Another Central Bank Succumbs To Financial Gamblers – -Behold The ‘Zhou Put’

You’ve heard of the ‘Greenspan put’ and the ‘Bernanke guarantee’, now get acquainted with the ‘Zhou put’ as China’s central bank pulls monetary levers to ease declines in the country’sSTOCK MARKET.
The ‘Zhou put’ is the term used by traders to describe the perceived attempt by People’s Bank of China (PBoC) Governor Zhou Xiaochua over the weekend to boost the country’s beleagueredSTOCK MARKET by easing monetary policy in order to help money flow into the market.
‘The PBoC didn’t say so, but it certainly had a tried and tested Greenspan tactic in mind when it cut policy rates and selected bank reserve requirements (RRR) on Saturday to inject liquidity into the system and stabilize markets,’ said Uwe Parpart, chief strategist and head of research at Reorient Group.
‘We’ll see the immediate effect on Monday and in coming weeks will see if and to what extent investors buy into the ‘Zhou put’,’ he added.
The benchmark Shanghai Composite opened up almost 1 percent on Monday, only to slip into the red over the course of the morning. The index fell as much as 5 percent in a volatile trading session.
The PBoC on Saturday cut the benchmark one-year lending and deposit rates by 25 basis points to 4.85 percent and 2.0 percent respectively. It also reduced the RRR by 50 basis points for select lenders serving rural areas and small to medium-sized enterprises

This post was published at David Stockmans Contra Corner on June 30, 2015.

BIS Warning: Central Bank Financial Repression Has Left Global Economy Defenseless In Next Crisis

The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned.
The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.
These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.
Claudio Borio, head of the organisation’s monetary and economic department, said: ‘Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.’

This post was published at David Stockmans Contra Corner on June 30, 2015.

Swindle Alert: How To Spot The Fed’s Impending Bailout Of Europe

The Greek crisis is dominating headlines this week, and promises to be the most important economic and financial topic of conversation through the weekend and into Monday. Neither the Greek government nor the European Central Bank (ECB) seem to be prepared to give an inch, and there’s every indication that things could come to head next week. If Greece does default, and if there is a resulting crisis in European markets, will the Federal Reserve get involved? To quote Sarah Palin, ‘You betcha!’ How would the Fed do this? Read on to find out.
Although the euro is the dominant currency in Europe, a lot of debt in Europe is still denominated in dollars. The dollar being the world’s reserve currency and dollar markets being incredibly liquid, it just makes sense for a lot of companies to do business in dollars. But when a crisis hits and those businesses need dollars, they have to get a hold of dollars somehow. Banks in Europe have a limited supply, and once those dollars are gone, there is no dollar-printing central bank in Europe that can step in. Enter the Federal Reserve.
The Fed sets up liquidity swap lines with the ECB. These swap lines were, for many years, not highly publicized, and not even broken out as a separate category on the Fed’s balance sheet. That is, until the financial crisis hit and the swap lines rose to close to $600 billion. Even since the financial crisis they remain open, are periodically renewed, and occasionally still used, without much publicity.

This post was published at David Stockmans Contra Corner on June 30, 2015.

Puerto Rico Governor Speaks Truth To Hedge Fund Speculators: ‘The Debt Is Not Payable…..I Will Not Kick the Can’

Puerto Rico’s governor, saying he needs to pull the island out of a ‘death spiral,’ has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.
The governor, Alejandro Garca Padilla, and senior members of his staff said in an interview last week that they would probably seek significant concessions from as many as all of the island’s creditors, which could include deferring some debt payments for as long as five years or extending the timetable for repayment.
‘The debt is not payable,’ Mr. Garca Padilla said. ‘There is no other option. I would love to have an easier option. This is not politics, this is math.’
It is a startling admission from the governor of an island of 3.6 million people, which has piled on more municipal bond debt per capita than any American state.
A broad restructuring by Puerto Rico sets the stage for an unprecedented test of the United States municipal bond market, which cities and states rely on to pay for their most basic needs, like road construction and public hospitals.
That market has already been shaken by municipal bankruptcies in Detroit;Stockton, Calif.; and elsewhere, which undercut assumptions that local governments in the United States would always pay back their debt.

