Baltic Dry Index. 1010 +21
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
“The world is a place that’s gone from being flat to round to crooked.”
Mad Magazine.
More on the IMF’s latest plan to end existing fiat
money with a new type of fiat, after this. China’s boycott of Japanese goods over
the Diaoyu Islands dispute is starting to bite. Nothing good can come from this
dispute if Japan presses on with this dispute. The irony of Japan’s position
isn’t lost on President Putin’s Russia, who are using the same argument to hold
on to Japan’s northern Kuril Islands. What’s good for the goose is good for the
gander, when it comes to playing around with Asian islands. From London it’s
hard to see how Japan expects to win in the long run. America is unlikely to
fight a war with China over some uninhabited islands, which it tactically gave
to Japan in 1972 to prevent them going back to Mao’s murderous communist
regime. Forty years on and the situation is greatly changed. The relative
importance of both China and Japan has changed. America’s tactic didn’t convey
ownership, because America only held trusteeship. Japan’s claim is weak, and risks long term
damage to Japan’s export interests. Even if a President Romney were to side
with Japan, would America’s Joint Chiefs of the military really sanction a war
with China?
Japan Exports Tumble 10% as Maehara Presses BOJ to Ease: Economy
By Andy Sharp - Oct 22, 2012 7:24 AM GMT
Japan’s exports fell the most since the aftermath of last
year’s earthquake as a global slowdown, the yen’s strength and a dispute with
China increase the odds of a contraction in the world’s third-largest economy.
Shipments slid 10.3 percent in September from a year earlier, leaving a
trade deficit of 558.6 billion yen ($7 billion), the Finance Ministry said in
Tokyo today. The median forecast in a Bloomberg News survey of analysts was for
a 9.9 percent export decline. Imports rose 4.1 percent.Economy Minister Seiji Maehara pressed the Bank of Japan for more action yesterday, saying the nation is “falling behind” in monetary stimulus and is at risk of another credit- rating downgrade. The BOJ today cut its view of eight out of nine regional economies while Taiwanese unemployment rose to a one-year high, underscoring weakness across Asia after China’s third-quarter growth was the slowest since 2009.
----The decline in shipments, exacerbated by a spat with China over islands in the East China Sea, was the biggest since May last year, when the country was rebuilding supply chains wrecked in the March earthquake and tsunami.
Shipments to China, the nation’s largest export market, slid 14.1 percent from a year earlier. Exports to the European Union fell 21.1 percent, while those to the U.S. rose 0.9 percent. Auto shipments to all markets dropped 14.6 percent.
More
Chinese surveillance ships patrol around Diaoyu Islands
BEIJING, Oct. 21 (Xinhua) -- Four Chinese marine surveillance ships patrolled in waters off the Diaoyu Islands on Sunday.The patrol team, composed of the Haijian 51, the Haijian 66, the Haijian 75 and the Haijian 83, entered the waters after taking shelter at an anchorage to avoid approaching typhoons, according to a statement from the State Oceanic Administration.
They have been carrying out normal activities to safeguard China's sovereignty over the Diaoyu Islands, the statement said.
Japan's ties with neighbors sour further with latest war shrine visit
TOKYO,
Oct. 18 (Xinhua) -- Two Japanese Cabinet ministers' visit to a controversial
war shrine on Thursday provoked harsh criticism from Japan's neighboring
countries and has added to already strained diplomatic ties.
The visit
to Yasukuni Shrine in Tokyo by transport minister Yuichiro Hata and postal
privatization minister Mikio Shimoji came just one day after the main
opposition Liberal Democratic Party's (LDP) leader Shinzo Abe paid homage at
the shrine.
Abe,
widely expected to be the nation's next leader should the LDP oust the ruling
Democratic Party of Japan in the upcoming general election, drew harsh
criticism for his visit yesterday from both China and South Korea, at a time
when Japan's relations with the two countries have sunk to an all-time low over
territorial disputes.
