What Gives Cryptocurrencies Their Value

Authored by Peter St.Onge via The Mises Institute,

The value of cryptocurrencies like bitcoin, just like any other kind of money, comes fundamentally from what you can do with it. As a follow up to What Backs Bitcoin, I want to dig into that value.

The idea, which comes from Austrian economist Carl Menger, is that just as a shovel’s value comes from its ability to dig, a currency’s value comes from its ability to help you do two things: transactions and savings.

Think of transactions as the money you carry in your wallet or checking account, and savings as the rest of what you have in the bank or buried in the yard. It’s worth mentioning here that that vast majority of money demand is indeed savings, making up 90% or more of all money demand.

The reason this matters is because if we know what transactions cryptocurrencies are good at, we can estimate how much money demand they’ll start pulling from fiat or gold, and therefore how much those cryptos will increase in price.

For transactions, some features that matter are cost and speed of transaction, anonymity, reversibility, counter-party risk, regulatory treatment. For savings demand, those factors are overwhelmed by the specific question of how well the currency keeps its price.

Supply and Demand Determine Price — Always

Price, as always in economics, is simply a matter of demand and supply. When demand is rising faster than supply, the currency will go up in price. And if demand is rising slower than supply, price will go down.

Since bitcoin was born in 2009, it has generally enjoyed demand rising much faster than supply, hence price has soared. While the US dollar, say, has gone down — has “price inflated” — because demand failed to keep up with dollar creation.

Those are the features, now what are the applications: what are people using money for?

When we’re looking at a currency’s price, because we’re looking at total demand we don’t care about the number of transactions rather the total amount transacted.

And here, the vast majority of money moving around in the economy is not goods and services — buying a cup of coffee, or a plane ticket — rather financial movements. Paying salaries, buying and selling stocks or bonds, investments and dividends. These occur mostly by bank transfer, which account for 80% of all money moved in the US. Another 15% goes by check, leaving just 3% for credit or debit cards, and 4% for paper cash.

Bitcoin Still under 0.01% of Global Transactions

A final part of the puzzle, what’s the competition to cryptocurrencies? Most money payments worldwide are, of course, denominated in fiat currency like dollars or yen — about 99% by amount. With the remaining 1% made in gold.

Note that fiat has both physical and electronic forms, such as credit cards and bank transfers. Even gold payments can be made with paper rather than physically moving the gold, including gold-based securities that trade in financial markets (so-called “paper gold”).

Now we’re ready to go through those features for each currency. On cost of transaction, bitcoin’s fees nowadays average about $1, and don’t vary by amount you transfer.

You can send one bitcoin, worth $5,000, or 1,000 bitcoins, worth $5 million, and the fees are still a dollar. In contrast, banks typically charge a percentage of the transaction, which adds up on million-dollar transfers.

Meanwhile, on speed bitcoin is much faster than banks; between 10 minutes and an hour to confirm a transaction, while banks take days.

So bitcoin beats on the most important application of money: financial transfers. The one caveat here is exchange costs. Just as you pay fees and spreads when you exchange your dollars for yen, every time you convert dollars into bitcoin you’ve got to pay fees and spreads.

This means that bitcoin’s low fees only really dominate if both the sender and receiver are keeping the money in bitcoin.

Bitcoin’s Exchange Rate Woes

On the other hand, if you have a bunch of dollars and want to buy a house from somebody who likes to keep dollars in the bank, then you’ll have to convert your dollars into bitcoin, send the bitcoin for a buck, then the other guy converts the bitcoins into dollars again. You saved on the transfer itself, but you had to exchange the money twice.

So, bitcoin as a technology is superior for the main type of transaction by value, but in reality that advantage is eroded if people are keeping their wealth in fiat. This isn’t really a flaw of cryptocurrencies per se, it’s just a standard penalty suffered by any minority currency — having to pay for conversion into the dominant currency.

To finish up on cost and speed, obviously physical cash or physical gold are fantastic on both cost and speed, but only if buyer and seller are touching each other. Given paper cash has only a 4% share today, touchable buyers and sellers is a very small part of demand.

For remote orders, then, bitcoin carries lower fees than credit and debit cards, but again with that double-exchange problem unless both buyer and seller are staying in bitcoin.

Bitcoin’s Potential to Outperform

Next up are some secondary benefits: anonymity, reversibility, counter-party risk, regulatory treatment.

