Thursday, April 25, 2019

How the Developments in Saudi Arabia May Foretell Collapse of Petrodollar

from Sputnik News:

Saudi Arabia’s crown prince Mohammed bin Salman has vowed to return his country to “moderate Islam”; the pledge was followed by the dismissal and detainment of many of the country’s high-profile princes and businessmen. Turkish energy analyst Dr Volkan Ozdemir commented that it is not about politics but rather about economics and petrodollars.

In his interview with Sputnik Turkiye, Volkan Ozdemir, the Chairman of Ankara-based EPPEN (Institute for Energy Markets and Policies), said that Riyadh is possibly cleaning out the opponents to the oil trade in US dollars and the changes the country is currently living through could be viewed as part of the US’ attempt to fight against a strengthening China.

His comments refer to the latest developments in Saudi Arabia, with numerous dismissals and reshuffling of the country’s government.

 Saudi Arabia's Crown Prince Mohammed bin Salman sits during an allegiance pledging ceremony in Mecca, Saudi Arabia June 21, 2017
Saudi Arabia’s Crown Prince Mohammed bin Salman sits during an allegiance pledging ceremony in Mecca, Saudi Arabia June 21, 2017

Dr Ozdemir recalled that Saudi Arabia remains the world leader in oil exports – producing about 10 million barrels per day and exporting about 7 million barrels daily.

“For the last 44-45 years, the petrodollar system has been ruling the world, which means that the international oil trade had been mostly paid for in US dollars. It stems from the Middle Eastern crises of the 1970s, when Saudi Arabia bound itself to selling oil only in US dollars. Given that Saudi oil has played the major role in the US dollar becoming the world’s reserve currency, the US turned into the guarantor of the security of Saudi Arabia. Being the world’s reserve currency, the US dollar has remained the foundation of the US’ global hegemony,” the expert explained.

READ MORE: End of Petrodollar: Rise of Economic Protectionism to Reshape Global Trade

In the past few years however, especially during the last term of Barack Obama, this status quo began to change due to the rapprochement between the US and Iran, he further noted. After the Arab Spring, the Saudis started feeling a threat to the country’s security and doubts emerged over whether the US will cease being its protector and turn instead to Iran.

These very doubts have highlighted the need for the royal family to opt for other guarantors of its security besides the US, thus, for the first time in 3-4 years there is a split within the family with regards to the oil trade.

These differences within the country’s royalty, however, should be viewed alongside certain other external factors, the energy analyst noted.

“First, after becoming self-sufficient in natural gas supplies, the US is becoming self-reliant in oil, which means it has less demand for Saudi energy resources. In other words, it has yielded to China as the major consumer of Saudi oil,” Dr Ozdemir explained.

However China, he further elaborated, is moving towards its 2020 goal, which is the deadline to setup its own indexes for oil and natural gas trading at the Shanghai International Energy Exchange. This implies that China is targeting abandoning the petrodollar and at switching to the petro-yuan backed by gold or other precious metals.

READ MORE: Venezuela Seeks Dollar Freedom by Pricing Oil in Yuan

According to the expert, China and Saudi Arabia have recently been negotiating the possibility of oil trading in yuan, which has received the backing of many high-ranking Saudis. This has coincided with the election of Donald Trump, who, unlike Barack Obama, announced his adherence towards a conservative American foreign policy.

Hence, cooperation with Saudi Arabia and Israel against Iran topped the agenda, Dr Ozdemir pointed out.

“Therefore, as I see it, there is an ongoing process in Saudi Arabia of cleaning out the elements who are against the petrodollar system,” he explained.

Dr Ozdemir, however, said that the petrodollar system has little chance of survival in the long-term.

“Although with the election of Trump, the supporters of this system have won in the short-term, it has no chance for success in the long-term. We should expect new moves from other large oil suppliers into China, namely Russia and Iran. If we review who the major oil importers to this country are, it is Russia in the first place, then Iran and only then Saudi Arabia. For the petrodollar system to keep working, Iran will be chosen as a target,” the expert suggested.

Read More @ SputnikNews.com

Broke And Desperate, Part 1: Chicago Pawns A Crown Jewel

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by John Rubino, Dollar Collapse:

A new bond issue from Chicago is rated AAA. That’s great because it means the city’s finances are on the mend, right?

