Jul 262020

Elaine de Kooning Fairfield Porter #1 1954



It won’t come as a surprise to anyone that the first half of 2020 has brought, among many other things, renewed calls for the demise of the US dollar. It’s been pretty much a non-stop call for over a decade now, and longer. But this time, like all previous ones, I’m thinking: I don’t see it. I guess my first question is always: please explain why the dollar would collapse before the euro does.

For one thing, the dollar would have to collapse/default against one or more “entities”. The dollar is not like one of those highrises that collapse upon themselves. It will have to default or collapse against something(s) else. Since it is the world reserve currency, that means there would have to be a replacement reserve currency. Yes, that could also be for example gold or SDR’s, or even a basket of currencies, and something like that may happen eventually, but it doesn’t appear in the cards in the short run.

There are really only two candidates for the role, and neither looks at all fit to play it. The euro may have some ambitions in that direction, but it has far too many problems still. The yuan/renminbi certainly has such ambitions, but the Communist party refuses to let it get on stage to show what it’s got. As I recently wrote:


The main sticking point for Beijing is a conundrum it cannot solve. The CCP wants to have BOTH a global currency AND total control over that currency. It will have to choose between the two, and cannot make up its mind. So it pretends it doesn’t have to choose. Sure, there has been some advancement for the yuan, but I bet most of that is on the back of the Belt and Road (BRI), and that will turn out to be one of the main victims of the coronavirus. The BRI is China’s very clever way of exporting its overproduction, but potential buyers have other things on their mind today.

Meanwhile, even with that, the yuan is used in only 1.8% of cross-currency payments. [..] The sudden, and rushed, take-over of Hong Kong with the new security law will not help China’s plans to be accepted internationally. [..] The world’s large investors will not put their money into something that Xi Jinping can declare devalued by 50% on a rainy morning when he sees fit. He will have to cede that kind of control.

The euro has made some gains vs the USD recently, going from 1.07 to 1.16 or so, but that means very little once you look at the broader picture. Moreover, the reason the financial press provides for -much of- those gains, which is that the EU supposedly showed “unity” in its recent Recovery Fund talks, is bollocks.

If it showed one thing, it was a lack of unity. That’s why these were the longest talks they ever had. And if this had not been Angela Merkel’s last hurrah, they might not have agreed at all. They paid off the Frugal Four to the tune of hundreds of millions, and that’s how they got a deal. Horse traders.

A simple screenshot from Bloomberg of the USD vs EUR over the last five years makes clear why the recent changes are no big deal. (All BBG screenshots are from July 24 just before 10 AM EDT and all cover a 5 year period.)



A reserve currency has two roles: being the currency that most international trade is conducted in, and -closely related- being the currency that countries hold most as foreign exchange (FX) reserves. After WWII, the US dollar became the most important currency for trade more or less by default, a position that it greatly strengthened with the petrodollar.

A 2015 SWIFT paper provides details about the US dollar’s share of international trade:

The US dollar prevails as the dominant international trade currency, with a 51.9% share of the value of international currency usage in 2014. The euro is second, with a 30.5% share of the total value. The British pound is third, with a 5.4% share of the total value, followed by Asian currencies such as the Japanese yen and the Chinese yuan.

That’s from five years ago, but things won’t have changed much. The system is complex and inert, it has a very strong resistance against large and sudden changes. (Do note that the euro’s share of international trade is substantially skewed because it includes payments between countries that use the euro as their currency, plus those EU countries that don’t -yet-). Single market, international trade.

And then there’s the dollar’s FX role.

In September 2019, Eswar Prasad at Brookings reported that the dollar’s share of global FX reserves remains around 65%.

The drop from 66 percent in 2015 to 62 percent in 2018, is probably a statistical artifact related to changes in the reporting of reserves. Compared with 2007, however, the dollar’s share of global FX reserves has declined by 2 percentage points while the euro’s share is down 6 percentage points. Over this period, the Japanese yen’s share has risen by 2 percentage points, while other less prominent reserve currencies have increased their total share by 4 percentage points. The renminbi, which was not an official reserve currency in 2007, now accounts for 2 percent of global FX reserves. [..] .. the euro has stumbled, the renminbi has stalled, and dollar supremacy remains unchallenged.

[..] In July 2019, China’s total official reserve assets amounted to just over $3.2 trillion, of which $3.1 trillion (97 percent of the total) was held in the form of FX reserves. Gold holdings amounted to about $89 billion [..] Coming amid rising trade tensions with the U.S., the 5 percent increase in China’s gold stock and the 24 percent increase in the value of its official gold holdings during 2019 have been interpreted as a sign of China’s attempting to diversify its reserve holdings away from U.S. dollars.

If this interpretation was indeed correct, China has a long way to go. Gold now accounts for 3 percent of China’s gross international reserves. From a global financial market perspective, and especially relative to its overall international reserves, the $18 billion increase in the value of China’s gold reserves during 2019 is trivial; it barely registers as a shift in the composition of China’s overall reserves.

Assuming that China still holds 58 percent of its FX reserves in dollar-denominated assets, the value of those assets in July 2019 was $1.8 trillion. So, the value of its gold reserves, $94 billion, is a mere one twentieth of that of China’s dollar-denominated reserves.

With the euro and yuan out of the way as potential reserve currency candidates, we can take a look at gold. Senior commenter Dr.D at the Automatic Earth recently wrote: “As advertised, the US$ is defaulting. What? Where? US$ has been cut in half compared to Silver in 3 months. US$ has been cut in half compared to BTC in 3 months. US$ has been cut in half compared to Gold in 4 years.

Like many people talking about a USD demise, perhaps that’s too much of a dollar-centric view and conclusion. Surely gold and silver can rise vs the USD without announcing an imminent collapse of the latter. And since precious metals tend to go up in times of uncertainty, and COVID has brought shovels full of just that, you would expect them to rise.

Therefore you would have to also look at how they do vs for example the euro, before concluding anything. Note: I didn’t include Bitcoin because it’s too new and volatile. Makes me think of the Lindy Effect, often cited by Nassim Taleb, the idea that the older something is, the longer it’s likely to be around in the future.

Here are a few more Bloomberg screenshots. And yes, gold has done well vs the USD in, say, the past two years, no doubt.



But gold has pretty much followed the exact same pattern vs the euro:



Silver has done even better, more recently, vs the USD, though compared to where it was in 2016 it’s not that big a step (barely more than 10%):



And the pattern of silver vs the euro is so similar it’s almost eery.



I don’t see anything there that would make me think the dollar is collapsing, no more than the euro is. What I see is gold and silver rising. People move into precious metals, perceived as safe havens; they always do when the world is in turmoil. And don’t forget there are trillions in additional recent central bank money sloshing around that have to move somewhere.

As for the changes of the USD vs the euro: we’ve already seen that they are not exceptional. Losing a few percent vs the euro will not collapse the dollar.

Also, there’s something missing in the discussion as far as I’ve seen: the option that it’s the US itself that wants a lower dollar at this point in time, and actively works to get it lower. A strong dollar works for a strong economy, but not for one weakened by a pandemic and an acrimonious political climate.

But the US has borrowed so much money!, you say. Yes, but so have Europe, and Japan, and China, everyone has who could.


A little more about gold, since some are clamoring for a return to the gold standard. Which is not likely, because too many parties would resist, either for ideological or practical reasons. But say you would consider it, then you would as one of the first things you do, look at gold reserves. Here are the top ten gold holding countries per March 2020, as assembled by TradingEconomics.com:



Note: Britain is not there, because “Between 1999 and 2002 the Treasury sold 401 tonnes of gold – out of its 715-tonne holding – at an average price of $275 an ounce, generating about $3.5bn during the period.” (BBC). Gold is at $1,900 today. Nuff said.

The US gold reserves are so large it would appear to give them an unfair advantage if a gold standard were considered. Same as they have in the current set-up. Then again, if you insert population numbers into the equation, Germany, Italy, Switzerland, even the Netherlands, have more in relative terms. Question is: where does that leave all the others?

Long story short: I don’t see a US dollar default or collapse in the near future. But by all means enlighten me.





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Oct 012019

Paul Gauguin Sunken lane 1884


Dear America, Civil War Is Not A Joke – Or A Picnic (RT)
Civil War On (Kunstler)
Impeachment…or CIA Coup? (Ron Paul)
Hillary Clinton’s Big Comeback Begins Tuesday (WT)
US Dollar Status as Global Reserve Currency Slides (WS)
No End In Sight For ECB’s Inflation Problem (MW)
Twitter Executive For Middle East Is British Army ‘Psyops’ Soldier (MEE)
Johnson Planning To Bypass Brussels In Bid For New Brexit Deal (Ind.)
UK Proposes Customs Posts On Both Sides Of Irish Border (RTE)
France’s Overtures Toward Russia (Moisi)
Assange’s Lawyers Were Under Surveillance. That’s Not The Whole Story (Canary)



Nebojsa Malic, senior writer at RT, lived through the Yugoslavia civil war.

Dear America, Civil War Is Not A Joke – Or A Picnic (RT)

Critics have reacted to President Donald Trump’s Twitter warning about his impeachment causing a civil war with both shrieks of outrage and jokes. Notably absent: any self-awareness of what such a war would be like or how to avoid it. “If the Democrats are successful in removing the president from office, I’m afraid it will cause a Civil War-like fracture in this nation from which this country will never heal,” Texas televangelist Robert Jeffress said Sunday night on Fox News. Trump quoted him in a tweet the next morning, and Twitter lost its collective mind. The typical response was to accuse Trump of calling for a new civil war, mind-reading what he must have really meant by the quote. He was “priming his base” to think of war, according to unnamed “experts of fascism,”a liberal comedian argued in just one example.

Others dismissed the very notion of a civil war as crazy, joking about bringing the potato salad and biodegradable forks – or hamberders and covfefe – to the fight, as soon as they get out of yoga class, using the hashtag #CivilWarSignup. There were also scornful takes about Americans being too fat to fight, or rural Americans being too scared to “take the subway in New York or drive in Los Angeles,” much less take a rifle and “take their country back from elite urbanites.” It’s unclear whether the people joking about bringing food to the fight were deliberately channeling the spirit of Washingtonians who turned out to the first Battle of Manassas/Bull Run, in June 1861, as if it were a picnic, bringing baskets and blankets to enjoy the show.

As anyone who’s studied that era of US history knows, their glee quickly turned to horror and panic, when the Union army lost – and they found themselves shoved aside on crowded roads leading back to Washington by the routed troops in blue. Wars never go as planned. No plan survives first contact with the enemy, who also gets a vote. If there is one ironclad rule of war through the ages, no matter the level of technology, that is it. Yet the corollary is that civilians always forget about it, and it comes back to bite them.

Read more …

“Does this sound a little like part of the origin story of RussiaGate? Is that not exactly the potential criminal matter that the current attorney general, Mr. Barr, is officially investigating?”

