I have been writing for some time that I could not get my hands around the silver trade. I had a feeling when the market went up 202 points on Tuesday that gold and silver would sell off into a healthy pullback, and they both did. Yesterday I was very surprised and confused to see gold and silver put in very strong showings. As I wrote yesterday, I expected them to continue to sell off to about $35.00 in iShares Silver Trust (SLV) and $141.50 in SPDR Gold Shares (GLD). (See Has the Rally in Gold and Silver Run Out of Steam?) They did not act as scripted. What was I missing?
On Tuesday I spoke to Christian from GoldSilver.com and he pointed me to a link on YouTube by someone using the nom de plume Brother John F. I watched this video in stunned disbelief. This man had a live stream from the Commercial Mercantile Exchange (COMEX) for the minute by minute trades. Silver contracts were selling higher and at about 1:40PM they started to sell off for no reason. Then at 2:03PM there was a trade for 50,000 contracts of silver sold. (This would lead anyone to conclude that the sale was known 23 minutes before it occurred.) This is not a typo -- 50,000 contracts in one minute! Each contract is for 5,000 ounces of silver. So if we do the math 50,000 contracts by 5,000 ounces per contract equals 250,000,000 ounces of paper silver contracts. If we do some further math and we multiply 250,000,000 contracts by the proxy price of silver yesterday, which was $40.00 per ounce, then that trade was for 10 billion dollars in one minute.
I'll take this one step further. According to Jason Hommel writing on behalf of the US Mint, the amount of silver produced per year in the entire world is roughly around 680 million ounces and the amount mined in the US last year was 50 million ounces. The amount that was traded on the CME on Tuesday was approximately one third of all of the silver mined in the world. It was 5 times the amount mined in America.
Why is this so troubling? The reason is that there are rumors that the SLV is rumored to not have the silver that the paper purports to represent. There are reports that if SLV was ever called upon to produce the underlying asset it represents it would be unable to do so. Is there any wonder why this commodity is so volatile?
The fact is that the silver market is being manipulated. However, that is about to change. On Friday, July 22nd the Hong Kong Mercantile Exchange will start trading dollar denominated silver futures contracts with the hopes of tapping into the growing demand for the metal in China and India. The new contract will enable buyers and sellers in China to trade effectively with their counterparts around the world, while at the same time allowing investors to gain exposure to silver price movements and broaden their investment portfolio. The exchange also plans to roll out Yuan-priced gold and silver futures to capitalize on growing investor demand for China’s strengthening currency. They also have ambitions for products in base metals, energy, and agriculture.
This was the missing piece of the puzzle I could not find. Starting tomorrow the Anglo American monopoly on silver is over. This will be the first time that Asians can buy and take future delivery of silver in Asia. No longer can the CME raise margins close to 100% in eight days. The silver shorts are and should be afraid of the hundreds of millions of Asians that will be entering this small market. China alone has trillions of dollars and they could drop 0.01% of that money into silver, leaving it beyond the control of the American elite.
The one that has the most to fear is the COMEX. Yesterday’s manipulation 23 minutes before the trade of 50,000 contracts was consummated only proves that the exchange has been manipulating the market. There has never been true price discovery as this manipulation of the market has kept the true price of silver hidden. Well, I see dark days ahead for the COMEX. There will be investigations, there will be discoveries, there will be trials, and there will be jail sentences handed out. Market manipulation is not something the Feds take lightly.
I'd encourage readers to buy as much physical silver as they can. Until I am convinced that the markets have established a transparent state where true price discovery is possible I will stay away from paper vehicles. I do exclude Sprott Physical Silver Trust (PSLV) form this list as their paper is really backed up by the physical it purports to represent.
23 Jul 2011
Boom and Bust
Raising the Ceiling
22 Jul 2011
Spot gold surged more than $100 in 11 straight days to Tuesday, its longest winning streak in four decades, hitting a record $1,609.51 an ounce, as debt default fears in the United States and Europe drove investors to seek safety.
Gold stayed above $1,600 on Thursday as market watchers remained cautious about the debt situation on both sides of the Atlantic.
Asian giants India and China, the world's two biggest consumers of the precious metal, expect to see demand continue to climb for the rest of the year, as growing wealth and stubbornly high inflation make bullion an attractive asset.
"Record high prices won't scare away investors," said Shi Heqing, an analyst at Antaike, a state-backed metals consultancy based in Beijing.
"Investors are likely to chase the rally and continue to buy gold because paper money feels increasingly worthless and they are worried about inflation."
Shi expects China's gold demand to rise about 20 percent to near 700 tonnes this year from 570 tonnes in 2010 as Beijing struggles to tame annual inflation that hit a three-year high of 6.4 percent in June.
