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Bankers Hate It When You Hold Cash

In an extraordinary turn of events, last week we were contacted by our local bankers. Since we were turned down for a mortgage in 1982 (our business finances were thought to be “too shaky”), we have had little truck with them. We pay cash. They mind their own business.

cash-reserves1 Too many Benjamins! Photo credit: Andrew Magill / Flickr

But for the first time we can recall, not just one but three suits came to visit. Personable and intelligent, they were worried when they saw how much cash we were keeping on hand. No kidding. They came to visit to propose ways we could “put it to use.”

“You really should take some of that cash and invest it in municipal bonds” was the motion on the table.

“What if the municipalities can’t pay?” we asked.

“Don’t worry about that. Historically, the odds of default are extremely remote,” one of them answered.

“But what if interest rates turn up? Wouldn’t the default rate go up?”

“Well, maybe. But we keep the maturities short and invest only in the most creditworthy municipalities. The risk is very low.”

“Oh… but what if we just need some cash.”

“No problem. We’ll give you a line of credit.”

“Let me get this straight. You’re proposing to put me into debt so that I can keep my money invested in somebody else’s debt?”

“Uh… well… yes… and we’ll charge you less interest than you will earn from the municipal bonds.”

“Wait. You can earn a fee for putting my money in bonds… and earn another fee for lending me money… and I still end up ahead?”

“Yes. We just try to find ways to help clients with their financial needs.”

“Oh.”

peopleofpuertoricopublicimprovbondvig If unlucky, you’ll end up with one of these… Image via scripophily.net

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

Western Mistakes, Remade in China

April 6, 2016

Western Mistakes, Remade in China

SHANGHAI – The Chinese economy faces an enormously challenging transition. To achieve its goal of joining the world’s high-income countries, the government has rightly urged a “decisive role for the market.” But, while market competition works well in many sectors, banking is different. Indeed, over the last seven years, China’s reliance on bank-based capital allocation has led to the same mistakes that caused the 2008 financial crisis in the advanced economies.

Rapid GDP growth requires high savings and investment, and high savings almost never result from free consumer choice. States can directly finance investment, but bank credit creation can achieve the same effect. As Friedrich Hayek put it in 1925, rapid capitalist growth depended on “the ‘forced savings’ effected by the extension of additional bank credit.”

The Contradictions of Chinese Capitalism

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Making sense of a world of conflict and conflicting ideas.

Japan and South Korea both used bank credit to finance high levels of investment in their periods of rapid growth. South Korea’s nationalized banks directly funded export-oriented companies. In Japan, private banks were “guided” toward the tradable sector.

But while governments dictated broad sectoral priorities, banks decided the firm-by-firm allocation and extended credit via loan contracts, which imposed financial discipline. If Japan and South Korea had instead used direct government finance, capital allocation would almost certainly have been worse.

But while Japan’s banking system helped drive stunning post-war growth, its credit-fueled real-estate boom in the 1980s and subsequent bust led to 25 years of slow growth and creeping deflation. The global financial crisis of 2008 and subsequent post-crisis malaise replicated the Japanese experience in many other countries.

As economies get richer, they become more real-estate intensive. That is partly because people devote a rising share of their income to competing for property in more attractive locations, and partly because in service-intensive economies, high-value-added activities and talent cluster in dominant cities.

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

The Lock Down Has Begun: JP Morgan Restricts ATM Cash Withdrawals

April 5, 2016

The Lock Down Has Begun: JP Morgan Restricts ATM Cash Withdrawals

Last month All News Pipeline warned that major banks were preparing to tighten the screws on American account holders starting April 1st.

It appears that the lock-down of cash has begun.

Citing criminal activity as a factor, JP Morgan is limiting cash withdrawals at ATM machines.

The bank said there doesn’t appear to be fraud involved. But partly due to heightened regulatory scrutiny, banks are paying more attention to large cash transfers that could be a sign of money laundering or other types of shady activity. Typically, the card-issuing bank sets withdrawal limits, not the bank owning the ATM.

The move by the largest bank in the U.S. doesn’t affect J.P. Morgan Chase’s own customers, whose maximum daily withdrawals are set depending on the client’s account type. The bank has seen high-dollar withdrawals at both new and old ATMs, said bank spokeswoman Patricia Wexler.

J.P. Morgan Chase’s change last month affects roughly 18,000 automated teller machines nationwide and followed an interim step earlier this year limiting noncustomer cash removals at $1,000 per transaction. The earlier move was made as a temporary fix while the bank could make software changes to roll out the more stringent daily limit, Ms. Wexler said.

