RBI’s Rajan Warned Modi About “Short-Term Costs” Of Demonitization

In what’s likely to be remembered as one of the most spectacular policy failures in recent Indian history, Prime Minister Narendra Modi’s decision to abruptly cancel high-denomination banknotes – a move meant to punish corrupt officials and criminals – instead destroyed the savings of middle- and low-income Indians and caused widespread chaos in the country’s financial system.
And now, less than a year since the ‘war on cash’ was announced, prominent former government officials are speaking out and placing the blame for the policy squarely on Modi’s shoulders, including former Reserve Bank of India governor Raghuram Rajan, who told the Times of India that he had cautioned the government that the short-term costs of demonetization would outweigh the long-term benefits, and suggested “alternatives” to achieve the goal of stamping out black money.
When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals – popularly believed to hoard large sums of illicit cash – would be stuck with ‘worthless pieces of paper’. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a windfall for India’s government. Meanwhile, ordinary Indians would opt to keep more of their money in electronic deposits at their bank, helping to shore up the country’s financial system.

This post was published at Zero Hedge on Sep 4, 2017.

Modi’s Demonetization Called “Colossal Failure That Ruined Economy” As India GDP Growth Slumps To 2-Year Lows

India’s embattled Prime Minister Narendra Modi faced a double whammy of abuse this week as his nation’s economic growth collapsed to its weakest since Q1 2014 and India’s Central Bank released a report on Modi’s extraordinary “demonitization” plan last year showing that 99 per cent of the high denomination banknotes cancelled last year were deposited or exchanged for new currency, crushing Modi’s lie that his contentious ‘war on cash’ would wipe out huge amounts of so-called ‘black money’.
When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals – popularly believed to hoard large amounts of illicit cash – would be stuck with ‘worthless pieces of paper’. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a government windfall.

This post was published at Zero Hedge on Sep 2, 2017.

Collapsing Pensions Are ‘About to Bring Hell to America’

Along with the student loan debt bubble and other major financial factors, the looming pensions crisis is bound to be the death of us all.
Because it’s based on a future promise to pay, it has long been a benefit dangled to solve strikes and union disputes – because, in the end, it is just more debt, whether private or public.
With tens of trillions in unfunded liabilities, the weight of an avalanche remains dangling over our heads. An aging population is cashing in on needed retirement benefits while the younger generations must support multiples that are unsustainable financially.
Somewhere between the retiree that needs clothing, food and lodging, and the bankruptcy of cities and state governments is the makings of the next economic crisis.
via AgainstCronyCapitalism.org:

This post was published at shtfplan on March 15th, 2017.

Great Moments In Local Government Tyranny

I focus most of my ire on the federal government because bad policy from Washington is the biggest threat to our nation’s freedom and prosperity.
But we also get plenty of bad policy from other levels of government. I periodically focus on the foibles of states such as California, Illinois, and New York.
Today, though, let’s contemplate the inane policies of local government.
I’ve shared plenty of examples in the post, even to the point of putting together two contests (here and here) to pick the craziest action by a local government.
Politicians and bureaucrats in cities and towns do lots of big things that are bad, such as creating massive unfunded liabilities, providing crappy schools, turning law enforcement into back-door tax collectors, and trying to turn children into wusses.
And they do lots of small things that are bad, such as shutting down children’s lemonade stands, arresting people for saving rafters from drowning, fining people for rescuing children from savage dog attacks, leaving a dead body in a pool for two days, requiring permits to be a bum, poisoning water supplies, and paying bureaucrats not to work for 12 years.
Let’s augment these lists.
As reported by the Chicago Sun-Times, here’s an example of Chicago cronyism.

This post was published at Zero Hedge on Mar 5, 2017.

Italy Banking Crisis is Also a Huge Crime Scene

Toxic loans as a result of corruption, political kickbacks, fraud, and abuse.
The Bank of Italy’s Target 2 liabilities towards other Eurozone central banks – one of the most important indicators of banking stress – has risen by 129 billion in the last 12 months through November to 358.6 billion. That’s well above the 289 billion peak reached in August 2012 at the height of Europe’s sovereign debt crisis.
Foreign and local investors are dumping Italian government bonds and withdrawing their funding to Italian banks. The bank at the heart of Italy’s financial crisis, Monte dei Paschi di Siena (MPS), has bled 6 billion of ‘commercial direct deposits’ between September 30 and December 13, 2 billion of which since December 4, the date of Italy’s constitutional referendum.
Italy’s new Prime Minister Paolo Gentiloni, who took over from Matteo Renzi after his defeat in the referendum, said his government – a virtual carbon copy of the last one – is prepared to do whatever it takes to stop MPS from collapsing and thereby engulfing other European banks. His options would include directly supporting Italy’s ailing banks, in contravention of the EU’s bail-in rules passed into law at the beginning of this year. Though now, that push comes to shove, the EU seems happy to look the other way.
While attention is focused on the rescue of MPS, news regarding another Italian bank, Banca Erturia, has quietly slipped by the wayside.