In India, the wedding season in mid-August is expected to drive up sales of gold, a fixture in dowry and gifts.
"The case for gold in the longer term is still very strong. Gold may appeal to new classes of investors who previously avoided the market in favour of more mainstream investments like bank deposits, bonds and equities," said a Singapore-based trader.
"Potentially there's a whole new market for small-sized physical gold bars if these investors lose faith in paper."
Technical charts point to gold hitting as much as $1,940 by the end of the year, given the strong bullish momentum in the past two weeks, Reuters market analyst Wang Tao says.
'$2-TRILLION, $3-TRILLION ELEPHANT'
Even central banks, until recently keen to disperse some of their gold holdings, could soon be sniffing around for more of the precious metal, analysts say.
In 2010 central banks became net buyers of gold for the first time in 21 years, as developed nations of Western Europe and North America reduced selling in the wake of the global financial crisis while emerging economies tried to diversify their holdings of foreign currencies, especially the dollar.
Deepening worries about debt crisis contagion in the euro zone, uncertainties around U.S. growth in the second half and its impact on the greenback, are likely to increase central banks' appetite for gold.
"If you look at projections on debt for the United States and for some European countries enjoying triple A status, it's looking very likely that these countries are moving from triple A to something less shiny," said Philip Klapwijk, executive chairman at GFMS, a metals research consultancy.
"And that's surely going to burnish gold's credentials for asset managers globally, particularly central banks and some of the sovereign wealth funds."
But central banks have to tread lightly, as sizable purchases could jolt the relatively small gold market.
On April 24, 2009 spot gold prices jumped more than 1 percent, when China announced an increase of 454 tonnes in its gold holdings, representing a jump of 76 percent from 2003, the only previous occasion it revealed the size of its gold reserves.
Last year, global gold supply, including mine production and scrap, stood at 4,108.2 tonnes, which translates into about $210 billion at current price. Above-ground gold stocks stood at an estimated 165,000 tonnes, valued at more than $8 trillion.
By comparison, the amount of U.S. debt held by the public stood at $9.75 trillion by July 19, doubling from five years earlier -- adding nearly $1 trillion a year, based on data from the U.S. Treasury Department.
"Central banks have the will to increase gold holdings, but it is not a practical option and rather difficult," said Dong Tao, chief regional economist at Credit Suisse.
"Gold supply simply doesn't grow as fast as China's foreign reserves. Only the increase in U.S. debt can match that."
Central banks could raise gold holdings marginally, he said, but sizeable purchases could cause an earthquake in the market.
"We can buy whatever with our money without causing price distortion, but a $2-trillion, $3-trillion elephant will certainly cause distortion."
China has the world's biggest foreign reserves, which stood at $3.2 trillion at the end of June. Gold holdings of 1,054.1 tonnes make up just 1.6 percent of its reserves, though China ranks sixth among the world's top official holders of gold.
INDIA, CHINA DEMAND
India and China together made up 57 percent of first-quarter global consumer demand for gold, the World Gold Council says.
China's frenzy for gold prompted the central bank to step up sales this year of gold and silver Panda Coins.
The People's Bank of China plans to sell 500,000 1-ounce gold coins, or 66 percent more than its earlier target of 300,000. It also tripled sales targets for half-ounce, quarter-ounce, 1/10-ounce and 1/20-ounce gold coins to 600,000 each from 200,000 earlier.
The increase in sales of these coins alone will represent a rise of 560,000 ounces in gold demand, or 17 tonnes.
Commercial banks and fund houses are also cashing in with products to let investors buy more gold jewellery, coins and bars.
Two Chinese companies, Lion Fund Management Co and E Fund, have launched funds to invest in gold-backed exchange-traded funds overseas, the only two Beijing has allowed so far to do so. E Fund is also investing in gold mining stocks abroad.
India, also the No. 1 gold importer, bought 286 tonnes of gold overseas in the first quarter, up nearly 10 percent from a year ago, World Gold Council data show. The country imported 959 tonnes of gold in 2010, or an annual increase of 72 percent.
Rajesh Mehta, chairman and managing director of gold importer and retailer Rajesh Exports, said he expected his firm to import 130 tonnes of gold in the year to next March, up 8 percent from the previous year.
"Indian gold jewellery demand is expected to show resilience in the face of higher price levels, with some opportunistic buying on price dips," said Ajay Mitra, managing director for India and Middle East at the World Gold Council.
July 18 (Bloomberg) -- James Grant, publisher of Grant's Interest Rate Observer, talks about negotiations between U.S. lawmakers over raising the federal debt ceiling and reducing the budget deficit. Grant also discusses the Treasury market, the gold standard and Europe's sovereign debt crisis. He speaks with Carol Massar on Bloomberg Television's "Street Smart."
