for the beleaguered bulls, but it is too soon to write home to mother about it.

Gold Weekly

Classic Bull Market

Silver Weekly Chart

Bull market but the trend is wider allowing for greater beta and a wilder ride.

Financial Times Says European Banks Lent Their Customer's Gold to the BIS

Although it does not appear until almost the end of this article in the Financial Times, BIS Gold Swaps Mystery Unravelled, the source of the gold provided in the dollar swaps with BIS is coming from customers of about 10 European banks who are holding their gold at the banks in 'unallocated accounts.'

"The gold used in the swaps came mainly from investors’ deposit accounts at the European commercial banks. Some investors prefer to deposit their gold in so-called “allocated accounts”, which restrict the custodian banks’ ability to use the gold in their market operations by assigning them specific bullion bars. But other investors prefer cheaper “unallocated accounts”, which give banks access to their bullion for their day-to-day operations.
The European Banks, including HSBC, Société Générale and BNP Paribas, were desperately in need of dollars because of a repeat of the eurodollar short squeeze which we had previously identified. Their customers were withdrawing dollars previously on deposit at the banks, which were unable to meet the demand because of the deterioration of the dollar assets they held, and because of the fractional reserve nature of their operations.

So the BIS stepped in, supplementing the swap lines the ECB has with the Fed, and swapped its dollar holdings directly for the some of the banks' customer's gold. Let us be clear about this. The gold is on deposit at the banks, in the same way that customer dollars had been on deposit. I do not wish to fuss too much about it, but at the time that the BIS swaps were revealed, a noted blogger pooh-poohed it with the toss off that 'everyone knows that the European commercial banks own quite a lot of gold.' Well, in this case, the ownership is greatly exaggerated. It is on deposit, owned by other people, but utilized as an asset by the bank. There is a difference.

In lending out the gold to BIS, they were relieved of their dollar short squeeze and were able to supply their customer demands. BIS obtained a fee of some sort in the swap, and so it is happy. But it should be noted that BIS had not done gold swaps for over forty years. So why now?

The question remains unanswered though. What is the duration of the swap, and does BIS intend to hold the gold or use it in other interbank operations?

A secondary question would be: why did the banks go directly to the BIS and swap their customer's gold, rather then to the ECB which is perfectly capable of managing swaplines for currency with the BIS and the Fed. Is the Fed running out of dollars? I have an open tab in my mind that the BIS was seeking gold to balance out demands from other banks for gold, not for dollars, and the eurodollar swaps were a convenient way to do it. This story that 'the BIS had lots of dollar lying around and were itching to use them' strikes me as being of the whole cloth.

Yes, the nice high level chart the FT includes shows the spike in gold holdings at the BIS, but does this mean that it is sitting there in their reserves unencumbered, or are they leasing any or all of it out, 'putting it to work' as they say? Central banks are notorious for making little distinction between unencumbered gold assets and real assets in the vault.

But it is nice to see verification in the mighty Financial Times that if you hold your bullion gold in an 'unallocated account' even with a prestigious bank, it may very well not be there when you wish to have it, and the prices will soar as the banks scurry to cover, just as has happened twice of late with their US dollar assets.

Or you may be asked to settle in cash if there is some clause in the contract, as in the case of the ETFs or the Comex.

29 July 2010

Steve Meyers Market Update

Big Drop in Comex Gold Open Interest

The large drop in the August contract open interest (61,257) is to be expected since this is 'roll week' and those who are not standing for delivery will have to close their positions by Thursday night.

The new positions or 'rolls' into the October and December contracts totaled 40,372.

Recall that this was also an option expiration week.

Overall there was a net loss of 21,894 contracts.

It is too soon to tell if this was a capitulation that blew out the weak hands, but it looks as though it might have been one. The momentum traders will likely stand on the sidelines until gold can clear 1180, which was prior support. Traders have their eyes on the 200 DMA which is around 1145.

Comex Daily Bulletin #144

US Weekly Unemployment Claims

28 July 2010

SP 500 September Futures; Gold Daily; Gold 200 DMA

SP 500 September Futures; Gold Daily; Gold Weekly

SP 500 Sept Futures

It will be interesting to see if they can keep taking this higher. The McClellan Osciallator is at a extreme reading. But volumes remain light, and while heavy selling is absent, prices on the margins can be lifted higher, in a manner similar to a ponzi scheme. But if selling appears again, particularly if it is driven by exogenous events, prices can therefore fall rather quickly, because of the lack of fundamental underpinnings for the price supported by investors with conviction, rather than the cheap tricks of convicted trading companies.

Gold Daily Chart

It's never easy. This will likely not be over until 'roll week' is finished on Thursday. This is a blatant fraud in my opinion, similar to the roll week frauds perpetrated on holders of ETF's. It is done with at least the passive approval of many traders, exchanges, the media, and investment companies, similar to the manner in which they enabled the mortgage backed securities frauds. The attitude is that investors are not human beings but 'dumb money' deserving of no consideration or protection, even if it is one's job to protect them from control frauds.