She added that the bank “felt it was prudent to set withdrawal limits on all of our ATMs” after identifying some large cash withdrawals from noncustomers.

In 2015 we warned readers to divest some of their assets out of bank accounts for this very reason, noting that bank glitches and arbitrary holds would begin to affect more and more depositors. And while the recent move by JP Morgan Chase appears to only affect non-customers, a recent report indicates that the Justice Department has advised bank tellers nationwide to keep any eye out on cash transactions.

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

Impatient Banks: A Real Red Flag For The Oil Patch

March 31, 2016

Impatient Banks: A Real Red Flag For The Oil Patch

Lenders to the oil and gas industry have been extraordinarily lenient amid the worst downturn in decades, allowing indebted companies to survive a little while longer in hopes of a rebound in oil prices. But the screws are set to tighten just a bit more as the periodic credit redetermination period finishes up.

Banks reassess their credit lines to oil and gas firms twice a year, once in the spring and once in the fall. While the lending arrangements vary from bank to bank and from borrower to borrower, lenders largely punted on both redetermination periods last year, providing a grace period for drillers to wait out the bust in prices. But oil prices have not rebounded much since the original crash in late 2014.

Time could run out for companies that have been hanging on by a thread.

Debt was not seen as a big problem in the past, as triple-digit oil prices had both lenders and borrowers eager to see drilling accelerate and spread to new frontiers. Indeed, debt rose even when oil prices exceeded $100 per barrel. According to The Wall Street Journal, the net debt of publically-listed global oil and gas companies grew threefold over the past decade, hitting a high of $549 billion last year. In fact, debt accumulated in the sector at a faster rate between 2012 and 2015 – a period when oil prices were exceptionally high – than in previous years.

With oil prices down more than 60 percent from the 2014 peak, piling on ever more debt to a loss-making operation looks increasingly untenable. Distressed energy loans – loans in danger of default – account for more than half of the energy portfolio at several major banks.

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

Criminal Bankers Control US Government Push War-Paul Craig Roberts

March 28, 2016

Criminal Bankers Control US Government Push War-Paul Craig Roberts

Former Assistant Treasury Secretary in the Reagan Administration, Dr. Paul Craig Roberts, contends it is no accident why bankers do not get jail time for constantly committing fraud by stealing documents and committing fraudulent, criminal insider trading and market manipulations. Dr. Roberts explains, “Look at Edward Snowden and Julian Assange. They claim they stole documents, and we are determined to destroy them. One of them is hiding out in Russia, and one of them is hiding out in the Ecuadorian embassy in London. This again shows the immunity of the banks. They are not held accountable because they are in control. Who controls the Fed? Who controls the Treasury? Where do all the Treasury Secretaries come from? They come from the big New York banks. Look at the financial regulatory agencies that are supposed to be regulating the banks. They are filled with executives from the banks. The banks control the government. There isn’t a government, there’s the banks. . . . We have the entire economic policy in the United States concentrating on saving five banks. We had 10 million people who lost their homes, and nothing was done for them, but five banks are saved.”

On the 2016 election, Dr. Roberts says, “The United States is controlled by powerful private interests groups, and these groups don’t trust outsiders because they don’t have their hooks in them. How would they have their hooks in Trump? He’s a billionaire. He doesn’t need their money. They can’t tell Trump, hey, look we will give you a $153 million in speaking fees like we did Bill and Hillary Clinton. He doesn’t care. He doesn’t need $153 million. He’s got billions. So, they can’t control him, and it’s the same for Bernie Sanders, even though he is a Democratic Senator. He is not really part of the Washington Democratic establishment.

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

New law proposed to shift bank failure risk from taxpayers

March 23, 2016

New law proposed to shift bank failure risk from taxpayers

Ottawa proposes ‘bail-in’ regime to force creditors to prop up failing banks

The Liberal government says it will create legislation that shifts some of the risk in a bank failure to creditors. (Canadian Press)

The proposed plan outlined in the federal budget released on Tuesday would allow authorities to convert eligible long-term debt of a failing lender into common shares in order to recapitalize the bank, allowing it to remain operating.

The plan is in line with international efforts to address the potential risks to the financial system from institutions that are deemed too big to fail, the budget document said.

The issue was at the heart of the 2008 global credit crisis, with various governments having to bail out systemically important institutions.

Canada, which escaped the crisis relatively unscathed, did not have to rescue any of its banks though they got billions in support during the crisis and the recession that followed. The government said it will introduce framework legislation for the plan, along with enhancements to Canada’s bank resolution toolkit.

