The New Order Emerges

Submitted by Alasdair Macleod via Gold Money, 

China and Russia have taken the lead in establishing the Asian Infrastructure Investment Bank (AIIB), seen as a rival organisation to the World Bank and the Asian Development Bank, which are dominated by the United States with Europe and Japan.

These banks do business at the behest of the old Bretton Woods order. The AIIB will dance to China and Russia's tune instead.

The geopolitical importance was immediately evident from the US's negative reaction to the UK's announcement this week that it would join the AIIB. And very shortly afterwards France, Germany and Italy also defied the US and announced they might join. In the Pacific region, one of America's closest allies, Australia, says she is considering joining too along with New Zealand. The list of US allies seeking to join is growing. From a geopolitical point of view China and Russia have completely outmanoeuvred the US, splitting both NATO and America's Pacific alliances right down the middle.

This is much more important than political commentators generally realise. We must appreciate that anything China does is planned well in advance. Here is the relevant sequence of events:

• In 2002 China and Russia formally adopted the founding charter for the Shanghai Cooperation Organisation, an economic bloc that today contains about 35% of the world's population, which will become more than 50% when India, Pakistan, Iran, Afghanistan and Mongolia join, which is their stated intention. Russia has the resources and China the manufacturing power to develop the largest internal market ever seen.

• In October 2013 George Osborne was effectively summoned to Beijing because China wanted London to be the base to develop renminbi-denominated financial instruments. London has served China well, with the UK Government even issuing the first renminbi-denominated foreign (to China) government bond. The renminbi is now on the way to being a fully-fledged international currency.

• The establishment of an infrastructure bank, the AIIB, will ensure the lead funding is available for the rapid development of road, rail, electric and electronic communications throughout the SCO, ensuring equally rapid economic development of the whole of the Asian continent. It could amount to the equivalent of several trillion dollars over time.

The countries that are applying to join the AIIB realise that they have to be members to access what will eventually become the largest single market in the world. America is being frozen out, the consequence of her belligerence over Ukraine and the exercise of her hegemonic power through the dollar. America's allies in South East Asia are going with or will go with the new AIIB, and in Europe commercial interests are driving America's NATO partners away from her, turning the Ukraine from a common cause into a festering liability.

The more one thinks about it, the creation of the AIIB is a masterstroke of tactical genius. The outstanding issue now is China and Russia will need to come up with a credible plan to make their currencies a slam-dunk replacement for the dollar. We know that gold may be involved because the SCO members have been accumulating bullion; but before we get there China must manage a deliberate deflation of her credit bubble, which will be a delicate and dangerous task.

Unlike the welfare-driven economies in the west, China has sufficient political authority and internal control to survive a rapid deflation of bank credit. When this inevitably happens the economic consequences for the west will be very serious. Japan and the Eurozone are already facing economic dislocation, and despite over-optimistic employment numbers, the US economy is faltering as well. The last thing America and the dollar needs is a deflationary shock from China.

The silver lining for us all is a peace dividend: it is becoming less likely that America will persist with a call to arms, because support from her allies is melting away leaving her on her own.

http://www.zerohedge.com/news/2015-03-22/new-order-emerges

De-Dollarization Accelerates As More Of Washington's "Allies" Defect To China-Led Bank

The global de-dollarization trend continues as it appears the UK’s move to join the China-led Asian Infrastructure Development Bank has indeed shown other US “allies” that spurning Washington’s advice is actually acceptable and concerns about the institution’s “standards” may simply be a diversion aimed at undermining China’s attempt to exercise more influence in its own backyard. Here’s more from the NY Times: 

Ignoring direct pleas from the Obama administration, Europe’s biggest economies have declared their desire to become founding members of a new Chinese-led Asian investment bank that the United States views as a rival to the World Bank and other institutions set up at the height of American power after World War II.