21 Jul 2011
America is insolvent and has been so for a long time, and these games of massive deficits, stimulus and quantitative easing only delay the inevitable deflationary depression and economic and financial collapse, which has been deliberately created by Wall Street and banking to force us to accept World Government.
The actions of Senator Mitch McConnell were absolutely reprehensible and a disgrace. An effort to continue spending to keep his benefactors behind the scenes happy. His proposal was to allow the President to increase the debt three times before the end of 2012, which would be accompanied by Mr. McConnell’s spending cuts. This would avoid a vote and allow the President to act as dictator. Another scam and no mandated cuts. What this boils down to is political theater and the elections not that far away. They’ll be no cuts if any agenda passes, only cuts of future increases.
The national debt will not be touched and the wild spending will continue including $4 trillion to continue more wars. That means $1.5 trillion annual deficits forever. The climbing debt is 80% consumed by the Federal Reserve, which creates money out of thin air. Are we to believe that the Fed will create $2.5 trillion a year for the next three years and perhaps longer? The answer is yes, and the result will be hyperinflation, which will ruin the value of the US dollar. It is obvious the elites are not really looking for a solution; they simply want to destroy the value of the dollar to extinguish economic and financial stability, thereby forcing Americans, Brits and Europeans to accept World Government.
Europeans are finally realizing they cannot bail out six countries for more than $4 trillion without pushing themselves into insolvency. We pointed this number and possibilities out 1-1/2 years ago. There will be a Greek default followed by five other defaults, which will lead up to the end of the euro and perhaps the end of the European Union, that unnatural association. Such defaults over the next few years would wipe out most European banks and that will spread across the world. The catalyst for world financial catastrophe. The money being additionally loaned by EU sovereigns reaches Greece and does a U-turn and returns to European bankers to service debt. In the meantime via austerity Greece descends into a great dark pit. IMF funds take the same route of which almost 20% comes from US taxpayers. In addition the European bank exposure in Greece in part is covered, or insured, by American banks for $160 billion. The reason the banks do not want a default is that the US banks will have to pay off and they do not have the funds to do so. That event could trigger a world banking collapse, or another bailout via US taxpayers and the Fed. There is now no question that the euro will pass into history as another utopian nightmare. For those who were paying attention Greece and Italy should have been bailed out in 2001, not be admitted to the euro zone.
Contagion is doing its work and it is only a matter of time before the dominoes fall. Italy’s public debt to GDP is world class at about 120% and as interest rates climb servicing gets more expensive. Italy and Spain are the real linchpins. If they default everything in those six nations collapses. As we said previously the financial contagion will not only take down the euro and euro zone, but probably the EU as well.
As a result of onerous debt Greek bonds have lost 50% to 75% of their value and the bonds of the other five insolvent countries are in fact in negative pursuit. In just the first quarter Greek spending has fallen 40% just as salaries have. As a result tax revenues have plunged, as we predicted they would some time ago. This is no way to help an economy.
Greece has $480 billion in debt outstanding and about $160 billion is insured by credit default swaps sold by NYC legacy or money center banks. The same thing is true regarding Ireland. Needless to say, the CDS exposure is a guess because there is no reporting or regulation on OTC derivatives. These banks and others as a result just make arrangements that please them. This is why these instruments of financial destruction should be totally banned.
The writers and users of credit default swaps and other derivatives are aiding in continuing this speculation by forces within governments, prominent people such as Sir Alan Greenspan and the media. A change in derivatives reporting is out of the question, so that they can be bought and sold unhindered. In the end when the writers get in trouble it is the taxpayer who guarantees the bill and gets to pay for it.
As you have seen recently in Europe there has an outcry concerning derivatives and the ratings dispensed by rating agencies. Russia and a number of other nations will no longer accept the ratings of S&P, Moody’s and Fitch, because they are bogus and are politically motivated. What agencies do is write a report on a company or nation. Presently the report and demand the entity pay for the report. If they do not pay more often than not a new report follows that is not so flattering. It is called extortion. Wall Street and banking control these agencies. Look at the fraud and criminal collusion in the MBS-CDO market. Outright criminal fraud and the courts refused judgment. These people, who run these companies, should be in jail. They are not because they are part of those who run the system. The Europeans have known this for years, but for whatever reason they have tolerated it. The ratings given by the raters, and the massive use of derivatives have been responsible in great part for the credit crisis. They prompted massive speculation on a scale previously unheard of. It was used for enrichment as well as to keep the system functioning.