When the Harper government floated the idea of a bail-in regime in 2014, Moody’s cut its ratings on Canadian banks.

Helicopter Money: Global Central Banks Consider Distributing Money Directly To The People

March 23, 2016

Helicopter Money: Global Central Banks Consider Distributing Money Directly To The People

Should central banks create money out of thin air and give it directly to governments and average citizens? If you can believe it, this is now under serious consideration. Since 2008, global central banks have cut interest rates 637 times, they have injected 12.3 trillion dollars into the global financial system through various quantitative easing programs, and we have seen an explosion of government debt unlike anything we have ever witnessed before. But despite these unprecedented measures, the global economy is still deeply struggling. This is particularly true in Japan, in South America, and in Europe. In fact, there are 16 countries in Europe that are experiencing deflation right now. In a desperate attempt to spur economic activity, central banks in Europe and in Japan are playing around with negative interest rates, and so far they seem to only have had a limited effect.

So as they rapidly run out of ammunition, global central bankers are now openly discussing something that might sound kind of crazy. According to the Telegraph, central banks are becoming increasingly open to employing a tactic known as “helicopter money”…

Faced with political intransigence, central bankers are openly talking about the previously unthinkable: “helicopter money”.

A catch-all term, helicopter drops describe the process by which central banks can create money to transfer to the public or private sector to stimulate economic activity and spending.

Long considered one of the last policymaking taboos, debate around the merits of helicopter money has gained traction in recent weeks.

Do you understand what is being said there?

The idea is basically this – central banks would create money out of thin air and would just give it to national governments or ordinary citizens.

So who would decide who gets the money?

Well, they would.

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

Hillary’s Scary New Cash Tax

March 8, 2016

Hillary’s Scary New Cash Tax

Have you heard of “negative interest rates”?

It’s become a phenomenon with economists and the media.

There’s a good chance you’ve read an article about it. We’ve covered it many times in the Dispatch.

I’m writing to tell you something about negative interest rates you haven’t heard. You certainly won’t hear about it in the mainstream press.

What’s coming at you is a historic event. It’s something our grandchildren will hear stories about…much like the Great Depression or the Cold War.

What’s coming could send the price of gold much higher in the coming years…and hand gold stock owners 500%+ gains.

If you know what’s coming, it could mean the difference between having lots of free cash in retirement or barely getting by.

To understand the gravity of this moment, let’s cover one of the most bizarre ideas in the world…

negative interest rates.

In a normal world, your bank pays you interest on your savings. It takes your money, pools it with other people’s money and loans it out.

The bank makes money by paying out less in interest on your deposit than it earns in interest from borrowers.

For example, it might pay out 3% to depositors while earning 6% from borrowers.

This is how it has worked for decades.

Negative interest rates turn your “normal” bank account upside down.

Negative interest rates could only exist in a crazy world where idiot politicians are in control.

Unfortunately, that’s just what we’re dealing with right now.

Politicians all over the world are ordering banks to charge depositors(you) a fee for storing cash.

It’s a perversion of saving. It’s a perversion of capitalism. It’s a perversion of planning for the future.

And it’s going to result in disaster.

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

The Collapse Of Italy’s Banks Threatens To Plunge The European Financial System Into Chaos

March 8, 2016

The Collapse Of Italy’s Banks Threatens To Plunge The European Financial System Into Chaos

The Italian banking system is a “leaning tower” that truly could completely collapse at literally any moment. And as Italy’s banks begin to go down like dominoes, it is going to set off financial panic all over Europe unlike anything we have ever seen before. I wrote about the troubles in Italy back in January, but since that time the crisis has escalated. At this point, Italian banking stocks have declined a whopping 28 percent since the beginning of 2016, and when you look at some of the biggest Italian banks the numbers become even more frightening. On Monday, shares of Monte dei Paschi were down 4.7 percent, and they have now plummeted 56 percent since the start of the year. Shares of Carige were down 8 percent, and they have now plunged a total of 58 percent since the start of the year. This is what a financial crisis looks like, and just like we are seeing in South America, the problems in Italy appear to be significantly accelerating.

So what makes Italy so important?

Well, we all saw how difficult it was for the rest of Europe to come up with a plan to rescue Greece. But Greece is relatively small – they only have the 44th largest economy in the world.

The Italian economy is far larger. Italy has the 8th largest economy in the world, and their government debt to GDP ratio is currently sitting at about 132 percent.

There is no way that Europe has the resources or the ability to handle a full meltdown of the Italian financial system. Unfortunately, that is precisely what is happening. Italian banks are absolutely drowning in non-performing loans, and as Jeffrey Moore has noted, this potentially represents “the greatest threat to the world’s already burdened financial system”…

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

Will Italian banks spark another financial crisis?

