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Two years ago, prior to travelling to Sydney to present at the Annual Precious Metals Symposium, I prepared an article for the Gold Standard Institute Journal titled Cognitive Dollar Dissonance: Why a Global De-Leveraging Requires the De-Rating of the Dollar and the Remonetisation of Gold (see here). This article highlighted the growing inconsistency between those arguing on the one hand that the dollar’s role in international trade and finance was clearly diminishing; yet denying that it was in any danger of losing the near-exclusive monetary reserve status it has enjoyed since the 1940s.

This apparently contradictory yet mainstream thinking about the future of the international monetary system continues to the present day. Indeed, earlier this month the Economist magazine ran a special feature on fading US economic power replete with dollar dissonance. The experts cited note the accelerating trend towards bilateral trade settlement, say between Russia and China, who plan to finance their multiple ‘Silk Road’ infrastructure projects using their own currencies and their own development bank (The Asian Infrastructure Investment Bank or AIIB: See http://www.aiib.org/). They also observe that Russia, China and the other BRICS are no longer accumulating dollar reserves (although curiously overlook that they continue to accumulate gold). They acknowledge that not only the BRICS but many other countries have repeatedly expressed their desire that the current set of global monetary arrangements should be restructured in some way, although they are not always clear as to their specific preferences.

Note the sharp contrast in these two paragraphs, both on the very same page of the Economist feature:

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

The Real Reason Belgium Sold 1,098 Tonnes Of Gold

October 10, 2015

The Real Reason Belgium Sold 1,098 Tonnes Of Gold

Belgium sold 1,098 tonnes of its official gold reserves since 1978.

For our global investigation how much physical gold central banks have stored at what location and how much is leased out, I decided to submit the local equivalent of a Freedom Of Information Act (FOIA) request at the central bank of Belgium, de Nationale Bank van België (NBB), to obtain information about the amount of Belgian official gold reserves, the exact location of all gold bars, the type of gold accounts NBB holds at the Bank Of England (BOE) and how much is leased out and to whom. The outcome of this research was not what I had expected.

History Of The Official Gold Reserves Of Belgium

Some of the questions I directed at the NBB I used a stepping stone, as this information is publicly available in part. At the end of August 2015 NBB was holding 227.4 tonnes of gold, down 0.04 tonnes from 227.44 tonnes in July, according to data from the Bundesbank that publishes the gold holdings of 19 European central banks and the ECB in compliance with the IMF’s most recent version of the Balance of Payments and International Investment Position Manual (BPM6). The Bundesbank (BuBa) publishes the fine troy ounces of the official gold reserves in ‘Gold bullion’ and ‘Unallocated gold accounts’. If we add up both categories the outcome for all countries equals the reserves disclosed by the World Gold Council.

From BuBa:

The balance of payments statistics will … be consistent with the framework set out in the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). The application of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) is binding for EU member states by virtue of a regulation adopted by the European Commission.

Back in 1965 NBB was holding over 1,300 tonnes of gold. Since 1978 it has sold a whopping 1,098 tonnes, or 83 %.

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

IMF: $3 trillion in “Over-Borrowing Now Threatens To Unleash a Wave of Defaults”

October 10, 2015

IMF: $3 trillion in “Over-Borrowing Now Threatens To Unleash a Wave of Defaults”

Global Economic Crisis

The next great financial crisis may be only a short time away.

As readers know, SHTF has routinely covered the bleak warnings and predictions of market insiders and critics of Wall Street and the Federal Reserve.

Now, there is yet another indication that things are reaching a tipping point, and the system is all-too-vulnerable to collapse. Borrowers in states across the globe are under threat of default, and many would be unable to repay loans with even a modest adjustment in the interest rate.

There is so much debt piled up all over the place, that things are absolutely in danger of coming unglued. The IMF is now hovering over the situation, warning of impending crisis.

According to the London Telegraph:

A poisonous “triad” of global risks is pushing the world to the brink of a new financial crisis, says stark IMF report

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

Things are apparently teetering dangerously over the edge, with plenty of room to trigger further chaos in the developing world:

The slightest miscalculation, they said, could collapse into a “failed normalisation” of interest rates and market conditions, wiping 3pc from the world’s economic output over the next two years.