What comes to mind is the recent flurry of credit rater downgrades of weak European countries and their sovereign debt. The problems these countries have were known more than ten years ago and now all of a sudden they become a major issue. If Wall Street and US banking control these agencies and the agencies keep downgrading these sovereigns what can be the motivation? We surmise the problems in Europe serve as a distraction from America’s problems, but there could be a more compelling reason. That could be that the powers in NYC and Washington want to destroy the euro as an alternative to the US dollar as the world reserve currency. There could be a major conflict taking place at the highest levels behind the scenes, as to how the world will be run and finances are at the heart of the conflict. It is something to contemplate. We have already come to that conclusion. In this process lower sovereign debt ratings lead to higher interest rates that put more and more financial pressure on these already crippled countries. You can never fully contemplate what goes on in the twisted minds of these predators. Plots so diabolical and evil that the normal descent mind cannot comprehend them.
As we have pointed out the European Central Bank, ECB, has made many mistakes. This is a central bank, which is a semi-federal institution, which gets pressure from all sides. This state of affairs leads to hesitancy, which becomes incompetence. At the beginning of the credit crisis they had to be backed by the Fed that lent them trillions of dollars just for the ECB and other member banks to stay afloat. That was and is a dreadful state of affairs. It could be that the condition was in large part caused by the bonds rated AAA by raters and Wall Street, which were in reality BBB bonds. Those European institutions lost trillions of dollars and what is very strange is that there were no civil or criminal legal action regarding the fraud. Of course, when elitists are involved cases never reach court and when they do no one goes to jail. It is what we call a criminal culture.
The ECB was the bank that couldn’t sell gold fast enough. Gold as a percentage of assets was 15%, it is now 5%. The ECB is leveraged at about 25 to 1, when 9 to 1 is normal. If assets fall in value 5% the ECB is wiped out. That could very easily happen. They currently hold about $280 billion in Greek bonds that are not worth the paper they are written on. That loss is double their capital base, which means they are insolvent, yet, they go on their merry way deceiving the world. Thus, it is not surprising that the ECB and mostly other central banks and commercial banks want to rape Greece of all its assets at 10 cents to 30 cents on the dollar. As you can see the Greek problem alone can take the euro and EU banks down in a pile of rubble. As a result of this situation the 17 euro zone members would have to recapitalize the ECB, or it could not function. The sovereign banks could contribute and the ECB could sell gold or it could print more money making its euro worth less and cause higher inflation. Even though the US and Japan are in more serious debt load problems the ECB is closer to losing control. Dealing with debt problems is enough for one nation, but having to deal with 17 or 27 nations is daunting.
It is not all that easy for the dollar. Including China foreign reserves kept in US dollars is about 60.5% down from 61.5% just three months previous. As long as the dollar is continually sold it will remain under pressure. If the euro falls by US design then you can understand why. It is because a weaker euro helps the dollar mask its problems. Everyone has to use currencies, but confidence in the euro, dollar, and yen are definitely in retrograde. The US dollar, although it is the world reserve currency, has lost and loses confidence every day because the American system is being looted by Wall Street and banking. As we write a new plan B is going to be discussed this week in regard to the extension of short-term US debt. Thus far the Republicans say they won’t accept tax increases and the President has said he is willing to sacrifice Social Security and Medicare programs the public has paid into for more than 40 years in the case of Medicare and since June of 1935 in the case of Social Security. There has been absolutely no mention of cutting military spending, which has been more than $5 trillion. Thus, perpetual war for perpetual peace will continue and our elderly will starve and go without health care to insure early death, thus relieving government of the burden of having to care for them. Those who call this a political victory for the President are sadly mistaken.
The Constitution says to force default on public obligations of the US is plainly unconstitutional. That includes pensions that should not be questioned. The debate alone is unconstitutional. What we are seeing is an attempt of government to avoid obligations. The Constitution is not optional, it is the law, and the President and the Congress knows that. What should be in process is a discussion of the long-term deficit. That is the way to solve the crisis.
In addition nothing is being done to solve the underlying problem. The banks, Wall Street, banking, insurance and select corporations have had a temporary reprieve, but little has been done to put the economy back on track. Recoveries create tax revenues and reduce debt. That solution to too simple for Washington. They are more interested in cutting paid for benefits then cutting the profits of the military industrial complex.
We all know why Social Security and Medicare were created. They provided health care and income so that the old do not have to survive in poverty. They meet the basic needs of those who cannot help themselves. These programs would be self-sustaining if government didn’t loot their contributions. Are we to all suffer as Congress refuses to come to grips with the real problem and continues to play politics? Are we to suffer because the President refuses to follow the Constitution? Are these players willing to destroy America, as we have known it? We believe that may be the case.
There is little confidence left in government and that is truly understandable.
