Here’s a monster number lurking under an invisibility cloak. It’s the Quadrillion dollar bomb, and either the fuse has been lit, or it’s already going off in a slow motion big-bang. I first mentioned it way back when I talked about the danger of Carbon credits as another fiat Currency (my 12th post). Hang on for the ride.
The Repo action is now much worse than in the GFC (check out that graph below — the “GFC” was a speed bump). The volcano bubbling at the end suggests that the Derivatives Bomb probably started a slow motion explosion early last year. The US Federal Reserve are trying to contain it.
Derivatives* are often used for insurance or hedging, but are mainly highly leveraged bets.They are so much larger than the actual market, it’s better described as a global casino. World GDP is around US$60 trillion but there are at least US$600 trillion of derivative contracts, perhaps as much as US$1.5 quadrillion, as measured by face value, according to the Bank of International Settlements (the “central bank of central banks”). The problem is that all the bank debt or “all the money in the world” is less than US250 trillion.
On the surface the financial world seems pretty calm about the Derivatives Monster Market. The nominal value is huge but it’s made of pluses and minuses that net to zero. For every winner there is a loser. That is to say, it’s a kind of imaginary funny-money in a zero sum game, and funny-money-debts wipe out funny-money-wins, so it doesn’t really affect the Real World. The problem is that if one bank goes broke, it doesn’t net-out, because the net disintegrates. It only works as long as almost all the losers can pay off what they owe. If a loser is bankrupted, the winner also becomes a loser. And the losses spread like an infection. The “winner” may have placed paired bets to minimize risk. So they thought they could use their winnings on one side to pay of their losses on the other. But now they default too and the financial plague grows. Funny-money losses have just become Real Debt.
In the last year some futures players have been hammered (think of the swings in oil, iron ore, the US dollar). There must have been some shocker-sized margin calls that went under the radar. Sometimes the losing side can toss some more money in to fend off the Debt Collector’s wolves; then they avoid closing out the contract and realizing the loss. Some players will have been in a life-or-death hunt for anything to pledge as collateral. When you are too big to fail, and seeking cash, who you gonna call? The guys who can create infinite money of course — the US Fed.
Total RePo’s. Compare the 2014 action with 2008. Units: “millions of dollars”
Source: St Louis Federal Reserve
Reverse repurchase agreements held by the Federal Reserve: All Maturities
Bill Holter has a theory about how these big margin losses have been hidden. RePo’s are repurchase agreements from the US Fed, it’s like The Pawn Shop for global finance. If you have an “asset” you can swap for cash, the US Fed will “print” the money, and keep your asset. You agree to repurchase it back some day. In theory the Fed have not printed money from nothing, because the amount of money is the same as the asset’s value. But who decides that value? In extremis, the Fed could value any asset at what ever they say is worth. The assets are supposed to be AAA (and we all know what that means), but increasingly any old thing will do and the rules are ignored because “bigger things” are at stake. That last volcanic action in RePo’s could just be the speculators crashing in the derivatives game, getting margin calls then going to the Fed and to hock the best collateralised junk they have left, and get the cash to stay afloat.
Bill Holter makes a great case:
For years I have described the current financial situation as a “giant margin call” waiting to happen. The derivatives market is a zero sum game where someone wins and someone loses, the danger of course is someone losing so badly they become insolvent and cannot make payment to the “winner” …which would make all parties a loser in the game. This is the fear, the derivatives chain breaks somewhere along the way and creates a domino effect both upstream and downstream causing the entire credit system to lock up.
Think about what has happened over just the last six months alone. We have seen unprecedented FOREX movements. The dollar has strengthened close to 30% over this timeframe while oil has dropped about 50%. The cross between the euro and the Swiss franc saw an almost 30% move in less than 10 minutes one Monday morning in January. There have been some very big gains AND some very big losses which would explain the need for “more collateral” which is exactly what these reverse repo’s provide.
He goes on to say “this time it’s different”. Holter argues that there must be massive hidden losses in derivatives and estimates the losses on the USD to be about $3 trillion. He (and I) wonders how any corporation on Earth could survive even “5%” of that, and that’s just the US Dollar losses.
Holter goes on to point out that what the Fed is probably doing is technically illegal. Presumably they have the best lawyers that money can buy so this is not really relevant. Hm.
So what happens now? The derivative problem can only get larger and drag down more and more participants into a mess of unpayable debt, defaults, and margin calls. Sure the central banks can create infinite cash, but eventually it becomes meaningless. According to this chart, the mess and stress is now much larger than in the GFC, and has been going on in the background for a year now. Maybe that helps explain the high number of suicides in the banking industry lately?
* Derivatives are deals on changes in any financial quantity, such as the value of a stock, a foreign exchange rate, an interest rate, a commodity price, etc.
Sit and watch. Watch the “housing” market, watch the stock market. They’re where a lot of the created or unreal money ends up, as speculative fuel. While “house prices” and share prices rise, it’s time to prepare.
There appears to be about eighteen months left before the friction of the trading losses will start to grab. (“investment inertia”) I’m anticipating this year and next year to be trading all right, superficially. I’ll be out of the stock market before the end of next year and out of the land market at the same time. I’m expecting both to seize by the end of the first quarter of 2017. Carrying any “investment” in either into the new year of 2017 is lose, lose.
That’s when everything will be airborne, off the ground and out of touch with reality. The crash landing will be about September/October 2017.
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Hey Soph,
Do you reckon we should start investing in something solid, like carbon credits?
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That depends on how fast you want to lose your money.
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With all the major market indicators declining it’s a buyers market… think about it!
Japanese Industrials?
How about Greek and Cyprus property futures?
Russia government bonds?
Chinese currency? Or better yet Chinese construction futures?
Ok, Ok, Here’s the investments you really want German Energy futures — think about it, mighty German financial stability all backed with EU wind subsidies. What could go wrong?
Give a call we can do the deal…honest.
😉
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A current global population of 7.2 billion
30
But Sophocles:
if you are cashed up, what happens to the value? of the paper you’ve got?
Do you think that Bill Shorten knows what to do? Do you have any faith in Obama getting through to the end of 2016 without a major stuff-up?
Or are you hoping that there will be a gap between the prices of assets plummeting and the time the currency goes down the gurgler?
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I’m cashed up 9 months before the crash. I buy commodities which appreciate very rapidly after the crash.
Then whoever is the head of the American Fed. Reserve shrieks about “Saving the Banking system, gotta save the Banks” (ie: fill the bank’s tanks with real taxpayer’s money NOW) and stampedes the politicians into doing it before they can look at the wreckage and figure out what really needs to be done, like Bernanke did in 2008. That means the European banks who own the Fed Reserve through ownership of the American Banks don’t lose quite so much as they thought they were going to. Switzerland and Lichtenstein stay afloat.
That pushes the value of my new commodities up even higher and I sell out when I pick I’m somewhere around the peak. That makes up for the later inflation caused “by saving the w…w…ah… bankers.”
I don’t know Bill Shorten, and I don’t know what he’s preaching. If he’s as ignorant as Bill English, (NZ’s current Minister of Finance) then of course he doesn’t know what to do and it won’t matter that the two of them are on opposite sides of the political spectrum because they will both succeed very well at not doing what should be done.
I know the timings. I move within the windows of opportunity. Some items move in the opposite direction to my picks, most don’t.
The NZ currency has stayed more or less where it was since 2007 (near the bottom of the gurgler) and many other currencies have joined it over the last seven years. The Oz dollar has just arrived. Hi there!
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My wife put in an application for a rental agreement for a vacant shop last week. Part of that application includes a personal balance sheet. Ours looks a little strange. Zero liabilities. None. Nada. Nix. No debt, no mortgage, no credit cards, no car loan, nothing. We have the title deed to our house and we have a six figure term deposit and are just waiting for the property crash to buy into the market.
Popcorn time …
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TS,
Lets hope they don’t give you a Cypress haircut.
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Or even Cyprus. I thought someone might have twigged by now.
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Last time, — I invested in useful metals like copper, and hand weapons. Everyone now is recycling copper, aluminum, titanium, tungsten. Only the weapons are doing fine! Bullets are at an all time high. When you say land, do you mean so called improved property, or the same price in swaths of dirt? Have you useful suggestions? 🙂
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I’m not a financial adviser, so I don’t give financial advice. Liability insurance is far too expensive 🙂 You have to make your own decisions based on what you know, what you can afford and what you want to achieve.
