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A Well-Kept Open Secret: Washington Is Behind India’s Brutal Experiment of Abolishing Most Cash

A Well-Kept Open Secret: Washington Is Behind India’s Brutal Experiment of Abolishing Most Cash

By Norbert Haering, a German financial journalist, blogger and PhD economist, who received the 2007 getAbstract Best Business Book award and the 2014 prize of the German Keynes Society for economic journalism. His best-selling book (in German) “The abolition of cash and the consequences” was published in 2016. Originally published on norberthaering.de (http://norberthaering.de/en/home/27-german/news/745-washington-s-role-in-india). Republished with permission of the author.

In early November, without warning, the Indian government declared the two largest denomination bills invalid, abolishing over 80 percent of circulating cash by value. Amidst all the commotion and outrage this caused, nobody seems to have taken note of the decisive role that Washington played in this. That is surprising, as Washington’s role has been disguised only very superficially.

U.S. President Barack Obama has declared the strategic partnership with India a priority of his foreign policy. China needs to be reined in. In the context of this partnership, the US government’s development agency USAID has negotiated cooperation agreements with the Indian ministry of finance. One of these has the declared goal to push back the use of cash in favor of digital payments in India and globally.

On November 8, Indian prime minster Narendra Modi announced that the two largest denominations of banknotes could not be used for payments any more with almost immediate effect. Owners could only recoup their value by putting them into a bank account before the short grace period expired at year end, which many people and businesses did not manage to do, due to long lines in front of banks. The amount of cash that banks were allowed to pay out to individual customers was severely restricted. Almost half of Indians have no bank account and many do not even have a bank nearby.

…click on the above link to read the rest of the article…

The Italian Banking Crisis: No Free Lunch – Or Is There?

The Italian Banking Crisis: No Free Lunch – Or Is There?

It has been called “a bigger risk than Brexit”– the Italian banking crisis that could take down the eurozone. Handwringing officials say “there is no free lunch” and “no magic bullet.” But UK Prof. Richard Werner says the magic bullet is just being ignored. 

On December 4, 2016, Italian voters rejected a referendum to amend their constitution to give the government more power, and the Italian prime minister resigned. The resulting chaos has pushed Italy’s already-troubled banks into bankruptcy. First on the chopping block is the 500 year old Banca Monte dei Paschi di Siena SpA (BMP), the oldest surviving bank in the world and the third largest bank in Italy. The concern is that its loss could trigger the collapse of other banks and even of the eurozone itself.

There seems little doubt that BMP and other insolvent banks will be rescued. The biggest banks are always rescued, no matter how negligent or corrupt, because in our existing system, banks create the money we use in trade. Virtually the entire money supply is now created by banks when they make loans, as the Bank of England has acknowledged. When the banks collapse, economies collapse, because bank-created money is the grease that oils the wheels of production.

So the Italian banks will no doubt be rescued. The question is, how? Normally, distressed banks can raise cash by selling their non-performing loans (NPLs) to other investors at a discount; but recovery on the mountain of Italian bad debts is so doubtful that foreign investors are unlikely to bite. In the past, bankrupt too-big-to-fail banks have sometimes been nationalized. That discourages “moral hazard” – rewarding banks for bad behavior – but it’s at the cost of imposing the bad debts on the government. Further, new EU rules require a “bail in” before a government bailout, something the Italian government is desperate to avoid.

…click on the above link to read the rest of the article…

UBS Warns: Spain’s “Most Italian Bank” Runs Out of Options

UBS Warns: Spain’s “Most Italian Bank” Runs Out of Options

The bank-bailout business rages on.

During the first week of 2017, Spain’s “most Italian bank”, Banco Popular, got off to a flying start as its stock outperformed all other major Spanish banks. By Jan 5th its shares had even crossed the €1-line for the first time in nearly a month. But Popular’s New Year fairy tale was not made to last.

Its upward momentum, if that’s the right term, was brought to a halt by a bombshell report from UBS that concludes that Popular’s stock, which already lost three-quarters of its value last year and is down over 90% since 2008, is still overvalued by 20%. In less than an hour, Popular’s shares were back under a euro. That’s life in the penny-stock lane.