Nope, just the opposite. Here’s the story:

Bondholders fret as alchemy turns Chicago’s junk to gold

(Bloomberg) — Chicago’s public pension debt is $36 billion and growing, it’s facing $550 million in budget deficits over the next three years and this summer the state had to bail out a school system that was flirting with insolvency.

Yet next month, the nation’s third-largest city — whose bonds were downgraded to junk by Moody’s Investors Service two years ago — will start selling as much as $3 billion of debt that another rating company considers as safe as U.S. Treasuries.

That’s because Chicago is selling off its right to receive sales-tax revenue from Illinois to a separate public corporation, which will issue new bonds backed by those funds, a structure called securitization. Because bondholders will be insulated from the city’s finances and have a legal claim to the sales-tax money, Fitch Ratings deems the bonds AAA.

Some investors fear Chicago’s approach may kick off a wave of securitizations by fiscally stressed municipalities that would increase their risk by siphoning away cash that backs bonds secured only by a promise to repay. Last month, Connecticut, which had a $3.5 billion two-year deficit, approved a budget that authorizes new debt backed by state income tax so it could receive a higher rating than the state’s A+ general-obligation bonds.

“You are, through a process of alchemy, creating AAA rated debt,” said Christopher Dillon, a municipal bond portfolio specialist at T. Rowe Price Group Inc. “They’ve lowered their borrowing cost in the near term, but long term, it’s just a continued degradation of the full faith and credit at the general-obligation level.”

DETROIT CASTS A SHADOW
Since Detroit’s bankruptcy four years ago, investors in the $3.8 trillion municipal market have given greater scrutiny to securities backed by a government’s good word instead of a secure revenue stream. When that city emerged from court, holders of “limited” general-obligation bonds received 42 cents on the dollar for their investments, compared with 100 cents for owners of Detroit’s water and sewer debt.

Institutional Investors from Pacific Investment Management Co. to Standish Mellon Asset Management Co. have said they favor revenue bonds, which don’t compete for resources with public pensions, over general-obligation debt.

Creating separate entities to issue higher-rated debt isn’t a new phenomenon. New York City, Philadelphia, Washington, Nassau County and Buffalo, New York, have all issued higher-rated dedicated-tax bonds to save money. But Chicago’s sale comes as many cities face pressure from deeply underfunded pensions and opting for bankruptcy has lost some of its taint after a handful of governments did so after last decade’s recession, though Illinois municipalities aren’t allowed to take that step.

Chicago’s new bondholders will have a first claim to more than 90 percent of the approximately $715 million of sales-tax revenue collected each year, according to a presentation to Chicago’s aldermen. The state, which collects sales taxes, will send the revenue directly to the bond trustee. Any excess revenue will go to the city.

PUERTO RICO FIGHT
Some investors say the legal battle now being waged in federal court between Puerto Rico’s general-obligation debt owners and sales-tax bondholders shows that legal structures like the one set up in Chicago are no guaranty when a borrower goes bankrupt or encounters severe financial distress.

In 2006, Puerto Rico passed a law creating a separate entity to issue sales-tax backed bonds with a legal structure similar to Chicago. The commonwealth approved a 5.5 percent sales tax and sent a portion to an entity known as Cofina. The new tax-backed bonds issued by the agency had a bigger margin of safety to pay debt service and garnered A+ ratings, five levels higher than Puerto Rico’s general-obligation bonds at the time.

This year, Puerto Rico entered into a form of bankruptcy and Cofina bondholders discovered the debt might not be so secure.

In June, the island said it may need more than $400 million in sales-tax revenue held by Cofina’s bond trustee for government operations. Cofina bondholders are fighting the move in bankruptcy court. General-obligation bondholders assert the money belongs to them, arguing that the territory’s constitution guarantees them a first claim on the government’s resources.

“We’re seeing these structures don’t always stand up the way they were designed to in bankruptcy,” said Tamara Lowin, director of research at Belle Haven Investments. “The market’s not putting as much faith in them as they have in the past.”

Chicago will use the proceeds of the new bonds to pay off old, higher-coupon paper, thus cutting its overall interest costs for a little while. But since it runs a chronic deficit, it will soon be back in the market to borrow more, at which point it will have to pay up – since those AAA bonds are siphoning off so much money. Then the downward spiral will resume, with no more tricks available to delay the inevitable.