This post was published at Wolf Street on Dec 18, 2016.

Doug Casey: Why the Euro Is a Doomed Currency

For a long time, I’ve advocated that the world’s governments should default on their debt. I recognize that this is an outrageous-sounding proposal.
However, the debts accumulated by the governments of the U.S., Japan, Europe and dozens of other countries constitute a gigantic mortgage on the next two or three generations, as yet unborn. Savings are proof that a person, or a country, has been living below their means. Debt, on the other hand, is evidence that the world has been living above its means. And the amount of government debt and liabilities in the world is in the hundreds of trillions and growing rapidly, even with essentially zero percent interest rates. This brings up several questions: Will future generations be able to repay it? Will they be willing to? And, if so, should they? My answers are: No, no and no.
The ‘should they’ is one moral question that should be confronted. But I’ll go further. There’s another reason government debt should be defaulted on: to punish the people stupid enough, or unethical enough, to lend governments the money they’ve used to do all the destructive things they do.
I know it’s most unlikely you’ve ever previously heard this view. And I recognize there would be many unpleasant domino-like effects on today’s over-leveraged and unstable financial system. It’s just that, when a structure is about to collapse, it’s better to have a controlled demolition, rather than waiting for it to collapse unpredictably. That said, governments will perversely keep propping up the house of cards, and building it higher, pushing the nasty consequences further into the future, with compound interest.
With that in mind, a few words on the euro, the E.U. and the European Central Bank are in order.

This post was published at International Man

Thanks, Janet – – -Rock-Bottom Yields Dig Hole for Pensions

It’s going to be hard to reverse the damaging effects of ultralow bond yields on the global economy.
A glaring example of the longer-lasting ramifications can be found by looking at big American corporate pensions, which were formed to provide retirees with a reliable income. These plans are now facing their worst deficit in 15 years, with enough money to cover just 76 percent of their estimated $2.1 trillion of liabilities, Wells Fargo analyst Boris Rjavinski wrote in a Sept. 9 note.

This post was published at David Stockmans Contra Corner by Bloomberg Business ‘ September 14, 2016.

A Homerun For The Donald – -Attack The Fed’s War On Savers, Workers And The Unborn (Taxpayers)

The central banks have gone so far off the deep-end with financial price manipulation that it is only a matter of time before some astute politician comes after them with all barrels blasting. As a matter of fact, that appears to be exactly what Donald Trump unloaded on bubble vision this morning:
By keeping interest rates low, the Fed has created a ‘false stock market,’ Donald Trump argued in a wide-ranging CNBC interview, exclaiming that Fed Chair Janet Yellen and central bank policymakers are very political, and should be ‘ashamed’of what they’re doing to the country…
He’s completely correct. After all, they are crushing real wages with their 2% inflation targeting; destroying savers with NIRP and sub-zero rates; and burying unborn taxpayers in monumental debts that today’s politicians are pleased to issue with reckless abandon because the short-run carry cost is nil.
Interest on the Uncle Sam’s $19.4 trillion of debt, for example, is easily $500 billion lower than its true economic cost based on a normal yield after inflation and taxes and elimination of the phony $100 billion per year in so-called Fed ‘profits’ that are booked by the treasury as negative interest expense.
Alas, when interest rates eventually normalize, the Treasury’s debt service costs will soar by hundreds of billions. At the same time, the entirety of the Fed’s ‘profits’, which are conjured from thin air because it buys interest-yielding government and GSE debt with printing press liabilities which cost virtually nothing, will disappear. That’s because it will be forced to take reserve charges for giant principal losses on the falling prices of its $4.5 billion portfolio of government and GSE bonds.

This post was published at David Stockmans Contra Corner on September 12, 2016.

Bill Gross says negative interest rates are nothing but liabilities

Call bond-market veteran Bill Gross a ‘broken watch.’ He doesn’t care.
His gripe about negative interest rates and a flood of debt, which he considers a risk, not a fix, for a global economy that’s still limping out of the financial crisis, is challenged daily by resilient demand for the bonds he’s bearish on. But even if being ‘right’ eventually is a hard sell right now, he’s not backing down, Gross said in his latest monthly commentary.
‘The problem with Cassandras, such as Gross and Jim Grant and Stanley Druckenmiller, among a host of others, is that we/they can be compared to a broken watch that is right twice a day but wrong for the other 1,438 minutes,’ Gross wrote. ‘But believe me: This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies.’
Germany, Switzerland, France, Spain and Japan are among countries that have negative yields on government-issued debt. Their hope is that cheap, even free, borrowing raises inflation and revives asset prices that can filter through economies; they argue extreme policies have been needed. Gross and others have argued that rates, including those at the Federal Reserve, at near zero or below won’t create sustainable economic growth and actually undermine capitalism.