Gold Weekly

Important for maintaining perspective. Please notice the periodic severe corrections to trend. In eash case sentiment becomes rather pessimistic, and people tend to say silly, illogical and blatantly incorrect things. When the market turns up again they slink away, waiting for the next opportunity to crawl out of their deep wells of subjectivity. If the trend is decisively broken then we will adjust our trading to accommodate that change.

"Gottes Mühlen mahlen langsam, mahlen aber trefflich klein,
Ob aus Langmut er sich säumet, bringt mit Schärf' er alles ein."

Friedrich von Logau

27 July 2010

Goldman's Derivatives Clearing Service: The Better To Cheat You With My Dear

Say, aren't Goldman the fellows that just pled to fraudulent dealing in financial instruments like MBS, and paid a fairly hefty 500+ million dollar fine? The company is starting a centralized clearing facility for derivatives, which may be among those mandated for use by market participants, in the US government mandated efforts to reform.

When one considers the information available to a central clearing facility, somewhat like an exchange, it does give one pause to have the owner of that facility as a somewhat notorious and aggressive market participant with a known penchant for exploiting information for its own ends.

Financial reform and change you can believe in. It pays to have friends in high places.

Economic Policy Journal
If Regulators Say Trade Through a Central Exchange...
By Robert Wenzel

...Goldman Sachs starts a central exchange.

Is it me, or does it just seem that whatever the rules or regulations, Goldman comes out on top and pretty much ends up running the show?

Regulators are preparing rules that will require the majority of privately traded derivatives be cleared through central counterparties.

Goldman Sachs announced today the launch of its Derivatives Clearing Services (DCS) business. The DCS will provide clients with a comprehensive global OTC clearing service for interest rates, credit, foreign exchange, equities and commodities, says Goldman

“In partnership with our clients, regulators and multiple clearing venues, we are committed to improving market structure for derivatives,” said Michael Dawley, Managing Director and Co-Head of Futures and DCS, Goldman Sachs. “The DCS offering provides our clients with a host of value-added services and multi-product expertise to successfully navigate this dynamically changing environment.”

According to a press release,Goldman Sachs said it recognizes that clients will be faced with new reporting, connectivity, and regulatory requirements. The firm is committed to investing in innovative solutions to help clients address these changes.

“The move to central clearing for OTC derivatives is a significant turning point in the marketplace," said Jack McCabe, Managing Director and Co-Head of Futures and DCS at Goldman Sachs. “Our strong trading franchise, coupled with our market leading futures and prime brokerage services, enables us to provide our clients with the foundation they need to adapt to these important industry developments."

Net Asset Values of Certain Precious Metal Trusts and Funds

Gold Daily Chart; Shock and Awe for Comex Option Expiration

Today is yet another Comex option expiry, and the metals, which have been subject to bear raids for the past week, were hit hard and heavy from the New York crowd. This is also the "roll" week, as anyone not intending or funded to take delivery of August gold has to be out of their long positions by the end of the day Thursday.

Why anyone would bother to invest in Comex options is beyond me, or Comex futures for that matter, given the position abuses it tolerates. While we welcome Bart Chilton's stirring message of reform, we'll have to wait and see what the actions taken by the CFTC in position limits and disruptive manipulation are. I think the traders on the NY commodities exchanges have given Bart their answer to his proposed changes, and put him in his place.

Besides the usual market manipulation generally seen around key events like the end of quarter or an option expiration, what reason is there for this incessant capping and smackdowns of the precious metals? Is it a simple question of confidence in the dollar? Surely it is not because of the $30 billion being made available for subsidized small business lending. Or are their preparations being made for another large round of Quantitative Easing II, or even the pre-emptive bombing of Iran? It is hard to say, since the fraud option has been on the table as an instrument of US policy since the 1990's at least.

Obama has proven to be a good talker for reform but a very poor performer when it comes to curbing the excesses of his supporters and contributors at the large corporations particularly in the financial sector. This taints his entire administration.

At 11:00 AM

Here is an intraday update on the Gold Daily Chart. 1166.50 is an important level because it marks a prior low. We have reached it intraday today, so we would look for some support and a potential double bottom.

The formation as a 'cup and handle' is still valid, with the retracement less than 50% off the final high (1154 would be 50%) but there are other formations worth considering. We'll keep an open mind on that depending on how this week finishes.

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and the world is reaching the point where it might start simply ignoring the New York markets with respect to essential commodities such as basic materials, oil, foodstuffs, metals, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

26 July 2010

As the US Dissolves: Mad Max Monday

Lots of gloom to be found as witnessed in the two stories below, counter-balanced by the shameless cheerleading on the financial news networks that are celebrating the rally in US equities and the economic recovery.

Both points of view are a bit extreme and probably unrealistic for my palate, although I am in a sufficiently grumpy mood having spent the weekend cleaning, waterproofing, painting, and reshelving our storeroom, workroom, and pantry. Herself and the children return this evening from holiday, and so the repairs must be completed before the horde is once again underfoot. Oh head is spinning from fumes, and oh my aching back. lol.

