Baltic Dry Index. 3914 +26
LIR Gold Target by 2019: $3,000.
“The current political-economic system is simply unsustainable; no economy can afford to pay for four giant zombie financial institutions, two substantial military adventures, a zombie-driven housing market, an exploding health-care bill and Goldman Sachs partners' lifestyle aspirations.”
Martin Hutchinson. November 23 2009.
The new UK “buy one get one free” government held its first Cabinet meeting yesterday, though no discussions were held apparently, on the coming age of austerity about to hit Britain in the second half of 2010. The age of false prosperity continues on a little longer, but what comes next is clearly cuts and higher taxes. At best, the UK’s unfortunate citizens have another 90 days before PIIGS style austerity crushes what little BOE fuelled recovery there was. Below, Portugal joins Greece, Ireland and Spain in EU ordered national suicide. The EU is probably entering a deflation trap.
The avoidance of taxes is the only intellectual pursuit that carries any reward.
John Maynard Keynes
Portugal takes its punishment with fresh taxes
Portugal is to impose fresh austerity measures to cut the budget deficit and regain the confidence of bond markets, becoming the fourth country on the eurozone periphery to tighten fiscal policy before a durable recovery is underway.
By Ambrose Evans-Pritchard Published: 10:42PM BST 13 May 2010
Socialist premier Jose Socrates aims to cut the deficit by an extra 1pc of GDP to 7.3pc this year and 4.6pc next year, but has refused to follow yesterday’s move by Spain for broad-based cuts in public wages owing to constitutional constraints.
The package relies on revenues, including a rise in VAT to 21pc, higher income tax, and a range of corporate levies. "I ask my countrymen to make this sacrifice to defend Portugal, defend the single currency, and defend Europe," he said.
Paul Portas, leader of the free market conservatives, said the mix of policies amounted to a "fiscal bombardment of the economy" that would crush wealth creation and fail to put the country on a viable path back to recovery.
The austerity plan follows a dramatic crisis last week when yields on 10-year Portuguese bonds surged to over 6pc, above the level that led Greece to request an EU-IMF bail-out.
Escalating distress in Portugal - and the risk of contagion to Spanish banks that hold €86bn of Portuguese debt - is what forced EU leaders to put together a combined package of €720bn to defend EMU over the weekend. The European Central Bank has been buying Portugal’s bonds on the open market to force down spreads.
The quid pro quo was a pledge by Mr Socrates for further belt-tightening, no easy task for the leader of a minority government. Opposition leader Pedro Cassos Coelho said his party would back the measures since the country faces a "state of emergency".
The combined austerity packages in Greece, Ireland, Spain, and Portugal cover a substantial part of the eurozone and may have broader ramifications. Italy is also considering a public sector wage freeze.
"This Club Med tightening is deeply worrying," said Charles Dumas from Lombard Street Research. "Some of these economies are going to be contracting at an annualized rate of 4pc by the end of this year and that is going to spill back into Germany."
-----There is a risk of populist backlash if citizens start to think that they are powerless, with no clear way out of a deflation trap.
Fernando Texeira dos Santos, the finance minister, said he expected "violent episodes" comparable to those in Greece but insisted that there was no other option.
The CGTP trade union federation vowed to mobilize its forces. "Either we come up with a very strong reaction or we will be reduced to bread and water," he said.
Spanish union calls public sector strike over austerity plan
By Denholm Barnetson (AFP)
MADRID — A Spanish union Thursday called a strike of public sector workers for June 2 over the socialist government's tough new austerity measures.
The public sector branch of the UGT union also called for demonstrations from May 20, the day the measures announced Wednesday by Prime Minister Jose Luis Rodriguez Zapatero are to be presented to parliament, the UGT said.
It urged all "public workers of different sectors of the country, from health to education to emergency services, municipalities, autonomous communities and government agencies, to observe a general strike on June 2."
The UGT said it will ask other unions to join the walkout over the government plan, which includes a pay cut for the public sector.
Another major union, the CCOO, earlier also said it's management would vote on a strike call.
But the leaders of both unions ruled out calling a general strike in all sectors of the country.
-----Zapatero on Wednesday announced austerity measures worth 15 billion euros over two years in a new bid to shore up Spain's public finances after stocks plunged last week over fears it could follow Greece into a debt crisis.