Civil War On (Kunstler)

Someone in Impeachmentville is not paying attention. Of course, diverting the rubes is exactly the point of the latest CIA operation to negate the 2016 election. Has nobody noticed that there is treaty between Ukraine and the USA, signed at Kiev in 1998 and ratified by the US Senate in 2000. It’s an agreement on “Mutual Legal Assistance in Criminal Matters.” Here, read the cover letter for yourself:

What part of the following do Nancy Pelosi and the news media not understand? “The Treaty is self-executing. It provides for a broad range of cooperation in criminal matters. Mutual assistance available under the Treaty includes: taking of testimony or statements of persons; providing documents, records, and articles of evidence; serving documents; locating or identifying persons; transferring persons in custody for testimony or other purposes; executing requests for searches and seizures; assisting in proceedings related to restraint, confiscation, forfeiture of assets, restitution, and collection of fines; and any other form of assistance not prohibited by the laws of the requested state… ([etc].”

How does this not permit Mr. Trump asking the president of Ukraine for “assistance” in criminal matters arising out of “collusion with Russia,” as specified within the scope of Robert Mueller’s special prosecutor activities? For instance, the matter of CrowdStrike. The cybersecurity firm was co-founded by Russian ex-pat Dmitri Alperovitch, who also happens to be a senior fellow at the Atlantic Council, an anti-Russian think tank funded by Ukrainian billionaire, Viktor Pinchuk, who donated at least $25 million to the Clinton Foundation before the 2016 election. Crowdstrike was the company that “examined” the supposedly hacked DNC servers, while somebody in the Obama administration prevented the FBI from ever seeing them. Does this sound a little like part of the origin story of RussiaGate? Is that not exactly the potential criminal matter that the current attorney general, Mr. Barr, is officially investigating?

Read more …

Obvious nonsense though it may be, people will continue to accuse me of supporting Trump. But you can’t accuse Ron Paul of that.

Impeachment…or CIA Coup? (Ron Paul)

You don’t need to be a supporter of President Trump to be concerned about the efforts to remove him from office. Last week House Speaker Nancy Pelosi announced impeachment proceedings against the President over a phone call made to the President of Ukraine. According to the White House record of the call, the President asked his Ukrainian counterpart to look into whether there is any evidence of Ukrainian meddling in the 2016 election and then mentioned that a lot of people were talking about how former US Vice President Joe Biden stopped the prosecution of his son who was under investigation for corruption in Ukraine.

Democrats, who spent more than two years convinced that “Russiagate” would enable them to remove Trump from office only to have their hopes dashed by the Mueller Report, now believe they have their smoking gun in this phone call. It this about politics? Yes. But there may be more to it than that. It may appear that the Democratic Party, furious over Hillary Clinton’s 2016 loss, is the driving force behind this ongoing attempt to remove Donald Trump from office, but at every turn we see the fingerprints of the CIA and its allies in the US deep state. In August 2016, a former acting director of the CIA, Mike Morell, wrote an extraordinary article in the New York Times accusing Donald Trump of being an “agent of the Russian Federation.”

Morell was clearly using his intelligence career as a way of bolstering his claim that Trump was a Russian spy – after all, the CIA should know such a thing! But the claim was a lie. Former CIA director John Brennan accused President Trump of “treason” and of “being in the pocket of Putin” for meeting with the Russian president in Helsinki and accepting his word that Russia did not meddle in the US election. To this day there has yet to be any evidence presented that the Russian government did interfere. Brennan openly called on “patriotic” Republicans to act against this “traitor.” Brennan and his deep state counterparts James Comey at the FBI and former Director of National Intelligence James Clapper launched an operation, using what we now know is the fake Steele dossier, to spy on the Trump presidential campaign and even attempt to entrap Trump campaign employees. Notice a pattern here?

Read more …

Too predictable to be newsworthy.

Hillary Clinton’s Big Comeback Begins Tuesday (WT)

Media attention will intensify on Hillary Clinton on Tuesday. The former first lady, senator, secretary of state and Democratic presidential candidate is ready for another round in the public arena. She has a new book arriving, written with the help of a very close relative. Behold. Here comes “The Book of Gutsy Women: Favorite Stories of Courage and Resilience” — all 464 pages of it. Indeed, the new book of essays now landing on the shelves is written by Mrs. Clinton and her daughter Chelsea Clinton, is published by Simon & Schuster. Some informed observers speculate the book could be yet another indicator — along with increased public appearances and commentary — that Mrs. Clinton pines for a political comeback.

What kind of comeback? Oh, maybe the bumper stickers will read BIDEN/CLINTON 2020, WARREN/CLINTON 2020 — or even CLINTON/CLINTON 2020. Who the heck knows? “Word on the political street now is the rumbling that the impeachment probe launched by House Speaker Nancy Pelosi may be the crack that opens the door for another presidential run by Hillary Clinton. This time, the thinking goes, Hillary would be running with vindication that the 2016 election was ‘stolen’ from her and she can ascend in 2020 to reclaim the mantle for her party and the majority of the country that voted for her,” writes Nate Ashworth, editor in chief of Election Central.

Read more …

Wolf Richter mostly manages to deny his own headline.

US Dollar Status as Global Reserve Currency Slides (WS)

If the US dollar loses its hegemony as a global reserve currency, it would be a sea change globally, and specifically for the US economy. Today, we got the next installment in that saga, via the IMF’s quarterly COFER data on foreign exchange reserves. Total global foreign exchange reserves in all currencies ticked up 1.1% from the first quarter, to $11.7 trillion. US-dollar-denominated exchange reserves rose only 0.7% to $6.79 trillion, and their share of total global foreign exchange reserves fell to 61.63%, down from 61.86% in the prior quarter. And this has been going on for years in baby steps:

The US dollar’s share of global reserve currency declines when central banks other than the Fed proportionately reduce their dollar-denominated assets and add assets denominated in other currencies. Compared to the mega-moves in the 1970s, the recent moves have been muted. Nevertheless, the current share of USD-denominated foreign exchange reserves of 61.63% is the lowest since the year-end in 2013. The bump in 2014, 2015, and 2016 has now been unwound:

These US-dollar-denominated exchange reserves are US Treasury securities, US corporate bonds, and other financial assets that central banks other than the Fed are holding in their foreign exchange reserves. The Fed’s own holdings of Treasury securities and Mortgage-Backed Securities are not included in “foreign exchange reserves.” However, the Fed’s holdings of foreign-currency denominated assets are included in the other currencies. Unlike some other central banks, the Fed holds just a smidgen in foreign currency assets – currently $20.6 billion worth, compared to, for example, China’s $3.1 trillion in foreign exchange reserves.

[..] The chart below shows the dollar’s slowly declining but still hegemonic share of foreign exchange reserves, the euro’s essentially flat share, and the other reserve currencies’ comparatively tiny share. The renminbi (RMB) is the short red line near the very bottom:

To shed some light on the tangle of currencies at the bottom of the chart above, it’s useful to look at them without the US dollar and the euro overshadowing the neighborhood:

Read more …

Inflation is not Europe’s problem. The ECB is.

No End In Sight For ECB’s Inflation Problem (MW)

Unemployment in the eurozone declined to 7.4% in September, its lowest level since August, 2008, the EU’s statistics institute Eurostat said Monday. But this good news about the European economy helps underline the predicament the European Central Bank has long struggled with: the persistent low level of inflation. The ECB has undershot its official price stability target, set at “below but close to 2%”, every year since 2013. Keeping the eurozone on that steady inflation path is the only official remit of the ECB. It hasn’t been tasked with other economic policy objectives, like the U.S. Federal Reserve on employment, or the Bank of England on supporting the government’s economic objectives.

Inflation in the eurozone stood at an annual 1% in August, according to Eurostat. The closest the ECB was to its target was last year, when inflation reached 1.8%. That was up from 1.5% in 2017, and 0.2% in both preceding years. The risk of debilitating deflation – falling prices – was the rationale behind the ECB’s first massive quantitative easing program, launched in 2015. The central bank is now citing the financial markets’ declining inflation expectations for 2021 as the main reason for its latest monetary easing package, announced on September 12: They have fallen from 1.8% to 1.5% since the beginning of this year, according to ECB chief economist Philip Lane.

Read more …

“..the 77th Brigade is giving the British military “the capability to compete in the war of narratives at the tactical level..”

Twitter Executive For Middle East Is British Army ‘Psyops’ Soldier (MEE)

The senior Twitter executive with editorial responsibility for the Middle East is also a part-time officer in the British Army’s psychological warfare unit, Middle East Eye has established. Gordon MacMillan, who joined the social media company’s UK office six years ago, has for several years also served with the 77th Brigade, a unit formed in 2015 in order to develop “non-lethal” ways of waging war. The 77th Brigade uses social media platforms such as Twitter, Instagram and Facebook, as well as podcasts, data analysis and audience research to wage what the head of the UK military, General Nick Carter, describes as “information warfare”.

Carter says the 77th Brigade is giving the British military “the capability to compete in the war of narratives at the tactical level”; to shape perceptions of conflict. Some soldiers who have served with the unit say they have been engaged in operations intended to change the behaviour of target audiences. What exactly MacMillan is doing with the unit is difficult to determine, however: he has declined to answer any questions about his role, as has Twitter and the UK’s Ministry of Defence (MoD). Twitter would say only that “we actively encourage all our employees to pursue external interests”, while the MoD said that the 77th Brigade had no relationship with Twitter, other than using it for communication.

The 77th Brigade’s headquarters is located west of London. It brought together a number of existing military units such as the Media Operations Group and the 15 Psychological Operations Group. At its launch, the UK media was told that the new unit of “Facebook warriors” would be around 1,500 strong, and made up of both regular soldiers and reservists. In recent months, the army has been approaching British journalists and asking them to join the unit as reservists.

Read more …

In reality, he’s preparing to blame everyone else for his own failures. And Dominic Cummings will blame Boris.

Johnson Planning To Bypass Brussels In Bid For New Brexit Deal (Ind.)

Boris Johnson is to attempt a last-ditch charm offensive on EU leaders to get a Brexit deal over the line, after delivering his proposals for a new withdrawal agreement to Brussels as early as the end of this week. With EU chief negotiator Michel Barnier viewed in Downing Street as a stickler for rules who will be hard to shift from the deal struck with Theresa May, Mr Johnson is keen to speak with key European leaders who may be ready to show flexibility ahead of the crunch Brussels summit on 17 October. Plans were made to fly the prime minister to the funeral of ex-president Jacques Chirac for talks in the margins with sympathetic leaders, but it was decided the opportunity did not justify breaking off his attendance at the Conservative conference in Manchester.

London believes a key to any deal will be securing the acceptance of Irish premier Leo Varadkar and German chancellor Angela Merkel. News that negotiator David Frost has finalised a legal text of the UK proposals – said by a senior government source to be “game changing” – emerged as ministers attending cabinet admitted that they were not absolutely sure what the PM plans to do if his hopes of a deal fall flat. With speculation that the plan is known only to a tiny circle around Mr Johnson and his chief adviser Dominic Cummings, housing minister Esther McVey said she did not “know what is necessarily going on in Boris’s head”, while even chancellor Sajid Javid when asked if he knew what the PM would do could say only that “I think I do”.