This post was published at David Stockmans Contra Corner on June 30, 2015.

Don’t Blame Austerity: Five “Dastardly” Ways Italy Burned Through Taxpayer Money

It took years (after our initial report in 2011) but finally the Greeks realized that the main reason the Troika had been fleecing them all along, is that of the 227 billion in bailout funds disbursed to Greece, the amount that actually reached the Greek population was… 11%. The rest went back to repaying Greek creditors in some form.
This is another way of explaining why while the PIIGS countries raged against “evil austerity”, their debt load as a percentage of GDP was consistently rising year after year, and has hid new all time highs as of the most recent reading.
So what was really going in Europe over the past 5 years, if the debt load kept creeping higher, and yet little money was actually making its way to the broader population?
The answer is simple: abuse of taxpayer funding, also known as fraud and corruption. And while it may come as a surprise, more European tax money has been lost to fraud in Italy than in any other European country, Greece included (perhaps because most of the free cash was already earmarked for creditor repayment).
As Italy’s TheLocal reports, the EU anti-fraud office, Italy currently has 61 open investigations into fraud involving EU funds. This means Italy has the second highest number of investigations in the EU, ranking just below Greece’s neighbor to the north, Bulgaria.
As the Local reports, fraud with EU money is commonplace in Italy, but is far from an Italian-only phenomenon. Here is a list of some of the most dastardly, or as the Italian outlet pegs it “insane” cons pulled by Italians with EU money.

This post was published at Zero Hedge on 06/30/2015.

Capitalism Has Devolved Into Looting

…when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. – Ayn Rand, ‘Atlas Shrugged’
There’s no such thing as markets anymore – only interventions. – Chris Powell, co-founder and Treasurer of GATA Ayn Rand is a pariah among those who believe that government is our benefactor. There are times and conditions when government can be a benefactor of the people. But not in the Western world at the present time. As Michael Hudson and I agree, Western central banks refuse to create money to finance economy recovery. Money is created only for the benefit of the oligarchs’ banks in order that the oligarchs can continue to control the governments.
In the US for the past seven years the Federal Reserve has provided cheap bank reserves for the banks to lend at a markup or to speculate with. Banks are no longer suppliers of capital for productive investments and employment. Instead banks invest in speculation, arbitrage, derivatives, financing corporate takeovers and stock buybacks. The Fed has made it unnecessary for banks to pay for deposits. Instead, the banks get free money and charge consumers with negative interest rates for making deposits. For seven years Americans have, thanks to the utterly corrupt Federal Reserve and US government, been deprived of interest on their savings. In the Western world today, savers are penalized, not rewarded.
In Greece and Europe the banks are the oligarchs’ method of control just as the Federal Reserve is in the US and the Bank of England in the UK and the European Central Bank in the EU. The same in Canada, Australia, and Japan. When an oligarchy controls the money, the oligarchy controls the country, so ‘Western democracy’ is only a pretense. There is no democracy in the West; only manipulated democratic symbols, the manipulation of which has allowed the One Percent to acquire the lion’s share of income and wealth, depriving the economy of the consumer purchasing power necessary to maintain full employment.

This post was published at Paul Craig Roberts on June 29, 2015.

How Greek Banks Can Write-Off Their Losses, Protect Small Depositors, Restructure And Reopen Without Any Help From The Troika

Following a Greek government default, and possibly before then, Greek banks would likely be both insolvent and unable to make payments to creditors. What should a government do?
A bank becomes ‘insolvent’ when the value of its assets is less than its total liabilities. In time, the bank also becomes ‘illiquid’ – unable to borrow money, and thus make payments – because people don’t like to lend to insolvent entities. Greek banks have been getting by because they have been able to borrow from the European Central Bank, but this may come to an end soon, perhaps in a matter of days.
There are two basic ways to deal with this: one is to increase assets, possibly through a government investment. This is called a ‘recapitalization,’ and when the government is involved, a ‘bail-out.’ Obviously, this takes money – 48 trillion in the case of Greece’s prior government ‘bail-out’ – and often the terms of the investment are so poor that it amounts to a gift to the bankers and their creditors. The other way is to decrease liabilities, which obviously means some pain for the bank’s creditors, including depositors. But, once this accounting adjustment is done – it amounts to a revision of ledgers, and could conceivably be accomplished in a day or two – then the bank can reopen for business, in good financial health. This process is sometimes known as a ‘bank holiday,’ a euphemistic term which shows that, when the financial system is temporarily shut down, there isn’t much to do except spend the day at the park.

