Definition of an Eligible Contract Participant

(18) Eligible contract participant

The term “eligible contract participant” means—

(A) acting for its own account—

(i) a financial institution;

(ii) an insurance company that is regulated by a State, or that is regulated by a foreign government and is subject to comparable regulation as determined by the Commission, including a regulated subsidiary or affiliate of such an insurance company;

(iii) an investment company subject to regulation under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) or a foreign person performing a similar role or function subject as such to foreign regulation (regardless of whether each investor in the investment company or the foreign person is itself an eligible contract participant);

(iv) a commodity pool that—

(I) has total assets exceeding $5,000,000; and

(II) is formed and operated by a person subject to regulation under this chapter or a foreign person performing a similar role or function subject as such to foreign regulation (regardless of whether each investor in the commodity pool or the foreign person is itself an eligible contract participant) provided, however, that for purposes of section 2 (c)(2)(B)(vi) of this title and section 2 (c)(2)(C)(vii) of this title, the term “eligible contract participant” shall not include a commodity pool in which any participant is not otherwise an eligible contract participant;

(v) a corporation, partnership, proprietorship, organization, trust, or other entity—

(I) that has total assets exceeding $10,000,000;

(II) the obligations of which under an agreement, contract, or transaction are guaranteed or otherwise supported by a letter of credit or keepwell, support, or other agreement by an entity described in subclause (I), in clause (i), (ii), (iii), (iv), or (vii), or in subparagraph (C); or

(III) that—

(aa) has a net worth exceeding $1,000,000; and

(bb) enters into an agreement, contract, or transaction in connection with the conduct of the entity’s business or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred by the entity in the conduct of the entity’s business;

(vi) an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.), a governmental employee benefit plan, or a foreign person performing a similar role or function subject as such to foreign regulation—

(I) that has total assets exceeding $5,000,000; or

(II) the investment decisions of which are made by—

(aa) an investment adviser or commodity trading advisor subject to regulation under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) or this chapter;

(bb) a foreign person performing a similar role or function subject as such to foreign regulation;

(cc) a financial institution; or

(dd) an insurance company described in clause (ii), or a regulated subsidiary or affiliate of such an insurance company;

(vii)

(I) a governmental entity (including the United States, a State, or a foreign government) or political subdivision of a governmental entity;

(II) a multinational or supranational government entity; or

(III) an instrumentality, agency, or department of an entity described in subclause (I) or (II);  except that such term does not include an entity, instrumentality, agency, or department referred to in subclause (I) or (III) of this clause unless (aa) the entity, instrumentality, agency, or department is a person described in clause (i), (ii), or (iii) of paragraph (17)(A); (bb) the entity, instrumentality, agency, or department owns and invests on a discretionary basis $50,000,000 or more in investments; or (cc) the agreement, contract, or transaction is offered by, and entered into with, an entity that is listed in any of subclauses (I) through (VI) of section 2 (c)(2)(B)(ii) of this title;

(viii)

(I) a broker or dealer subject to regulation under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or a foreign person performing a similar role or function subject as such to foreign regulation, except that, if the broker or dealer or foreign person is a natural person or proprietorship, the broker or dealer or foreign person shall not be considered to be an eligible contract participant unless the broker or dealer or foreign person also meets the requirements of clause (v) or (xi);

(II) an associated person of a registered broker or dealer concerning the financial or securities activities of which the registered person makes and keeps records under section 15C(b) or 17(h) of the Securities Exchange Act of 1934 (15 U.S.C. 78o–5 (b), 78q (h));

(III) an investment bank holding company (as defined in section 17(i)  ^[2] of the Securities Exchange Act of 1934 (15 U.S.C. 78q (i));  ^[3]

(ix) a futures commission merchant subject to regulation under this chapter or a foreign person performing a similar role or function subject as such to foreign regulation, except that, if the futures commission merchant or foreign person is a natural person or proprietorship, the futures commission merchant or foreign person shall not be considered to be an eligible contract participant unless the futures commission merchant or foreign person also meets the requirements of clause (v) or (xi);

(x) a floor broker or floor trader subject to regulation under this chapter in connection with any transaction that takes place on or through the facilities of a registered entity (other than an electronic trading facility with respect to a significant price discovery contract) or an exempt board of trade, or any affiliate thereof, on which such person regularly trades; or

(xi) an individual who has amounts invested on a discretionary basis, the aggregate of which is in excess of—

(I) $10,000,000; or

(II) $5,000,000 and who enters into the agreement, contract, or transaction in order to manage the risk associated with an asset owned or liability incurred, or reasonably likely to be owned or incurred, by the individual;

(B)

(i) a person described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or in subparagraph (C), acting as broker or performing an equivalent agency function on behalf of another person described in subparagraph (A) or (C); or

(ii) an investment adviser subject to regulation under the Investment Advisers Act of 1940 [15 U.S.C. 80b–1 et seq.], a commodity trading advisor subject to regulation under this chapter, a foreign person performing a similar role or function subject as such to foreign regulation, or a person described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or in subparagraph (C), in any such case acting as investment manager or fiduciary (but excluding a person acting as broker or performing an equivalent agency function) for another person described in subparagraph (A) or (C) and who is authorized by such person to commit such person to the transaction; or

(C) any other person that the Commission determines to be eligible in light of the financial or other qualifications of the person. 

 

http://www.law.cornell.edu/uscode/text/7/1a 

NFA fines Salt Lake City firm Interbank FX LLC $600,000

NFA fines Salt Lake City firm Interbank FX LLC $600,000 for failure to report trade data and failure to keep accurate books and records

October 15, Chicago - National Futures Association (NFA) has issued a $600,000 fine against Interbank FX LLC (Interbank), a registered futures commission merchant, Forex Dealer Member and retail foreign exchange dealer Member of NFA located in Salt Lake City, Utah. The Decision, issued by NFA's Business Conduct Committee (Committee), is based on a Complaint filed on October 15, 2013 and a settlement offer submitted by Interbank.

The Committee found that for most of calendar year 2011 Interbank failed to report certain trade execution data to NFA through the Forex Transaction Reporting Execution Surveillance System (Fortress). The Committee also found that during an NFA investigation focused on Interbank's activities throughout 2010 and 2011, NFA was unable to fully evaluate the firm's trade execution practices due to recordkeeping deficiencies at Interbank.

Interbank neither admitted nor denied the allegations.