Briefly, bitcoin is nearly anonymous unless the US government cares enough about you to put some serious people on you. In this sense it’s essentially like using cash, but with the advantage you can use it over long distances with those low fees.

In practice, the closest alternative is probably a pre-paid debit card that you buy at 7/11, which can cost several dollars in addition to the merchant fees, and isn’t going to work for large amounts nor overseas.

As for reversibility, the question is whether the buyer can cancel his payment. A problem for online vendors who get scammed by people who buy the product, get it in the mail, cancel the order and keep the goodies.

Credit card companies or Paypal famously always side with the customer, which can suck for the honest vendor getting ripped off online. Bitcoin, again like cash, is irreversible once it’s confirmed — so about 10 minutes to an hour. That’s slower than cash, but faster than Paypal or credit cards where buyers can reverse months later.

Fourth characteristic is counter-party risk; the idea that your bank could go under, taking your money with it. Remember bitcoin was invented in the wake of the 2008 financial crisis, where bank failures were common.

Because bitcoin is distributed across many computers and isn’t managed by a central organization, it has no single point of failure. On the other hand, cryptocurrencies do still have potential technical glitches that probably more than make up for that risk.

Regulation: Not If but When

Finally, regulatory treatment. This is where we’ll probably see a lot of change over the next couple years, as governments digest cryptocurrencies like bitcoin.

So far cryptos have enjoyed mostly benign neglect from regulators; tolerated, neither discouraged nor encouraged. On the bright side this has meant little regulatory burdens or fees, although this is changing in places like New York.

On the down-side, this regulatory grey-zone has meant a lot of companies and institutional investors are afraid to use, or even to buy, bitcoin. So increasing regulations could actually boost bitcoin demand, as those regulated users become unafraid to play.

As for what happens in the future, countries are gradually drifting into two camps: broadly enthusiastic (Japan, Dubai, Taiwan, Switzerland), broadly skeptical (China, Korea), with the USA and European Union still lurching between the camps.

Cryptos: For now, Only for Adrenaline Junkies

Now, given how much savings dominate money use, the elephant in the room is would you feel comfortable keeping your life savings in bitcoin.

As we mentioned, the key point here is how its price will hold up, meaning will demand grow faster than supply. While bitcoin has knocked the socks off dollars or even gold, rising 800% in the past year alone, even this soaring growth has come with the major downside that bitcoin also fluctuates a lot — easily up or down 50% in a month.

However, as with any product, service, or medium of exchange, the value of cryptocurrencies will depend on the future choices of countless users and consumers — based on their subjective valuations of the currencies themselves. Those who can successfully guess what will become more valuable in the future will become wealthy. But risks always remain.

The Crash Of 1929: "Somewhere, Deep Down, They Knew The Party Was Over"

Via Jesse"s Cafe Americain blog,

History may not repeat... but it sure ryhmes...

"...people believed that everything was going to be great always, always. There was a feeling of optimism in the air that you cannot even describe today."

"There was great hope. America came out of World War I with the economy intact. We were the only strong country in the world. The dollar was king. We had a very popular president in the middle of the decade, Calvin Coolidge, and an even more popular one elected in 1928, Herbert Hoover. So things looked pretty good."

"The economy was changing in this new America. It was the dawn of the consumer revolution. New inventions, mass marketing, factories turning out amazing products like radios, rayon, air conditioners, underarm deodorant...One of the most wondrous inventions of the age was consumer credit. Before 1920, the average worker couldn"t borrow money. By 1929, "buy now, pay later" had become a way of life."

"Wall Street got the credit for this prosperity and Wall Street was dominated by just a small group of wealthy men. Rarely in the history of this nation had so much raw power been concentrated in the hands of a few businessmen..."

"One of the most common tactics was to manipulate the price of a particular stock, a stock like Radio Corporation of America...Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public. Most stocks in the 1920s were regularly manipulated by insiders "

"I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. So if you were a pool operator, you"d call your friend at The Times and say, "Look, Charlie, there"s an envelope waiting for you here and we think that perhaps you should write something nice about RCA." And Charlie would write something nice about RCA. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City... Then, they would begin to -- what was called "painting the tape" and they would make the stock look exciting. They would trade among themselves and you"d see these big prints on RCA and people will say, "Oh, it looks as though that stock is being accumulated. Now, if they are behind it, you want to join them, so you go out and you buy stock also. Now, what"s happening is the stock goes from 10 to 15 to 20 and now, it"s at 20 and you start buying, other people start buying at 30, 40. The original group, the pool, they"ve stopped buying. They"re selling you the stock. It"s now 50 and they"re out of it. And what happens, of course, is the stock collapses."