I have to wonder if the mass of the people will ever do something and react to the abuses of government in cooperation with the corporations, or if they will seek to lose themselves in the day to day of their lives, allowing a minority to set their course. The next twelve months should prove interesting, especially around the mid-term US elections. Although eyes are on the US, the UK and Europe will likely lead the way.

When Globalism Runs Its Course...
The Year America Dissolved
By Paul Craig Roberts

It was 2017. Clans were governing America.

The first clans organized around local police forces. The conservatives’ war on crime during the late 20th century and the Bush/Obama war on terror during the first decade of the 21st century had resulted in the police becoming militarized and unaccountable.

As society broke down, the police became warlords. The state police broke apart, and the officers were subsumed into the local forces of their communities. The newly formed tribes expanded to encompass the relatives and friends of the police.

The dollar had collapsed as world reserve currency in 2012 when the worsening economic depression made it clear to Washington’s creditors that the federal budget deficit was too large to be financed except by the printing of money....

Read the rest here

Emergency Care Drugs In Short Supply
Warren E. Pollock

24 July 2010

CFTC's Bart Chilton On Financial Reform, Position Limits, and Curbing 'Disruptive Practices'

Actions will speak much louder than words, especially given the many disappointments in the past from the SEC and CFTC. Position limits are a good idea. Let's see how long banks like JPM and HSBC have to implement them if they are covered at all. And as for 'disruptive practices' in the market, I will be impressed if Goldman Sachs and Citigroup are ever called out for their abusive market practices in the US as they have been in Europe and Asia.

I like Bart Chilton, quite a bit actually. If he delivers on these promises, I would work for him to be elected or appointed to higher office. But after the great disappointment of Obama, it will take actions first to gain people's enthusiasm for a reformer.

We are all for you Bart, but now you must deliver.

Here is an introduction to this presentation by Bart Chilton from another good guy, GATA's Chris Powell:

"The member of the U.S. Commodity Futures Trading Commission who has been advocating imposing position limits on traders in the precious metals markets, Bart Chilton, has made a video explaining why he thinks the financial regulation law just enacted by Congress and President Obama promises great progress, particularly in making the commodity markets freer and more transparent. The law, Chilton explains, requires the CFTC to establish position limits and authorizes the commission to prosecute "disruptive trading practices." Chilton says he is especially pleased with that, because the commission's market manipulation standards have failed almost completely for many years.

Chilton has been amazingly conscientious on the precious metals manipulation issue and has been amazingly responsive to gold and silver investors who have complained to the CFTC about market manipulation. He'll need their support as the CFTC writes the position limits regulations required by the new law. The big commercial shorts are sure to be heard as the commission continues to take public comment, so gold and silver investors can't let up yet."

The Health Care Bill Change in 1099 Reporting Requirements Does NOT Target Gold and Silver

I had originally included this in my weekly gold and silver market wrap up. But I have received so many emails from alarmed readers about the topic that I thought it would be useful to give it a separate blog entry that is linkable, so it would be easier to answer those who express concern.

Those who originally raised this issue of a change in the law stated it rightly, but since then it has been fanned into a falsehood and a bogeyman, far beyond the proportions of its original scope and intent.

It is true that transactions in gold and silver and more particularly rare coins were exempt from 1099 reporting under the previous 1099 MISC rules. But they were always reportable and taxable on one's tax returns. Goods were exempts, but services were not exempt from 1099 MISC reporting and the thresh hold for them was $600. This law primarily applied to the self-employed and small businesses.

The change in the law removed the exemption for all goods, and not just for gold and silver and rare coins and collectibles, which are a small if not minuscule percentage of all commercial business transactions in goods and services.

It is well and good to remain vigilant to encroachments of the government on the rights of individuals and of private property. But one must also be on guard against becoming an unthinking member of a mob, reacting to those who would play on their emotions for their own ends.

Insidious men will use any issue, any crisis, any emotion, and turn it to their devious intentions. The central bankers and politicians began selling and leasing gold and property that did not belong to them but to their people, on the principle that controlling the price and the markets was a necessary instrument, a tenet, in their financial engineering, according to the counsel of their well-credentialed advisors. This was turned to the profit of the few, the financiers, and took on a life of its own, and became a looting of public wealth, and an abuse of property. Before it ends these abuses may become more egregious and widespread. It is no vain effort then to be on guard against them.

And as for us in times of official deceit and the abuses of the few, we must therefore hold even more firmly to the truth, and make every effort to find it, or risk being swept away in the swell of retribution and the restoration of justice that may turn to madness unbidden.

The Change in 1099 Reporting Requirements in Section 9066 of the Health Care Bill Does NOT Target Gold and Silver

On another matter, there is some misinformation creating concern, bordering almost on mild hysteria at times, about a change that was made in the Health care Bill Section 9066 regarding the reporting of sales of over $600.