The
latest visits by Hata and Shimoji to the contentious Yasukuni, which enshrines
more than 2 million war dead, including 14 Class-A war criminals, is likely to
further aggrieve Japan's East Asian neighbors, according to observers.
More
Now back to the IMF’s strange plan to replace our
existing failing fiat money with new fiat money. Stay long physical precious
metals in case in desperation this becomes plan B. The whole article is well
worth the read. On plan A, our existing fiat currencies all competitively sink
against each other, and are headed towards an eventual giant inflation and revulsion.
Arguably on plan B, we can get there sooner and in spades.
Banks are an almost irresistible attraction for that element of our society which seeks unearned money.
J. Edgar Hoover
IMF's epic plan to conjure away debt and dethrone bankers
So there is a magic wand after all. A revolutionary paper by the International Monetary Fund claims that one could eliminate the net public debt of the US at a stroke, and by implication do the same for Britain, Germany, Italy, or Japan.
One could
slash private debt by 100pc of GDP, boost growth, stabilize prices, and
dethrone bankers all at the same time. It could be done cleanly and painlessly,
by legislative command, far more quickly than anybody imagined.
The
conjuring trick is to replace our system of private bank-created money --
roughly 97pc of the money supply -- with state-created money. We return to the
historical norm, before Charles II placed control of the money supply in
private hands with the English Free Coinage Act of 1666.
Specifically,
it means an assault on "fractional reserve banking". If lenders are
forced to put up 100pc reserve backing for deposits, they lose the exorbitant
privilege of creating money out of thin air.
The
nation regains sovereign control over the money supply. There are no more banks
runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the
rest. That at least is the argument.
Some
readers may already have seen the IMF study, by Jaromir Benes and Michael
Kumhof, which came out in August and has begun to acquire a cult following
around the world.
Entitled
"The Chicago Plan
Revisited", it revives the scheme first put forward by
professors Henry Simons and Irving Fisher in 1936 during the ferment of
creative thinking in the late Depression.
Irving
Fisher thought credit cycles led to an unhealthy concentration of wealth. He
saw it with his own eyes in the early 1930s as creditors foreclosed on
destitute farmers, seizing their land or buying it for a pittance at the bottom
of the cycle.
The
farmers found a way of defending themselves in the end. They muscled together
at "one dollar auctions", buying each other's property back for
almost nothing. Any carpet-bagger who tried to bid higher was beaten to a pulp.
Benes and
Kumhof argue that credit-cycle trauma - caused by private money creation -
dates deep into history and lies at the root of debt jubilees in the ancient
religions of Mesopotian and the Middle East.
Harvest
cycles led to systemic defaults thousands of years ago, with forfeiture of
collateral, and concentration of wealth in the hands of lenders. These episodes
were not just caused by weather, as long thought. They were amplified by the
effects of credit.
The
Athenian leader Solon implemented the first known Chicago Plan/New Deal in 599
BC to relieve farmers in hock to oligarchs enjoying private coinage. He
cancelled debts, restituted lands seized by creditors, set floor-prices for
commodities (much like Franklin Roosevelt), and consciously flooded the money
supply with state-issued "debt-free" coinage.
The
Romans sent a delegation to study Solon's reforms 150 years later and copied
the ideas, setting up their own fiat money system under Lex Aternia in 454 BC.
It is a
myth - innocently propagated by the great Adam Smith - that money developed as
a commodity-based or gold-linked means of exchange. Gold was always highly
valued, but that is another story. Metal-lovers often conflate the two issues.
Anthropological
studies show that social fiat currencies began with the dawn of time. The
Spartans banned gold coins, replacing them with iron disks of little intrinsic
value. The early Romans used bronze tablets. Their worth was entirely
determined by law - a doctrine made explicit by Aristotle in his Ethics - like
the dollar, the euro, or sterling today.
"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."