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

The Hidden Debt Burden of Emerging Markets

October 10, 2015

The Hidden Debt Burden of Emerging Markets

As central bankers and finance ministers from around the globe gather for the International Monetary Fund’s annual meetings here in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolized by the problems of the advanced economies struggling to recover from the 2008 financial crisis. Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.

While no two financial crises are identical, all tend to share some telltale symptoms: a significant slowdown in economic growth and exports, the unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal in capital inflows. To varying degrees, emerging economies are now exhibiting all of them.

The turning point came in 2013, when the expectation of rising interest rates in the United States and falling global commodity prices brought an end to a multi-year capital-inflow bonanza that had been supporting emerging economies’ growth. China’s recent slowdown, by fueling turbulence in global capital markets and weakening commodity prices further, has exacerbated the downturn throughout the emerging world.

These challenges, while difficult to address, are at least discernible. But emerging economies may also be experiencing another common symptom of an impending crisis, one that is much tougher to detect and measure: hidden debts.

Sometimes connected with graft, hidden debts do not usually appear on balance sheets or in standard databases. Their features morph from one crisis to the next, as do the players involved in their creation. As a result, they often go undetected, until it is too late.

Indeed, it was not until after the eruption of the 1994-1995 peso crisis that the world learned that Mexico’s private banks had taken on a significant amount of currency risk through off-balance-sheet borrowing (derivatives).
Read more at https://www.project-syndicate.org/commentary/hidden-debt-burden-emerging-markets-by-carmen-reinhart-2015-10#EU5Q4DVCDEzO1msE.99

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

October 9, 2015

Why Are The IMF, The UN, The BIS And Citibank All Warning That An Economic Crisis Could Be Imminent?

The warnings are getting louder. Is anybody listening? For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now. The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.

The IMF is actually telling the truth in this instance. We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.

But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.

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

IMF downgrades Canadian growth outlook to 1% for 2015

October 7, 2015

IMF downgrades Canadian growth outlook to 1% for 2015

Risks for the world include low commodities prices, China’s slowdown and rate hikes

The IMF has downgraded its outlook for Canadian growth to one per cent this year because of the impact of lower oil and commodities prices.

It also has revised its expectations for global growth downwards to 3.1 per cent, the lowest since 2009.

In a report Tuesday in advance of the IMF-World Bank annual meetings this week in Lima, Peru, it highlights the downside risks to the world economy from the economic slowdown in China and low prices for commodities.

The recovery it expected earlier in the year has become uneven, it said in its World Economic Outlook with marginal advances in developed economies and slowing in most emerging economies.

“Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive,” said Maurice Obstfeld, IMF director of research.

Growth slower in most nations

“Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth marginally but nearly across the board.”

It has revised its estimate for Canadian GDP growth downward by half a percentage point from its July forecast to one per cent this year, and to 1.7 per cent in 2016. Last year, the IMF was forecasting 2.2 per cent growth for the Canadian economy.

A side report explores how the sharp decline in commodity pricesover the last three years has hurt economies dependent on commodities, including Canada, Chile and Australia.

“The weak commodity price outlook is estimated to subtract almost one percentage point annually from the average rate of economic growth in commodity exporters over 2015–17 as compared with 2012–14,” the IMF said.

“In exporters of energy commodities, the drag is estimated to be larger: about 2¼ percentage points on average over the same period.”

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

High Priests of Global Finance Stoke Emerging Market Fears

October 5, 2015

High Priests of Global Finance Stoke Emerging Market Fears

Two of the most important guardians of global finance, the IMF (International Monetary Fund) and the IIF (Institute of International Finance), gave their verdict on the current state of the global economy this week. And their message could not be clearer: beware the dreaded fate of emerging markets.

The World According to A Prestigious Club of Global Banks

The IIF warned this week that hot money is pouring out of emerging markets at a startling rate, primarily on the back of China’s crunching slowdown and rising fears of a looming US rate hike.

Before we go any further, here’s a caveat: The IIF is a prestigious “club of global banks.” After the Club of 30, it is arguably the most powerful financial lobby association on the planet. It is also one of the strongest proponents of self-regulation in banking, a major cause of the Global Financial Crisis. Could an organization like the IIF have ulterior motives?