Read more …

And you thought they’d steer clear of hammering Good Friday…

UK Proposes Customs Posts On Both Sides Of Irish Border (RTE)

The UK has proposed the creation of a string of customs posts along both sides of the Irish border as part of its effort to replace the backstop, RTÉ News understands. The ideas, which would be highly controversial, are contained in proposals sent from London to the European Union – extracts of which have been seen by RTÉ News. The proposals would effectively mean customs posts being erected on both sides of the border, but located perhaps five to ten miles ‘back’ from the actual land frontier. This is because under British Prime Minister Boris Johnson, the UK is insisting that Northern Ireland remain completely outside the EU’s customs union for industrial goods and agri-food products.

Even more controversial is a proposal that the goods moving from a so-called “customs clearance site” on the northern side of the border to a similar site on the southern side would be monitored in real time using GPS via mobile phone data, or tracking devices placed on trucks or vans. The ideas are contained in one of four so-called ‘non-papers’ submitted by UK officials during recent technical discussions in Brussels. Under the British proposals, both the UK and EU would create what are believed to be called “customs clearance sites”, but to all intents and purposes a customs post. Traders would have a choice of either a straightforward customs declaration which would have to be lodged and cleared on either side of the border, or the so-called ‘transit’ system.

Under a transit scheme, the exporter becomes a registered ‘consigner’ at base, and the importer becomes a registered ‘consignee’. The method requires a bond from a financial institution to guarantee that the relevant customs duty, excise and VAT have been paid and that the goods do not go illegally off the beaten track en route. The UK proposals have been discussed in technical talks with the European Commission’s Brexit Task Force under Michel Barnier. However, the details of the four non-papers have not been disclosed to EU member states.

Read more …

Macron playing Napoleon again. He can’t stop himself.

France’s Overtures Toward Russia (Moisi)

French President Emmanuel Macron is convinced that now is the right time to reset relations with Russia. He has therefore made it a diplomatic priority to restore a climate of trust between Paris and Moscow. Three compelling reasons underlie this move… First and foremost, the international strategic context has changed dramatically. China is rising, while the United States, although still the world’s dominant power, is distancing itself from its global responsibilities. And Russia, with an aging, shrinking population and a huge, largely uninhabited landmass, is a natural prey for China’s long-term ambitions. European leaders should not resign themselves passively to seeing Russia, lacking any other alternative, align with China.

Instead, they should try to convince Russians that their future is with Europe, and not as China’s junior partner in a deeply unbalanced relationship. Russia’s destiny lies in the West, not the East. Moreover, although Russia is no match for China, it has returned as a serious global actor. Many current conflicts, from Eastern Europe to the Middle East, simply cannot be addressed without involving Russia. This represents a triumph of sorts for Russian President Vladimir Putin, who first came to power nearly 20 years ago pledging to restore his country’s geopolitical clout. In particular, Putin wanted the US to treat Russia not as a mere object of history, as it had done under his predecessor Boris Yeltsin, but as a real interlocutor.

And while it might be impossible to restore the bipolar world of the Cold War years, at least the US would be forced to recognize the importance of a modernized and operational Russian army that could intervene in the former Soviet sphere and beyond. This represents a triumph of sorts for Russian President Vladimir Putin, who first came to power nearly 20 years ago pledging to restore his country’s geopolitical clout. In particular, Putin wanted the US to treat Russia not as a mere object of history, as it had done under his predecessor Boris Yeltsin, but as a real interlocutor.

Read more …

If these revelations don’t stop Assange’s extradition, nothing will. And Britain will be nothing but a deep black hole.

Assange’s Lawyers Were Under Surveillance. That’s Not The Whole Story (Canary)

A private security company organised 24/7 surveillance of WikiLeaks founder Julian Assange during his stay at the Ecuadorian embassy in London. This included confidential meetings between Assange and members of his legal team. The surveillance was provided directly to the CIA. These revelations could possibly jeopardise the viability of the US extradition case. But within this story there lies another that raises serious questions about the establishment media and allegiances. According to El Pais, Spanish security firm UC Global was responsible for the surveillance of Assange when he was a guest of the Ecuadorian government at their London embassy. UC Global, a firm with an address in Jerez de la Frontera (Cádiz), was hired by Senain, the former Ecuadorian intelligence service, ostensibly to provide protection for Assange.

However, it’s now been revealed that the company’s owner David Morales passed on the results of the operations to the CIA. He even installed a video streaming service direct to the US. Also monitored were meetings between Assange and his lawyers, including Melynda Taylor, Jennifer Robinson, and Baltasar Garzón. After Rafael Correa was replaced by the right-wing Lenín Moreno as president of Ecuador in May 2017, the latter cancelled the UC Global contract. Moreno then issued a new contract to Ecuadorian company Promsecurity. Video recordings and photos taken by that firm were subsequently used in an extortion attempt.

Read more …






Jun 252019

Caravaggio Conversion on the way to Damascus 1600-01


Something’s been nagging me for the past few days, and I’m not sure I’ve figured out why yet. It started when Donald Trump first called off the alleged planned strikes on targets in Iran because they would have cost 150 lives, and then the next day said the US would do sanctions instead. As they did on Monday, even directly targeting Trump’s equal, the “Supreme Leader Khameini”.

When Trump announced the sanctions, I thought: wait a minute, by presenting this the way you did, you effectively turned economic sanctions into a military tool: we chose not to do bombs but sanctions. Sounds the same as not doing a naval invasion but going for air attacks instead. The kind of decisions that were made in Vietnam a thousand times.

However, Vietnam was all out war (well, invasion is a better term). Which shamed the US, killed and maimed the sweet Lord only knows how many promising young Americans as well as millions of Vietnamese, and ended in humiliating defeat. But the US is not in an all out war in Iran, at least not yet. And if they would ever try to be, the outcome would be Vietnam squared.

Still, that’s not really my point here. It’s simply about the use of having the world reserve currency as a military weapon instead of an economic one. And I think that is highly significant. As well as an enormous threat to the US. The issue at hand is overreach.

While you could still argue that economic sanctions on North Korea, Venezuela and Russia are just that, economic and/or political ones, the way Trump phrased it, comparing sanctions one on one with military strikes, no longer leaves that opening when it comes to Iran. The new Iran sanctions are a preliminary act of war. Simply because of how he presented them. He explicitly stated that he swapped one for the other.


There are quite a few people who have been harping on the demise of the USD as reserve currency for a long time, and I always think: look, nobody wants the yuan, let alone the ruble. There’s no trade being executed in these currencies. So taking over from the USD is a pipe dream.

But that may very well change, and perhaps very fast too, if the US uses the dollar not as an economic weapon (and there are plenty issues with that already), but as a military one. That would potentially hugely speed up any efforts to move away from the buck in international trade.

For the simple reason that it becomes unreliable. Traders hate that, they can’t have that. A reserve currency must be neutral -to a point-. The world of trade doesn’t want the yuan because Beijing controls it and can therefore change conditions and values overnight. But if and when the US uses the USD as a military tool, it essentially risks doing exactly the same: it deneutralizes the USD.

Using the USD as an economic weapon is ugly, but something global trade can deal with. A military weapon, though, is something else altogether. And I see no sign that Trump understands this. The thing is, using your currency, which also happens to be the world reserve currency, as a military tool, means you’ve become a threat to everyone, the entire globe, overnight.

And people don’t want to live that way. Not Iran, not Russia, not China, not Europe, no-one. It’s one thing to use the USD for sanctions. But it’s a real different thing to use it as just a military alternative to “bombing a country into obliteration”.


What Trump did comes awfully close to signing the death warrant for the USD as the global reserve currency. And it’s really only because he and his people weren’t paying attention. He could have phrased the entire thing differently, and it would have been business as usual, a business that Moscow and Beijing are actively trying to undermine, but they could have waited a bit longer reacting.

Now, however, their plans have to be sped up. They’re going to be buying a lot of gold, as they’ve already been doing, they’ll try to do their mutual business in their own currencies backed by this gold, and they’ll speed up alternatives-to-USD plans with other countries in their neighborhood. Because they have no choice anymore.

I see Tyler Durden reporting that the US threatens to throw a Chinese state-owned bank out of the SWIFT system, and I think: great idea. Why not force China to quit the reserve currency system, the petrodollar, outright?! Why not force it to hasten the Asian/Russian alternative trade model into existence? What a great and lovely idea.

The US should today make friends. It should preserve the reserve currency status of the USD for as long as it can, by convincing allies and foes alike that it will protect its neutrality in global trade. But Trump and his people are doing the exact opposite, they’re playing all-on-red.

The US no longer has the economic, political or military might to dictate to the entire world any terms it wants to. Those days are long gone. That ended in Vietnam. Trump’s living in the last century, while Bolton and Pompeo, they live in their own time and world.


But yeah, sure, perhaps this is what the dying days of an empire MUST look like. Maybe there’s a model to follow and there’s no escape, maybe it’s all written in the stars. Like Rome and Greece and Genghis Khan. Maybe things simply just have to play out. Still, looking at that Trump statement about the new Iran sanctions that started me off, it doesn’t feel all that smart.





Aug 032018
 August 3, 2018  Posted by at 12:31 pm Finance Tagged with: , , , , , , , , , ,  13 Responses »

George Caleb Bingham The verdict of the people 1854



It’s been a while since we last heard from Dr. D, but here he’s back explaining why neither gold nor the yuan nor cryptocurrencies can or will replace the dollar as the reserve currency, but together they just might:



Dr. D: “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” –Ogden Nash

Over the last year or two there’s been discussion about the U.S. Federal spending moving beyond $4 TRILLION dollars, and whether a $1+ trillion dollar annual deficit, on top of a $20 Trillion national debt – Federal only – is sustainable. It isn’t.

“What can’t go on, doesn’t” is the famous quote of economist Herbert Stein. Since a spiraling deficit of $1 trillion deficit on a $20 trillion debt can’t go on, what will we replace it with when it very soon doesn’t? Historically gold. Whatever gold exists in the nation’s coffers, whether one coin or 8,000 tons, is used to as the national wealth, and fronted by paper to re-boot the currency. With some additions such as oil and real estate, this was the solution in Spain, France, Germany, and the Soviet Union among hundreds of fiat defaults. Why? Because at a time of broken promises — real goods, commodities that can be seen, touched, and used – are the tangible proof of wealth, requiring no trust, and from which the human trust system of paper and letters of credit can be rebuilt.

But in these complicated, digital times perhaps that’s too simplistic. Perhaps we have grown smarter than all our fathers and this time it will be different. Will it really be the same? Let’s look at how the system works now.

Before WWI, the world was on the gold standard. This had variations, exceptions, corruptions, but on the whole there was gold in the back that was fronted by paper promises issued by private banks. The paper moved, the promises were delivered by telegraph and telephone, and the gold remained in the vaults. It was only when men felt unsure of the truth of the promise they could and did demand delivery, called the bluff, and the bank did – or ominously didn’t – deliver the gold, and thereby keep the paper system in line with reality, with real wealth, and with the economy. This method kept men and nations honest, mostly.

