Fed Worries About Deflation But Pays Banks Billions Not To Lend QE Proceeds!?

Submitted by Chris Hamilton via Hambone's Stuff blog,

In October of 2006, President Bush signed the Financial Services Regulatory Act (FSRA)...the culmination of a five year Congressional effort.  Significantly, the Federal Reserve was given authority to pay interest on reserve balances held by depository institutions in Federal Reserve Banks.  But not just reserve balances, which were required to be held, but also on excess reserves.  Interestingly, excess reserves at the Fed had never been held in significant quantities.  Banks saw relatively little reason to put working capital (beyond required levels) at the Fed.  Excess reserves (as a % of required reserves) had generally vacillated between 5% to 15% and typically under $2 billion dollars, at any given time.

 

However, all this changed upon the implementation of FSRA (which was implemented ahead of schedule in conjunction with Secretary Paulson's Emergency Economic Stabilization Act of 2008 or EESA).  The EESA was formally proposed Sept 21 of '08 and passed into law by Oct 3.  The impact was a shocking increase in excess reserves.  The FSRA law supposed intention was, according to the Fed's Oct. 6, 2008 press release... 

"The payment of interest on excess reserves will permit the Federal Reserve to expand its balance sheet as necessary to provide the liquidity necessary to support financial stability while implementing the monetary policy that is appropriate in light of the System’s macroeconomic objectives of maximum employment and price stability."

The implication I took from this very convoluted Fed speak was that absent the Interest on Excess Reserves or IOER...that the Fed was concerned that the banks (by banks I mean Primary Dealer banks that directly buy the Treasury's from the government with the intention of reselling the Treasury's into the market) would actually utilize this money?!?  The Fed's intent seems to have been to utilize QE to buy (remove) assets from the banks and then pay the banks not to lend this money, keeping it from entering the economy (chart below).  Still, why would banks go along for this mere pittance of a 0.25% (significantly less than the banks were earning) when the funds could earn so much more if allocated?  When the largest, most influential / connected banks in the land do something that looks dumb with $2.4 trillion dollars, it's pretty clear something has changed and we (I) simply haven't caught up yet.  Was this some fashion of quid pro quo, collusion, or have the rules of capitalism changed?

 

 

 

By September '08 (in expectation of the laws passage), excess reserves had already increased from a couple billion $'s to never seen before level of $59 billion...and up to $800 billion by years end 2008.  Of course, today $2.4 trillion in banking excess reserves are paid to sit and do nothing...while the Fed bemoans a lack of inflation?!?

 

Some Background:

In the US, bank reserves are held as FRB (Federal Reserve Bank) credit in FRB accounts, regardless whether the reserves are required or excess reserves beyond the Federal Reserve requirement.  The definition of reserves (and by extension excess reserves) are monies not lent out to customers to satisfy Federal Reserve set requirements.  One would think holding $2.4 trillion in excess reserves at 0.25% interest during one of the greatest bull market periods in history would be an opportunity cost as higher risk-adjusted interest could have been earned by putting these funds to use elsewhere.  Strange banks were seemingly disinterested in the misallocation of their funds?  Are there new or different requirements placed on the banks regarding reserves?

 

When the FSRA was passed in 2006, required reserves held at the Fed averaged about $8 billion and excess reserves under $2 billion.  As of August '08...little had changed and required and excess reserves still stood nearly as they had in 2006. 

• Notably, required reserves held at the Fed had been declining from the high water mark of $37 billion in 1988 against then liabilities of about $3 trillion...a 12.5% ratio.  Obviously the leverage in '06 of $8 billion required reserves held against '06 liabilities of $8.5 trillion (less than 1% ratio) may have been a bit aggressive?  By Aug of '08, required reserves of $8 billion were held against liabilities of $10.9 trillion (a 0.7% ratio).

 

Against the Fed mandated declining required reserves, mortgage debt and total liabilities of all commercial banks had grown nearly 6-fold (below).

 

 

However, from September '08, the quantity of required reserves began steadily rising (below).

 

 

But excess reserves held at the Federal Reserve went ballistic.  The previously unutilized avenue of excess reserves at the Federal Reserve continuously rose, housing nearly 60% of all new banking liabilities from '08 onward.

 

 

Only 20% of the new liabilities were commercially lent and mortgage debt outstanding contracted, still to this day.

 

Was the FSRA and Fed's intent to create this massive holding of excess reserves?  The primary discussion prior to the law was around the required reserves and the payment of interest upon these.  And yet, now eight years subsequent to the laws implementation, required reserves are a tiny fraction of excess reserves.  As the chart below highlights, from 2000-->Aug, 2008 (pre-FSRA implementation) essentially none of the new deposits (net) had been placed with the Federal Reserve.  However, with immediate effect post FSRA, 57% of all new deposits from '08 through March, 2016 have (net) been held as excess reserves with the Fed.

