Aberrant Central Banks

In a report to be presented on Wednesday June 17 in London, the Official Monetary and Financial Institutions Forum (OMFIF) will reveal that central banks are increasingly investing in the stock market and that they will most likely continue to do it in the future. “A cluster of central banking investors has become major players on world equity markets” can be read in the report, according to an article published in the Financial Times. What should be considered an aberration, that is, that central banks, whose “raison d’être” is maintaining the purchasing power of the currency, engage in such market distorting and destroying activities, is presented as a, at most, minor mistake, a quirk, a curiosity, something not to be ashamed of or worried about. Here you can reach the OMFIF press release, here the FInancial Times article and here the Zerohedge comments about this conspiracy theory turned fact.

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TYR watches “Jim Rogers: We’re Wiping Out The Savings Class Globally, To Terrible Consequence”

Jim Rogers: We’re Wiping Out The Savings Class Globally, To Terrible Consequence @ Peak Prosperity

Chris Martenson interviews Jim Rogersan American investor and author. Rogers is the Chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI). In the interview Jim Rogers draws attention on this unique moment in financial history where most central banks engage in “money printing”, wiping out the western world’s saving class, and creating the foundations for a potentially devastating future.

“For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don’t know.”

“Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.”

“In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy.”

24 January 2013 TYR reads: Apparitions in the Fog

Apparitions in the Fog @ The Burning Platform In this apocalyptic article, Jim Quinn exposes the foundations of the present economic “system”. With the assistance of a series of charts, it is convincingly argued that: the economic recovery is a mirage, that the middle class is being destroyed in the USA, and by extension in the western world, and that a bigger crisis, not only economic but social also, is unavoidable. From this, he draws apocalyptic conclusions that might or might not come to happen. Actually, one could think of apocalyptic scenarios quite different from Quinn’s. Think “1984” squared. If you concentrate on the charts and what they mean though, you’ll not go wrong as to the nature of the present economic and social situation. Some excerpts and many charts:

“Real GDP, using a dramatically understated inflation rate, has barely grown by 1% in 2012. Using a true measure of inflation, the GDP was -2% during 2012.”

“The number of people who have left the workforce since last December (2.2 million) almost matched the number of newly employed (2.4 million), as the labor participation rate has collapsed to a three decade low of 63.6%. The propagandists attempt to peddle this dreadful condition as a function of Baby Boomers retiring. This is obliterated by the fact the 55 to 69 age bracket has added 4 million jobs since Obama became president, while the younger age brackets have lost 3 million jobs. The working age population has grown by 13 million since 2007 and there are 4 million less people employed.”

“Another 1.5 million Americans were forced onto food stamps during 2012, bringing the total increase to 17 million since Obama assumed office.”

“Real average hourly earnings were flat in 2012, and have fallen 1.5% since Obama became president. The average middle class worker is making less than they were forty years ago.”

Jan2_Real Wages

“The reason Bernanke, Geithner, Obama, Wall Street, corporate titans, and media pundits focus their attention on the stock market is because they are looking out for their fellow 1%ers. The working middle class, once the backbone of this country, own virtually no stocks.”

20110410-062035.jpg

“The storyline of austerity and deleveraging perpetuated through the mainstream media mouthpieces is unequivocally false, as consumer debt has reached an all-time high of $2.77 trillion, driven by a surge in subprime auto loans and subprime student loans.”

The enslavement of our children in student loan debt and handing them the bill for $200 trillion of unfunded entitlement liabilities will be the spark that ignites the worst part of this Crisis.

Student Loan Projections

“Those in power realized very quickly that without continued credit growth, their entire corrupt, repugnant, fiat currency based debt system would implode and they would lose all of their fraudulently acquired wealth. That is why total credit market debt is at an all-time high of $56 trillion, and 350% of GDP. The National Debt of $16.5 trillion is now 103% of GDP, well beyond the Rogoff & Reinhart level of 90% that always leads to economic crisis and turmoil.”

“A critical thinking human being (this rules out 95% of the adult population) might question how corporate profits could surpass pre-collapse levels when the economy has remained stagnant.”

“Shockingly, the entire profit surge was driven by Wall Street.”