Last week the Dow fell 1.4%, S&P 2.1%, the Russell 2000 2.8% and the Nasdaq 100 2%. Banks fell 4.2%; broke/dealers 4.1%; cyclicals 2.8%; transports 3.7%; consumers 1.4%; utilities 2.0%; high tech 3.6%; semis 5.7%; Internets 2.7% and biotechs 2.7%. Gold bullion rose $49.00, the HUI gold index leaped 5.9% and the USDX dollar index was little changed at 75.12.
The 10-year T-note was 2.91%, and the German bund fell 13 bps to 2.69%.
The Freddie Mac 30-year fixed rate mortgage fell 9 bps to 4.51%, the 15’s fell 15 bps to 3.65%; the one-year ARMs fell 6 bps to 2.95% and the 30-year fixed rate jumbos fell 3 bps to 5.05%.
Fed credit rose $4.8 to a record $1.859 trillion. Year-on-year Fed credit has expanded 23.5%. Fed foreign holdings of Treasury and Agency debt rose $5.4 billion to $3.451 trillion. Custody holdings for foreign central banks have risen $100 billion ytd and $337 billion yoy, or 10.8%.
Central bank Forex assets, excluding gold, surpassed $10 trillion for the first time, now having doubled in 4.5 years. Reserves rose $1.591 trillion yoy, or 18.8% over two years they are up 44%.
M2, narrow money supply surged $88.7 billion to a record $9.253 trillion. It is up 9.1% year-to-date.
Total money market fund assets rose $9.7 billion to $2.696 trillion.
Total commercial paper outstanding rose $21.3 billion to $1.232 trillion. CP is up $63 billion year-to-date, or 42%.
Bethesda-based Lockheed Martin said Tuesday that it is offering a voluntary layoff program for about 6,500 U.S.-based employees, the latest in a string of recent moves to cut jobs at the company.
The news comes as the Pentagon continues to push for savings from contractors.
The initiative offers a severance package to all U.S.-based, salaried employees who report to Lockheed’s corporate headquarters or internal business services organization. The internal unit of about 5,000 employees handles areas such as payroll and information technology for the company.
About 2,000 of the eligible employees are based in the D.C. area, 1,300 are based in Florida offices — in Orlando and Lakeland — and more than 700 are in Denver, according to company spokeswoman Jennifer Whitlow. A Fort Worth site has about 500 eligible employees, while a Valley Forge, Pa., office has about 300.
The severance package provides two weeks of pay, plus another week of pay per year of service, up to 26 weeks. Eligible employees have until Aug. 12 to decide and would depart in the fall.
“Based on experience with these types of programs, we anticipate that around 2 percent will take advantage of the program,” Whitlow said.
The company said it would evaluate the number of volunteers and its budget before deciding whether to implement layoffs.
Lockheed, the world’s largest defense contractor, has been one of the most aggressive in making personnel cuts. Under a voluntary executive buyout program the company launched last summer, about 600 executives departed at a cost of $178 million. The company has said it expects the program to save it about $350 million in the next five years and $105 million every year thereafter.
Lockheed announced late last month that it would lay off about 1,500 employees in its 28,000-employee aeronautics business, which is primarily based in Texas, Georgia and California. At its space systems business, the company said last month, it would reduce its 16,000-employee workforce by 1,200, particularly seeking to shrink middle management by 25 percent. Lockheed said the cuts would most severely hit Sunnyvale, Calif.; the Delaware Valley region of Pennsylvania; and Denver.
In both cases, the company said it would offer eligible employees voluntary layoffs before making involuntary cuts.
In a statement of administration policy, the White House Office of Management and Budget labeled the GOP bill as an “empty political statement.”
The House Rules Committee is expected to take up the measure on Monday, and it is likely to receive a floor vote on Tuesday. The measure would cut spending in Fiscal Year 2012 by $111 billion, cap future spending at 19.9 percent of gross domestic product and would allow for the debt ceiling to be increased if a balanced budget amendment is approved by Congress and sent to the stats.
Bernanke Feeds the Panic, Announces QEIII; Only Glass-Steagall Can Stop It
With Europe engulfed in debt-panic and the European Central Bank (ECB) becoming a huge "bad bank" for unpayable debt assets, Federal Reserve Chairman Ben Bernanke stepped into the breach July 13 by announcing to the House Financial Services Committee that the Federal Reserve is preparing a QEIII, with more expansion of its asset book. Stocks and the Euro momentarily soared, the dollar plunged.