"The pools were a little like musical chairs. When the music stopped, somebody owned the stocks and those were the sufferers. If small investors suffered, they would soon be back for more. They knew the game was rigged, but maybe next time, they could beat the system. Wall Street had its critics, among them economist Roger Babson. He questioned the boom and was accused of lack of patriotism, of selling America short."

"Roger Babson warned of the speculation and said, "There"s going to be a crash and the aftermath is going to be quite terrible." And people jumped on Babson from all around for saying such a thing, so that people who were cautious about their personal reputation, who did not want to call down on themselves a lot of calumny, kept quiet."

"Politicians came and went, but in the 20s, the businessman was king."

"With everyone trying to borrow money to cover the falling value of their stocks, there was a credit crunch. Interest rates soared. At 20 percent, few people could afford to borrow more money. The boom was about to collapse like a house of cards."

"...the National City Bank would provide $25 million of credit...immediately, the credit crisis was alleviated. In fact, within the next 24 hours, call money went from 20 percent to eight percent and that stopped the panic, then, in March [1929]"

"Everything was not fine that spring with the American economy. It was showing ominous signs of trouble. Steel production was declining. The construction industry was sluggish. Car sales dropped. Customers were getting harder to find. And because of easy credit, many people were deeply in debt. Large sections of the population were poor and getting poorer."

"Just as Wall Street had reflected a steady growth in the economy throughout most of the 20s, it would seem that now the market should reflect the economic slowdown. Instead, it soared to record heights. Stock prices no longer had anything to do with company profits, the economy or anything else. The speculative boom had acquired a momentum of its own."

"It was this nature of mass illusion. Prices were going up, people bought. That forced prices up further, that brought in more people. And eventually, the process becomes self-perpetuating. Every increase brings in more people convinced of their God-given right to get rich."

"The 20s was a decade of all sorts of fast money schemes. Three years earlier, everyone was buying Florida real estate. As prices of land skyrocketed, more people jumped in, hoping to make a killing. Then, overnight, the boom turned to bust and investors lost everything."

"On September 5th, economist Roger Babson gave a speech to a group of businessmen. "Sooner or later, a crash is coming and it may be terrific." He"d been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the "Babson Break." The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun."

"...the market fluctuated wildly up and down. On September 12th, prices dropped ten percent. They dipped sharply again on the 20th. Stock markets around the world were falling, too. Then, on September 25th, the market suddenly rallied."

"Reuben L. Cain, Stock Salesman, 1929: I remember well that I thought, "Why is this doing this?" And then I thought, "Well, I"m new here and these people" -- like every day in the paper, Charlie Mitchell would have something to say, the J.P. Morgan people would have something to say about how good things were -- and I thought, "Well, they know a lot more about this market than I do. I"m fairly new here and I really can"t see why it"s going up." But then, when they say it can"t go down or if it does go down today, it"ll go back tomorrow, you think, "Well, they really are like God. They know it all and it must be the way it"s going because they say so."

"As the market floundered, financial leaders were as optimistic as ever, more so. Just five days before the crash, Thomas Lamont, acting head of the highly conservative Morgan Bank, wrote a letter to President Hoover. "The future appears brilliant. Our securities are the most desirable in the world."

"Practically every business leader in American and banker, right around the time of 1929, was saying how wonderful things were and the economy had only one way to go and that was up."

"There came a Wednesday, October 23rd, when the market was a little shaky, weak. And whether this caused some spread of pessimism, one doesn"t know. It certainly led a lot of people to think they should get out. And so, Thursday, October the 24th -- the first Black Thursday -- the market, beginning in the morning, took a terrific tumble. The market opened in an absolutely free fall and some people couldn"t even get any bids for their shares and it was wild panic. And an ugly crowd gathered outside the stock exchange and it was described as making weird and threatening noises. It was, indeed, one of the worst days that had ever been seen down there."

"There was a glimmer of hope on Black Thursday...About 12:30, there was an announcement that this group of bankers would make available a very substantial sum to ease the credit stringency and support the market. And right after that, Dick Whitney made his famous walk across the floor of the New York Stock Exchange.... At 1:30 in the afternoon, at the height of the panic, he strolled across the floor and in a loud, clear voice, ordered 10,000 shares of U.S. Steel at a price considerably higher than the last bid. He then went from post to post, shouting buy orders for key stocks."