The complete text of the Complaint and Decision can be found on NFA's website at www.nfa.futures.org.

http://www.nfa.futures.org/news/newsRel.asp?ArticleID=4320

Fed Gets Bigger in Markets as QE Prompts New Tools

By Caroline Salas Gage and Liz Capo McCormick - Oct 14, 2013

The Federal Reserve is getting more involved in debt markets as it tries to compensate for the impact of its almost $4 trillion balance sheet on short-term interest rates.
Policy makers are testing a new tool intended to improve their control of near-term borrowing costs. The facility would allow banks, broker-dealers, money-market funds and some government-sponsored enterprises to lend the Fed unlimited amounts of cash overnight at a fixed rate in exchange for borrowing Treasuries in so-called reverse repo transactions.
The facility is the latest innovation from a central bank that has participated on an unprecedented scale in U.S. debt markets since the credit crisis began in 2007. It’s designed to help policy makers -- buying $85 billion of bonds a month -- siphon off excess cash in the banking system when they begin to tighten policy. Three rounds of so-called quantitative easing have enlarged the Fed’s balance sheet to almost $3.8 trillion.
The new tool -- called the fixed-rate, full-allotment overnight reverse repo facility -- also is aimed at helping Fed officials address distortions in the market caused by their securities purchases.
“It will serve to put whatever floor they want under rates,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “You’re providing pretty broad-based access to Fed balances as an investment option.”

Limited Effect

While the Fed gained the ability in 2008 to pay interest on cash it holds in the form of excess bank reserves, that tool has limited effect in anchoring borrowing costs because only banks could park their funds at the central bank, Crandall said. By now offering to pay a fixed rate to a wider range of counterparties for their cash overnight, policy makers should be able to improve their control of near-term rates, he said.
The Federal Reserve Bank of New York has been testing the tool since last month. It is the branch of the Fed that implements monetary policy, such as by purchasing securities it holds in the so-called System Open Market Account.
“By offering a new, essentially risk-free investment, one would expect that anyone with access to such a facility would generally be unwilling to lend instead to someone else” at a lower rate, New York Fed President William C. Dudley said in a speech in New York Sept. 23.
Securities dealers use repos to finance holdings and increase leverage. Money-market mutual funds, the primary cash providers in the repo market, use the agreements as a means to earn interest on cash through short-term, lower-risk investments.

Beneficial Source

“When the Fed’s facility becomes fully functional, we think that is going to become a really beneficial source of high-quality supply that money-market funds are hopefully going to be very involved in,” said Peter Yi, director of short-duration fixed income at Northern Trust Corp., which has $803 billion in assets under management. “That has been one of the bigger game changers in terms of what can help the supply story in the future. Since it’s a fixed-rate facility, the Fed is going to be able to have pretty meaningful control over short-term rates and keep volatility around them more contained.”
Rates on some Treasury bills and in the repo market slid below zero as the Fed’s three QE programs reduced the amount of government debt available. At the same time, heightened regulations that require banks to boost their capital have increased demand for so-called risk-free assets such as Treasuries.

Negative Zone

Treasury bills that mature in a month traded close to zero percent between the start of May and the end of September, falling into the negative zone several times including as recently as Sept. 27. Yields surged last week to the highest since 2008, ending at 0.2484 percent, as investors shunned securities at risk of default while Congress struggled to reach an agreement that would lift the debt ceiling.
Under QE, policy makers direct the markets desk at the New York Fed to buy securities from primary dealers, or brokers who are authorized to trade directly with the central bank. That adds funds to the dealers’ accounts and creates reserves at their clearing banks. Fed Chairman Ben S. Bernanke said Feb. 27 that the central bank may not sell the bonds on its balance sheet as part of its eventual exit from unprecedented stimulus.
With “the amount of bonds that have been piling up on the Fed’s System Open Market Account” there “has been a collateral shortage,” said Jim Bianco, president of Bianco Research LLC in Chicago. “What worries me about the Fed is that in reacting to the fact that their actions have created an unintended consequence in a free market, instead of saying ‘Oh, maybe we ought to re-think these actions,’ their answer is ‘No, we’ll go manipulate that problem now.’ Where does this end?”

Higher Yields

The rate for borrowing and lending Treasuries for one day in the repo market averaged 0.058 percent between June 30 and the end of September, compared with 0.29 percent at the end of last year, according to the Deposit Trust & Clearing Corp. General Collateral Finance Treasury Repo Index. The rate followed Treasury bill yields higher last week on concerns that the U.S. might not make required payments on some debt securities later this month. The DTCC repo rate was 0.176 percent on Oct. 11.
Repo and Treasury bill yields have fallen most of this year, even as policy makers have kept the target for the federal funds rate locked in a range of zero to 0.25 percent since December 2008.
The new facility the Fed is testing is intended to “establish a floor on money-market rates and to improve the implementation of monetary policy even when the balance sheet is large,” Dudley said Sept. 23.

‘Risk-Free Asset’

Allowing the Fed to lend unlimited amounts of cash under the facility “would increase the availability of a risk-free asset, satisfying the demand when the appetite for safe assets increases,” Dudley said. “This should help tighten the relationship between these and other money-market rates.”
Short-term debt markets often have shown borrowing costs below the 0.25 percent interest banks can earn on cash they hold at the Fed.
The federal funds effective rate -- the average daily market rate on overnight loans between banks -- was 0.09 percent on Oct. 10 and has traded below the interest rate on reserves for four years. That distortion is in part because Fannie Mae and Freddie Mac, the mortgage-finance companies under government control, became “significant sellers” of funds in the overnight market and aren’t eligible to place cash on deposit at the Fed, according to a December 2009 research paper by the New York district bank.

Crashing Below

“The Fed is not allowed to pay a deposit rate to non-banks, but with the repo facility it can pay an interest rate” on their cash to prevent borrowing costs “from crashing too low below the target,” said Michael Cloherty, head of U.S. interest-rate strategy in New York at Royal Bank of Canada’s RBC Capital Markets unit, one of 21 firms that trade directly with the Fed.
The facility is the latest step in policy makers’ preparations for eventual withdrawal of record monetary stimulus. The Fed has been expanding its tri-party reverse repo counterparties beyond primary dealers since 2010 to shore up its ability to drain this liquidity. In these arrangements, a third party acts as the agent for the transaction and holds the security as collateral. The Fed now has 139 counterparties: 94 money-market mutual funds, six government-sponsored entities, 18 banks and its 21 primary dealers.

‘Decent’ Control

“This is just one more tool and they’ve got a number of tools now,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “They will have a reasonably decent amount of control when the time comes.”
Dudley said the central bank is testing the facility to make sure there are “no glitches” and to observe how it “impacts individual investor demand relative to other market rates.” Dudley said Fed officials also will “see how sensitive that demand is to changes in market conditions, such as quarter-end, that increase the demand for safe assets.”
The New York Fed has removed an average of $8.74 billion a day from the banking system through 15 tests of the fixed-rate reverse-repo facility that began Sept. 23. The maximum bid for such transactions, which may run through Jan. 29, was raised to $1 billion on Sept. 27 from $500 million originally. Ultimately, the facility is intended to have no limit on the amount.
The peak of reverse repos allocated and counterparty usage in any of the daily operations so far came on Sept. 30 as banks and funds sought to park cash safely to shore up their balance sheets at the end of the quarter. The New York Fed drained $58.2 billion from the banking system that day, with 87 out of the 139 possible counterparties using the program.