Bernanke seemed to be defying what just-released minutes of June 22 Federal Open Market Committee (FOMC) meeting showed, namely, that only "a few members" were in favor of even considering another round of "monetary stimulus," or money-printing. A few hours after Bernanke's announcement in Congress, Dallas Fed president Richard Fisher said in a speech there, "We've exhausted our ammunition, in my view, and expanding the Fed's balance sheet from about $2.7 trillion to more than $3 trillion might spook the marketplace. I do not personally see the benefit of more monetary accommodation even if the economy weakens further." One day earlier, retiring Kansas City Fed chief Thomas Hoenig, no doubt aware of what Bernanke would do, had blasted Fed money-printing in a speech: "Part of our basic problem worldwide and here in the U.S., is that the emperor has no clothes and no one's willing to say it. You print money, print money, and print money, but you don't create real wealth."
All commentary focussed on the fact that Bernanke was trying to save the Euro single currency a hopeless task, and one that leads the Fed further into violating even the Federal Reserve Act of 1913. Note that on June 29, the Fed extended unlimited currency swap lines of credit to the ECB and the Swiss, British, Canadian, and Japanese central banks. The ECB is being widely described as a "European bad bank" in the growing debt crisis, as it has lowered the standards for the collateral assets it is buying from banks, to below junk grade, and is buying from private equity funds, hedge funds, and investment banks. Will the Fed now be directly buying European sovereign debt, or European bank bonds, in support of the floundering ECB? Without waiting to find out, QEIII should be stopped.
An interesting report appearing July 6 on the financial analysis website "Zero Hedge", used Federal Reserve flow-of-funds and bank reserves charts to show that all $600 billion of the so-called QEII money-printing appeared to go offshore to big Inter-Alpha and other European banks. The Fed's purchases of Treasuries with its newly printed reserves from November 2010 to June 30, 2011 evidently were overwhelmingly from BNP Paribas, RBS, Barclays, Credit Suisse, Deutsche Bank, HSBC, and UBS. The "Zero Hedge" analyst concluded: "The only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains ... why US banks have been unwilling and unable to lend out these reserves."
Arguably, this violates the 1913 Federal Reserve Act, even with its 1932 "exigent and unusual circumstances" amendment, which still requires AAA-rated collateral in the form of U.S. Treasuries or equivalent, for the Fed lending to any "non-bank."
But on more fundamental Constitutional grounds, an attempt to repeat this in a QEIII would be barred and the QEII effects could be reversed by immediate passage of legislation restoring the Glass-Steagall Act through both Houses of Congress. Under Glass-Steagall, not only were commercial banks separated from various kinds of securities-speculation and insurance firms. The Glass-Steagall principle is that only those commercial banks, thus separated, in the Federal Reserve System U.S. banks are eligible for Federal support in the form of discount window and special lending, deposit insurance, and other protective regulation. All the big European banks are famously "banking supermarkets" stuffed with investment banking arms, speculative hedge funds, insurance divisions, money-market funds, etc.
The current trans-Atlantic bad-debt bubble, imploding in Europe now, does not qualify for such lending or support; that gambling debt should be left on the shoulders of those who bet on it. Glass-Steagall passage would stop this latest panic bailout.
Global demand for U.S. stocks, bonds and other financial assets rose in May from a month earlier as China and Japan added to their holdings of government securities, the Treasury Department reported.
Net buying of long-term equities, notes and bonds totaled $23.6 billion during the month, compared with net buying of $30.6 billion in April, according to statistics issued today in Washington. Including short-term securities such as stock swaps, foreigners sold a net $67.5 billion compared with net buying of $66.6 billion the previous month.
The Treasury’s reporting on long-term securities is a gauge of confidence in U.S. economic policy, and today’s report suggests the U.S. continues to offer safety from the economic crisis in Europe even with the White House and Congress at odds over raising the Treasury’s borrowing authority.
“The U.S is a political risk perhaps as Congress deliberates over the debt ceiling, but no one views the U.S. as being unable financially to meet their obligations,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, before today’s report in an e-mail.
Economists in a Bloomberg News survey projected long-term U.S. financial assets would show net buying of $40 billion in May. Five economists participated in the survey, and their estimates ranged from $30 billion to $66 billion.
The data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.
China remained the biggest foreign holder of U.S. Treasuries, after its holdings rose by $7.3 billion to $1.16 trillion in May, according to the Treasury’s statistics.
Japan, the second-largest holder, increased its holdings by $5.5 billion to $912.4 billion in May. Hong Kong, counted separately from China, reduced its holdings by $500 million to $121.9 billion.
Total foreign purchases of Treasury notes and bonds were $38 billion in May compared with purchases of $23.3 billion in April.
Former commodities trader Vincent P. McCrudden, accused of threatening to kill financial regulators, pleaded guilty today.
McCrudden pleaded guilty to two counts of transmission of threats to injure, before opening arguments were scheduled to begin in his trial in federal court in Central Islip, New York. The charges carry a maximum sentence of 10 years in prison. His sentencing was scheduled for Dec. 5.