To improve what you know, you could do well to find and read some books. I discovered an English author called Fred Harrison in the late 1980s. I’ve read almost all his works and learnt an enormous amount from them over the last 25 years, so I was well prepared when the last crash occurred.
I was almost completely ready for it and thoroughly endeared myself to others by telling them “I told you so.” Of all the author’s I’ve read in this area, he’s been right the most often by far.
I can recommend “the Power in the Land,” “Boom Bust: House Prices, Banking and the Depression of 2010,” “Ricardo’s Law: House Prices and the Great Tax Clawback Scam,” “Philosophy for a Fair Society,” “The Corruption of Economics,” and “Land and Taxation.” They provide useful analysis tools for the current system. Knowing where to look, when to look, and what to look for is extremely useful. They should be available from a good public library or interloan service.
By the time you’ve read them all, you should be well armed. 🙂
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Thank you! At present, finances are not critical, properly petting upon kitten, who believes she has a well trained human,! Is most important, else face gets eaten off!! BTW: Wheres my food?
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Thanks from me also. Hopefully these can help my kids and theirs.
Cheers,
D
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If bullets are at an all time high, is that because demand has fallen, causing production to fall even further as stocks were wound down?
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Something is certainly happening, discussion at work last week about a possible connection between banking practice of fractional lending and new notes issued from the ATM’s.
The Australian bank note is almost indestructible, yet new money is continually put into circulation through the machines.
I surmise it is probably to cover the regular losses of billions of dollars laundered by crime networks.
A colleague says a combination of derivative closures and fractional lending debts could cause a big problem.
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By “crime networks” do you mean the Banks and Insurance Companies?
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Soph,
Nice one, but actually, no.
Illegal drugs and weapons, identity theft, and credit fraud alone probably disposes of more cash money from our economy than the government manages – in fact a number of large criminal organisations in Australia at the moment have more financial, legal and intelligence resources than the government.
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I understand what you mean by it is not part of the taxed economy etc but how does the physical note disappear from circulation. If it is being laundered everyone in the chain has given it a value and it will circulate to the banks eventually. How can laundering work if the notes are lost forever?
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Gee Aye,
Unless it is sent overseas or is buried somewhere.
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Overseas money is returned to banks. buried makes no sense.
JB. I honestly didn’t understand how a black market can deplete printed notes and I still don’t. My question was an honest attempt to educate myself
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Gee: “Buried money makes no sense”. To you maybe, but it happens all the time. Banks pay little to no interest on savings so there is no reason for people to not hold cash. Preppers have been squirreling away cash and valuables for the last few years. Many people like to keep cash on hand and off of the Tax mans radar.
Now as for currency that is in the black market, (or in the all cash markets) that is entirely free from tracking. No computer receipts, no bank records, no government tracking (or taxing). Ask a typical pub owner how much of his cash receipts are claimed on his taxes. You’ll get a wink and a smile along with “all of it”. There are only estimates for how much currency is circulating off the radar.
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Mark… I can grasp all these things but not the disappearance of the physical notes due to a black market. If the market trades in notes, don’t the notes eventually get back to banks. Or is this a circulation thing where loads of money is circulating in a different market and is effectively a sink that pushes the equilibrium such that the rest of the market (the legit one) finds itself short of cash for trade.
hmm I might have just worked it out myself.
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That’s right the currency don’t disappear they go on vacation. The concept of “legit” could make for hours of discussion.
With a little help from your friends……A gold star for you today Gee!
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It’s something called Earth Day. Don’t forget to celebrate, with a few helpful reminders here:-
https://youtube.com/watch?v=49Teja5YNCo&list=PL_itweecuKtAzBpHJS0gK2D6BAHqd7o4h
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Barak is in!
http://www.breitbart.com/big-government/2015/04/19/obama-to-take-airforce-one-to-florida-to-make-global-warming-speech-on-earth-day/
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The well known obsessive preoccupation of the eco-marxists with intergenerational well being — our children, grandchildren, great grandchildren et al. appears to have a basis in their instinctive economic realisation that their progeny will be
neededenslaved to save the new Green economy. The moral ambivalence exhibited by the Green Euro State Collective to live in unfettered escalating debt ensures this.A Futures Market (without the need to actually do any work or produce anything) is equally being played out by the same Green elite that jet about the World to junkets like the United Nations Climate Change Conference in Paris in November. In this case rather than a game of ‘get rich’ it’s ‘get power’, although as we all know, one leads to the other almost simultaneously.
Ironically, neither it seems are sustainable.
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Jo
FYI
http://www.smalldeadanimals.com/2015/04/fat-finger-of-f-1.html
Link “A Step By Step Guide How To Crash The Entire Market”
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Just a writing-style note: Put that *Derivatives footnote sentence in the main text. It’s so short, supports the message at a fundamental level, and scrolling down should be un-necessary to be paying attention to the core communication. Maybe even another basic sentence about derivatives might fit in well, too. There are beginners out there who have never heard of, and would have a hard time even conceiving, the derivatives casino.
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Alexander, thanks. Tricky writing call. Some readers here are very well informed, others not. I don’t want to bore those who are familiar with markets, so I put it at the bottom. It all depends on the ratio of who knows and who doesn’t. So feedback is appreciated. I may be wrong. The main point here, even for people who are not market savvy, is to understand there is a market called “Derivatives” that has a nominal value ten times larger than the global GDP. That in itself ought send any citizen who doesn’t know what a derivative is to look it up.
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Derivatives the bastard child of corporate capitalism.
No wonder they are so desperate to make a carbon dioxide market,they have nothing left to sell,they tried junk bonds for awhile but the world soon caught onto that little earner/scam.
I suppose one thing about cabon dioxide,it actually exists not like derivatives which are make believe,but in the end none of these things have an intricate value .
One thing Muhammad got right was money trade and banking.
One thing that does need to be mentioned re-this line of topic,the price of land has not gone up, the value of our money has gone down.
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I’m dumbfounded when I listen to responses from nearly everyone I ask about Carbon taxes/ETS etc, and how they all think that this would be a wonderful way to raise money for things within that Country which introduces it.
The Country which introduces anything like this has no hold on that money. I know that people think that what I say here is a (insert title of Mel Gibson movie here) but when the original Kyoto Protocol was mandated by the UNFCCC, that was the way that the UN was going to raise their money. Of all the signatories who ratified this Protocol, a small number of Countries categorised by the UN as already Developed (Australia Included) were required to pay ALL the costs for Non Developed Countries to comply. Since then, China has bolted to become the World’s hugest emitter, and they were categorised as Non Developed, so, instead of having to pay, they actually received money, hence the major sticking point in why Kyoto reached Sunset without ever being replaced, and why all conferences since then have failed so miserably to find an actual replacement for that Kyoto Protocol.
The way they were to do this was to implement an ETS (basically designed by the UNFCCC) and the money raised would then be forwarded to the UN.
When I actually mention this, I’ve lost count of the number of people who have actually laughed at me, family included.
After all, who’s ever going to believe me?
Thank heavens Wikipedia has an archive for all its back entries.
Go chase it up. Don’t believe me.
Read that Kyoto Protocol through and you quickly come to the realisation that it was never about reducing emissions, as it was just about the money, and here we are really talking about a huge amount of money.
Tony.
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“When I actually mention this, I’ve lost count of the number of people who have actually laughed at me, family included.”
They don’t laugh at me; I get vilified! Arms crossed over the chest, leaning back in their chairs, looks of almost hatred in their faces. And that’s just family. I am told not to discuss it any more. Sad!
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GMac – carbon dioxide exists, but carbon credits are just paper certificates for a lack of it.
A carbon market is just another fiat currency, managed by governments, open to corruption; bring in the con-men and hand-feed financial sharks.
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Maybe we could back that paper with dry ice?
Heck… I wonder how much those polar caps on Mars are worth.
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Hi GMac, Derivatives have around for centuries, ~600 B.C (see http://en.wikipedia.org/wiki/Thales#Business)
I think what you’re missing is the difference between a ‘real’ market vs a man-made one.
By market, I’m referring to one based on human needs, i.e. I want to buy a loaf of bread etc.
No one has ever bought a box of carbon — that is a man-made market. The carbon market is a creation of legislation and is not a real market.