The main part is that the gold didn’t move: it stayed in the same vaults and its ownership changed, just like today. It didn’t matter how much gold existed: it simply changed price, just like today.

All this changed after WWI. The nations had so impoverished themselves that they could no longer repay their real debts and restore their currencies following a 1,000 year tradition of inflating during wars and deflating after. The deflation was too high for Britain and France even while removing the total wealth of Germany, and they began to cheat, double-counting the gold on their books to relieve the pressure. And so the non-gold system began. With other causes, the inflation of this change began to be felt through the Roaring 20’s, until when the phantom money was called on – as was tradition when people began to suspect that the paper they owned was no longer backed with adequate real goods – the illusion popped.

The inflation was shown to be a fraud supported by the highest powers in government and finance, and the real economy withdrew their lack of trust until the matter was fixed. It wasn’t. As the system was fundamentally unchanged and no trust was restored, the rich were protected and law and property rights were trampled in a decade of Tom Joads, the economy never recovered. Although destroying half the nations on earth restored the real balance between paper fantasy and real production, the unemployment that never existed before WWI was never cured and has continued, ever worsening to this day. But note: before, during, and after the Depression, there was the same amount of gold. The gold did nothing, it was meaningless, only the paper promises over it expanded and contracted.

With the systemic dishonesty still in place preventing the books from matching the real wealth and production, the economy soon returned to a diseased state. While gold was illegal for men to own, the rich do as they please and as tradition, removed the gold of the United States to hold them to truth and honesty from printing too much fake money for guns and butter. They withstood the 12 year bank run until, in 1971, they folded, having lost 2/3s of the national savings, gold.


The world was now in uncharted territory. Much more than they never returned to honesty and a gold standard after WWI, they never attempted it after WWII, going to the -Bretton Woods” standard: the world would use the US$ as the standard, and the US$ would be backed with their 20,000 tonnes of gold. Now there was no gold, no gold standard, only unbacked US$ paper, a debt you could neither call on nor prove. As Nixon’s Treasury Secretary Connally said: “the dollar may be our currency, but it’s your problem.’

Inflation started immediately, and as the U.S. still resisted re-establishing physical trust, the connection between the books and reality, they quickly spiraled into South American malaise and high inflation, as seen in the gold price. From $20/oz, or rather a dollar value of 0.029, the dollar ran to 0.0011 – 1/26th of its former price — and looked to disappear altogether. This was not unexpected as fiat currencies on average live 40 years before collapsing. If you take 1941 as the start date, the unbacked US$ would have collapsed in 1981, exactly when it did. What to do? How to re-start the system without having to actually reform, give up war, be honest, and return to trust?

Henry Kissinger had the plan. As no one on earth was on the gold standard – not really – the US$ had only two legs, its worldwide use and military force. He made use of them both by demanding the Saudis accept only US$ for oil transactions. Although U.S. production was diminishing, the U.S. and Saudi Arabia were still the two largest oil producers at that time. Most other nations imported oil, especially Europe.

To have assurity of access to that oil — and not run afoul of the U.S. military – they needed to keep a substantial portion of their national accounts in US$, or more technically U.S. Treasury debt, sparking not just the ability, but the REQUIREMENT of a massive U.S. deficit. Kissinger just discovered social media: the truth that virtual things have value simply because other people use them. This was for all practical purposes the first virtual currency, existing only in room-sized mainframes in central banks worldwide. The world’s currency now looked like this:


(Courtesy of Dr. Willie)

A virtual currency backed by nothing, based on the usage in trade. But that isn’t a full chart and isn’t meant to be. On the side, back in the corners, the US$ was still convertible to gold for the “right kind of people”, using delivery in NY and London to banks in Switzerland. The volumes of US$ grew to trillions while the gold component withered to billions, yet still the Saudis banked billions in gold before it was recently stolen from their Swiss accounts, lawsuits pending. Why? Because there is still no trust between nations and billionaires who have a long history of cheating each other. The gold-in-hand safety valve existed to retain some trust, however distant, in the now-digital system.


“Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar, can match it.” –Alan Greenspan, 2014 interview of the Council on Foreign Relations.

So is the system still gold backed with gold as the “premier”, that is, first, real, and primary currency as Greenspan said? You tell me:

Apart from the Iraq war, the price of oil has been stable for 50 years. In 1950, two silver dimes would buy a gallon of gas. In 2018 two silver dimes are worth $2.22, or the price of a gallon of gas, minus the new taxes. Meanwhile the US$ value has dropped steadily:

Doesn’t that mean that it’s still gold and not the dollar that is the standard, the “store of value”, and the “reserve currency”, however unspoken? If not and it’s a relic, a rounding error we cannot return to, why, as Ben Bernanke was asked, do all the banks and nations still own it?


Back to the $20,000,000,000,000 debt the U.S. as reserve currency was REQUIRED to issue, it’s now been 40 years since 1978: what happens when the U.S. Dollar disappears as all fiat currencies do? Because it seems we would have to do something. It may be that even before 1988, people already knew this conversion, this transfer, must happen roundabout 2018:

If the old currency burns as predicted 30 years ago, what next? Will it be replaced by a gold coin or a “zero” coin, chained under the fleur-de-lis? It would seem the new currency must be trusted, which is the original problem, must be a replacement in trade, and must be large enough to handle what are now multi-billion trade and multi-trillion Forex flows. Is the answer gold? Well yes…and no. Certainly China thinks so:

And Russia:

And for that matter Germany and Holland and even Texas, who have repatriated their gold back home. But there’s one little problem:

These are the official western gold reserves; however, while the gold base remained stable, the overall financial system has expanded. This can be seen in all paper assets, but a good example can be found here:

That’s what? A 20,000-fold rise? And this is only marking “credit”, not equities or cash. We are indeed in an inflationary period: inflation in assets owned by the 1%. How out of line is this? Here’s the kindred chart in productive terms, GDP:

A 9-fold increase in ability versus 20,000-fold increase in promises. Sounds like someone won’t get paid. And you know what bankers and economists call that?

Default. Massive, system ending default, the size of WWI or the Great Depression. That’s how fiat standards end.

How big would that be? Here are some relative sizes:

Actually, that’s pretty understated. Derivatives in 2018 may be as much as $2 QUADRILLION. No one knows. Compare to this:

$3 Trillion in gold. Now that’s “official” gold and we already showed that “official” Chinese gold is 4,000 tonnes when it may be as high as 30,000 tonnes, but the principle is the same: gold is wildly smaller than the needs of the financial system. Or is it? In previous financial inflations…which I just showed we have had since 1971, in 20,000x scale…gold simply rose until it became the right size.

It’s perfectly simple. Gold rises 20,000 times or however much it must to re-back the system. It always has before, even in 1979 when the price rocketed from $35 to $880 where US debt to gold holdings ratio stabilized at a very reasonable 10:1…the classic level of fractional reserve trust. If China officially owns 5,000 tonnes, and Russia 2,000, with the west also 15,000 collectively, we have 22,000 tonnes over what BusinessInsider says is $160 Trillion in assets, and you get $7.27B/tonne or $226,000/oz.

That’s a 188x increase. 1979 was a 25x increase on an awful lot less trouble, inflation, and fraud. That’s only 7x larger. Is that unreasonable? With 40 years of inflation and very little comparative rise in gold, why shouldn’t it catch up as it did in 1979? So gold will rise and we’ll have a $200,000 gold standard? That’s what will happen?

Not so fast. We COULD have a gold standard, and China, Russia and other major nations appear ready to do so if necessary, but remember we didn’t return to the gold standard last time either. Instead, we cheated and moved to a digital standard stored in ancient mainframes. Why wouldn’t we just cheat again? Back to this:

The two problems in the original chart are trust and price. The price must restore a connection between reality -real value and real production- and price; and the “reserve currency”, the medium of exchange, must be a trusted agent or method. Why would we need coins in our pockets to make that happen? For that matter, why would we need banks, who have widely proven to be the most corrupt, untrustworthy element in the whole system? We can’t go to a new system if it’s the same as the old: that’s WHY the system failed and cycles from gold to silver, silver to paper, paper to gold. We can’t go from paper to paper, that won’t work; but we also can’t so easily go to gold, asking an 800-fold increase since 2000. It would have the same disruptions Weimar had that brought Hitler, or the Jacobins had that brought Napoleon, or that Venezuela has today. And why should we? There’s no need.

The chart above has the US/Saudi oil as the critical mass of trade that allows the US$ reserve. But that isn’t necessarily true today. Today the mass of trade is in goods to and from China. But China isn’t large enough, deep enough, or trusted enough to be the new world currency. And why should they? The reserve currency is what just hollowed out and bankrupted the United States: they would just be imitating our faults. We’d also be moving from one untrusted, unbacked currency to another, and history says that doesn’t happen. So why don’t we do this:

(Courtesy Dr. Willie)

China demands not US Treasuries in NY as collateral to ship goods as presently, and not Yuan bonds, but gold bullion posted in their hot new Shanghai market, which allows physical delivery on demand. This bullion never moves as collateral, but is simply posted by one party then released on delivery. Shanghai is already larger than London, and the largest banks are already in China, which probably has the largest economy. The West and their banks are a has-been: we’re only admitting to a reality that happened years ago.

This solves our two problems: how do we know we’re returning to fair trade, like-for-like? Real goods on container ships are trading for real goods in vaults. How do we know it’s fair, mostly? You can convert the Yuan-sponsored, gold trade note to physical delivery from Shanghai, a thing which is no longer truly possible in London and NY. Will this reversion increase the gold price? Probably. How much? Every number is a state secret, but assuming the 10:1 ratio the United States showed in 1980, let’s say it’s 1:10 of our $226,000 number above or $22,600/oz. That’s reasonable, practicable, and neither stops business nor starts wars. We can do it today, and given China, Russia, Japan, Asia, Australia, and even London appear to be joining China’s AIIB front bank, I would say it already IS happening.

Which leads to one more problem. Certainly TODAY you can take gold delivery in Shanghai, but as London, NY, and the Saudis discovered, the first thing that happens once you build a system of trust is to close the doors and cheat on it. How do we know the gold is there? Even though Shanghai is a “third party” allowing delivery, who’s to say they will be tomorrow? The banks are notorious for “hypothecating”, doubling, tripling the gold on their books with accounting fraud backed by the full faith and credibility of governments, and no one’s in the mood for trusting the Chinese any more than Wells Fargo or DeutscheBank. That would drop us back to a hard gold standard, a $220,000 price, a halt to world trade, and possible world war we were trying to avoid. We need an accounting method that is better trusted and can’t be gamed. How to fix it?


The gold in Shanghai has a chain of custody, no different from “London Deliverable” standards we have today. An original audit, adjusted for receipts and deliveries is all we need. Which is where we add the blockchain. With it, Shanghai cannot double the gold on their books like Europe did in 1922 or the CME does today, marking it both received and loaned, because the blockchain only allows one position, one state at a time. Gold assayed and entered by refiner is tagged to a kilo, and you can follow that kilo bar through the system, not with double counts and vanishing, ever-changing serial numbers as the Federal Reserve and the GLD ETF showed.

