Monday, 28 October 2013

Does History Repeat?

Baltic Dry Index. 1671 -37

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

The fairness of taxing more lightly income from wages, salaries or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man’s life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mettle and physical energy and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earnings capacity is at an end.

Andrew Mellon.

We open this storm tossed day in southern England, with yet another warning from the central banksters’ central bank about China, from the Swiss based Bank for International Settlements. Stay long physical precious metals, any attempt at “tapering” by the US Fedster’s risks another 1998 style Asian crisis, but this one led by the world’s number two national economy, China. Dryly and in something of a classic understatement, they suggest “there is a risk of blow-back effects to major economies.” Perhaps this isn’t the moment to point out that despite all the QE Forever, the Baltic Dry Index has just given up 22 percent of its summer rally. 

If the BIS is suggesting that America’s QE Forever really must be QE Forever, the US Federal Reserve is getting just the right person to push that voodoo policy next year. In less than a century we’ve gone from sound money and gold, to QE to infinity and beyond. We stand the next Lehman away from the end of the Great Nixonian Error of fiat money.

"liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."

Andre Mellon.

BIS sees risk of 1998-style Asian crisis as Chinese dollar debt soars

The world's banking watchdog warns that foreign loans to companies and banks in China has tripled over the last five years and may be large enough to set off financial tremors in the West

Foreign loans to companies and banks in China have tripled over the last five years to almost $900bn and may now be large enough to set off financial tremors in the West, and above all Britain, the world’s banking watchdog has warned.

“Dollar and foreign currency loans have been growing very rapidly,” said the Bank for International Settlements in a new report.

“They have more than tripled in four years, rising from $270 billion to a conservatively estimated $880 billion in March 2013. Foreign currency credit may give rise to substantial financial stability risks associated with dollar funding,” it said. China’s reserve body SAFE said 81pc of foreign debt under its supervision is in dollars, 6pc in euros, and 6pc in yen.

The BIS said loose money policies by Western central banks since the Lehman crisis had cut the cost of foreign funding in East Asia, tempting firms to borrow heavily in dollars. The risk is that this process could go into reverse as the US Federal Reserve shuts the spigot, triggering off a dollar liquidity shortage across the region with even bigger knock-on effects than during the East Asian crisis in 1997-1998.

British-based banks hold almost a quarter of all cross-border bank exposure to China, and the figure has risen since 2008.

By contrast, German, Dutch, French and other European banks have slashed their share from 32pc to 14pc, chiefly because they are retrenching to beef up capital ratios at home. Some of the British banks are likely to be branches of Mideast lenders or agents of foreign wealth funds, recycling money through London

The BIS said the Asian dollar funding crisis after the Lehman crash should be a warning shot, though the sums in the region are already much larger. Korea was deeply alarmed by its reliance on European bank debt in 2008-2009 and has capped dependence, but China and Hong Kong have not followed suit.

Talk of Fed `tapering’ in May this year offered a foretaste of trouble to come. It caused a ‘sudden stop’ in capital flows and a surge in dollar borrowing costs across much of Asia. The squall blew over when the Fed began to pull back again, but the BIS said the issue has not gone away.

----East Asia is a much bigger economic animal today than it was fifteen years ago. The BIS said “financial instability” in the region could complicate the West’s exit from quantitative easing. “There is a risk of blow-back effects to major economies.”

But the BIS wasn’t the only entity issuing warnings on China. Backed up with a “blank cheque” from Uncle Sam, Japan’s Prime Minister threatened war to defend the disputed Diaoyu Islands. Yet another reason to stay long physical precious metals.

“Those who don't know history are destined to repeat it.”

Edmund Burke.

Abe Warns China on Island Spat as Japan Dispatches Jets

By Isabel Reynolds & Takashi Hirokawa - Oct 28, 2013 4:45 AM GMT
Prime Minister Shinzo Abe warned he wouldn’t permit China to use force to resolve territorial spats, as the renewed presence of Chinese aircraft near disputed islands prompted the dispatch of fighter jets from Japan.

Japan sent up fighter jets for a third day yesterday after Chinese aircraft flew between its southern islands without entering Japanese airspace, the Self-Defense Forces said on their website. Abe said yesterday the country would not allow any shift in the status quo regarding islands both governments claim in the East China Sea. Abe made similar comments in an interview with the Wall Street Journal on Oct. 25

“We will show the nation’s determination not to allow any change in the current situation by force,” Abe told Japanese troops in a speech at a military base on the outskirts of Tokyo, saying Japan would cooperate with countries that share its values of freedom, democracy and basic human rights. He has previously used such phrases in reference to Japan’s territorial dispute with China.

Since Japan’s September 2012 purchase of three islands also claimed by China, patrol boats from the two countries have tailed one another through the area and the row has damaged trade and tourism ties, with no summit between the leaders of Asia’s two largest economies for about 18 months.

----“If you look at the kind of remarks Abe has made regarding China since he came to power, it’s become clear he wants to play up the China threat rhetoric,” said Dong Wang, director of the Center for Northeast Asian Strategic Studies at Peking University. He added that Abe seemed to be making the comments to back his policy of reinterpreting Japan’s pacifist constitution.

