“Fiat Money Crisis? What Fiat Money Crisis?”

Baltic Dry Index. 3608 +140

LIR Gold Target by 2019: $3,000.

"The international monetary order is more precarious by far today than it was in 1929. Then, gold was international money, incorruptible, unmanageable, and unchangeable. Today, the U.S. dollar serves as the international medium of exchange, managed by Washington politicians and Federal Reserve officials, manipulated from day to day, and serving political goals and ambitions. This difference alone sounds the alarm to all perceptive observers."

Hans F. Sennholz

We open this morning with the Euro Zone’s rabble forcing UK taxpayer’s into bailing out the failing Euro. Time to leave the EU once and for all. Millions in the UK would have voted very differently if this French-German stitch-up had occurred before Thursday’s election and not after it. The UK Independence Party would have got millions more votes that the million it actually got, I suspect. None of Europe’s previous monetary unions have ever ended well. The present one was based on the hard working Teutonic core and the liars club of work and tax shy Club Med. Sooner or later it’s going to fail.

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F.A. von Hayek

MAY 9, 2010

World Races to Avert Crisis in Europe

$955 Billion Bailout Plan for Euro Members Is Crafted; ECB Intervenes in Bond Markets; Fed Reopens a Rescue Program

BRUSSELS—The European Union agreed on an audacious €750 billion ($955 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide.

The money would be available to rescue euro-zone economies that get into financial troubles. The plan would consist of €440 billion of loans from euro-zone governments, €60 billion from an EU emergency fund, and €250 billion from the International Monetary Fund.

Immediately after the announcement, the European Central Bank said it is ready to buy euro-zone government and private bonds "to ensure depth and liquidity" in markets, and the U.S. Federal Reserve announced it would reopen swap lines with other central banks to make sure they had ample access to dollars.

Asian stock markets opened higher on Monday, boosted by news of the EU package.

The giant bailout package reflects the gravity of the crisis gripping Europe and growing fears that the situation could grow so dire as to hamper the fragile rebound in the global economy. It casts aside long-held notions that each EU nation should manage its own finances, opening an era in which members of the common currency take on unprecedented responsibilities for each others' fiscal troubles.

In an indication of the world-wide concern, the White House said President Barack Obama on Sunday spoke with French President Nicolas Sarkozy and German Chancellor Angela Merkel to urge "resolute action to build confidence in the markets."

With a self-imposed deadline to reach agreement before Asian markets opened Monday morning, ministers from all 27 EU nations aimed to assemble a package impressive enough to arrest spreading worries about the debt problems of euro-zone governments. Once confident they could quarantine Greece's turmoil, the EU's leaders have been grappling with gathering worries about the debt problems of euro-zone governments such as Portugal, Spain and Italy.

----- While the stabilization fund is welcome news for investors who had been calling for the EU to take bigger steps, perhaps more important is the news that the ECB will act to shore up the shaky european bond market. Many investors had been calling for the ECB to take this step, and the ECB's failure to announce such a plan following a ECB governing council meeting last week was a key contributor to a significant sell-off Thursday.

Such a step is "very good news," and could lead investors to head back into the kind of risky assets they had been selling out of late last week, such as emerging markets and stocks, said Sebastien Galy, currency strategist at BNP Paribas in New York.

The €440 billion pledged by euro-zone governments isn't immediately available cash in hand. Instead, a specially created off-balance-sheet entity will borrow the money, as needed, and then lend it out to the country or countries in trouble. The special entity's borrowings will be guaranteed by euro-zone countries—excluding the country asking for aid. This construction helps skirt the EU treaties' prohibition on one state's assuming the debt of another.

