A Dire Warning On China.

Baltic Dry Index. 855 +11

LIR Gold Target by 2019: $30,000. Revised due to QE programs.

Mr. Squid: [to George Bailey] Look at you. You used to be so cocky. You were going to go out and conquer the world. You once called me a warped, frustrated, old man! What are you but a warped, frustrated young man? A miserable little clerk crawling in here on your hands and knees and begging for help. No securities, no stocks, no bonds. Nothin' but a miserable little $500 equity in a life insurance policy. A 99 percenter! [Ebenezer chuckles]

Mr. Squid: You're worth more dead than alive! Why don't you go to the riffraff you love so much and ask them to let you have $8,000? You know why? Because they'd run you out of town on a rail. Well, I'll tell you what I'm going to do for you, George. Since the state examiner is still here, as a stockholder of the Building and Loan, I'm going to swear out a warrant for your arrest. Misappropriation of funds, manipulation, malfeasance...

Ebenezer Squid. With apologies to Frank Capra and It’s A Wonderful Life.

For more on Ebenezer and “God’s Work,” scroll down to Crooks and Scoundrel’s corner.

Today, a break from the sad chaotic state of German lead, suicidal Euroland, where the poor Greeks could probably get a better deal by merging with Turkey than relying on the sympathy and kindness of strangers in Germany. Today, while the UK Prime Minister junkets in America with President Obama, (in a sign of current times, Mr. Cameron isn’t even due to meet with any of the potential Republican contenders on this trip,) Satyajit Das used his commentary article in MarketWatch to issue a stark warning on China. On the heels of yesterday’s warning by Prime Minister Wen on the potential for social chaos in China if the economy and politics aren’t reformed, is this the bell ringing at the top for China’s attempt at avoiding the G-7 collapse of 2007-2008?

March 14, 2012, 9:01 p.m. EDT
Chinese banquet is nearing the end
Commentary: ‘Botox economics’ threatens China with toxic shock
SYDNEY (MarketWatch) — Like the rest of the world, China’s recovery from the global financial crisis was the result of “Botox economics.” Taking advantage of a centrally controlled, command economy, Beijing boosted output through government spending and directed bank lending to maintain growth.

Unfortunately, China now faces significant problems.

The weakness of its two major trading partners (the U.S. and Europe) means export demand is likely to remain subdued. Domestically, the side-effects of debt-driven investment are now emerging.

China’s ability to sustain high growth levels is questionable. Specifically, its capacity for further stimulus is uncertain. The ability to adjust the economy to the new economic environment poses unprecedented challenges in rebalancing consumption and investment within China. Slowing growth also poses social and political challenges. Chinese Premier Wen Jiabao has repeatedly admitted that the “stabilization and recovery of the Chinese economy are not yet steady, solid and balanced”. Read more: China's not so miraculous recovery.

The conventional view is that China will be able to continue to stimulate demand using its large foreign exchange reserves, large domestic savings and low levels of debt.

China’s $3.2 trillion in foreign exchange reserves are invested in predominately in U.S. dollars, euro and yen, primarily in the form of government bonds and other high-quality securities. These assets have lost value, through increasing default risk (as the issuer’s ratings are downgraded) and falls in the value of the foreign currency against the renminbi.

----China also has far greater levels of debt than commonly acknowledged, although the bulk is held domestically. The Central government has a low level of debt — around $1 trillion (17% of GDP). In addition, state-owned and state-supported entities have debt totalling $2.6 trillion (42%); local governments about $1.2 trillion (19%); policy banks $800 billion (13%); Ministry of Railways $280 billion (5%), and government-backed asset-management companies set up to hold non-performing bank loans $300 billion (5%). The total debt, around $3.6 trillion, is 59% of GDP.

The debt levels are exacerbated by what Michael Pettis in his book “The Volatility Machine” describes as an inverted debt structure — where borrowing levels increase when the economy has problems. When the economy slows, China’s debt levels, both direct and contingent, will increase rapidly.

----The reality is that since 2007/ 2008, a part of China’s growth has been an illusion. Since 2008, China’s headline growth of 8%-10% has been driven by new lending averaging around 30%-40% of GDP. Up to 20%-25% of these loans may prove to be non-performing, amounting to losses of 6%-10% of GDP. If these losses are deducted, Chinese growth is much lower.

The China economic debate is focused on the alternatives of a soft or hard landing.
More
http://www.marketwatch.com/story/chinese-banquet-is-nearing-the-end-2012-03-14

Satyajit Das is author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)

For the rest of today’s update we stay with casino capitalism’s predilection for dishonesty, cheating, deceit, fraud, perfidy, swindling and theft. Another unintended consequence of the Great Nixonian Error of fiat currency.

"Finance is the art of hypothecating client currency from deal to deal until it finally disappears."