This year capital outflows from emerging economies will surpass inflows for the first time since 1988. Residents sending cash out of the emerging markets has accelerated amid recent financial market volatility while at the same time foreign investment is set to nearly halve from $1,074 billion in 2014 to just $548 billion this year.

The countries most at risk are those with high current account deficits, pronounced levels of corporate debt denominated in foreign currencies, and extreme political uncertainty. Brazil, whose currency has suffered a 30% currency depreciation this year, and Turkey (15%) are among the nations “in this situation,” the report warns. The nation most at risk is Venezuela, which (according to estimates by US financial firms) is currently suffering annual inflation of 120%. The country’s risk of default is “extremely high” and could even happen as early as 2016, warns the IIF.

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

Today’s Turning Point on ECM

October 1, 2015

Today’s Turning Point on ECM

I have been warning that this turning point is not in markets, it is centered in government. The number of issues coming to a head are just mind-blowing from the Catalonia vote to separate from Spain to the resignation of Boehner with non-politicians leading not just in the USA, but everywhere. The elections in Greece was most likely the last vote for any political establishment since the Greeks do not expect any promise to be kept.

Yet today just may mark a very strange event that might be extremely important. Today, Russia gave the US 1 hour notice and began bombing both ISIS and rebels seeking to overthrow the Syrian government. It is extremely curious that this beginning precisely on the day of the ECM. Will this prove to be the start of international war?

Meanwhile, Christine Lagarde of the IMF came out to state today also on the turning point of the ECM that the rate of economic growth this year will probably be weaker than in 2014. I had a meeting in Europe with a former board member of the IMF and we had some very frank discussions. To put it mildly, they are indeed worried. The inflation rate for Euroland just turned NEGATIVE again.

So while cash is now KING, stocks remain vulnerable and commodities have no bid sufficient to change the trend, it appears we are headed into the wonderland of our political-economy.

Look Out Below: Corporate Debt In Emerging Markets Has QUADRUPLED Since 2004

September 30, 2015

Look Out Below: Corporate Debt In Emerging Markets Has QUADRUPLED Since 2004

Debt has skyrocketed globally. And see this.

Governments have – of course – dramatically increased their debt since 2008 to fund questionable actions.

But 141 years of history shows that excessive private debt in and of itself can cause depressions.

American corporations are piling on record amounts of debt. And see this.

Private debt has also gone absolutely ballistic in China recently.

But it’s not just the U.S. and China …

The Telegraph reports today:

The International Monetary Fund (IMF) … said corporate debts in emerging markets ballooned to $18 trillion (£12 trillion) last year, from $4 trillion in 2004 as companies gorged themselves on cheap debt.

It said the quadrupling in debt had been accompanied by weaker balance sheets, making companies more vulnerable to US rate rises.

What could possibly go wrong?

Inflation, the Fed, and the Big Picture

September 6, 2015

Inflation, the Fed, and the Big Picture

CAMBRIDGE – Inflation – its causes and its connection to monetary policy and financial crises – was the theme of this year’s international conference of central bankers and academics in Jackson Hole, Wyoming. But, while policymakers’ desire to be prepared for potential future risks to price stability is understandable, they did not place these concerns in the context of recent inflation developments at the global level – or within historical perspective.

For the 189 countries for which data are available, median inflation for 2015 is running just below 2%, slightly lower than in 2014 and, in most cases, below the International Monetary Fund’s projections in its April World Economic Outlook. As the figure below shows, inflation in nearly half of all countries (advanced and emerging, large and small) is now at or below 2% (which is how most central bankers define price stability).

Most of the other half are not doing badly, either. In the period following the oil shocks of the 1970s until the early 1980s, almost two-thirds of the countries recorded inflation rates above 10%. According to the latest data, which runs through July or August for most countries, there are “only” 14 cases of high inflation (the red line in the figure). Venezuela (which has not published official inflation statistics this year) and Argentina (which has not released reliable inflation data for several years) figure prominently in this group. Iran, Russia, Syria, Ukraine, and a handful of African countries comprise the rest.

The share of countries recording outright deflation in consumer prices (the green line) is higher in 2015 than that of countries experiencing double-digit inflation (7% of the total). Whatever nasty surprises may lurk in the future, the global inflation environment is the tamest since the early 1960s.

