Summers Withdraws Himself From Fed Chairmanship Consideration

"...the biggest risk we can take is to try the same old politics with the same old players and expect a different result."

Barack Obama, Democratic National Convention 2008


"Like a dog returns to its vomit, so a fool repeats his folly."

Proverbs 26:11

Larry Summers withdrew himself from the nomination as Fed Chairman today, in order to save Barack Obama from the embarrassment of having to withdraw it himself in the face of staunch opposition from a very large number of economists and Congressional members of both parties.

That the consideration for Summers as Fed Chairman went as far as it did despite such broad opposition, far beyond that of just economic progressives, demonstrates the overall poor judgment that the President has shown in economic matters from the very beginning of his presidency.

Obama has a remarkable predilection for repeatedly ignoring the wishes of his electoral base and the sound principles of genuine reform in favoring the wishes of the biggest banks on Wall Street and the monied interests.

This makes it more likely that Janet Yellen will be the next Fed Chairman, which would mark a move towards more monetary easing as Yellen is an inflation dove.   It does not speak to the regulatory activity of the Fed which has been accommodative towards the Big Banks.  But perhaps not as much as it might have been under Summers who is a long time Rubinite and noted for an aggressive bias against financial regulation. 

From the Globe and Mail:

Obama accepts ex-aide Summers's decision to not seek U.S. Fed chairmanship
WASHINGTON — Reuters
Sunday, Sep. 15 2013, 4:54 PM EDT

U.S. President Barack Obama said on Sunday he has accepted the decision of his former top economic aide Lawrence Summers to withdraw from consideration as chairman of the Federal Reserve.

“Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today,” the President said in a statement.

“I will always be grateful to Larry for his tireless work and service on behalf of his country, and I look forward to continuing to seek his guidance and counsel in the future,” he said.

Dear Mr. President,

I am writing to withdraw my name for consideration to be Chairman of the Federal Reserve.

It has been a privilege to work with you since the beginning of your Administration as you led the nation through a severe recession into a sustained economic recovery built on the policies to promote employment and strengthen the middle class.

This is a complex moment in our national life. I have reluctantly concluded than any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing economic recovery.

I look forward to continuing to support your efforts to strengthen our national economy by creating a broad based prosperity and to reform our financial system so that no President ever again faces what you and your economic team faced upon taking office in 2009.

Sincerely yours,

Lawrence Summers

Andrew Bacevich: The New American Militarism

"To go beyond the bounds of moderation is to outrage humanity. The greatness of the human soul is shown by knowing how to keep within proper bounds. So far from greatness consisting in going beyond its limits, it really consists in keeping within it."

Blaise Pascal

Bacevich is quite insightful. I should point out that the actual talk itself is about 25 minutes or so. The rest of this video is questions from the audience.

Some of his off the cuff eloquence in the second part in which he answers questions is remarkable. Don't be put off by the questions which are hard to hear.

One sentence which he throws out as part of a long answer seems to be a nice summation of his major hypothesis.

"The unrealistic expectations of what military power can do, and the recklessness with which we use it, don't serve the nation's interest, or the interests of stability more broadly."

While I like most of what he says, and I understand the point he makes about the role citizen-soldier in the latter part of the questioning in response to some other questions, I think he is assuming that the reinstitution of a draft would bring about more political accountability. His notion is that more parents would demand accountability from the government if more of their children were involved.

I think that assumption is optimistically mistaken. People's wealth is broadly being taken by the government and too often abused. There is no more level of accountability in this that I can see, given the current distance of the monied elites from the root source of the public will. I think they have become so isolated in their group thinking that they have lost touch with the people. And this will be resolved at some point, as it always does when the powerful forget their kinship with mortality and their obligations to others.



As you may have read, Bacevich is a self-described 'fan' of Reinhold Niebuhr. I looked up this quote from Niebuhr, and thought it might be particularly appropriate for us at this time.  The sense of social cohesion and interdependence amongst people, along with a few other traditional perspectives, seems to be given too shallow consideration in our era of the ascendancy of the narcissistic few and the cult of unbridled greed.