 

Also interesting is that absent the utilization of this $2.4 trillion dollars (required and excess reserves combined), equities, RE, and most other asset classes (except the basis of all assets, commodities) have seemingly been unaffected and in fact have steadily risen 200% to 500% despite being starved of the new capital?!?

 

In order to see this phenomenon in it's fullness, the chart below highlights Fed Fund Rate % (FFR) vs. Excess Reserves.  The moment the FFR hit zero interest rate policy (ZIRP) in conjunction with implementation of IOER...this cheapening of credit theoretically should have been met with record new credit issuance but instead at ZIRP, credit began strongly contracting.  Banks stuffed the vast majority of new funds into a the Fed yielding 0.25% annually rather than lend?!?

 

 

The charts below are close ups of what happened with excess depository reserves during the past three recessions.

The chart below of the '91 recession shows the flash of reserves from just under a billion to $2.1 billion and the return of reserves to normal as interest rates were used to further heighten demand subsequent to the recessions conclusion.

 

Likewise, the chart below highlights the relationship in the '01 recession and safekeeping of assets associated with 9/11...

 

 

The chart below is the '08-'09 recession (vertical blue box with arrows top/bottom) and as rates hit zero, excess reserves ballooned from $2 billion to $1,200 billion.  And this is where during all previous recessions the Fed continued to push rates down and excess reserves went back to work.  But not this time.  Excess reserves continued to pile up "post recession" as rates did not decline as they had coming out of previous recessions...ZIRP did not turn into NIRP (negative interest rate policy).  The world was not ready for NIRP in '11.

 

 

Further, a massive implication of this quantity of reserves sitting at the Fed is the inability to effect interest rate policy as the Fed has since it's inception...via it's open market operations injecting or removing assets from bank reserves to impact overnight lending rates.  In order to effect rates as the Fed has done historically, the Fed would need to drain the excess $2.4 trillion in excess liquidity to effect an increasing tightness in overnight rates.  Clearly, the impact of draining this excess liquidity would likely be the equivalent of removing liquidity equal to 15% of US GDP.  The impact on equities, RE, bonds, etc. would not be pleasant.

 

*  *  *

 

So, lucky for us, the Fed in it's "wisdom" determined a means to raise rates without removing the excess reserves...or essentially rate hikes and QE simultaneously?!?  Pay the banks a higher interest rate to incent them not to lend the excess reserves!?!  The initial interest rate paid in '08 of 0.25% on a total of $10 billion was a relative rounding error.  Chump change by Federal .Gov standards.  But as the moonshot of excess reserves  headed toward infinity, a 0.25% turned into real money or about $6 billion paid to banks in 2015 not to lend.  But now with the Fed's rate hike cycle(?) underway, the Fed intends to continue hiking the interest paid corresponding to the Federal Funds Rate.  This means in 2016 (at the present 0.5% rate) banks will be owed $12.5 billion to not lend money!?!  Of course, if the rate cycle continues to say, 1% this year and 3% by 2018, and reserves don't decline substantially, banks will be paid about $75 billion annually by 2018 not to lend money (chart below).

 

As a final thought, a quick review of QE (charts below) shows that declining rates (based on 10yr treasury yields) were actually pushed upward during each QE period...and only once the completion date was announced did rates begin falling again.  Ultimately, rates were reduced by 100% from 5% to 0% but no net demand was spurred and instead outstanding mortgage debt has fallen by nearly $1 trillion.  Liabilities have increased by almost $3 trillion of which $2.4 trillion (80%) are excess reserves held with the Fed.

 

And a close-up of the Fed's QE and it's impact on the 10yr rate.  Likewise to the IOER's, the Treasury market yields are falling to century low rates on the absence of nearly all buyers since the abandonment of the BRICS (net) as of 2011 and all foreigners (net) plus the Fed since the completion of the Fed's taper.  These sources plus the fast waning intra-governmental buying via the SS surplus, had purchased 80%+ of all Treasury's since '00.  Now, in these sources absence of making any net new purchases, we are to believe the US public (pensions, insurers, institutions, and individuals) are buying around $50 billion of record low yielding treasury's...and again this has no negative impact on equity markets, RE, etc. etc. and instead all are near record valuations?!?

 

 

In a world in which growth is slowing, is it not strange that the Fed (privately owned by the largest banks in the world) would institute a system of rising payments rewarding banks for not taking risk or lending money!  This all tends to make believe that manipulation is the order of the day and the explanation is far simpler than most would believe, detailed Here.

 

And just in case you were wondering what the relationship of excess reserves, the Fed's balance sheet, and equity valuations looks like...here ya go.

http://www.zerohedge.com/news/2016-05-15/fed-worries-about-deflation-pays-banks-billions-not-lend-qe-proceeds

A Central Banker Officially Loses It: "We Are Magic People"

Over the years, first on fringe blogs who dared to point out long ago that the emperors are actually naked, and increasingly everywhere else there has been speculation that locked deep inside the ivory towers of central banks one could find either career academics or Goldman Sachs alumni who were convinced they were all powerful, all capable deities, who in addition to printing money out of thin air, are comfortable micromanaging not only the world's capital markets but also economies. Just like gods, or "magicians"... but really just insane nutjobs.