Regarding the issues that arrive out of the size of the derivatives market. This has happened because the banking ‘industry’ is not really an industry at all. They are a part of the govt (who else gets a short-sell ban, bailouts etc and covered bonds as a gift of accumulating too much risk).
Does your local Thai restaurant going broke get a free lunch? Of course not! The reasons given are moral hazard, contagion, blah blah blah ([snip]).
Bailouts have been happening since the 1800s. The first big one was done by Reagan in 1983.
Bailouts reprice risk — bankers get a free call option. Whenever they fail, they exercise the option (i.e. get bailed out).
This is why they can take enormous risks… because profits they keep and losses are passed onto tax payers.
If banking industry is not given this guarantee, then they would be forced to manage these risks properly. Shareholders and bond-holders would punish as and when risks increased (as it happens to non-bank companies).
This issue is complex. The role of reserve banks has also changed. Traditionally they only provided an ability to discount corp. bonds – facilitate trading. This whole lender of last resort, monetary policy stuff came later.
I use derivatives quite regularly and there is nothing wrong with it. The risks have to sit with the person taking it. You must lose your shirt when you stuff up — not your neighbour.
Cheers.
[Please avoid such terms.] AZ
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Oops! Mistyped… bankers are given a put option not call option!
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How does this relate to the fact that silver dropped like a rock overnight? But not the miners?
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Who sold?
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There is a website devoted to repos: http://repowatch.org/
Lehman brothers used a gimick called Repo 105 to hide their debt. there are many articles on this if you google “lehman repo 105” . amazing that they fooled everyone
one minor quibble Jo. The usual definition of a derivative is: a financial instrument whose value depends on other variables, such as a stock price, commodity price or index value, etc.
Really frightening situation…
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The Labor Budget for financial year 2013/14 that they handed over to the Coalition in September 2013 was badly flawed, deliberately creatively accounted for to present a false estimate of deficit and to present election image of a government achieving, for example the Gonski education grants to the states and territories. However, while Labor committed the Budget to funding Gonski and other items no provision was made to pay for them. The deficit estimated was about $18 billion but the real deficit, after independent private sector accountants audited the Budget for the new Coalition government, amounted to about $43 billion which had to be borrowed taking the substantial debt Labor were directly responsible for to more than $400 billion. And that does not included borrowings by NBNCo which are off budget, NBNCo being a government owned private business.
When Labor took office in 2007 the debt was zero and over $60 billion was invested in Future Fund and a small education investment fund. And following years of budgets in surplus the 2007/08 Budget was $22 billion in surplus which Rudd Labor quickly disposed of to provide earlier than recommended by Treasury or the Minister For Finance economic stimulus to the economy as the northern hemisphere financial crisis unfolded. PM Rudd called it the GFC. When former Coalition Treasurer Peter Costello had warned that storm clouds were on the international horizon during the 2007 election campaign Union Labor laughed it off. However, thanks to major economic reforms since 1985 based on the Treasurer Howard and permanent head of Treasury John Stone, called the Campbell Report, adopted by Hawke Labor with full support from the Coalition in opposition (New Zealand’s Lange Labour adopted the reforms in full including a GST), and completion of the plan by the Howard Coalition with the addition by them of establishing the Australian Prudential Regulatory Authority in 1998, Australia was in a very sound position when the so called GFC impacted here.
Having spent the $22 billion budget surplus quickly, money even gifted to foreigners who had worked in Australia and paid tax on their earnings who were no longer here, Rudd Labor commenced borrowing to spend more. Regardless of the record high tax revenue received from the mining boom providing better terms of trade than the Howard Coalition had to work with after the mining boom commenced early 2000s. Labor claimed that their squandering of our monies was justified to save us from recession. But much of the money was spent with the 2010 election in mind. The 2007 election result gave Labor many seats but the analysis pointed towards a much closer result possible in 2010. Debt creation was more about politics than dealing with the GST. And noting that after Labor bragged that they saved us from recession before the 2010 election they continued to borrow and spend in 2011, 2012 and 2013.
The budget financial crisis now is completely Labor Government responsibility. But they take no responsibility and blame the Abbott Government and at the same time use the Senate to slow and/or block government legislation, including 2014/15 Budget items still under negotiation, only eighty per cent passed by end of 2014 including around $30 billion of savings proposed in the Budget. Labor taunts the government claiming they are poor negotiators, that they promised a surplus and now cannot achieve one in the time frame they set out in their election commitments. That they said they would stop the borrowing and have not done so. A political game at our expense.
I am very worried about the near future, about what might take place around 2017 in the financial world. Australia no longer has the firewall intact that we had when the Howard Coalition left office in 2007. I believe that we are better placed than most developed nations but that could mean not very much better.
Labor also claim that the Abbott Government is a failure because of the financial and problems in the economy. Not so, they have pulled back from the borrowing and squandering of monies which, if Labor had remained in office and continued would have resulted in even higher debt today. Treasurer Swan used to talk about “the patchwork economy” indicating that there were real problems well before the Abbott Government took over.
With spending on welfare now 34% of total budget spending, with so many illegal immigrants to deal with and related expenses, with over $1 billion a month needed to pay interest on Commonwealth debt (plus NBNCo interest on debt), and the not much discussed state and local government debt plus government owned businesses debt, and much more, the position our nation is in now had deteriorated markedly since 2007.
The next financial storm will be far worse than the last.
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When Rudd announced that there would be a “great big tax” on miners, the international mining investors started walking away.
They are still walking and it will only be dulled memories or a new generation of investors that will return to Australia.
Our citizens (Joe Average) don’t help much either. They do not realise the risks associated with resource development, nor the infrastructure costs, nor the royalties paid.
Thanks heaps Kev.
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At a budget breakfast during the early 1990s, during the recession Keating said we had to have, the worst for sixty years in Australia, I attended a budget breakfast meeting invited by one of the major accounting firms in Sydney, the guest speaker was a senior mining executive. At the time the mining industry was being impacted by Mabo, land rights demands and other problems. The executive told us that foreign investment is essential to develop new mines because Australia does not have the financial resources to develop these highly expensive projects. And he added that foreign investors were turning their backs on Australia because they could invest in mining projects in countries that are our competitors with less expense and red and green tape, and lower operating costs.
The roadblocks were dealt with after the Howard Coalition took office in 1996, but over the Labor years from 2007 to 2013 the rot set in again, and then a decline in demand for mined products from about 2011. The Labor mining super tax (what is a super tax?) was not helpful, or the carbon tax and various other problems created including industrial relations law amendments, (un) Fair Work Australia.
21
Super profits tax (what is a super profit?)
20
Dennis, how much spending has really been cut.? I recall seeing a chart that showed it was miniscule. Ps. I am a liberal voter and an advocate of smaller government. Socialism will surely run out of other peoples money.
00
Are you aware that the Coalition Budget for financial year 2014/15 was delayed in the Senate from May to December at which time about 80 per cent of budget items had been passed, with some passed with amendments forced by Labor Greens & Others. Typical amendments were;
* Carbon Tax Repeal Bill passed but compensation paid to pensioners maintained (no tax revenue but retain budget expense).
* Super Mining Tax Repeal Bill passed but compensation paid to families retained (no tax revenue but retain budget expenses).
* New tougher anti-terrorism law passed with amendments including amendment that enabled around 20 people to return from fighting overseas without penalty.
And one of the worst, in answer to your question, blocking of proposed Budget savings amounting to over $30 billion.
Did the Coalition continue to borrow? Yes. Why? Because Labor failed to make funding provisions for over $25 billion of spending on commitments such as the Gonski education grants to the state governments. And they under estimated their deficit accordingly, they estimated $18 billion when the real deficit exceeded $43 billion.
And Labor still makes the deceitful claim that the Coalition committed to reducing the budget deficit and failed to do so, that they promised not to borrow more money and failed to do so. Labor created problems, Labor passed the blame.
In fact the Coalition plan spans forward estimate years and many commentators have approved of that plan. But the left leaning MSM and their Labor Greens comrades would have us believe otherwise.
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Toss this little tidbit in the mix also.
http://globaleconomicanalysis.blogspot.com/2015/04/euribor-goes-negative-banks-paid-to.html
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The day will come when the $US is no longer considered the World’s reserve currency.
