The Fed Is Printing Money, But Where Is It Going? They Know But Will Not Say

[Robert McTeer] worked for the Federal Reserve for 36 years, including as president of the Federal Reserve Bank of Dallas from 1991–2005, where he was known for his plain, jargon-free public speaking and telling stories about growing up in rural Georgia. He has stated that one of his goals was "to translate economic sense into common sense".

As a member of the Federal Open Market Committee on the Federal Reserve, he was considered "dovish" on inflation and was one of the most consistent opponents of raising the federal funds rate in the late 1990s. He has stated that he does not believe in the NAIRU and Phillips curve.

Bob McTeer says with the provocative headline that The Fed Has Not Been Printing Boatloads of Money.  As you may recall, Mr. McTeer was a member of the Federal Reserve for 36 years

"What they fail to grasp is that their initial assumption that the Fed is printing boatloads of money simply isn’t true."

And yet one can look at the Fed's Adjusted Monetary Base, one of the few measures of money over which the Fed has a more direct measure of control, and we see this:

Although those who follow money already know it, the Fed is printing money but that money is going directly to the banks through their methods of purchasing assets from them, both Treasuries and Mortgage debt (which may be of dodgy pedigree).

We see that here in the expansion of Excess Reserves of the Banks.

But Bob McTeer knows Banking, and he knows where most of that QE money has been going.

"Asset purchases by the Fed normally lead to a multiple expansion of money since, at the margin, reserve requirements are only about 10 percent of deposits. The roughly $2 trillion of asset growth from before the financial crisis through QE2 was largely offset, however, by an expansion in excess bank reserves of $1.6 trillion. In other words, the banking system has been sterilizing or neutralizing the impact of the asset purchases on the money supply."

And he knows that this is a form of 'trickle down' approach, and is not stimulating the commercial economy. But it is helping to prop up a banking sector that has never really taken its losses by writing down bad debts, cutting salaries and jobs, and downsizing to a more historical size relative to the real economy.

"The good news is this is why we haven’t had an expansion of inflation or a collapse of the dollar. The bad news is that is also why the purchases have not stimulated economic activity more than they have. The effect seems to be limited to the downward pressure placed on interest rates.

The Fed’s asset purchases have been increasing bank reserves. The Fed adds Treasuries and Agency MBS’s to its assets and pays, in effect, by crediting the reserve accounts of the banking system. But that’s where it has been stopping."

The downward pressure on interest rates isn't doing much. And that is because the US is caught in a modern variation of a liquidity trap, where aggregate demand and organic economic activity has been laid so low by the shock of a massive financial collapse caused by a credit bubble that it cannot rise of its own accord, even with interest rates near zero.

It is true that the Monetary Base, which used to be considered high-powered money because it consists of currency outstanding plus the reserves of the banking system, expands with the expansion of bank reserves. But, with banks hoarding excess reserves as they have been, the Monetary Base has not had its historical impact on the public’s money supply. If one insists on calling the Monetary Base ‘money,’ then it is money that has gone only to the Treasury and the sellers of MBS’s. This has made the financing of our outsized deficit easier and cheaper.

So the good news is that the government is doing all right, and the banking system is in the pink, and even corporate profits are healthy, thanks to tax credits and accounting gimmicks.

The Monetary Base is still high powered money.  That has not changed.  What has changed is that the Fed is paying interest on those idle reserves.  And  the TBTF Banks are still operating like bucket shops using excess reserves and guaranteed deposits.  When they win they keep the winnings, and when they lose, the Fed absorbs their losses.

It is being directed to a powerful and largely unreformed Banking sector.  And that money is being used to fund Wall Street bonuses, speculation in paper assets to create new all time highs in the equity markets, a bond bubble,  the purchase of distressed assets like homes and farmland in huge rent-seeking blocks,  tax subsidies for private hedge funds,

But the real economy languishes.   And this trickle down approach and lack of reform is what is going to cause a serious bout of stagflation, which is a policy error of the first order.  Prices of key goods like healthcare, education, and food are rising with most of the profits flowing to the top one percent, and while wages remain relatively stagnant and jobs growth is aenemic.

But is Bob's major thesis, that there is no inflation problem because M2 growth is lagging so badly because its velocity has been declining?

"What they fail to grasp is that their initial assumption that the Fed is printing boatloads of money simply isn’t true. If it were true, I would join them in their dire predictions. But it simply isn’t true and hasn’t been true throughout this period.