Today we got an official confirmation of just how truly profound the central banker delusion of grandeur, and sheer insanity, is courtesy of ECB Governing Council member Vitas Vasiliauskas, who told Bloomberg in an interview that the ECB can still conjure up policy surprises - read inflation - if needed to combat economic shocks and push prices higher. While this was merely the usual jawboning by an ECB member, we bolded the word "conjure" for a reason. It will become clear why soon enough.

What followed was the usual verbal diarrhea we have grown accustomed from every central banker, whose first (and only) job is to preserve confidence in a broken system; so broken that even ordinary people are saving instead of spending despite negative rates.

The 42-year-old Vasiliauskas, who was appointed to a second term on April 7, declined to comment on specific policy options the ECB will take, but refuted the notion that the central bank wouldn’t be able to react to shocks such as a sudden worsening in the international economy.  “Such conversations, such speculations are taking place before every meeting,” he said. “We still have a lot of tools and we can make surprises for the market. I don’t see for the moment any need for a new rabbit because we should implement what was agreed, what was announced.”

Conversations about helicopter money for example, which is coming. Soon.

The ECB central banker then proceeded to get aroused by liquidity injections.

The Lithuanian governor singled out a second round of targeted long-term loans to banks as the most powerful addition to the ECB’s palette. The so-called TLTRO-II potentially offers to pay lenders to take central bank cash, the idea being that they pass it on to companies and households as loans. The first operation is scheduled for June 24.

“This measure, personally for me, is very sexy,” Vasiliauskas said. “It can make direct impact on the real economy.”

Sure: 5,000,000 unemployed European youths will become instatnly employed the moment the ECB's "sexy" TLTRO-II is activated. Well maybe not, but at least the Stoxx600 should soar for at least 10%. That "economy."

He also made it clear that the end of cash is indeed coming:

Vasiliauskas also backed the ECB’s decision this month to stop production of the 500-euro banknote. The measure was taken because of the note’s perceived role in crime, though it drew criticism in countries such as Germany and Austria.

“I think modern societies shouldn’t concentrate on cash -- alternative ways of payment are more effective,” he said. “Personally, I was supportive. Less cash in a society is better and safer for everybody.”

Despite all these clear hints, many will be shocked when central banks finally outlaw all physical cash one day.

Still, the portly central banker's punchline was the following:

“Markets say the ECB is done, their box is empty,” Vasiliauskas, who heads Lithuania’s central bank. "But we are magic people. Each time we take something and give to the markets -- a rabbit out of the hat."

What is most disturbing is that he was dead serious when he said it, which is important, because it is finally obvious that central bankers are neither gods, nor magicians, nor even doing "god's work on earth", but plain and simple psychopaths. At least the magician he was right about one thing: "we give to the markets."

http://www.zerohedge.com/news/2016-05-11/central-banker-officially-loses-it-we-are-magic-people

The Two Faces Of Facebook

It's hard to find anything negative about Facebook (FB). Pro Facebook fanatics say that's a good thing. With a market cap of 330 Billion it's hard to argue, that investors love Facebook . But what does Facebook do? In this article we'll prove that:

• Facebook is a disaster waiting to happen
• The only thing supporting Facebook is the intelligence community
• Facebook will always exist as a platform, but the business model will crumble like the house of cards it is
• The huge amount of Face-spam, hackers, fake-profiles, advertiser profiles, and other dishonest users will ultimately be revealed at some point
• Facebook advertising doesn't work

Twitter (TWTR) has recently blocked the intelligence community from using their automated services:

In 2013, Dataminr was used by the Presidential Inauguration Committee to track potential threatsto President Barack Obama's second term inauguration ceremony.

As for why Twitter has blocked intelligence agencies from now accessing the tool, the WSJreports: The intelligence community's obsession with monitoring social media is hardly new. Recently, the CIA's venture capital firm, In-Q-Tel, invested in dozens of tech firms creating tools for investigating social media data, of which Dataminr was reportedly a recipient, affording the agency access to the tool.

White Twitter (TWTR) is not Facebook , it can be a sign of things to come. Although it won't be likely that Facebook will block access completely, it is an issue that looms in the background ever since the revelations of the PRISM program.

In today's news, it was released that Facebook itself was manipulating streaming news via a liberally staffed editorial team:

Facebook workers routinely suppressed news stories of interest to conservative readers from the social network's influential "trending" news section, according to a former journalist who worked on the project. This individual says that workers prevented stories about the right-wing CPAC gathering, Mitt Romney, Rand Paul, and other conservative topics from appearing in the highly-influential section, even though they were organically trending among the site's users.