The Chinese have been grabbing as much physical gold as they can while the Fed , the US Treasury, The Bullion Bankers, the BIS, the ESF, the IMF etc, etc,….. have all been playing naked short games to artificially cage the Gold price.
And all the while the lazy, compliant MSM keeps either ignoring it or gets creative telling the world “that gold is SO yesterday!”.
When the dust settles after Threadneedle St. & Wall St. have fully prepared & THEN pulled the plug; the Soros’, BanKi Moons, Hillary Clintons and all the sundry public CFR/ROUND TABLE/Fabian Megalomaniacs will forget about spruiking Thermageddon as a justification for a NWO & go straight to:-
“the only way to stabilize the world economy & global exchange & trade to preclude chaos & anarchy”.
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That can only promote chaos & anarchy”.
30
I suspect it’s even more complex than that.
Europe is in real trouble, not only in terms of its economy and unsustainable “renewable” energy policies, but also from the massive and growing influx (invasion) of north Africans and others who place a huge burden on the social and economic infrastructure.
The religious friction we currently see is only the start of a reaction to this. The right is on the rise. The socialists in Brussels have their heads in the Flanders mud. The French and the Italians will only take so much. The Brits are likely to react by leaving the EU. The Germans are already stirring. On the continent we can look forward to a violent backlash against the growing Muslim pressure.
However, this time it’s not Vienna, 1683. There’s no structured invasion. There’s no organised defence. This time it’s asymmetric and “civilised” socialist Europe has no strategy to deal with it.
In the end it will be the people who confront it. It will be very, very, ugly.
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Europe’s out of order, the US is out of order, they’re all friggin out of order! (Apologies to Al Pacino)
A couple interesting articles to hammer the point home at Mauldin’s web site:
And that’s negative in noiminal terms (not real)… I have often envisaged the whole system passing a point og no return, and Mauldin seems to like the black hole analogy as well:
Sooner or later this bubble is going to burst and there won’t be a China minerals boom to protect Australia’s economy this time. We are in for a rough couple years or so.
10
Yet from Rudd Labor abandoning the Coalition’s successful Pacific Solution in 2008 Australia received over 50,000 illegal immigrants welcomed by RAN ships sent by the Labor Government to ferry the illegal immigrants to Christmas Island. And now Operation Sovereign Borders has effectively stopped the boats again. Thankfully.
00
The other problem is central banks, as explained here, and their manipulations to keep the cash flowing.
As the explain link says —
> As of this moment 53% of all global government bonds yielding 1% or less.
¯
> $5.3 trillion of all global government bonds currently have negative yields, of which 60% are European.
¯
> and Central bank assets now exceed $22 trillion, a figure equivalent to the combined GDP of US & Japan.
There is a very telling graphic to go with it.
~~~~~~~~~~~~~~~~~~~~~~~~~~~
A few other things to note —
♦ The EU’s central bank, under Mario Draghi command, is slowly sleepwalking the EU to stagflation.
♦Japan’s currency devaluation earlier in the year has so far failed to give much return.
♦Chinese investments have lost a lot on the copper market, also China’s currency market exposure is causing internal problems.
♦The US economy is flat-lining, unemployment/under-employment is still too high, and there’s growth in bad debts — (see link above).
♦Russia still has still get to grips with it’s inflation problem.
♦The Arab world appears to have closed shop on investments — why risk anything for probable returns of 1% and less when you can just sit on the cash with little expected loss in value.
Culled from h tt p://www.zerohedge[dot]com/
and h tt p://davidstockmanscontracorner[dot]com/
(close up http spaces and add a . for [dot] to get full web addresses)
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A very good article on chiefio.wordpress.com – Euros, Deflation, and Greece
about the causes of deflation, stagnation etc.
40
OT.
Heres a very funny line from a very, very funny man. I mean I like comedy and over many years one man has provided more sincere belly laughs and genuine tearful joy than any other. No its not Robin Williams, or John Cleese, or even Billy Connelly. It is of course Tim the flim flam man Flannery. Here is a quote that is pure Tim comedy gold and the link to the full stand up show.
On the appointment of Lomberg”
“Mr Lomborg’s views have no credibility in the scientific community. His message hasn’t varied at all in the last decade and he still believes we shouldn’t take any steps to mitigate climate change. When someone is unwilling to adapt their view on the basis of new science or information, it’s usually a sign those views are politically motivated.”
https://www.climatecouncil.org.au/a-4-million-dollar-insult-to-the-scientific-community
When someone doesn’t change their views, its usually a sign they are politically motivated huh?
*time passes as Peter wipes the tears from his eyes and gets back his composure*
Hes a funny, funny guy. I like the way he manages to keep a straight face. I mean Peter Moon and Steve Vizard are great comedians, but they have nothing on Tim.
https://www.youtube.com/watch?v=JP1Y-tIJ370
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“Mr Lomborg’s views have no credibility in the scientific community.
His message hasn’t varied at all in the last decade and he still believes we shouldn’t take any steps to mitigate climate change.”
~ ~ ~
BJORN LOMBORG
It’s time to stop subsidizing fossil fuels
Contributed to The Globe and Mail
Published Friday, Apr. 17 2015
. . .
Sounds like a plan to “mitigate climate change”.
50
Yeah good pickup. I tend to miss the outright lies because Im too busy laughing my head off at the stupid mistakes and nonsense.
50
The obvious fact that Flannery considers it necessary to comment says it all doesn’t it?
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But the guy who lost his job because the PM didn’t want to keep “paying him for the same message”???
The irony is just incredible and no doubt completely lost on Flimmery.
70
The global financial system is now so very closely tied together through interlinked trade and finance that when one major economic power goes down, say the USA or Europe, all other global economies will be taken down to a greater or lesser extent.
This includes China which will lose it’s international markets that are currently supporting it’s industrialisation and it’s headlong rush to a fully developed nation. China and India, a rising industrial and exporting power itself will both suffer probable economic meltdowns of their own with all sorts of both domestic and international political ramifications.
What Jo is posting about is the end run of this last Kondratiev wave or cycle, the great 60 years average length capitalistic cycle where capitalism rebuilds after a major economic crash, develops new technologies on a huge scale that were already being brought into being in the back yard garages and workshops of the previous Krondratiev wave / cycle, reaches a new plane of prosperity and is then overcome once again with hubris and increasing inefficiencies until the money again runs out and a new economic crash occurs only for the great Kondratiev capitalistic economic cycle to begin all over again.
There is a lot of disagreement in economic circles over the validity of the Kondratiev cycle claims but it does seem to be accepted that capitalistic economics do run in cycles.
But as always in economic theory as is said ; If you joined all economists end to end you would never reach a conclusion!
____________
.
Kondratieff Waves and the Greater Depression of 2013 – 2020
[ quoted ]
Nikolai Kondratiev who was shot by firing squad on the orders of Stalin in 1938. He died for what he believed was the truth. His execution was ordered because his academic work propounded that the capitalist system would not collapse as a result of the great depression of 1929. This truth Stalin did not want to hear, thus Nikolai was exterminated and his work suppressed for over two decades.
[ Graphs of the USA depressions since 1789 ]
Kondratiev’s analysis described how international capitalism had gone through many such “great depressions” and as such were a normal part of the international mercantile credit system. The long term business cycles that he identified through meticulous research are now called “Kondratieff” cycles or “K” waves.
The K wave is a 60 year cycle (+/- a year or so) with internal phases that are sometimes characterized as seasons: spring, summer, autumn and winter:
Spring phase: a new factor of production, good economic times, rising inflation
Summer: hubristic ‘peak’ war followed by societal doubts and double digit inflation
Autumn: the financial fix of inflation leads to a credit boom which creates a false plateau of prosperity that ends in a speculative bubble
Winter: excess capacity worked off by massive debt repudiation, commodity deflation & economic depression.
A ‘trough’ war breaks psychology of doom.
Increasingly economic academia has come to realize the brilliant insight of Nikolai Kondratiev and accordingly there have been many reports, articles, theses and books written on the subject of this “cyclical” phenomenon. An influential essay, written by Professor W. Thompson of Indiana University, has indicated that K waves have influenced world technological development since the 900’s. His thesis states that “modern” economic development commenced in 930AD in the Sung province of China and he propounds that since this date there have been 18 K waves lasting on average 60 years.