This post was published at David Stockmans Contra Corner on June 29, 2015.

“Retired” Dallas Fed Chief Joins Barclays As “Senior Advisor”

Spin revolving door, spin.
Recently ‘retired’ Dallas Fed chief Richard Fisher – who really, really believed that talk of falling oil prices negatively affecting the Texas economy amounted to ‘bull droppings’ until a JP Morgan analyst reminded him that the ‘only thing dropping in the Texas economy [was] jobs’ – is following proudly in the footsteps of Ben Bernanke, Jeremy Stein, and Janet Yellen (if you count unofficial, off-the-record ‘consultations’) by becoming the latest Fed policymaker to ink a lucrative deal ‘advising’ the private sector.
As WSJ reports, Fisher will become a ‘senior advisor’ to Barclays starting on July 1:

This post was published at Zero Hedge on 06/29/2015.

Bank For International Settlements (BIS) Slams Keynesian Money Printers…….Again!

Our lens suggests that the very low interest rates that have prevailed for so long may not be ‘equilibrium’ ones, which would be conducive to sustainable and balanced global expansion. Rather than just reflecting the current weakness, low rates may in part have contributed to it by fuelling costly financial booms and busts. The result is too much debt, too little growth and excessively low interest rates. In short, low rates beget lower rates.
From the BIS annual report released 6-28-2015
Low rates beget lower rates. Who woulda thunk it? Central bank policy may not be the answer but may well be part of the problem. Based on what I’ve read so far, the folks who write the BIS annual report believe that lousy monetary policy is the main problem, if far from the only one, facing the global economy. Of course, that isn’t exactly a revelation since they basically said the same thing last year. And the year before. And way back at the turn of the century and for almost every year since.
The folks down at the BIS are not known for their sunny outlook and until something changes with the way global economic policy is made that seems unlikely to change. One should consider though that BIS analysis, while not the greatest market timing tool, has the advantage of having been largely right since it first started warning about these global financial imbalances way back in the late 90s, long before it became fashionable. They were talking about secular stagnation – they didn’t have the good sense to come up with a snappy name for it – way before Robert Gordon and Larry Summers. And unlike those two pessimists they offered a reasonable explanation for it and a prescription for fixing it. Not one that anyone liked or that was necessarily political feasible but a prescription nonetheless, one that was promptly ignored and forgotten by their clients.

This post was published at David Stockmans Contra Corner by Joseph Y. Calhoun ‘ June 28, 2015.

Good On You, Alexis Tsipras (Part 1)

Late Friday night a solid blow was struck for sound money, free markets and limited government by a most unlikely force. Namely, the hard core statist and crypto-Marxist prime minister of Greece, Alexis Tsipras. He has now set in motion a cascade of disruption that will shake the corrupt status quo to its very foundations.
And just in the nick of time, too. After 15 years of rampant money printing, falsification of financial market prices and usurpation of democratic rule, his antagonists – – the ECB, the EU superstate and the IMF – -have become a terminal threat to the very survival of the kind of liberal society of which these values are part and parcel.
In fact, the Keynesian central banking and the Brussels and IMF style bailout regime – which has become nearly universal – -eventually fosters a form of soft-core economic totalitarianism. That’s because the former first destroys honest financial markets by falsifying the price of debt. So doing, Keynesian central bankers enable governments to issue far more debt than their taxpayers and national economies can shoulder; and, at the same time, force investors and savers to desperately chase yield in a marketplace where the so-called risk free interest rate has been pegged at ridiculously low levels.
That means, in turn, that banks, bond funds and fast money traders alike take on increasing levels of unacknowledged and uncompensated risk, and that the natural checks and balances of honest financial markets are stymied and disabled. Short sellers are soon destroyed because the purpose of Keynesian central banking is to drive the price of securities to artificially high and unnatural levels. At the same time, hedge fund gamblers are able to engage in highly leveraged carry trades based on state subsidized (free) overnight money, and to purchase downside market risk insurance (‘puts’) for a pittance.

