"The US Is Bankrupt," Blasts Biderman, "We Now Await The Cramdown"

Submitted by Chris Hamilton via Charles Biderman TrimTabs' blog,

US is Bankrupt: $89.5 Trillion in US Liabilities vs. $82 Trillion in Household Net Worth & The Gap is Growing. We Now Await the Nature of the Cramdown.

There are many ways to look at the United States government debt, obligations, and assets.  Liabilities include Treasury debt held by the public or more broadly total Treasury debt outstanding.  There’s unfunded liabilities like Medicare and Social Security.  And then the assets of all the real estate, all the equities, all the bonds, all the deposits…all at today’s valuations.  But let’s cut straight to the bottom line and add it all up…$89.5 trillion in liabilities and $82 trillion in assets.  There.  It’s not a secret anymore…and although these are all government numbers, for some strange reason the government never adds them all together or explains them…but we will.

The $89.5 trillion in liabilities include:

• $20.69 trillion
  • $12.65 trillion public Treasury debt (interest rate sensitive bonds sold to finance government spending)
    • Fyi – $5.35 trillion of “intra-governmental” Treasury debt are not included as they are considered an asset of the particular programs (SS, etc.) and simultaneously a liability of the Treasury
• $6.54 trillion civilian and Military Pensions and Benefits payable
• $1.5 trillion in “other” liabilities http://www.fms.treas.gov/finrep13/note_finstmts/fr_notes_fin_stmts_note13.html.
• $69 trillion (present value terms what should be saved now to make up the present and future anticipated tax shortfalls vs. present and future payouts).
  • $3.7 trillion SMI (Supplemental Medical Insurance)
  • $39.5 trillion Medicare or HI (Hospital Insurance) Part B / D
  • $25.8 trillion Social Security or OASDI (Old Age Survivors Disability Insurance)
    • Fyi – $5+ trillion of additional unfunded state liabilities not included.

Source: 2013 OASDI and Medicare Trustees’ Reports. (pg. 183), http://www.gao.gov/assets/670/661234.p

These needs can be satisfied only through increased borrowing, higher taxes, reduced program spending, or some combination.  But since 1969 Treasury debt has been sold with the intention of paying only the interest (but never repaying the principal) and also in ’69 LBJ instituted the “Unified Budget” putting all social spending into the general budget reaping the gains in the present year absent calculating for the future liabilities. If you don’t know the story of how unfunded liabilities came to be and want to understand how this took place, please stop and read as USA Ponzi explains nicely… http://usaponzi.com/cooking-the-books.html

$81.8 trillion in US Household “net worth”

According to the Federal’s Z.1 balance sheet http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf, the US has a net worth of $81.8 trillion – significantly up from the ’09 low of $55.5 trillion…a $23 trillion increase in five years.  Fascinatingly, “household” liabilities are still $500 billion lower now than the peak in ’08 but asset “valuations” are up $22.5 trillion.  All while wages have been declining.  A cursory glance at the Federal Reserve’s $4 trillion in balance sheet growth in the same time period shows how the lack of growth in “household” liabilities (currently @ $13.7 trillion) has been co-opted by the Fed.

I believe it’s clear when incomes no longer supported credit and debt growth in ’08, consumers tapped out and in stepped the Federal Reserve to bridge the slowdown.  But what the Fed may or may not have realized is once they stepped in, there was no stepping out.

(Charles, would be great if you could export this chart from FRED to be included…or if you have a better idea to show this relationship, would be great???)

http://research.stlouisfed.org/fred2/graph/?g=GVF

How We Got Here – Growth of Debt vs. GDP

45 years of ever increasing debt loads, social safety net growth, corporate welfare.  45 years of Rep’s and Dem’s in the White House and Congress bought by special interests and politicians buying citizens votes with laws enacted absent the revenue to pay for them.   We have a Treasury and Federal Reserve willing to “innovate” and wordsmith to avoid the national recognition of the true difficulties and implications of our present situation.  45 years of intentionally avoiding an honest accounting of our national obligations, mislabeling, and misdirecting to pretend these obligations can and will be honored.  45 years of cornice like debt and promise accumulation simply awaiting the avalanche of claimant redemptions and debt repayments.

First, an historical snapshot for perspective of the last time US Treasury debt was larger than our economy (debt/GDP in excess of 100% in 1946) and subsequent progress of debt vs. GDP…and why anyone suggesting there is a parallel from post WWII to now is simply ill informed.