While this doesn't surprise many, this release makes it a fact. We know that Facebook is manipulating such 'activity.' The fact that Facebook is changing the public discussion by suggesting topics, based on their bias - well that's another discussion. The point here is that Facebook is a proven manipulator of its system. Facebook is a private system, the algorithms and methods are not public. It's not like the stock market. It's a system that works like - well we just have to trust them, that it works how they say it works. We have to trust their numbers, their data, and so on.

According to a 2012 CNN article, there are 83 Million fake Facebook profiles or duplicates:

If you're using a fake name on your Facebook account, maintaining a personal profile for your beloved pet or have a second profile you use just for logging in to other sites, you have one of the 83.09 million fake accounts Facebook wants to disable.

In an updated regulatory filing released Wednesday, the social media company said that 8.7 percent of its 955 million monthly active users worldwide are actually duplicate or false accounts.

Let's just use percentages, as the number of Facebook users change rapidly. 8.7% is low. Some claim the number can be much higher, even as high as 60% - 70%. Because there's many kinds of fake profiles, not only people registering their pets. Also, there are robots, or software programs that automatically register and use Facebook accounts, often for a fee. Then there are click farms, or companies that will for a fee, create likes, views, and other forms of activity on your pages. Are you sad that you don't have any friends? Buy them on Facebook for only a few cents each! An interview with a successful click farm says that they sell 1,000 likes for only $29.99 US Dollars:

Most of the accounts Casipong creates are sold to these digital middlemen - "click farms" as they have come to be known. Just as fast as Silicon Valley conjures something valuable from digital ephemera, click farms seek ways to create counterfeits. Just Google "buy Facebook likes" and you'll see how easy it is to purchase black-market influence on the internet: 1,000 Facebook likes for $29.99; 1,000 Twitter followers for $12; or any other type of fake social media credential, from YouTube views to Pinterest followers to SoundCloud plays. Social media is now the engine of the internet, and that engine is running on some pretty suspect fuel.

We could write a series of articles on Facebook exploits, but the problem isn't the security of Facebook it is Facebook itself. For example, advertisers and marketers, are 'real' profiles, but they use Facebook to spam other users walls, and basically try to advertise their product for free.

Facebook Advertising doesn't work. That's not only industry knowledge, that's according to many analyst reports, such as this one:

"Facebook hasn't delivered on its promise and in fact has quietly become reliant on the traditional advertising models it once lampooned," he said in a report released on Monday.

That's from 2013. Since then, Facebook stock has gone up by more than double:

FB data by YCharts

It seems unstoppable. At the Facebook IPO, it seemed that the stock was doomed. But it's overcome all the bugs, glitches, problems, and the reality check that Facebook doesn't do anything, except allow intelligence services to collect data about US Citizens. Well, that is valuable - but it's not a business.

If Facebook wants to maintain its supremacy, it will need to reinvent itself such as Apple (AAPL) did once upon a time. There's no comparison to Alphabet Inc (GOOG) which is into so many different businesses it's even hard to keep track.

It's not that Facebook advertisers aren't aware of this - they are. Just Google terms such as "Facebook Fraud" or "Facebook advertising fake clicks" or "Fake Facebook Likes" and you'll see hundreds upon hundreds of first hand accounts of being scammed, ripped off, defrauded, and even hacked. You'll find reports from Ad agencies about fake likes, and how it can negatively impact your brand. Also you'll find in-depth articles that research fake click like trends, such as this one on Business Insider:

The twist here is that these advertisers have not paid for fake likes. They paid Facebook for legit ads. And the fake likes themselves don't benefit anybody. Rather, they have been created en masse by click farms attempting to make their abusive accounts look real by clicking on legit ads. When a company advertises, asking for likes, the spammers respond and click on them to help their own appearance of legitimacy. For these marketers advertising on Facebook is worse than useless - it renders their pages pointless.Facebook has struggled for years to rid itself of click farms and fake like creators. These are companies, often based in the developing world, who sell unwitting marketers thousands of new likes for tiny sums of money. They generate likes by paying workers $1 for every thousand likes they create.

The point is that this isn't priced into their stock. Investors who buy the stock, don't get it. Advertisers, Facebook users, mostly understand that Facebook is itself a spamming platform. There are even books for sale about how to spam on Facebook . It's even possible to calculate the black market Facebook spam industry, about $200 Million:

Spammers posting links on Facebook fan pages to send people to third-party scam sites are earning $200m every year, according to calculations by a team of Italian security researchers who have investigated hundreds of thousands of posts on the social network.... "The spam posters get paid an average of $13 per post, for pages that have around 30,000 fans, up to an average of $58 to post on pages with more than 100,000 fans," De Micheli told the Guardian. "If we consider these two as extremes, the pages we analyzed generate a revenue of 18,000 posts per day, times the revenue per post - ranging from $13 to $58 - 365 days a year."