This post was published at David Stockmans Contra Corner By RACHEL KONING BEALS, Marketwatch ‘ September 1, 2016.

Apple Tax-Travesty Is a reminder why Britain must leave the lawless EU

Europe’s Competition Directorate commands the shock troops of the EU power structure. Ensconced in its fortress at Place Madou, it can dispatch swat teams on corporate dawn raids across Europe without a search warrant.
It operates outside the normal judicial control that we take for granted in a developed democracy. The US Justice Department could never dream of acting in such a fashion.
Known as ‘DG Comp’, it acts as judge, jury, and executioner, and can in effect impose fines large enough to constitute criminal sanctions, but without the due process protection of criminal law. It misused evidence so badly in pursuit of the US chipmaker Intel that the company alleged a violation of human rights.
Apple is just the latest of the great US digital companies to face this Star Chamber. It has vowed to appeal the monster 13bn fine handed down from Brussels this week for violation of EU state aid rules, but the only recourse is the European Court of Justice. This is usually a forlorn ritual. The ECJ is a political body, the enforcer of the EU’s teleological doctrines. It ratifies executive power.
We can mostly agree that Apple, Google, Starbucks, and others have gamed the international system, finding legal loopholes to whittle down their tax liabilities and enrich shareholders at the expense of society. It is such moral conduct that has driven wealth inequality to alarming levels, and provoked a potent backlash against globalisation.

This post was published at David Stockmans Contra Corner By AMBROSE EVANS-PRITCHARD, The Telegraph ‘ September 1, 2016.

Red Ponzi Ticking – -China And The Dark Side Of The Global Bubble, Part 1

….. Donald Trump is absolutely correct that China is a great economic menace. But that’s not owing to incompetence at the State and Commerce Departments or USTR in cutting bad trade deals.
Nor is it even primarily due to the fact that China egregiously manipulates it currency, massively subsidizes its exports, wantonly steals technology, chronically infringes patents and hacks propriety business information like there is no tomorrow.
If that were the extent of China’s sins, a new sheriff in the White House wielding a big stick and possessing a steely backbone – -attributes loudly claimed by The Donald – -might be able to reset the game. After hard-nosed negotiations, he might even obtain a more level and transparent playing field, thereby eventually reducing our current debilitating $500 billion import trade with China and retrieving at least some of the millions of jobs which have been off-shored to the far side of the planet.
But as we demonstrated in Chapter 5, the world fundamentally changed in the early 1990s when Mr. Deng and Chairman Greenspan jointly initiated the present era of Bubble Finance. The latter elected to inflate rather than deflate the domestic US economy and to thereby export dollar liabilities in their trillions to the rest of the world.

This post was published at David Stockmans Contra Corner on August 25, 2016.

Negative rates leading to ‘day of reckoning’ fear on Wall Street

The reason anyone would buy negative-yielding debt is actually pretty simple: Because they have to.
They are central bankers looking to help promote economic growth. They are insurance companies, pension funds and money managers who have to match liabilities with assets. They are not, by and large, retail investors who are so afraid of risk that they’re willing to pay for the privilege of lending money to a government. Together, those buyers have helped build a nearly $12 trillion funnel of negative-yielding sovereign debt – unprecedented in world history.
Ostensibly, the global race to the bottom was supposed to stimulate growth, and it may just well keep pushing risk assets higher. But what awaits on the other side is adding to the worries of investing professionals.
‘Ultimately, there will be a day of reckoning,’ said Erik Weisman, chief economist at MFS Investment Management. ‘When that will be remains very much to be seen.’
Weisman spoke as the level of negative-yielding global debt was at $11.7 trillion, according to an estimate in late June by Fitch Ratings Service that no doubt would be higher now. Equity markets were in rally mode Monday, with major U. S. stock market averages touching record highs.

This post was published at David Stockmans Contra Corner By Jeff Cox, CNBC ‘ July 12, 2016.

Crazy Money Magic Talk About Japan’s Debt – -The BOJ Should Monetize It And Then Cancel It!