Post-WWII:

• ’46-’59 (13yrs)
  • Debt grew 1.06x’s ($269 B to $285 B)
  • GDP grew 2.2x’s ($228 B to $525 B)
  • ’60-’75 (15yrs)
    • Debt grew 2x’s ($285 B to $533 B)
    • GDP grew 3.3x’s ($525 to $1.7 T) Income grew 3.3x’s ($403 B to $1.37 T)
      • ’65 Great Society initiated, ’69 unfunded liabilities begin under a “Unified Budget”

Post-Vietnam War:

• ’76 -’04 (28yrs)
  • Debt grew 15x’s ($533 B à $7.4 T) Unfunded liability 15x’s ($3 T to $45 T)
  • GDP grew 7.3x’s ($1.7 T à $12.4 T) Income grew 7.4x’s ($1.37 T to $10.1 T)
  • ’05 -’14 (9yrs)
    • Debt grew 2.4x’s or 240% ($7.4 T à $17.5 T) Unfunded liability 1.5x’s ($45 T to $69 T)
    • GDP grew 1.4x’s or 140% ($12.4 T à $17 T) Income grew 1.4x’s ($10.1 T to $14.2 T)
      • Z1 Household net worth grew 1.25x’s from $65 T to $82 T…

http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0614_hist.pdf

If the trends continue as they have since ’75, Treasury debt will grow 2x’s to 3x’s faster than GDP and income to service it…and the results would look as follows in 10 years:

• ’15 – ‘24
  • Treasury debt will grow est. ($17.5 T à $34 T to $44 T)
  • GDP* will grow est. ($17 T à $22 T to $24 T)…income growth likely similar to GDP.

* = I won’t even get into the overstatement of economic activity within the GDP #’s…just noting there is an overstatement of activity.

So, while the Treasury debt growth rate skyrocketed from ’05 onward and the GDP growth slumped to its lowest since WWII, the unfunded liabilities grew even faster.

Drumroll Please – Total Debt/Obligation growth vs. Debt

Let’s go back to our ’75-’14 numbers and recalculate based on total Federal Government debt and liabilities:

• ’75-’14
  • debt (total government obligations) grew 33x’s 168x’s ($533 B à $17.5 T $89.5 T*)
  • GDP grew 10x’s ($1.7 T to 17 T)
    • Household net worth grew 15x’s ($5.4 to $82 T) while median household income grew 3x’s (est. $17k to $51k) while Real median household income grew 1.13x’s ($45k to $51k)

*$89.5 T is the 2012 fiscal year end budget number, the 2013 fiscal year end # is likely to be approx. $5+ T higher, or debt grew 180x’s in 40 years vs. 10x’s for GDP / income….but seriously, does it really matter if debt grew at 10x’s, 16x’s, or 18x’s the pace of the underlying economy…all are uncollectable in taxes and unpayable except for QE or like programs.

Why Can’t We Pay Off the Debt or Even Pay it Down?

Take 2013 Federal Government tax revenue and spending as an illustration:

• $16.8 Trillion US economy (gross domestic product)
  • $2.8 Trillion Federal tax revenue (taxes in)
  • $3.5 Trillion Federal budget (spending out)
    • -$680 Billion budget deficit (bridged by sale of Treasury debt spent now and counted as a portion of GDP)
    • = $550 Billion economic growth?!?
      • PLEASE NOTE – The ’13 GDP “growth” is less than the new debt (although the new debt spent is counted as new GDP) and the interest on the debt will need be serviced indefinitely.

Why Cutting Benefits or Raising Taxes Lead to the Same Outcome

While many try to dismiss these liabilities assuming we will continue to only service the debt rather than repay principal and interest; assuming we turn down the SS benefits via means testing, delaying benefits, reducing benefits; assuming we will bend the curve regarding Medicaid, Medicare, and Welfare benefits; assuming we will avoid further far flung wars and military obligations and stop feeding the military industrial complex; assuming no future economic slowdowns or recessions or worse; assuming a cheap and plentiful energy source is found to transition away from oil.  But all these debts and liabilities are someone else’s future income they are now reliant upon; someone’s future addition to GDP.  If these debts or obligations are curtailed or cancelled to reduce the debt or future liability, the future GDP slows in kind and tax revenues lag and budget deficits grow.  Of course I do advocate these debts and liabilities cannot be maintained, but austerity (real austerity) is painful and would set the stage for a likely depression where the nation (world) proceeds with a bankruptcy determining what and how much of the promises made can be honored until wants, needs, and means are all brought back in alignment.

So What’s it All Mean?

Let’s get real, austerity is not going to happen and we aren’t going to balance the budget.  We’re never going to pay off our debt or even pay it down.  We’re rapidly moving from 4 taxpayers for every social program recipient to 2 per recipient.  And ultimately, now we aren’t even really paying the interest on the debt…the Federal Reserve is just printing money (QE1, 2, 3) to buy the bonds and push the interest payments ever lower masking the true cost of these programs.  Of course, interest rates (Federal Funds Rates) have edged lower since 1980’s 20% to todays 0% to make the massive increases in debt serviceable.