"And sure enough, this seemed to be evidence that the bankers had moved in to end the panic. And they did end it for that day. The market then stabilized and even went up."

"But Monday was not good. Apparently, people had thought about things over the weekend, over Sunday, and decided maybe they might be safer to get out. And then came the real crash, which was on Tuesday, when the market went down and down and down, without seeming limit...Morgan"s bankers could no longer stem the tide. It was like trying to stop Niagara Falls. Everyone wanted to sell."

"In brokers" offices across the country, the small investors -- the tailors, the grocers, the secretaries -- stared at the moving ticker in numb silence. Hope of an easy retirement, the new home, their children"s education, everything was gone."

"At the end of 1929, as they celebrated New Year"s Eve, all that lay in the future. Nobody knew that the Great Depression was coming -- unemployment, bread lines, bank failures -- this was unimaginable. But the bubble had burst. Gone was that innocent optimism, the confidence, the illusion of wealth without work. One era had ended. They toasted the coming of the 30s, but somewhere, deep down, they knew the party was over."

Is Another Spanish Bank About To Bite The Dust?

Authored by Don Quijones via WolfStreet.com, 

Stockholders and junior bondholders fear another “bail-in.”

After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out.

Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them. The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria.

This creature’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain. But by April 2015, shares started sinking. By May 2017, they were trading at around €1.20.

But since the bail-in of Popular, Liberbank’s shares have seriously crashed as panicked investors fled. Scenting fresh blood, short sellers were piling in. On Friday alone, shares plunged another 17%. At one point, they were down 38% before bouncing at the close of trading, much of it driven by the bank’s own share buybacks:

In the last three weeks a whole year’s worth of steadily rising gains on the stock market have been completely wiped out. The main causes of concern are the bank’s high risk profile and low coverage rate. By the close of the first quarter of 2017, Liberbank’s default rate had reached 13%, over three percentage points higher than the national average (9.8%), while its unproductive asset coverage rate was just 42.1%, compared to 47% for Banco Sabadell, 48% for Bankia, 50% for CaixaBank and 55% for Unicaja.

Worse still, the vast bulk of the bank’s unproductive assets are real estate investments. After Popular, it is the Spanish entity with most exposure to toxic real estate assets, according to the financial daily El Confidencial — a remarkable feat given the bank already had the lion’s share of its impaired real estate assets transferred onto the balance sheets of Spain’s “bad bank,” Sareb.

It’s not just the bank’s shares that are feeling the pressure. With the memory of what happened to holders of Popular’s junior, subordinate and convertible debt still fresh in their mind, investors are divesting their exposure to Liberbank’s subordinate debt. On Friday alone the bank’s most recent issuance, dating back to March 2017, generated losses of 9.8%.

Liberbank’s management has responded the only way it can — with a slew of denials. The bank is nothing like Popular, it says. It is solidly solvent and its deposits are safe, which is probably true: even the deposits of Popular’s customers are now safe despite the fact the bank had hemmorhaged €18 billion of deposits in the last few weeks of its truncated existence. It was this frantic run on deposits that ultimately sealed its fate, prompting the ECB to conclude that the bank was “failing or likely to fail.”

Banco Popular’s demise is a stark reminder that Europe’s banking woes are far from resolved, despite the trillions of euros thrown at them. “The message the market is sending is that you have to buy solvent banks and stay away from those that pose high risks,” said Rafael Alonso, an analyst at Bankinter, one of Spain’s more solvent banks.

Another Spanish bank that could be considered to pose high risks is Unicaja, the product of another merger of failed cajas that is (or at least was) scheduled to launch its IPO some time in June or July. As things currently stand, the timing could not be worse. The greater the uncertainty over Liberbank’s future, the lower the projected valuation of Unicaja’s IPO falls. Before Popular’s forced bail-in and acquisition, the Unicaja was valued at around €2.3 billion; now, just days later, it’s valued at less than €1.9 billion. If the trend continues, the IPO will almost certainly be shelved.

As for Liberbank, if things don’t improve soon and investor nerves aren’t steadied, it too could find itself on the ECB’s Single Resolution Board’s chopping board. Perhaps it too will be sold for €1 to a much larger bank that, like Santander, is able to raise billions of euros of new funds at the drop of a hat, with other too-big-to-fail banks like UBS and Citibank more than happy to lend a helping hand. And just like that, another smaller bank would bite the dust while the biggest banks get bigger and ever more dominating in the market.