McCrudden, 50, who also ran his own hedge funds, was accused of threatening the lives of 47 current and former officials, including Securities and Exchange Commission Chairwoman Mary L. Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler.
McCrudden has been held without bail since he was arrested Jan. 13 returning from Singapore. He was charged with threatening the regulators in profanity-filled e-mails and, after the CFTC sued him in December, Web postings. McCrudden had said he was being persecuted for fighting back against unfair regulatory actions that destroyed his career.
“On Dec. 10, 2010, I was notified that I was being civilly sued by the CFTC for $58 million,” McCrudden told U.S. District Judge Denis R. Hurley. “It upset me. I had started to post some things on the site that hadn’t been there before.”
Cisco Systems Inc., the world's largest maker of computer-networking gear, is reducing its work force by about 9 percent to reduce costs and raise profits as the company tries to become more competitive.
Monday's announcement to cut 6,500 of its roughly 73,000 worldwide employees follows up on a plan disclosed in May to eliminate thousands of jobs. Two-thirds will come through layoffs, and the rest through an early-retirement plan. The company said 15 percent of employees at or above the level of vice president are being eliminated.
Cisco has long been a high-growth company, but after rebounding from the recession, its sales started stalling about a year ago. Critics have long said that Cisco tries to compete in too many markets.
CEO John Chambers acknowledged that criticism in April and sent employees a memo vowing to take "bold steps" to narrow the company's focus. Cisco killed off its Flip video camcorder business that month, and it reorganized its management structure a month later. Monday's cuts represent Cisco's latest attempt to simplify.
Cisco is also suffering from rising competition from companies like Juniper Networks Inc. and Hewlett-Packard Co. in the market for computer-networking equipment, including the routers and switches that direct the flow of data traffic.
Cisco said the cuts will cost it $1.3 billion in severance and termination benefits. The company, which is based in San Jose, Calif., plans to take the charge over several quarters. It will take $750 million of that, including $500 million for the early-retirement program, during the current quarter.
Cisco will inform employees who have been cut in the U.S., Canada and some other countries during the first week of August. The rest will come later to comply with local laws.
In May, Cisco said it planned to eliminate thousands of jobs as part of a larger plan to lower annual expenses by $1 billion, or about 6 percent. Cisco didn't say then how many jobs would be eliminated, but the number worked out to 4,000 to 5,000 if the percentage of job cuts were similar to the reduction in expenses. The exact number has been the subject of many analyst and published reports since then. The numbers announced Monday are much higher than the 6 percent figure.
Gleacher & Co. analyst Brian Marshall said the cuts were in line with what he was expecting.
"Obviously, while an unfortunate event it's a necessity for Cisco to heal and get back on a competitive stature in the industry," he said.
Also Monday, Cisco said it agreed to sell its Juarez, Mexico-based set-top box manufacturing plant to Foxconn Technology Group, a Taiwanese company that makes many Apple products. The plant's 5,000 employees will join Foxconn by October. Those 5,000 are in addition to the 6,500 being cut from Cisco.
Earlier this year, Cisco cut 550 workers as part of its decision to kill Flip and reorganize.
Housing starts in the U.S. rose more than forecast in June to the fastest pace in five months, led by a surge in work on multifamily dwellings like apartments.
Work began on 629,000 houses at an annual pace, up 14.6 percent from the prior month, figures from the Commerce Department showed today in Washington. The level of starts exceeded the most optimistic forecast in a Bloomberg News survey of economists. Building permits, a sign of future construction, unexpectedly climbed 2.5 percent.
Five of the 15 states with top bond ratings from Moody’s Investors Service may be downgraded because their dependence on federal revenue makes them vulnerable to a U.S. credit cut should talks to raise the debt limit fail.
Maryland, South Carolina, New Mexico, Tennessee and Virginia are under review, New York-based Moody’s said today. The action affects $24 billion of general-obligation and related debt, it said. The states are rated Aaa, Moody’s top municipal grade.
A milestone on the road to economic ruin was reached last week. Total Foreign Exchange Reserves topped $10 trillion. That means central banks have created the equivalent of $10 trillion of fiat money that they have used to buy the currencies of other countries. That figure does not include the money central banks have created and used to buy assets denominated in their own currencies, such as the $2 trillion the Fed created during the first two rounds of Quantitative Easing.
Out of the $10 trillion, $8 trillion has been created since the turn of the century and $1.6 trillion during the past 12 months alone. China has “printed” the most, the equivalent of $3.2 trillion or nearly a third of the total. That is 50% more than QE 1 and QE 2 combined. Japan ranks second to China, holding 10% of all Foreign Exchange Reserves.
Both China and Japan created money and bought foreign currencies in order to suppress the value of their own currencies and thereby improve the competitiveness of their exporters. That was the primary motivation of all the countries that built up FX Reserves.