Politicians and central bankers have shown they are going to print money to fulfill the obligations despite the declining purchasing power of the money.  It’s not so much science as religion.  A belief that infinite growth will be reality through unknown technologies, innovations, and solutions that in four decades have gone unsolved but somehow in the next decade will not only be solved but implemented.  Because it is credit that is undertaken with a belief that the obligation will ultimately allow for future repayment of principal, interest, and a profit.  But without the growth, the debt cannot be repaid nor liabilities honored.  Without the ability to repay the principal, the debts just grow and must have ever lower rates to avoid interest Armageddon.  This knowledge creates moral hazard that ever more debt will be rewarded with ever lower rates and thus ever greater system leverage.  The politicians and central bankers will continue stepping in to avoid over indebted individuals, corporations, crony capitalists, cities, states, federal government from failing.  It is a fait accompli that a hyper-monetization has/is/will take place…and now it is simply a matter of time until the globe either becomes saturated with dollars and/or reject the currency (so much to discuss here on likely demotion or replacement of the Petro-dollar and more…).  Because the earthquake (unpayable debt and obligations) has already taken place, now we are simply waiting for the tsunami.  Forget debt repayment or debt reduction…forget means testing or “bending cost curves”…we’re approaching the moment where even at historically low rates we will not be able to pay the interest and maintain government spending…without printing currency as this generation of American’s have never seen.  Bad governance and bad policy coupled with disinterested citizens will demand it.

Epilogue – So Where Do you put your Money?

No one can really know what will have value in this politicized crony capitalistic system as the hyper-monetization ramps up…all I can suggest is to hedge your bets with some physical precious metals, some minimal leveraged real estate, but also stocks and bonds and even some cash…because although there are natural forces in favor of the tangible, finite goods…there are also equally determined forces bound to push bond yields down, real estate and particularly stock prices up.  Unfortunately, the more you know, the more you know you don’t know…invest and live accordingly.

http://www.zerohedge.com/news/2014-08-04/us-bankrupt-blasts-biderman-we-now-await-cramdown

India Slams US Global Hegemony By Scuttling Global Trade Deal, Puts Future Of WTO In Doubt

Yesterday we reported that with the Russia-China axis firmly secured, the scramble was on to assure the alliance of that last, and critical, Eurasian powerhouse: India. It was here that Russia had taken the first symbolic step when earlier in the week its central bank announced it had started negotiations to use national currencies in settlements, a process which would culminate with the elimination of the US currency from bilateral settlements.

Russia was not the first nation to assess the key significance of India in concluding perhaps the most important geopolitical axis of the 21st century - we reported that Japan, scrambling to find a natural counterbalance to China with which its relations have regressed back to World War II levels, was also hot and heavy in courting India. “The Japanese are facing huge political problems in China,” said Kondapalli in a phone interview. “So Japanese companies are now looking to shift to other countries. They’re looking at India.”

Of course, for India the problem with a Japanese alliance is that it would also by implication involve the US, the country which has become insolvent and demographically imploding Japan's backer of last and only resort, and thus burn its bridges with both Russia and China. A question emerged: would India embrace the US/Japan axis while foregoing its natural Developing Market, and BRICS, allies, Russia and China.

We now have a clear answer and it is a resounding no, because in what was the latest slap on the face of now crashing on all sides US global hegemony, earlier today India refused to sign a critical global trade dea. Specifically, India's unresolved demands led to the collapse of the first major global trade reform pact in two decades. WTO ministers had already agreed the global reform of customs procedures known as "trade facilitation" in Bali, Indonesia, last December, but were unable to overcome last minute Indian objections and get it into the WTO rule book by a July 31 deadline.

WTO Director-General Roberto Azevedo told trade diplomats in Geneva, just two hours before the final deadline for a deal lapsed at midnight that "we have not been able to find a solution that would allow us to bridge that gap."

Reuters reports that most diplomats had expected the pact to be rubber-stamped this week, marking a unique success in the WTO's 19-year history which, according to some estimates, would add $1 trillion and 21 million jobs to the world economy.

Turns out India was happy to disappoint the globalists: the diplomats were shocked when India unveiled its veto and the eleventh-hour failure drew strong criticism, as well as rumblings about the future of the organisation and the multilateral system it underpins.

"Australia is deeply disappointed that it has not been possible to meet the deadline. This failure is a great blow to the confidence revived in Bali that the WTO can deliver negotiated outcomes," Australian Trade Minister Andrew Robb said on Friday. "There are no winners from this outcome – least of all those in developing countries which would see the biggest gains."

Shockingly, and without any warning, India's stubborn refusal to comply with US demands, may have crushed the WTO as a conduit for international trade, and landed a knockout punch when it comes to future relentless globallization which as is well known over the past 50 or so years, has benefited the US first and foremost.

Broke, debt-monetizing Japan, which as noted previously, was eager to become BFFs with India was amazed by the rebuttal: "A Japanese official familiar with the situation said that while Tokyo reaffirmed its commitment to maintaining and strengthening the multilateral trade system, it was frustrated that such a small group of countries had stymied the overwhelming consensus. "The future of the Doha Round including the Bali package is unclear at this stage," he said."