Many Banco Popular investors wiped out. Taxpayers off the hook. What it means for Italy. Read…  “Bail-In” Era for Europe’s Banking Crisis Begins

Spanish Banking Crisis Spreads As Banco Popular Credit Curve Inverts

Having told its employees "don"t panic" over the weekend (at the crashing stock and bond prices of Spain"s 6th largest bank), it appears investors are ignoring that message as Banco Popular"s credit curve has inverted for the first time since 2012 in the biggest red flag yet that Spain"s banking crisis is systemic and about to test the EU"s bail-in laws.

Banco Popular Chairman Emilio Saracho sent a letter to staff assuring them the bank remains solvent after Friday"s stock crash, courtesy of Expansion, google translated:

"From the management we are aware that the information that is being published affects the work and the spirit of each one of you, but our obligation as professionals is to focus on the day to day and on the clients, since the activity of the bank must continue as it has so far" begins the statement, whose target is the Professional Association of Directors Banco Popular.

The central message of this letter sent yesterday is the following: "Banco Popular remains solvent and has positive net worth".

"Our bank is in a difficult situation," says Saracho. "For this reason and in order to meet the regulatory requirements that the European Central Bank demands for next year and guarantee our strength and future, we are working on different alternatives.

"Our customers and our shareholders are the most important thing for us, and for this reason we must send them a message of confidence and confidence that we are making every effort to overcome this situation," the letter concludes.

In short, Saracho urged the bank"s group of 1,800 managers to continue working hard; saying business activity should go on as normal, and that it was important to instill confidence in clients and shareholders. Unfortunately, one look at the bank"s recent surge in default risk as seen in its senior bond CDS, suggests that "those who panic first", may be doing the smart thing.. and now the curve has inverted (lower pane) for the first time since 2012"s crisis peak...

As WolfStreet.com"s Don Quijones asks (and answers), has the time finally come to test the EU’s bail-in law?

The shares of Spain’s sixth biggest bank, Banco Popular, plunged 36% last week to €0.43, reducing the bank’s market capitalization to €1.7 billion. Just three weeks ago, when there was still a glimmer of hope that things could be turned around, it was worth almost double that. Its shares traded at €15 ten years ago, before the collapse of Spain’s mind-boggling housing bubble that left Popular holding billions of euros of real estate assets.

Popular may not be a systemically important institution, but it’s nonetheless an institution of great import. It has the largest portfolio of small business customers in Spain and enjoys the patronage of one of Spain’s most influential institutions, Opus Dei. Its well-heeled members are among the bank’s most important shareholders and investors, and they stand to lose a lot of money if a last-minute buyer is not found soon.

This is an outcome that can no longer be discounted, especially after reports emerged on Thursday that senior officials of the ECB’s regulatory arm, the Single Supervisory Mechanism, had warned the bank could be wound down if it fails to find a buyer. But the EU agency charged with overseeing bank failures later issued a statement saying it “never issues warnings about banks.”

But the damage has already been done. And it’s not just Opus Dei, or Popular’s thousands of long-suffering retail investors, that could end up paying a heavy price. Popular’s investors also include PIMCO, one of the world’s largest asset managers, which owned €279 million of Popular’s outstanding €1.25 billion of face value in AT1 bonds at the end of March, making it by far the largest holder at the time.

These AT1 bonds go by another more familiar name: contingent convertible bonds, or Co-Co bonds. These are financial instruments that pay high coupons, because they come with a high risk, designed as they are to absorb losses at times of distress, by converting to equity or being written down when the lender’s capital ratio falls below a certain point.

Popular’s second batch of Co-Cos, worth €750 million, dropped to 59 cents on the euro, the lowest point ever reached by a bank Co-Co bond.

So far, despite their high-risk nature, no AT1 bond has ever been bailed in. But Popular, as a mid-sized bank that has arguably exhausted all its possibilities of resurrection, is in a terribly weak position.

“It would be the first triggering of an AT1,” Lloyd Harris, an analyst at Old Mutual, told the FT. “These types of events are more likely for Popular than they ever were for Deutsche Bank,” he added, referring to Deutsche Bank’s Co-Cos that got trampled last year.