Balance-Sheet Strains

“When you end up seeing participation of $50 billion or more, then you’re talking about something that is actually relieving a few of the balance-sheet strains on days when the market is particularly tight,” Crandall said. “It’s intended to be more than just a plumbing test.”
Given the scarcity of Treasuries in repo markets because of the Fed’s debt purchases, the amount of securities primary dealers borrow daily from the central bank has risen this year. When securities are hard to obtain in the repo market, dealers can go to the New York Fed to borrow the debt. The central bank’s lending of Treasury notes and bonds averaged $15.1 billion a day this year, compared with an average of $10.5 billion last year, Fed data show.
The new facility increases the Fed’s power to control short-term funding rates and address dysfunctions caused by its bloated balance sheet, according to Joe Abate, a money-market strategist in New York at Barclays Plc. That will lead to an exit that is “more smooth than people expect.”
“At the end of the day, reserves will not matter,” Abate said. “The Fed will have basically drawn a line in the sand because the Fed will have said it will absorb any amount at this fixed rate. That is significant.”
To contact the reporters on this story: Caroline Salas Gage in New York at csalas1@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net
To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

http://www.bloomberg.com/news/print/2013-10-14/fed-gets-bigger-in-markets-as-qe-prompts-new-tools.html 

22 Reasons To Be Concerned About The U.S. Economy As We Head Into The Holiday Season

Submitted by Michael Snyder of The Economic Collapse blog [11],
Are we on the verge of another major economic downturn?  In recent weeks, most of the focus has been on our politicians in Washington, but there are lots of other reasons to be deeply alarmed about the economy as well.  Economic confidence is down, retail sales figures are disappointing, job cuts are up, and American consumers are deeply struggling.  Even if our politicians do everything right, there would still be a significant chance that we could be heading into tough economic times in the coming months. 
Our economy has been in decline for a very long time, and that decline appears to be accelerating.  There aren't enough jobs, the quality of our jobs continues to decline, our economic infrastructure is being systematically gutted, and poverty has been absolutely exploding.  Things have gotten so bad that former President Jimmy Carter says that the middle class of today resembles those that were living in poverty when he was in the White House.  But this process has been happening so gradually that most Americans don't even realize what has happened.  Our economy is being fundamentally transformed, and the pace of our decline is picking up speed.  The following are 22 reasons to be concerned about the U.S. economy as we head into the holiday season...
#1 According to Gallup [12], we have just seen the largest drop in U.S. economic confidence since 2008.
#2 Retailers all over America are reporting disappointing sales figures, and many analysts are very concerned about what the holiday season will bring.  The following is an excerpt from a recent Zero Hedge article [13]...

Chico’s FAS [CHS] Earnings Call 8/28/13:

“Traffic was our issue in quarter two. In a highly promotional and challenging environment, comparable sales result was a negative 2.6 percent on top of a positive 5.6 percent last year and a positive 12.8 percent in 2011.”

William-Sonoma [WSM] Earnings Call 8/28/13:

“The retail environment, it seems to indicate there’s still a lot of uncertainty out there, that the promotional environment has not gone away and that the retail environment in general continues to be choppy, especially with the recent earnings releases and this global unrest, and we just don’t want to get ahead of ourselves.”

Zale Corp [ZLC] Earnings Call 8/28/13:

“Overall, we continue to take a conservative view of market conditions in both the U.S. and in Canada. That being said, we do expect to continue to achieve positive top line growth. We expect store closures will impact our overall revenue growth for the year by about 250 basis points. It represents net closures of approximately 50 to 55 retail locations.”

DSW Inc. [DSW] Earnings Call 8/27/13:

“We did have a traffic decline in Q2, sort of similar to what just about every other retailer in America has reported.”

Guess? [GES] Earnings Call 8/28/13:

“The Korean business continued to be strong as revenue grew in the high single digits in local currency during the quarter. This was offset with the weakness from China, where we are seeing clear evidence of a pullback in consumer spending behavior because of the slowdown in the economy.”

Aeropostale [ARO] Earnings Call 8/22/13:

“Our business trends in the second quarter did not change materially from earlier in the year, which was disappointing given the level of change we registered with the brand. This performance in the third quarter outlook is being influenced by a challenging retail environment, with weak traffic trends and high levels of promotional activity.”

#3 Domestic vehicle sales just experienced their largest "miss" relative to expectations since January 2009 [14].
#4 One of the largest furniture manufacturers in America was recently forced into bankruptcy [15].
#5 According to the Wall Street Journal, the 2013 holiday shopping season is already being projected to be the worst that we have seen since 2009 [16].
#6 The Baltic Dry Index recently experienced the largest 4 day drop that we have seen in 11 months [17].
#7 Merck, one of the largest drug makers in the nation, has announced the elimination of 8,500 jobs [18].
#8 Overall, corporations announced the elimination of 387,384 jobs [19] through the first nine months of this year.
#9 The number of announced job cuts in September 2013 was 19 percent higher [19] than the number of announced job cuts in September 2012.
#10 The labor force participation rate is the lowest that it has been in 35 years [20].
#11 As I mentioned the other day [21], the labor force participation rate for men in the 18 to 24 year old age bracket is at an all-time low [22].
#12 Approximately one out of every four [23] part-time workers in America is living below the poverty line.
#13 Incredibly, only 47 percent [24] of all adults in America have a full-time job at this point.
#14 U.S. consumer delinquencies are starting to rise again [25].
#15 The Postal Service recently defaulted [26] on a 5.6 billion dollar retiree health benefit payment.
#16 The national debt has increased more than twice as fast [27] as U.S. GDP has grown over the past two years.
#17 Obamacare is causing health insurance premiums to skyrocket [28] and this is reducing the disposable income that consumers have available.
#18 Median household income in the United States has fallen for five years in a row [29].
#19 The gap between the rich and the poor in the United States is at an all-time record high [30].
#20 Former President Jimmy Carter says that the middle class in America has declined so dramatically that the middle class of today resembles those that were living in poverty when he was in the White House [31].
#21 According to a Gallup poll [32] that was recently released, 20.0% of all Americans did not have enough money to buy food that they or their families needed at some point over the past year.  That is just under the record of 20.4% that was set back in November 2008.
#22 Right now, one out of every five [33] households in the United States is on food stamps.  There are going to be a lot of struggling families out there this winter, so please be generous with organizations that help the poor.  A lot of people are really going to need their help during the cold months ahead.
 