Die wirkliche Wirklichkeit

We argued in a recent post that the ESM violates Germany’s constitution and the EU treaties. Today the German Constitutional Court (GCC) ruled that the ESM and its ‘fiscal treaty’ on budget discipline do not violate the country’s Basic Law and do not undermine the Bundestag`s sovereignty over budget issues, according to Openeurope. Although the full ruling is expected in early 2013, Openeurope remarks a few aspects of today’s resolution:

  1. Cap of €190bn on German ESM contribution, which can only be overturned by the Bundestag.
  2. Both houses of German Parliament need to be adequately informed about all ESM decisions – something which needs to be enshrined in “international law”.
  3. Reinforced that Bundestag approval needed for all activations of the ESM.
  4. Explicit ban on ESM borrowing directly from European Central Bank (ECB).
  5. The German Government can terminate ESM at any time, as recognised under “customary international law”.
  6. In its full ruling, expected in early 2013, the Court will also consider whether the ECB’s bond-buying programme, the OMT, has transferred illegal degrees of sovereignty to the EU-level.

If respected, #1 ruling would limit some of the potential risks that the creation of the ESM pose to the countries (and ultimately their taxpayers) funding the ESM, most specially Germany. Effective maximum potential financial costs to Germany would be capped at 190 billion Euros, invalidating the articles of the ESM allowing for potentially unlimited liabilities.

#2 and #3 reinforces Bundestag veto over ESM activation: the decision also states that any future ESM bailouts will require parliamentary approval, stating that the Bundestag “must individually approve every large-scale federal aid measure on the international or European Union level”.

#4 bans on the ESM borrowing from the ECB: the Court says that “borrowing by the ESM from the European Central Bank” would be incompatible with EU law (Article 123 TFEU). This is a surprisingly categorical rebuke, especially over an issue of EU rather than German law.

#6 addresses not the ESM but the latest ECB asset purchase program, named Outright Monetary Transactions (OMT). The GCC suggested in its press release that the ECB’s OMT will be considered in its final ruling on these complaints. The exact criteria upon which the programme will be assessed is unclear but broadly the Court will determine whether it transfers additional German sovereignty to the European level above and beyond that which the country has committed itself to in the EU Treaties.

What does it all mean? With a firm cap on the ESM, the ECB is now most certainly the only actor with deep enough pockets to put Spain and Italy on life-support – together with the OMT announcement the ruling has shifted the burden back to the ECB. However, the ruling and the role of the Bundestag highlights that activating the OMT will be challenging, since in order to qualify for ECB bond-buying, a country must first get funding from the ESM – and be subject to conditions. If the Bundestag agrees to activate more bailouts, it will most certainly push for harsher conditions than what debtor countries – most importantly Spain – are willing to accept. In the long-term, under current arrangements of linking ESM and OMT, the latter is also effectively capped and subject to a Bundestag veto.

If this is so, the caveats in the GCC’s resolution are not minor, why did markets continue to rally today? An answer to this question is hinted in today’s Die Welt’s article, Karlsruhe weiß, wo Europas Hammer der Macht hängt, whose last sentence goes like this: “the GCC, that for us is almost as holy as the Bundesbank, is only one of the Players in the european Game, and not the most powerful one” (“Das Bundesverfassungsgericht, das uns fast so heilig ist wie die Deutsche Bundesbank, ist auch nur ein Spieler im europäischen Spiel, und nicht der mächtigste”).

If, from a german perspective, its constitutional court is not the biggest, ultimate player, who is? If, as Die Welt’s article also implies, the GCC takes its decisions not only considering Germany’s Basic Law, but also in the context of the “wirkliche WirklichkeitI”, the “real reality”, what is that reality’s content?. Mr. Thomas Schmid, the author of Die Welt’s article, hints at the European Union’s centralist drive that gradually hollows national sovereignty and places it in supranational bodies, most specially the ECB, Mario Draghi’s ECB, that does no longer fear to antagonize its most important member, the Bundesbank. The ECB, that is also supposed to be the supervisor of ALL european banks, according to the latest proposal of the European Commission (EC), emerges as an almost all-powerful institution, mostly unaccountable to national governments and not even to the European Union. What and who does the ECB stand for?. Certainly not monetary orthodoxy and price stability as is written in its charter. In whose hands does Germany’s sovereignty lay? Perhaps a review of Mr. Mario Draghi’s biography would be helpful in answering this question.

TYR 9 September 2012 reads

Five Years Since The Great Financial Crisis: “No Growth, No Deleveraging” @ Zerohedge It illustrates the lack of debt deleveraging in developed economies from 2007 until now

Diverging like it is 1929 @ Safehaven  Interesting comparison of the divergence of market action and fundamentals today and in 1929

The Repricing of Oil @ Peak Prosperity It shows the fragility of the supply/demand balance in the oil market and how the present worldwide recessionary conditions mask the latent scarcity of oil, limiting the scope of price decreases and showing the potential for big price increases in a not too distant future