Read More @ DollarCollapse.com

This Is What A Pre-Crash Market Looks Like

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by Michael Snyder, The Economic Collapse Blog:

The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed.  Will things be different for us this time?  We shall see, but without a doubt this is what a pre-crash market looks like.  This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison.  Meanwhile, the real economy continues to stumble along very unevenly.  This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close.  Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.

If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider.  The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter

The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?

Since the market bottomed out in early 2009, the S&P 500 has been on a historic run.  If this rally had been based on a booming economy that would be one thing, but the truth is that the U.S. economy has not seen 3 percent yearly growth since the middle of the Bush administration.  Instead, this insane bubble has been almost entirely fueled by central bank manipulation, and now that manipulation is being dramatically scaled back.

And the guys on Wall Street know what is coming.  For example, Joe Zidle says that this bull market is now in “the ninth inning”

Joe Zidle, of Richard Bernstein Advisors, is arguing that the bull market has entered the bottom of the ninth inning.

“This is a late-cycle environment,” Zidle said on CNBC’s “Futures Now” recently.

“In innings terms, they’re not time dependent. An inning could be shorter or they could be longer. It just really depends,” the strategist said.

This bubble has lasted for much longer than it ever should have, and everyone understands that a day of reckoning is coming.

In fact, earlier today I came across an article on Zero Hedge that contained an absolutely remarkable quote from Eric Peters…

“We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.

“What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”

Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.

“When their complex swaps drop 40{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.

In case you don’t remember, in 1987 we witnessed the largest one day percentage decline in U.S. stock market history.

When it finally happens, millions upon millions of ordinary Americans will be completely shocked, but most insiders know that the other shoe is going to drop at some point.

In particular, watch financial stock prices very closely.  Last month, Richard Bove issued a chilling warning about bank stocks…

One of Wall Street’s most vocal bank analysts is troubled by the rally in financials.

The Vertical Group’s Richard Bove warns that the overall market is just as dangerous as the late 1990s, and he cites momentum — not fundamentals — as what’s driving bank stocks to all-time highs.

“If we don’t get some event in the economy or in politics or in somewhere that is going to create more loan volume and better margins for the banks, then yes, they would come crashing down,” Bove said Monday on CNBC’s “Trading Nation.” “I think that the risk in these stocks is very high at the present time.”

Read More @ TheEconomicCollapseBlog.com

GOLD UP $4.85 AND SILVER RISES 16 CENTS

by Harvey Organ, Harvey Organ Blog:

CHAOS IN ENGLAND AS THERESA MAY COULD BE OUSTED AS LEADER/TENSIONS AGAIN ESCALATE THROUGHOUT THE MIDDLE EAST/GE CRASHES TODAY

GOLD: $1278.85  UP $4.85

Silver: $17.05 UP 16  cents

Closing access prices:

Gold $1278.50

silver: $17.05

SHANGHAI GOLD FIX:  FIRST FIX  10 15 PM EST  (2:15 SHANGHAI LOCAL TIME)

SECOND FIX:  2:15 AM EST  (6:15 SHANGHAI LOCAL TIME)

SHANGHAI FIRST GOLD FIX: $1288.37 DOLLARS PER OZ

NY PRICE OF GOLD AT EXACT SAME TIME:  $1276.60

PREMIUM FIRST FIX:  $11.77

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SECOND SHANGHAI GOLD FIX: $1288.37

NY GOLD PRICE AT THE EXACT SAME TIME: $1276.60

Premium of Shanghai 2nd fix/NY:$11.77 

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LONDON FIRST GOLD FIX:  5:30 am est  $1278.40

NY PRICING AT THE EXACT SAME TIME: $1278.10

LONDON SECOND GOLD FIX  10 AM: $1277.95

NY PRICING AT THE EXACT SAME TIME. 1277.30

For comex gold:

NOVEMBER/

NOTICES FILINGS TODAY FOR OCT CONTRACT MONTH: 2 NOTICE(S) FOR  20000  OZ.