Others went as far as suggesting the expulsion of India:

Some nations, including the United States, the European Union, Australia, Japan and Norway, have already discussed a plan to exclude India from the agreement and push ahead, officials involved in the talks said.

However, such a move would clearly be an indication that the great globalization experiment is coming to an end: "New Zealand Minister of Overseas Trade, Tim Groser, told Reuters there had been "too much drama" surrounding the negotiations and added that any talk of excluding India was "naive" and counterproductive. "India is the second biggest country by population, a vital part of the world economy and will become even more important. The idea of excluding India is ridiculous." ... "I don't want to be too critical of the Indians. We have to try and pull this together and at the end of the day putting India into a box would not be productive," he added.

And yes, the death of the WTO is already being casually tossed around as a distinct possibility:

Still, the failure of the agreement should signal a move away from monolithic single undertaking agreements that have defined the body for decades, Peter Gallagher, an expert on free trade and the WTO at the University of Adelaide, told Reuters.

"I think it's certainly premature to speak about the death of the WTO. I hope we've got to the point where a little bit more realism is going to enter into the negotiating procedures," he said.

But the one country that was most traumatized, was the one that has never before been used to getting a no answer by some "dingy developing world backwater": the United States,and the person most humiliated, who else but John Kerry.

"U.S. Secretary of State John Kerry told Prime Minister Narendra Modi on Friday that India's refusal to sign a global trade deal sent the wrong signal, and he urged New Delhi to work to resolve the row as soon as possible." "Failure to sign the Trade Facilitation Agreement sent a confusing signal and undermined the very image Prime Minister Modi is trying to send about India," a U.S. State Department official told reporters after Kerry's meeting with Modi.

Wrong signal for John Kerry perhaps, who is now beyond the world's "diplomatic" laughing stock and the man who together with Hillary Clinton (and the US president) has made a complete mockery of US global influence in the past 5 years. But just the right signal for China and of course, Russia.

http://www.zerohedge.com/news/2014-08-01/india-slams-us-global-hegemony-scuttling-global-trade-deal-puts-future-wto-doubt

Chinese Yuan Surges & Stocks Jump To 2014 Highs After PBOC Unleashes QE

Quietly, and without the drama associated with The Fed and ECB, China unveiled what looks like QE recently (as we discussed in detail here). Whether this is a stealth creation of a 'fannie-mae' structure to support housing or merely another channel for the PBOC to shovel out hole-filling liquidity is unclear. However, one thing is very clear, demand for CNY is surging (even as the PBOC weakens its fixing) and the Shanghai Composite is surging as hot money chases free money once again...

The Yuan has rallied (lower on the chart) for 8 days straight as PBOC weakened its Fix.

The Chinese stock market has quietly surged to its highest since December - outperforming the Dow now year-to-date...

BofA believes 3 factors are at play here:

1. China: better data on exports & PMI, GDP upgrades (BofAML upgraded 2014 GDP growth forecast to 7.4% from 7.2%), policy U-turn putting floor on growth, hopes for a Chinese QE, success in anti-corruption igniting hopes for reform. And China is of course relatively inexpensive and out of favor: in price-to-book terms, Chinese financials are trading at their cheapest level in more than 9 years relative to global financials

2. US growth: NE Asia has historically been a play on US growth; no coincidence that flows to NE Asian markets are coinciding with stronger US GDP (up 4% in  Q2).

3. The end of the carry-trade: this is the more intriguing argument. Almost all investors we meet believe that a rise in stock markets and a decline in bond yields will not continue indefinitely. We believe concern that rates must inevitably “normalize” in coming months as growth picks-up, and concern that a flip in Treasury yields causes stocks to decline is causing investors to consider raising cash and finding uncorrelated investments. Japan, China and Korea rank in the top ten equity markets least positively correlated with SPX and most positively correlated with movements in 30y UST yield (correlation analysis based on weekly log change over the past 10 years). Carry-trades are at risk from rising rates. We think markets with low yields and higher exposure to US economic growth will be better protected if the backdrop flips from Low Rates-Low Growth to High Growth-Higher Rates.

http://www.zerohedge.com/news/2014-07-31/chinese-stocks-yuan-surge-2014-highs-after-pboc-unleashes-qe 

Russia And India Begin Negotations To Use National Currencies In Settlements, Bypassing Dollar

Over the past 6 months, there has been much talk about the strategic proximity between Russia and China, made even more proximal following the "holy grail" gas deal announced in May which would not have happened on such an accelerated time frame had it not been for US escalation in Ukraine.

And yet little has been said about that other just as crucial for the "new BRIC-centric world order" relationship, that between Russia and India. That is about to change when yesterday the Russian central bank announced that having been increasingly shunned by the west, Russia discussed cooperation with Reserve Bank of India Executive Director Shrikant Padmanabhan. The punchline: India agreed to create a task group to work out a mechanism for using national currencies in settlements. And so another major bilateral arrangement is set up that completely bypasses the dollar.