Can it be cheated? All systems can be cheated, that’s the nature of men. But it makes it much harder, hard enough to establish adequate trust in banks and governments that otherwise would go to war. Will it be tied to Bitcoin? Yes, but no differently than it will be tradable to the Thai bhat or the ruble. With near-zero cost conversions, all currencies, crypto or otherwise, will be far more interchangeable and thus to some extent identical. They may even disappear, as happened when Jackson closed the 2nd central bank 182 years ago and the nation essentially moved to private currencies.

What will happen to the Dollar? It will still exist, but in some new, revised form. But the US$ today is transferring 3% of the nation’s wealth from the poor to the rich via inflation. Do we really want to keep it? And if it’s not a store of value and it’s already not the reserve currency — we just showed it’s a diluted proxy for gold and oil — why should the reformed US$ be any different? The dollar will be our national currency, still diluted and still referring to the real currency: gold, the attached Trade Note, and its crypto accounting. Until the next fraud and next crisis, perhaps in 2058.


And that’s the long story of how we leave the present debt-backed U.S. paper dollar and move to a Yuan-sponsored gold trade note that is a gold-backed cryptocurrency. In some ways we already have. Watch and see as they have the public opening of a structure planned and established years ago.



Jan 012018

Happy New Year Bill Watterson


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US Dollar Refuses to Die as Top Global Reserve Currency (WS)
The Rise And Fall Of The Eurodollar (ZH)
Behind Korea, Iran & Russia Tensions: The Lurking Financial War (Crooke)
Polanyi Best Explains Trump, Brexit And The Failure Of Neoliberalism (Prime)
UK Government Relies On Rising Household Debt To Hit Targets – Labour (G.)
‘Desperate Times’ For Overcrowded British Hospitals (PA)
China’s Growth Engine Stutters As Factories Slow Down (G.)
Greece Dismisses Turkey’s Threats Over Asylum Row (GR)
Greece: Turkish Soldiers Won’t Be Extradited Regardless Of Asylum Process (K.)
UK ‘Faces Build-Up Of Plastic Waste’ (BBC)



The graphs seem to say it all: the demise of the dollar (and petrodollar, eurodollar -dollars held outside US-) has been greatly exaggerated.

US Dollar Refuses to Die as Top Global Reserve Currency (WS)

Over the decades, there have been a number of efforts to deflate the dollar’s hegemony as a global reserve currency, which it has maintained since World War II. Some of these efforts – such as the creation of the euro – have made a visible dent into the dollar’s status. Other efforts have essentially passed unnoticed. Now there’s a new contender: the Chinese yuan. On December 31, the IMF released its report on the Currency Composition of Official Foreign Exchange Reserves (COFER) for Q3 2017. So how has the US dollar fared as the top world reserve currency, now that the Chinese yuan has also been anointed as one, and that the euro has emerged from its debt crisis? First things, first. The IMF doesn’t really disclose all that much. The COFER data for the individual countries – the level of their reserve currencies and how they allocate them – is “strictly confidential,” it says.

So what we get to look at is the global allocation by currency. Total global foreign exchange reserves rose to $11.3 billion in Q3 2017, within the range of the past three years, between $10.7 trillion (Q4 2016) and $11.8 trillion (Q3, 2014). But something is happening to “allocated reserves.” Not all central banks disclose to the IMF how their foreign exchange reserves are allocated. In Q3 2017, 14.6% of the reserves hadn’t been allocated. But this number is plunging. In Q3 2014, just three years ago, it was still 41.2%. This means that more and more central banks report to the IMF their allocation of foreign exchange reserves, and the COFER is getting broader.

So of the 85.4% of the officially “allocated” reserve currencies in Q3 2017: • US dollar: 63.5% share, down from 64.6% in Q3 2014. • Euro: 20% share, down from 22.6% in Q3 2014. • Yen: 4.5% share, up from 3.6% in Q3 2014. • Pound Sterling: 4.5% share, up from 3.75% in Q3 2014. The Australian and Canadian dollars had a share of 1.8% and 2.0% respectively. • The Chinese yuan – that thin red sliver in the chart below – had a share of 1.1%, up from 1.08% in the prior three quarters, and up from zero before then. • The Swiss franc, the hair-fine black line in the chart below, has a share of 0.2%. • And a number of “other” currencies have a combined share of 2.4%.

The Chinese yuan made its entry after IMF boss Christine Lagarde and the IMF staff declared in mid-November 2015 that they were gung-ho about adding it to the IMF’s currency basket, the Special Drawing Rights (SDR), which is an important step toward becoming a major global reserve currency. At the end of November 2015, it was approved by the board. And it took effect in October 2016. Sure enough, in Q4 2016, the Chinese yuan started showing up in the COFER data as a global reserve currency with a share of 1.08%. But rather than soaring, it didn’t move at all over the first two quarters in 2017. And in Q3, it ticked up to a still minuscule 1.1%. Central banks do not appear to be overeager to hold this currency in large amounts. The chart below shows the changes since Q3 2014. The black line at the top is the US dollar – its hegemony unbroken.

Read more …

Russia experienced dollar shortages with oil prices still at $95 a barrel. It can’t do without dollars. Maybe sometime in the future, but that may well be a long time away.

The Rise And Fall Of The Eurodollar (ZH)

Gromen, who largely sat out this segment, offers a few thoughts toward the end that add to the picture of weakness defining the contemporary eurodollar system. Looking back to the summer of 2014, Gromen posits that the largest oil exporters were able to maintain current account surpluses because they’d already started settling an increasing percentage of their oil sales in dollars.

“It’s interesting, Jeff and Mark (this is Luke of course) when you look back to September – and we put this in our slide deck (which we can touch on later) – but if you look back at the actual timing of events it’s kind of interesting. And it’s, to me it hints to motive. So I’d love to get your thought on it, Jeff or Mark, of – if you go back to August of 2014, actually back even to May of ‘14, you had the Holy Grail gas and energy deal signed between China and Russia. It was rumored that that deal was going to be done in non-dollars, but no proof of that. It was later proven to be the case. In August of 2014, Putin announced that they wanted to start moving away from the dollar in oil trade, because the dollar’s monopoly in the global energy trade was damaging their economy.

And, what’s kind of interesting – and we wrote about this at the time – at this point oil is still $100 a barrel. And then, all of a sudden, by late September, with oil still $96 a barrel, $95 a barrel, Russia’s having dollar shortages. Russia was still – and they weren’t the only ones – Venezuela, Ecuador, a couple of others – you have three major oil exporters that are running still current account surpluses in the low- to mid-single digits at this point, starting to run into dollar shortages. And it was, I think, an underappreciated point at the time that, basically, if you’re an oil exporter you’re only selling in dollars, you’re running a current account surplus.

And so, if you’re only selling in dollars, in theory, there’s only two explanations for that, for those dollar shortages that began to pop up well before the price of oil crashed. Which was (#1) Russia and other places got dramatically more corrupt in the three months versus the three months before. Or they were starting to sell energy at an accelerating rate in non-dollar terms. And, as a result, you were seeing – where you were getting $100 before, now you were getting whatever, $90, $80, whatever the mix was. And at that point, then you started to see some of the devaluations etc. I guess I’d love to hear your thoughts on that.”

Read more …

Alastair Crooke also looks at the dollar demise.

Behind Korea, Iran & Russia Tensions: The Lurking Financial War (Crooke)

What have the tensions between the US and North Korea, Iran and Russia in common? Answer: It is that they are components to a wider financial war. Russia and Iran (together with China) happen to be the three key players shaping a huge (almost half the global population) alternative currency zone. The North Korean issue is important as it potentially may precipitate the US – depending on events – towards a more aggressive policy toward China (whether out of anger at Chinese hesitations over Korea, or as part and parcel of the US Administration’s desire to clip China’s trading wings). The US has embarked on a project to restore America’s economic primacy through suppressing its main trade competitors (through quasi-protectionism), and in the military context to ensure America’s continued political dominance.

The US ‘America First’ National Security Strategy made it plain: China and Russia are America’s ‘revisionist’ adversaries, and the US must and intends to win in this competition. The sub-text is that potential main rivals must be reminded of their ‘place’ in the global order. This part is clear and quite explicit, but what is left unsaid is that America is staking all on the dollar’s global, reserve currency status being maintained, for without it, President Trump’s aims are unlikely to be delivered. The dollar status is crucial – precisely because of what has occurred in the wake of the Great Financial crisis – the explosion of further debt. But here is a paradox: how is it that a Presidential Candidate who promised less military belligerence, less foreign intervention, and no western cultural-identity imposition, has, in the space of one year, become, as President, a hawk in respect to Korea and Iran.

What changed in his thinking? The course being pursued by both states was well-known, and has offered no sudden surprise (though North Korea’s progress may have proved quantitatively more rapid than, perhaps, US Intelligence was expecting: i.e. instead of 2020 – 2021, North Korea may have achieved its weapons objective in 2018 – some two years or so earlier that estimated)? But essentially Korea’s desire to be accepted as a nuclear weapon state is nothing new. It is ‘the Federal debt’, and a pending ‘debt ceiling’ that is crucial. There is little doubt that the US military is not what it used to be, and the Republican Party possesses a wing that is quite fundamentalist about limiting debt (Freedom Caucus). A serious military crisis is possibly the only way Trump is likely to get a huge ramp-up of military expenditure past Congress’ fiscal hawks.

President Trump – the Tax Bill saga tells us — is going to be a big spender as part of MAGA (Make America Great Again). The increase in proposed US defence spending alone, more or less equates to the whole annual Russian defence spending. US Federal debt is already above $20 Trillion, and accelerating fast: the borrowing requirement is ballooning and interest payments to service this additional borrowing, normally would be expected to rise. But Trump is also explicitly a low interest rate, expanding balance-sheet, sort of guy. So, how does one finance a truly ballooning budget deficit, whilst keeping interest rates low, or at zero? Well a fear-driven rush by foreigners into ‘risk free’ US Treasuries (i.e. military crisis again), historically serves to keep rates low – and dollars plentiful — as ‘overseas dollars’ return ‘home’ to Wall Street.

Read more …

No sure why economists et al have such a hard time understanding why limitless liberalization must by definition backfire.

Polanyi Best Explains Trump, Brexit And The Failure Of Neoliberalism (Prime)

It’s good to see the latest (21 December) New York Review of Books give space to a review – by Robert Kuttner of American Prospect– of a biography of “Karl Polanyi: a Life on the Left” by Gareth Dale. For as we have been arguing for a long time, it was Polanyi who better than any other historian/analyst got to the heart of the contradictions of free market globalised liberalism, and saw that it was such economic liberalism, pushed too far, that is likely to lead to authoritarian, or even fascist, outcomes. As Kuttner puts it, “Global capitalism has escaped the bounds of the postwar mixed economy that had reconciled dynamism with security through the regulation of finance, the empowerment of labor, a welfare state, and elements of public ownership”.