 

As Goldman Slashes 0.5% From Q4 Growth, How Much More "Government Shutdown" GDP Pain Is There?

Over the past month there has been a sudden shift in the public's attention to the debt ceiling debate and away from the government shutdown, which since it did not result in the Armageddon many had predicted (same as the sequester) has been promptly forgotten. However, the reality is that while government workers are getting a post-facto paid vacation when the government reopens, current consumption is substantially curtailed and furthermore, government appropriation budgets are in limbo and thus unspent (for a prior analysis of how the calendar of government appropriations may favorable impact the late summer economy, read here [8]). Which means with every passing day the US economic output is declining, and once again sellside analyst estimates will (as usual) have to be substantially lowered.
Enter Goldman Sachs, whose Alex Phillips just said that: "If a longer-term resolution can be reached over the coming days, we would expect the downside risk from the fiscal debate to be limited to about 0.5pp in Q4, compared to our current growth forecast of 2.5%." In other words, pro forma for the 14 day government shutdown (and continuing) Goldman has just cut its Q4 GDP forecast from 2.5% to 2.0%. And to think this was the year that Jan Hatzius was desperately praying his optimism (for the 4th year in a row - and who can possibly forget Hatzius boosting its Q4 2010 GDP estimate from 4% to 5.8% [9]- and the same every year since) would finally be rewarded. Sorry Jan: we were right again, you were wrong. Again.
But the bigger issue for the US economy is that with every passing day, another chunk of consumption, i.e., economic growth is being eliminated. How much? Goldman explains:

From October 1-4, we believe the shutdown probably reduced federal compensation by roughly $400mn per day. We would expect the non-compensation aspects of the initial stage of the shutdown to have been very modest. Overall, the first four business days of the shutdown probably reduced growth by 0.16pp.

The shutdown has now lasted a second week, but the incremental effect should be smaller. The Department of Defense has brought most of its employees back to work, leaving 450k federal employees still out of work, and thus reducing the effect on federal compensation to $225mn per day. We would expect a small reduction in services-related consumption as well. After the second week of shutdown, we believe the cumulative reduction in Q4 real GDP growth amounts to 0.28pp (Exhibit 2).

From here the direct effects of shutdown will depend on the flow of federal employees into and out of work, and whether agencies draw down remaining funds which could deepen the spending reduction. As the shutdown entered its second week, a few agencies recalled workers as needs arose. Other agencies have only recently furloughed workers as residual funding for activities ran dry. If the shutdown continues, our impression is that the net effect of this will be that more workers will be furloughed as days go by, but that this is unlikely to change the aggregate effect substantially.

Going forward, the effect that the ongoing debate will have on growth will depend on whether the agreement reached over the coming days is limited to only a short-term extension, or if a longer-term (i.e., through 2014) resolution is achieved. It also of course depends on whether the shutdown is ended over the coming week. As noted earlier, at this stage the duration of the agreement is unclear, but it seems increasingly likely that the shutdown will be ended with the resolution of the debt limit. If a longer-term resolution can be reached over the coming days, we would expect the downside risk from the fiscal debate to be limited to about 0.5pp in Q4, compared to our current growth forecast of 2.5%.

And what if a resolution can not be reached in the coming days, and government remains shut for the foreseeable future? As shown on the chart below, the GDP decline is largely cumulative and linear, and with every passing business week, another 0.2% in Q3 GDP is wiped out.
[10]
In other words, if for some reason government is not reopened for the entire 4th quarter, just the government shutdown alone will push Q4 GDP to 0%, assuming the consensus is accurate in its 2.0% starting estimate. This of course excludes the massive hit on corporate confidence as a result of the lack of major government appropriations, which we believe reduce Q4 GDP by another 0.2% per week however not linearly, but exponentially, and the longer the shutdown continues, the more negative Q4 GDP will be.
Which, perversely, is precisely what the Fed needs. Because while on one hand the lack of economic data will not shock everyone into grasping just how depressed the economy has become, the realization once everything reopens will be precisely the carte blanche Yellen needs for the Fed to continue an Untapered QE well into 2014, and with that preserving the wealth effect for Yellen's superior: the criminal banking syndicate.

U.S. May Join Germany of 1933 in Pantheon of Defaults

Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago.
Germany unilaterally ceased payments on long-term borrowings on May 6, 1933, three months after Adolf Hitler was installed as Chancellor. The default helped cement Hitler’s power base following years of political instability as the Weimar Republic struggled with its crushing debts.
“These are generally catastrophic economic events,” said Professor Eugene N. White, an economics historian at Rutgers University in New Brunswick, New Jersey. “There is no happy ending.”
The debt reparations piled onto Germany, which in 1913 was the world’s third-biggest economy, sparked the hyperinflation, borrowings and political deadlock that brought the Nazis to power, and the default. It shows how excessive debt has capricious results, such as the civil war and despotism that ravaged Florence after England’s Edward III refused to pay his obligations from the city-state’s banks in 1339, and the Revolution of 1789 that followed the French Crown’s defaults in 1770 and 1788.
Failure by the world’s biggest economy to pay its debt in an interconnected, globalized world risks an array of devastating consequences that could lay waste to stock markets from Brazil to Zurich and bring the $5 trillion market in Treasury-backed loans to a halt. Borrowing costs would soar, the dollar’s role as the world’s reserve currency would be in doubt and the U.S. and world economies would risk plunging into recession -- and potentially depression.

Senate Talks

Senate leaders of both parties are negotiating to avert a U.S. default after a lapse in borrowing authority takes effect Oct. 17, even as senators block legislation to prevent one and talks between the White House and House Republicans have hit an impasse. Democratic lawmakers said Oct. 12 that the lack of movement may have an effect on financial markets. After Oct. 17, the U.S. will have $30 billion plus incoming revenue and would start missing payments sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Serial Defaulter

Germany, staggering under the weight of 132 billion gold marks in war reparations and not permitted to export to the victors’ markets, was a serial defaulter from 1922, according to Albrecht Ritschl, a professor of economic history at the London School of Economics. That forced the country to borrow to pay its creditors, in what Ritschl calls a Ponzi scheme.