TOTAL NOTICES SO FAR: 991  FOR 99,100 OZ  (3.082TONNES)

For silver:

NOVEMBER

 

 1 NOTICE(S) FILED TODAY FOR

 

5,000  OZ/

Total number of notices filed so far this month: 872 for 4,360,000 oz

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Bitcoin: BID  $6729 OFFER /$6764    DOWN $308.00  (MORNING)

BITCOIN CLOSING;  BID $6498 OFFER: $6523 //  UP $78.00

end

Let us have a look at the data for today

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In silver, the total open interest FELL BY A SMALL  1393 contracts from 200,595 DOWN TO 199,358 WITH RESPECT TO  FRIDAY’S  TRADING IN WHICH SILVER FELL 11 CENTS. JUDGING FROM THE MASSIVE VOLUME, IT DOES NOT LOOK LIKE WE GOT SOME LONG LIQUIDATION BUT AGAIN IT LOOKS LIKE WE GOT A FEW MORE COMEX LONGS TRANSFERRING THEIR CONTRACTS TO LONDON THROUGH THE EFP ROUTE.  IN SILVER THE TOTALS FOR DECEMBER EFP’S ARE 721 CONTRACTS. WE ALSO HAVE 69 MARCH EFP’S FOR A TOTAL ISSUANCE OF 790 CONTRACTS WHICH IS IN LINE WITH WHAT I HAVE THOUGHT HAS HAPPENED.

RESULT: A SMALL SIZED DROP IN OI COMEX  WITH THE 11 CENT PRICE FALL. COMEX LONGS EXITED OUT OF THE COMEX AND FROM THE CME DATA IT SEEMS THAT A HUGE NUMBER OF EFP’S WERE ISSUED  FOR A DELIVERABLE CONTRACT OVER IN LONDON WITH A FIAT BONUS WHICH DEFINITELY EXPLAINS THE FALL IN OI. 

 In ounces, the OI is still represented by just OVER 1 BILLION oz i.e.  0.997 BILLION TO BE EXACT or 142{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of annual global silver production (ex Russia & ex China).

FOR THE NEW FRONT OCT MONTH/ THEY FILED: 1 NOTICE(S) FOR 5,000  OZ OF SILVER

In gold, the open interest FELL  BY A SMALLER THAN EXPECTED 3,786 CONTRACTS DESPITE THE GOOD SIZED FALL IN PRICE OF GOLD ($13.00) WITH FRIDAY’S TRADING . THE RAID ORCHESTRATED BY OUR BANKERS SHOULD HAVE HAD A GREATER LOSS AS THE OBJECT OF THE EXERCISE IS TO CAUSE AS MANY GOLD LEAVES FROM THE GOLD TREE AS POSSIBLE. SOME GOLD OI EXITED THROUGH THE EFP ROUTE AND SOME EXITED ALTOGETHER FORM THE COMEX ARENA. THE TOTAL NUMBER OF GOLD EFP’S ISSUED SO FAR THIS MONTH TOTAL 10,591 CONTRACTS WHICH IS HUGE. The new OI for the gold complex rests at 530,404. 

 

Result: A SMALLER SIZED  DECREASE IN OI DESPITE THE GOOD SIZED WHACK IN PRICE IN GOLD ON FRIDAY ($13.00). WE PROBABLY HAD SOME COMEX LONG TRANSFERS TO LONDON THROUGH THE EFP ROUTE AS THERE DOES NOT SEEM TO BE MUCH PHYSICAL AT THE COMEX AND WE ARE APPROACHING THE HUGE DELIVERY MONTH OF DECEMBER. WE ALSO HAVE SOME GOLD COMEX OI LEAVE THE ARENA WITHOUT AN EFP TRANSFER.  

we had: 2 notice(s) filed upon for 200  oz of gold.

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With respect to our two criminal funds, the GLD and the SLV:

GLD:

No changes in gold inventory at the GLD/

Inventory rests tonight: 843.09 tonnes.