March 7, 2016

Will Italian banks spark another financial crisis?

In the 14th century, the Medici family of Florence began its rise to prominence, investing profits from a thriving textile trade to fund what would become the largest banking institution in Europe. The success of the legendary banking family helped to usher in the Italian Renaissance and thus change the world. Now, Italian banks seem poised to alter the world yet again.

Shares of Italy’s largest financial institutions have plummeted in the opening months of 2016 as piles of bad debt on their balance sheets become too high to ignore. Amid all of the risks facing EU members in 2016, the risk of contagion from Italy’s troubled banks poses the greatest threat to the world’s already burdened financial system.

At the core of the issue is the concerning level of Non-Performing Loans (NPL’s) on banks’ books, with estimates ranging from 17% to 21% of total lending. This amounts to approximately €200 billion of NPL’s, or 12% of Italy’s GDP. Moreover, in some cases, bad loans make up an alarming 30% of individual banks’ balance sheets.

The red flags initially attracted the attention of the European Central Bank (ECB), prompting an official inquiry that investors viewed as a flashing ‘sell signal.’ Shares of Italian banking companies lost more than 25% in the first several weeks of the year.

Though markets have pared losses in the last few weeks, March has brought renewed concern for the health of Italy’s financial sector. Adding more worries to fuel the fire, on Friday the ECB demanded that one such troubled Italian bank, Banca Carige SpA, provide new strategic plans and additional funding in order to bolster its balance sheet and meet supervisory requirements by the end of the month. The news sent bank shares on yet another swoon, prompting trading halts on several as the volatility triggered maximum loss ‘circuit breakers.’

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

“Freedom Always Dies Bit by Bit”: Bundesbank Takes Sides in War on Cash

March 7, 2016

“Freedom Always Dies Bit by Bit”: Bundesbank Takes Sides in War on Cash

“Citizens should not be put under general suspicion.”

There are two sides in the global war against cash. On one side are many of the world’s governments, central banks, fintech firms, banks, credit card companies, telecommunication behemoths, financial institutions, large retailers, etc. According to them, the days of physical currency are numbered, so why not pull the plug already, beginning with the largest denomination bills such as the $100-note and particularly the €500-note?

On the other side are people who like to use cash – most of whom, according to the dominant official narrative, are either criminals or terrorists. After all, they must have something to hide; otherwise, why would they use a private, untraceable (not to mention archaic, dirty, dangerous and unhygienic) form of payment like cash?

The powers that want to kill off cash already have vital technological and generational trends firmly on their side, along with widespread public ignorance, apathy, and disinterest. But in recent weeks the unlikeliest of defenders of physical money has emerged: the national central bank of Europe’s biggest economy, the German Bundesbank.

“I have my doubts that introducing a cash limit or getting rid of bigger denominations can really prevent terrorists or criminals from engaging in illegal activities,” Carl-Ludwig Thiele, Bundesbank board member in charge of cash issues, said in a speech last week. “We also should ask ourselves: what sort of an understanding of government forms the basis of these proposals? Citizens should not be put under general suspicion.”

Thiele is not the first Bundesbank official to publicly defend cash.

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

These 7 Things Are Better Than Paper Money In the Bank When the Economy Collapses

March 6, 2016

These 7 Things Are Better Than Paper Money In the Bank When the Economy Collapses

So you’ve done the hard work of getting your finances in order and now you’re looking to invest your hard-earned surplus into things that will protect or grow it.

Keeping your savings as fiat currency in the the banks may not be the safest way to store your wealth. Banks are beginning to give concrete evidence of actually penalizing you for keeping your money with them … and that’s if they don’t outright confiscate it via bank bail-in.

It would be prudent to look at investments that offer the dual purpose of getting around the banking system, while also offering ways to stockpile the tangible items that should fare much better in any economic collapse situation.

Here are seven investments that will hold value far better than cash if the current trends continue.

Food

We are beginning to see in real-real time what a collapse in the food supply could mean. One look at Venezuela should prove that even though most people believe “it could never happen here” or even that they have enough money to get what they need no matter what, this is not the case. Even the supposedly wealthy in Venezuela are waiting in long lines with everyone else.

While things are still relatively stable, it makes sense to build a food stockpile slowly but surely. You can pick up a few key food items each week at the supermarket to build up your food bank without having to spend thousands in bulk food acquisitions. It’s best to keep your storable food bank list simple and concentrate on common foods that you already consume regularly. We wrote an article geared toward foods that have long shelf lives but are also practical for most diets, so please read “10 Best Survival Foods At Your Local Supermarket.”