At the Root of It All

“Reparations were at the heart of the issue in the interwar years,” Ritschl said in a telephone interview. “The big question is why anyone lent a dime to Germany with those hanging over them. The assumption must have been that reparations would eventually go away.”
While a delinquent corporation may go out of business, be broken up, sold to a competitor, or otherwise change its shape, sovereign defaulters are different. Weimar Germany deferred payments, stopped transfers, reformed the currency and wrote down debt, wringing a series of agreements from its creditors before the Nazis repudiated the obligations in 1933.
It took until the 1953 London Debt Agreement to lay to rest the nation’s reparations difficulties, essentially by postponing any payments until after reunification in 1990 of East and West Germany, according to Timothy Guinnane, Professor of Economic History at Yale University in New Haven, Connecticut. The U.S., eager to ensure Germany was a bulwark against communism, pressured creditors to agree to debt relief, according to Guinnane.

‘Economic Strain’

“The U.S. was not being generous or magnanimous in the London Debt Agreement, it rarely is,” Guinnane said in an e-mail. “Rather, it understood that if Germany was forced to repay all the debts it technically owed, it would put the new Federal Republic under intolerable political and economic strain.”
Payments on about 150 million euros ($203 million) of bonds issued to fund reparations ended in October 2003, according to the Associated Press.
After sovereign defaults and before a nation is allowed to borrow again, some sort of repayment is typically made, Carmen Reinhart and Kenneth Rogoff wrote in their 2009 book on sovereign bankruptcies “This Time Is Different.” While Russia’s Bolshevik government refused to pay Tsarist debts, when the country re-entered debt markets it negotiated a token payment on the debt, according to the book.

Germany, France

Germany and France have both defaulted eight times since 1800, according to Reinhart and Rogoff. While Germany was sufficiently big and strategically important to be helped to peaceful prosperity by its creditors, default typically doesn’t end well for smaller nations.
The U.S. has even failed to honor its obligations to the letter in the past. In 1979 it was late making payments on about $122 million of bills, blaming technical difficulties that the Treasury said stemmed from a failure in word processing equipment, Terry Zivney and Richard Marcus wrote in August 1989 in “The Financial Review.”
In 1935, the Supreme Court ruled the federal government was within its rights to reject claims for payment in gold on bonds that gave holders the option to demand the metal. Because the terms of the contract weren’t fully honored, some would argue that was tantamount to a default.
In 1790, the U.S. deferred interest payments on debt assumed by the new federal government until 1801, according to Reinhart and Rogoff.

Court Pursuit

Serial defaulters Argentina and Greece have retained political, if not economic independence. The Latin American nation failed to meet its commitments five times since 1951 and in 2001 gained the record for the largest-ever restructuring, a distinction it held until overtaken by Greece in 2012. Argentina’s bondholders are still pursuing the nation through the courts.
Including 2012, Greece has defaulted six times since 1826, three years before it gained independence, and has spent more than half the years since 1800 in default, according to Reinhart and Rogoff.
The biggest emerging-markets defaults in the past 15 years illustrate the cycle of contagion that typically marks sovereign debt crises.

Russian Restructuring

Russia halted payments on $40 billion of local debt in 1998 after oil, its main export, plunged 42 percent amid a global economic slowdown triggered by the Asian financial crisis. By the time it devalued the ruble and defaulted that August, the government had drained about half its foreign reserves and made an unsuccessful bid to increase the $22.6 billion international aid package it had received.
Russia’s debt restructuring prompted investors to pull out of emerging markets, plunging Argentina into recession. By December 2001, when the South American country halted payments on $95 billion of bonds, the economy had contracted three successive years, cutting into tax revenue and pushing foreign reserves down to almost a six-year low.
Those defaults took place because events had rendered the nations insolvent, something that doesn’t apply to the U.S., said the LSE’s Ritschl.
“The only situation that really parallels the U.S. situation at present is the U.S. situation,” he said. “There’s really no doubt about the solvency of the U.S. Treasury.”

http://www.bloomberg.com/news/print/2013-10-13/u-s-risks-joining-1933-germany-in-pantheon-of-deadbeat-defaults.html

Reserve Currency Status does not last forever

Skype under investigation in Luxembourg over link to NSA

Skype is being investigated by Luxembourg's data protection commissioner over concerns about its secret involvement with the US National Security Agency (NSA) spy programme Prism, the Guardian has learned.
The Microsoft-owned internet chat company could potentially face criminal and administrative sanctions, including a ban on passing users' communications covertly to the US signals intelliigence agency.
Skype itself is headquartered in the European country, and could also be fined if an investigation concludes that the data sharing is found in violation of the country's data-protection laws.
The Guardian understands that Luxembourg's data-protection commissioner initiated a probe into Skype's privacy policies following revelations in June about its ties to the NSA.
The country's data-protection chief, Gerard Lommel, declined to comment for this story, citing an ongoing investigation. Microsoft also declined to comment on the issue.
Luxembourg has attracted several large corporations, including Amazon and Netflix, due to its tax structure.
Its constitution enshrines the right to privacy and states that secrecy of correspondence is inviolable unless the law provides otherwise. Surveillance of communications in Luxembourg can only occur with judicial approval or by authorisation of a tribunal selected by the prime minister.
However, it is unclear whether Skype's transfer of communications to the NSA have been sanctioned by Luxembourg through a secret legal assistance or data transfer agreement that would not be known to the data protection commissioner at the start of their inquiry.
Microsoft's acquisition of Skype tripled some types of data flow to the NSA, according to top-secret documents seen by the Guardian.
Microsoft bought Skype for $8.5bn (£5.6bn) in 2011.
The US software giant was the first technology group to be brought within the NSA initative known as Prism, a scheme involving some of the internet's biggest consumer companies passing data on targeted users to the US under secret court orders.

Having once been considered a secure chat tool beyond the reach of government eavesdropping, Skype is now facing a backlash in the wake of the Prism revelations.

"The only people who lose are users," says Eric King, head of research at human rights group Privacy International. "Skype promoted itself as a fantastic tool for secure communications around the world, but quickly caved to government pressure and can no longer be trusted to protect user privacy."

http://www.theguardian.com/technology/2013/oct/11/skype-ten-microsoft-nsa 

Image graphic US Debt

Early FX Indications: EURJPY Slide Implies 15 Point Futures Drop At Open

In a world in which only the central banks' balance sheets matter, and everything, when stripped of its product complexity, is simply a derivation of a cheap money carry trade, as can be seen on the chart below showing the correlation between the the ES and the EURJPY which have become interchangeable...

... then the futures open in 4 hours should be interesting following the early weakness in both EURJPY and USDJPY.


The AUDJPY is having an even worse day following Saturday's news of a big export miss in China:

Interesting because the implied 15 point ES drop in futures as of the early indications...

... is hardly the large enough drop that is needed to once again the GOP in either the House or the Senate to scramble and get a deal done, following  the recent two-day epic surge in the market on hopes that deal concerns would no longer be an issue.