&
In the case of the Kondratieff, the argument is that the first appearance of a paired K-wave pattern in economic innovations is found in the 10th century in Sung China which is sometimes credited with developing the first modern economy. The expansion of maritime trade in the South China Sea and the Indian Ocean, as well as the revived use of the Silk Roads on land, facilitated the transmission of long wave, paired growth impulses to the other end of Eurasia. Thus Modelski and Thompson analyze 18 k-waves encompassing some one thousand years between 930 and 1973…
In sum, the Kondratieff wave appears to be a highly pervasive and hence a critical process in the functioning of the world system. As such, it deserves more recognition than it currently receives. When more attention is paid to its influences, we will no doubt discover that it is even more central to world system development than we suspect currently.”
[ / ]
____________
[ comment ]
This last Krondratiev cycle has been extended well past the 60 years average length of the previous Krondratiev cycles since the Great Depression of the 1930’s by national treasuries creation of immense amounts of ghost money, [ now you see it!, now you don’t! ] and the propping up of huge poorly governed and deeply corrupted financial institutions that should have in the real and relatively honest system, been allowed to fail and be eliminated from within the global financial system along with their principals being incarcerated for fraud and corruption on a grand scale.
And as always the Krondratiev cycle ends and begins with a war of varying savagery and intensity.
And it may well be that as I have posted previously here, we are already in such a 3rd World War but have failed to recognise it as yet as each war is quite different to the previous wars as this one may well be.
Also;
THE LONGWAVE PRINCIPLE
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“Holter goes on to point out that what the Fed is probably doing is technically illegal. Presumably they have the best lawyers that money can buy so this is not really relevant. Hmm
Also the best politicians money can buy.
There is a real issue here. As a self-funded retiree I have been trying to maintain my assest base but find my rational decisions undermined by government policy at every turn. “Thrift” is now almost as crime and is punished at every turn to try and lure savings back into the economy.
I think there is a rule of thumb for safe investing. Invest in the same thing as the Governors of the Reserve Bank and leading politicians. The are always going to set their policies to maintain their own financial position what ever happens.
As property investors they will do everything to inflate the price of property by collapsing interest rates – even though from Japan onwards this strategy has been an abject failure
50
It is the self funded retirees and savers who pay for the casino. Inflation takes their purchasing power and effectively gives it to speculators when they borrow money. The act of creating new money from thin air is like an invisible hand snipping and shaving from those with cash and deposits.
The ultimate control of interest rates, rather than a free market, means rational decisions don’t necessarily pay as well as second guessing the bureaucrats. Look at how billions comes and goes with the release of a memo. It hinges on guessing whether rates will go up or not, or whether the subsidy will continue.
It’s not a free market.
80
Just so!
The first major economic statement of the first Rudd government was the announcement that “Howard has let the inflation genie out of the bottle.”
This was a barefaced lie. Howard did no such thing. So the message there was that the new government intended to engage in inflationary policy and blame the previous government for the ensuing inflation.
This was consistent with previous ALP policy, to demolish private capital and the capitalist system, just as a developer demolishes a building in order to replace it with a different one. No matter what the cost.
They set about their inflationary policy with reckless spending, which was gleefully redoubled with the onset of the GFC. One example of inflationary policy that I never saw recognised was the NBN, which established a major new entity in a construction sector which was already fully employed. The NBN then had to compete for resources in this market, making it the cost setter at a higher level for the whole construction sector.
It surprises me that their inflation has not already struck. But I still fear it will.
10
Derivatives’ marketing force,
Are valued in asset resource,
But an asset in carbon,
Is financial jargon,
For warmists to profit;of course.
130
When wolves of wall street deserve it,
But you can’t Limerick for 5h1t,
Merely wait five hours
For Ruairi’s powers
To supply the rhymes and the wit.
30
Oh Bummer.
How can this happen with all this cheap power in Europe?
I know a national TV/radio media group who would lay the blame for all of this at the feet of Tony Abbot.
41
Precious metals are not subject to supply and demand criteria.
They are subject to supply and stockpile criteria.
30
Jo, this post is a little off center. Futures and derivatives are by definition a slightly negative net zero sum game (winnings equal losings after broker vigorish). So the only that matters is whether excessive risk on one side or the other of zero is concentrated in one institution. If it is, that institution should properly fail. Parties on the other side of those transactions will thrive.This is quite different from the 2008 financial crisis precipitated by subprime mortgage lending bundled into ‘pseudo’ AAA bonds. That was fraudulent bundling and rating. Only losers except for the large vigoriish. No net zero sum game.
30
Rud, it’s useful that you say that because one of the points I made, and perhaps I need to expand on it, is that people think Derivatives can’t go off like bomb because they are a net zero sum game. Yet, as I tried to explain, the net zero game depends in a chain on nearly every party having the ability to pay. On margins though, most players are betting more than they could ever earn from the Real Economy. Hence most depend on the other players paying up. The system collapses fast. Its size doesn’t give it “momentum” or stability like it would in a real market, the size makes it incredibly fragile. The net disintegrates when a small percentage go bankrupt. At some point the bomb goes off when the percentage gets high enough. The domino effect means the bankruptcies spread. The fire could theoretically be put out with injections of real wealth, but there are not enough dollars in the world.
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“Jo” quote
“The domino effect means the bankruptcies spread”
Which is exactly what happened on Wall Street in the week from “Black Thursday” Oct 24th 1929 to “Black Tuesday” Oct 29th 1929.
Reading the following there seems to be some quite remarkable parallels to the current financial and economic situation.
Wiki; Wall Street Crash of 1929
“Economic fundamentals”
The crash followed a speculative boom that had taken hold in the late 1920s. During the later half of the 1920s, steel production, building construction, retail turnover, automobiles registered, even railway receipts advanced from record to record. The combined net profits of 536 manufacturing and trading companies showed an increase, in fact for the first six months of 1929, of 36.6% over 1928, itself a record half-year. Iron and steel led the way with doubled gains.[21]
Such figures set up a crescendo of stock-exchange speculation which had led hundreds of thousands of Americans to invest heavily in the stock market. A significant number of them were borrowing money to buy more stocks.
By August 1929, brokers were routinely lending small investors more than two-thirds of the face value of the stocks they were buying.
Over $8.5 billion was out on loan,[22] more than the entire amount of currency circulating in the U.S. at the time.[17][23]
30
I don’t think it’s quite a zero sum game, except perhaps in theory. Like a casino, there is a ‘house’, pun not intended though housing is a useful model. There is a base asset underlying the derivative, around which all parties place their bets. If the bets are not supported, and a cascade of tapped out bettors leaves the table, the asset may be claimed by the house.
And will likely deteriorate.
It is characteristic of the market and the nature of man that winning is concentrated, will losses are laid off using any means possible, thus winners will consolidate whilst losers will spread misery, and try to recoup losses from the weakest even if they were peripherally attaches, or not individually responsible. Sort of like after a war selling the losing soldiers and their families into slavery.
In a zero zum game, the probablities of each position winning are precisely determined, and sum to zero. I disbelieve that of the bubble market.
00
Jo,
I think you can put a size on that ‘amount to go bust’. It ought to be the leverage ratio. So if I must put up 5 cents to hold a dollar contract, I’ve got a 20:1 leverage. Once 5% of the losers can not pay, the total real value is evaporated. At that point, there are no real dollars on the table and nobody has the ability to close out a directional trade (A balanced trade of a “long US / short US” position can just be netted off the books. Why would someone have one of those? Say I have a put option on $US and it is starting to lose, I can neutralize that position via buying a call option on $US. Now one of them is headed to zero value, and selling it costs a premium, so I just hold it until expiration when it goes away. For that duration, I have two offsetting positions that can be netted against each other.)
That is what margin calls are all about. Once the “front money” or margin in a position drops too low, the bank / trade house calls up and asks for more real money to again cover the trade. So look for a spike in margin calls to indicate that things are getting dicey and look for un-met margin calls as indicating that the limit is reached. Those margin calls are attempts to get fresh money into the system, and un-met margin calls are evidence that it isn’t working and folks are running out of real cash.
I don’t know what the actual margin percent is in the global average of all those derivatives (some may have zero margin or infinite leverage if some country allows it, or if Central Banks are willing to loan enough money as zero / negative rates…) but once that is known, then the amount of loss to trigger ought to be known.