Japan for years has been renowned for having the world’s largest government debt load. No longer.
That’s if you consider how the effective public borrowing burden is plunging – by one estimate as much as the equivalent of 15 percentage points of gross domestic product a year, putting it on track toward a more manageable level.
Accounting for the Bank of Japan’s unprecedented government bond buying from private investors, which some economists call ‘monetization’ of the debt, alters the picture. Though the bond liabilities remain on the government’s balance sheet, because they aren’t held by the private sector any more they’re effectively irrelevant, according to a number of analysts looking at the shift.
‘Japan is the country where public debt in private hands is falling the fastest anywhere,’ said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo.

This post was published at David Stockmans Contra Corner By Enda Curran & James Mayger – June 3, 2016.

Obama’s Latest Whopper – -Let’s Raise Social Security Benefits!

The U. S. has approximately $80 trillion of unfunded liabilities for social security, medicare and other entitlements sitting atop a work force that is rapidly aging and an economy that is lapsing into stasis. Yet in the midst of a campaign diatribe about Donald Trump’s alleged lack of preparation for the highest office in the land, the current White House occupant proved that in nearly eight years he has learned exactly nothing about the nation’s abysmal fiscal plight.
‘And not only do we need to strengthen its long-term health, it’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned,’ Obama said in an economic call to arms in Elkhart, Indiana.
Don’t bother to say he must be kidding. After all, our President also claims the disaster known as Obamacare is a roaring success; and that he has created 14 million jobs – -when, in fact, there are fewer full-time, full-pay ‘breadwinner jobs’ in America today than when Bill Clinton scuttled out of the White House 16 years ago.
Still, your don’t have to be even a know nothing about baby-boom demographics to recognize that the words ‘increase’ and ‘social security benefits’ will never again inhabit the same universe. To wit, there are about 50 million persons 65 or over at present, but this number will rise to 80 million by around 2040 and nearly 100 million a decade or two thereafter.

This post was published at David Stockmans Contra Corner on June 2, 2016.

One-Third Of China’s Real Estate Companies Are Debt Zombies

As China’s economy continues to sputter, many local companies are having difficulty servicing their debts. A look at 3,000 listed Chinese businesses by French investment bank Natixis found that interest costs exceeded cash flow for 18.5% of them last year, compared with 8% in 2010.
Real estate, the most debt-ridden sector, saw its leverage level reach 197% last year, nearly double the figure for 2008, according to Natixis. The investment bank estimates that almost one-third of listed companies in the sector are ‘zombies’ – businesses that are on the brink of default but still taking on more debt.
‘The share of zombies in the real estate sector literally doubles the average in [corporate] China,’ said Iris Pang, senior economist for greater China at Natixis. Evergrande Real Estate, for example, saw its ratio of total liabilities to earnings before interest, taxes, depreciation and amortization – or EBITDA – leap to 15.4% at the end of 2015 from 8.5% a year earlier.

This post was published at David Stockmans Contra Corner on May 21, 2016.

The March TIC Update – -Confirms ‘Rising Dollar’ Trend, Albeit At Slower Pace

The Treasury Department’s updated official custody figures show us nothing unexpected. As usual, the TIC numbers are useful more so in corroboration of what contemporary analysis had already described. In the case of March 2016, we find just the sort of apparent reduction in ‘dollar’ pressure that matches observation of general global conditions after February. Total net ‘flow’ was $64.7 billion, up from $28.9 billion in February and -$33.4 billion in January. That is consistent with an end to general global liquidation via the eurodollar system at and around February 11.
Improvement is, of course, a relative description which in this context only suggests absence of further liquidity pressure rather than an actual rebound. On the official side, despite a seemingly much more placid funding environment, ‘selling UST’s’ continued in March if at a reduced pace. The net change in official holdings of treasury securities was -$18.3 billion, better than the -$40.2 billion in February and -$56.3 billion in January but not fundamentally different. The official sector has been net negative in UST’s for ten consecutive months and 15 out of the past 16 under the ‘rising dollar.’
Collectively it suggests that though the liquidations ended, the ‘rising dollar’, really the manifestation of the heightened decay in the global eurodollar system, did not. We can further observe that process throughout the rest of the TIC data. Starting with reported bank dollar liabilities, for Q1 as a whole the decline was only $26.8 billion as compared to -$66.1 billion in Q4. As usual, the relevant figure for global funding disorder is the quarter before, meaning the lower pace of reduction in Q1 suggests the general calmness of Q2 so far (whereas the much heavier retreat in Q4 2015 prefigured what we observed in January and early February).

This post was published at David Stockmans Contra Corner on May 21, 2016.