The cuts are on top of a 50-billion-euro (63-billion-dollar) austerity package announced in January designed to slash public deficit to the eurozone limit of three percent of gross domestic product by 2013 from 11.2 percent last year.
Zapatero had said just last week that he planned no additional austerity cuts.
The latest measures include a five-percent pay cut for public sector workers from June, and a pay freeze from 2011. Pensions except for the poorest will also be frozen in 2011.
The government also plans to scrap a 2,500-euro payout to parents for the birth of children, a key part of Zapatero's social platform to boost Spain's lagging birth rate.
----Spanish media said Thursday that the public sector pay cut was the first since the restoration of democracy after the 1939-75 dictatorship of general Francisco Franco.
Spain's credit rating was cut by Standard and Poor's last month and it has been named along with Portugal as possible new weak links in the eurozone after debt-laden Greece.
As the new measures were announced, Spain became the last of Europe's big economies to emerge from recession, with official data showing fragile growth of 0.1 percent in the first quarter.
Spain, Europe's fifth largest economy, went into recession in the second quarter of 2008 as the global financial meltdown compounded a crisis in the Spanish property market, which had been a major driver for growth in the preceding years.
http://www.google.com/hostednews/afp/article/ALeqM5jLQIu-Go8wZRIrDAD0pFFF-JhhpA
Next, some surprisingly frank comments from the Governor of the Bank of England. Fiat currency is flying apart at the seams and Europe is leading the world into a hardscrabble age of austerity. Clearly we have some of the central banksters rattled. A double dip recession looms.
“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him."
John Maynard Keynes 1931
US faces same problems as Greece, says Bank of England
By Edmund Conway Last updated: May 13th, 2010
Mervyn King, Governor of the Bank of England, fears that America shares many of the same fiscal problems currently haunting Europe. He also believes that European Union must become a federalised fiscal union (in other words with central power to tax and spend) if it is to survive. Just two of the nuggets from one of the most extraordinary press conferences I have been to at the Bank.
What with all the excitement yesterday over our new Government, I never had time to remark on the Inflation Report press conference. Most of our attention was on what King said about the Government’s fiscal plans (a ringing endorsement). But, as Jeremy Warner has written in today’s paper, it was as if King had suddenly been unleashed. Bear in mind King is usually one of the most guarded policymakers in both British and central banking circles. Not yesterday.
It isn’t often one has the opportunity to get such a blunt and straightforward insight into the thoughts of one of the world’s leading economic players. Most of this stuff usually stays behind closed doors, so it’s worth taking note of. And I suspect that while George Osborne will have been happy to hear his endorsement of the new Government’s policies, Barack Obama and the European leaders will have been far less pleased with his frank comments on their predicament.
The transcript and video are online at the Bank’s website, but below are the extended highlights, all emphasis mine. Well worth checking out.
America, and many other large economies including the UK, share some of the same problems as Greece with its public finances:
Every country around the world is in a similar position, even the United States; the world’s largest economy has a very large fiscal deficit. And one of the concerns in financial markets is clearly – how will this enormous stock of public debt be reduced over the next few years? And it’s very important that governments, both here and elsewhere, get to grips with this problem, have a clear approach and a very clear and credible approach to reducing the size of those deficits over, in our case, the lifetime of this parliament, in order to convince markets that they should be willing to continue to finance the very large sums of money that will be needed to be raised from financial markets over the next few years, at reasonable interest rates.
On why Europe will have to become a federalised fiscal union:
I do not want to comment on a particular measure by a particular country, but I do want to suggest that within the Euro Area it’s become very clear that there is a need for a fiscal union to make the Monetary Union work. But if that is to happen there needs to be also a mechanism to enable other countries that have lost competitiveness to regain competitiveness. That requires actions, probably structural reforms, changes in wages and prices, in the countries that need to regain competitiveness. But it also needs a solid and expansionary state of domestic demand in the stronger economies in Europe.
In UK news, a setback for the UK’s stealth competitive devaluation. Despite a fall in Sterling from $2.10 to $1.48, an export lead boom is nowhere in sight.
"Most people are so lazy, they don't even exercise good judgment!"
Mad Magazine.
May 14, 2010
Pound pays as weak exports hit recovery fears
Sterling plunged yesterday after worse than expected trade figures dented hopes that the economic recovery was gaining traction.
British exports failed to keep pace with a sharp rise in imports in March, driving the trade in goods gap to £7.5 billion, up from £6.3 billion in February, figures from the Office for National Statistics showed.