The guarantees are to be arranged in a "pro rata" manner, said EU Commissioner for Economic and Monetary Affairs Olli Rehn. Presuming they'd be divvied up under the same rubric used for earlier loans to Greece, Germany would have the largest share of guarantees, committing to back up to €123 billion of the debt in case of further loans to Greece; France would shoulder €92 billion, and even tiny Cyprus would be on the hook, for nearly €1 billion.

http://online.wsj.com/article/SB10001424052748703674704575234371941567524.html?mod=WSJEUROPE_hps_ThirdLEADNewsCollection

Britain’s got enough problems of its own to fix without taking on Club Med. Bankrupting Britain in the folly of trying to prop up a failing Euro makes no sense at all. Euroland’s sovereign debt problem is simply too big to fix without a restructuring, as this set of charts from Der Spiegel clearly shows. Even 750 billion Euro isn’t enough, Der Spiegel reckon the Euro-zone alone needs 1.2 trillion. We will be back soon enough with another Euro crisis, whether the Greeks keep revolting or not.

The Euro Zone’s Problem Children.

http://www.spiegel.de/fotostrecke/fotostrecke-54629.html

Stay long precious metals. After this outrageous European diktat and breaking of law, it’s over for the euro in its present form and my guess is that it’s over too for the EU as well. There is now simply no rule that the EU won’t dump when it suits them. If Euro zone countries are daft enough to want to bailout Club Mad’s spendthrift lifestyles, that is their prerogative. Ordering other countries taxpayers to do so as well, especially in an effort doomed to fail, takes the EU towards its own breakup.

`When I use a word,' José Manuel Barroso said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

With apologies to Lewis Carroll.

In other EU news, the UK staggers on with a government of losers in office but not in power. 70 years ago to the day that Winston Churchill took over as Prime Minister in dire circumstances in 1940, see the Dunkirk & Battle of France page on the blog, the UK’s current batch of party leaders all seem out of their depth. Thanks to the hung Parliament the UK’s pressing financial problems will just have to wait. The markets won’t wait for long, I suspect. Below, the prospect looms of a second general election as early as next month. Below that, German voters reject Chancellor Merkel largely for doing a U-turn and bailing out Greece. Stay long precious metals, Europe is increasingly unstable. If the UK gets forced into a second election right after the EU tried to force UK taxpayers to bailout the dodgy Euro, the chances are high that Chancellor Merkel’s problem will be replicated in the UK.

"Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by either inflation or deflation."

Donald J. Hoppe

Hung parliament: parties have 15 days to cut deal or face election

The major political parties have 15 days to try to thrash out a deal to form the next government before the country faces the prospect of a second general election.

By By Andrew Porter, Political Editor Published: 11:30PM BST 09 May 2010

Under a new set of guidelines put in place by the civil service Gordon Brown could remain as Prime Minister until 25 May – the day of the Queen's Speech.

By then either the prime minister, David Cameron or Nick Clegg has to show that he has the confidence of the Commons.

The unusually long period between the election result and the Commons sitting has been agreed by Sir Gus O'Donnell, the Cabinet Secretary.

Sir Gus, the country's most senior civil servant, presciently drew up a set of rules earlier this year, anticipating the possibility of a hung parliament.

Previously there had been no written guidance on what should happen in the event of no single party having an overall majority of MPs.

The extra time is designed to allow the three main parties to try and reach agreement to see who can form a government. While the Tories and Liberal Democrats were engaged in talks last night, Mr Brown remained in Number 10.

---- The backdrop of the fraught economic climate was also uppermost in Sir Gus's mind when he drew up the rules. There have been fears that an inconclusive result would lead to a run on the pound and potentially devastating shock waves in the City.

Under constitutional convention Mr Brown could request a second dissolution of Parliament if he does not win a vote of confidence when Parliament sits again. That would normally trigger a second general election.

The Queen is not obliged to grant that second dissolution and would be reluctant to do so. Instead, at that point she is likely to ask David Cameron if he can form a government.

In reality, it is unlikely to get that far. If Mr Brown cannot lure the Liberal Democrats from their probable deal with the Conservatives to side with Labour then he will have to accept that it is Mr Cameron's right to try and form a government. The Tories could be in that position within hours if they agree a formal coalition with Nick Clegg's party or announce a looser, but effective, deal that would see the Lib Dems agree not block a first Tory Queen's speech or Budget.