The latest estimates from the Fed’s H.6 Money Stock Measures show M2 growth actually declining since the Fed resumed significant asset purchases last fall. M2 growth in the three months ending in February was 4.6 percent; it was 6.5 percent in the previous six months and 6.8 percent over the previous 12 months. Even this moderate growth is muted by the average decline in M2 velocity of around 3 ½ percent in recent years, yielding a growth rate of nominal GDP of roughly 4 percent per year."

Given the slack state of the economy since the onset of the financial crisis, MZM and M2 growth has still been fairly substantial. So it is a bit disingenuous for Bob to zoom in on a relatively short time frame, from last fall.

Let's indulge him and take a look a variation of this graph using the measure of change Year Over Year in Billions.  This should make the changes easier to discern.

Yes, M2 and MZM are lagging in their rate of increase. But as every economist knows, there is a lag in the transmission of an expansion of the monetary base and the time in which that appears in the broader measures.  The Fed has written many papers on this lag.  And it is true, especially where the Velocity of Money is sluggish and declining, as has been the case of the US, where Velocity has been declining for many years, as hot money sought the high returns of paper asset speculation and gravitates towards certain sectors like tech start ups and housing that can be exploited.

And Bob knows this, and so does Bernanke. Why don't they do something about it?   Bernanke is under some constraints in speaking as the sitting FOMC Chairman, but his actions speak loudly.

Is Bob playing dumb from an ideological impairment like Greenspan, or merely being Socratic in his homespun Georgian manner? 

Why don't more economists push for a reform of the financial system, a return to a commercial, utilitarian banking sector, and an end to subsidies for Wall Street Banks?  Why do they bury their heads in the sand of singular causes like unlimited stimulus, obsessive austerity, mindless privitization and financializaitn, or the arcane details of broken models? 

Why was Volker left to stand alone, while an army of lobbyists undermines even the most modest attempts at reform?

It is all in the credibility trap.   Careerism.  And a lack of genuine leadership politically.

Who is willing to stand up and tell the Emperors of Wall Street and Washington that they are obscenely, bloatedly naked, and draining the life from the people? No one will say, J'accuse. 

And that is why Bernanke is going to probably leave after this term as Fed Chairman, as did Greenspan, before the next bubble bursts in stocks and bonds, and before the next economic downtur and deluge. 

So he can say that while he was in office, technically everything was fine and great progress had been made. And there will be consultancies, and speeches, and honorariums.

Who wants to be a whistle blower these days? Silence pays.



Die DreiGroschen Oper is a 1931 German musical film directed by G. W. Pabst. It was produced by Nero Film, Berlin.

Michael Hudson On The Financialization of Higher Education

Education, like healthcare and commercial banking, would be best treated as public utilties and not 'winner take all' businesses with extravagant executive salaries and arcane investments.

A strong vocational secondary educational effort would do wonders for those who are not inclined to college.

There is always room for private enterprise for those who wish something different, above and beyond.

But in those cases they ought not to be tax exempt unless there is some integral religious affiliation, or subsidized in any way with public funding, except to fund specific special programs and research.

If a private educational institution were to desire tax exempt status, it would have to comply with some strict regulation on management salaries and investments for example. If they wish to be businesses, let them be businesses.

Wall Street and their financiers can take any human endeavor and turn it into a parasitical racket. Wait until you see what they do with agriculture, energy, housing, elder care, and water if the people allow it.

This is the corrosiveness of paper money and crony capitalism.

Gold Daily and Silver Weekly Charts - Flight to Safety

The divergence between stocks and the precious metals is still remarkable, but obviously tied to the risk trade.

The EU has given Cyprus a deadline of Monday.

Nuts.

The short term pivot for gold is 1620 but 1640 is more important resistance on a run at 1700.

For stocks the 1550 pivot on the June SP futures has been working.

SP 500 and NDX Futures Daily Charts - Risk Off

Oracle and Cyprus had stocks jittery today despite some 'better than expected' domestic US economic news.

The EU has set a deadline of Monday for Cyprus to resolve its impasse. So it looks like another Sunday evening showdown.

Gold Daily and Silver Weekly Charts

False confidence based on hubris is resurgent.

Benny pledged to print until whenever and that was enough.

 

SP 500 and NDX Futures Daily Charts - Hope Isn't the Only Thing That Floats

Benny pledged his troth to printing until whenever today, and this helped the market to run back and try to break out above our pivot point at 1550.