Dual crises: Shutdown, debt limit could merge

WASHINGTON (AP) -- Democrats and Republicans regularly warn about the dire consequences of legislation they don't like. Often it's gloom-and-doom partisan hype.

This time, though, people already are feeling the fallout as twin tempests - the partial government shutdown and a potential default on the country's debts - threaten to form a single economic-policy superstorm.

The shutdown began Oct. 1 because a divided Congress couldn't agree on a budget. Thousands of federal workers are furloughed, national parks are closed and many nonessential governmental services are dialed back or put on hold.

The shutdown doesn't directly threaten Social Security, other mandatory benefits or U.S. interest payments on the national debt.

Breaching the debt limit would.

Unless Congress raises that limit soon, the government will run out of the authority to borrow and pay its bills on Thursday, the Treasury Department says.

A default would challenge the U.S. dollar's status as the world's "reserve" currency. More than 60 percent of all foreign country reserves are in U.S. dollars, the prime currency in international trade.

"Without enough money to pay its bills, any of its payments are at risk - including all government spending, mandatory payments, interest on our debts, and payments to U.S. bondholders," the bipartisan Committee for a Responsible Federal Budget said in a recent report.

A look at what you need to know about the two fiscal matters:

---

The debt ceiling is the legal limit to all federal borrowing, an absolute ceiling on the national debt that cannot be breached.

It can be raised.

Since Congress first established a limit in 1917, it has been raised roughly 100 times. Raising the statutory limit does not authorize borrowing for new spending. It only allows the government to keep borrowing to pay existing bills.

The government borrows money mostly by selling Treasury bills, notes and other securities, including U.S. savings bonds. Individuals, mutual funds, corporations and governments worldwide buy the bonds.

Paying interest on these bonds is one of the government's largest single expenses.

In the budget year that ended Sept. 30, the government made $396 billion in interest payments, including payments on bonds held in some government accounts such as the Social Security Trust Fund.

The national debt is the accumulation of annual budget deficits. It first crossed the $1 trillion mark early in the administration of President Ronald Reagan.

It stood at $10.6 trillion when President Barack Obama took office in January 2009 and is $16.7 trillion today - bumping up against the debt limit, which is also $16.7 trillion rounded off.

Recently, the Treasury Department has used complicated accounting maneuvers to keep from technically exceeding the limit. But it's running out of such tricks.

--

There are a couple Hail Mary plays the government could try if the deadlock persists: selling gold from U.S. reserves, selling or leasing government buildings or national parklands and minting special large-denomination coins.

The Obama administration has shown little interest in such steps.

One possibility was suggested in 2011 by former President Bill Clinton and more recently by House Democratic leader Nancy Pelosi of California: have Obama raise the ceiling on his own, citing the part of the 14th Amendment that says "the validity of the public debt of the United States, authorized by law ... shall not be questioned."

Obama was asked at a Twitter town hall forum in July whether he would use that amendment as the basis to raise the debt ceiling. "I don't think we should get to the constitutional issue," he tweeted. "Congress has a responsibility to make sure we pay our bills. We've always paid them in the past."

His spokesman Jay Carney has said the administration doesn't believe the amendment gives the president the authority to ignore the debt ceiling.

---

While budget deficits are coming down, the government continues to add to the national debt.

The deficit represents the annual difference between the government's spending and the tax revenues it takes in. Each deficit contributes to the national debt. The last time the government ran an annual surplus was in 2001.

The annual deficit declined to roughly $642 billion for the just-ended budget year, the first time in five years it has dropped below $1 trillion. It was $1.4 trillion when Obama took office in 2009.

Still, the government must borrow 19 cents for every dollar it spends, pushing up the nation's overall debt level.

One reason that keeps increasing: the army of retiring baby boomers leaving the workforce and beginning to collect Medicare and Social Security benefits.

---

Obama and Democratic leaders denounce as a form of blackmail GOP efforts to use the shutdown and debt limit debate to delay or defund Obama's health care law.

Efforts by opposition parties to try to put strings on a president's debt-limit increases have been pretty standard going back at least to President Dwight D. Eisenhower in the 1950s.

"Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans' benefits," Reagan said in a 1987 radio address. He was scolding the Democratic-controlled Congress for seeking to modify or defeat his proposal to raise the debt limit.

He raised the debt ceiling 18 times.

As a senator representing Illinois, Obama voted against President George W. Bush's 2006 increase in the debt limit, calling it a "leadership failure" and "sign that the U.S. government can't pay its own bills."

Bush won that battle.

http://hosted.ap.org/dynamic/stories/U/US_FISCAL_SHOWDOWNS_EXPLAINED?SITE=CAOAK&SECTION=HOME&TEMPLATE=DEFAULT

Goldman: "2013 Is Different: For The Second Time The Expectation Of A Last Minute Deal Was Incorrect"

The main reason for last week's massive market surge on nothing but hope, if no actual deal, is due to the market's now habituated response that no matter what happens in Congress, there will always be a last minute deal. After all this was the pattern with the 2011 government shutdown and debt ceiling deal, and the 2012 fiscal cliff solution: surely enough points to make a pattern. However, as Goldman's Alec Phillips points out, 2013 may be different: "First, Congress allowed sequestration to take effect on March 1, despite the expectation among many observers earlier in the year that the cuts would be pushed off in light of the predicted the negative practical and economic effects that might result. Then, two weeks ago, Congress allowed the government to shut down. For the second time this year, the expectation of a last-minute deal turned out to be incorrect."
More from Goldman:

Since 2011, split control of Congress has led to greater policy uncertainty, but fiscal deadlines always seemed to end with a last-minute resolution. For example, in early 2011, amid a dispute over spending levels and after several short-term extensions of spending authority, Congress nearly allowed spending authority to lapse. This would have resulted in a government shutdown, but it was avoided at the last minute (agreement was reached at 11:15 pm, just short of the midnight deadline). Over the following two years, Congress avoided several possible shutdowns by passing another eight “continuing resolutions” to extend spending authority. The “fiscal cliff” was also averted following a last-minute deal, as was the 2011 debt ceiling debate.

This year has been different. First, Congress allowed sequestration to take effect on March 1, despite the expectation among many observers earlier in the year that the cuts would be pushed off in light of the predicted the negative practical and economic effects that might result. Then, two weeks ago, Congress allowed the government to shut down. For the second time this year, the expectation of a last-minute deal turned out to be incorrect.

After reaching agreement ahead of (or slightly after) so many deadlines over the last couple of years, the failure to address sequestration and the government shutdown could be interpreted to suggest that conventional wisdom that Congress always reaches a last minute agreement is now broken. This interpretation is likely behind the market reaction ahead of the debt limit deadline.