Imports rose by more than £1 billion to £28.9 billion in March, while exports edged up to £21.4 billion, the ONS said.
The total trade gap — which includes trade in services, such as banking and accountancy — widened from £2.2 billion to £3.7 billion during the month.
The pound dropped by more than a cent against the dollar after the figures were published. Sterling had earlier hit a session high of $1.4917, but it slid to a low of $1.4640 before rallying slightly to $1.4667, down 1.2 per cent on the day. Sterling also fell 0.6 per cent against the euro, which ended the day at 85.7p.
Analysts said that the poor weather in January had skewed the figures slightly by pushing some of January’s exports into February and causing a spike in February’s figures — resulting in a poor comparison in March.
However, the overall weakness of exports was further highlighted as the data showed that the total deficit in goods and services climbed to £9.7 billion in the first quarter of the year. It was the highest figure since the third quarter of 2008, when the financial crisis stepped up a gear after the collapse of Lehman Brothers.
Vicky Redwood, senior UK economist for Capital Economics, said: “The underlying trend in net trade remains disappointingly weak. It remains hard to see what part of the economy is in a fit enough state to compensate for the looming fiscal squeeze.” She added: “Recent events in the eurozone clearly cast a shadow over the longer-term prospects for UK exporters.”
http://business.timesonline.co.uk/tol/business/economics/article7124908.ece
Below, France opts out of austerity, or does it. When President Sarkozy say he won’t implement “Greek-style austerity measures” is it just cover for French style austerity measures?
“The promise given was a necessity of the past: the word broken is a necessity of the present.”
Nicolo Machiavelli
'No austerity plan', Sarkozy tells unions
President Nicolas Sarkozy assured French union leaders on Monday that his government was not implementing Greek-style austerity measures, despite a recent announcement by French PM François Fillon that France would freeze public spending from 2011.
France is not implementing an austerity plan as fellow EU members have done, French President Nicolas Sarkozy told union leaders gathered at the Elysée presidential palace on Monday.
“Some people would like to see a similar response in [France’s] fiscal policy,” the French president said in reference to austerity measures being enforced in Greece and Spain, but countered that he himself was “against this opinion”.
“We should not implement a stringent policy, but a responsible policy. It’s our credibility that is at stake,” Sarkozy added.
Sarkozy’s comments on Monday came at a much-awaited “social summit” to review recent government reforms aimed at combating the economic crisis and limiting its impact domestically.
The talks were scheduled months ago, but a recently announced public spending freeze threatened to overshadow the summit.
Last Thursday, French Prime Minister François Fillon announced that the government would freeze public spending between 2011 and 2013 to bring its deficit to within the three percent required by the EU.
Unions fear the government will scrap welfare measures that shield low-income families from the harsher effects of the economic downturn.
Before the meeting, France’s main unions CGT, CFDT, Unsa, FSU and SUD issued a joint statement warning against “deficit reduction measures that would lead to greater social inequality”.
Pensions deferred
At Monday's meeting, Sarkozy confirmed fiscal measures meant to target unemployment and support small businesses. The president announced payroll tax exemptions for new hires in businesses with fewer than 10 employees.
The 2.6 billion euros in tax support and incentives paid last year to low-income households could be revised downward in the future.
Government spokesman Luc Chatel said on Thursday that the sweeping cuts would affect "all French people". He did say, however, that there would not be a "massive rise in taxes that would choke the economy".
The prickly issue of pension reform, which Sarkozy made a top priority for 2010, was briefly invoked Monday. In an unexpected move, Sarkozy said the state would shore up its pensions system with new levies on France’s highest earners and on company profits.
He failed to give specific details, saying the Ministry of Labour would publicly revisit his proposals next week.
As things in the EU stand at present, Ireland, Greece, Spain and Portugal are all retrenching, cutting spending and raising taxes. The UK, Germany, France and Italy, the largest economies in the European Union are all on the cusp of doing the same. It is unrealistic to expect that this isn’t going to derail the EU’s modest, central bank driven phony recovery to date. If the USA also adopts austerity ahead rather than continuing on with its bailout policies, the global economy is in for a very hard time. Time to scale into a few put options, I think. This time round, I doubt that we’ll see another Chinese miracle come to the rescue.
There is nothing so disastrous as a rational investment policy in an irrational world.