Oh, and a sidebar on “maybe why”:
IF I can go borrow money at zero (as some central banks have been doing) and use that to sell short a negative interest rate bond (or equivalently to buy a derivative contract on said bond) then I get gain at near zero cost. People are paying me a small amount for the “bond” and I’m paying zero for the money to back the short sale. The incentive would be for major banks to do a lot of that. Similarly, if I own a pile of old bonds and the current negative rates have made the value of my old positive rate bonds go way high, I might want to ‘lock that in’ with a derivative contract that effectively guarantees the present value. Any bank with a lot of old bonds will want to do that too. In short, the ‘near or at zero’ central bank rates are likely to cause a huge spike in derivatives by every major bond holder.
It would be useful to look inside the total number and see just what those derivatives are using as the underlying object.
10
O/T but following up on yesterday’s comment – I did a little Googling on Sydney storms and climate change, and found this in The SMH from Oct 2014:
But then there is this in The Conversation from yesterday:
I am so glad the science is settled…
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The east coast lows appear to be increasing and I think its a regional cooling signal.
And as the Antarctic sea ice expends we maybe viewing a LIA mechanism in the SH. South Africa is experiencing an early winter.
31
remember the CAGW plan is to “transform” the world economy. call it a reset, i guess!
***check the “pretty please” begging smiles on this bunch of bureaucrats:
18 April: World Bank: Mobilizing the Billions and Trillions for Climate Finance
***PHOTO CAPTION: The leaders of the IMF, World Bank Group, and United Nations welcomed ministers from 42 countries for the climate ministerial.
Over the next 15 years, the global economy will require an estimated $89 trillion in infrastructure investments across cities, energy, and land-use systems, and $4.1 trillion in incremental investment for the low-carbon transition to keep within the internationally agreed limit of a 2 degree Celsius temperature rise…
In addition, developed countries are working to meet a commitment made in 2010 to mobilize $100 billion a year from public and private sources by 2020 for climate mitigation and adaptation in developing countries…
Carbon pricing and fossil fuels
Putting a price on carbon and phasing out fossil fuel subsidies are two ways governments can free up and increase public funds…
The magnitude of the finance challenges ahead and the discussions made clear the need to build on one another’s work and set targets, said World Bank Group Vice President and Special Envoy for Climate Change Rachel Kyte. “One thing that came through very clear is that you have to know where you’re going. You have to have clear goals and targets at the national level,” Kyte said.
***Shifting the world to a cleaner trajectory will require nothing short of economic transformation.
http://www.worldbank.org/en/news/feature/2015/04/18/raising-trillions-for-climate-finance
17 April: RTCC: Alex Pashley: Climate deals make 2015 ‘biggest year since 1945’, says UN envoy
Need to update development goals and finalise global CO2 pact make 2015 most important in 70 years, says Mary Robinson (UN Special Envoy for Climate Change)
***The task in hand rivalled the creation of the Bretton Woods institutions and Marshall Plan, which reshaped the global economy postwar…
Climate finance, directing the world’s estimated $90 trillion of investment in the next 15 years to low carbon development, and leaving two-thirds of remaining fossil fuels in the ground, were all vital to rein in global warming…
http://www.rtcc.org/2015/04/17/climate-deals-make-2015-biggest-year-since-1945-says-un-envoy/
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In brief, then, I’m screwed.
Again.
50
At present the USA will threaten any nation that contemplates going onto a gold standard,they are terrified that once people start dealing in things with an intricate value the wheels will fall off and the world will see that the Emperor is not wearing any clothes.
Consider this when the western economies go bottom up it will be the likes of Iran(Persia) and Malaysia who will take the advantage because of Islamic banking with the rest of the Islamic world soon following on.
The combined populations of Indonesia and Malaysia is almost 300 million,and if their economies can grow while ours is crumbling ,well I’ll leave that up to your imaginations as to the eventual outcome!
30
GMac,
What does Iraq, Iran, Libya, China, Venezaula and Russia all have in common?
00
Let me guess … Does the answer start with … “G”? And is it four letters, with the last one being … “D”?
00
I like these games….4 letters starting with G and ending in, ummm its not GOOD because….well some of them are not is it GOLD by any chance?
That is an important factor RW but there is one other thing they have in common its starts with Petro and ends in dollar…..doh
00
Australian Government Bonds have just moved into negative territory, bordering on insanity, at least unethical. (Michael Smith)
50
Thanx Tom.
30
one of the reasons for BRICS, AIIB being formed:
20 April: South China Morning Post: Cary Huang: China frustrated by delayed reforms to increase its say at IMF
Central bank chief says alternative to the 2010 plan may be solution to impasse
Central bank governor Zhou Xiaochuan said China was “more than frustrated” with the long delay in a 2010 reform package to increase China’s say at the International Monetary Fund (IMF).
“[We] are upset and deeply disappointed by the current progress in regard to the reform of the shareholding system in the IMF,” China News Service quoted Zhou as saying on Sunday.
Zhou made the remarks on the sidelines of the World Bank-IMF spring meetings and a gathering of G20 finance ministers and central bank chiefs at the IMF’s headquarters last week.
Zhou was referring to the IMF’s 2010 reform package, which calls for a 6 per cent shift in voting rights from developed economies to emerging ones…
Washington has a de facto veto and the reform has been stalled for five years by the US Congress. Under the present system, the changes require more than 85 per cent of the total voting rights of the IMF’s members to pass; the US has 16.42 per cent of those rights…
Although the BRICS leading emerging market economies account for more than one-fifth of the global economy, together they wield about 11 per cent of the votes at the IMF.
Among the BRICS countries – Brazil, Russia, India, China and South Africa – China has been particularly shortchanged, as its voting share has failed to keep pace with its rapid economic development. China accounts for 15.4 per cent of global GDP but has only 3.8 per cent of the IMF vote…
The IMF is also considering whether to include the yuan in the basket of the Special Drawing Rights (SDRs). In a meeting with US Treasury Secretary Jack Lew in Beijing last month, Premier Li Keqiang urged Washington to support the change.
The SDRs are international foreign exchange reserve assets. SDRs represent a claim to foreign currencies for which it may be exchanged in times of need. The nominal value of an SDR is derived from a basket of currencies, mainly the US dollar, with a fixed amount of Japanese yen, British pounds and euros.
The SDR basket is based on two criteria: the size of the country’s exports and whether its currency is freely convertible. In the IMF’s last review in 2010, the yuan met only the first condition
http://www.scmp.com/news/china/economy/article/1771630/china-frustrated-delayed-reforms-increase-its-say-imf
20
Nice rundown thank you. Much to consider, little that can be done!
20
My new favourite saying …
Truth is truth, even if nobody believes it.
A lie is a lie, even if everybody believes it.
40
That’s a bit profound.
30
Sometimes JoAnne, I cannot understand your threads. Sometimes you encourage much more study, funding provided by whoever! Other times you disparage the funding to promote a political or religious POV. You seem to be willing to battle, yet promote discussion and polite discourse! Where are you coming from? Perhaps we can have some agreement that in the Roman Colosseum, only those yet standing are correct. And that polite discourse is how we got to this total mess!! 🙂 -will-
00
saw a fascinating docu on Cyprus on RT recently. basically, it told the following story:
The Press Project: How the Troika & Piraeus Bank sealed Cyprus’s Fate
Did the troika defraud billions at the expense of thousands of depositors in Cyprus?
By Harald Schumann / Der Tagesspiegel
As an experienced politician, Nicolas Papadopoulos is accustomed to difficult times. He has been an MP and head of the Cypriot Parliamentary Finance Committee for nine years. He is also head of the socially liberal Democratic Party (DIKO) so no one can accuse him of being a political radical. But when the 41 year old tells this story, his voice breaks and his fury brings tears to his eyes. “My country,” he says, “is the victim of a daylight robbery.”