While there is an element of truth to this—some lawmakers have begun to shrug off the warnings of negative consequences from missing fiscal deadlines—we believe the shutdown occurred and the sequester took effect possibly because Republican leaders viewed it as necessary in order to ensure an increase in the debt limit. This is why we have held the view that while the shutdown was a negative development in its own right, it did not imply greater risk to the debt ceiling hike, and might have even reduced the risk. 

So what does this mean for the path ahead? We interpret the events over the last year to mean that while Congress has become increasingly willing to allow more incrementally negative policy outcomes like the shutdown and the sequester, the debt limit still represents a line that Congress is not willing to cross.

Maybe. Then again, if the increasingly prevalent thought that the US can shoulder a prioritization of payments without actually defaulting by satisying interest payments if not non-critical payments that are not supported by incoming tax revenues, the debt ceiling deadline could mean the third time is the hardly the charm when it comes to crossing critical D-Day headlines. Very much to what would be the market's complete shock and horror.

 

Peter Schiff On The Debt Ceiling Delusions

The popular take on the current debt ceiling stand-off is that the Tea Party wing of the Republican Party has a delusional belief that it can hit the brakes on new debt creation without bringing on an economic catastrophe. While Republicans are indeed kidding themselves if they believe that their actions will not unleash deep economic turmoil, there are much deeper and more significant delusions on the other side of the aisle. Democrats, and the President in particular, believe that continually taking on more debt to pay existing debt is a more responsible course of action. Even worse, they appear to believe that debt accumulation is the equivalent of economic growth.
If Republicans were to inexplicably prevail, and the federal government were to cut spending so that its expenditures matched its tax revenues (a truly radical idea) the country's financial mess would be laid bare. The government would have to weigh the relative costs and benefits of making interest payments on Treasury debt (primarily to foreign creditors) or to trim entitlements promised to U.S. citizens. But those are choices we will have to make sooner or later anyway. In fact we should have dealt with these issues years ago. But generations of mechanistic debt ceiling increases have allowed us to perpetually kick the can down the road. What could possibly be gained by doing it again, particularly if it is done with no commitment to change course?
The Democrats' argument that America needs to pay its bills is just hollow rhetoric. Paying off one's Visa bill with a new and bigger MasterCard bill can't be considered a legitimate payment of debt. At best it is a transfer. But in the government's case, it doesn't even qualify as that. Treasury debt is primarily bought by the Fed, foreign central banks, and major financial institutions. None of that will change with a debt ceiling increase. We will just go to the same people for greater quantities. So it's like paying off your Visa card with a bigger Visa card.
According to modern economists, an elimination of deficit spending will immediately cause a dollar for dollar decrease in GDP. For example, if the government stopped sending food stamp payments to poor people, then grocery stores would lose business, employees would be laid off, and the economy would contract. But this one dimensional view fails to appreciate that the purchasing power of the food stamps had to come from somewhere. The government can't create something from nothing. Taxation transfers purchasing power from people living in the present to other people living in the present. In contrast, borrowing transfers purchasing power from people living in the future to people living in the present. The good news for politicians is that future people don't vote in current elections (and current voters don't seem to appreciate the cost to their future selves of current policy).
The Obama Administration has congratulated itself for turning around the contracting economy that it inherited from President Bush. But even if you take the obscenely low official inflation statistics at face value, we only grew at an anemic 1.075% annual pace from 2009 to 2012 (far below the between 3% and 4% that the U.S. averaged post World War II). Sadly, this growth pales in comparison to the accumulation of new debt that we are borrowing from the future.
U.S. GDP is measured at roughly $15 trillion per year. 2% growth means that each year the GDP is approximately $300 billion larger than the prior year. But in the less than five years since Obama took office, the federal government has added, on average, about $1.3 trillion per year in new debt, a pace that is four times higher than the growth. If the deficit were subtracted from GDP, America would be shown to be stuck in a severe recession that Washington can't acknowledge. But such a reality is more consistent with the dismal job prospects and stagnant incomes experienced by most Americans.
The belief that deficits add to the economy, and that debt can be dealt with in an imaginary future (that never seems to arrive) is the foundation upon which the President can chastise the Republicans as irresponsible suicide bombers. Using this logic, he can argue (with a straight face) that borrowing is the equivalent of paying. That the President can make this delusional argument is not so surprising (no lie too great for the typical politician to attempt). What is alarming is that the media and the public have swallowed it so willingly. As they call for limitless increases in borrowing, Democrats have offered no plan to reduce the current debt and they are unwilling to negotiate with Republicans on that topic. Yet somehow they have been perceived as the party of fiscal responsibility.
While the Republicans have a dismal track record of their own when it comes to budgetary management, it can't be disputed that the minor dip in that rate of increase in spending that resulted from the recent Sequester, happened only because they dug in on the issue. Without the 2011 debt ceiling drama, there is no chance that any spending would have been touched.
Democrats had warned that the $85 billion in sequestration cuts slated for fiscal year 2013 (about 2% of the Federal budget) would be sufficient to bring on economic Armageddon. But guess what? We survived. Recently, Senate Majority Leader Harry Reid continued with such rhetoric by declaring that there are no more cuts to be found anywhere in the $3.8 Trillion dollar federal budget. (Apparently he missed last week's 60 Minutes piece on the spreading epidemic of federal disability fraud.)
We have to acknowledge what even the Republicans haven't fully grasped. We are in such a deep debt hole that there is no solution that does not involve serious economic pain. Tea Party Republicans rightly believe that government spending is a drag on economic growth. As a result, they conclude that immediate spending cuts will help with the "recovery". But they are confusing real economic growth with the delusional expansion created by deficit spending (which is actually damaging the real economy). If they cut the deficit, this phony economy may likely implode and cause widespread distress.
So even though a reduction in government borrowing and spending does help the economy, it won't feel very helpful tomorrow. The more we borrow and spend today, the more we will suffer tomorrow when the bills come due. Ironically, cutting government spending now helps the economy by allowing the economic adjustment to happen sooner rather than later. But this type of long-term thinking is very difficult for politicians to consider.
Unfortunately our debts don't leave us much in the way of choices. We can choose to pay now or try to pay later. But the longer we wait the steeper the bill.

http://www.zerohedge.com/print/480080

Republicans Should Fight or Give Up

October 11, 2013 1:31 PM

The findings of the newly released NBC News/Wall Street Journal poll are simply brutal for congressional Republicans. Not only are they getting the lion's share of the blame for the government shutdown, but President Obama's numbers have actually improved. Worse, Obamacare's numbers are improving, as well.