Read more at http://www.project-syndicate.org/commentary/jackson-hole-banking-conference-inflation-by-carmen-reinhart-2015-09#T1r408ZIPrXMqX7L.99

Europe’s Biggest Bank Dares To Ask: Is The Fed Preparing For A “Controlled Demolition”

September 6, 2015

Europe’s Biggest Bank Dares To Ask: Is The Fed Preparing For A “Controlled Demolition”

Why did we focus so much attention yesterday on a post in which the IMF confirmed what we had said since last October, namely that the BOJ’s days of ravenous debt monetization are coming to a tapering end as soon as 2017 (as willing sellers simply run out of product)? Simple: because in the global fiat regime, asset prices are nothing more than an indication of central bank generosity. Or, as Deutsche Bank puts it: “Ultimately in a fiat money system asset prices reflect “outside” i.e. central bank money and the extent to which it multiplied through the banking system.”

The problem is that the BOJ and the ECB are the only two remaining central banks in a world in which Reverse QE aka “Quantitative Tightening” in China, and the Fed’s tightening in the form of an upcoming rate hike (unless the Fed loses all credibility and reverts its pro-rate hike bias), are now actively involved in reducing global liquidity. It is only a matter of time before the market starts pricing in that the Bank of Japan’s open-ended QE has begun its tapering (followed by a QE-ending) countdown, which will lead to devastating risk-asset consequences. The ECB, which is also greatly supply constrained as Ewald Nowotny admitted yesterday, will follow closely.

But while we expanded on the Japanese problem to come in detail yesterday, here are some key observations on what is going on in both the US and China as of this moment – the two places which all now admit are the culprit for the recent equity selloff, and which the market has finally realized are actively soaking up global liquidity.

Here the problem, as we initially discussed last November in “How The Petrodollar Quietly Died, And Nobody Noticed“, is that as a result of the soaring US dollar and collapse in oil prices, Petrodollar recycling has crashed, leading to an outright liquidation of FX reserves, read US Treasurys by emerging market nations.

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

The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play

September 5, 2015

The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play

The most important piece of news announced today was also, as usually happens, the most underreported: it had nothing to do with US jobs, with the Fed’s hiking intentions, with China, or even the ongoing “1998-style” carnage in emerging markets. Instead, it was the admission by ECB governing council member Ewald Nowotny that what we said about the ECB hitting a supply brick wall, was right. Specifically, earlier today Bloomberg quoted the Austrian central banker that the ECB asset-backed securities purchasing program “hasn’t been as successful as we’d hoped.”

Why? “It’s simply because they are running out. There are simply too few of these structured products out there.”

So six months later, the ECB begrudgingly admitted what we said in March 2015, in “A Complete Preview Of Q€ — And Why It Will Fail“, was correct. Namely this:

… the ECB is monetizing over half of gross issuance (and more than twice net issuance) and a cool 12% of eurozone GDP. The latter figure there could easily rise if GDP contracts and Q€ is expanded, a scenario which should certainly not be ruled out given Europe’s fragile economic situation and expectations for the ECB to remain accommodative for the foreseeable future. In fact, the market is already talking about the likelihood that the program will be expanded/extended.

… while we hate to beat a dead horse, the sheer lunacy of a bond buying program that is only constrained by the fact that there simply aren’t enough bonds to buy, cannot possibly be overstated.

Among the program’s many inherent absurdities are the glaring disparity between the size of the program and the amount of net euro fixed income issuance and the more nuanced fact that the effects of previous ECB easing efforts virtually ensure that Q€ cannot succeed.

(Actually, we said all of the above first all the way back in 2012, but that’s irrelevant.)

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

Whitewashing the IMF’s Destructive Role in Greece

August 31, 2015

Whitewashing the IMF’s Destructive Role in Greece

This autumn may see anti-austerity coalitions gain power in Portugal, Spain and Italy, while Marine le Pen’s National Front in France presses for outright withdrawal from the eurozone. These countries face a common problem: how to resist the economic devastation that the European Central Bank (ECB), European Council and IMF “troika” has inflicted on Greece and is now intending to do the same to southern Europe.