The outcome is extreme inequality and instability. However, as Kuttner reminds, “We have been here before. During the period between the two world wars, free-market liberals governing Britain, France, and the US tried to restore the pre–World War I laissez-faire system. They resurrected the gold standard and put war debts and reparations ahead of economic recovery. It was an era of free trade and rampant speculation, with no controls on private capital. The result was a decade of economic insecurity ending in depression, a weakening of parliamentary democracy, and fascist backlash. Right up until the German election of July 1932, when the Nazis became the largest party in the Reichstag, the pre-Hitler governing coalition was practicing the economic austerity commended by Germany’s creditors.”

It was these extremist policies of free market liberalism that Polanyi dissected in his most famous work, “The Great Transformation”, published in 1944. The worst consequences were in Germany and other continental European states, but declining imperial Britain was still the heart of ultra-liberal ideology. I am currently reading David Kynaston’s rambling History of the Bank of England, which sets out the disgraceful pressure that Governor Montagu Norman and the City of London put on elected governments to return to the Gold Standard (at the pre-war rate) and impose harsh austerity, with terrible economic consequences. [..] “[T]he simple proposition that all factors of production must have free markets implies in practice that the whole of society must be subordinated to the needs of the market system.” We see Polanyi’s key insight – in the essays and in the later book – as encapsulated in these passages:

“The real nature of the dangers thus become apparent which are inseparable from the market-utopia. For the sake of society the market mechanism must be restricted. But this cannot be done without grave peril to economic life and therefore to society as a whole. We are caught up on the horns of a dilemma: – either to continue on the paths of a utopia bound for destruction, or to halt on this path and risk the throwing out of gear of this marvellous but extremely artificial system.” “A self-regulating market-system is a utopia. No society could stand its devastating effects once it got really going. Hardly had laissez-faire started when the State and voluntary organizations intervened to protect society through factory laws, Trade Union and Church action from the mechanism of the market.”

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All western countries do. It’s why interest rates are so low.

UK Government Relies On Rising Household Debt To Hit Targets – Labour (G.)

John McDonnell has accused the government of relying on millions of British families going further into debt in order to meet Treasury targets. The shadow chancellor said families were set to borrow £445bn by the end of the parliament. He also highlighted official figures showing the ratio between household debt and income had reached a five-year high, with forecasts suggesting it will hit 150% by 2022. That means families will have amassed debts worth a year and a half’s income – which Labour warned could result in people falling into financial difficulties. McDonnell is planning for the Labour party to focus heavily on the question of household debt as part of its new year strategy. “The alarming increase in household debt at a time when wages are not keeping up with prices is creating the perfect storm for our economy,” McDonnell told the Guardian.

“There needs to be more done to protect working households from extortionate rates of interest, and also ensure that their earnings are not being squeezed just so Philip Hammond can pretend to meet his own targets, which he has so far failed to meet.” The Labour frontbencher said his party had already promised to cap interest on insecure lending, but would be unveiling a string of further interventions in 2018 about how to protect households from burgeoning debt. He has described the situation as a “personal debt crisis” with levels of unsecured borrowing predicted to hit a record of £19,000 per household by the end of this parliament. Analysis from Labour shows unsecured debt is on course to exceed £15,000 per household next year and could go on to exceed £19,000 per household by 2022 if it follows the current trajectory.

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They had an excellent health care service. Those days are gone. The poor have become expendable.

‘Desperate Times’ For Overcrowded British Hospitals (PA)

Pressures on the NHS have “escalated rapidly” over the festive period, with hospitals experiencing significant bed shortages, a leading doctor has warned. Dr Nick Scriven, president of the Society for Acute Medicine (SAM), said many hospitals reported more than 99% capacity in the week before Christmas. He said services are being placed under significant strain as they enter the new year and called for non-urgent operations to be postponed until at least the end of January. Doctors have described corridors overflowing with patients and used social media in a bid to find extra staff to cope with demand. Portsmouth hospitals NHS trust, in Hampshire, tweeted on Sunday: “The hospital is extremely busy at the moment and we are asking any medical or nursing staff available for a shift tonight or tomorrow to make contact.”

Epsom and St Helier University hospitals trust, in London, also appealed for staff to work on New Year’s Eve “due to sickness and high volumes of patients”. Dr Richard Fawcett, from the Royal Stoke University hospital, wrote on Saturday that it had run out corridor space in A&E after ambulances were diverted from County hospital, Stafford. NHS England said hospitals were “generally coping”, with overall bed occupancy levels down from 95% in the lead-up to Christmas to about 93%. Scriven said: “Since the bank holiday, things have escalated rapidly and we are on the cusp of a major issue at least as bad as last year when it was described by the Red Cross as a humanitarian crisis. “There is an awful lot of respiratory illness causing a lot of severe symptoms in the old and young and 10- to 12-hour delays in emergency departments are now not uncommon – along with patients being placed on inappropriate wards.”

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Good story for 2018.

China’s Growth Engine Stutters As Factories Slow Down (G.)

Growth in China’s manufacturing sector slowed in December as a punishing crackdown on air pollution and a cooling property market start to weigh on the world’s second-largest economy. The data supports the view that the Chinese economy is beginning to gradually lose steam after growing by a forecast-beating 6.9% in the first nine months of the year. However, signs of a sharper slowdown – a major fear among global investors – have yet to materialise. The official Purchasing Managers’ Index (PMI) released on Sunday dipped to 51.6 in December, down from 51.8 in November and in line with forecasts from economists in a Reuters poll. The 50-point level divides growth from contraction on a monthly basis. The figures showed that China’s full-year 2017 economic growth would be at about 6.9% and 6.5% for 2018, according to the China Federation of Logistics and Purchasing, which compiles the data.

Boosted by hefty government infrastructure spending, a resilient property market and unexpected strength in exports, China’s manufacturing and industrial firms have driven solid economic growth this year, with their strong appetite for raw materials boosting global commodity prices. However, a slowdown has started to take hold in the last few months due to a wide-ranging combination of government measures, from a crackdown on smog in some heavily industrialised provinces to continued curbs on the housing market, which are weighing on property investment. Chinese steelmakers in 28 cities have been ordered to curb output between mid-November and mid-March, while a campaign to promote cleaner energy by converting coal to natural gas has also hampered manufacturing activity in some cities, leading to shortages and price rises.

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Any politician seen as giving in to Turkish strong-arming faces a huge problem at home. Long history and all that.

Greece Dismisses Turkey’s Threats Over Asylum Row (GR)

Greece dismissed Turkish angry threats on Sunday over its decision to grant asylum to a soldier who Ankara accuses of involvement in the abortive coup against President Tayyip Erdogan in July 2016. Turkey said on Saturday the decision by a Greek asylum board undermined relations between the two countries. The soldier was one of eight who fled after the July 15 coup attempt. It also accused Athens of harbouring “coup plotters”, a charge Greece denies. Turkey also threatened that the incident would affect bilateral relations over a host of issues from ethnically split Cyprus to sovereignty over airspace. The asylum board rejected the applications by the other seven soldiers, and the Greek government has appealed the decision to grant the soldier asylum and sought its annulment.

The government announcement that it will appeal the decision has caused a minor political storm, with opposition parties accusing the PM of hypocrisy and of bowing to Turkish threats. the row began when the government added to its appeal release that the country’s judiciary is independent. “Our faith in democratic principles and practices is not a weakness, but a source of strength,” the Greek foreign ministry said in a statement on Sunday. “Democracies do not threaten, or can be threatened,” the foreign ministry said. “On the contrary, they work responsibly and methodically to promote understanding and entrench stability and good neighbourly relations. Greece will continue this path and hopes its neighbours will do the same.” The eight soldiers had flown by helicopter to Greece in the early hours of July 16, 2016, as the attempted coup against Erdogan crumbled. They have denied any involvement in the attempt.

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Erdogan is not going to like this one.

Greece: Turkish Soldiers Won’t Be Extradited Regardless Of Asylum Process (K.)

Greek government spokesman Dimitris Tzanakopoulos has said the eight Turkish soldiers wanted by Ankara in connection with a failed coup attempt in 2016 “will not be extradited regardless of the outcome of their asylum applications.” In a message posted on social media late Sunday, Tzanakopoulos said the asylum claims submitted by the soldiers concerns their granting of refugee status. “This is a completely different from their non-extradition,” he said. Turkey said on Saturday the decision by a Greek asylum board to grant asylum to one of the eight soldiers undermined relations between the two countries. It also accused Athens of harboring “coup plotters.”

On Sunday, Tzanakopoulos said it was up to the Greek justice system to decide if the suspect in question is entitled to refugee protection, “in light of the enormous political significance of the issue which directly impacts on relations with the neighboring country.” “The political position of the Greek government is nevertheless clear,” Tzanakopoulos said. “Those suspected of being involved in Turkey’s coup are not welcome.”

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It’s not as if this is a British issue. Just refuse to use all the packaging etc.

UK ‘Faces Build-Up Of Plastic Waste’ (BBC)

The UK’s recycling industry says it doesn’t know how to cope with a Chinese ban on imports of plastic waste. Britain has been shipping up to 500,000 tonnes of plastic for recycling in China every year, but now the trade has been stopped. At the moment the UK cannot deal with much of that waste, says the UK Recycling Association. Its chief executive, Simon Ellin, told the BBC he had no idea how the problem would be solved in the short term. “It’s a huge blow for us… a game-changer for our industry,” he said. “We’ve relied on China so long for our waste… 55% of paper, 25% plus of plastics. “We simply don’t have the markets in the UK. It’s going to mean big changes in our industry.”

China has introduced the ban from this month on “foreign garbage” as part of a move to upgrade its industries. Other Asian nations will take some of the plastic, but there will still be a lot left. Environment Secretary Michael Gove has admitted that he was slow to spot the problem coming. The UK organisation Recoup, which recycles plastics, said the imports ban would lead to stock-piling of plastic waste and a move towards incineration and landfill. Peter Fleming, from the Local Government Association, told the BBC: “Clearly there’s a part to play for incineration but not all parts of the country have incinerators.

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Oct 142016
 October 14, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 14 2016

Lewis Wickes Hine Newsies in St. Louis, N. Broadway and De Soto. 1910

Fed Creates Junk Bond And Stock Market Bubble (SA)
Draghi Sends Corporate Yields So Negative the ECB Can’t Buy Them (BBG)
There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)
30% Junk Rally Gives Traders Heartburn (BBG)
China’s Tough Choice: Supporting Growth Or Controlling Debt (CNBC)
China Export Dip Tempts Policy Makers to Keep Weakening Yuan (BBG)
Shanghai Banks Told To Limit Loans To Property Developers (R.)
Standard & Poor’s Warns On UK Reserve Currency Status As Brexit Hardens (AEP)
Hundreds Of Properties Could Be Seized In UK Corruption Crackdown (G.)
Some of Donald Trump’s Economic Team Diverge From Candidate (WSJ)
Renzi Gambles All on Referendum Haunted by Weak Italian Economy (BBG)
Walloon Revolt Against Canada Deal Torpedoes EU Trade Policy (Pol.)
Germany Proposes North Africa Centers For Rescued Migrants (AFP)



“..this borrowing to fund buybacks and dividends doesn’t last this long and it has never lasted three years..”