After the bell Oracle missed on sales and profits.

 

Gold Daily and Silver Weekly Charts - New Zealand Goes Cyprus-Style, RBNZ Responds

"Here in New Zealand the Reserve Bank is moving to add an Open Bank Resolution Policy (OBR) to tools it could potentially use in the event of a bank failure.

The implementation of OBR would see all unsecured liabilities that rank equally among themselves, including deposits, having a portion frozen. The Reserve Bank says the OBR policy could save taxpayers' more than NZ$1 billion regardless of whether there is a bank failure or not.

However, Norman points out that if a bank fails under OBR, all depositors will have their savings reduced overnight to help fund the bank’s bail out."

Green Party Hits Out at NZ Government's Cyprus-Style Solution to Bank Failures

And the Reserve Bank of New Zealand responds:

"If their bank fails, depositors have always needed to understand that deposits are not guaranteed. What OBR does is facilitate a rapid and orderly resolution of a bank failure – it does not change the fact that depositors and other creditor funds are at risk...

The New Zealand Government has looked hard at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure."

Reserve Bank of New Zealand, Open Bank Resolution, 20 March 2013

One understands that in the event of a bank failure, pain will be apportioned to the shareholders and depositors in New Zealand banks.  And it must certainly be an extraordinarily transparent financial system indeed so that depositors can properly assess risk, on a par with insiders. 

But one might ask, in the event of a failure, what is the penalty for the politicians, the banking management, and their regulators? 

Oh that's right, there are no banking failures permitted in New Zealand. So perhaps it is a moot question.  But it does seem that the people of New Zealand have some concerns and questions about this and, dare it be said, an imperfect confidence in their central bank?

Confidence, gentlemen, is the key. Oui?  

And so we pray for the best, but prepare for the worst.

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

SP 500 and NDX Futures Daily Charts - Euro Zone Up and Down

The market opened lower on fears of instability from Cyprus and the no vote on the depositor levy plan by their Parliament. It then bounced around based on a series of developments out of and statements out of Europe. It closed with modest losses on expectations that the Eurozone leadership would 'do something.'

I expect the Fed meeting but especially developments in Europe, to drive equity action for the rest of the week.

Modern Money: A Study In Confidence and Crisis

"Those who think there is little risk of a levy being imposed on other periphery members are missing the point. The seeds of doubt have been planted. As a saver facing zero yields on deposits and a potential haircut, why keep your savings in a bank? Sure it is convenient for electronic transactions, but individuals can adapt easily. As one of my more amusing colleagues put it, 'mattresses now hold a 10 per cent premium.'"

Ben Davies, Cyprus, Oh the Irony!


"Making small-scale savers pay is extremely dangerous. It will shake the trust of depositors across the Continent. Europe's citizens now have to fear for their money...

The Spaniards, Italians and Portuguese may not run to the banks today or tomorrow, but as soon as the crisis intensifies in a euro-zone country, the bank customers will remember Cyprus. They will withdraw their money and, by doing so, intensify the crisis."

Peter Bofinger, 'Europe's Citizens Now Have to Fear for Their Money,'  Der Spiegel, 18 March 2013

Modern money is a game of confidence, an arrangement based wholly on the perception of value founded in counterparty risk.

This sounds easy enough, but what is surprising is how few people really understand it. This is due to the illusion of the familiar.

We are so accustomed to using money in our daily lives that we give little thought to what it really is.  It seems solid, immutable, and lasting.  'As sound as a dollar.'

We forget that money, like much of society, is a man-made, artificial construction based on a series of agreements. Sometimes those agreements are based on implied force, such as punishment for breaking the laws. But by and large the enforcement is not equipped to deal with all but the outliers to a general compliance with the law. This is, of course, the basis of the power of civil disobedience, and why autocracies are so sensitive to any mass demonstrations of dissent.

The President of Cyprus, Nicos Anastasiades, recently elected from the conservative DISY party, blanched at the original bailout deal offered by the troika, the European Commission, the European Central Bank, and the International Monetary Fund, to assess a levy only on the non-guaranteed deposits in the troubled Greek banks, which are those deposits in excess of €100,000.

He proposed instead to limit the levy on large deposits to 9.9%, and to make up the difference by violating what had been the general guarantee in Europe by assessing a lesser amount, of about 6.7%, on the 'guaranteed deposits' of less than €100,000 by small savers.  That the troika did not blanch at the prospect of violating what had been a generally established EU policy to ensure bank stability speaks volumes about their cravenness.