Roughly 70% of all Reserves are US dollars. In other words, the equivalent of $7 trillion was created and employed to push up the value of the dollar relative to where it would have been had central banks not intervened. This interference with the free market has come at enormous cost to the United States, which, in large part due to this intervention, has suffered a cumulative trade deficit of $6.9 trillion since 2000, with a corresponding increase in national indebtedness.
Moreover, as central banks acquired the $7 trillion, they pumped it into US dollar-denominated debt such as government bonds, debt issued by Fannie Mae and Freddie Mac, corporate bonds and asset-backed securities. That capital inflow pushed up US asset prices and mollified the American public even as the country’s manufacturing base was being decimated and as most of its manufacturing jobs were being relocated abroad.
It is mindboggling that US policymakers would have promoted free trade while simultaneously tolerating blatant currency manipulation on a trillion dollar scale. Our New Depression is the direct result of an insane experiment in fiat money, floating exchange rates and unimpeded cross-border capital flows. It has been a terrible mistake from which the United States may not recover.
The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government's $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday.
Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world's biggest economy runs out of cash on August 2.
"We are in contingency planning mode," Plosser told Reuters in an interview at the regional central bank's headquarters in Philadelphia. "We are all engaged. ... It's a very active process."
Plosser said his "gut feeling" was that President Barack Obama and Congress will come to an agreement to increase the Treasury's borrowing authority in time to avert a default on government obligations.
Obama was due to meet with top Republicans in Congress on Wednesday to discuss the latest attempts to end the dispute over raising the country's debt ceiling, a row which has raised the prospect of the Treasury Department running out of money to pay its bills next month.
The Treasury has repeatedly said default was unthinkable and that there was no alternative to raising the debt ceiling. Plosser's remarks marked the most extensive public comments yet on preparations for a default from a U.S. official.
A Treasury spokesperson could not be immediately reached for comment.
One aspect of the Fed's contingency planning is purely operational: the Fed is developing procedures about how the Treasury would notify it on which checks would get cleared and which wouldn't, Plosser said.
The Fed effectively acts as the Treasury's bank -- it clears the government's checks to everyone from social security recipients to government workers.
"We are developing processes and procedures by which the Treasury communicates to us what we are going to do," Plosser said, adding that the task was manageable. "How the Fed is going to go about clearing government checks. Which ones are going to be good? Which ones are not going to be good?"
"There are a lot of people working on what we would do and how we would do it," he said.
Plosser added that there are difficult questions that the Fed itself had to grapple with.
The Fed lends to banks at the discount window against good collateral. But what happens if U.S. Treasuries no longer fit that bill?
"Do we treat them as if they didn't default, in which case we would be saying we are pretending it never happened? Or do we treat them as if they defaulted and don't lend against them?" Plosser said. "Those are more policy questions."
Plosser, who was a vocal critic of some of the Fed's extraordinary lending during the financial crisis -- which he said veered into fiscal policy and risked the central bank's independence -- warned it would be crucial for the Fed not to do the Treasury's work for it.
"We have to be very careful that we don't become, that we don't conduct fiscal policy in this context," he said. "That we don't substitute for the inability of the Treasury to borrow in some circumstances."
INCLINED TO TIGHTEN
Plosser, a noted policy hawk on inflation, argued the Fed might need to raise interest rates before the end of the year, despite recent evidence of renewed economic weakness.
He said he expects the economy to grow at a 3-3.5 percent annual rate over the second half of 2011 with the jobless rate declining to around 8.5 percent by year's end.
"The more my forecast comes to fruition the more I'm going to feel like we may have to act," said Plosser, who is a voting member of the Fed's monetary policy-setting committee this year. "I'd like to have a little more confidence in that forecast."
Plosser pinned the slowdown in economic growth over the first half of the year to "easily identifiable" factors, such as weather, a spike in oil prices and supply disruptions from Japan's earthquake. He also cited uncertainty stemming from Europe's fiscal morass and the wrangling over U.S. debt in Washington.
"I don't see the fundamentals of the economy as changed that much," he said. "Yeah, there's been some shocks and disruptions, but the underlying forces that are going to cause us to continue a slow, moderate recovery are still in place."
That said, the Fed, which is charged with ensuring financial stability, would clearly feel the responsibility to step in as a lender of last resort if markets seized up after a U.S. default, he added.
Fed Chairman Ben Bernanke last week warned that a default could have "catastrophic" effects on financial markets.
Plosser, a former dean of the Simon School of Business at Rochester University, was more circumspect.
"It could be very bad. At some level we don't really know what the consequences could be. It could be very serious. It could be less serious. Do we really want to run that experiment?"