Money And Change

Rotten To The Core
 
ZeroHedge.com Jun 30, 2016 2:00 AM

Submitted by Robert Gore via Straight Line Logic blog,


Coercion is inseparable from corruption. When a group coerces with impunity, it steals from, lies to, defrauds, and enslaves the subjugated. The dominant group invariably develops a morally comforting ideology of its superiority and the subjugated’s inferiority. Such relationships are the essence of corruption.

Every square inch on the planet is subject to the jurisdiction of one or more coercive regimes, with their attendant corruption and fraud. Trillions of dollars, euros, pounds, and yen, et al., are extracted from the productive and diverted to governments, who buy political support. Trillions more are borrowed. Central banks issue fiat debt units backed only by laws mandating their acceptance and extract funding for governments via the hidden tax of debt depreciation and the hidden theft of debt monetization and interest rate suppression. Regulation allows governments to reward cronies and extort and terrorize the un-favored. Perpetual wars benefit militaries and those who supply the armaments, with part of their profits recycled to those championing war. This is pervasive, legal corruption. One can only guess at the extent of sub rosa criminality, which may dwarf it.

Last week’s Brexit vote, in particular financial markets’ reaction, underscore the corruption and fraud, and the inevitability of its failure. Brexit is a victory for Britain’s honest producers; those who work in districts far removed from The City, London’s financial precinct. They will be freed from onerous European Union mismanagement, bureaucracy, regulations, and taxes that have contributed to Europe’s economic stagnation, dearth of innovation, and persistently high unemployment, especially among its youth. The European Central Bank’s debt monetization and negative interest rates, while obscuring the sorry state of the European economy, have only made it sorrier. Chronic debt issuance has left many European governments, and their banks, which own much of that debt, one economic or financial crisis away from insolvency.

British voters chose to free themselves from the EU albatross, although they will still be plagued by numerous home-grown albatrosses. The pound, euro, equity markets, and oil plunged, while perceived safe havens gold, the dollar, yen, and US Treasury debt rose. (The yen is not really a safe haven, but much of the world’s “carry” trades—borrowing to fund nominally higher yielding, but risky speculations—are funded at low Japanese interest rates. When those highly leveraged trades go south, margin calls create a demand for yen to repay the underlying loans.) There were telling details amidst the carnage. Continental equity markets, particularly those of Spain and Italy and their banks, suffered far larger percentage drops than the British stock market. The British, were they to remain in the EU, would be expected to help support the Europe’s southern tier.
When the high and mighty sing the same tune—Great Britain needs the EU more than the EU needs the British—the opposite is assuredly true. The British economy has outperformed most of Europe’s sluggards. Trying to get a fix on large banks is always a crap shoot—their financial statements are usually next to useless—but it appears that British banks and their regulators took more steps to address the problems exposed by the last financial crisis than their continental counterparts and may better withstand the coming stresses. Then again, British banks were hit just as hard as continental ones in the two days after the vote.

Never underestimate the petulance of humiliated Eurocrats, or other poobahs for that matter. What terrifies the Eurocrats is the virtual certainty that the British economy will outperform Europe’s after the Brexit. They may cut off their constituents’ noses to spite their own faces, erecting trade barriers against British goods and services, for which Europe’s consumers will pay the price. However, trade barriers are a two-way street. Britain is an important export market, especially for the de facto leader of the EU, Germany, so cooler heads may prevail, a hope expressed by Nigel Farage in a remarkable speech to the European Parliament.
Can anything be more corrupt than the desire to gratuitously harm another to preserve one’s power? Such corruption is the rotten core of the global economic and financial system. Its pilots are determined to fly it into a mountain, but will fight to the death any attempt to wrest away the controls. The financial markets’ reaction to Brexit has been appropriate, but anyone expecting asset prices to take one-way rides down or up in the directions they were pushed by Brexit will be disappointed.