From the Russian Central Bank:

First Deputy Chairman of the Central Bank of the Russian Federation KV Yudaeva and Executive Director of the Reserve Bank of India G. Padmanabhan at the twentieth meeting of the Subgroup on banking and financial issues of the Russian-Indian intergovernmental commission on trade-economic, scientific-technical and cultural cooperation discussed the current state and prospects of cooperation between banks.

The meeting was attended by representatives of central banks, ministries and agencies, credit organizations in Russia and India.

During the meeting dealt with the problems faced by the branches and subsidiaries of banks in the two countries and ways of addressing these problems.

As a priority area discussed the use of national currencies in mutual settlements. Given the urgency of the issue and the interest of commercial structures of the two countries, the meeting decided to establish a working group to develop a mechanism for the use of national currencies in mutual settlements. It will consist of representatives of banks and, if necessary, the ministries and departments of the two countries to coordinate its activities will be central banks of Russia and India.

What is curious is that now that China has sided firmly with Russia when it comes to geopolitical strategy (not least when it comes to recent development surrounding the downing of flight MH-17, recall "China Blasts "One-Sided Western Rush To Judge Russia" Over MH17"), and thus Russia behind China when it comes to claims by the world's most populous nation in its territorial dispute with Japan, Japan too is scrambling to secure a major ally in Asia, and it too is trying desperately to get on India's good side.

Bloomberg reports that "Japan’s Sasebo naval base this month saw unusual variety in vessel traffic that’s typically dominated by Japanese and U.S. warships. An Indian frigate and destroyer docked en route to joint exercises in the western Pacific."

The INS Shivalik and INS Ranvijay’s appearance at the port near Nagasaki showed Japan’s interest in developing ties with the South Asian nation as Prime Minister Shinzo Abe’s government faces deepening tensions with China. Japan for the third time joined the U.S. and India in the annual “Malabar” drills that usually are held in the Bay of Bengal.

With Abe loosening limits on his nation’s military, the exercises that conclude today showcase Japan’s expanding naval profile as China pushes maritime claims in disputed areas of the East and South China Seas. For newly installed Indian Prime Minister Narendra Modi, Japan’s attention adds to that of China itself, in an opportunity to expand his own country’s sway.

Japan’s involvement in Malabar underscores its interest in helping secure its trade routes to Europe and the Middle East. The Indian Ocean is “arguably the world’s most important trading crossroads,” according to the Henry L. Stimson Center, a foreign policy research group in Washington. It carries about 80 percent of the world’s seaborne oil, mostly headed to China and Japan.

...

“The Japanese are facing huge political problems in China,” said Kondapalli in a phone interview. “So Japanese companies are now looking to shift to other countries. They’re looking at India.”

So on one hand Japan is rushing to extend a much needed olive branch by the "insolvent western alliance + Japan" to India; on the other Russia is preparing to transact bilterally with India in a way that bypasses the dollar.

Which means that just as Germany has become the fulcrum and most strategic veriable in Europe (more on this shortly) whose future allegiance to Russia or the US may determine the fate of Europe, so suddenly India is now the great Asian wildcard.

Perhaps a very important hint of which way India is headed came moments ago from Reuters, which said that India has raised the issue of U.S. surveillance activities in the South Asian nation with Secretary of State John Kerry, the foreign minister said on Thursday. "Yes, I raised this issue (U.S. snooping) with Secretary John Kerry ... I have also conveyed to him that this act on the part of U.S. authorities is completely unacceptable to us," Sushma Swaraj said at a joint news conference in New Delhi. In response, Kerry said: "We (the United States) fully respect and understand the feelings expressed by the minister."

Thank you Snowden for helping move the geopolitical tectonic plates that much faster.

Now let the real courting begin.

http://www.zerohedge.com/news/2014-07-31/russia-and-india-begin-negotations-use-national-currencies-settlements-bypassing-dol

Argentina Defaults on 29 Billion

It's all over but the crying: having explained Argentina's position (i.e. not giving to so-called vulture funds), Economy Minister Kicilloff explains:

• *KICILLOF SAYS HEDGE FUNDS NOT WILLING TO GIVE DELAY ON RULING
• *KICILLOF SAYS HARD TO BELIEVE ARGENTINA IN DEFAULT IF HAS FUNDS
• *KICILLOF SAYS ARGENTINA CAN'T COMPLY WITH COURT RULING
• *HOLDOUTS DIDN'T ACCEPT ARGENTINE OFFER: KICILLOF

As Bloomberg notes, by defaulting today, Argentina may trigger bondholder claims of as much as $29 billion -- equal to all its foreign-currency reserves. Just remember that the last 2 days have seen 'smart money' buy Argentine bonds and stocks to all-time record highs.