Facebook platform manipulation, spamming techniques, and advanced automated (robot) usage of Facebook have even given rise to a new industry, similar to what SEO (Search Engine Optimization) was in 2003 - 2006. Many companies have developed software to manage Facebook, or even made entire products and services just to manage it. Other companies stand against the use of the platform, stating that the negatives outweigh the positives. White hat and black hat agencies alike develop methods to exploit Facebook sometimes using the Facebook ads system and sometimes not.

In accounting, when something is difficult to quantify it's referred to as 'goodwill.' Goodwill, as many readers know, has no value. Yet, there are cases where Goodwill is used. In the case of Facebook , there is real revenue, 17.9 Billion in 2015. It is a huge number. Since 2013, Facebook stock has been on a bull rampage. The point of these observations in this article, is that it is built on a house of cards. There's no foundation. At some point, an event will happen, which can cause it to collapse. Advertisers will flee, users will flee. Facebook users will be comprised of spammers themselves, moping in their depression with each other, sharing stories about 'the good times' when click farms, like farms, and bot services were at their peak. Advertisers, will see diminishing returns on their investment. Facebook they will realize, is no better than the traditional advertising it was meant to replace. With the exception of big corporates such as Coca Cola (KO), McDonalds (MCD), Ford (F), and others, advertisers will find better more innovative ways to use their online ad dollars. Users will tire of ads, and find other ways to use the internet.

Let's look at the risks of Facebook practically. Users upload massive amounts of personal data to the network, usually with total disregard to any privacy concerns. Images, location data, credit cards, chat records, purchasing habits, interests, keyword searches, relationship data, and more - provide a complete profile of users. What if Facebook was completely hacked? It's not so far fetched, says Reza Moaiandin:

Facebook users could be in danger of having their personal details harvested by hackers using a loophole in the social network's privacy system. A security researcher hasdiscovered the issuewhere using only a mobile phone number, a hacker could recover names, telephone numbers, images and location data in bulk from the social network. An algorithm was used to run a Facebook API that, according to Reza Moaiandin, technical director at technology firm Salt, could harvest "millions of users' personal data".

That's not all. Phishing style attacks are also common on Facebook such as the common 'who knows you best' trick:

Facebook is the new frontier for fraud, says Tom Clare, head of product marketing at Blue Coat, an Internet security company that does annual reports on web threats. In just this past year social networks have soared to 4th from 17th most treacherous web terrain -- behind porn and software-sharing sites, which you probably know to avoid. What makes Facebook so treacherous? Us.

1. Who knows you best?
The message reads: Can you do this? My middle name __________, my age ___, my favorite soda _______, my birthday ___/___/___, whose the love of my life ______ , my best friend _____, my favorite color ______, my eye color _______, my hair color ______ my favorite food ________ and my mom's name __________. Put this as your status and see who knows you best. â™¥
How many of these are the same facts your bank asks to verify your identity? Put this as your status and everybody -- including all the people who want to hijack your bank account and credit cards -- will know you well enough to make a viable attempt.

Facebook was designed with collecting data on users in mind. In order to do this, it wasn't built like Fort Knox. In fact, to the contrary, it was left 'open' because many rules, procedures, and protocols may have discouraged the use of Facebook . In plain language, Facebook secretly attracts spammers, while publicly fighting them. It's because Facebook is a spam platform, built by advertisers, for advertisers. The more users, real, fake, or spam - the more Facebook could charge for advertising, the more Facebook seemed like a 'real' company.

There's one thing in the online marketing business that any SEO will tell you - if you are advertising your Facebook page, you aren't advertising your brand, you are advertising Facebook itself. So Facebook encourages spam, and aggressive marketing practices, because it's really promoting Facebook itself. "As seen on Facebook" was akin to "As seen on TV." Facebook likes spam-bots because frankly, it does their job for them. It inflates their numbers. On a platform which was trying to prove itself, it wanted exponential growth of users. Facebook wanted to look bigger than it was.Recently a group in the UK tried gaming the system without using any spam-bot, and notified Facebook (FB) of the flaw, Facebook (FB) did nothing:

A research team from McGill University's computer science school has published a paper that demonstrates a way of creating fake "Likes" on Facebook without using a botnet or an army of spammers. The team says, in a paper published on March 19 this year, that Facebook was alerted to the flaws two years ago but loopholes on the site still remain. The McGill team is hoping that by making the bugs public, advertisers - who rely on Likes and pay for them - and users will realise that some articles aren't actually as popular as the number of Likes would indicate.

Why Facebook does nothing when notified about such a flaw? Because they 'like' such flaws - Facebook itself is a flaw. It wouldn't be surprising that in the early days, friends of Facebook were hired to create bots that could automatically create millions of profiles, activity, and so on. Like the battle SEOs have with Google - Google uses sophisticated algorithms (bots) to manage data, but if a webmaster is found using a bot, Google punishes them with a 'penalty.'