The announcement on Tuesday by Germany, France and Italy that they would follow Britain and join the Chinese-led venture delivered a stinging rebuke to Washington from some of its closest allies. It also called into question whether the World Bank and the International Monetary Fund, which grew out of a multination conference in Bretton Woods, N.H., in 1944 and established an economic pecking order that lasted 70 years, will find their influence diminished.

The announcement by Germany, Europe’s largest economy, came only six days after Secretary of State John Kerry asked his German counterpart, Frank Walter-Steinmeier, to resist the Chinese overtures until the Chinese agreed to a number of conditions about transparency and governing of the new entity. But Germany came to the same conclusion that Britain did: China is such a large export and investment market for it that it cannot afford to stay on the sidelines.

South Korea, another US ally that the Obama administration has not-so-subtly lobbied to stay out of the AIIB for the time being, is reportedly reconsidering a bid to join and although reports that Seoul had already committed to the venture appear to have been a bit premature, the country will make a decision this month and is expected to discuss specifics this weekend at a meeting with Chinese and Japanese officials. Here’s FT: 

The foreign ministers of China, Japan and South Korea will meet in Seoul this weekend for the first time in three years, in an effort to calm tensions in the region.

The trio have strong economic ties but frosty relations. International angst about this state of affairs among the regional superpowers has been further piqued by the Asian Infrastructure Investment Bank, a Chinese-led initiative sparking alarm in Washington and proving divisive elsewhere.

Meanwhile, even Europe’s own “magical fairyland” is taking the plunge. Via Bloomberg: 

China welcomes Luxembourg’s application to be a founding member of the Asian Infrastructure Investment Bank, China’s finance ministry says in a statement on website.

http://www.zerohedge.com/news/2015-03-19/de-dollarization-accelerates-more-washingtons-allies-defect-china-led-bank

Rate Hikes Already Priced into the US Dollar Index

Buy the Rumor, Sell the News

All those bemoaning what rate hikes could potentially portend for the US Dollar need to get a grip, the rate hikes are already priced in.  That`s how markets work, buy the rumor and sell the news or actual event. Moreover, not just one 25 basis point rate hike, taking a look at that chart, several rate hikes have already been priced into the US Dollar Index.  

A Perfect Dollar Storm

It really has been the perfect storm for the US Dollar Index from struggling emerging markets to the oil and commodities meltdown to the strong economic data here in the states and Europe finally initiating a QE Program. But the trade has gotten way ahead of itself, probably the most crowded trade on the street right now, and definitely due for a pullback. The momentum resulting from the start of European QE being the primary catalyst with the Euro cratering far beyond the fundamentals of historical relationships between the two currencies. It too is overdone to the downside and due for a snapback rally either this week or next, and the coiled nature of that trade suggests the snapback will be rather sizable.

Read More >> Janet Yellen Encourages More Levered Risk Taking

One Word Folks: Entitlements

Therefore all those worried about the appreciation of the US Dollar Index being the end of the world can take a deep breath and relax.  The Fed can still raise rates and the US Dollar Index will probably weaken on the news from current levels. There has been a lot of bullish optimism for a country that continues to push out an unbelievably high level of government debt each year to be financed and subsidized outside of its cash inflows. The US Dollar isn`t always going to be this strong versus global currencies, even with much higher short-term interest rates.

Read More >> Central Banks Have Violated Fundamental Laws of Finance

Australia Survived a Strong Currency & High Interest Rates

However even if the US Dollar continues to appreciate, big freaking deal, it has happened before in this country and the economy didn`t fall off a cliff. In fact just the opposite occurred, a strong dollar means the US economy is competing on the global stage in a very robust manner. This is a good thing, like cheap energy and a robust job market, nothing too complain about! How did Australia survive all those years when their commodity based economy was performing so well and ahead of its peers? They had a strong currency and much higher interest rates, and their economy didn`t fall off a cliff due to either of those factors in having higher interest rates and a stronger currency than most of their global peers. This is how finance and currency crosses are supposed to work in a market based global economy.