Newspaper reports that Japan is considering asserting its right to shoot down unmanned drones that come into its airspace have added to the tensions. An unidentified drone was spotted outside Japanese airspace close to the disputed islands on Sept. 9.

Chinese unmanned aircraft have not violated Japanese airspace and the shooting down of a drone would prompt retaliation, Defense Ministry Spokesman Geng Yansheng told reporters in Beijing on Oct. 26, according to a statement on the ministry’s website.

“China absolutely does not permit other countries’ aircraft to violate China’s airspace,” Geng said, according to the statement. “If the Japanese side shoots down or takes other coercive measures, to me that’s a serious provocation, it’s an act of war, and we will take decisive measures to fight back.”

In other China news, China’s Communist Party has started conditioning the public for big changes, at next month’s Politburo plenum meeting.

China Signals ‘Unprecedented’ Policy Changes on Agenda at Plenum

By Bloomberg News - Oct 27, 2013 4:01 PM GMT
Chinese Politburo member Yu Zhengsheng said reforms to be discussed at a Communist Party meeting next month will be unprecedented, adding to signs that leaders are resolved to spur far-reaching policy changes.

Yu’s comments, made in a speech at a forum to promote relations with Taiwan, were reported by the official Xinhua News Agency on Oct. 26. Yu is ranked fourth in the seven-strong Politburo Standing Committee headed by party chief and President Xi Jinping.

----The meeting “will focus on studying comprehensive and deep reform,” Yu was quoted as saying in Xinhua’s report. “The depth and strength of the reforms will be unprecedented and will promote profound changes in every area of the economy and society.” The report didn’t refer to any policies or measures.

Yu’s remarks follow comments Xi made to foreign business executives last week that “comprehensive reforms” would be “planned out” during the plenum, according to an English-language Xinhua report on Oct. 23 that didn’t specify any policies. Dates for the meeting haven’t been announced.

"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."

Henry Hazlitt

At the Comex silver depositories Friday final figures were: Registered 44.07 Moz, Eligible 122.96 Moz, Total 167.03 Moz.  

Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.

Say goodbye to the despised euro, if this article on Bloomberg is in any way accurate. Italy will “critically determine the fate of the euro area” posits European Central Bank Executive Board member Joerg Asmussen. If it all depends on Italy, you might as well start dumping out of euro’s now. The EUSSR phase of the EU is about to end, and not before time too. Either the euro as we know it is about to pass into history, reviving the fortunes of Club Med and its lost youth generation, or Club Med will grind its youth generation into unbelievable poverty or emigration. Italy and Club Med have about run out of road. If Italy determines the fate of the fiat euro, the euro has no future at all.

Italy is not technically part of the Third World, but no one has told the Italians.

P. J. O’Rourke

Euro Jobless Fault Line Festers as Italy Scars Recovery

By Stefan Riecher & Lorenzo Totaro - Oct 28, 2013 12:00 AM GMT
Euro-area jobless numbers this week may lay bare a fault line scarring the region’s recovery as evidence of Germany’s employment muscle contrasts with the scourge of political quagmire destroying work in Italy.

While the currency bloc’s longest-ever recession has ended, unemployment held at 12 percent in September, according to the median of 36 forecasts in a Bloomberg survey of economists. Within that data lies a rift between two of its largest economies, with Italy’s rate seen by economists to have reached 12.3 percent, the highest since records began in 1977 -- and more than double Germany’s comparable level.

Italy will “critically determine the fate of the euro area” and the region won’t prosper if that country can’t restore economic growth, European Central Bank Executive Board member Joerg Asmussen said last week. Italian officials predict joblessness in the euro zone’s third-biggest economy will keep rising, against a backdrop of a fragmented coalition jeopardized by the legal woes of former premier Silvio Berlusconi.

“We are still in a very discouraging situation for most of the euro area,” said Anatoli Annenkov, an economist at Societe Generale SA in London. “That’s particularly true for Italy, where politics has come to a rest and necessary structural reforms are not kicking in at all.”

The European Union’s statistics office in Luxembourg will publish euro-area labor data at 11 a.m. on Oct. 31. That’s the day after Germany’s Federal Labor Agency releases numbers for Europe’s biggest economy, predicted by all but two of 36 economists to show a 6.9 percent jobless rate, the same as in August. The level comparable with other euro countries was 5.2 percent, the second-lowest after Austria.

Italy will release labor numbers for September an hour before the euro area report. Last month, data showed the jobless rate among people aged between 15 and 24 reached an historic high of 40.1 percent.

"Sooner or later both the Greek population and international creditors will tire of fighting a losing battle, leading to a break-up of the currency union as Greece pulls out, probably followed by other countries"

Douglas McWilliams, chief executive of the Centre of Economics and Business Research.

The monthly Coppock Indicators finished September:
DJIA: +167 Up. NASDAQ: +213 Up. SP500: +203 Up. All three are back positive again, thanks to continued Fed QE.  High risk speculators will now use any stocks sell-off to go long. After the last Fed meeting and QE U-turn, the Bernocchio put is back on.

No comments:

Post a Comment