There are those who say that the purpose of this law is to track the sale of gold and silver.

A decent discussion of the change is the law is available here and here.

The change in the law does NOT 'target the sale of gold and silver.'

I don't like the provision and think it was written badly, generating senseless paperwork for small businesses in a desire to make more business to business transactions subject to 1099 MISC for purposes of income reporting. I suspect and would hope that the interpretation of this law and its requirements will clarify the issues. If this change in the requirements includes what are essentially retail transactions then it is very badly written indeed.

But the point I wish to make here, and I want to be very clear on this, is that this change in the law is NOT specifically targeting gold and silver sales. It is targeting unreported income from transactions of any sort, the vast majority of which are no more sinister than common supplies, computers, and routine business goods. And coin sales in particular may be affected, along with quite a few other things.

Some might correctly say that this provision targets 'cash businesses' where income is easily hidden and unreported. So if one has been cheating on their taxes and hiding income, this change in the rules will most likely be an inconvenience. There are other more substantial issues with the burden placed on small businesses and the need to generate 1099's.

But this does not specifically target the sale of gold and silver, the income from which has always been taxable, and reportable.

The reporting requirement seems to have an unusually low thresh hold. This is has it has always been, it is primarily the exclusion for goods that has been eliminated.

I do not imagine that the IRS wishes to be inundated with useless mountains of 1099's. I do not believe they even have the capability of processing them effectively.

And I have to wonder why the Democrats slipped this change into the health care bill essentially chasing small loopholes for what is really small change, 20 billions over ten years, when there are so many large loopholes yawning wide open for the use of their corporate benefactors and the super wealthy.

Yes, that was a rhetorical question. The wealthy, who sit contentedly, fat on the spoils of their deceptions, and their bought politicians and judges, still greedy for more to be squeezed from the many, should well bear in mind the consquences of their perversion of the law in these wise words from the American revolution:

"When the rich plunder the poor of his rights, it becomes an example for the poor to plunder the rich of his property, for the rights of the one are as much property to him as wealth is property to the other, and the little all is as dear as the much.

It is only by setting out on just principles that men are trained to be just to each other; and it will always be found, that when the rich protect the rights of the poor, the poor will protect the property of the rich. But the guarantee, to be effectual, must be parliamentarily reciprocal."

Thomas Paine

SP 500 September Futures - Goal of 1100 Reached Inspiring Euro Confidence, Or Not

The Merry Marketeers were able to coax the SP futures to the 1100 level, in a show of support for the results of the Euopean Bank Stress Tests. Huzzah!

The results were rather anemic, even given the somewhat unrealistic nature of the tests.

I can understand that they did not include a sovereign default by the likes of Greece, but that they included only the banks' trading portfolios, and not their commercial loan portfolios, seemed almost astonishing.

Reggie Middleton does a good job discussing the European Stress Tests here and here

But in the meanwhile, the increasing trivialization of the capital markets by the financial engineers in the service of their nonsensical schemes seems more alarming than anything else I could imagine.

Can they do what they did in 2005, and break the market out to the upside and inflate yet another financial asset bubble? They may very well do this. And it will once again end badly, much worse than the last. But why should they care, or stop, while they continue to become rich?

23 July 2010

Gold Daily and Weekly Charts; Silver Charts; 1099 Change Does Not 'Target Gold and Silver'

There was quite a bit of central bank concern over the results of the 'stress tests' for the European banks.

I will not address the tests themselves here, but let it suffice to say that they only involved the banks' trading portfolios, and not their loan portfolios, which could give you some idea of their lack of rigor. And 7 of 91 banks failed.

But the spokesmodels on Bloomberg were remarking, frequently, that the markets are pleased by the tests and the crisis is over because 'stocks are higher,' and 'gold was lower.'

The lies and market manipulation will continue until confidence is restored.

Gold Daily Chart

Gold Weekly Chart

Silver Weekly Chart

Miners (HUI) Weekly Chart

22 July 2010

Gold Daily Chart

“Central banks stand ready to lease gold in increasing quantities should the price rise.”

Sir Alan Greenspan, US Federal Reserve Bank, 24 July 1998

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."

Sir Eddie George, Bank of England, September 1999

"The schools would fail through their silence, the Church through its forgiveness, and the home through the denial and silence of the parents. The new generation has to hear what the older generation refuses to tell it...The only value of nearly five decades of my work is a warning to the murderers of tomorrow, that they will never rest.”

Simon Wiesenthal

"Who is our Simon Wiesenthal? Who will track down these criminals in the coming months, years, decades? Perhaps we need some old men to spend their last years in prison after thinking they effectively fleeced the world. Perhaps the cycle of crises can be mitigated if the prosecution for these particular crimes continues for decades and every so often Wall Street is reminded that there is no sanctuary and that individuals will be hunted down at whatever time in whatever place."

The Fourteenth Banker, Financial Crime, the Statute of Limitations, and Simon Weisenthal

SP 500 September Futures at the Close

UPS said some positive things after their good earnings results, and so the market rallied.