Read More >> The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy

Whiners going to Whine

All this whining about a strong US Dollar Index and Rate Hikes is really about the end of government handouts, corporate welfare programs for the 1%, and just plain weak mindedness in general. Like they cannot possibly succeed on the world stage without the psychological crutch of a weak dollar! The ironic part of this whole consternation over the appreciating dollar is that most of these same people were complaining about the disastrous effects of the weak dollar just a couple of years ago. You know oil is going to 200 dollars a barrel, inflation to 6%, and the purchasing power of the US Consumer being eroded indefinitely, not to mention how expensive it was to travel to other counties for Americans.

Glass Half Full

Quit looking at the world as glass half empty, currency crosses fluctuate with global economics and relationships between countries. There is a constant give and take that goes on based upon the business cycles and development stages of the local economies.  Having weak and strong currencies serves an economic purpose, and function as natural forces on correcting inefficient and uncompetitive country practices. This is how finance and economics work. Thank goodness the US has finally gotten the upper hand the past couple of years after really taking it on the chin from the BRIC`s when they had their robust economic growth cycle.

Always Good to be Strong

In short, a strong dollar is good. In this case it is a sign of strength and confidence in the business prospects of the economy, and a vote for capitalistic principles in a globally competitive marketplace. There are many advantages to having a strong US Dollar.  It helps attract capital, it lowers overall inflation, while providing stronger purchasing power for US Consumers, making travel more affordable.  It is a sign of a robust economy relative to its global peers. I am sure Australia wishes they could time travel back to the glory days of the commodity boom based upon the emerging market parabolic growth phase led by China. They would gladly take a stronger currency, higher rates and all the good benefits that go along with an outperforming economy versus their current state of affairs represented by a much weaker currency, lower interest rates and much weaker business prospects.

Read More >> The Real Reason the Fed Has To Raise Rates in June

Currency Investors Already Front Running the Fed on Interest Rates

The US should thank its lucky stars investors value the US Dollar, and consider it a good place to invest in relative to our global peers because currencies move in cycles, and trust me this will not always be the case. But the appreciating currency is telling investors the inevitable that a strong US Dollar is indicative of a strong economy and rising rates are already being factored into the appreciation. Wall Street and Global investors don`t wait for the Fed to raise rates, they already are voting via the currency markets that rates are going to rise in the US, and much of these rate hikes are already being priced into the currency. Look at it this way, investors in the currency markets are already miles ahead of the fed front-running their rate hikes. Their analysis is that interest rates are going to rise in the US over the next quarter, and this is part of the tremendous run-up in the US Dollar. Subsequently forget about the ramifications of the Fed raising interest rates on the US Dollar Index, it has already been factored into the market by currency investors. The real news would be if for some reason the Fed didn`t raise rates over the next quarter!

http://www.zerohedge.com/news/2015-03-12/rate-hikes-already-priced-us-dollar-index

Plunge Protection Exposed: Bank Of Japan Stepped In A Stunning 143 Times To Buy Stocks, Prevent Drop

Since 2010, The Bank of Japan has 'openly' - no conspiracy theory here - been a buyer of Japanese stock ETFs. Their bravado increased as the years passed and Abe pressured them from their independence to 'show' that his policies were working to the point that in September 2014, The BoJ bought a record amount of Japanese stock ETFstaking its holdings to over 1.5% of the entire market cap, surpassing Nippon Life as the largest individual holder of Japanese stocks. However, as WSJ reports, The BoJ has now gone full intervention-tard - buying Japanese stocks on 76% of the days when the market opened lower.

As The Wall Street Journal reports,

The Bank of Japan’s aggressive purchasing of stock funds has helped Japanese shares climb to multiyear highs in recent months. But some within the central bank are growing uncomfortable about the fast-paced rally and the bank’s own role in fueling it.