John Maynard Keynes
At the Comex silver depositories Thursday, final figures were: Registered 51.32 Moz, Eligible 64.83 Moz, Total 116.15 Moz.
Day Five of Hitler’s attack in the west that almost brought down western civilization. We continue our daily update on the “Dunkirk” page.
Dunkirk & the Battle of France – Day by day 70 years on.
http://londonirvinereport.blogspot.com/p/dunkirk-battle-of-france.html
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Crooks & Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
No crooks today, just a highly strange article from China as reported in The Telegraph. Is it true and if so, why now? Why would Russia have wanted to go nuclear in 1969 over a minor border dispute? Was China threatening a mass migration? Why would America threaten a retaliatory nuclear strike on Russia, bringing in turn a retaliatory strike on key US cities? Nothing in this story makes sense, yet it’s presumably sanctioned by China’s Communist Party. Was President Nixon’s later visit and opening to China related? My guess is that we will soon see the west’s ex spook and diplomatic community chip in.
USSR planned nuclear attack on China in 1969
The Soviet Union was on the brink of launching a nuclear attack against China in 1969 and only backed down after the US told Moscow such a move would start World War Three, according to a Chinese historian.
Andrew Osborn in Moscow and Peter Foster in Beijing
Published: 6:09PM BST 13 May 2010
The extraordinary assertion, made in a publication sanctioned by China's ruling Communist Party, suggests that the world came perilously close to nuclear war just seven years after the Cuban missile crisis.
Liu Chenshan, the author of a series of articles that chronicle the five times China has faced a nuclear threat since 1949, wrote that the most serious threat came in 1969 at the height of a bitter border dispute between Moscow and Beijing that left more than one thousand people dead on both sides.
He said Soviet diplomats warned Washington of Moscow's plans "to wipe out the Chinese threat and get rid of this modern adventurer," with a nuclear strike, asking the US to remain neutral.
But, he says, Washington told Moscow the United States would not stand idly by but launch its own nuclear attack against the Soviet Union if it attacked China, loosing nuclear missiles at 130 Soviet cities. The threat worked, he added, and made Moscow think twice, while forcing the two countries to regulate their border dispute at the negotiating table.
He quotes Soviet ministers and diplomats at the time to bolster his claim.
On 15 October 1969, he quotes Soviet premier Alexei Kosygin as telling Soviet leader Leonid Brezhnev that Washington has drawn up "detailed plans" for a nuclear war against the USSR if it attacked China.
"[The United States] has clearly indicated that China's interests are closely related to theirs and they have mapped out detailed plans for nuclear war against us," Kosygin is said to have told Brezhnev.
That same day he says Anatoly Dobrynin, the Soviet ambassador to Washington, told Brezhnev something similar after consultations with US diplomats. "If China suffers a nuclear attack, they (the Americans) will deem it as the start of the third world war," Dobrynin said. "The Americans have betrayed us."
The historian claims that Washington saw the USSR as a greater threat than China and wanted a strong China to counter-balance Soviet power. Then US President Richard Nixon was also apparently fearful of the effect of a nuclear war on 250,000 US troops stationed in the Asia-Pacific region and still smarting from a Soviet refusal five years earlier to stage a joint attack on China's nascent nuclear programme.
The claims are likely to stir debate about a period of modern history that remains mired in controversy.
Mr Liu, the author, admits his version of history is likely to be contested by rival scholars. It is unclear whether he had access to special state archives but the fact that his articles appeared in such an official publication in a country where the media is so tightly controlled is being interpreted by some as a sign that he did have special access.
Another weekend and the Monaco Grand Prix too. Not that it feels much like the middle of May here southern England where the Tories managed to win 70% of the constituencies. For two days in a row this week we had morning frost. The long sunspot low continues, we will soon enough find out whether this heralds global cooling in a new Dalton Minimum. Sadly our new “BOGOF” UK government is a bought and paid for member of the man-made global warming from CO2, nutcase brigade. If global cooling arrives the UK is totally unprepared and off fighting the wrong war. More about that on our Battle of France page. Have a great weekend everyone. More on the blog at the weekend on the Squids.
There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
John Maynard Keynes
The monthly Coppock Indicators finished April:
DJIA: +245 UP. NASDAQ: +448 UP. SP500: +276 UP. The great Bull market goes on with the all three continuing higher in positive numbers.
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