If a triggering occurs, PIMCO and other investors would take a hit. If Popular were wound down, many more wealthy global investors, particularly in Latin America, would also be hit hard. They include the Luksic, Chile’s richest family, which bought 3% of Popular’s shares at the beginning of May in an operation then valued at €87 million. It’s now worth little over half of that. Another investor that stands to lose big time is the Mexican billionaire Antonio del Valle, who invested €450 million in Popular in 2013.

In recent weeks rumors have abounded that a loose consortium of Latin American investors is planning to take over the bank, once its share price has tanked low enough. But for the moment, they are just rumors.

By now, the only bank that appears to still have a passing interest in buying Popular is Spain’s biggest bank, Santander, which would like nothing more than to get its hands on Popular’s retail business, in particular that massive portfolio of small business clients. But for that to happen, Popular’s over €30 billion of impaired real estate assets would have to be neutralized, almost certainly involving taxpayer funds. Something would also have to be done to nullify the class action law suits mushrooming on the other side of the Atlantic over Popular’s alleged misleading of investors in the lead-up to its last capital expansion, in 2016 (What’s the matter with these investors that bought the capital-expansion hype? Don’t these people read WOLF STREET?)

The big question is whether the ECB and the European Commission would lend their approval to such a takeover, especially if billions of euros of public funds are required. Having just awarded Italy’s Monte dei Paschi a last-minute reprieve, prompting accusations that even banks that are not too big to fail are still getting bailed out in Europe 10 years after the financial crisis, they may feel that the time has finally come to test out the EU’s bail-in law.

And if they do, a lot of investors, rather than taxpayers, could end up losing their shirts, which would be a welcome change, while market players may even begin questioning just how safe Spain’s saved banking system really is. By Don Quijones.

Banco Popular “itself cannot at this point make a rough calculation” of what its value is, “and if they can’t, neither can we.” Read…  Banco Popular’s Co-Co Bonds Plunge as Balance Sheet Chaos Revealed in Potential Forced Sale

Spain's Sixth Largest Bank Crashes Most In 28 Years On Liquidation Fears

Even as attention has turned once again to Italy as the next possible source of European financial contagion, Spain"s sixth largest bank has found itself in freefall over the past few days as concerns grow that the bank may be liquidated unless a last-minute buyer, or source of capital, emerges. In addition to the shares of Banco Popular crashing as much as 27%, the biggest intraday drop since 1989, its perpetual bonds have likewise been in freefall mode as investors liquidate securities which "they do not want to hold going into the weekend", according to Ignacio Cantos, of ATL Capital in Madrid, quoted by Bloomberg.

The latest twist in the ongoing saga of the bad debt-saddled Spanish bank was revealed yesterday, when El Confidencial reported that Banco Popular asked Deutsche Bank to come up with a plan for the troubled Spanish lender to raise capital after its previous adviser Morgan Stanley resigned. The paper reported that Popular was testing investor appetite for a capital increase of between €4 billion and €5 billion if its plans to find a merger partner or buyer fail. So far nobody has stepped up to throw more good money after bad. 

Earlier in the week, the European banking watchdog, the Single Resolution Board (SRB), warned European Union officials that Popular may need to be liquidated, or bailed-in, if it fails to find a buyer, according to Reuters.

The underlying problem with Popular, as with most European banks, is familiar: the bank has been unable to sell €37 billion of soured property loans fast enough, and is racing to find a partner after Spain"s Economy Minister Luis de Guindos declined to consider a public bailout, while a capital increase has faced resistance from existing shareholders. The bank has said previously it could extend a June 10 deadline for binding takeover offers. So far none have emerged.

Meanwhile, the government urged citizens to keep "complete calm", and not to sell because, get this, the bank "passed its stress tests." Alas, "passing stress tests" did not help either Bankia or Dexia, two other famously insolvent European banks. From Reuters:

The solution for troubled Spanish lender Banco Popular is either a capital raise or a sale, a spokesman for Spain"s government said on Friday, adding that it was not worried about the situation."

(Popular) passed its stress tests ... it is in the process of a sale or a capital raise, nothing more. Complete calm. We are going to wait for the next steps," Inigo Mendez de Vigo told a news conference.

Of course, the alternative to "complete calm" is a bank run, which Spain - and the ECB - would prefer to avoid.

For those who are unfamiliar with the developing situation, Bloomberg recently posted a handy Q&A on what may soon be Europe"s biggest bank liquidation in years.