SLV

TODAY WE HAD NO CHANGE IN SILVER INVENTORY AT THE SLV

INVENTORY RESTS AT 318.074 MILLION OZ

 

end

.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver FELL  BY 1,290  contracts from 200,595  DOWN TO 199,358 (AND now A LITTLE FURTHER FROM THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) WITH THE FALL IN SILVER PRICE (A LOSS OF 11 CENTS). OUR BANKERS PROBABLY USED THEIR EMERGENCY PROCEDURE TO ISSUE SOME PRIVATE EFP’S FOR DECEMBER(WE DO NOT GET A LOOK AT THESE CONTRACTS) WHICH GIVES OUR COMEX LONGS A FIAT BONUS PLUS A DELIVERABLE PRODUCT OVER IN LONDON. THIS IS QUITE EARLY FOR THESE EFP ISSUANCE..USUALLY WE WITNESS THIS ONE WEEK PRIOR TO FIRST DAY NOTICE AND THIS CONTINUES RIGHT UP UNTIL FDN. I ALSO THINK THAT WE HAD SOME SILVER COMEX LIQUIDATION.  TOTAL EFP’S ISSUED BY THE CME IN SILVER TOTAL 790 CONTRACTS.

 

RESULT:  A SMALL SIZED DECREASE IN SILVER OI AT THE COMEX WITH THE 11 CENT FALL IN PRICE  (WITH RESPECT TO YESTERDAY’S TRADING). WE PROBABLY HAD MORE EFP’S ISSUED TRANSFERRING OUR COMEX LONGS OVER TO LONDON TOGETHER WITH SOME  SMALL SILVER LIQUIDATION. 

(report Harvey)

.

2.a) The Shanghai and London gold fix report

(Harvey)

 

2 b) Gold/silver trading overnight Europe, Goldcore

(Mark O’Byrne/zerohedge

and in NY:  Bloomberg

3. ASIAN AFFAIRS

i)Late SUNDAY night/MONDAY morning: Shanghai closed UP 15.16 points or .44{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} /Hang Sang CLOSED UP 61.26 pts or 0.21{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} / The Nikkei closed DOWN 300.43 POINTS OR 1.32{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}/Australia’s all ordinaires CLOSED DOWN 0.12{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}/Chinese yuan (ONSHORE) closed UP  at 6.6412/Oil DOWN to 56.83 dollars per barrel for WTI and 63.47 for Brent. Stocks in Europe OPENED  RED  .  ONSHORE YUAN CLOSED UP AGAINST THE DOLLAR AT 6.6412. OFFSHORE YUAN CLOSED WEAKER TO THE ONSHORE YUAN AT 6.6533  //ONSHORE YUAN  STRONGER AGAINST THE DOLLAR/OFF SHORE STRONGER TO THE DOLLAR/. THE DOLLAR (INDEX) IS STRONGER AGAINST ALL MAJOR CURRENCIES. CHINA IS NOT  VERY HAPPY TODAY.

Read More @ HarveyOrganBlog.com

Pat Caddell: Global Elites Want to ‘Manage’ the Country’s Decline

by Kristina Wong, Breitbart:

Pollster and political analyst Pat Caddell joined Breitbart News Saturday SiriusXM host Stephen K. Bannon to discuss the fight that Americans face today against the global elites.

“Our elites live in a world where everything is comfortable for them,” Caddell said. “I believe that behind the mindset … is a belief that the country is in decline and their job is to manage the decline.”

Caddell said the elites in the United States have bought into the idea that China is on the inevitable rise to global hegemony, replacing the U.S., and it is their job to manage that rise peacefully.

“This is the whole Thucydides Trap thing, ” Bannon said, referring to the idea that a declining superior power’s paranoia about a rising power will drive them to war.

Bannon said that, according to that belief, “How you avoid war is to manage the decline and make sure you’re the junior partner, but steering the bigger partner to peace and prosperity.”

“That’s exactly what the elites in this country are doing,” he said. “Your elites want to manage the decline because they got theirs. You’re not in the room, you’re not in the deal.”

Caddell said that belief reveals a failure to appreciate the greatness of American exceptionalism.

“This country will not go gently into that good night of decline,” he said.

Caddell, who worked for both Democratic and Republican candidates, argued it’s not about being on the right or the left — it’s a fight for the future of America.

“This country is exceptional,” he said. “We dream and do the impossible and we have survived. And it would be an abomination before God for this country to go into the dark night. The whole world would suffer.”

Read More @ Breitbart.com

Pension Ponzi Bailout: Democrats Sponsor US Treasury Bailout Scheme

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by Mish Shedlock, Mish Talk:

Most defined benefit pension plans are nothing but Ponzi schemes. Plans are now unraveling because of demographics. An increasing number of retirees, needing untenable returns, are supported by fewer and fewer people putting money in the system. Democrats sponsored a bailout scheme. Will it pass?