The arrangement was made all the more clever by promising equity in the (worthless) banks in return for the levy, and perhaps even a guarantee of return based on 'future natural gas discoveries' which seem to be of much less value to the EU and the government.

This was one of their conditions for a €10 billion loan to the government under the European Stability Mechanism (ESM). The other involved the usual austerity measures, which are a favorite of the International Monetary Fund.

The austerity proposal had been revealed last November and include cuts in civil service salaries, social benefits, allowances and pensions and increases in VAT, tobacco, alcohol and fuel taxes, taxes on lottery winnings, property, and higher public health care charges.

The troika did not care about the details of the levy as long as the 'bail in' by depositor funds occurred. This was a sacrifice of a general European principle and was a serious policy error.

When this 'levy' on bank deposits was revealed over the weekend during a bank holiday, because it had to be submitted to a vote by the Cypriot Parliament, there was a general revulsion expressed amongst the markets and the people of Cyprus at such blatant misuse of the money power.

Monetary inflation, such as had been used in the US and UK, is more often used because so few people see their loss as blatantly as when the government simply confiscates 10 percent of their wealth on deposit. It is much easier done in smaller amounts, over longer periods of time. But one needs to have their own currency to do it.  These days monetary policy and inflation is merely the continuation of bank fraud and plunder by other means.

By the way, this is why I thought the 'platinum coin' of a notional and whimsical trillion dollars in value was such an awful, dangerously cynical idea. It exposed the farce of monetary inflation in too great an amount, in too short a period of time, in a way in which too many people would readily understand it.  And it therefore had the potential of fomenting a money panic.

Cyprus had been reasonably stable before the financial collapse, but was rocked by the Greek bond restructuring. What dealt a fatal blow was the impediment to borrowing because of a credit downgrade to BB+, which made the Cypriot bonds unacceptable as collateral to the ECB, and certainly not viable on the public markets.

And like many small, warm weather island nations, it's economy was overly dependent on tourism, retirement, and an outsized financial sector. Since Cyprus had been a British crown colony, its legal system resembles that of Britain, which still maintains significant military bases on the island, involving approximately 3,500 serving members.

Cyprus is in a bit of a box, because it really needs to leave the Eurozone and default on its obligations, and issue a currency of its own at a devaluation to the euro. But how would they recapitalize their banks, and what would the basis be for any reasonable valuation on this new currency?

If Cyprus owned gold reserves, or even forex reserves of some stable currency, they could make this the basis of their currency, while imposing capital controls. They could liquidate, nationalize if you will, the banks, and keep the depositors whole. Although the conversion to the new Cyprus currency would be a haircut of sorts, and likely impair their banking haven status.

Iceland was able to do something like this, and so was Russia for that matter, when they defaulted, devalued, and reissued the rouble back in the 1990's.

What would the Eurozone say if Cyprus forged a deal with Russia and provided them with military bases similar to the Sovereign Base Areas, currently occupied by the British, in return for a Russian bailout? Russia is a key debtholder and a major stakeholder in Cyprus. Their interests and presence must be dealt with, and carefully.

The question of Cyprus is important, not because it is a large and significant portion of the Eurozone economy. It is most certainly not, being much less than one percent of the total.

Rather, Cyprus is showing the fatal flaws in the conception of the Eurozone, and their single currency without real fiscal union, transfer payments, a common system of taxation, and a banker of last resort.

And it has also demonstrated the weakness of the guarantees by the bureaucrats, not only in Europe but elsewhere, when it comes to money. 

This is a lesson that every central banker around the world should keep in mind.  And the bureaucrats should remember that there is a step beyond which they may go, which will shatter the confidence of the people.  And once that confidence is broken, it is very hard to recover it.

There is one lesson I hope that the people of the world take away from this.  And that is to remember that a single currency is not possible without a complete union of monetary policy, and therefore a fiscal and political union that is complete and comprehensive.  Otherwise a powerful group will wield monetary policy for their own benefit, and the rest of the currency area be damned.

When the single world currency proponents come around again with their proposals, what they are really proposing is a one world government to be established in the ensuing crisis which their actions will eventually provoke.

And despite the consistent capping of the precious metal markets, it demonstrates that there is only one money of last resort, that provides for no counterparty risk.  And that is gold.  And to a lesser extent the reserve currency of the world, which for now is the dollar. 