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

Bank watch lists early warning sign of trouble for oil and gas industry

March 6, 2016

Bank watch lists early warning sign of trouble for oil and gas industry

Royal Bank, CIBC and Scotiabank each added 9 oil and gas firms to watch lists in recent quarterly earnings

In releasing their latest quarterly earnings, Royal Bank, CIBC and Scotiabank each added nine oil and gas firms to their loan watch lists, the latest sign of trouble in the oilpatch.

In releasing their latest quarterly earnings, Royal Bank, CIBC and Scotiabank each added nine oil and gas firms to their loan watch lists, the latest sign of trouble in the oilpatch. (Larry MacDougal/Canadian Press)

Gordon Sick, a finance professor at the Haskayne School of Business at the University of Calgary, said many energy companies are struggling and likely behind in their loans.

“There’s a lot of them who are potentially in default,” said Sick. “The banks in Canada are potentially looking at some hits.”

Royal Bank’s watch list grew after it did a name-by-name stress test on its oil and gas portfolio, said chief risk officer Mark Hughes.

“Following this stress test, we’ve seen a small increase to our oil & gas watch list for closer monitoring,” Hughes said in an email.

One step before ‘impaired’

The watch list has the banks keeping a close eye on the companies, and is one step before impaired status when a bank considers the loan at risk of default.

Scotiabank said five per cent of its energy portfolio was on the watch list and it moved four loans to impaired status in the first quarter. CIBC said it impaired one loan.

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

Where Negative Interest Rates Will Lead Us

February 25, 2016

Where Negative Interest Rates Will Lead Us

Despite zero-interest-rate-policy (ZIRP) and multiple quantitative easing programs — whereby the central bank buys large quantities of assets while leaving interest rates at practically zero — the world’s economies are stuck in the doldrums. The central banks’ only accomplishment seems to be an increase in public and private debt. Therefore, the next step for the Keynesian economists who rule central banks everywhere is to make interest rates negative (i.e., adopt negative-interest-rate-policy or “NIRP.”) The process can be as simple as the central bank charging its member banks for holding excess reserves, although the same thing can be accomplished by more roundabout methods such as manipulating the reverse repo market.

Remember, it was the central bank itself that created these excess reserves when it purchased assets with money created out of thin air. The reserves landed in bank reserve accounts at the central bank when the recipients of the central bank’s asset purchases deposited their checks in their local banks. Now the banks have liabilities that are backed by depreciating assets (i.e., the banks still owe their customers the full amount in their checking accounts), but the central bank charges the banks for holding the reserves that back the deposits. In effect, the banks are being extorted by the central banks to increase lending or lose money. The banks have no choice. If they can’t find worthy borrowers, they must charge their customers for the privilege of having money in their checking accounts. Or, as is happening in some European banks, the banks try to increase loan rates to current borrowers in order to cover the added cost.

In European countries where NIRP reigns, so far, the banks are charging only large account holders for their deposits. So, these large account customers are scrambling to move their money out of banks and into assets that do not depreciate.

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

The Balkanization of Europe

February 25, 2016

The Balkanization of Europe

Danae Stratou, Ilargi, Yanis Varoufakis and Steve Keen Feb 16 2016When my mate Steve Keen took me to meet Yanis Varoufakis for dinner last week when we all happened to find ourselves in Athens together, I at least sort of regretted not having the time and space to talk to Yanis about his DiEM25 project for the democratization of Europe. It was a private occasion, there were other people at the dinner table, Steve and Yanis had no seen each other for a while, it was simply not about that.

I did think afterward that it would be great to do this kind of get together more often, and get ideas running, but then realized we are all workaholics and we all live thousands of miles apart, so the odds of that happening are slim at best. And that in turn made me think of how inspiring the years were when I toured the world with my Automatic Earth partner in crime Nicole Foss, how important it is to have people around to bounce off your ideas of what’s going on, how much faster that crystallizes your own ideas.

But as things are, and as they happened, I didn’t have that time with Yanis. And not nearly enough with Steve either, for that matter, who has/is a brain that I would love to pick for days if not weeks, he’s such a brilliant mind. When you have just a few hours, though, the time is filled with drinking wine and catching up with what’s happened in each other’s personal lives, it had been 3 years since we met, and professionally, since Steve knows Nicole very well, they did quite a few presentations together, yada yada.

Immensely gratifying, of course, to be able to renew a friendship like that, but almost as frustrating to not be able to expand on it.

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

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