The character of this rally is questionable, very obviously thinly traded and highly responsive to headlines and technical considerations. But it is what it is, and still hurts if you are on the wrong side of it. The intermediate trend is still lower following the economic news which is discouraging.

We are in short term rally mode, and a break out is threatened. No matter the trend, volatility must be managed. If you cannot do it, better to stay out completely.

More earnings after the close including Microsoft. Tomorrow brings Schlumberger, McDonalds, Ingersoll-Rand, Honeywell, and Ford.

China and the Goldfinger Syndrome

I have had some interesting discussions recently with correspondents about the problem which China has with its very large US dollar reserves.

To summarize what I think, China is attempting to diversify their portfolio of US Treasury dollar holdings. They are obviously accumulating 'real goods' including stockpiles of basic materials, gold, silver, oil and investments in the means of production in their own region and in key regions around the world.

This is more difficult than it might appear on the surface. Real goods are often strategic, and governments are sometimes reluctant to allow them to be acquired by a government considered a potential threat. The first difficulty is the strategic importance of some assets, such as the China's offer for the purchase of Unocal.

But there is also a need for confidentiality, stealthiness if you will. If word were to leak out that 'China is dumping its Treasuries' there would be a run on the market and the Chinese could lose a portion of their reserve wealth rather quickly.

Now, would it matter. Well, yes. It would matter because US dollars are still the currency of choice for most international trade including the all important international commodity, oil. If you think that philosophically dollars have no value because they are just paper, I would be more than happy to dispose of them for you. Limited time offer, of course.

I also posited that China, while accumulating its real goods quietly against the constraint of perturbing the markets, could do short term hedges against the less catastrophic scenario of further dollar devaluation by going into the very deep and liquid financial assets markets, and hedging risk with CDS and other obvious investments including shorts of various types.

As anyone who has attempted to acquire a company or take a substantial position in or out of an asset or company, at some point you can affect the price, making other participants aware that the asset is in play, and end up selling or buying against yourself. In the case of China it could also trigger a run on the bank of the US, which is an immediate endgame.

With regard to the use of financial instruments, someone raised the obvious issue of counter party risk. Well, of course it is an issue. But less so if you are merely hedging a portion of the portfolio for the devaluation scenario, and not a catastrophic default. And the choice of counter parties can be managed to some degree. It is a big world out there and the Swiss are always open for a bet.

But correctly, if there is a catastrophic failure of the dollar, they will be carrying banks and brokers around the world out on stretchers and almost all financial assets, or bets, will be in default. Those who are holding leap puts as insurance against a collapse may as well be holding food vouchers for a restaurant in Brigadoon.

China would most likely not lose the value of its reserves in the extreme case of a US default, even if every one of their remaining Treasuries and the financial hedges on those Treasuries became worthless. Why?

It's the Goldfinger Syndrome. As you may recall, Auric Goldfinger did not wish to steal the US gold supply, at that time the currency of the nation, from Fort Knox. He merely wished to eliminate it, making his own substantial gold holdings significantly more valuable. It is a form of increasing value through deflation, a concept that is much more familiar these days thanks to quite a few amateur economists patiently waiting for the US dollar to gain in value because of it.

If the US were to actually default, the value of real goods, from basic materials to gold and silver and oil, would absolutely soar in terms of dollars of course, but in most other fiat currencies of the developed world as well. The perception of the risk of a fiat currency would border on hysteria.

Returning to the deflation meme, the elimination of US financial assets from the 'world currency base' would make all the other currencies extremely valuable, and China would be flush with them. For real goods are a form of currency suitable for the exchange of wealth. They are merely less liquid, and not often used as the unit of value anymore. But real goods are a form of currency. They just cannot be printed, except perhaps on the Comex and at the LBMA it appears, and they would be absolutely discredited and out of business.

So, that is something to think about. China need do nothing but slowly and stealthily acquire real goods, and hedging their positions along with way with financial instruments, waiting for the US to play itself into some beneficial outcome for them. I think the financial hedging is important because of the relative illiquidity of some of the real goods, and the difficultly of acquiring them in sufficient supply without triggering a 'run on the dollar.' The financial markets are deeper and more discreet than the markets for real goods.

The problem facing the holders of dollars is not inflation or deflation, per se. They are merely particular manifestations of currency risk, and the uncertainty of holding substantial assets denominated in a fiat currency that is risky, meaning something abnormal or unstable in the classic sense of the term. A serious deflation or inflation are both unusual and risky.

This is not hair-splitting. Rather it is essential to understanding why gold can increase in value during periods of both a significant deflation and inflation, which on the surface seem like opposites. In fact they are similar if view in the terms of probability. They are both the opposite of currency stability, what I call currency risk. The further one gets out on the probability curve with a currency, the better gold looks in relation to it. Gold is the ultimate in stability, almost inert, and highly resistant to corrosion and decay, bordering on the timeless, comparatively uniform in its supply.