With Apologies to Robert W. Sarnoff

Heiress Daphne Guinness is MF Global creditor
Heiress Daphne Guinness, the City regulator, and even the Institute of Risk Management are among a long list of creditors owed money by the UK arm of collapsed broker MF Global.
By Jamie Dunkley and Emma Rowley 10:18PM GMT 14 Mar 2012
The register, published on administrator KPMG’s website tonight, revealed the names and addresses of thousands of individuals, businesses and organisations that have money trapped within MF Global, which failed in October after a disastrous $6.3bn (£4bn) bet on European sovereign debt.

According to the document, the Guinness heiress and fashionista – who could not be reached for comment – is owed just under £150,000 of the £1.7bn listed.

Among the other names included is Express News – a company owed £500,000 and registered at the offices of Richard Desmond’s Express Newspapers – as well as a host of banks, brokers, fund managers and pension funds.

The Financial Services Authority is also owed more than £750,000, while City PR firm Brunswick is owed £18,000.

However, living up to its name is the Institute of Risk Managers. It is owed £50.

---- James Nicholls, a lawyer acting for a group of creditors to the company, said: “The fact the FSA itself is out of pocket to the tune of £750,000 is ironic – it’s worth the pay of at least 10 decent supervisors.”
More
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9144688/Heiress-Daphne-Guinness-is-MF-Global-creditor.html

We end for today, with more of the same. Derivatives casino skulduggery in London, former home to AIG’s Financial Product division under the American Wunder Kid Joe Cassano. Skulduggery in the City of London? Whatever happened to “my word is my bond?” Banksterism and theft certainly, capitalism, profits and caveat emptor it aint. Not to worry, it’s only fiat money, and there’s plenty more where that comes from.

“Ground zero for AIG's spectacular implosion, which has soaked up more federal bailout money than any other entity, appears to have been a small London branch office that may have put as much as half a trillion dollars at risk.

The disastrous deals were built up in a decade and, when the crisis hit, the man who ran the unit for the last eight years retired after making $280 million for himself and leaving with a $1 million-a-month consulting contract.

The struggling New York-based insurance giant has avoided collapse with the massive infusion of $160 billion in taxpayer money. The U.S. government has agreed to prop up AIG because it fears that AIG has such extensive financial involvement around the world that its failure would be far more costly.”

FSA called to account on interest rate swap concerns
The chairman of the powerful Treasury Select Committee has intervened in the growing controversy over the sale of complex derivatives by investment banks to small businesses.
By Richard Tyler 9:03PM GMT 14 Mar 2012

Andrew Tyrie said firms had attempted to raise the issue with the FSA and he wanted the City regulator to clarify what it had uncovered.

"I intend to write to the chairman of the FSA for an explanation of how this issue is being handled," said Mr Tyrie.

Thousands of firms, from caravan parks to children's nurseries and fish and chip shops, have been affected.

High street banks began selling highly profitable interest rate swap derivatives created by their investment banking arms to their small business customers over the last decade, often as a condition of securing traditional, but low margin loans. While banks collected up-front profits from the sale of the derivatives, their customers were often locked into payments far outstripping the fees forecast as interest rates fell to historic lows.

The firms also discovered they faced unexpected exit fees of hundreds of thousands of pounds.

---- Dozens of small firms have complained to the Telegraph, with many asking to remain anonymous for fear their bank will call in their loans if they speak out publicly.
More
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9144445/FSA-called-to-account-on-interest-rate-swap-concerns.html

Unsurprisingly with the City’s business ethics of those of the gutter, the UK’s credit rating is under fire, although it has as much to do with the imminent collapse of the “American’s of Europe” led European Monetary project as the City of London’s ethics problem.

UK could lose coveted AAA rating, warns Fitch
Britain's hopes of retaining its prized triple-A credit rating were dealt a blow last night after Fitch said the country was more likely than not to be downgraded.
By Jonathan Sibun, Louise Armitstead 8:55PM GMT 14 Mar 2012
In a major setback for George Osborne ahead of next week’s Budget, Fitch said the “risks and uncertainty” surrounding the Coalition’s debt reduction plans were “material”.

Fitch said it regarded the Government’s fiscal plans as “credible”, but said that its decision to take a negative outlook reflected “the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery”.

The credit rating agency put a slightly greater than one in two chance on a downgrade for the UK over the next two years.

It cited the eurozone crisis – which “is not resolved and could once more intensify” – and the backdrop of the UK’s “still large” structural budget deficit and its “high and rising” government debt as the main drivers.

The move comes after rival agency Moody’s last month likewise put Britain’s top-notch rating on a negative outlook.
More
http://www.telegraph.co.uk/finance/economics/9144551/UK-could-lose-coveted-AAA-rating-warns-Fitch.html

So, it’s business as usual, then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker “doing God’s work”.

The Times. London November 9, 2009.

At the Comex silver depositories Tuesday final figures were: Registered 34.54 Moz, Eligible 96.24 Moz, Total 130.78 Moz.

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