Since Gov. Haruhiko Kuroda took office in March 2013 and introduced monetary easing of what he called a “different dimension,” the central bank has sharply increased its buying of baskets of stocks known as exchange-traded funds. By directly underpinning the market, officials have tried to encourage private investors to follow suit and put more money in stocks in the hope of stimulating the economy and increasing inflation.

During the past two years, the central bank entered the stock market roughly once every three days, picking up a total of ¥2.8 trillion ($23 billion) of ETFs that track Japan’s major stock indexes, according to Bank of Japan records. That distinguishes it from the U.S. Federal Reserve and European Central Bank, both of which have bought bonds to pump up the economy but haven’t directly bought stocks.

Analysts say the bank’s action has been a significant driver of Japan’s stock-market rally in recent months, combined with hefty purchases by the $1.1 trillion Government Pension Investment Fund. Their buying has often countered selling pressure from individuals in the market and made up for a weaker appetite among foreign investors.

The central bank has stepped in mostly when market sentiment was weak. Three-quarters of the central bank’s buying occurred on days when the benchmark Topix index opened lower, according to a Wall Street Journal analysis of BOJ data.

So much for independence...

BOJ officials used to be cautious about purchasing ETFs, worried that it could distort market activities and put the central bank’s own financial health at risk. But under pressure from politicians following the global financial crisis, the bank changed its stance in late 2010.

“We led the cows to water, but they didn’t drink it, even though we told them it tasted good,” Miyako Suda, who was a board member then, wrote in a 2014 book discussing monetary easing at that time. “So we thought we should drink it ourselves, showing them it was tasty.”

http://www.zerohedge.com/news/2015-03-11/how-boj-stepped-143-times-send-japanese-stocks-soaring

Ex-Plunge Protection Team Whistleblower: "Governments Control Markets; There Is No Price Discovery Anymore"

One year after the great stock market crash in 1987, US President Ronald Reagan launched the "Working Group on Financial Markets." Conspiracy theorists believe, however, that the real task of this committee is to protect against a renewed slump in the stock market. In the jargon of Wall Street, the working group is known as the "Plunge Protection Team."

One glimpse at a few days suring 2007/8 and it is clear that 'someone' with infinitely deep pockets was able to support markets on several critical days - though, of course, anyone proclaiming intervention was propagandized away as a conspiracy theory wonk. However, as Dr. Pippa Malmgren - a former member of the U.S. President’s Working Group on Financial Markets - it is not conspiracy theory, it is conspiracy fact: "there's no price discovery anymore by the market... governments impose prices on the market."

*  *  *

In this 38 minute interview Lars Schall, for Matterhorn Asset Management, [4]speaks with Dr Pippa Malmgren, a US financial advisor and policy expert based in London. Dr Malmgren has been a member of the U.S. President’s Working Group on Financial Markets (a.k.a. the “Plunge Protection Team”). They address, inter alia:

• Malmgren’s recent book “Signals: the breakdown of the social contract and the rise of geopolitics”; [5]
• the “inflation vs deflation” debate
• the closer ties between Russia and China
• the future of the Euro
• Germany’s gold reserves
• and the phenomenon of “financial repression”
• Moreover, Dr Malmgren explains what she foresees as the endgame of the financial crisis.

Full interview:

Source: GoldSwitzerland.com [4]

*  *  *
Still don't believe?
Here is Scott Nations in 2008 getting "Schiff'd" by the CNBC anchors (Liesman) and some other guest muppet when he dares to suggest the Fed is intervening and that the President's Working Group (i.e. Plunge Protection Team) is hard at work...