Pension and Investments reports Sen. Sherrod Brown to Unveil Multiemployer Loan Program Legislation.

Sen. Sherrod Brown, D-Ohio, plans to introduce legislation that would allow struggling multiemployer pension funds to borrow from the U.S. Treasury to remain solvent.

The bill, co-sponsored by Rep. Tim Ryan, D-Ohio, could be introduced later this week or shortly after. It would create a new office within the Treasury Department called the Pension Rehabilitation Administration. The funds would come from the sale of Treasury-issued bonds to financial institutions. The pension funds could borrow for 30 years at low interest rates. One restriction for borrowers is they could not make risky investments.

The bill would also fund a program at the Pension Benefit Guaranty Corp. to finance any remaining needs of pension plans borrowing from the new program. “Any money needed for the PBGC would be a tiny fraction of what it would otherwise be on the hook for if Congress fails to act,” said an analysis by Mr. Brown’s office.

Mr. Brown told a group of retired Teamsters in Ohio on Monday that the bill will be out shortly.

It Begins: Pension Bailout Bill

A reader asked me to comment on the story after reading ZeroHedge’s take: It Begins: Pension Bailout Bill To Be Introduced This Week.

“It’s bad enough that Wall Street squandered workers’ money — and it’s worse that the government that’s supposed to look out for these folks is trying to break the promise made to these workers. Not on our watch. We won’t allow that to happen,” said Brown.

No, instead what will happen “under his watch” is that funds collected from taxpaying Americans will be spent to satisfy the ridiculous retirement promises and obligations made over the past few decades, and while the immediate recipients of the funds, i.e. those looking at near-term retirement will be made whole, everyone else, i.e., taxpayers will lose.

And now that the machinery for pension bailouts is finally in motion, we look forward to the next, and possibly final, tear in the American social fabric, that between workers who can’t wait to retire to the generous pension promises (see “Why Illinois Is In Trouble – 63,000 Public Employees With $100,000+ Salaries Cost Taxpayers $10 Billion ” and “Mapping The $100,000+ California Public Employee Pensions At CalPERS Costing Taxpayers $3.0B”), and all those other unlucky taxpayers, who will have to fund these promises.

Private Union Bailout

It’s important to note that the bill addresses private pensions covered by the Pension Benefit Guarantee Corporation, not public pensions. I wrote about private pension haircuts several times.

April 21, 2016: One of Nation’s Largest Pension Funds (Truckers) Will Reduce Benefits or Go Broke by 2025

May 20, 2016: Rejected: Central States Fund Proposes 60{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} Pension Cuts, Treasury Dept Says “Not Enough”

May 24, 2016: UPS Fears $3.8 Billion Liability Over Bankrupt Central States Pension Plan

Read More @ MishTalk.com

Draghi Knew About Hiding Losses by Italian Banks

by Martin Armstrong, Armstrong Economics:

The Bank of Italy, when it was headed at the time by Mario Draghi, knew Banca Monte dei Paschi di Siena SpA hid the loss of almost half a billion dollars using derivatives two years before prosecutors were alerted to the complex transactions, according to documents revealed in a Milan court.

Mario Draghi, now president of the European Central Bank, was fully aware of how derivatives were being used to hide losses. Goldman Sachs did that for Greece, which blew up in 2010. It is now showing that Draghi was aware of the problems stemming from a 2008 trade entered into with Deutsche Bank AG which was the mirror image of an earlier deal Monte Paschi had with the same bank. The Italian bank was losing about €370 million euros on the earlier transaction, internally they called “Santorini” named after the island that blew up in a volcano. The new trade posted a gain of roughly the same amount and allowed losses to be spread out over a longer period. We use to call these tax straddles.

The report was dated September 17th, 2010, and marked “private” demonstrating that the Bank of Italy was aware that by choosing not to book the trade at fair value Monte Paschi avoided showing a loss at the time. If the bank had used a mark-to-market valuation in the fourth quarter of 2008, it would have been included in its year-end report as the credit crisis was cresting.

This is the real picture behind the curtain. Draghi has known all about using derivatives to mask-over losses and pretend they are not there. The entire Greece Crisis was caused by Goldman Sachs constructing derivatives to pretend Greece made the criteria for the Eurozone.