Banco Popular Espanol SA’s admission that it’s short of capital and may consider a sale caused turmoil in Spain’s banking industry, which wants to think its real-estate problems are in the past. Popular, with a balance sheet still groaning under the weight of toxic property assets, is a throwback to the boom-to-bust cycle that forced Spain to seek a bailout for its banking industry in 2012. A potential sale of Popular would hand its competitors the chance to buy a bank with a strong franchise in lending to small and medium-sized businesses. It also would allow the government to claim that Spain’s banking clean-up is finally complete.

1. Why is Popular so unpopular?

Short answer: real estate. Popular’s woes stem from the loans it made in the years before a housing crash pitched the economy into a five-year slump starting in 2008. Founded in 1926, Popular had prided itself on efficient management that made it one of the world’s most profitable banks. That story started to sour in 2007 as confidence in Spanish real estate ebbed away; Popular’s shares began a long slide from their peak to lose 98 percent of their value. Popular shunned the chance to take state aid in 2012, when a stress test uncovered a capital shortfall. Instead, it embarked on a series of share sales that so far have raised 5.5 billion euros. Angel Ron, who had run Popular as chairman since 2004, left the bank earlier this year to make way for Emilio Saracho, a former JPMorgan Chase & Co. vice-chairman charged with stemming losses and fixing its balance sheet.

2. Is a sale the likely next step?

Nobody knows for sure. Saracho told shareholders in April that the bank would need to raise more capital, with another option being a corporate transaction. Popular said earlier this month that some banks had expressed interest in combining businesses and that it had asked competitors to say whether they’d be interested in buying it. The bank says no final decision has been made about a sale versus other ways to raise money.

3. Who could buy Popular?

Banco Santander SA has hired Citigroup Inc. to analyse a purchase, people familiar with the plans said this month, while Banco Bilbao Vizcaya Argentaria SA is working with Rothschild to analyze the deal, according to newspaper Expansion. Economy Minister Luis de Guindos has said that Bankia SA, which is state-owned after being bailed out in 2012, is also looking.

4. What obstacles are there to a sale?

Despite years of taking charges to cover real-estate losses, the lender’s attempts to mop up all the soured assets are far from complete. It still has 37 billion euros of non-performing assets, booked a 3.6 billion-euro loss in 2016 and a further 137 million euros loss in the first quarter. Any bank that buys Popular would itself have to raise a lot of capital to absorb it. Societe Generale SA said in a report that Santander would need 12.5 billion euros, BBVA 9.3 billion euros and CaixaBank SA 7.5 billion euros. At 7.33 percent, Popular’s fully-loaded CET1 ratio, a measure of solvency, is one of the weakest in Western Europe.

5. Is there any urgency?

There could be. The bank said its first-quarter results, published May 5, showed only a modest 1 percent drop in customer deposits. Even so, Popular’s plight has generated plenty of headlines in the Spanish press since then, perhaps unnerving customers. The bank and its advisers may want to try to resolve its future before Spain’s long August break. A coupon payment on Popular’s riskiest bonds due in July is another focus of attention for investors. The bank has said it will make the payment as scheduled. It will cost about 30 million euros, based on Bloomberg data.

6. What’s attractive about Popular?

It has about 34 billion euros of performing loans to small and medium-sized enterprises, a high-margin business based on carefully crafted personal relationships. And who doesn’t like a bank with a bit of mystery to it? Popular is well-known in Spain for having close links to the Roman Catholic organization Opus Dei. The bank itself doesn’t say much on the subject. However, when Luis Valls, a former co-chairman Popular died in 2006, the lender said he had been a member.

Iceland, You Won’t Believe It

By Chris at www.CapitalistExploits.at

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.

While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week"s edition of the WOW: Iceland

The developed world is going to hell and probably deserves it. Today, I"m going to show you what should have been done both during and post the GFC. That it wasn"t, and now almost certainly won"t, is a problem for us all but that"s a story for another day.

Today, we look to Iceland and marvel at what they managed to accomplish both leading into the GFC and then coming out of it, and then we scratch our heads at the latest news just out from their central bank.

On with it then...

It was over a decade ago now when I very nearly took a flight to Reykjavik but at the last minute opted instead to go to Copenhagen, which I regret since I"m told it"s like Scotland on steroids (sounds like a blast). What clinched the decision in the end was that a scotch was about 3 times the price in Reykjavik, and since I was heading out for a wild boys week this was important in our considerations, though I"m told that in the land of fire and ice the women are indeed unbelievable.

