Baltic Dry Index. 1474
LIR Gold Target by 2019: $30,000. Revised due to QE Programs.
"The provision of... liquidity support undermines the efficient pricing of risk by providing ex post insurance for risky behaviour. That encourages excessive risk-taking, and sows the seeds of a future financial crisis. The provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises."
Mervyn King. Governor of the Bank of England 2007.
This weekend, 3 articles that deal with the growing unintended consequences of a fiat money economy. Don’t worry, all 3 articles miss the connection to fiat money as the cause of the problems they seek to address. In a fiat money system, there’s very little downside to speculation. The lender of last resort is always ready to bail out the too big to fail banksters, and under intense political pressure from politicians and banksters alike, flood the system with cheap credit and newly minted cash to try to “stimulate” the failing economy. In a fiat system, all decisions about who gets supported and who gets hammered by austerity measures are entirely political. With floods of new money permanently available to “rescue” the ever more unstable system, fiat money is forever doomed to lose purchasing power. Never more so than at a time like this when essentially most of the banking system is still insolvent.
The market can stay irrational longer than you can stay solvent.
John Maynard Keynes.
Motoring coalition calls on EU to investigate soaring price of petrol
A coalition of motoring groups, whose members include the AA and the RAC, has written to the European Union demanding an investigation into the soaring price of petrol, claiming that market pricing is "far from transparent".
9:43PM BST 28 May 2011
With petrol prices reaching record highs, The Federation Nationale d'Automobile (FIA), which represents 35m drivers, has demanded an inquiry into how benchmark prices are set at Europe's key trading centre, the Rotterdam spot market.
UK petrol hit 137.43p per litre last month, driven by wholesale oil prices climbing above $125 per barrel. However, petrol prices did not drop back as quickly as the crude price fell.
The FIA's letter calls on Joaquin Almunia, the EU competition commissioner, to look into "transparency in crude oil and oil product prices" and "investigate the influence and proper functioning of price-fixing mechanisms as at the Rotterdam spot market for finished products".
The British Petrol Retailers' Association, representing 6,000 UK forecourts, has also written to the UK energy minister, Charles Hendry, and the Chancellor expressing concern about petrol pricing.
The Association is about to refer its concerns to the Office of Fair Trading, asking for it to look at the "grave issue" of transparent pricing and its impact on the retail market.
Rotterdam is the key spot trading hub where Europe's cargoes of petrol and diesel are bought and sold. Prices for each trade are gathered and reported by agencies. Petrol wholesalers base their prices on the benchmark assessments made by the agencies.
In his letter to the competition commissioner, Werner Kraus, chairman of the FIA Eurocouncil, said: "The fact that pump prices essentially depend on guideline prices of the Rotterdam spot market for finished products is a cause of particular astonishment.
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"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
City needs to wake up and smell the coffee when it comes to commodities
When things smell wrong it's often because something rotten is festering. Commodity speculation might well turn out to be one of those instances.
By Jonathan Sibun, Assistant City Editor 8:00AM BST 28 May
----There's truth to some of that, but the flip side is that when things smell wrong it's often because something rotten is festering. Commodity speculation might well turn out to be one of those instances. And on this one the City shouldn't just stick its head in the sand and complain of revolting proles.
In recent months speculators have been accused of cornering the market in anything from cotton to cocoa. And it's not just charities and social welfare groups making the noise; business is getting in on the act.
Howard Schultz, barista-in-chief at Starbucks, warned earlier this month that speculators were causing the "inexplicable phenomenon" of coffee prices touching a 34-year high despite a lack of any supply-demand issues.
----Now we've got BMW pointing out that banks have cornered 70pc of the aluminium market. They're buying the metal, selling it forward at higher prices and storing it on the cheap in the interim, or so the car maker claims.
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“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
The Bank of England's astonishing escape from the financial crisis
The Bank of England has stood at the centre of the Britain's financial system for 317 years.
By Jeremy Warner, Assistant Editor 9:44PM BST 28 May 2011
It has withstood riots, runaway inflation, boom and bust and financial crises, including the devastating events of recent years. If nothing else, the Old Lady of Threadneedle Street has proved to be a survivor.
Having remained standing on its three-acre site, enclosed by Sir John Soane's windowless curtain wall, the Bank is, however, about to enter a new era. Come 2013, it will be granted unprecedented powers over both our financial system and the activities of individual banks and other financial firms.
The Bank's senior executives will sit in judgment over not only how much credit we can safely handle as a country, but also the individual decisions of bank chief executives. Only Parliament can question this near absolute power.
Over three days we will investigate the Bank's record, how the new system will work, the people involved and a potentially troublesome relationship with Europe. With access to the senior players at both the Bank and the soon-to-disappear Financial Services Authority, we reveal the coming financial power in the land.
----Given the calamities of the past four years, can the Bank be trusted with such all-embracing power? On the face of it, the record does not inspire confidence. Does it really make sense to be placing so much faith in an institution which many accuse of being asleep at the wheel as the biggest financial crisis in 100 years came crashing down on the economy?
----Well, if there was a failure in monetary policy in the lead-up to the crisis, the Bank of England was hardly the worst offender. All central banks can be accused of much the same thing, perhaps more so in the case of the US Federal Reserve and the European Central Bank.
Rather than letting the business cycle run its course, the quest for monetary policy became that of preventing recessions. Every time a crash or downturn loomed, the Fed, with the rest of the world's central bankers in tow, came riding over the hill to save the day by flooding the markets with cheap money – a phenomenon that became known as the "Greenspan put".
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In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.
J. K. Galbraith
At a time like this, where America is running trillion and a half dollar deficits forever, where all major countries are on zero interest rate policies, making saving futile, and many are running QE programs to prop up their broken economies, why wouldn’t speculation on leverage, and casino capitalism be the only game in town. Don’t blame the specs, blame the system of fiat money instituted by a panicked President Nixon back in 1971. Hot money careens from one speculation to the next, checked only occasionally by central bank interventions that get progressively weaker as they get gamed. Welcome to the world on fiat money. As fiat fails, the game gets ever more bizarre as volatility make long term planning impossible. Eventually we will end up in fiat money revulsion, but probably that still 5 – 10 years away. Stay long physical gold and silver. We all know how this insolvency ends, we just don’t know the timing of when the world gets forced off fiat money.
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. 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.
GI.
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