Greece joined the Euro in 2001 under Costas Simitis. At the time, Greece owed about €3.4 billion euros it had borrowed. Goldman engineered a currency swap whereby the Greek debt, issued in dollars and yen, was exchanged for euros that were priced at a “historical” or entirely fictitious currency rate. Of course, swapping dollar and yen debt at nearly the low of 2000 when the euro was only 82 cents to the dollar became a nightmare. Greece’s debt doubled in real terms as the euro then rose to $1.60 by 2008. Obviously, Goldman offered no advice but structured a deal that only benefited itself by directing Greece to sell the dollar at the low. Goldman also set up an off-market interest-rate swap to repay the loan off the books, which was a currency position and therefore not technically a “loan” outside any reporting requirement as debt. The trade kept this part of the Greek debt off the books and cleverly hidden from scrutiny. This falsely created the idea that the Greek debt was moving in the right direction to meet the Maastricht rules eventually. Goldman overpriced the deal to such an extent that 12{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of their $6.35 billion in trading and investment revenue for 2001 came from restructuring Greece. In total, they pocketed a premium fee of $300 million. Goldman also warned, as they typically do, Goldman would cancel the offer that if Greece shopped the deal around for a better price. Goldman further demanded that Greece pledge landing fees from Greek airports and revenue from the national lottery as part of the transaction to secure their own profits strip-mining Greece.

Within just three months of signing the deal, the bond markets took a major swing following the September 11 attack in New York during 2001. Furthermore, the dollar declined and the Euro soared. Greek officials began to realize that the deal was not going well in the least. The Greek national debt nearly doubled in size, and in real terms (currency adjusted), the debt would double by 2008 just in Euro terms nominally. Greece faced another financial crisis in 2005, which few understood. Goldman Sachs “restructured” the deal once again, but this time they were selling the interest rate swap to the National Bank of Greece under the new government that came to power in 2004 under Karamanlis. This increased the debt even further stretching-out the payments beyond 2032. Goldman managed to extract $500 million from the Greeks, according to numerous press stories (Independent Friday 10 July 2015; Greek debt crisis: Goldman Sachs could be sued for helping hide debts when it joined euro).

Read More @ ArmstrongEconomics.com

‘Magic Wand’: Russia Buying Gold at Record Pace, Unlikely to Lose Momentum

from Sputnik News:

Russia has been expanding its gold reserves at a record pace, according to information from the World Gold Council (WGC). Russian business newspaper Kommersant suggests this gold rush will give Russia guarantees against sanctions and economic and geopolitical risks.

In the third quarter of 2017, the Central Bank of Russia bought 63 tons of the precious metal, bringing its gold stockpiles to 1,778.9 tons as of the end of September.

In September only, the regulator added 34.6 tons of bullion to its reserves, in the highest monthly increase since October 2016.

Currently, the Russian Central Bank has been ranked sixth in the world in terms of bullion reserves. The top five are the United States (8,133.5 tons), Germany (3,373.7), Italy (2,451.8 tons), France (2,435.9) and China (1,842.6).

At the same time, according to the WGC, the Russian Central Bank is leading in terms of the pace at which it is stockpiling gold.

According to the Russian business daily Kommersant, by stockpiling bullion, Russian wants to have guarantees amid the tightening of the US Federal Reserve’s policy and amid the growing tensions between Moscow and Washington. Russia also wants to protect its reserves against possible geopolitical risks.

If US sanctions are expanded to block Russia’s assets invested in US Treasuries, gold will be a “magic wand,” Andrei Vernikov, senior investment analyst with the asset management company Zerich Capital Management, told Kommersant.

Market analysts also suggest that the Russian Central Bank will continue to expand its gold reserves.

“The regulator will continue to amass gold in its reserves, decreasing the share of US Treasuries,” Alexander Losev, CEO of Sputnik Asset Management, told the newspaper.

If the Russian Central Bank continues to buy gold at the same pace Russia is likely to topple China as the world’s fifth-biggest holder of bullion in early 2018, according to Kommersant.

Read More @ SputnikNews.com

Get Ready for the “Crack-Up Boom”

by Bill Bonner, Casey Research:

For nearly two decades, the world’s central banks have labored hard, sweating to coax more digital money out of a stony and grudging economy.