“They stole three and a half billion euros from us and gave it to a Greek bank.” “People’s life savings, the money our citizens saved for their retirement.” Now many will even lose their homes. “The troika and the Eurogroup decided this, and we were forced to agree since they had a gun to our heads ‘. It was “one of the biggest scandals in the history of the Eurozone.”…
It sounds absurd. But the allegation is based on facts and documents. They show that officials in Brussels and Frankfurt imposed a highly controversial agreement on the country, under the terms of which customers of the Cypriot banks lost three billion euros, which a Greek bank then received as profit. So far parliamentarians and the European courts have not dealt at all with this question, and one reason for this is that the Cypriot government does not dare to speak publicly. It is is dependent on the goodwill of the ECB and the European Commission. Now, however, hundreds of Cypriots have appealed to the European Court of Justice and the Central Bank of Cyprus intends to launch an investigation…
As early as January 2013, before the elections in Cyprus, a team in the ECB had examined the scenario of an “involuntary” division of the Cypriot banks. They had drafted an extensive memorandum, classified as “confidential” and “restricted” which they circulated to a select circle. In this group was a Greek lawyer who had close relations with a legal firm representing Piraeus Bank – a relationship that would subsequently prove controversial…
After the affair ended, Cypriot banks were forced to sell their Greek branches for just 524 million euros. The buyer was Piraeus Bank. The Bank of Cyprus lost more than two billion euros, its total equity capital…
In contrast, in Athens, Michalis Sallas, head of Piraeus Bank, and George Provopoulos, governor of the Bank of Greece, had reason to celebrate. In the next quarterly statement, Piraeus reported a profit of 3.4 billion Euros, “from the acquisition of the network of Cypriot banks in Greece.” The Troika, too, had one problem less. Piraeus Bank Group, which until then was itself bankrupt because of the Greek debt haircut, was again solvent, and became the largest Greek bank overnight. The share price rose by 400%…
http://www.thepressproject.net/article/73470/How-the-troika-and-Piraeus-Bank-sealed-Cypruss-fate
the following story adds another dimension!
May 2014: NYT: Landon Thomas Jr: Greek Bank’s Return to Risky Investment
Investing in Greece’s banks was never for the cautious. But for the parade of hedge fund managers who have piled into the Greek financial giant Piraeus Bank, the bank’s latest deal has surely resulted in a dose of heartburn.
After raising billions of euros from equity and bond investors, the ambitious chairman of Piraeus, Michael Sallas, shocked the market on Friday by spending 250 million euros — half the amount the bank raised in an oversubscribed bond offering in April — to acquire a 17 percent stake in the Marfin Investment Group, one of Greece’s most indebted companies.
At a time when stretched Greek banks are taking extreme steps to raise cash, borrowing in ever larger amounts from the European Central Bank and unloading prized assets, the Piraeus move came as quite the surprise and the stock in the bank fell 11 percent for the day…
Marfin is a holding company with investments in health care, food products and transportation that has long been run by Andreas Vgenopoulos, a brazen deal maker who was also the chairman of Laiki Bank, the failed Cypriot bank. According to its 2013 annual report, the company had debt three times the size of its equity cushion…
The deal is the latest in a long line of transactions between Mr. Sallas and Mr. Vgenopoulos. In 2001, Mr. Vgenopoulos bought a small bank from Piraeus that would go on to become Laiki. According to internal audit reports from the bank, during Mr. Vgenopoulos’s time as chairman, Laiki lent over 100 million euros ($132 million) to entities controlled by Mr. Sallas for the purpose of buying back Piraeus shares.
In their report, auditors at Laiki report alleged that there was a quid pro quo relationship between Mr. Sallas and Mr. Vgenopoulos, a claim that has been refuted by both parties.
http://dealbook.nytimes.com/2014/05/16/greek-banks-return-to-risky-investment/?_r=0
yes, we should be nervous about potential bail-ins everywhere.
10
a couple of pieces worth reading:
2 pages: 21 April: Institutional Investor: Aaron Tims: Derivatives pioneer Blyth Masters Tackles Digital Currency
http://www.institutionalinvestor.com/article/3446313/banking-and-capital-markets-trading-and-technology/derivatives-pioneer-blythe-masters-tackles-digital-currency.html
21 April: Reuters: Mike Kentz: Exclusive – EU eyes more delay in clearing house decision
NEW YORK (IFR) – The European Union is looking to again postpone imposing new capital rules on EU banks that trade derivatives through non-EU clearing houses, according to a document seen Tuesday.
Amid an ongoing test of wills between European and U.S. regulators, the EU has scheduled a vote Friday to delay the decision until December, a draft of Friday’s agenda says.
If approved it would be the third consecutive six-month grace period for European banks exempting them from an EU requirement to hold more capital when trading derivatives at unapproved foreign exchanges.
The current extension expires in June. The EU proposal seen by IFR warns of potential “disruption” in the roughly US$700trn global derivatives market if the grace period is not extended…
Says CME Group’s Duffy: “Already we are seeing European clearing members and other market participants taking steps to consider alternatives to US exchanges and clearing houses.”…READ ALL
http://uk.reuters.com/article/2015/04/21/uk-eu-regulations-derivatives-exclusive-idUKKBN0NC2HG20150421
10
Who’s being naughty, then ?
I hope people can still remember what happened to Cyprus bank savers about 3 years ago. Brussels, through the ECB, had no hesitation in expropriating innocent people’s life savings to re-capitalise banks that had been “silly”
20
When you find yourself a serf! Gather all to re-hone the pitchforks and re-oil the torches. Youngsters understand this much better than adults!
10
sillier & sillier with each paragraph:
22 April: Guardian: Melissa Davey: Greg Hunt says cutting emissions by 30% by 2025 would be an ‘onerous’ goal
Australia’s environment minister responds to Climate Change Authority’s call, saying it would be ‘the largest reduction in emissions intensity in the world’
“On their own numbers – what the CCA is proposing is not just the largest reduction in emissions intensity in the world – but a third more onerous than any other country,” Hunt said.
“We’re currently undertaking broad consultation with the community on the setting of targets for the post-2020 period. The CCA report will be considered as part of this process.”
The government is due to announce its post-2020 target in June…
The opposition leader, Bill Shorten, reacted cautiously to the CCA report, saying Labor would take the recommendations seriously and be guided by the best science in developing its policy.
He declined to say whether Labor would endorse the suggested long-term targets.
“The Abbott government is a government of climate sceptics run for climate sceptics and their policies are clearly not going to achieve anywhere near the targets that the rest of the world are addressing,” Shorten said…
The institute’s chief executive, John Connor, said the CCA recommendations opened the door to more credible carbon pollution reductions, but did not go far enough.
“We should be targeting at least 40% reductions by 2025, and 60% by 2030, if we want to help build global efforts that give a strong chance of avoiding 2C,” he said…
The national climate change manager for WWF Australia, Kellie Caught, said the key message from the CCA was that Australia needed to “lift its game if we are to protect the people and places we love”.
A joint report from the WWF and the Australian National University’s centre for climate economics and policy released on Tuesday found Australia could achieve zero net emissions by 2050 by harnessing energy efficiency, moving to a zero-carbon electricity system and switching from direct use of fossil fuels to decarbonised electricity.
http://www.theguardian.com/environment/2015/apr/22/greg-hunt-says-cutting-emissions-by-30-by-2025-is-an-onerous-goal
shock horror! Australia asked 36 questions! US & Japan only asked 33 and 32, so let’s attack Australia again. Milne as toxic as ever:
20 April: RTCC: Alex Pashley: Australia’s climate plans probed by UN partners
World’s biggest emitters call out inadequate pollution-cutting targets in questions submitted through the UN
*** Countries asked Australia 36 questions through the UN’s “multilateral assessment” portal, which scrutinises if overall emissions pledges are on course to hold global temperature rise to 2C above pre-industrial levels.
The US received 33 questions, followed by Japan on 32 and Russia with 27…
Australian Greens leader Christine Milne says international pressure is mounting on the Abbott government ahead of UN climate talks in Paris, and warned the country may stand “alone and humiliated”
“It’s no surprise that the rest of the world is appalled by the Abbott government’s refusal to adopt meaningful global warming policy,” said Senator Milne…
http://www.rtcc.org/2015/04/20/australias-climate-plans-probed-by-un-partners/
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Are we having fun yet?
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In 2007 I cashed in my share portfolio against advice of my financial advisor and bought gold and silver bullion. Although circumstances are not the same as then, the effects of a derivative collapse could be worse. When this happens gold and silver will explode..
I still have my gold and silver and have invested more in same and feel extremely comfortable.
Worth investigating if you feel unsure about your investments.
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The great thing about derivatives though is you don’t have to worry if they’re real. Whereas Gold …we’ll it might be real, just has yet to be found.