According to the report, Popular has a provision deficit of €1.9 billion. In other words, it has nonperforming loans and other toxic assets on its books whose losses would amount to €1.9 billion. But it has not yet booked (or “recognized”) those losses. If it did finally recognize those losses, it could end up with a €2.4 billion capital gap. That’s the equivalent of roughly 60% of its current market cap.

The UBS analysts acknowledged that their previous forecast of the bank’s capacity to absorb loss provisions had been “too optimistic”, with the new estimates showing a lower coverage ratio (46% compared to the previous 50%) and capital ratio (10% instead of 10.8%).

UBS also poured cold water on the idea of Banco Popular further expanding its bad-debt provisions, since doing so would “permanently depress” its profitability, limiting its capacity to create new capital and increasing its regulatory risk. This is bad news for a bank that continues to drown in its own toxic soup eight years after the burst of Spain’s mind-boggling real estate bubble.

…click on the above link to read the rest of the article…

Who Exactly Benefits from Italy’s Ballooning Bank Bailout?

Who Exactly Benefits from Italy’s Ballooning Bank Bailout?

Italy’s third largest bank, Monte dei Paschi di Siena, is not insolvent, according to the ECB; it just has “serious liquidity issues.” It’s a line that has already been heard a thousand times, in countless tongues, since some of the world’s largest banks became the world’s biggest public welfare recipients.

In order to address its “liquidity” issues, Monte dei Paschi (MPS) is about to receive a bailout. The Italian Treasury has said it may have to put up around €6.6 billion of taxpayer funds (current or future) to salvage the lender, including €2 billion to compensate around 40,000 retail bond holders.

The rest will come from the forced conversion of the bank’s subordinated bonds into shares. According to the ECB, the total amount needed could reach €8.8 billion, 75% more than the balance sheet shortfall originally estimated by MPS and its thwarted (but nonetheless handsomely rewarded) private-sector rescuers, JP Morgan Chase and Mediobanca.

All these events conform to a well established script. The moment the “competent” authorities (in this case, the ECB and the European Commission) agree that public funds will be needed to prop up an ostensibly private financial institution that is not too big to fail but nonetheless cannot be allowed to fail, the bailout costs inevitably soar.

And this is just the beginning. According to Italy’s Finance Minister Pier Carlo Padoan, the Italian government has already authorized a €20-billion fund to support Italy’s crumbling banking sector, with up to eight regional banks lining up for state handouts. In addition, MPS plans to issue €15 billion of new debt to “restore liquidity” and “boost investor confidence,” as several Italian newspapers reported on today. That debt will be guaranteed by the government and its hapless taxpayers.

…click on the above link to read the rest of the article…

China Moves Forward with Its De-Dollarization Strategy

China Moves Forward with Its De-Dollarization Strategy 

The world monetary order is changing. Slowly but steadily, global trade and currency markets are becoming less dollar-centric. Formerly marginal currencies such as the Chinese yuan now stand to become serious competitors to U.S. dollar dominance.

Could gold also begin to emerge as a leading currency in world trade? Over time, it certainly could. But the more immediate implications for gold’s monetary role center on its increasing accumulation by central banks such as China’s.

As of October 1st, the Chinese yuan has entered the International Monetary Fund’s Special Drawing Right (SDR) basket of top-tier currencies. It now shares SDR status with the U.S. dollar, euro, British pound, and Japanese yen.

Before the yuan officially becomes an SDR currency, the World Bank intends to sell $2.8 billion in SDR bonds in Chinese markets. The rollout of SDR bonds in China began August 31st. According to Reuters, China’s promotion of SDR bonds “is part of a wider push in China to… boost demand for Chinese yuan and diminish reliance on the U.S. dollar in global reserves.”

King Dollar won’t be dethroned overnight. But the place of prominence the U.S. dollar enjoys as the world’s reserve currency will indeed diminish over time.

Yuan’s Inclusion in the SDR Currency Basket: Merely a Part of China’s De-Dollarization Strategy

China and Russia have mutual geostrategic interests in helping to promote de-dollarization. Toward that end, the two powers are engaging in bilateral trade deals that bypass the dollar. Annual bilateral trade between China and Russia has surged from $16 billion in 2003 to nearly $100 billion today. When China hosted the G20 summit in September, it will make Russian President Vladimir Putin its premier guest of honor.

U.S. officials are none too pleased. They fear Putin aims to expand his global reach by forging stronger ties with China.