More than $20 trillion did they bring forth via QE (buying stocks and bonds with newly created cash) – a mighty sum indeed.

But that is past. It is what wrought a Dow at 23,000 points… Amazon shares trading for $1,000… and a $6,000 bitcoin.

What it might wring out of the future is our subject for today.

Crack-Up Boom

The coast is clear for a blow-out spree of money printing, borrowing, spending, and debt.

The world’s four major economies are ready for it – with Shinzō Abe re-elected in Japan… Europe still under the spell of Mario “Whatever It Takes” Draghi… Donald J. Trump ready to do the Deep State’s bidding in America… and China with little choice but to pump in more cash and credit, as now the whole economy has come to depend on it.

(We read recently that the Chinese government is attempting to prop up the real estate market by buying nearly one out of every four new apartments.)

When it comes, the fireworks will probably be like what Austrian School economist Ludwig von Mises had in mind when he described a “crack-up boom,” the sort of nervous frenzy you get before you go to pieces completely.

But not so fast. There’s something missing… another sort of delirium that will bring on the final fever.

Stimulus Theory

Stocks have been going up for the last eight years.

From whence cometh so much buying pressure?

Didn’t people already have enough stocks in 2009? Did they yearn for more?

Or did they earn so much more money… did they save so much with rising profits and wages that the real economy produced… that they ended up with trillions of dollars in unhoused money in need of a good home?

Nope.

Instead, the money came from central banks. European Central Bank (ECB) President Mario Draghi has been pumping $70 billion a month into the world’s capital markets.

Bank of Japan Governor Haruhiko Kuroda has been adding another $30 billion.

And China has added $8 trillion in debt (money from nowhere) over the last two years.

Of course, everyone believes in the Stimulus Theory just as fervently and unquestioningly as they once believed in the Virgin Birth or Prohibition.

And we have no doubt that, when the going gets rough, the authorities will go back to the electronic printing presses… from which they will tease out more cash and credit than the planet has ever seen.

But the going is not rough yet. And the authorities aren’t complete boneheads. They know they have pitched their tents in the monetary equivalent of Bangladesh – with only a few feet between them and sea level.

Read More @ CaseyResearch.com

Gresham’s Law meets its Minsky Moment

by Dave Kranzler, Investment Research Dynamics:

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, fattening the coffers of the tax collectors. 

While it’s no secret that the Fed, along all global Central Banks, are supporting their respective financial systems by capping interest rates with “QE” (also known as “money printing”), the yield on the 10-yr Treasury has risen 36 basis points in two months from 2.04{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in September to 2.40{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} currently. There have not been any Fed rate hikes during that time period. The yield on the 2-yr Treasury has jumped from 1.26{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in early September to 1.66{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} currently. A 40 basis point jump, 32{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} increase, in rates in two months.

This is not due to a “reversal” in QE. Why? Because through this past Thursday, the Fed’s balance sheet has increased in size by over $7 billion since the Fed “threatened” to unwind QE starting in October. The bond market is sniffing hints of an acceleration in the general price level of goods and services, aka “inflation.”

I wanted to post this comment from my blog post the other day because this person uses an expressive writing style to convey incisively the uneasy truth about the financial and economic system in the U.S.:

Bankers are moral lepers, the financial equivalent of hookers and blow. You can never get enough of the moral debauchery in that world.

When a shit box tiny house, half the size of my man cave, goes for $50,000 less than my entire home in Reno, the end is nigh. $2,000 a square foot for a studio? What effing moron would pay that. Don’t answer. We know someone did. I pity the fool.

Bitcoin 7000, DOW 23,500, studios for $550,000 are all a result of the Greenspan /Bernanke/Yellen  QEpocalypse.

The flood of faux FIAT creates the same Cantillion effect as the flood of gold and silver from the new world that inflated the values of assets in the old world and decimated those outside the ring of prosperity created by that effect.

And that was when gold and silver were real money. But do you think gold and silver can catch a break today? Nope, not a chance.

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, fattening the coffers of the tax collectors. No accident there.

You would think this might solve some fiscal woes at the local and state level by boosting tax receipts by a few hundred percent. Nope, not happening there either.

Read More @ InvestmentResearchDynamics.com