Facebook has two faces. The reason Facebook only has a 'like' button and not a 'dislike' button is to hide the second darker side of Facebook , that investors and users may not like.

Of course, there's nothing wrong with Facebook existing, but not at a market cap of 300B. Buy Amazon (AMZN), Google ,(IBM) buy anything - just sell your Facebook stock before the big reality check, that it's just a Fakebook.

To get another perspective of how the financial system 'really' works, checkout Splitting Pennies - Understanding Forex.  It's your pocket guide guaranteed to make you a Forex genius! 

http://www.zerohedge.com/news/2016-05-11/two-faces-facebook

Panama-Leak Database Makes 200,000 Shells Searchable Online

A searchable database of more than 200,000 Panamanian shell companies was released online this afternoon, as part of an international journalism group’s effort to reveal the secrets of the offshore financial world.

The database features information derived from millions of leaked documents created by the Panamanian law firm Mossack Fonseca, which specialized in setting up secret shell companies for clients ranging from corporate executives and wealthy celebrities to relatives and associates of heads of state like Russian President Vladimir Putin and British Prime Minister David Cameron.

The International Consortium of Investigative Journalists, a group which includes reporters and editors from more than 80 countries, has already published an assortment of stories based on the documents, alleging how the shell companies were used by the wealthy to conceal their fortunes and evade taxes. The 11.9 million records, which an anonymous whistle-blower leaked last year to the German newspaper Suddeutsche Zeitung, have also led to published stories alleging that secret offshore companies have been used by money launderers, art smugglers, international criminals and repressive governments like Syria.

Trade Secrets

It’s not illegal to create a shell company -- and they can be used for legitimate purposes, such as protecting trade secrets. However, because shell companies can also obscure the identities of their owners, they’re sometimes used for illegal purposes.

Mossack Fonseca has denied any wrongdoing, and said that on the few occasions it learned that clients were using shell companies for illicit activity it ended its relationship with them. The firm also issued a “cease and desist” order last week warning the ICIJ it will face legal sanctions if it released the leaked records.

By releasing a massive trove of the documents in a searchable form, the ICIJ said it hopes to increase public awareness about the ways the offshore banking system enables wealthy individuals to dodge taxes and corrupt government officials to hide their plunder.

The ICIJ, which is based in Washington D.C., said it had culled the records and omitted details that might violate the privacy of the shell companies’ owners -- information such as bank accounts and financial transactions, e-mails and other correspondence, passports and telephone numbers.

‘Public Interest’

“The selected and limited information is being published in the public interest,” the ICIJ said in a statement on its website.

The release comes as governments around the world are pushing measures that would require greater disclosure about the ownership of companies. U.S. President Barack Obama last week called for stricter reporting requirements for companies that register in states like Nevada and Delaware, which have been criticized as domestic tax havens. The UK has announced it will require names of the beneficial owners of any company registered in England or any of its territories or Crown dependencies, and this week Cameron is hosting an anti-corruption summit where offshore secrecy is expected to be a major part of the agenda.

The source of the records -- a whistle-blower identified only as “John Doe” -- issued an1,800-word statement last week, citing “income equality” as the motive behind the leak. The whistle-blower offered to assist authorities in making criminal cases in exchange for immunity from prosecution.

“Banks, financial regulators and tax authorities have failed,” John Doe wrote in the essay. “Decisions have been made that have spared the wealthy while focusing instead on reining in middle- and low-income citizens.”

http://www.bloomberg.com/news/articles/2016-05-09/panama-leak-database-makes-200-000-shells-searchable-online

Elite E Services announces the release of US Trade Hardcover Splitting Pennies for sale online

Elite E Services is the publisher of the book “Splitting Pennies – Understanding Forex.”  Forex is an electronic market, so there was no more appropriate market to sell the book than Kindle – an electronic marketplace for books and other content.  By the way, you don’t need a Kindle device to read Kindle books – Amazon provides a free online reader.  Anyway, many readers ordered print books from Lulu.  The cost of printing a high quality book is high.  But the value of having a book on your bookshelf, holding in your hand, is invaluable.

So we’ve partnered with Ingram, the world’s largest book printer, to offer Splitting Pennies in print format.  Our most popular edition, the 6×9 US Trade hardcover, is now available for purchase via our online shop, pleaseorderit.com and for bookstores, universities, corporations, and other institutions – volume discounts are available.

From a recent post, on pleaseorderit.com 

Splitting Pennies – Understanding Forex is an Amazon Bestseller.  Now, Elite E Services is launching distribution of the best edition, 6×9 US Trade Hardcover!  Ask your bookstore for Splitting Pennies ISBN 9781329992351, retail price $34.98.  It’s available through Ingram – but you can buy it here too, at pleaseorderit.com by clicking here.