Global finance and global statism are Siamese twins joined at the brain, a fact made abundantly clear during the last financial crisis. Heavily indebted governments depend on the machinations of central banks and the acquiescence of markets to perpetuate their economic misrule. Governments, in turn, coddle and succor their indispensable allies. Too big to fail, bail outs, and deposit insurance are their backstops for the inherent risks of fractional reserve banking, turning it into a heads-we-win, tails-the-taxpayers-lose proposition. Central banks provide emergency fiat liquidity on preferential terms—financial market “puts”; promote cartelization, and serve the constituent banks they were meant to regulate, acting as the banks’ agents within governments.
Brexit is a shot across the bow, but it is only a shot across the bow. Financial asset prices will continue to be supported or suppressed as the powers see fit. There is not one price in the entire firmament of markets and finance that is not pegged to continuing regimes of corruption and fraud. To transact based on such prices is a bet that a rigged game will stay rigged.

The belief that it will is understandable, but a house of cards must fall. Political winds—Brexit and what’s sure to follow—may blow this one over; it may collapse due to its structural deficiencies, or, most likely, some combination of the two will render it rubble. The important point is that rotten-to-the-core economies and finances, resting on foundations of coercion, corruption, and fraud, have to be rendered rubble before freer, more honest, and more durable structures can be erected.

"Deutsche Bank Poses The Greatest Risk To The Global Financial System": IMF

ZeroHedge.com Jun 30, 2016 5:58 AM

Over three years ago we wrote "At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World" in which we introduced a bank few until then had imagined was the riskiest in the world.

As we explained then "the bank with the single largest derivative exposure is not located in the US at all, but in the heart of Europe, and its name, as some may have guessed by now, is Deutsche Bank. The amount in question? €55,605,039,000,000. Which, converted into USD at the current EURUSD exchange rate amounts to $72,842,601,090,000....  Or roughly $2 trillion more than JPMorgan's."

So here we are three years later, when not only did Deutsche Bank just flunk the Fed's stress test for the second year in a row, but moments ago in a far more damning analysis, none other than the IMF disclosed that Deutsche Bank poses the greatest systemic risk to the global financial system, explicitly stating that the German bank "appears to be the most important net contributor to systemic risks."

Yes, the same bank whose stock price hit a record low just two days ago.

Here is the key section in the report:
Domestically, the largest German banks and insurance companies are highly interconnected. The highest degree of interconnectedness can be found between Allianz, Munich Re, Hannover Re, Deutsche Bank, Commerzbank and Aareal bank, with Allianz being the largest contributor to systemic risks among the publicly-traded German financials. Both Deutsche Bank and Commerzbank are the source of outward spillovers to most other publicly-listed banks and insurers. Given the likelihood of distress spillovers between banks and life insurers, close monitoring and continued systemic risk analysis by authorities is warranted.
Among the G-SIBs(Globally System Important Banks), Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. In turn, Commerzbank, while an important player in Germany, does not appear to be a contributor to systemic risks globally. In general, Commerzbank tends to be the recipient of inward spillover from U.S. and European G-SIBs. The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs  and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.
The IMF also said the German banking system poses a higher degree of possible outward contagion compared with the risks it poses internally. This means that in the global interconnected game of counterparty dominoes, if Deutsche Bank falls, everyone else will follow.
Notwithstanding moderate cross-border exposures on aggregate, the banking sector is a potential source of outward spillovers. Network analysis suggests a higher degree of outward spillovers from the German banking sector than inward spillovers. In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country. 

The IMF concluded that Germany needs to urgently examine whether its bank resolution, i.e., liquidation, plans are operable, including a timely valuation of assets to be transferred, continued access to financial market infrastructures, and whether authorities can ensure control over a bank if resolution actions take a few days, if needed, by imposing a moratorium:
Operationalization of resolution plans and ensuring funding of a bank in resolution is a high priority. The authorities have identified operational challenges (e.g., the timely valuation of assets to be transferred, continued access to financial market infrastructures) and are working to surmount them. In some cases, actions to effect resolution may require a number of days to implement, and the authorities should ensure they can maintain control over the bank during this period, including by using their powers to impose a more general moratorium for a specific bank.
Considering two of the three most "globally systemically important", i.e., riskiest, banks just saw their stock price scrape all time lows earlier this week, we wonder just how nervous behind their calm facades are the executives at the ECB, the IMF, and the rest of the handful of people who realize just close to the edge of collapse this world's most riskiest bank (whose market cap is less than the valuation of AirBnB) finds itself right now.