It is confidence that sustains the integrity of a system based on counterparty risk,  and it is that confidence that supports modern money.  And where confidence declines, force is required.  And where both force and faith fail, a break in confidence happens, and hyperinflation ensues. Hyperinflation is not simply a very high level of inflation.

A hyperinflation is a break in confidence, a monetary panic.

And in what is certainly a bit of historic irony, the German people are once again flirting with bank failures and a hyperinflation.  But in this case it is because they, in their righteous indignation, are imposing the same kind of collective punishment, in terms and conditions of economic austerity and privation on others, that were imposed on them in post war reparation.  Oh the irony, indeed.

Spring is in the air.  Plus ça change, plus c'est la même chose.

Related: New Zealand Adopts 'Cyprus style' Levies to Protect Their Banks From Insolvency

Gold Daily and Silver Weekly Charts - Pop Goes The Weasel - JPM Wins Silver Case Dismissal

As expected, JPM has won a dismissal of the civil price-fixing lawsuit.  What a surprise!

I found this piece called Cyprus, Oh the Irony! by Hinde Capital to be an interesting read.

Gold and silver had a modest advance, nothing as one might have expected given the extraordinary risks that remain in Europe and the international financial system.

Stocks even managed to rally today based on 'good homebuilder news' and a series of rumours about the Cyprus situation.

This was almost exactly as I had said it would happen. There is a definite market operation going on to inflate stocks and to cap the precious metals. The hedge funds have significant event exposure here, although it is hard to determine it without seeing all of the trades on their books.

So what next?

Spain had a 'bank holiday' today as well as Cyprus. While Cyprus' banks will remain closed until Thursday, the banks in Spain will reopen tomorrow and there are concerns about 'contagion' as depositors may choose to move their funds to safer waters.

So let's see what happens. I expect that the central banks will wish to paper over this problem and move back to a muddle through strategy in which an uneasy equilbrium is achieved through the continuing force of printing money. But events can get out of hand, and rather quickly at times.

SP 500 and NDX Futures Daily Charts - American Exceptionalism

The equity market operated pretty much as I had expected, with a few opportunities for playing the volatility.

There is a definite bid under the US equity markets led by the SP futures. Whether it can continue to shrug off risk and rally higher is an open question. Supposedly the impetus for the stock market recovery off the overnight lows was the 'good news' from the homebuilders.

VIX shot up to the 50 day moving average today, and I took some off the table from Friday.  I am still looking for some additional intraday swings as rumours abound.

I still believe that 1570 remains a target on the SP futures for the wiseguys. And they may get it, and more, if the global financial system can hold together. I think they are taking profits and managing the hand off to mom and pop and their pension funds and 401k's.

Cyprus Update - The Calm Before the Storm - One Europe?

I am sure you are aware of the events unfolding in Cyprus, at least if you follow the financial news and the internet.

The vote in the Cyprus Parliament has been postponed until Tuesday, most likely because the votes were not there to pass a resolution that was acceptable to the EU.

The bank holiday has been extended to Thursday, and it is doubtful they will reopen until the Parliament has sorted out a plan of action.  The shutting of the banks while the politicians wrangle over the details of the confiscation is not designed to heighten confidence.

As you may recall, the President of Cyprus, Nicos Anastasiades, a member of the conservative Democratic Rally (DISY) party, was elected in February of this year with about 58% of the vote. He is known as a blunt, chain-smoking 'strong man' with strong ties to the right wing politicians of Europe. Indeed, these connections and his promise of a solution favorable to Cyprus were strong factors in his recent electoral victory.

The extenuanting factors here are that Cyprus is viewed as a bellwether for Italy and Spain. There are many who would dispute this, and point to the particularities of the size and structure of the Cyprus banking sector. But there is a widespread perception that the heavy hand of Germany is running the EU these days, and prior pledges and principles cannot be trusted if the central rulers of the EU are willing to confiscate the insured deposits of private citizens, no matter how they try to rationalize it.

I tend to view this as the overall progress in the foregone drama of an inherently unstable European Union that has fallen into a financial plutocracy. Any actions they take now are merely delaying the inevitable. And the consequences for the global financial sector are profound.

The EU and the Fed may be able to paper over the problems and achieve an uneasy stability that could last a year or two, but without profound changes to the European financial arrangements that include transfer payments, a single currency spanning such diverse national economies is inherently unstable.  It is the child of the overreach of bureaucratic arrogance and economic fairy tales.