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America's Big Red Forex Button - MOST IMPORTANT FOREX FACT

We have written extensively on the topic of Forex and even published an in-depth book about key points "Splitting Pennies - Understanding Forex" - and in the process we've learnedwhat investors don't know about Forex and how it fuels market fears.  So now we'd like to elaborate on the MOST IMPORTANT FACT INVESTORS NEED TO KNOW ABOUT FOREX, and to a lesser extent the markets in general.

America has in its possession A BIG RED FOREX BUTTON that can shut down US Dollar connected payment systems with one press.  This button can halt stock markets, futures exchanges, money markets, all with one simple push.  Probably, it looks something like this:  STOP

This button will probably never be used, it was developed in case of financial emergency.  But it's there - and the fact that it exists, makes a few bank managers and government workers sleep well at night.  Such systems are developed 'just in case' - just like the missile defense system, a complete waste of taxpayer dollars, built to ensure that if nuclear missiles are launched on America, America can save 10% of cities and wipe out the majority of the attacker based on the neo-con 'mutually assured destruction' MAD policy.  This button serves the same purpose, although financial.  Pressing this button would bring all economic activity in economies that utilize the US Dollar to a complete standstill.  

Lazy government workers

To understand why and how this button was built, we must first understand a little about how the US Government works.  The US Government is the largest employer of any kind in the world.  We need to understand the differences between private employment, and government employment (because this big red button was built by government workers in collaboration with private workers).  Private employment operates on a simple market based approach - good workers are rewarded usually with higher pay, more job security, and more benefits.  If a worker for a private company makes his company a fortune, he'll be rewarded with a big bonus, big desk with accompanying window, and an office plant, maybe a fern.  If the worker in a private company is a bad worker, lazy, incompetent, or just difficult - he will be fired.  Government is the opposite.  There's a mantra in government work - what do you do with a problem employee?  Promote them!  Because then they are out of your hair, and if you fire them, well you may end up in front of a senate hearing explaining why, or you may end up being sued, or you may end up with a number of special interest groups heckling you about the rights of people with Narcolepsy.  

The government approaches work in an entirely different way than in private enterprise.  Healthcare.gov - the world's first billion dollar website, is another great example.  Now imagine the task the Department of Defense is given; protect America from external threats.  Their first step, to identify threats.  In the military, this is done by agencies such as the CIA and the NRO.  Actually if the CIA operated according to its public mission, it would be an analyst agency not much different than those seen on Wall St. - providing information to their DOD bosses who act on it.  Since 911, the potential for financial terrorism has been considered a national security issue.  It's in the laws, it's in the regulations, it's serious.  What if the Saudis flood the market with US Dollars?  What if the Chinese dump treasuries crashing the US Dollar?  What if hackers take control of the NYSE and flood the market with sell orders, causing a crash?  These are all extremely improbably events, so rare there is a higher chance of a giant meteor striking Manhatten this year.  The probability is so low it's difficult to calculate.  But just like the false threat of Russian's launching nukes, billions of dollars have been spent building a Big Red Button to press in case it happens.  

It's because government workers have one thing in mind; protect themselves.  Avoid a potential disaster.  The last thing any government worker wants is to be in charge of security on a day like 911, even if the threat is financial.  Although the debate rages about TARP and government actions during the weekend of the Bear Stearns collapse - the financial system was saved.  They pressed the button.  But this wasn't the Forex button.

Although the Federal Reserve is a private bank, the US Dollar exists because of the US Government.  Like with many government projects, they outsource.  More than 60% of CIA operations are currently outsourced.  It's good business - America has always been like that.  The only role the US Government plays in the US Dollar, is providing regulations & oversight with the OCC (Office of the Comptroller of the Currency), and printing physical currency with the US Mint.  But the US Mint is just a printing service, if you look on US bills you'll see "Federal Reserve Note."

The Big Red Forex Button

We've known for a long time about the infamous "Plunge Protection Team" designed to prop stock markets in the event of a 1987 style crash.  They even have entities in the Caymans funded by the Fed ready and waiting - they'll start with buying futures on the S&P, then options, then if that fails, they'll just go into the market directly.  Anyway, technically speaking, DTCC owns 99% of US securities being the only custodian for investors.  Why should it be surprising that the Fed operates a Cayman based hedge fund specifically designed to prop the markets in the event of a crash?

And you know it's really ironic, it's PEAK HYPOCRISY - on the one hand, these right wing flag waving jingoists love the idea that we have a system in place to prevent a market crash by 100%, but on the other hand, they love to talk about how America has 'freedom' and 'free markets' and markets are not manipulated!  Well we can't have our protection and free markets together.  But probably, stock investors would agree, in the event of a big market crash it's probably best to have such systems in place, like we do for the military, and other critical infrastructure.  

Does the PPT intervene in the markets on a daily, or regular basis?  That's another question, probably, they do.. but we can say for sure they are there to soften the blow of a deep fall.  Maybe they've done it more than once in the last 10 years, which is why the market is continually at nose bleed levels even though the real economy is in the toilet.