There are those who say that when the time comes, and what is happening becomes apparent, they will buy some real goods, foodstuffs, land, gold and silver. I can assure you that when that time comes, there will be little or none available at almost any price. One has to have lived through a currency crisis first hand to understand the phenomenon.

You are holding a currency in decline and there is little or no place to spend it except as a throwaway, because no one wants it anymore. Barter becomes predominant, and any hard currency is king. This is how it was in Russia in the 1990's with the old rouble before it finally imploded, at which time I was thankfully out of country. It was quieter than you might imagine, despite the headline antics of their mafia, and a sense of quiet desperation as people watched their life savings simply evaporate.

There is almost no doubt in my mind that this is how the Chinese are playing this, and certainly Russia and a few others as well, who are playing the long game. It explains some of the recent moves in price of certain forward looking assets, a phenomenon so little understood by the many, even now.

I still see the greater probability for the US as a devaluation and a stubborn stagflation for quite a few years. But the policy errors being committed by Bernanke and the Obama Administration are making the possibility of an actual collapse more likely than I would have thought even six months ago. I suppose it is never well to underestimate the self-destructive tendencies of obsessive greed.

See also The Last Bubble: The Problem of Unresolved Debt in the US Financial System and Currency Wars: Selling the Rope

Dean Baker: Commission on Fiscal Responsibility and Reform Was Doomed From the Start

I thought this interview with Dean Baker was interesting. I obviously do not agree with everything that he says, especially regarding the deficits and the attitude of the markets towards them. The US markets are far removed from being efficient mechanisms of capital allocation these days, and as such are unreliable indicators of just about everything except the latest trading fads and speculative excess.

But Mr. Baker touches on one point that gives me much room for thought, and that is the enigmatic president, Barack Obama. His appointments have often seemed eccentric, especially for someone who was elected on a wave of reform sentiment. He largely threw his mandate away in the first year on the very controversial health care reform bill that pleased almost nobody, and was obtuse in its requirement for individuals to purchase private health insurance from monopolistic health management corporations.

But his seeming obsession with trying to teach the seasoned politicians (whoremasters all) of Washington how to act in a bipartisan and selfless manner, as if they would take the least guidance from such a relatively inexperienced upstart, seems designed to fail. It is becoming increasingly difficult to take Obama seriously in matters of reform.

The sad part is that as bad and ineffective Obama and his cronies may be, the same and more can be said of the opposition Republican party. Some people are retreating into mere partisanship these days because they cannot deal with the uncertainty of the situation, but the sad truth is that America is lacking in leadership capable of uniting the people except through greed and fear, a dangerous cocktail in troubled times.

The US has a range of serious problems, but the greatest of these is political reform, and the return to Constitutional, rather than corporate, governance.

"Baker says that the committee, titled the National Commission on Fiscal Responsibility and Reform, was doomed from the start because of the strong views of the co-chairs - Erskine Bowles and Alan Simpson. Although the commission was designed to be bipartisan, Bowles, the Democratic co-chair, is not a typical Democrat. He is a director at Morgan Stanley, one of the banks benefiting from a Wall Street bailout.

Baker says that both co-chairs have expressed hostility toward Medicare and Social Security, two of the nation's core social programs and demonstrated a loose grip on reality. Alan Simpson, the Republican co-chair and former Senator from Wyoming, said that he wanted to cut off Social Security payments to senior citizens who drive their Lexuses into their gated communities.

Baker counters that while Simpson and his friends may be wealthy, most senior citizens are not, noting average person over 65 lives on less that $30,000 a year. "It's like appointing someone you knew had racist views to head a civil rights commission," Baker says. "It's not the sort of thing you'd like to see."

Postscript: Someone sent this commentary to me, and I got a 'kick' out of it. Obama to Run as Republican in 2012

Obama does actually resemble a moderate Republican of the old school in most of what he does. That could be attributable to his desire to fit in and please the powers that be, and a further indication of the general shift to the right that the US has taken over the last 30 years. It in no way detracts from his incompetence and ineffectiveness. He reminds me of a classic modern American CEO, a well credentialed and highly articulate empty suit, a nicely appointed lump who serves his 'backers' from beginning to end and deals primarily in connections and privilege, rather than effectiveness and results. He is the new and improved version of politicians compared to the dreadful political machine troll like a Richard Shelby, or the smarmier car salesmen types like a Bob Corker, Barney Frank, or a Chris Dodd.

21 July 2010

Gold Daily Chart; SP 500 September Futures Chart: US Dollar Long Term Chart

SP 500 September Futures Daily Chart

Still standing at the crossroads.

Gold Daily Chart

Hanging on to its active formation in the face of some determined resistance and repeated bear raids.

US Dollar Intermediate (monthly) Chart

A Bull Rally in the Dollar? Maybe, but spikes higher on euro short squeezes are not a stable platform for a sustained currency rally. Has to break out through overhead resistance and put the spike into thie trading range.