"look at the market action on the 10th and 28th and tell me what else might have generated a 100 point rally in the S&P under that situation?" Liesman fobs him off as some conspiracy wonk...
Yep looks normal to us... 10/10/2008
 [6]

and 10/28/2008
 [7]

Those are 100 point moves on a 700/800 S&P!! Nothing to see here eh Liesman, Kiernan, Quick?
*  *  *

And of course there's last October's Bullared bounce... the longest most consistent trend higher in stocks ever. [8]

http://www.zerohedge.com/print/502380

Central Banks Have Lost Control Of The World

With the world's oldest central bank - Sweden's Riksbank - taking the plunge into negative rates, there have been 19 'eases' by central banks this year, Morgan Stanley warns of "ghosts of the 1930s." With competitive 'easing' stoking fears of international currency wars, The Telegraph noteshowever that looser monetary policy is not the order of the day everywhere in the world, and herein lies potential danger for the world economy.

The world's interest-rate policies...

Click image for interactive version

As The Telegraph reports,

Looser monetary policy is not the order of the day everywhere in the world (see map above), and herein lies potential danger for the world economy.

The expectation of a normalisation of monetary policy by the Federal Reserve has resulted a sustained rally in the US dollar. Such strength in the world's reserve currency has simultaneously applied pressure on economies pegged to the greenback.

Meanwhile rate hikes from the Fed - which are expected to begin later this year - will naturally leader to tighter monetary conditions in economies everywhere from Mexico to Hong Kong.

It is this divergence in the actions of the world's major central banks which could lead to a new global liquidity crisis,according to the governor of the Bank of England.

Despite robust job creation and economic output in the domestic economy of the US, the trend towards lower global interest rates will probably slow the extent of the Fed's rate hikes once it finally gets off zero, according to Kit Juckes at Société Générale.

"The best we can hope now is that the dollar’s advance is orderly and the impact on global capital flows is limited" said Mr Juckes.

The 19 Policy 'eases' so far... (or 24 if Romania's 2 and Denmark's 4 are counted)

Jan. 1 UZBEKISTAN
Uzbekistan's central bank cuts its refinancing rate to 9 percent from 10 percent.

Jan. 7/Feb. 4 ROMANIA
Romania's central bank cuts its key interest rate by a total of 50 basis points, taking it to a new record low of 2.25 percent. Most analysts polled by Reuters had expected the latest cut.

Jan. 15 SWITZERLAND
The Swiss National Bank stuns markets by scrapping the franc's three-year-old exchange rate cap to the euro, leading to an unprecedented surge in the currency. This de facto tightening, however, is in part offset by a cut in the interest rate on certain sight deposit account balances by 0.5 percentage points to -0.75 percent.

Jan. 15 INDIA
The Reserve Bank of India surprises markets with a 25 basis point cut in rates to 7.75 percent and signals it could lower them further, amid signs of cooling inflation and growth struggling to recover from its weakest levels since the 1980s.

Jan. 15 EGYPT
Egypt's central bank makes a surprise 50 basis point cut in its main interest rates, reducing the overnight deposit and lending rates to 8.75 and 9.75 percent, respectively.

Jan. 16 PERU
Peru's central bank surprises the market with a cut in its benchmark interest rate to 3.25 percent from 3.5 percent after the country posts its worst monthly economic expansion since 2009.

Jan. 20 TURKEY
Turkey's central bank lowers its main interest rate, but draws heavy criticism from government ministers who say the 50 basis point cut, five months before a parliamentary election, is not enough to support growth.

Jan. 21 CANADA
The Bank of Canada shocks markets by cutting interest rates to 0.75 percent from 1 percent, where it had been since September 2010, ending the longest period of unchanged rates in Canada since 1950.

Jan. 22 EUROPEAN CENTRAL BANK
The ECB launches a government bond-buying programme which will pump over a trillion euros into a sagging economy starting in March and running through to September next year, and perhaps beyond.

Jan. 24 PAKISTAN
Pakistan's central bank cuts its key discount rate to 8.5 percent from 9.5 percent, citing lower inflationary pressure due to falling global oil prices. Central Bank Governor Ashraf Wathra says the new rate will be in place for two months, until the next central bank meeting to discuss further policy.

Jan. 28 SINGAPORE
The Monetary Authority of Singapore unexpectedly eases policy, saying in an unscheduled policy statement that it will reduce the slope of its policy band for the Singapore dollar because the inflation outlook has "shifted significantly" since its last review in October 2014.