These Three Survey Responses Explain Everything That Is Wrong With The US Economy
ZeroHedge.com Jun 27, 2016 12:10 PM
There is nothing one can add to these three Dallas Fed Manufacturing Activity respondents, who in just a few brief sentences successfully explain pretty much everything that is wrong with the US economy right now.

Response #1: "the Fed, Credit Conditions and Employment"

The economy is nervous, shaky and uncertain. Fed policy has us locked into a lethargic and tenuous position. It appears the Fed doesn’t know how to get off the horse it created. The Fed talks interest rate increases but looks for every reason not to do it. Until the Fed backs out of trying to manage the economy, we will be stuck on the cusp of slow growth and a recession. Add the difficulty in getting commercial and retail financing and rising employee costs (health care, minimum wage threats and the ridiculous overtime executive order), and hiring for many of us will be minimal. We cannot have millions of people out of the workforce and be healthy economically—they are a burden not a benefit.

Response #2: "the Government and Regulation"

We are experiencing major demand instability in the U.S. Continued management focus on upcoming regulatory changes is keeping us from pursuing new markets (especially internationally) and delaying making long-term investments. Major human resources policy updates and changes have resulted in eliminating positions (in the future as people are promoted or leave the company they will not be replaced) and considering moving all salary people who do not travel to hourly. Although we need more people, we are increasing the requirements for the open positions to reflect higher cost thresholds and most likely will delay hiring decisions for most positions until the impacts of the changes are fully understood.

Response #3: "Obamacare, Productivity and Deflation"

The Affordable Care Act (ACA) continues a downward push on productivity as it limits our hiring because we can't afford the estimated 60 percent increase in health care premiums that an ACA-compliant policy would cost. Steel raw material costs are rising, but the steel scrap is falling, therefore increasing our costs. Customers are not accepting price increases. It is slow, and the general business climate seems tepid at best.
So if Texas manufacturers get it, why can't the world's "smartest" economists and central planners?

Brexit adds headwinds to U.S. companies slowing spendingWASHINGTON/NEW YORK | By Lucia Mutikani and Malathi Nayak REUTERS
U.S. business investment, already heading for its worst slowdown since the global financial crisis, could decline further as Britain's vote to leave the European Union creates more risks for companies, economists say.
With growth tepid at home, North American companies as diverse as plane maker Boeing Co (BA.N), Ford Motor Co (F.N), heavy equipment manufacturer Caterpillar Inc (CAT.N) and oil producer Exxon Mobil Corp (XOM.N) now will find themselves trying to plan overseas spending without knowing whether Britain's departure from the EU will upend tariff rules.
"The 'leave' outcome has introduced substantial uncertainty that likely would dampen U.S. growth by delaying and or reducing business investment and consumption expenditures," said William Lee, head of North America Economics at Citigroup in New York.
Lee said U.S. multinational corporations face difficult strategic challenges - including assessing the U.K.'s future status as a gateway to the E.U. and London's role as a financial center - that could crimp spending enough to reduce potential growth levels and real incomes.
U.S. business spending on capital equipment dropped over the last two quarters and contracted in the first quarter at its quickest pace in seven years. A further decline in the second quarter would be the first time since the 2007-09 recession that it contracted for three straight quarters.
Jim Farley, top European executive for automaker Ford, had warned a "Brexit" outcome could impact "potential future investment."
Caterpillar has voiced concern any changes in trade rules for its UK base would impact its European supply chain.
While recognizing that UK exit negotiations will be complex, Caterpillar's UK chief Mark Dorsett urged leaders in a statement to ensure "single market access issues be prioritized to lessen the negative impact on business."
And Exxon, the world's largest-publicly traded oil company, said "the barrier-free movement of goods, people and capital across borders is important for a business like ours with operations across Europe."
After the Brexit vote, Boeing said in a statement that as a global business "we constantly manage changes in political circumstances and we will continue to do so now with the evolving situation in the UK and Europe."
Mark Grayson, a spokesman for PhRMA, the trade group representing pharmaceutical companies, said it is not yet clear whether Britain will move to set up its own agency to approve drugs, or opt to simply follow EU rules.
SOFTER SPENDING AT HOME
Data from the U.S. Commerce Department on Friday showed non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell for a second straight month in May. These so-called core capital goods orders have increased in six of the last 17 months.
"Remember too that Brexit is occurring while the U.S. economy is in the later stages of its current business cycle, meaning the U.S. is more susceptible to economic shocks," said Steve Blitz, chief economist at M Science in New York.
"There is, happily, a lot less leverage in the system than there was in 2007, meaning no recession of equal magnitude is threatened," Blitz said.
Economists said heightened uncertainty over Brexit could spill into the labor market and hurt consumer sentiment headed into November's U.S. presidential election.
"Concern over another euro area crisis could slow U.S. growth in the next couple of quarters through weak financial markets and declining business and consumer confidence," said Ethan Harris, global economist at Bank of America Merrill Lynch.
He estimates Brexit could lower gross domestic product growth by an average of two-tenths of a percentage point over the next six quarters.
"This could be reinforced by concern about the U.S. presidential election," Harris added