This *could* be a rather clever move to force at least a portion of Europe into a single political government of twelve or fifteen members, but I hate to give the plutocrats that much credit for planning. 

I know there is and has been talk for quite some time of dividing the world into five or six major spheres of political influence, including North America and a few South American client states, Europe, Russia, China, and Japan.  The particularities of southeast Asia and the Pacific are very much in play, along with the status of various economic colonies in the Third World including Africa.  India and Australia are major outliers.  The UK has been particularly troubled by its relatively minor role, and aspires to be the financial center and interface to the world for the rest of Europe.

Whether any of this happens or not is very much open to question.  But the establishment of a 'new order' in the world has quite a few globally powerful adherents who are willing to work for this in the long term.  It should be remembered that the fashions of 'centralization and decentralization' of power have their swings, seemingly like a natural ebb and flow over time,  quite similar to what we often see in the corporate world.

SP 500 Futures - 'Tax On Deposits' Triggers Tremors in La La Land

"News of the tax triggered a run on cashpoints in Cyprus over the weekend. Monday is a bank holiday and measures need to be approved before banks reopen on Tuesday.

Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said the tax on deposits was an alternative to a disorderly bankruptcy.

In a televised address, he said it was painful but "will eventually stabilize the economy and lead it to recovery."

Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries, Anastasiades said.

Reuters, Cyprus Works On Tax Levy Deal To Get Bailout Approved

The futures are down 16+ points this evening, most likely on jitters over bank instability in the eurozone.

According to one of my friends, Dennis Gartman sent out the following:

"By now I suspect that most of you have heard the news from Cyrpus over the weekend, but just in case you’ve not the Cypriot government has chosen to confiscate money from any and all accounts at any and all banks in Cyprus to pay for its banking problems...

This is astounding, and the decision was… if not fully decided in Brussels… was approved by Brussels and Berlin and Paris et al. This is unlike anything I’ve heard in my 40+ years of being in the market. This is HUGE news; this is massively bearish news for the EUR; this is massively bullish news for gold and this is THE MOST IMPORTANT BUSINESS NEWS OF THE YEAR THUS FAR. Please believe me on this; this is Europe’s “Lehman” moment.

I shall be around all day tomorrow trying to figure out what has happened here and why, but if the EUR… which closed on Friday at 1.307… does not open below 1.2900 and then continue lower, and if gold, which closed on Friday at $1590/oz does not open above $1625 and head higher I will be truly, truly stunned."

Be prepared; Monday is going to be violent"

I had a couple of email messages after a post about the sacredness of trust in money and banking earlier today.  They implied that I had a misplaced sympathy for the crooked Russians, and the little people of Cyprus.

That post was not intended to be a moral message, although morality is certainly involved.  It is more of a practical matter. 

When your money system is based on trust, it is critically important to maintain appearances.  Simply reaching out and confiscating the insured savings of depositors is very bad form, especially when everyone knows you are doing it to support a rigged system that is run for the benefit of a fortunate few.

The sophisticates are fairly used to discussing the darker corners of injustice of the system in their own circles.  And they have become comfortable with it, as they are in viewing the victims of their greed as 'takers.'  I am sure that this played some part in the expedient decision to support the Eurocrony corporatist zone by simply stealing depositors' money, and deriding them as either crooks or hapless fools who 'must contribute.' 

 But what the cynical plutocrats do not realize is that most people still believe in the system, in rules and justice.  And it is this belief that sustains a system based on promises and guarantees and trust.

I am fairly certain that the financiers and central bankers will wish to shut down any incipient panic in the Euro banks. After all, the entire global reserve currency system is a confidence game.

Buying the SP futures and selling more paper gold and silver might do the trick.  And their talking heads will carry the message that this is much ado about nothing, and merely another buying opportunity.

They certainly have dipped into that bag of tricks many, many times in the recent past.  And personally I will be stunned if they do not make a determined effort to do it again.

With Regard to the Cyprus Bank Deposit Confiscations: Is Nothing Sacred?

Customer funds were long considered 'sacred' at brokerage firms, and were segregated from the proprietary operations of the company. And they were stolen at MF Global, and no one has been punished.

Bank deposits, protected by insurance and the guarantees of the government, were long considered 'sacred' at financial institutions. And they are being stolen in Cyprus as a matter of convenience to the crony capitalists in Europe, who are loathe to force the banks to take their losses.  And so they impose them on the people.

And this is what was done, and is still being done, in the US and the UK as well.  It is merely being done in a different form.