Fed Creates Junk Bond And Stock Market Bubble (SA)

The chart below emphasizes the point that real business investment has declined while commercial and industrial loans are increasing. The leverage in the system is the highest ever as cheap money is not going to the right places. Businesses will only invest in new initiatives if they see sales growth in the future. Low interest rates will not cause a manager to invest in a new initiative. However, managers are still tempted to take the free money, so they pile it into the easiest place: dividends and buybacks.

As you can see, the total payout ratio of dividends and buybacks has exceeded 100% for the past two years. Usually, this borrowing to fund buybacks and dividends doesn’t last this long and it has never lasted three years, so leverage is near its brink.

The chart below shows how levered the balance sheets of corporations are. The leverage on investment-grade balance sheets is at a record high. The three bubbles that you can see in the chart below have all been created by the Federal Reserve’s easy money policies.

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Super Clueless Mario surprises himself.

Draghi Sends Corporate Yields So Negative the ECB Can’t Buy Them (BBG)

The European Central Bank is starting to price itself out of the corporate-bond market as yields plumb such lows that some notes are no longer eligible for its purchase program. ECB President Mario Draghi’s unprecedented buying of corporate debt has sent borrowing costs tumbling to a record and now yields on some securities are so low they fall outside the ECB’s own criteria. Yields on bonds from Paris’s public transport network have already dropped below the threshold of minus 0.4%, while those from Siemens, Europe’s biggest engineering company, France’s train operator SNCF and Sagess, which manages the nation’s strategic oil reserves, are also approaching the cut-off point.

The increasingly negative yields are raising questions about how much more the ECB can do in credit markets to stimulate growth. Yields on €2.6 trillion ($2.9 trillion) of government bonds in Europe have already turned negative after the central bank bought €1.3 trillion of fixed-income assets, including €32 billion of corporate bonds. “This is a sign of how much impact corporate bond buying has had on the credit market,” said Barnaby Martin at Bank of America. “If corporate yields continue to fall, then conceivably it could impact the ECB’s ability to buy bonds. It’s surprising how quickly we’ve reached this situation.”

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“When a bubble pops, the first thing that stops is transactions..”

There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

Once enough people are priced out of the housing market, demand collapses. This would normally be where housing bubbles deflate in a very painful manner for lenders, homeowners, and everyone getting their cut, including governments and the real estate industry. But there has been a strong influx of mostly Chinese investors that need to get their money, however they obtained it, out of harm’s way at home, and they pile into the market, and they don’t care what a property costs as long as they think they can sell it for more later. But British Columbia threw a monkey wrench in to the calculus this summer when it adopted a 15% real estate transfer tax and other measures aimed squarely at non-resident investors. It hit home, so to speak.

Total sales in Vancouver plunged 32.5% in September from a year ago, with sales of detached homes falling off a cliff – down 47%. Home sales have fallen every month since their all-time crazy peak in February on a seasonally adjusted basis, for a cumulative decline of 44%, according to Marc Pinsonneault, Senior Economist at Economics and Strategy at the National Bank of Canada. But home prices have not yet fallen, he wrote in the note, “because market conditions have just started to loosen from the tightest conditions on records. We see home price deflation starting soon (10% expected over twelve months).” His chart shows the plunge in sales (red line, left scale, in thousands of units) even as active listings have started to rise (blue line, right scale):

In Toronto, the opposite is happening, with sales spiking on a seasonally adjusted basis way past prior record levels, even as new listings have plunged.

For now, “Toronto is now the red hot market,” explains Pinsonneault: “Home sales broke records in each of the last three months. But the historically low supply (in terms of the number of homes listed for sale) is also contributing to market conditions that are the tightest on records.” But the situation can turn on a dime, as Vancouver demonstrated. When a bubble pops, the first thing that stops is transactions. This happens suddenly. Sellers refuse to cut their prices, while buyers refuse to step up to the plate. Things grind to a halt.

Once sellers are forced to relent on price, transactions start rolling again, at lower prices, and each lower price, due to the metrics of comparable sales, pressures down future prices of other transactions. Once Chinese investors figure out that they’re likely to lose a ton of money in Canadian real estate, because their compatriots who’ve piled into the market before them have already lost a ton of money, they’re going to lose their appetite. This is the hot money. It evaporates suddenly and without a trace. As Vancouver shows, bubbles don’t end in a plateau.

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Chasing yield doesn’t look like the best way forward.

30% Junk Rally Gives Traders Heartburn (BBG)

It’s becoming difficult to see how the lowest-rated U.S. junk bonds can continue to rally. They’ve posted their best performance since 2009, with more than a 30% return so far this year. And now investors from Goldman Sachs Asset Management to Highland Capital are starting to become nervous about this debt, and with good reason: If there’s any sort of economic shock at all, these notes are poised to lose a lot. And some sort of shock is entirely possible in the near future. These notes have benefited from two overwhelming factors this year:

1) New stimulus efforts in Japan and Europe have pushed investors into the most-speculative notes, especially those in the U.S.

2) Oil prices have rallied from the lows reached earlier this year, giving some highly indebted energy companies more time to survive after seeing their corporate lives flash before their eyes last year.There are signs that both dynamics are reaching their limits.Central bankers in Europe and Japan are running out of ways to stimulate their economies after deploying negative-rate policies that are eroding the stability of their financial systems. Instead of trying to add stimulus, policy makers in both regions are being forced to tweak existing bond-buying programs to keep them viable. And oil prices have rallied, but not as much as energy junk bonds, which have gained more than 49% since the end of February. This has propelled gains on the broader high-yield market.

[..] current prices aren’t high enough to sustain the current momentum in these bonds. That’s because a “significant amount” of the lowest-rated unsecured bonds of energy companies are pricing in oil at $70 a barrel over the longer term, Jefferies analyst Michael Carley said. Taking a step back, why should the lowest, most-leveraged junk bonds continue to do well? This debt should do best when an economy is steadily growing, interest rates are low and companies have bright futures. But U.S. companies are facing an earnings recession, the Federal Reserve is poised to raise rates again within the next few months and companies are borrowing at a faster pace than they’re increasing their incomes.

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The choice China refuses to make; they do both and run only to move backwards.

China’s Tough Choice: Supporting Growth Or Controlling Debt (CNBC)

China’s economic transition has caused a problem for the government—how to avert a sharp slowdown while keeping a lid on ballooning debt. In a report Thursday, rating agency Standard and Poor’s highlighted the “tough choice between supporting growth and controlling debt sustainability” as China tries to find new ways to fund public investments. “Although aggregate and provincial GDP growth stabilized in the first two quarters of 2016, we believe the fiscal conditions of Chinese local governments are under more pressure given the weakened economy,” S&P analysts wrote in a report. The rising debt pile of local government financing vehicles (LGFV) raised questions on credit risks, said S&P.

“As long as investments remain a growth impetus, it is very hard to shift away from the old public financing model to weaken the LGFVs’ role in public investment,” said S&P credit analyst, Xin Liu. “The growing pile of LGFV debt will add to the fiscal vulnerability of local governments, which already rely on these financing vehicles to execute public investment mandates,” she added. S&P’s warning on local government debt comes amid concerns about overall debt levels in the country as the world’s second-largest economy begins to slow after years of boisterous growth. Corporate debt is also under focus. In another report released on Tuesday, S&P warned that the “unabated growth” of China’s corporate debt could cost the country’s bank “dearly”.

It said the current growth rate of China’s debt “is not sustainable for long”. S&P said if the growth in debt doesn’t slow, the ratio of problem credit to total credit facing China’s banks could triple to 17% by 2020. The banks may then need to raise fresh capital of up to 11.3 trillion Chinese yuan ($1.7 trillion), which is equivalent to 16% of China’s 2015 nominal GDP. The Bank of International Settlements warned recently excessive credit growth in China will increase the country’s risk of a banking crisis in the next three years.

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A plunging reserve currency. What’s not to like?

China Export Dip Tempts Policy Makers to Keep Weakening Yuan (BBG)

China’s renewed export weakness is coinciding with a clampdown on surging home prices and corporate debt, stoking expectations policy makers will allow further yuan depreciation to buffer the economy. Exports in September dropped the most since February amid anemic global demand (-10%), while imports declined 1.9%, leaving a $42 billion trade surplus. Analysts at Bank of America, RBC and Capital Economics estimate further depreciation for the yuan, already near a six-year low. With S&P Global Ratings and the International Monetary Fund among those warning about the threats from rapid credit expansion, policy makers risk cooling the economy with new property restrictions. But their plan for economic growth of at least 6.5% this year leaves little room for maneuver.

The upshot: a weaker yuan is needed to support an industrial sector that’s returning to profitability as it emerges from four years of deflation. “China is running out of options and letting the yuan go is the lowest-cost option for them,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong. “We’ve seen them move in this direction. There’s more work to do.” The yuan is headed for the biggest weekly decline since January as mainland markets returned from holiday to face intensified depreciation pressures from a rising dollar. The yuan has dropped 3.4% against the dollar this year, the biggest decline in Asia. While depreciation’s not helping exporters in dollar terms, it cushions the blow when their shipments are counted in local currency terms, underpinning a recovery in industrial profits.

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What’s Chinese for whack-a-mole?

Shanghai Banks Told To Limit Loans To Property Developers (R.)

Banks in China’s financial hub Shanghai have been asked by authorities to limit loans to property developers for land purchases and to scrutinize would-be borrowers suspected of trying to access mortgages by getting divorced, the Shanghai Daily reported on Friday. The steps were the latest in a string of measures around the country to try to cool a property market seen at risk of overheating. Quoting unidentified commercial bankers, the newspaper said banks were told that housing developers should pay at least 30% down on residential projects instead of relying on bank loans.

It said some developers had put only 10% down on projects and raised the remaining funds through bank and gray-market loans. Banks were also asked to reject mortgage applications of people who had divorced within three months, it quoted an internal filing from a Shanghai-based rural commercial bank as saying. A property price rally has prompted a home buying frenzy in parts of China, in some cases prompting couples to get divorced to circumvent buying restrictions and invest in multiple homes. Police last month detained seven property agents in Shanghai for spreading rumours of plans for a new government regulation that caused a rash of divorces and a rush to buy new homes.

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More cause for finger pointing.

Standard & Poor’s Warns On UK Reserve Currency Status As Brexit Hardens (AEP)

Britain is in danger of misreading the political landscape in Europe and faces the possible loss of its reserve currency status if it fails to secure full access to the European single market, Standard & Poor’s has warned. The powerful US rating agency said the British government is treading into hazardous waters in negotiations with the EU and is risks serious damage to economy’s future growth trajectory, with long-term implications for the debt profile and the country’s credit-worthiness. S&P fears that loss of unfettered access to the single market would have incalculable consequences for business, yet the Government so far appears almost insouciant about this.