At the Comex silver depositories Friday final figures were: Registered 36.85 Moz,
Eligible 105.69 Moz, Total 142.54 Moz.
Crooks and
Scoundrels Corner
The bent,
the seriously bent, and the totally doubled over.
Today, one of the
more informed articles on the upside and downside of quantitative easing. A course of central bank action only available
to central banks still issuing their own fiat currency. Though this article is specific to the UK, the
same broadly applies to the USA where the size of the economy makes the numbers
many times larger. Ultimately if pursued to the nth degree, the currency itself
collapses as in Zimbabwe. Here Roger
Bootle the managing director of Capital Economics, covers how QE can help short
of the nth degree. The problem comes with the associated moral hazard where
elected politicians take the easy way out without addressing necessary reform.
Unaddressed unfortunately, once on QE in a voter democracy, can a central bank
stop QE programs without triggering the event that QE was started to prevent?
Ultimately, won’t the voters just vote in populist parties promising the easy
way out? It remains to be seen if Her Majesty’s weak coalition government can
get re-elected and its only been practising austerity-lite.
"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."
Daniel Webster
Let's not take the road to Harare to get recovery on track
This week’s subject is what Sherlock Holmes would have deemed a three-pipe problem – alternative ways of increasing the money supply to boost the economy.
8:32PM BST 21 Oct 2012
I know. It sounds too abstruse to matter
much, never mind be interesting. In fact it is intriguing – and it matters a
lot. As the economy continues to languish, people are starting to contemplate
radical measures. Do these offer a way out?
----The current stimulatory monetary policy is so-called Quantitative Easing (QE). This forbidding name belies a very simple idea – namely the central bank buying financial assets with money that it issues itself.
QE
divides opinion sharply. Some people believe it offers an easy route to
recovery. Others see it as a shady and dangerous way of financing the
government’s deficit, leading directly to higher inflation. Vince Cable once
described it as the road to Harare. In practice, QE has proved to be something
of a damp squib – although, to be fair, we do not know how much worse things
would have been without it, nor whether it will be painlessly unwound.
The question is what to do now? This is
where two supposedly new ideas come in. The first is known in the trade as
“helicopter money”. This expression derives from a 1969 article by the
arch-monetarist Milton Friedman in which he imagined dollar bills being dropped
on the populace by helicopter. In fact, this echoed the suggestion made by John
Maynard Keynes in the 1930s of burying bottles stuffed with bank notes and then
leaving it to private enterprise to dig them up. Moreover, both these thought
experiments mimic the effects of a gold discovery, as happened to Spain in the
16th century.
Today’s radical monetary expansionists
envisage the Treasury sending a cheque drawn on the Bank of England to everyone
in the country. This is less radical than it sounds. It is the equivalent of a
temporary tax cut financed by gilts which are then bought by the Bank.
----This is closely related to the second idea, namely to cancel the government debt that the Bank holds. It would retrospectively discover that it had made an outright gift. Again, however, this is less radical than it seems. For under the current QE regime, the debt has effectively been suspended anyway. The Bank and the Treasury are two parts of the same thing. When the Bank holds gilts, in practice the government is borrowing from itself – and paying interest to itself. The total amount of interest paid to the Bank which, at some point, the Chancellor can take to the Exchequer as a dividend, thereby reducing that year’s borrowing, is currently about £30bn.
Yet when
the economy recovers, even if the Bank’s gilts have been cancelled, or if the
Government has acquired new money at zero cost and without the obligation to
repay, if the Bank wanted to prevent an upsurge of inflation, it would still
have to undertake the same actions to mop up the excess liquidity as it would
to unwind QE.
More
There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.
J. K. Galbraith
The monthly
Coppock Indicators finished September:
DJIA: +66 Up. NASDAQ: +88 DOWN. SP500: +85 Up. All
three indicators had reversed from down to up, but now the NASDAQ has reversed
again to down. While not unprecedented, it is a warning sign a that the July
reversal from up to down is about to fail.
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