“Nothing that is worth doing can be achieved in our lifetime; therefore we must be saved by hope.

Nothing which is true or beautiful or good makes complete sense in any immediate context of history; therefore we must be saved by faith.

Nothing we do, however virtuous, can be accomplished alone; therefore we must be saved by love.

No virtuous act is quite as virtuous from the standpoint of our friend or foe as it is from our standpoint. Therefore we must be saved by the final form of love which is forgiveness.”

Reinhold Niebuhr, The Irony of American History

COMEX Deliverable Gold Bullion Has Plunged By 78% in 2013 - Claims Per Ounce Highest On Record

The last time that the claims per ounce were nearly this high was in the late 1990's. At that time the central banks had to intervene to keep one or more bullion banks from faltering.

It occurred during a period of coordinated bullion selling from the central banks into the market under the Washington Agreement, culminating in the notorious gold dumping known as Brown's Bottom.  Their gold may have been sold as well, but at least the Germans still have a receipt. 

That selling failed to hold the line, and shortly thereafter gold began its great bull market run. 

"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."

Sir Eddie George, Bank of England, reportedly in private conversation, September 1999

The first chart below shows that pressure on available supply in owners per ounce rather nicely.   Nick Laird, the maestro of charts from Sharelynx.com, was kind enough to go back and pull all the available data. It helps to complete the picture don't you think?

One difference this time is that the fellows who examine the more detailed reports tell us that the big boy of the bullion banks, JP Morgan, is said to have already liquidated their large short position and gone net long gold. Perhaps they are well advised.

Deliverable 'dealer' gold, known as registered gold at the COMEX, has plunged a remarkable 78% during the vicious price smashing of gold in 2013.

This decline in gold available for delivery has not been matched by a similar decline in contracts bidding for that gold, known as the open interest.

Therefore the number of contracts for each ounce of deliverable gold has now reached a new all time high of about 57.8 claims per ounce, a level that has not ever been seen since Nixon closed the gold window.

There was another big buildup in the claims per ounce that occurred just before gold began its big bull market run in 2000.    Some contend that this drain in dealer gold was the result of a last ditch effort to the hold the price of gold lower before the market broke and the price began its remarkable run.

But given that the banks became net buyers of gold around 2008, as shown in the third chart below, it does not seem likely that the Bank of England or the western central banks will sell bullion into the market to save the overleveraged speculators again.

Recently the Federal Reserve was unable to comply with a request from the Deutsche Bundesbank to return the German national gold which had been held in custody in New York. The vault seems to be a bit on the thin side in general.  I am sure all the gold is there, it is just that we live in an age in which multiples of rehypothecation for our financial assets held in trust are de rigeur.   All the finest financiers are doing it without fear or regret, even when it occasionally decimates their customer accounts or shakes the global economy to its foundations.

Also included below is a peek at the registered inventories of all the COMEX warehouses.  Some of the declines are impressive.  What a remarkable coincidence.

There has rarely been a dull moment since they knocked down Glass-Steagall. It will be interesting to see what happens next.   This has been so much fun that it hard to know whether to crack open a bottle of champagne, or to make a run for the border.

We'll probably have to wait for the equity market to break until after Goldman brings out the Twitter IPO.  Priorities.

Have a pleasant weekend. See you Sunday evening.

Gold Daily and Silver Weekly Charts - Gold and Silver Pressured All Day With a Big Reversal Into the Close

There was quite a reversal late in the day as the precious metals, which had been under pressure, rallied dramatically into the close.

The reversal seemed to coincide with the breaking news that two whistleblowers have come forward from JP Morgan with allegations of market manipulation in the metals by the Bank.

Here is intraday commentary on this news item.

This uncertainty and mystery over the CFTC and their actions in overseeing the markets and investigating these serious allegations is approaching the absurd. It is time to clear the air.

Have a pleasant weekend.