The Parliament of Cyprus will vote on this plan on Monday.

There are always various ways, and people, who will be willing to justify such theft. The banks were taking dirty Russian money, the people are lazy spendthrifts. This is always how it goes when the oligarchs steal to finance their gambling losses.  And in their insular arrogance they always go too far, provoke a reaction, and then act surprised.

As I wrote a few weeks ago:

Politicians from both sides of the aisle will swear pious oaths to protect and foster the well being of the middle class. They will say that their policies and proposals are all designed for its betterment. And yet the state of the middle class continues to dwindle into despair and disrepair. Why is this?

It is not because of the predominance of a right or left ideology, of taxation and deficits and austerity. It is not because of the re-emergence of a perversion of the gospel, in the predestination of prosperity. We have seen all this before. It is not because in our comfort we have lost the sense of the imperative of common cause.

It is because of the overwhelming corruption of power, and of the cynical amorality of thoroughly modern political managers who worship power and personal wealth as ends unto themselves. They distract the people with artificially divisive social issues and crises, while robbing them blind.

It is driven by the allure of the cartels, monopolies, and monied interests, and their corrupt political bargains. It is a child of the subornation of perjury on a massive scale. It is the unscrupulous servility to power of those who have sworn to uphold and protect the law. What is truth? Whatever suits us, whatever we say it is, by whoever has the power and the craft to define 'we.' It is not the triumph of evil so much as the absence of any sense of the good, of honor, honesty, and of simple common decency.

And it is marked by the daily subverting of the law as a matter of convenience and comfort to the insatiable few, and the cravenness of their enablers, driven by personal ambition, ignorance, and fear. It is the will to power, the elevation of the ascendant self and the system that supports it, above all else. Greed is good. Whatever works. And the enemy is all that is not the self, but that which is the other.

And where there is nothing sacred, the people perish.

Protect yourselves.  And do not look only to your wealth, but also to what is lasting.

"For what does it profit a man to gain the whole world, and lose his soul?"

Gold Daily and Silver Weekly Charts - Shoving Paper Around the Plate

The hedge funds are on top of these precious metal markets and do not wish to let them up for air.

Gold is in one of those long consolidations we have seen in this bull market.  When it is ready to move again it is going to break out.

And it may take no prisoners from the bear camp when it does.

SP 500 and NDX Futures Daily Charts - Complacency Reigns

Fresh revelations and a bloody day of testimony about shenanigans at JPM had the punters buying the dip to finish the day about evens on the financials side and thereby the SP.

VIX continues to be remarkably low as the market quietly grinds higher and the dips get bought.

Have a pleasant weekend.

Financialization of Justice: SEC Settles Insider Trading Case With SAC Capital For $600 Million

Stevie Calls His Shot, Hits It Out of the Park

Breaking news per Bloomberg:

SEC settles with SAC Capital for $600 million over insider trading related to Mathew Martoma case.

Apparently Stevie Cohen's deposition really was that bad. But luckily he was able to monetize any criminal charges.

I think this is a bigger fine than Goldman paid for Abacus.   Of course SAC is not as systemically important as Goldman.

But that fine is less than Steve Cohen's reported personal compensation in 2005 and 2010 alone, according to the WSJ, which pegs it as a billion dollar paycheck each year for Steve.  His normal compensation is in the mere many hundreds of millions.

Steven A. Cohen, aka The Wizard of Great Neck, or Guru of Gruntal, is worth approximately $8.8 Billion as of March 2012.

Obama: Iran 'Year or So Away From Nuclear Weapon', US Will 'Use All Options'

While we are enjoying the diversion of watching Carl Levin go through the JPM witnesses like a wrecking ball, this particular story caught my eye.

As a reminder, Matt Taibbi is live-blogging the JPM testimony event and is providing colorful commentary. 

But meanwhile, the world muddles on...

ABC News
Obama: Iran a Year Away From Nuclear Weapon
By Devin Dwyer
March 15, 2013

In an interview with Israeli TV ahead of his visit to the region next week, President Obama says he believes Iran is "over a year or so" away from being able to develop a nuclear weapon and that the U.S. will use "all options" to stop it.

"Right now, we think it would take over a year or so for Iran to actually develop a nuclear weapon, but obviously we don't want to cut it too close," Obama told Israeli Channel 2.

"They are not yet at the point I think where they've made a fundamental decision to get right with the international community," he said, "but I do think that they're recognizing that there's a severe cost for them to continue on the path that they're on and that there's another door open."