Similarly, if Mr Cameron is only able to lead a minority government – in the wake of talks breaking down with the Lib Dems, but Mr Clegg refusing to do a deal with Labour – then he too will have to get his Queen's Speech through and survive any vote of confidence. If he failed then he would have to seek a dissolution of Parliament.

http://www.telegraph.co.uk/news/election-2010/7702769/Hung-parliament-parties-have-15-days-to-cut-deal-or-face-election.html

Merkel’s CDU Gets Worst Post-War Result as Greece Derails Vote

May 10 (Bloomberg) -- Chancellor Angela Merkel’s party plunged to its worst result since World War II in Germany’s most populous state, losing control of parliament’s upper house in Berlin, as voters punished her reversal on aid for Greece.

With Merkel’s Christian Democrats unexpectedly beaten into second place in a state election in North Rhine-Westphalia, the way is open for the opposition Social Democrats to take control of the state government in Dusseldorf, television projections showed. If confirmed, that would rob Merkel of her majority in the upper chamber, the Bundesrat, undermining her ability to cut taxes and extend the lifespan of nuclear-power plants.

Officials in Merkel’s CDU blamed the party’s showing on German loans for Greece of as much as 22.4 billion euros ($28.8 billion) passed by parliament on May 7 in the face of public opposition. Merkel was criticized at home and abroad for first refusing to rush to aid Greece, then pressing lawmakers to back Germany’s contribution to a 110 billion-euro lifeline.

“Merkel is vulnerable,” Almut Moeller, head of European policy at the German Council on Foreign Relations in Berlin, said in an interview. “After her record of dithering over help for Greece, she really needs to make a show now of strong, resolute policy in Brussels to help stem the crisis from spreading further. The last thing the euro-zone needs at this point is weak German leadership.”

Preliminary Results

The Chancellor’s Christian Democratic Union, or CDU, took 34.4 percent in yesterday’s election, down more than 10 percentage points from the last vote in 2005 and the party’s worst showing in North Rhine-Westphalia since the first postwar election in 1947, projections showed as of 10:05 p.m. The CDU’s Free Democratic junior coalition partner got 6.7 percent.

The opposition Social Democrats took 34.5 percent and their traditional allies in the Green Party won 12.4 percent, enough to form a coalition government. The anti-capitalist Left Party got 5.5 percent, winning seats in the state assembly for the first time.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHL5OVpY7Ekw&pos=8

Below, the Fed gets in on the EU rescue. It’s only fiat money after all and there’s plenty more where that comes from. Print, print, print is now the only plan left in our great Nixonian error of fiat money. We have all become slaves to the central banksters. I expect an era of social unrest right ahead. In a world on fiat money everyone cheated. What a surprise! Now we are all operating on the equivalent of the Chinese Yuan. I predict these crisis will return and return until we force central banksters back to metallic settled money.

"The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

Fed Restarts Currency-Swap Tool as Sovereign-Debt Crisis Flares

May 10 (Bloomberg) -- The U.S. Federal Reserve will restart its emergency currency-swap tool by providing as many dollars as needed to European central banks to keep the continent’s sovereign-debt crisis from spreading.

The swaps with the European Central Bank, Bank of England and Swiss central bank will allow them to provide the “full allotment” of U.S. dollars as needed, the Fed said late yesterday in a statement in Washington. A separate swap line with the Bank of Canada will support as much as $30 billion, the Fed said, and the Bank of Japan said it approved reactivating its U.S. line. The swaps were authorized through January 2011.

The Fed action was a complement to European policy makers’ announcement of an unprecedented loan package worth almost $1 trillion to stop a crisis that threatened to shatter confidence in the euro. The U.S. central bank on Feb. 1 had closed all swap lines opened during the last crisis, triggered by the subprime- mortgage meltdown in 2007.