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“This time is different”.
NO.
This time is never different. We are dealing with a common species, and the way they organize themselves, and the failures of those organizations, are consistent. Two million years ago there was a bubble in flint tools.
“Smart” people uses leverage to get rich. “Smart” governments use leverage to buy approval (votes).
I don’t care if its tulips or too big to fail…the bubble bursts. Real assets remain. False ones disappear into the ether. The financial turtles with hard money buy up the assets that the leveraged hares cannot support. The great middle licks their wounds, and contemplates their reduced circumstances, which are actually not much different than pre-bubble, except that you have spent some asset value on an expensive education. Governments default – ie repudiate, devalue, or inflate. They find someone other than themselves to blame and deal out punitive measures which are often undifferentiated from punishing their enemies or racketeering. We vow that we have learned our lesson, which goes the way of most New year’s resolutions and never past the next elections.
If it looks too good to be true, it probably is.
There is no such thing as a free lunch.
If someone from the government offers to help you, run like hell.
We can’t predict the business climate any better than the real climate.
Oh, and for most of us folks, hedges should be left to rabbits.
Tell somebody close to you you love them, and enjoy the sunset.
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I have a way of playing solitaire on the computer where I never lose. I can just keep racking up profit in the computer money. The way it works is I save any time I complete a round and am ahead but when I am $200 or more down down I shutdown the game and start from where i last started.
Derivative players are in a similar game only with money that can get real goods and services. They skim a small margin on every contract. When you write billions in contracts that small margin adds up. So players get very wealthy. AIGs top gambler before GFC was “let go” when it blew up but he had pocketed USD285M in salary and bonuses in the 7 years prior. He now flits around the world in his private jet with not many cares.
This time around is different for the plebs holding bank deposits. Depositors in system critical institutions such as major banks are now essentially unsecured creditors. They fall behind the institutions needs for outgoings to other system critical institutions to keep the system afloat. Hence all that skimming that the wealthy traders in large financial institutions make are now underpinned by the money they have on deposit. The traders can lose their job but will have the assets to keep sponging off the productive sector for the rest of their lives. Or take on another trading job in one of the financial institutions that was on the winning side of the bet.
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The less money you make, the more it’s worth. – a condensed version of Milton Friedmans lectures. I remember reading in 1994 that 26 % of Australias economy is in leisure industries. [ now there’s an oxymoron ! ] It would have to be over 30 % now. So the less you work, the more leisure you pay for, the more the leisure economy grows, so……we have a growth leisure economy, that increases the value of your savings….Which means your savings have more buying power, which means you can work less, which means…..a decrease in demand for petrol….which lowers the price of crude…..now we have deflation – relatively speaking, house prices fall, oh and the boomers are all retiring, they are liquidating houses [ trying to ! ] to pay for titanium knees, hips and truckloads of…..Viagra Ewwwwwwwwww!!!!!. House prices are falling, all the big economic expansions of the 60s 70s, 80s and 90s, big houses, yachts , big luxury cars [ try selling a 2nd hand german luxury car right now ! ] coastal real estate [ down 75 % in value in Mooloolaba in places ] , and OMG Whitsundays island resorts OMG I had a job on Daydream Is in engineering in ’95 the place was losing money back then when diesel was cheap – the concrete was rotting – salt air ! Now diesel is wot 3 times the price -most of those resorts are diesel powered !!! So I just kick back in my little country town, and watch the rib fillet strolling past. Oh yes shed full of Holdens , ’64 EH, ’74 ute,81 tonner, 2000 Berlina, 2000 Statesman. Nice pubs out here….. 16 foot Hydra “Rhiannon ” racing catamaran[ placed 4th in the 1983 World 16ft. Catamaran titles,] lives in the shed, big dam 15 min away, full of fish. Free camping everywhere out here in the bush, fresh air, raspberry vines in the back yard, 40 fruit trees, unlimited water, good soil, great climate, and our fans say…..this is Australia !
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a few points…
*this is somewhat subjective, but a repo is not a derivative, so the whole premise in the headline is a mistake. not a good start to this rather alarmist article
*repos are NOT “repurchases agreements from the US Fed”. they can be, but there is no necessary connection with a central bank. why is anyone writing on this subject if that is the extent of their knowledge?
*the chart is pretty impressive but, um, it lacks a Y axis scale. numbers without units dont mean much. i can imagine what jo nova would say if that appeared in an IPCC document
*the undlerlying idea in the ‘article’ is that there a/ “must” be “shocker-sized” hidden losses, b/ because there have been large moves in tradeable markets, and c/ that this meaningless, dimentionaless chart of something to do with repos, somehow verifies that. weird…
each on of these points is unwarranted. there is no reason to suppose that banks are involved in any of the “shocker sized” hidden losses. in fact, banks have been hugely winding down proprietary trading operations for several years. (do the words Dodd-Frank ring a bell???). even were that not so, banks might just as well be profiting at the expense of non banks. further, the moves of the last year are hardly unprecedented and have been seen in repeatedly throughout the last decade+. lastly, the repo market sheds no light on the subject anyway, and certainly nothing presented in this article, as nothing is presented in this article.
a brief look at the rantings of Bill Holter shows him to be a perma-crank with an ongoing history of calling dire collapses, and making broad accusations that everything is manipulated. including stupidity like “what the Fed is probably doing is technically illegal” [sic].
frankly, i am surprised to see this level of vomit on jo nova’s site.
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Alexander, thanks for making your first comment at the site.
Your “surprise” suggests you haven’t been reading long. Your inflammatory emotional language and errors suggest you need to calm down and read the post more carefully.
1. I didnt suggest Repos were derivatives.
2. The Y axis units are irrelevant to the argument. The Repo action is obviously unprecedented.
3. You provide no evidence or argument, nor alternative reasons for the recent Repo action just mere assertions and unsubstantiated insults.
You’ll need to do better than that.
PS: But thank you for the reminder to add in the units (even though they are irrelevant largely). I’ve also added in the source link. I appreciate suggestions like that. Cheers. Jo
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“Joanne Nova
April 24, 2015 at 4:12 pm · Reply
Alexander, thanks for making your first comment at the site.
Your “surprise” suggests you haven’t been reading long. Your inflammatory emotional language and errors suggest you need to calm down and read the post more carefully.
1. I didnt suggest Repos were derivatives.
2. The Y axis units are irrelevant to the argument. The Repo action is obviously unprecedented.
3. You provide no evidence or argument, nor alternative reasons for the recent Repo action just mere assertions and unsubstantiated insults.
You’ll need to do better than that.
PS: But thank you for the reminder to add in the units (even though they are irrelevant largely). I’ve also added in the source link. I appreciate suggestions like that. Cheers. Jo”
Jo…
1. the article is entitled “Repo spike suggests derivative bomb is triggered”. to me, that does rather imply that a Repo is a derivative. the entire article speaks of repos and derivatives interchangeably, and certainly doesnt attempt to distinguish them.
2. how can it be irrelevant that the Y axis has no dimensions? the entire article is based on the assertion that about repos has increased alot, and that is bad, and it indicates an impending crisis in derivatives (see note 1), and dire concequences will ensue. if you dont say what that is, then what exactly is the argument? it is fine to call it the “repo action”, but that is an opaque word, to say the least.
3. as that isnt defined, obviously neither i nor anyone else can explain it.
4. what ‘errors’ are you referring to in what i said?
Until you say what that Y axis number means, there essentially isnt an argument.
I must say i am very surprise to see you quoting from Bill Holter. i have never heard of him before, but when i look at his site, it is crank rubbish of the worse sort.
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ok,
so the additional information which shows the source of the graph, and it turns out that it is the total size of reverse repos held by the Federal Reserve. the reason for the spike at the start of 2014 is, i believe, due to a specific Fed policy of testing the use of reverse repos, so they can be used as part of the policy normalisation process, when it starts. so, no, this graph is not indicating some impending disaster in financial markets. it is just something the Fed is doing in the course of executing monetary policy.
read all about it here:
http://www.newyorkfed.org/markets/rrp_faq.html
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Stollznow is correct. Reverse repos drain money from the system, not add it. The Fed (effectively) sells a Treasury security – hence reverse. In effect, the Fed is testing conditions for reversing the monetary excesses of the past few years. How that is going to go is any one’s guess!
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