Jan. 28 ALBANIA
Albania's central bank cuts its benchmark interest rate to a record low 2 percent. This follows three rate cuts last year, the most recent in November.

Jan. 30 RUSSIA
Russia's central bank unexpectedly cuts its one-week minimum auction repo rate by two percentage points to 15 percent, a little over a month after raising it by 6.5 points to 17 percent, as fears of recession mount following the fall in global oil prices and Western sanctions over the Ukraine crisis.

Feb. 3 AUSTRALIA
The Reserve Bank of Australia cuts its cash rate to an all-time low of 2.25 percent, seeking to spur a sluggish economy while keeping downward pressure on the local dollar.

Feb. 4 CHINA
China's central bank makes a system-wide cut to bank reserve requirements -- its first in more than two years -- to unleash a flood of liquidity to fight off economic slowdown and looming deflation.

Jan. 19/22/29/Feb. 5 DENMARK
The Danish central bank cuts interest rates a remarkable four times in less than three weeks, and intervenes regularly in the currency market to keep the crown within the narrow range of its peg to the euro.

Feb. 13 SWEDEN
Sweden's central bank cut its key repo rate to -0.1 percent from zero where it had been since October, and said it would buy 10 billion Swedish crowns worth of bonds

February 17, INDONESIA
Indonesia’s central bank unexpectedly cut its main interest rate for the first time in three years

February 18, BOTSWANA
The Bank of Botswana reduced its benchmark interest rate for the first time in more than a year to help support the economy as inflation pressures ease.
The rate was cut by 1 percentage point to 6.5 percent, the first adjustment since Oct. 2013, the central bank said in an e-mailed statement on Wednesday.

*  *  *

Not exactly the actions of a world on the verge of escape velocity growth...

It doesn't seem to be working... have central banks lost control?

http://www.zerohedge.com/news/2015-02-18/central-banks-have-lost-control-world

Operation Choke-Point Is Worse Than We Thought

Operation Choke Point is an initiative of the DoJ that was announced in 2013 which investigates bank interactions with certain businesses believed to be at higher risk for fraud and money laundering. When first disclosed it was heavily criticised for bypassing due process with critics warning that "it's a thinly veiled ideological attack on industries the Obama administration doesn't like, such as gun sellers," and precious metals dealers. However, as Mike Maloney explains, it is far worse than that... "it violates the most fundamental principles of the rule of law and accountable, transparent government."

*  *  *

From: Staff Report, 113th Congress, December 8, 2014

"At a minimum, Operation Choke Point is little more than government-mandated de-risking.

FDIC, in cooperation with the Justice Department, made sure banks understood – or in their own language, “got the message” – thatmaintaining relationships with certain disfavored business lines would incur enormous regulatory risk.

The effect of this policy has been to deny countless legal and legitimate merchants access to the financial system and deprive them of their very ability to exist.

Accordingly, Operation Choke Point violates the most fundamental principles of the rule of law and accountable, transparent government."

*  *  *

We strongly suggest you are not holding anything sharp while you watch these clips....

Mike Maloney digs into the details... (Introduction)

And the follow-up "it's far worse than we thought" - Must Watch!!

Links: 

Oversight Committee Report: http://oversight.house.gov/wp-content/uploads/2014/12/Staff-Report-FDIC-and-Operation-Choke-Point-12-8-2014.pdf

CPFB Compliance Bulletin: http://files.consumerfinance.gov/f/201501_cfpb_compliance-bulletin_treatment-of-confidential-supervisory-information.pdf

FDIC Press Release: https://www.fdic.gov/news/news/press/2015/pr15009.html

Hawkins Guns Targeted By Operation Chokepoint: http://usconsumers.org/hawkinsguns/