“If there is one thing the Fed doesn’t like, it is systemic risk,” said Torsten Slok, an economist at Deutsche Bank AG in New York. “Early signs of systemic risk were brewing in the financial system last week, and if policy makers had not taken action this weekend, then this would also have been a threat to the U.S. financial system.”

---- Fed officials aren’t sure what the immediate demand will be for dollars or how much the U.S. central bank’s balance sheet will grow from its current level of $2.33 trillion. The ECB said its first offering will take place tomorrow. The prior incarnation of the swaps peaked at $583.1 billion in December 2008, with deals encompassing 14 other central banks.

----- “Many members of Congress are deeply suspicious of the Fed’s interventionist instincts,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Bailing out Wall Street caused enough resentment; appearing to bail out Greece would be even more problematic.”

“The Fed cannot afford to rile up its congressional critics while the financial reform bill is still in play,” Crandall said before tonight’s announcement.

The weekend’s events had echoes of the financial crisis in 2008.

http://www.bloomberg.com/apps/news?pid=20601087&sid=amiI5qIW8gDI&pos=4

We end for the day on the Euro Crisis with the FT on a new problem surfacing rapidly. Yet another bailout looks likely ahead. Thank God that it’s only fiat money! Stay long precious metals.

"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Alan Greenspan

€300bn late payments hit European companies

By Richard Milne in Milan Published: May 9 2010 22:40 | Last updated: May 9 2010 23:39

European companies have written off debt of €300bn ($383bn) – equivalent to the total debt of Greece – in the past 12 months because of late payment, imperilling many small companies, according to an authoritative study out today.

Research by Intrum Justitia, a Swedish credit management company, has found that the amount of written-off debt has increased by 8 per cent since last May.

“It is an increasing problem, especially for smaller companies, who are really hurt. They may have a business that could survive by itself but they might go bankrupt because of funding problems. It is a huge amount of money,” said Lars Wollung, chief executive of Intrum Justitia.

Other industrialists underlined their concern over the situation. Rodolfo De Benedetti, chief executive of CIR, an Italian conglomerate, said: “It is a big problem, and it is getting worse because of the recession. You have to keep an eye on working capital but you also have to write off bad debt.” CIR is expecting a wave of small companies to be unable to pay their bills in its energy business.

Small companies play a bigger role in Europe’s economy than in other regions in the world and the number of bankruptcies is increasing even as growth returns. Particular concern is being raised about banks’ willingness to lend and how new capital requirements for financial institutions could weaken that further.

-----The worst countries for payment delays were Portugal and Greece with the Czech Republic, Spain, Italy and Hungary all near the bottom as well. The best countries were all in the Nordic region.

http://www.ft.com/cms/s/0/e7427824-5ba2-11df-85a3-00144feab49a.html

We end for the day with other business news, China’s trade surplus is now shrinking on an import boom. Is China now gaming the statistics? The recent rally in the Baltic Dry Index suggests the commodities stockpiling continues in full swing.

China’s April Trade Surplus Shrinks 87% on Imports

May 10 (Bloomberg) -- China’s trade surplus shrank 87 percent in April from a year earlier as imports grew faster than exports because of stimulus-driven domestic demand.

The surplus of $1.68 billion, reported by the state-run Xinhua News Agency today, compared with a deficit in March. Imports gained 49.7 percent. Exports rose 30.5 percent, topping the 28.9 percent median estimate of 30 economists in a Bloomberg News survey.

A 79 percent decline in the trade surplus in the first four months of 2010 from a year earlier may ease pressure for gains in the yuan and support Premier Wen Jiabao’s argument that the currency isn’t undervalued. The sovereign-debt crisis in Europe that today prompted a loan package of almost $1 trillion to help nations under attack from speculators may also encourage Chinese officials to delay ending the yuan’s peg to the dollar.