…click on the above link to read the rest of the article…

Should the Fed Raise Interest Rates?

Should the Fed Raise Interest Rates?

For some time now the Fed has been hinting that it will moderate its interventions–monetizing government debt by printing money to buy government bonds and now quantitative easing by printing money to buy corporate bonds–in order to drive down the interest rate to unprecedented low levels. The Keynesian theory behind these interventions is that lower interest rates will spur lending, which in turn will spur spending. In the Keynesian mindset spending is all important–not saving, not being frugal, not living within one’s own means–no, spend, spend, spend. The Keynesians running all the world’s banks firmly believe that it is their duty that spending not diminish one cent, even if this means going massively into debt. Keynes himself famously said that government should borrow money to pay people to dig holes in the ground and then pay them again to fill them back up.

To Austrian school economist like myself, this is childish, shallow, and ultimately dangerous thinking. Austrians understand that economic prosperity depends first of all upon savings, not spending. Savings is funneled by the capital markets into productive, wealth generating enterprises. Gratuitous spending is simply consumption. Now, there is nothing wrong with consumption…as long as one has actually produced something to be consumed. Printed money is not the same as capital accumulation. Or, as Austrian school economist Frank Shostak explains, goods and services are the “means” of exchange and money is merely the “medium” of exchange. Expanding the means of exchange through increased production–which requires increased capital, which itself requires increased savings–is a hallmark of a prosperous society. Increasing the medium of exchange out of thin air, as is current central bank policy, is the hallmark of a declining society that has decided to eat its seed corn.

…click on the above link to read the rest of the article…

Deutsche Bank Is Going Under: The Real Reason Germans Were Told To Prepare For A National Crisis?

Deutsche Bank Is Going Under: The Real Reason Germans Were Told To Prepare For A National Crisis?

There is a very real possibility that Deutsche Bank is going down.

If the most prominent bank in Germany fails, the effect on Europe will be profound, and I don’t think the United States will escape the effects. The ripples will turn into a tsunami as they travel across the Atlantic. Already, the bank’s troubles have stressed the American stock market.

Angela Merkel has stated that Deutsche Bank will not be getting a bailout from the European Central Bank – the lender of last resort for European banks.

The Department of Justice recently issued a $14 billion fine to the bank to settle a mortgage-backed securities probe…and the bank has no intention of paying.

Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early Friday in Frankfurt. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”(source)

Deutsche Bank shares fell alarmingly this morning on the news that Merkel won’t support the bank.

Deutsche shares fell as much as six percent to €10.67 in early Monday trading, the worst performance since 1992.

The bank has lost over 52 percent of its value since January and over 56 percent in the last twelve months. Earnings per share fell as much as €6.

The collapse has been prompted by a report in the German magazine Focus that said Chancellor Angela Merkel has ruled out any state assistance for the bank next year.

…click on the above link to read the rest of the article…

A Scam Too Far

A Scam Too Far

The relentless propaganda of economic recovery isolated ‘the economy’ from the broader system of political and economic control and posed the heavily engineered up-cycle as a permanent new state of affairs. It also pitted the facts as lived by hundreds of millions of people against the insistence by the governments and central banks of the U.S., the E.U. and Britain that recreation of the circumstances that produced the prior three crises would somehow produce widely-shared and benevolent outcomes this time around. What the Wells Fargo ‘scandal’ renders evident is that what was recovered is the system of predatory finance that exists as institutionalized capitalist taking in the service of a tiny but powerful plutocracy.

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Graph: the capitalist coup that began in the 1970s was a response to a real crisis alternatively framed as a falling rate of profit and / or declining plutocratic control over Western political economy. Financialization shifted the balance of power back toward capital through the money system. Banks create money against separable liabilities. 

…click on the above link to read the rest of the article…

How Much Longer Will Investors Trust the Central Banks?

How Much Longer Will Investors Trust the Central Banks? 

There is no simple, painless solution. The world has to reduce debt, shrink the financial part of the economy, and change the destructive incentive structures in finance. Individuals in developed countries have to save more and spend less. Companies have to go back to real engineering. Governments have to balance their books better. Banking must become a mechanism for matching savers and borrowers, financing real things. Banks cannot be larger than nations, countries in themselves. Countries cannot rely on debt and speculation for prosperity. The world must live within its means.