Some color on what next (via Bloomberg):

If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately. The amount corresponds to Argentina’s debt issued in foreign currencies and governed by international laws.

In a default, even a temporary one, Argentina’s economy will contract and the odds of a crisis are high, according to Marcos Buscaglia, an economist at Bank of America Corp. Money demand will become unstable as Argentines scramble for dollars, causing the peso to slump, he wrote in a report today.

“Argentina’s current weak fiscal, monetary and external conditions make the probability of the situation spinning out of control quite high,” he wrote. “Argentina’s payment capacity should not be taken for granted if it defaults.”

• *ARGENTINA'S RUFO CLAUSE PROHIBITS MAKING BETTER OFFER: KICILLOF

• NEW YORK-ARGENTINA'S ECONOMY MINISTER KICILLOF REPEATEDLY CALLS HOLDOUT INVESTORS "VULTURE FUNDS
• KICILLOF SAYS HOLDOUTS WOULD REAP 300% PROFIT IN DEBT SWAP
• KICILLOF SAYS HEDGE FUNDS WANT MORE AND WANT IT NOW

*  *  *

All those equity and bond gains - which hit an all time high - today, gone.

Oops:

Finally, we aren't the only ones who are let down by today's anticlimatic development. Compare and contrast with this 2001 announcement when Argentina announced is last default: a far more exuberant affair.

http://www.zerohedge.com/news/2014-07-30/argentina-defaults

EES announces Forex vendor package

Elite E Services (EES) announces the launch of a package for Forex vendors, ideally for those who sell their custom indicator or Expert Advisor.  The package includes a membership area, SEO compliant website, an affiliate system, and an API bridge linking the membership area to MQLLock, the world's best MQL locking system.  The package was developed in conjunction with Vector Informatics for the client site BinaryOptions-MT4.com.  It is ideal for Forex vendors that want to focus on their content and building their business, and not the nuances of managing a members site.  Marketing tools such as organic SEO combined with an affiliate system provide vendors the best use of their content and member area, and the tools to grow their business.  The package includes all elements needed, but for vendors who already have some of the components, items may be purchased individually.

Click here to learn more about the package or Contact EES today.

America's Dumbest Move Yet: Seizing A Foreign Bank

Submitted by Simon Black of Sovereign Man blog,

Ten dark suited men entered the premises of FBME bank in Cyprus on Friday afternoon and took it hostage.

It must have looked like a scene from the Matrix. And given the surrealism of how this conflict is escalating, maybe it was.

The men were from the Central Bank of Cyprus (CBC). And they commandeered FBME because an obscure agency within the US government recently issued a report accusing the bank of laundering money.

It just so happens that FBME… and Cyprus in general… is where a lot of wealthy Russians hold their vast fortunes.

Bear in mind, there has been no proof that any crime was committed. There was no court hearing. No charges were read. It wasn’t even the government of Cyprus who accused them of anything.

There was just a generic report penned by some bureaucrat 10,000 miles away.

Funny thing—when HSBC got caught red-handed laundering funds for a Mexican drug cartel last year, the US government gave them a slap on the wrist. HSBC got off with a fine.

Yet when the US government merely hints that FBME could be laundering money, the bank gets taken over at gunpoint.

Welcome to warfare in the 21st century. It’s not about battleships and ground troops anymore.

This time the adversaries are battling each other using what ultimately affects everyone: money.

And on this battlefield the US doesn’t really have many options.

• US banks still form the nucleus of the global financial system, but this is quickly being replaced.

• Just last week the BRICS nations met in Fortaleza, Brazil to launch the origins of a brand new, non-US financial system.

• The US is still the largest economy in the world, but will likely lose this status to China by the end of the year.

• The US dollar is still the most widely used currency in global trade, but even America’s closest allies (Canada, Western Europe) recognize that the time has come to move beyond the dollar.

So while the US is still running around and barking at others, it is quickly losing its capacity to bite.

Their only tactic is to haphazardly attack Russian interests wherever they can.

They’re sanctioning Russian companies. They’re trying to torpedo international support for Russia. And now they’ve resorted to plundering Russian assets held in other sovereign nations.

Imagine you’re Qatar. Or China. Or Kuwait. Or Singapore. Or anyone else who holds substantial amounts of US debt.

All of these countries understand the lesson loud and clear: when the US doesn’t like you, they will do everything they can to make your life difficult.

Does this inspire confidence? If you’re holding hundreds of billions of dollars of US Treasuries, does this really improve your level of trust in the US?

Probably not.

By terrorizing Russian interests, the Obama administration is begging the rest of the world to reconsider their misplaced trust in the United States.

All these foreign countries really have to do if they want to retaliate is start dumping their US Treasuries. Or simply stop rolling over when the notes mature.