“There seems to be this view that ‘we’re a big important economy, the Europeans export a lot to us, so they have got to give us what we want’, but is that really true?” said Ravi Bhatia, the director of sovereign ratings in charge of Britain. “Individually most of these countries don’t export that much to the UK, and were seeing a hardening of attitudes,” he said. Mr Ravi said Britain has limited scope for a spree on infrastructure projects and is walking a fine line on budget policy. “Before Brexit, the trajectory was planned fiscal consolidation, but we’re no longer certain we’re going to see that,” he said. “If they ramp up fiscal spending they’ll get a stimulus and that is good in one way as it will help boost growth, but they have to finance that spending; it will raise the deficit, and the debt stock is already high,” he told the Daily Telegraph.

Standard & Poor’s stripped Britain of its AAA status immediately after the Brexit vote in June, slashing the rating by two notches to AA, although the move was well-flagged in advance. It described the vote as seminal event that would lead to a “less predictable, stable, and effective policy framework in the UK”. The agency will issue its next verdict at the end of this month. Any further downgrade at this delicate juncture would be more serious, amounting to a red card on the Government’s hard-nosed rhetoric and negotiating tactics It is unprecedented for a AAA state to lose three notches in a matter on months.

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First they invite them in…

Hundreds Of Properties Could Be Seized In UK Corruption Crackdown (G.)

Hundreds of British properties suspected of belonging to corrupt politicians, tax evaders and criminals could be seized by enforcement agencies under tough new laws designed to tackle London’s reputation as a haven for dirty money. Huge amounts of corrupt wealth is laundered through the capital’s banks. The National Crime Agency believes up to £100bn of tainted cash could be passing through the UK each year. Much of it ends up in real estate, and in other assets such as luxury cars, art and jewellery. The criminal finances bill, published on Thursday, is designed to close a loophole which has left the authorities powerless to seize property from overseas criminals unless the individuals are first convicted in their country of origin.

It will introduce the concept of “unexplained wealth orders”. The Serious Fraud Office, HM Revenue and Customs and other agencies will be able to apply to the high court for an order forcing the owner of an asset to explain how they obtained the funds to purchase it. The orders will apply to property and other assets worth more than £100,000. If the owner fails to demonstrate that a home or piece of jewellery was acquired using legal sources of income, agencies will be able to seize it. The law targets not just criminals, but politicians and public officials, known as “politically exposed persons”. Depending on how quickly it passes through parliament, the bill could come into force as early as spring 2017.

“There are some hundreds of properties in the UK strongly suspected to have been acquired with the proceeds of corruption,” said the campaign group Transparency International, which has been pressing for the new measures. “This will provide low-hanging fruit for immediate action by law enforcement agencies, if those agencies are properly resourced.”

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Whaddayaknow? The WSJ has a Trump story that’s not about genitals. Surrounding yourself with people who don’t agree with you is often not a bad sign.

Some of Donald Trump’s Economic Team Diverge From Candidate (WSJ)

Advisers concede there is a tug-of-war between the supply-siders and the protectionists, but Mr. Kudlow said he saw similar disagreements in the White House as a budget official for President Ronald Reagan. And Mr. Navarro, whose trade skepticism closely reflects Mr. Trump’s public views, said the campaign is “very much united” on trade. When Mr. Navarro ran for Congress two decades ago, Hillary Clinton, then the first lady, campaigned at one of his San Diego rallies. “Pure serendipity—sweet manna from heaven,” he wrote in a book recounting the campaign. He sought to oust the Republican incumbent by making the race a referendum on then-GOP House Speaker Newt Gingrich. Last month, Mr. Navarro flew with Messrs. Trump and Gingrich to a rally in Fort Myers, Fla. He now says he was “seduced” by the Clintons and “over time, that seduction has turned into betrayal and ultimately disbelief.”

Other top advisers include David Malpass, a Reagan administration official, who as chief economist of Bear Stearns in 2007 dismissed concerns that the housing sector would take the economy into a recession, let alone cause the financial crisis that brought down his bank. When he first met Mr. Trump before a rally in an airplane hangar at Dallas’ Love Field last year, conservative economist Stephen Moore pushed back against Mr. Trump’s invitation to join the campaign. “I can’t work for you because I’m free trade, and I know you’re more of a protectionist,” Mr. Moore recalled saying. Mr. Trump said they could “agree to disagree on that issue,” Mr. Moore said. Advisers say Mr. Trump’s decision to hire people he doesn’t fully agree with shows maturity. “Hillary is more like the red army, with everyone marching in lockstep,” said Mr. Kudlow.

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No. 1 concern in Berlin and Brussels.

Renzi Gambles All on Referendum Haunted by Weak Italian Economy (BBG)

Italians are about to have their say on Prime Minister Matteo Renzi and the economy isn’t doing him any favors. When the country holds a referendum on a key constitutional change Dec. 4, many voters will have more than “Yes” or “No” on their mind. They’ll probably take the opportunity to vent their frustration over the snail’s pace of growth after the latest recession. [..] All but one of Italy’s main polling firms signaled this month that “No” will prevail in the referendum, with surveys saying on average that the reform will be rejected by 52.2% of voters, up from 50.4% in September. To make things potentially worse for Renzi, just three days before the vote, Italians will learn whether the recovery resumed after stalling in the three months through June, when the national statistics office publishes its final reading of third quarter GDP.

“We might go to the polling stations in the wake of a negative GDP figure,” said Alberto Bagnai, who teaches economics at Gabriele d’Annunzio University in Pescara. “That could have a direct impact on the vote.” While recent industrial data have exceeded expectations, confidence among households and executives about the outlook is not very optimistic. Renzi himself acknowledged that economic concerns might influence voters and has tried to reassure them. Last week, the premier and his Finance Minister Pier Carlo Padoan repeatedly defended the government’s above-consensus target of 1% growth next year. The central bank called the goal “very optimistic” – a code phrase signaling difficulties ahead.

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A sorrowful bunch.

Walloon Revolt Against Canada Deal Torpedoes EU Trade Policy (Pol.)

The EU’s once-mighty trade negotiators never dreamed that their powers would be stripped from them so unceremoniously – and possibly for good. The Francophone parliament of the Federation of Wallonia-Brussels – only 10 minutes’ walk from EU headquarters — stands to win a place in history for sinking the EU’s landmark trade deal with Canada and potentially for scuppering the European Commission’s ability to lead the world’s biggest trade bloc for many years. Failure to conclude the Comprehensive Economic and Trade Agreement (CETA) by this month’s deadline would be a devastating blow to the EU, which has spent seven years working on the tariff-slicing agreement with Ottawa.

“It’s crazy. If we allow a regional parliament to block a trade deal that will benefit the whole EU, where does this lead us to?” said Christoph Leitl, president of the Global Chamber Platform, a worldwide alliance of business chambers. “CETA is not just a deal with Canada, it has model character for Europe’s future trade relations.” The Federation of Wallonia-Brussels parliament, which focuses on the cultural and educational concerns of 4.5 million French speakers in Belgium, voted Wednesday evening to reject CETA because of worries about public services and agriculture. [..] Unless the Belgian central government can find an imaginative compromise quickly, the EU will be unable to corral the signatures of all 28 EU countries before an EU-Canada summit on October 27.

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German efficiency. Send them where you can’t see them.

Germany Proposes North Africa Centers For Rescued Migrants (AFP)

Migrants rescued at sea should be taken to centers in north Africa where their claims for asylum in EU countries can be studied, German interior minister Thomas de Maiziere proposed Thursday. De Maiziere made the suggestion as he arrived for a Luxembourg meeting of EU interior ministers who are trying to slow the migrant flow from Libya to Italy after a March deal with Turkey sharply reduced the influx to Greece, the main entry point for Europe last year. “People who are rescued in the Mediterranean should be brought back to safe accommodation facilities in northern Africa,” de Maiziere told reporters. “Their need for protection would be verified and we would put into place a resettlement to Europe with generous quotas, fairly divided between the European countries,” the minister said.

“The others have to go back to their home countries,” he added. EU countries, confronting populist opposition to refugees, have long feuded over quotas for relocating asylum seekers from Greece and Italy as well as for resettling people from refugee camps. De Maiziere did not mention a specific country in north Africa but EU officials have been discussing efforts to curb the migrant flow with Libya, the main transit point for African migrants heading to Europe. However, Libya’s new national unity government last week rejected calls from some EU countries to build refugee camps on its shores, saying the bloc could not “shirk its responsibility” while it struggled to restore peace and stability.

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There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

Canadian house prices jumped 11.7% in September from a year ago, according to The Teranet–National Bank National Composite House Price Index released today. But the index papers beautifully over the dynamics in each metro. In six of the 11 metro markets of the index, prices have been languishing or even declining over the past couple of years, as they’ve hit the wall of reality after often stupendous price gains in the prior decade: Montreal, Calgary, Edmonton, Quebec City, Halifax, and Ottawa-Gatineau. In the two largest markets – Toronto and Vancouver, which combined account for 54% of the index – prices have blown through the roof. Both markets are among the hottest, most over-priced housing bubbles in the world.

UBS recently ranked Vancouver Number 1 globally on that honor roll. But suddenly the dynamics have changed. Vancouver’s housing market is in turmoil, to use a mild word, as sales have crashed, after the implementation of a real-estate transfer tax this summer by British Columbia, aimed squarely at non-resident investors. In Vancouver, those investors are mostly Chinese. And where do these folks now go to inflate prices? Toronto. Still, the national house price index (red line, right scale), after the 11.7% jump over the past 12 months (blue columns, left scale), has doubled since 2005!

The index, similar to the Case-Shiller Home Price index in the US, is based on repeat sales. It looks at properties that sold at least twice over the years to establish “sales pairs.” It then uses a proprietary formula to deduct price changes from these transactions and extrapolate them into an index for each of the 11 markets and nationally. It’s not perfect, but it offers an alternative view to median prices or Canada’s “benchmark” prices. Prices in Toronto have been spiking (red line, right scale), with double-digit year-over-year%age gains (blue columns, left scale) so far this year, including a breath-taking 16% in September.

Vancouver makes Toronto look practically tame. Vancouver went completely crazy, with year-year-over price gains reaching 26% in the summer. Now a new reality went into effect. Market activity has collapsed, as no one knows what anything is worth, with buyers and sellers jockeying for position. And on a monthly basis, the index was essentially flat (+0.2%):

Most Canadians have not seen their incomes rise anywhere near the rate of the house price inflation of the past many years, if their incomes rose at all. Thus, many of them have been priced out of the housing market, or have access to it only via highly risky financing schemes that put both lenders and borrowers at risk, despite historically low interest rates. Once enough people are priced out of the housing market, demand collapses. This would normally be where housing bubbles deflate in a very painful manner for lenders, homeowners, and everyone getting their cut, including governments and the real estate industry. But there has been a strong influx of mostly Chinese investors that need to get their money, however they obtained it, out of harm’s way at home, and they pile into the market, and they don’t care what a property costs as long as they think they can sell it for more later.

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