~ Satyajit Das, Extreme Money: Masters of the Universe and the Cult of Risk

There is now almost $16 trillion worth of sovereign debt trading with a negative yield. Last week the credit bubble entered new territory with two euro zone issuers of corporate debt, Germany’s Henkel and France’s Sanofi, becoming the first private firms to sell negative-yielding non-financial corporate bonds in euros. This may, just may, happen to mark the top of the great bond bull run that started as far back as the early 1980s. By Friday of last week, the implications of an ugly slide across bond and stock markets may have led some fund managers and traders to soil themselves, or suffer heart problems, or both. By a happy coincidence, however, Henkel makes Persil laundry detergent, and Sanofi makes treatments for cardiovascular disease. So any affected “investors” dumb enough to have bought those guaranteed loss-makers and then suffered immediate regret don’t have to look too far for a remedy.

Doubts Emerge in Global Markets

Taper Tantrum II” would appear to have arrived. The sell-off in bond markets last week was universal. US Treasuries, UK Gilts, German Bunds, Japanese JGBs, all declined. Japanese bonds are suffering more than most. Kevin Buckland, Wes Goodman and Shigeki Nozawa for Bloomberg report:

…click on the above link to read the rest of the article…

88% Probability We Just Entered Recession & The Broken Monetary Mechanism That Got Us Here

88% Probability We Just Entered Recession & The Broken Monetary Mechanism That Got Us Here

But so allow me an attempt to mend some bridges.  Let’s start by looking at the various existing frameworks that drive economic policy.  We have Monetary policy (the banks), Fiscal policy (Congress), Microeconomic policy (Corporations).  So let’s look at each.

Let’s begin with Fiscal policy.  The very first issue that should jump out to everyone is that Congress has been utterly ineffective for almost 2 decades now.  That is because the partisanship has become so intense that there simply seems no room for compromise in an effort to get any reasonable piece of legislation done.  What we are left with is a slew of outdated fiscal policies.  Perhaps most detrimental is a corporate tax rate nearly twice that of many other developed nations.

The problem with relatively (to other nations) high corporate tax rates is it means that any domestic investment, everything else equal, has a significantly longer breakeven point.  Said another way, the return on domestic investment is much lower than the return on foreign capital investment (ceteris paribus).  This is a very intuitive concept, easily digestible by all.  The implication is that the relative level of corporate tax rates here in the US incentivize corporations to invest elsewhere.

…click on the above link to read the rest of the article…

Former Treasury Secretary says banks may be riskier now than in the 2008 crisis

Former Treasury Secretary says banks may be riskier now than in the 2008 crisis

“Sir. SIR! This your bag,” the TSA agent barked at me last week, more as a statement than a question.

“It is.”

“Are you carrying any liquids?”

I knew immediately; I had forgotten about the bottle of water that I had shoved in my briefcase before checking out of my hotel.

They opened my bag and confiscated the water bottle immediately with an extra harrumph to make sure I knew that I had wasted their time.

Yeah, I get it. I broke the rule. But it’s such a ridiculous rule to begin with.

Are we really supposed to pretend that Miami International Airport is any safer because there’s a brand new, unopened Dasani bottle in the TSA wastebin?

You may recall how Istanbul’s Ataturk Airport was attacked on June 28th by men armed with automatic weapons and explosives.

Ataturk was already one of the most security-conscious airports in the world– you actually have to go through a security checkpoint just to enter the building, followed by a second security checkpoint on your way to the gate.

And yet, despite all of this extra security, 41 people were killed and hundreds more wounded in an attack that shows just how ineffective airport security really is.

Airport security isn’t real security. It’s merely the illusion of security– a bunch of busybodies in uniforms enforcing pointless rules to make people believe that they’re safer.

Candidly, our financial system has borrowed the same principle. There’s no real safety in our financial system– merely the illusion of safety.

Leading up to the 2008 financial crisis, most people thought the banks were safe.

After all, we’ve been told our entire lives that the banks are rock solid. What could go wrong?