That will cause catastrophic consequences in the United States. Interest rates will soar, inflation will kick in, and the government will be even closer to default than it already is.

Inexplicably, Mr. Obama is practically begging the world to do this. It’s tremendously arrogant.

It’s like the economic warfare equivalent of Napoleon pompously leading his overstretched, exhausted army into Russia.

And neither Napoleon nor Obama gave the slightest consideration to the big picture consequences.

At $17.6 trillion in debt, the US is trying to wage economic war without any ammunition. It’s not something that is going to work out well for them.

http://www.zerohedge.com/news/2014-07-24/americas-dumbest-move-yet-seizing-foreign-bank

Europe – Here is What the Wealthy are Doing

By: Chris Tell at: http://capitalistexploits.at/

There are essentially three main reasons for using Banks:

1. Storing cash for ease of transacting;
2. Keeping cash safe from theft;
3. Earning interest on your capital.

As a teenager I remember opening my first bank account, diligently saving my money and watching it slowly grow. Receiving "official" mail was cool. I felt important by simply receiving my monthly bank statements with my name on the envelope.

I was confident that by banking my cash I was protecting my capital. After all, it seemed a better idea than sticking it in my sock drawer, and I soon found that I was earning interest on my money, something else my sock drawer couldn't provide.

Little did I know or understand how modern banking actually worked back then, though it's only gotten worse since I opened that first bank account many years ago. Much worse, in fact.

In Europe, Banks reserve ratios have literally collapsed, despite what the "stress tests" conducted by Eurocrats want us to believe. Passing a European Banking stress test these days is a little like farting - easy to do, mostly hot air, and yet it typically warns of something else coming down that isn't going to be pretty. And for those who see the writing on the wall, they know it stinks.

As Reuters recently reported:

European banks have a combined capital shortfall of about 84 billion euros ($115 billion), German weekly WirtschaftsWoche reported, citing a new study by the Organisation for Economic Cooperation and Development (OECD).

French bank Credit Agricole has the deepest capital shortfall at 31.5 billion euros, while Deutsche Bank and Commerzbank have gaps of 19 billion and 7.7 billion respectively, the magazine reported in a pre-release of its Monday publication.

If you'd like your eyes to bleed, you're welcome to read the entire report here.

It is no surprise that cash withdrawal limits are being implemented across Europe, and cash transactions of more than a fleeting amount are actually being banned. Yep, it is actually illegal to purchase anything over 1,000 Euro using cash.

Want to have a big party night in Berlin? No problem. Go to the ATM and withdraw a couple hundred Euro in cash. If you're a central banker out for a taxpayer-funded soiree, (un)fortunately you'll have a problem, as you'll likely need to withdraw a few thousand Euro (hookers and blow aren't cheap). I wonder how they're going to pay for services rendered now? With a Visa card?

It was only a few months back that HSBC were publicly humiliated for restricting cash withdrawals by its customers. Now this is becoming commonplace across Europe.

Why are they doing this?

Two reasons:

1. Bank runs are a real risk if the populace actually wakes up;
2. Controlling the flow of money allows the controlling of people. Ensuring that transactions are all digital guarantees that financial privacy is vaporised.

None of the above information is particularly enlightening for those paying attention. However, what is going on to combat this might raise a few eyebrows. I thought I'd relay a little story which came out of a conversation I had last week with a friend.

Switzerland, once known for its robust banking privacy and healthy capital ratios, despite all of Europe's troubles, is still home to large pools of wealth. My friend maintains a relationship with an old banking colleague, who is currently working with fiduciaries in Switzerland to get client money out of their own bank accounts and into physical cash. These clients are no longer allowed to withdraw large amounts of cash, THEIR cash, directly from the banks any longer. However, they are free to wire funds anywhere they please.

What is therefore happening is that the fiduciaries are wiring the money to Hong Kong, where it is picked up by a "messenger" and placed in an envelope to be couriered BACK to Switzerland, in cash. There are currently no restrictions on remitting cash into Switzerland. Right now a loophole exists, and these wealthy clients are moving many millions of dollars each week - wiring it out of the country only to have it sent back in cash. No doubt they're looking to put it in the sock drawer! What do they see that the man on the street doesn't?

Remember the 3 reasons for using a bank account mentioned at the beginning of this article?

1. Storing cash for ease of transacting - This is still valid so long as you use the system.
2. Keeping cash safe from theft - The words "safe" and "bank", at least with most European banks that is, should not be used in the same sentence. Aside from the theft occurring on a daily basis by our central bankers, the risk to waking up one day to a nationalization of your European bank is a real and present risk.
3. Earning interest on your capital

Central bankers have single-handedly destroyed any incentive to place capital into the traditional banking system for yield. Anyone buying CDs thinking they're safe and that they provide a satisfactory return is simply delusional.