Silver Daily Chart

Bouncing along the 200 DMA looking for the strength for a sustainable rally. Interestingly enough the 50 DMA is overhead resistance. Personally I think this is a possible marker for a multi-party price manipulation. Seems rather convenient.

Mining Stocks HUI Index Weekly Chart

China: The US Is "Insolvent and Faces Bankruptcy"

The common thought amongst even reasonably educated and economically literate Americans is that China is 'stuck with US Treasuries' and has no choice, so it must perform within the status quo and do as the US wishes, or face a ruinous decline in their reserve holdings of US Treasuries.

And with real short term US Treasury interest rates decidedly negative, meaning that it is costing you money to hold dollars, there is a case to be made that there are a lot of 'price takers' out there in this world. Wow, they are just that good, aren't they. Having their heyday in a genuine deflation. A subtle tax levied on all holders of US dollars, probably more significant because of the official understatement of inflation. Yo, come git some.

I think China is already diversifying their reserve portfolio, and more stealthily and effectively than one would imagine into 'real goods.'

Further, I suspect that through the use of hedging short positions and derivatives such as Credit Default Swaps, China would be able to cover a greater portion of its reserves than the common mind might allow, which is 'none' because of the obvious counter party risk in the event of a total collapse, a typical Western reaction, never seeing the gradations of outcomes.

And if this is in reality one theater in a global struggle for power, sacrificing a pawn or two, and even a bishop, would be a small price to pay to bring down the world's remaining superpower, as indirectly and gracefully as is possible. War is never cheaply waged.

It would most certainly be a nuclear option to outright dump Treasuries outright, and would raise the ire of what is still a formidable military power. But it is the Western mind that is so incapable of seeing the many shades of gray in every situation, the subtle gradations in a range of choices that I believe China not only sees but is already actively pursuing.

China is not the only country that resents the devastating frauds that the US has perpetrated on not only its own people but the rest of the world through its Wall Street banks and ratings agencies.

Most Americans overlook this developing estrangement that is beginning to isolate the US and UK from even their traditional allies in Europe and South America and Asia. This is a serious error, but so typical of the short term mentality dominated by greed, dishonesty, and self-delusion that captured the American psyche in the latter part of The New American Century. But what choice does Europe have except to take what the Anglo-Americans serve them. Take it or leave it. And ain't currency war hell?

It never pays to have a 'checkerboard mentality' when your opponent is playing Go."

Financial Times
China rating agency condemns rivals

By Jamil Anderlini in Beijing
July 21 2010 16:22

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. “China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.

In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.

The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.

Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.

There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.

Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.

The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.

Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a government’s fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.

The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said. “Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”

A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.

Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said...

Fiscal Union Is Implied if Not Required by a Monetary Union

In 1991 during a visit to Brussels for a discussion of the EU '92 event with some of the bureaucrats engaged in planning there, my old economics professor predicted that no matter what they said, a monetary union implies a fiscal union, greater than the targets and harmonisation which they would admit, men being the creatures that they are.

It makes sense when one understands monetary policy and its theory, and the implications it has in restricting the freedom to save or spend as one may wish to pursue as a fact of fiscal policy.

Here is a story below in which France and Germany discuss their moves to bring more uniformity to their fiscal policies. Quite frankly I am surprised that it has taken this long for it to happen. With the financial crisis tearing down the facades, the extend and pretend policies of the EU have collapsed, and the cheating behind their targets have been exposed for the farce that they are.

And by extension, if one's monetary and fiscal policies are no longer their own, but shared with another and intimately bound by a common currency, then a greater political union and independent governance is a moot point.

This is what my old professor predicted in 1991. And on the train ride back to Paris he said, "Watch what happens if there is a move to establish a single world currency that is a sovereign instrument, and not merely a reference to a basket of currencies and commodities. And then he quoted the famous observation from Mayer Rothschild: "Give me control of a nation's money and I care not who makes the laws."

It has been many years since we have spoken. He was tottering towards his retirement then, and I suspect that he is smiling at all these developments from some better and kinder vantage now, as I know he would be even if it was a profane preference. It was always his first joy to probe the subtle mysteries of money, and how they related to the political follies of men. It was he who first infused me with an interest in the study of money, an aspect of macroeconomics which bordered on his obsession. And it opened a new world to me, and an endless fascination with what is difficult, but so wonderfully, and often subtlety vast.

"Much have I travell’d in the realms of gold,
And many goodly states and kingdoms seen;
Round many western islands have I been
Which bards in fealty to Apollo hold.
Oft of one wide expanse had I been told
That deep-brow’d Homer ruled as his demesne;
Yet did I never breathe its pure serene
Till I heard Chapman speak out loud and bold:
Then felt I like some watcher of the skies
When a new planet swims into his ken;
Or like stout Cortez when with eagle eyes
He star'd at the Pacific--and all his men
Look'd at each other with a wild surmise--
Silent, upon a peak in Darien."