This post was published at David Stockmans Contra Corner on June 29, 2015.

If You Were Dictator – Part II

In an earlier post entitled If You Were Dictator it was suggested that we engage in a simple game to see if we could improve the state of our nation today and for the future. This article will describe the reasons for such speculation and what I consider the key areas to focus on. Future articles will deal with specific proposals.
Why This Exercise is Important
As outstanding as our Constitution is/was, it contained flaws. Some of these flaws can be explained in terms of what was necessary at the time to get it accepted. Many of these – slavery, women’s suffrage, etc. – were eventually remedied when it became politically possible to do so. Flaws can still be argued to exist, albeit they tend to be minor save one.
The primary fault, in my opinion, results from the naivety of the Founders. They understood power and its negative effects. They put in place a system that was supposed to prevent the aggrandizement of power. Unfortunately their naivety was that future leaders would be as noble and honorable as they were. Patriotism and concern for country were assumed to be factors in preserving the intent of the Constitution.
The Founders badly underestimated the dishonor, lying and exploitation that characterizes modern politics. The Constitution’s principles depended on trust and integrity in its leaders. That was its primary defense. Without honorable leaders it becomes little more than a historic artifact. It was meant to withstand the corruption, selfishness and criminal activity that exists today.

This post was published at Economic Noise on June 28, 2015.

China’s $370 Billion Margin Call

China’s stock markets tumbled on Friday to near bear territory further deepening the sell-off that started two weeks ago. The Shanghai Composite, down 7.4% on the day, has fallen 19% from its June 12 high wiping out $1.25 trillion in market cap. The smaller Shenzhen and ChiNet indices also has plunged 20% from its recent peak.
Margin Lending Blessed by Beijing
Even with recent declines, the Shanghai Composite Index has surged nearly 30% year-to-date. Authorities have allowed local investors to borrow tons of money from brokers to speculate inTHE STOCK MARKET (i.e., Margin Lending), while the central bank PBOC has cut interest rates three times since November. Beijing also introduced new easing measures in the past couple of days: a proposal to remove a cap on banks’ loan-to-deposit ratio and injecting cash into the financial system. Margin Debt Soared to $370 Billion
Investors have poured into the market, opening 33 million new brokerage accounts between the start of January and the end of May. According to Macquarie Research, Chinese margin debt has risen 123% year-to-date, reaching a new record of 2.3 trillion yuan ($370 billion) on June 18.

This post was published at David Stockmans Contra Corner by EconMatters ‘ June 27, 2015.

Its 1929 In China – -Here’s The Chapter And Verse

I’ve mentioned the ChineseSTOCK MARKET mania here briefly in recent weeks. I’ve now compiled a fair amount of data along with some interesting anecdotes that show just how crazy it’s gotten so I thought I’d spend this week’s market comment laying it all out for you.
The first thing I like to focus on is valuations. If the dot-com bubble is the gold standard, then China is a bona fide financial bubble. According to Bloomberg:
Valuations in China are now higher than those in the U. S. at the height of the dot-com bubble just about any way you slice them. The average Chinese technology stock has a price-to-earnings ratio 41 percent above that of U. S. peers in 2000, while the median valuation is twice as expensive and the market capitalization-weighted average is 12 percent higher, according to data compiled by Bloomberg.
Another way to look at it is to compare current valuations around the world:

This post was published at David Stockmans Contra Corner by Jesse Felder ‘ June 27, 2015.