- Chris

"The Eurozone was never designed to cope with millions of Spaniards moving their money out of the country, behaving like middle-class Venezuelans with offshore accounts in Miami. And it also was never designed to cope with capital controls. But increasingly, it looks like we’re going to end up with one or the other. Or both." - Felix Salmon

http://www.zerohedge.com/news/2014-07-24/europe-%E2%80%93-here-what-wealthy-are-doing

NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk"

First it was French BNP that was punished with a $9 billion legal fee after France refused to cancel the Mistral warship shipment to Russia (which promptly led to French National Bank head Christian Noyer to warn that the days of the USD as a reserve currency are numbered), and now moments ago, none other than the 150x-levered NY Fed tapped Angela Merkel on the shoulder with a polite reminder to vote "Yes" on the next, "Level-3" round of Russia sanctions when it revealed, via the WSJ, that "Deutsche Bank's giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems."

What could possibly go wrong? Well... this. Recall that as we have shown for two years in a row, Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That's a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of... the world.

More from WSJ:

In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank's U.S. arms "are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action."

The criticism from the New York Fed represents a sharp rebuke to one of the world's biggest banks, and it comes at a time when federal regulators say they are increasingly focused on the health of overseas lenders with substantial U.S. operations.

The Dec. 11 letter, excerpts of which were reviewed by the Journal, said Deutsche Bank had made "no progress" at fixing previously identified problems. It said examiners found "material errors and poor data integrity" in its U.S. entities' public filings, which are used by regulators, economists and investors to evaluate its operations.

The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.

...

Deutsche Bank's external auditor, KPMG LLP, also identified "deficiencies" in the way the bank's U.S. entities were reporting financial data in 2013, according to a Deutsche Bank email reviewed by the Journal.

Oh wait, so those €55 trillion in derivatives are actually completely fabricated? Well if that doesn't send the S&P 500 limit up nothing will.

DB's response is the generic one already attempted by that other permacriminal bank, Barclays, which hired a few hundred compliance people after it was revealed that the British firm was manipulating and rigging pretty much every product and market it was involved in.

"We have been working diligently to further strengthen our systems and controls and are committed to being best in class," a Deutsche Bank spokesman said Tuesday. As part of this, he said, the bank is spending €1 billion globally and appointing 1,300 people, including about 500 compliance, risk and technology employees in the U.S. Mr. Muccia declined to comment.

Sadly for now what this latest Pandora's box means is that confidence in Europe's insolvent banks just crashed with a bang once again, not that it would be reflected in the stock's rigged price of course: rigged most likely by Deutsche Bank among other of course.

The New York Fed's concerns also pose a challenge for Deutsche Bank's longtime finance chief, Stefan Krause, who is ultimately responsible for the company's financial figures and has been spearheading efforts to improve the quality of the bank's reporting.

The concerns from regulators strike at the heart of an issue plaguing many of the world's big banks: Some investors lack confidence in the integrity of their numbers. Such fears have been especially prevalent in Europe.

Then again, none of DB's numbers actually matter: if the banks needs a bailout the Fed will promptly step in, and today's advisory has one simple end point, which happens to be the same as the recent BNP $9 billion fine - don't even dare to side with Putin over the US. Because you sure have big bank over there Germany... It would be a pity if the NY Fed i) revealed just how insolvent it truly was and ii) decided not to bail it out subsequently.

* * *

As for Deutsche Bank's response perhaps the simplest and most effective one would be for the Frankfurt megabank to tell the NY Fed that perhaps its own 150x leverage is just a little more worthy of attention.

http://www.zerohedge.com/news/2014-07-22/ny-fed-slams-deutsche-bank-and-its-%E2%82%AC55-trillion-derivatives-accuses-it-significant-o

Swiss, Chinese Central Banks Enter Currency Swap Agreement

ZURICH--The Swiss National Bank and the People's Bank of China reached a currency swap agreement on Monday, allowing the two central banks to buy and sell their currencies up to a limit of 150 billion renminbi, or 21 billion Swiss francs ($23.4 billion).

The deal will also allow the Swiss central bank to invest some of its huge accumulation of foreign exchange reserves in the Chinese bond market, the SNB said in a statement Monday.

The Zurich-based SNB said the agreement will further strengthen collaboration between it and its Chinese counterpart and is a "key requisite for the development of a renminbi market in Switzerland." It could also facilitate trade and investment between the two countries, the PBOC said.

Switzerland is the latest of a series of countries to set up swap lines with China, which is keen to promote the international use of the yuan.

Last year China signed swap agreements with the European Central Bank and a clutch of others, including the U.K., Brazil and Indonesia.

The agreement between China and Switzerland has a term of three years and can be renewed thereafter, the PBOC said.

Write to Neil MacLucas at neil.maclucas@wsj.com and Richard Silk at richard.silk@dowjones.com

Read more: http://www.nasdaq.com/article/swiss-chinese-central-banks-enter-currency-swap-agreement-20140721-00068#ixzz38DH1I5mN