The Big Red Forex Button is more simple than the PPT, and similar organizations.  That's because ALL US DOLLARS IN THE WORLD are created and processed by the Federal Reserve Bank!  Except if you withdraw and deal with physical cash, the Fed has electronic tags and knows where each US Dollar in the world is.  That's just how the system is setup, by design, by coincidence, it's just like that.  The reason for the war on cash, it's really the only part of the US Dollar system that isn't 100% completely controlled and manipulated.  But at the end of the day, with less than $1 Trillion in physical US Dollars in the world, it's not really significant.  The Fed processes wire payments, ACH payments, clears checks, and provides US Dollars to central banks in the form of swaps.  The Fed can press the Big Red Forex Button and halt all US Dollar transactions - period.  So with a halt on all US Dollar transactions, how would China destroy the value of the US Dollar, as some have proposed?  How would US Dollar debt holders repay their debt, without access to US Dollars?  Everyone would default?  The financial system would implode?  No, they would just wait, for a Fed action.  The Fed controls 100% of US Dollar transactions, globally.  There's no where on this small planet Earth to 'hide' US Dollars.  

The US Treasury has a similar tool, the US Treasury has a big red tbill button.  They can immediately recall or issue trillions of US debt in one click.  As far as the external threat supposedly posed by foreign holders of US debt, if this really was a threat, the treasury can call their friends at the Fed, and in one click - the Fed can pay off all US debt.  The Fed would be happy to do so, thus gaining free interest from US taxpayers (which is a HUGE percent of the Federal Budget) and it wouldn't cost the Fed anything to create the $100 Trillion or whatever necessary to do it.  

Practically, there is no competition for America, and there will not likely be any in the forseeable future.  Just imagine if 10% of US Dollar assets were sold, and transferred to another currency, or another system.  What would that currency be?  It is a real problem.  In order to entertain real scenarios of a 'US Dollar Collapse' we would need to see an alternative system, one which operates globally and completely without the US Dollar and it's institutions, such as the BIS, IMF, the Fed, ECB, SWIFT, such as Bitcoin.  

But just to keep the size of the US Dollar in perspective, let's look at a real alternative - the New Zealand Dollar.  Anyone with a Forex account can trade NZD/USD (when you trade a Forex pair, you're really betting on a rate change, not sending money to New Zealand, so trading Forex is a derivative).  The GDP of New Zealand is about $185 Billion.  There simply aren't enough investment options in New Zealand NZD based assets to facilitate any significant move into NZD from USD.  In fact, NZD has been inflated by US and Chinese interests in the last 10 years, to the point that their GDP has nearly quadrupled since 2000.  

Also remember that most currencies are backed by the US Dollar, so the only 'real' alternative to the US Dollar is not other currencies, but alternative systems such as Bitcoin.

One last correction about China - recently China has implemented a Gold fix denominated in Yuan.  Also Hungary has issued $154 Million in Yuan bonds.  These are both wonderful baby steps toward realizing the final goal of being a modern, dynamic, free market based economy.  The Yuan IS NOT BACKED BY GOLD.  China implemented a YUAN BASED GOLD MARKET, copied and pasted from the Rothschild-London dominated system for the last hundreds of years.  The Gold price is set in Yuan, as it used to be in Great British Pounds.  Separately, China is hoarding physical gold.  These 3 facts do not mean that the Yuan is backed by Gold.  Capital Controls are in place, the Yuan is manipulated by the central bank.  It's not possible to do business with China via the Yuan like it is with G8 countries.  Americans can visit and do business in hundreds of countries with ease, China is not one of them.  China employs internet police, who will literally arrest you potentially for life if you are found violating their firewall policies.  This is not a country which will soon compete with America, England, Switzerland, and the rest of the G8.  India, possibly another story, but they have no plans to improve their Forex system or to be a global reserve currency.

Conclusion

The Federal Reserve controls all US Dollars created and transacted in the world, in collaboration with the US Government.  The value of the US Dollar will fluctuate as interest rates change, and real money flows around the world affect supply and demand of the USD, but within a trading range.  Forex markets are 100% controlled.  At any point, Central Banks can intervene in Forex markets.  We've never seen a collaborated intervention, but that's a possibility too.  Because they all rely on each other, it's in their interest to see boring, non-volatile markets.  They are all part of the same system, which is supported by America and the US Dollar.  

If the Fiat central bank system would be to collapse, there would have to be an alternative system for the world's business to transition to.  Currently, there is no alternative system in place.  Many alternative systems are in the works, but they are decades from being complete.  But in the meantime, there's a number of ways to profit in the Forex market, or protect yourself from market risks.  To learn more, checkout Splitting Pennies - Understanding Forex.

http://www.zerohedge.com/news/2016-05-01/americas-big-red-forex-button-most-important-forex-fact

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