The NATO Buildup On Russia’s Border – – Groundless Pretext For Cold War Revival

/ June 28, 2015
Have you picked up on the new trope du jour? We are all encouraged to bask in our innocence as we lament the advent of a new Cold War. The thought has been in the wind for more than a year, of course, at least among some of us. But we witness a significant turn, and I hope this same some of us are paying attention.
As of this week, leaders who know nothing about leading, thinkers who do not think and opinion-shaping poseurs such as Tom Friedman are confident enough in their case to sally forth with it: The Cold War returns, the Russians have restarted it and we must do the right thing – the right thing being to bring NATO troops and materiel up to Russia’s borders, pandering to the paranoia of the former Soviet satellites as if they alone have access to some truth not available to the rest of us.
James Stavridis, the former admiral and NATO commander, quoted in Wednesday’s New York Times: ‘I don’t think we’re in the Cold War again – yet. I can kind of see it from here.’
I can kind of see it, too, Admiral, and cannot be surprised: NATO has missed the Cold War since the Wall came down and the Pentagon’s creature in Europe commenced a quarter-century of wandering in search of useful enemies. At last, the very best of them is back.
The inimitable (thank goodness) Tom Friedman on the same day’s opinion page:

This post was published at David Stockmans Contra Corner By Patrick L. Smith Salon.com.

Obamacare Economics – -Worse Than The Supremes

The economics of Obamacare are very bad. The law is inflicting broad damage on job creation and new-business formation. It ruins job incentives by making it pay more not to work, thereby intensifying a labor shortage that is holding back growth and in turn lowering incomes and spending.
President Barack Obama announces a change in U. S. policy in the RooseveltROOM at the White House in Washington June 24, 2015.
And across-the-board Obamacare tax increases are inflicting heavy punishment on investment – right when the U. S. economy desperately needs more capital as a way of solving a steep productivity decline.
Because of Obamacare, there’s an additional 0.9 percent Medicare tax on salaries and self-employment income, a 3.8 percent tax increase on capital gains and dividends, a cap on health-care flexible spending accounts, a higher threshold for itemized medical-expense deductions, and a stiff penalty on employer reimbursements for individual employee health-policy premiums.
Each of these tax hikes is anti-growth and anti-job.

This post was published at David Stockmans Contra Corner on June 28, 2015.

Huge Disconnect Between NATO Bellicosity And Declining Defense Spending Throughout Europe

NATO Secretary General Jens Stoltenberg, a former prime minister of Norway, took the podium during last week’s meeting of NATO defense ministers to hype the Russian threat to NATO while downplaying recent NATO military moves on Russia’s border.
While criticizing ‘a more assertive Russia investing heavily in defence,’ Stoltenberg countered that, ‘We do not seek confrontation [with Russia], and we do not want a new arms race.’
He then announced that the new enhanced NATO Response Force will triple in size to include 40,000 personnel instead of the originally announced 13,000 and that NATO would be setting up six new east European mini-headquarters in Bulgaria, Estonia, Latvia, Lithuania, Poland, and Romania.
A joint statement of the NATO defense ministers underscored Stoltenberg’s Russia points:

This post was published at David Stockmans Contra Corner by Daniel McAdams ‘ June 27, 2015.

NMA Reboot: Business as Usual for the Red-Light Camera Industry

Editor’s Note: Former Redflex CEO, Karen Finley, just pleaded guilty in a federal bribery probe in Ohio. Finley admitted her involvement in a scheme to make campaign donations to officials in Columbus and Cincinnati in exchange for retaining Redflex’s red-light camera contracts. Finley also faces charges related to a $2 million bribery scheme involving the City of Chicago. We’re not surprised. The red-light camera industry has a long history of cozying up to government officials and police in exchange for preferential treatment, as this NMA blog from 2011 clearly documents.
The Corruption of Government Officials (and Police) by the Ticket Camera Industry
Money sometimes brings out the worst in people – even police officers and government officials – and it’s clearly happening in the case of red-light cameras.
One example is Lynnwood, Washington Deputy Police Chief Karen Manser asking American Traffic Solutions (ATS) for a job, even as she opened negotiations for the renewal of Lynnwood’s red-light camera contract with ATS.
Here is an excerpt from Manser’s letter to ATS:
Our city contract with ATS is set to expire in November. Let me know when you might be available to chat about it on the phone. I would like to get ahead of the game on getting it ready for renewal.
PS I saw the article in the AZ Republic a week or so ago that said the company is doing very well. I am looking for a job in AZ so I can move soon. If you have any idea if I might quality for something with ATS let’s talk.
Another officer actually offered to market on behalf of ATS in other states!