Read the entire article here.

As they say about all real estate: location, location, location.

Greenspan: No Irrational Exuberance, Stocks 'Undervalued' - The Rake's Progress

 

“I recognise that there is a stock market bubble problem at this point, and I agree with Governor Lindsey that this is a problem that we should keep an eye on....We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.”

Alan Greenspan, September 24, 1996 FOMC Minutes


"Where a bubble becomes so large as to pose a threat the entire economic system, the central bank may appropriately decide to use monetary policy to counteract a bubble, notwithstanding the effects that monetary tightening might have elsewhere in the economy.

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability."

Alan Greenspan, December 5, 1996, Speech to the American Enterprise Institute


"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

Alan Greenspan, February 23, 2004, Speech to Credit Union National Association


"Although a "bubble" in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels...

The apparent froth in housing markets may have spilled over into mortgage markets...

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications."

Alan Greenspan, June 9, 2005, Economic Outlook


"I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk."

Alan Greenspan, September 2007, The Age of Turbulence


"...the problem at its root is a flawed business model, and that business model is the product of a government regulatory decision to repeal Glass-Steagall administratively and legislatively, and to seek this tremendous concentration of power; and then the abuse of that power by the investment houses...

What we want to do is clean up the system and hold the individuals accountable, and that is what we have tried to do...But there was an understanding that if we were to seek criminal sanctions against either the institution or the most senior people of the institution, the practical impact in our regulatory environment would have been to destroy those institutions, and then structural reform would be meaningless...because the harm to our economy that would result from eliminating a Citigroup or a Merrill Lynch is enormous, and it's disproportionate to the remedy that we want.....

It was incredible. It was distressing to me how simple and outrageous it was. It wasn't so complicated that you said, "Wow, at least they're smart in the way they're doing it." It was simple. It was brazen. The evidence of it was overwhelming. It's just that it hadn't been revealed to the public, and that's why could get away with it...

Over the past decade we've wanted to deregulate, and we've said, "Let's get government out of the business of looking at these issues, and permit industry to control itself, because we can trust them." Maybe that's been a very good thing in some ways.

One of the things that is eminently clear from our investigation is that all the compliance departments, all the self-regulation is nothing. They watched it, but they did nothing. So we've got to think this through, and it's not only the financial community. There are a lot of sectors where we have said self-regulation is the answer. We've got to think about it."

Eliot Spitzer, The Wall Street Fix, March 16, 2003


"The vast majority of privately negotiated OTC contracts are settled in cash rather than through delivery.

Cash settlement typically is based on a rate or price in a highly liquid market with a very large or virtually unlimited deliverable supply, for example, LIBOR or the spot dollar-yen exchange rate.

To be sure, there are a limited number of OTC derivative contracts that apply to nonfinancial underlying assets. There is a significant business in oil-based derivatives, for example. But unlike farm crops, especially near the end of a crop season, private counterparties in oil contracts have virtually no ability to restrict the worldwide supply of this commodity. (Even OPEC has been less than successful over the years.)

Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.

To be sure, a few, albeit growing, types of OTC contracts such as equity swaps and some credit derivatives have a limited deliverable supply. However, unlike crop futures, where failure to deliver has additional significant penalties, costs of failure to deliver in OTC derivatives are almost always limited to actual damages.

There is no reason to believe either equity swaps or credit derivatives can influence the price of the underlying assets any more than conventional securities trading does."

Alan Greenspan, July 24, 1998, Testimony on the Regulation of OTC Derivatives

Hubris has no shame.

CNN
Greenspan: No irrational exuberance, stocks undervalued
By Chris Isidore
March 15, 2013

NEW YORK (CNNMoney)
Former Federal Reserve Chairman Alan Greenspan said that even with record-high stock prices, investors don't need to worry about "irrational exuberance" this time.

In fact, his current view is that stocks are still "significantly undervalued."

Read the entire article here.

Related: Michael Hudson and Pierre Rinfret: The Myth of Alan Greenspan

SP 500 Rally - Same Time Last Year

As you may recall, 2012 started out with a fairly steady stock market rally.

It was quite similar to the rally which we have seen so far this year.

The chart below shows how the rally ended in 2012.

It lasted until the end of March when it reached almost thirteen percent.

It chopped sideways through the month of April, and then gave up almost two thirds of its gains by the end of May.

Perhaps it will be different this time. Change you can believe in.