“A small trade surplus has re-emerged, but clearly on a downward trend, which we believe will limit the size of yuan appreciation,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia who formerly worked at the International Monetary Fund and the European Central Bank. Exports’ strong momentum “will not last long, amid a weakening European outlook.”

http://www.bloomberg.com/apps/news?pid=20601089&sid=aTCOwmF3SYlM

“The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."

Henry Hazlitt

At the Comex silver depositories Friday, final figures were: Registered 51.66 Moz, Eligible 65.08 Moz, Total 116.74 Moz.

Seventy years ago today Hitler launched his attack in the west that almost brought down western civilization. We continue our (almost) 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 this morning, just an update on developments in the Gulf of Mexico. Sadly, BP’s first attempt at a botch job failed at the first hurdle. The suspicion is around that it was more PR than a realistic solution to the continuing oil leak.

Blame game has no end in sight

Pointing finger at contractors, BP seeks to distance itself from spill

By BRETT CLANTON HOUSTON CHRONICLE May 9, 2010, 11:58PM

While BP says it will pay to clean up the mammoth oil spill in the Gulf of Mexico, the British oil giant has repeatedly placed blame elsewhere for the tragic rig accident last month that started it all.

How much longer it will be able to keep saying so, however, is another question.

The company likely will face a high legal bar in proving contractors involved in drilling the BP well were at fault and liable for damages, given protections BP agreed to in its lease contract for the

Deepwater Horizon drilling rig, one industry analyst said.

Then, there's the question of how much oversight BP had over contractors during the various stages of drilling and building out the well prior to the April 20 blowout that sent the rig up in flames and killed 11 workers.

“I don't see how BP can distance itself from its responsibility associated with being the final decision-maker,” said Bill Herbert, industry analyst with Houston investment bank Simmons & Company International. “Sure, the service providers are recommending and implementing solutions, but it's BP's drilling engineers who are approving the solutions.”

Last week, in an interview with the Houston Chronicle, BP CEO Tony Hayward again sought to downplay BP's role on the rig.

“The way the industry works is that the operators are in essence the architects. They design the well. And the drilling contractors drill the well,” he said.

“And in terms of the safety and the reliability of equipment on a rig, that is absolutely the accountability of the rig contractor, regulated by the MMS.” he said, referring to the Minerals Management Service, a federal agency.

It could be months before investigations yield answers about the causes of the Deepwater Horizon accident. Judges and juries could take years more to apportion blame.

But BP, knowing its financial health and efforts to promote a green image are at stake, has tried to get in front of the growing crisis — as well as remind the public that it's not the only party involved.

Switzerland-based Transocean, owner of the now-sunken Deepwater Horizon, is responsible not only for the half-billion-dollar rig but also the drilling of the well and safety equipment involved, BP says. The latter includes a large stack of seafloor shut-off valves, called a blowout preventer, which apparently failed.

http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/6997670.html

MAY 10, 2010

Rig Owner Had Rising Tally of Accidents

The sinking of the Deepwater Horizon drilling rig, which triggered the spill spewing oil into the Gulf of Mexico, caught the energy world by surprise. The operator, Transocean Ltd., is a giant in the brave new world of drilling for oil in deep waters far offshore. It had been honored by regulators for its safety record. The very day of the blast on the rig, executives were aboard celebrating its seven straight years free of serious accidents.

But a Wall Street Journal examination of Transocean's record paints a more equivocal picture.

Nearly three of every four incidents that triggered federal investigations into safety and other problems on deepwater drilling rigs in the Gulf of Mexico since 2008 have been on rigs operated by Transocean, according to an analysis of federal data. Transocean defended its safety record but didn't dispute the Journal's analysis.

In addition, an industry survey of oil companies that hired Transocean perceived a drop in its quality and performance, including safety by some measures, compared with its peers, though it still scored tops in one safety category.

http://online.wsj.com/article/SB10001424052748704307804575234471807539054.html?mod=WSJEUROPE_hps_LEFTTopWhatNews

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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