This post was published at Lew Rockwell on June 27, 2015.

Its Now SCOTUScare – – Justice Roberts Elects Himself To Congress

For the second time in three years, Chief Justice John Roberts has rewritten the Affordable Care Act in order to save it. Beyond its implications for health care, the Court’s 6-3 ruling in King v. Burwell is a landmark that betrays the Chief’s vow to be ‘an umpire,’ not a legislator in robes. He stands revealed as a most political Justice.
The black-letter language of ObamaCare limits insurance subsidies to ‘an Exchange established by the State.’ But the Democrats who wrote the bill in 2010 never imagined that 36 states would refuse to participate. So the White House through the IRS wrote a regulation that also opened the subsidy spigots to exchanges established by the federal government.
*** Chief Justice Roberts has now become a co-conspirator in this executive law-making. With the verve of a legislator, he has effectively amended the statute to read ‘established by the State – or by the way the Federal Government.’ His opinion – joined by the four liberal Justices and Anthony Kennedy – is all the more startling because it goes beyond normal deference to regulators.
Chief Justice Roberts concedes that the challengers’ arguments ‘about the plain meaning’ of the law ‘are strong.’ But then he writes that Congress in its 2010 haste bypassed ‘the traditional legislative process’ and thus ‘the Act does not reflect the type of care and deliberation that one might expect of such significant legislation.’ So because ObamaCare is a bad law, the Court must interpret it differently from other laws.

This post was published at David Stockmans Contra Corner by Wall Street Journal ‘ June 26, 2015.

Message To Merkel: Shut-Up Und Setzen Sie Sich!

Angela Merkel may be a hero to some conservatives because she has stood up for fiscal rectitude and resisted the G-7′s relentless importuning to betray Germany’s taxpayers and join the ‘stimulus’ brigade. But that’s as far as it goes.
The truth of the matter is that she is actually a power-hungry statist menace who is an abysmal ignoramus when it comes to the fundamentals of money and finance. That is on display once again as she drives the rickety machinery of the misbegotten eurozone superstate toward ‘a solution before the markets open on Monday’.
Those eight words are the heart of the statist catastrophe which is now engulfing the world economy.
They harken back through countless weekends of crisis and jerry-rigged bailouts in an unbroken line to Hank Paulson’s bazooka. That’s when the hideous $5 trillion disaster known as Freddie Mac and Fannie Mae – -erected by politicians over decades – – first broke out in July 2008 and prompted those very same clueless politicians to launch an era of financial governance by Gong Show.
So let’s make it loud and clear. Angela Merkel, you are the head of a government that’s supposed to provide autobahns, public schools, state forests and even social insurance, if you must, within the borders of Germany. But it is none of your damn business what happens when ‘the markets open on Monday’.

This post was published at David Stockmans Contra Corner by David Stockman ‘ June 26, 2015.

Obamacare Is Saved Again – Next up – Crony Corporatism

The ruling is in and the debates have begun. It’s a great day for the left. It’s a great day for both parties. Democrats got what they wanted and Republicans now do not have to legislate. It’s a win-win.
But at least some on the right aren’t happy. Judge Andrew Napolitano’s reaction on Fox News was stunned amazement. ‘What [Roberts] did was to suggest that plain, ordinary English words, which are not ambiguous in their meaning, somehow to six of the justices in the majority are ambiguous and therefore they can interpret them however they want,’ said Napolitano.
‘If they had followed the law, this would’ve been a very simple case. The language in the statute was very clear – and if they had interpreted the language the way it was written, the government would have lost,’ said Heritage Foundation’s Hans von Spakovsky.
Twila Brase of the Citizens Council for Health Freedom said, ‘Without the rule of law, it becomes the rule of power – all up to interpretation. Claims of intent and outside interpretations of intent will now rule, not the actual words written in the law. When we start allowing the loose interpretation of law based on after-the-fact claims of intent, the foundation of the rule of law crumbles.’

This post was published at The Daily Sheeple on June 26th, 2015.