John Keats, On First Looking Into Chapman's Homer

et Allemagne s'attaquent à l'harmonisation de leur fiscalité

La bonne gouvernance européenne implique, notamment, l'harmonisation des politiques fiscales. Paris et Berlin en font leur credo, qui ont fait un pas ce mercredi vers une convergence de leurs systèmes fiscaux, à l'occasion de l'invitation au Conseil des ministres français du ministre allemand de l'Economie et des Finances Wolfgang Schäuble.

L'objectif est que « nos deux gouvernements soient ensemble en mesure de prendre des décisions pour aller vers la nécessaire convergence fiscale, tant dans le domaine de la fiscalité des entreprises que dans celui de la fiscalité des particuliers », a annoncé l'Elysée dans un communiqué. « La convergence entre nos systèmes fiscaux est un élément essentiel de notre intégration économique et de l'approfondissement du marché intérieur en Europe », a estimé Nicolas Sarkozy. La première étape de cette convergence devrait passer par un état des lieux des deux systèmes. La Cour des comptes s'en chargerait, côté français, un organisme équivalent s'y attelant outre-Rhin.

Le plan de rigueur allemand est soumis à des risques d'exécution

Le rapprochement franco-allemand en matière de fiscalité ressemble fort, côté français, à une volonté d'aligner le système fiscal sur le modèle allemand. Le poids des prélèvements obligatoires sur l'économie est globalement inférieur chez les deux plus proches partenaires de l'UE (42,8% du PIB en France et de 39,5% en Allemagne en 2008, selon les données énoncées par Nicolas Sarkozy ce mercredi), et leur répartition y est sensiblement différente (moins d'impôt direct, mais TVA plus forte

20 July 2010

Jim Grant on the New Federal Reserve Governor Nominees; Economic Groupthink

Organizations, whether it be a club or a profession or a department, too often over time develop a sort of intellectual inertia, a bureaucratic mindset that tends to perpetuate and validate a certain view of the world amongst its members, particularly if they share other elements in background and world view.

This works to its advantage when they are right, and when the scope of the tasks which they must address are limited to largely operational concerns, without significant risk in the classic sense of the term.

But when the situation becomes different, the environment changes, this organizational mindset not only stifles innovation and adaptation, it can literally reach out and strangle it, well beyond its members, using the entrenched power of its tenure. We see this tendency clearly in organizations that have enjoyed long periods of organizational growth under the leadership of strong personalities, such as the FBI under Hoover, and the Federal Reserve under Greenspan.

We can see this same tendency on a micro level in our daily life on chatboards, in clubs, in our company departments, in civic organizations. It is a tribalistic instinct, that urges the adoption of a consensus view, often influenced and promoted by articulate and single minded individuals, which then musters and focuses the energy and vitality of the group in the execution of its mission.

When it is right, it brings success. But when it goes wrong, when it feeds on itself, becomes defensive and inwardly focused, when perpetuation of the group view overtakes all other considerations, when tribal loyalty and sameness is valued over results, it leads to a cult like behaviour, inbred thinking, that may be inimical to the best intentions of the group, and the sort of behavioural anomalies which we have seen in the tragedies of Watergate, the latter stage Hoover FBI, and even Jonestown.

Economics is in the grips of such a period in its development. One of the primary causes of this problem has been the rise of a few well funded think tanks, universities, and of course the Federal Reserve, that have become powerful influencers, and guardians, dogmatisers of the status quo. The petty sniping among the schools notwithstanding, the current debate of stimulus versus austerity serves to show how anemic, how self referential, how predictable the discussion has become.

The US politicians and economists are doing the same things over and over, expecting a different outcome. For the past twenty years the world has been lurching forward in a series of increasingly destructive asset bubbles, supported by the corruption of thought, and the transfer of wealth from the many to the few, as a direct result of fiscal and monetary policy fomented by relatively small number of powerful people, the monied interests. At some point this will change, and the grip of the status quo will be broken. How much energy will be released, and in what directions, only time can tell.

Janet Yellen: "...has had thirty six opportunities to vote on monetary policy at the FOMC, and she has voted 'aye,' yes, thirty six times. Thirty six for thirty six. Has the Fed been right thirty six consecutive times? No. A well credentialed, consensus hugging economist straight out of the Fed HR department. She is ideal from the point of view of the Fed bureaucracy. She will make not one ripple."

Peter Diamond and Sarah Bloom Raskin: "Diamond is a formidable academic, and Raskin is a formidable regulator, but neither is a formidable thinker about the nature of money, or about the history of money, or about how the Fed might paradoxically make things worse by doing what it does, trying to make things better, which I think is the great question. These are people who I think are unlikely to propose novel solutions to our fundamental monetary dilemma which is that the US dollar is a faith based currency of no intrinsic value that is manipulated by the Fed, and the consequences of the manipulation are often quite distinct, different from what was intended. That's the problem."

"In questions of power, then, let no more be heard of confidence in a man, but bind him down from mischief by the chains of the Constitution."

Thomas Jefferson