China’s Communist Party Goes Way of Qing Dynasty as Debt Hits Limit – -Impending Adjustment Will Set Off International Earthquake

Nobody rings a bell at the top of the credit supercycle, to misuse an old adage. Except that this time somebody very powerful in China has done exactly that.
China watchers are still struggling to identify the author of an electrifying article in the People’s Daily that declares war on debt and the ‘fantasy’ of perpetual stimulus.
Written in a imperial tone, it commands China to break its addiction to credit and take its punishment before matters spiral out of control. If that means bankruptcies must run their course, so be it.
Fifteen years ago such a mystery article would have been an arcane matter, of interest only to Sinologists. Today it is neuralgic for the entire global – and over-globalized – financial system.
China’s debt is approaching $30 trillion. The fresh credit alone created since 2007 is greater than the outstanding liabilities of the US, Japanese, German, and Indian commercial banking systems combined.
Moody’s warned this month that China’s state-owned entities (SOEs) have alone racked up debts of 115pc of GDP, and a fifth may require restructuring. The defaults are already spreading up the ladder from local SOE’s to the bigger state behemoths, once thought – wrongly – to have a sovereign guarantee.

This post was published at David Stockmans Contra Corner on May 19, 2016.

Another Financial Time Bomb: Corporate And Public Sector Pensions Are Based On Absurdly Optimistic Assumptions

The United States is not a ‘bubble economy’. That’s the official view of the Federal Reserve expressed by Chair Janet Yellen earlier this month. Yellen describes a bubble as a combination of ‘clearly overvalued’ asset prices, strong credit growth and rising leverage. In other words, the type of financial fragility the central bank, with its vast research staff, failed to spot prior to the subprime crisis.
The Fed’s definition of a bubble is too narrow. Bubbles are, in essence, illusions of wealth. The last two great bubbles – internet stocks and U. S. real estate – involved inflated asset prices. The great current bubble is centered around liabilities, or promises to make future cash payments. The owners of these claims consider them part of their current wealth. But what if they cannot be paid?
These thoughts are provoked by a gloomy note on pensions by Andy Lees of the independent research outfit MacroStrategy Partnership. Lees is worried that the assumptions involved in calculating pensions are as flawed as the valuations prevalent during the dot-com bubble.
The present value of a pension is arrived at by discounting future cash payments. As interest rates have fallen, this discount rate has declined, increasing pension liabilities. As a result, many pensions find their liabilities exceed assets. In pensions-speak, they are ‘underfunded’.
For instance, the current deficits of U. S. corporate ‘defined benefit’ pension plans are estimated at around $425 billion, by Citigroup. UK and European corporate pension plans also sport large deficits. The aggregate shortfall of American public-sector pension plans – state and local government – is somewhere between $1 trillion and $3 trillion, according to Citi.

This post was published at David Stockmans Contra Corner on April 18, 2016.

Big-Oil Sinkhole of Debt & Corruption Gets Taxpayer Bailout. Wall Street Thrilled

Taxpayers in Mexico Brace for a New Round of Plunder
How the mighty are fallen. Pemex, Mexico’s state-owned oil giant, once a goliath on the global energy scene, is now dependent on state aid to meet its day-to-day needs. Mexico’s Finance Ministry announced a series of measures aimed at loosening Pemex’s financial strains, giving the state-owned giant a decidedly short-term $4.2 billion liquidity boost.
That includes a capital injection of $1.5 billion, as well as a credit facility for a further 2.7 billion to pay down pension costs this year. The company will also receive tax breaks that will allow it to deduct more of its exploration and production costs.
But it’s a mere drop in the barrel compared to the $30.3 billion in losses the company racked up last year, its $90.5 billion in pension liabilities, and its debt which is expected to surpass $100 billion later this year.

This post was published at Wolf Street by Don Quijones ‘ April 16, 2016.

Day Of Reckoning News: The Coming Corporate Default Wave Will Be The Worst Ever

When the next corporate default wave comes, it could hurt investors more than they expect.
Losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U. S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities.
‘We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,’ said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management.
Loss rates have already been rising. The potential for them to climb further may mean that in general junk bonds are not compensating investors enough for the risk they are taking, said Michael Contopoulos, high yield credit strategist at Bank of America Merrill Lynch. The average yield on a U. S. junk bond is now around 8.45 percent, according to Bank of America Merrill Lynch indexes, about the mean of the last 10 years.
In bad times, corporate bond investors on average lose about 70 cents on the dollar when a borrower goes bust. In this cycle, that figure could be closer to the mid-80s, Bank of America strategists said. Those losses would be the worst in decades, according to UBS Group AG’s analysis of data from Moody’s Investors Service.

This post was published at David Stockmans Contra Corner on April 6, 2016.