To resist the depression and debt deflation that the troika seeks to deepen, one needs to bear in mind the dynamics that make the IMF un-reformable. Its destructive role in Greece provides an object lesson for how southern Europe must shun its horde of ideologues, as Third World countries learned to avoid it by May 2013, the year that Turkey capped the world’s extrication from IMF “advice.” Already in 2008, Turkey’s prime minister Recep Tayyip Erdogan announced: “We cannot darken our future by bowing to the wishes of the IMF.”[1]Greek voters have now said the same thing.

To soften resistance to the IMF’s austerity demands, a public relations drive is being mounted to rehabilitate the myth that the Fund can act as an honest broker mediating between anti-labor finance ministers and the PIIGS – Portugal, Italy, Ireland, Greece and Spain. On Friday, August 28, three Reuters reporters published a long “think piece” trying to show that the IMF is changing and that its head, Christine Lagarde, has seen the light and seeks to promote real debt relief.[2]

The timing of this report seems significant. The IMF got “back in business” in 2010 when its head, Dominique Strauss-Kahn, overrode its staff and many Board members in order to join the troika and shift the country’s bad debt from French and German bankers onto the Greek people. That is the story I tell in Killing the Host, whichCounterPunch published in an e-version last week. (The hard-printand Kindle versions are now available on Amazon.)

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

China chooses her weapons

August 23, 2015

China chooses her weapons

China’s recent mini-devaluations had less to do with her mounting economic challenges, and more to do with a statement from the IMF on 4 August, that it was proposing to defer the decision to include the yuan in the SDR until next October.

The IMF’s excuse was to avoid changes at the calendar year-end and to allow users of the SDR time to “adjust to a potential changed basket composition”. It was a poor explanation that was hardly credible, given that SDR users have already had five years to prepare; but the decision confirming the delay was finally released by the IMF in a statement on Wednesday 19th.

One cannot blame China for taking the view that these are delaying tactics designed to keep the yuan out, and if so suspicion falls squarely on the US as instigators. America has most to lose, because if the yuan is accepted in the SDR the dollar’s future hegemony will be compromised, and everyone knows it. The final decision as to whether the yuan will be included is not due to be taken until later this year, so China still has time to persuade, by any means at her disposal, all the IMF members to agree to include the yuan in the SDR as originally proposed, even if its inclusion is temporarily deferred.

China was first rejected in this quest in 2010 and since then has worked hard to address the deficiencies raised at that time by the IMF’s executive board. That is the background to China’s new currency policy and what also looks like becoming frequent updates on her gold reserves. It bears repeating that these moves had little to do with her domestic economic conditions, for the following reasons:

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

Euro ministers give blessing to Greek bailout, wooing IMF on debt

August 15, 2015

Euro ministers give blessing to Greek bailout, wooing IMF on debt

Euro zone finance ministers have agreed to lend Greece up to 86 billion euros ($96 billion) after Greek lawmakers accepted their stiff conditions despite a revolt by supporters of leftist Prime Minister Alexis Tsipras.

Assuming approval by the German and other parliaments, 13 billion euros should be in Athens next Thursday to pay pressing bills and a further 10 billion will be set aside at the European Stability Mechanism, earmarked to bolster Greek banks’ capital.

In all, euro zone governments will lend 26 billion euros in a first tranche of the bailout before reviewing Greece’s compliance with their conditions in October.

One remaining uncertainty – aside from Tsipras’ ability to deliver sweeping budget cuts and privatizations opposed by many of his own party – is the role of the International Monetary Fund. After backing two previous bailouts, the IMF renewed its call for the Europeans to grant Athens debt relief – a bone of contention between the Eurogroup and the Washington-based Fund.

Managing Director Christine Lagarde told the Eurogroup by telephone that she could not commit until the IMF board reviewed the situation in the autumn. Officials said the Fund needed more assurances and detail on Greek reforms, notably to pensions, and steps to persuade it that Greece’s debt burden was sustainable.

But after deadlock since January that ravaged the already weak Greek economy and ended in a dramatic U-turn a month ago by the anti-austerity leftist government to avert Athens’ expulsion from the euro, there was a cautious sense of optimism among ministers gathered in a Brussels deep in summer holiday languor.

“After six months of very difficult negotiations with lots of ups and downs, we finally have an agreement,” Greek Finance Minister Euclid Tsakalotos told reporters on Friday. His appointment by Tsipras six weeks ago in place of his abrasive predecessor has been hailed by counterparts as a mark of a new Greek “realism”.

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

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