Daily Caller Report, Banks Told To Not Disclose: http://dailycaller.com/2015/01/28/do-not-disclose-obama-admin-tells-banks-to-shut-up-about-its-targeting-of-consumers-gun-dealers/

Ian Murray's article: http://www.theblaze.com/contributions/operation-choke-point-consumer-protection-bureau-can-act-as-judge-jury-and-executioner-to-targeted-businesses/

Wikipeida entry for Operation Chokepoint: http://en.wikipedia.org/wiki/Operation_Choke_Point

Operation Choke Point is an initiative of the DoJ that was announced in 2013, which is investigating banks in the United States and the business they do with payment processors, payday lenders, and other companies believed to be at higher risk for fraud and money laundering.

This operation, first disclosed in August 2013 Wall Street Journal story has been criticized for bypassing due process; the government is pressuring the financial industry to cut off the companies' access to banking services, without first having shown that the targeted companies are violating the law. As reported by the St. Louis Post-Dispatch, critics believe "it's a thinly veiled ideological attack on industries the Obama administration doesn't like, such as gun sellers and coal producers."

The operation itself is now under investigation by two federal agencies.

*  *  *

http://www.zerohedge.com/news/2015-02-17/operation-choke-point-worse-we-thought

Moscow-Based Security Firm Reveals What May Be The Biggest NSA "Backdoor Exploit" Ever

Since 2001, a group of hackers - dubbed the "Equation Group" by researchers from Moscow-based Kaspersky Lab - have infected computers in at least 42 countries (with Iran, Russia, Pakistan, Afghanistan, India, and Syria most infected) with what Ars Technica calls "superhuman technical feats" indicating "extraordinary skill and unlimited resources."

The exploits - including the 'prized technique' of the creation of a secret storage vault that survives military-grade disk wiping and reformatting - cover every hard-drive manufacturer and have many similar characteristics to the infamous NSA-led Stuxnet virus.

According to Kaspersky, the spies made a technological breakthrough by figuring out how to lodge malicious software in the obscure code called firmware that launches every time a computer is turned on.

Disk drive firmware is viewed by spies and cybersecurity experts as the second-most valuable real estate on a PC for a hacker, second only to the BIOS code invoked automatically as a computer boots up.

"The hardware will be able to infect the computer over and over," lead Kaspersky researcher Costin Raiu said in an interview.

...

Kaspersky's reconstructions of the spying programs show that they could work in disk drives sold by more than a dozen companies, comprising essentially the entire market. They include Western Digital Corp, Seagate Technology Plc, Toshiba Corp, IBM, Micron Technology Inc and Samsung Electronics Co Ltd.

The group used a variety of means to spread other spying programs, such as by compromising jihadist websites, infecting USB sticks and CDs, anddeveloping a self-spreading computer worm called Fanny, Kasperky said.

Fanny was like Stuxnet in that it exploited two of the same undisclosed software flaws, known as "zero days," which strongly suggested collaboration by the authors, Raiu said. He added that it was "quite possible" that the Equation group used Fanny to scout out targets for Stuxnet in Iran and spread the virus.

Which, as Reuters reports, strongly suggests the "extraordinary skills and unlimited resources" were funded by the NSA...

The U.S. National Security Agency has figured out how to hide spying software deep within hard drives made by Western Digital, Seagate, Toshiba and other top manufacturers, giving the agency the means to eavesdrop on the majority of the world's computers, according to cyber researchers and former operatives.

That long-sought and closely guarded ability was part of a cluster of spying programs discovered by Kaspersky Lab, the Moscow-based security software maker that has exposed a series of Western cyberespionage operations.

Kaspersky said it found personal computers in 30 countries infected with one or more of the spying programs, with the most infections seen in Iran, followed by Russia, Pakistan, Afghanistan, China, Mali, Syria, Yemen and Algeria. The targets included government and military institutions, telecommunication companies, banks, energy companies, nuclear researchers, media, and Islamic activists, Kaspersky said.