…click on the above link to read the rest of the article…

Major Problems Announced At One Of The Largest Too Big To Fail Banks In The United States

Major Problems Announced At One Of The Largest Too Big To Fail Banks In The United States

Wells FargoDo you remember when our politicians promised to do something about the “too big to fail” banks?  Well, they didn’t, and now the chickens are coming home to roost.  On Thursday, it was announced that one of those “too big to fail” banks, Wells Fargo, has been slapped with 185 million dollars in penalties.  It turns out that for years their employees had been opening millions of bank and credit card accounts for customers without even telling them.  The goal was to meet sales goals, and customers were hit by surprise fees that they never intended to pay.  Some employees actually created false email addresses and false PIN numbers to sign customers up for accounts.  It was fraud on a scale that is hard to imagine, and now Wells Fargo finds itself embroiled in a major crisis.

There are six banks in America that basically dwarf all of the other banks – JPMorgan Chase, Citibank, Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs.  If a single one of those banks were to fail, it would be a catastrophe of unprecedented proportions for our financial system.  So we need these banks to be healthy and running well.  That is why what we just learned about Wells Fargois so concerning…

Employees of Wells Fargo (WFC) boosted sales figures by covertly opening the accounts and funding them by transferring money from customers’ authorized accounts without permission, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and Los Angeles city officials said.

An analysis by the San Francisco-headquartered bank found that its employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers, the officials said. Many of the transfers ran up fees or other charges for the customers, even as they helped employees make incentive goals.

…click on the above link to read the rest of the article…

Major Problems Announced At One Of The Largest Too Big To Fail Banks In The United States

Major Problems Announced At One Of The Largest Too Big To Fail Banks In The United States

Wells FargoDo you remember when our politicians promised to do something about the “too big to fail” banks?  Well, they didn’t, and now the chickens are coming home to roost.  On Thursday, it was announced that one of those “too big to fail” banks, Wells Fargo, has been slapped with 185 million dollars in penalties.  It turns out that for years their employees had been opening millions of bank and credit card accounts for customers without even telling them.  The goal was to meet sales goals, and customers were hit by surprise fees that they never intended to pay.  Some employees actually created false email addresses and false PIN numbers to sign customers up for accounts.  It was fraud on a scale that is hard to imagine, and now Wells Fargo finds itself embroiled in a major crisis.

There are six banks in America that basically dwarf all of the other banks – JPMorgan Chase, Citibank, Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs.  If a single one of those banks were to fail, it would be a catastrophe of unprecedented proportions for our financial system.  So we need these banks to be healthy and running well.  That is why what we just learned about Wells Fargois so concerning…

Employees of Wells Fargo (WFC) boosted sales figures by covertly opening the accounts and funding them by transferring money from customers’ authorized accounts without permission, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and Los Angeles city officials said.

An analysis by the San Francisco-headquartered bank found that its employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers, the officials said. Many of the transfers ran up fees or other charges for the customers, even as they helped employees make incentive goals.

…click on the above link to read the rest of the article…

Beyond the Zombie Economy

Beyond the Zombie Economy 

Flickr/S
J Pinkney. Some rights reserved.

Economic metaphors are important to illustrate the distinct features of specific economic systems that exist at particular times. The Great Depression, for instance, uses a psychological framing of ‘depression’ to depict the dynamics of an economic system incapable of recovering from financial collapse. The present day metaphor is the ‘Zombie’ economy depicting the economic system as an unthinking monster in relentless pursuit of a single objective – here, short-term profits are synonymous with human brains. This builds on from the well-used ‘Zombie Banks’ metaphor made popular in the 2000s to describe the Japanese financial system, in which endless public subsidies to banks resulted in systemic erosion of economic vitality – the lesson was feeding the Zombie only breeds more.

There are, of course, other metaphors used to describe contemporary capitalism; like the ‘Vampire Squid’ used to illustrate the role of financial institutions in sucking the life out of the global economy. Sanguineous metaphors are very popular historically for depicting the role of finance within the economy as ‘bleeding it dry’; the Vampire, like the Zombie, is a monster with a singular rational objective ‘to feed’ and the humans are always its prey. Of course, Keynes preferred the ‘animal spirits’ metaphor to explain the same inhumane aspects of markets that must be controlled to sustain a market civilization.

Two books in particular articulate different aspects of the Zombie economy metaphor. The fist is John Quiggin’s Zombie Economics: how dead ideas still walk among us, which systematically unpicks how defunct economic theories are clung to by policy makers and politicians.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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