That poll caused quite a sensation on Twitter last night, and while it is worse for Republicans than recent readings from the Associated Press's poll, NBC News/Wall Street Journal has a long track record of solid readings. This is not a result to be taken lightly.

Moreover, it makes empirical sense considering the message coming from congressional Republicans in the last week—or perhaps better put the lack of a message. Marc Thiessen of the Washington Post aptly labeled this the "Seinfeld Shutdown," a shutdown about nothing. That is not how it was supposed to be, of course. It was supposed to be a shutdown about Obamacare, but Republican leaders were quickly sidetracked by low-hanging fruit like the closure of the National Mall, Harry Reid's gaffes, and Obama's refusal to negotiate. Tactically, this might have made sense, but strategically it was a terrible move. If the shutdown was supposed to be about Obamacare, then that should have been the only topic Republicans discussed.

Moreover, insofar as Republican leaders have discussed Obamacare, they have done so ineptly, and have repeated Mitt Romney's grievous mistakes from 2012. Looking at the topline numbers on Obamacare, we can see it is very unpopular, but dig a little deeper and only about 30 to 40 percent of people believe that the law will make them worse off. This is a significant failure in political communication by the Republican party. Government agencies like the Congressional Budget Office and the Centers for Medicare and Medicaid Services have warned since 2010—in their dry, technocratic rhetoric—that Obamacare was going to harm middle class families. For weeks now stories have been trickling out about people receiving letters from their insurers notifying them that their rates are being doubled. For over a year we have similarly heard stories about hiring freezes or hours being cut because of Obamacare. And yet despite all this hard data, the public still has not connected the dots. 

The blame belongs not to the Tea Party, not to the Republican grassroots, not to the back-benchers in the House, but to the party's leaders, the ones who have the microphones stuck in their faces every day. They, and only they, have the power to make the case to the American people that Obamacare is such a danger to them that it needs to be gotten rid of as soon as possible. Mitt Romney should have, but did not, get on the television in late October 2012 to warn people that a vote for Obama was a vote to double their premiums, make it harder for grandma to get hospital care, and make it harder for you to make your ends meet because of job cutbacks. Similarly, Republicans should have, but did not, acknowledge that while the shutdown was harming certain sectors of the country, it was far less damaging then the havoc Obamacare is set to wreak on the people.

And so it is that people would rather have the government reopened (largely a symbolic gesture as this shutdown has left vast swaths of the country unaffected) than have Obamacare dismantled (something that will prevent material harm done to millions of middle class people).

Obamacare is not going to defeat itself. If it is going to be taken down, it is up to the Republican party to formulate a coalition of people who have been or will be made worse off because of it. Those people are out there, but Republicans have failed to unite and mobilize them under the party's banner. So long as they continue to fail on this front, Obamacare will remain on the books. It has the benefit of our system's status quo bias, and Democrats have an 80-year track record of capturing interests through the distribution of benefits, transforming them into party clients, and delivering them at the ballot box. 

Republican leaders tend to come from one of two camps. The first is the go-along-to-get-along camp that is happy merely to manage the never-ending growth of government. The second wants to cut back on the size of government, but couches their rhetoric in the hazy, forgotten past of the country's founding; their arguments against the growth of government are always framed in terms of the Constitution, the rights of man, or other abstract concepts that have little impact on the lives of average American.

Ronald Reagan was the only political leader since the New Deal to argue effectively that government should be reduced because it is bad for people in a concrete sense. Yes, he talked about the Founding, and yes he was willing to compromise where it counted. But in his Inaugural Address he said, "Government is not the solution to our problem; government is the problem." For the next quarter century, American liberalism was on the run, so effective was Reagan's framing of the debate.

Republicans who wonder why they have generally failed to win national electoral victories since Reagan should ponder his statement, and how they have failed to expand upon it. Poll after poll indicates that today it is a popular position. People think government is harming them. If Republicans want to win, not just electoral victories, but policy victories, they need to follow the Gipper and explain in real terms how government is harming average Americans and how they will fix those harms. They have failed to do that in general over the last decade, and they have failed to do that in particular with Obamacare. It is a big reason why they only control the House and why Obamacare is still on the books.

And if congressional Republicans are not prepared to begin making that case loud and clear right now, the sooner they capitulate the better. Their only hope of victory in this fight is to convince the public that keeping Obamacare is worse than shutting down the government. If they are not prepared to make that case, then they have no hope of winning.

http://www.weeklystandard.com/print/blogs/republicans-should-fight-or-give_762423.html

US And European Regulators Probing FX Market Rigging

10 weeks ago we warned that the persistent "banging the close" action [7] in FX markets warranted an investigation into market rigging and manipulation. It seems the US, Swiss, UK, and EU regulators have finally woken up:

• *U.S. SAID TO OPEN CRIMINAL PROBE OF CURRENCY MARKET RIGGING
• *SWISS, UK REGULATORS REVIEWING ALLEGED CURRENCY MARKET RIGGING
• *EU ANTITRUST REGULATORS SAID THEY ARE PROBING CURRENCY MARKET

Of course, gold and silver remain highly efficient and "clean" markets...

As we noted 2 months ago... [7]
"Banging the close," is hardly a new 'event' but the ubiquity with which it is occurring around 4pm GMT (when major FX market benchmarks known as 'WM/Reuters rates' are set) is prompting authorities to investigate potential abuse of these benchmarks by the major banks. From Libor to ISDAFix and from base-and-precious metals to energy markets, adding the largest markets in the world - foreign exchange - to the banks' pernicious manipulations does not seem like a stretch. Critically, benchmark providers base daily valuations of indexes spanning different currencies on the 4 p.m. WM/Reuters rates (which in turn drives derivative settlements and triggers).
[8]
Stunningly, the same pattern - a sudden surge minutes before 4pm in London on the last trading day of the month, followed by a quick reversal - occurred 31% of the time across 14 FX pairs over 2 years, according to data compiled by Bloomberg [9]. For the most frequently traded pairs, such as EURUSD, it happened about half the time! U.S. regulators have sanctioned firms for banging the close in other markets; we await the results of the current probe...

Via Bloomberg,
The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said. The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.
...
The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates. That month, allegations that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates were reported by Bloomberg News. Regulators are probing the alleged abuse of financial benchmarks used in markets from oil to interest rate swaps by the firms that play a central role in setting them.
...
European Union antitrust regulators are examining the possible manipulation of currency rates, following a Swiss probe into whether banks colluded to manipulate the $5.3 trillion-a-day foreign exchange market. Joaquin Almunia, the EU’s competition commissioner, said he learned in the last few days of activities that “could mean violation of competition rules around the possible manipulation of types of exchange rates,” according to a live chat on the EU’s website Oct. 7. ?

http://www.zerohedge.com/print/480057