The firm declined to publicly name the country behind the spying campaign, but said it was closely linked to Stuxnet, the NSA-led cyberweapon that was used to attack Iran's uranium enrichment facility. The NSA is the agency responsible for gathering electronic intelligence on behalf of the United States.

A former NSA employee told Reuters that Kaspersky's analysis was correct, and that people still in the intelligence agency valued these spying programs as highly as Stuxnet. Another former intelligence operative confirmed that the NSA had developed the prized technique of concealing spyware in hard drives, but said he did not know which spy efforts relied on it.

The global coverage is clearly focused in a particular region (and not in the US)...

As Kasperskey exposes, victims generally fall into the following categories:
•     Governments and diplomatic institutions
•     Telecommunication
•     Aerospace
•     Energy
•     Nuclear research
•     Oil and gas
•     Military
•     Nanotechnology
•     Islamic activists and scholars
•     Mass media
•     Transportation
•     Financial institutions
•     Companies developing cryptographic technologies

As an interesting note, some of the “patients zero” of Stuxnet seem to have been infected by the EQUATION group. It is quite possible that the EQUATION group malware was used to deliver the STUXNET payload.

So far, Kaspersky have identi?ed several malware platforms used exclusively by the Equation group. They are:

EQUATIONDRUG  – A very complex attack platform used by the group on its victims. It supports a module plugin system, which can be dynamically uploaded and unloaded by the attackers.

DOUBLEFANTASY  – A validator-style Trojan, designed to con?rm the target is the intended one. If the target is con?rmed, they get upgraded to a more sophisticated platform such as EQUATIONDRUG or GRAYFISH.

EQUESTRE  – Same as EQUATIONDRUG.

TRIPLEFANTASY – Full-featured backdoor sometimes used in tandem with GRAYFISH. Looks like an upgrade of DOUBLEFANTASY, and is possibly a more recent validator-style plugin.

GRAYFISH  – The most sophisticated attack platform from the EQUATION group. It resides completely in the registry, relying on a bootkit to gain execution at OS startup.

FANNY  – A computer worm created in 2008 and used to gather information about targets in the Middle East and Asia. Some victims appear to have been upgraded ?rst to DoubleFantasy, and then to the EQUATIONDRUG system. Fanny used exploits for two zero-day vulnerabilities which were later discovered with Stuxnet.

EQUATIONLASER  – An early implant from the EQUATION group, used around 2001-2004. Compatible with Windows 95/98, and created sometime between DOUBLEFANTASY and EQUATIONDRUG.

Although the implementation of their malware systems is incredibly complex, surpassing even Regin in sophistication, there is one aspect of the EQUATION group’s attack technologies that exceeds anything Kaspersky has ever seen before.

This is the ability to infect the hard drive ?rmware.

The plugin version 4 is more complex and can reprogram 12 drive “categories”

 

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So to summarize:

1) US sanctions Russia

2) a Russian-based research group (Kaspersky Lab is an international group operating in almost 200 countries and territories worldwide. The company is headquartered in Moscow, Russia, with its holding company registered in the United Kingdom. Kaspersky Lab currently employs over 2,850 qualified specialists) reveals that through Equation group's code, there is NSA presence across the supply chain of the highest margin US products .

3) As Reuters notes, the exposure of these new spying tools could lead to greater backlash against Western technology,particularly in countries such as China, which is already drafting regulations that would require most bank technology suppliers to proffer copies of their software code for inspection.

4) And Peter Swire, one of five members of U.S. President Barack Obama's Review Group on Intelligence and Communications Technology, said the Kaspersky report showed that it is essential for the country to consider the possible impact on trade and diplomatic relations before deciding to use its knowledge of software flaws for intelligence gathering. "There can be serious negative effects on other U.S. interests," Swire said.

It appears the 'boomerang' is boomerang-ing...

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http://www.zerohedge.com/news/2015-02-16/moscow-based-security-firm-reveals-what-may-be-biggest-nsa-backdoor-exploit-ever