BREAKING NEWS: "EURO Currency May Not Survive a Week"
Post by Newsroom Superstation95.com
- Jun 26, 2016
 
A currency crisis of historic and epic proportions is on the short horizon as countries in the European Union realize the EURO currency may collapse within ONE WEEK.   The staggering fear of a European currency collapse is causing violent moves in pre-opening financial markets and could become an outright catastrophe when markets open in hours.

Investors are making dramatic moves OUT of the Euro currency, as word spreads that eight additional countries who are members of the European Union, are making plans to hold EXIT referendums like Britain.

The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to a survey – the first major wide-ranging litmus test of economic opinion in the City of London - since the election. The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain's biggest trading partner in his first years in office.
Of the 25 leading London economists who took part in the London Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:

• The economy will grow by well over a percentage point less next year than the Budget predicted in March.
• The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.
• Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.

But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City of London would have confidently predicted the currency's demise. But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel's acknowledgement that the currency is facing an "existential crisis", have radically shifted opinion.
Two of the eight experts who predicted that the currency would survive said it would do so only at the cost of seeing at least one of its members default on its sovereign debt. Andrew Lilico, chief economist at think tank Policy Exchange, said there was "nearly zero chance" of the euro surviving with its current membership, adding: "Greece will certainly default on its debts, and it is an open question whether Greece will experience some form of revolution or coup – I'd put the likelihood of that over the next five years as around one in four."

Douglas McWilliams of the Centre for Economics and Business Research said the single currency "may not even survive the next week", while David Blanchflower, professor at Dartmouth College and former Bank of England policymaker, added: "The political implications [of euro disintegration] are likely to be far-reaching – Germans are opposed to paying for others and may well quit."
Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.
Peter Warburton of consultancy Economic Perspectives said: "Possibly Germany will leave. Possibly other central and eastern European countries – plus Denmark – will have joined. Possibly, there will be a multi-tier membership of the EU and a mechanism for entering and leaving the single currency. I think the project will survive, but not in its current form."

Tim Congdon of International Monetary Research said: "The eurozone will lose three or four members Greece, Portugal, maybe Ireland and could break up altogether because of the growing friction between France and Germany."

The recent worries about the euro's fate followed the creation last month of a $1 trillion (£691bn) bail-out fund to prevent future collapses. Although the fund boosted confidence initially, investors abandoned the euro after politicians showed reluctance to support it wholeheartedly.