Its history is that of an arctic backwater reliant on fishing fishing, energy, aluminium smelting, and tourism. A place with hardy living conditions and hardier people.

Between the late 90"s and 2008 they, however, went through what can only be described as a stratospheric rise from this backwater specialising in fishing to one which specialised in global finance.

Using the Irish financial model as a blueprint, Iceland decided to revamp its economy repositioning itself in the international community as a low-tax jurisdiction for foreign finance and investment.

Iceland’s big three banks - Glitnir, Landsbanki, and Kaupthing - grew exponentially as deposit rates in the teens meant investors could borrow in foreign currencies such as sterling, euro, and dollars and earn a significant spread on the yield differential investing in various bond issues from the Icelandic banks.

The influx of capital had the effect of pushing the Icelandic krona into the stratosphere, rising 900% between 1994 and 2008. So not only did investors make a massive spread on the yield differential but the capital appreciation on their investment alone was huge. A lot of people made a lot of money.

As so often happens when money is easy, banks went on a debt fuelled buying spree acquiring international assets and commencing outlandish developments such as the Harpa concert hall funded by Landsbanki and touted at the time as Europe"s largest glass building.

Harpa Concert Hall, Iceland

Things got so crazy that by the time the collapse came, triggered by the Lehman bankruptcy, Iceland"s banking system held assets worth 10 times that of the entire country"s GDP.

And THAT fact is, I believe, why today Iceland is faring relatively well.

Let me explain...

Too Big to Bail Out

The fact of the matter is that the banks were actually just far too big to bail out. Even if the Icelandic government had wanted to, they simply couldn"t bail them out... and so they didn"t. The CBI couldn"t possibly be the lender of last resort for a banking system ten times the country"s GDP and spread over many countries.

There was a lot of angst at the time and depositors lost their money. In an amusing side story Alistair Darling, then chancellor of the exchequer in the UK, used anti-terrorism powers to freeze Landsbanki’s UK assets.

I mention this just in case you"ve ever mistakenly thought that governments would never do such a thing to the private assets of a private institution from another country. You know... in a developed world country where the rule of law is, ahem, "sacrosanct".

In any event, there are 3 key aspects to why Iceland is today doing relatively well today:

1. They let their largest banks fail, and with it the stock market went from "oh my God, are you kidding me" expensive to "dear mother of Mary" cheap.

2. They let their currency collapse. Within days of letting the banks collapse, the krona (graph below) collapsed and over 80 percent of the financial system blew away in the Icelandic wind and almost all businesses on the island went belly up.

The stock market shown in the graph above fell by over 95 percent and interest payments on loans exceeded 300%. Whoopee! Can you imagine locking in a yield on a debt instrument at 300%? Over 60 percent of bank assets were written off within a few months after the banks collapsed and interest rates hit 18 percent in order to curb inflation.

3. And then they imposed capital controls

Pretty much all the things that every government economist said "shouldn"t" be done they did.

In between all of this they threw out the government in what was called the "pots and pans revolution".

Now, I suspect Paul Krugman will disagree here as what I"m going to suggest is both fact as well as common sense, a prerequisite if ever there was one for a conflict with Krugman"s ideas.

This is not my opinion. This is fact. This happened. Sure, there was the typical government doing the typical stupid things like trying to bail out smaller banks and such but in principal the system cleared.

Fast forward today and Iceland has come out the other side and here is what it looks like.

Unemployment rates after just 12 to 18 months began falling and haven"t looked back.

While Iceland let their banks fail they did take on loans from the IMF and others, which saw government debt explode higher (they took on about $10bn in debt - roughly the size of the country"s GDP).

And while I can"t say I agree with them doing so, the fact is that almost a decade later their debts are increasingly under control and falling relative to GDP. Why? Because the private sector was allowed to begin to grow again from a stable (un-indebted) base.

The economy has been growing steadily and is now the envy of their European cousins.

In large part Iceland let the system clear. They did so because they were forced to. I"m pretty sure that if they"d had the ability to bail out the largest banks and follow all the failed policies the rest of the developed world seems intent on doing, they would have. I"m just glad they didn"t, and today, I suspect most Icelanders would agree.

It"s not a perfect setup but it"s starkly different to how Western governments have dealt with the crisis and the results are telling.

So Here is the Question...

Having a free floating currency and watching it collapse 80% acted as an immediate release valve for Iceland. I"m not sure their central bank understands this. It appears not since they subsequently imposed capital controls, which was like locking the barn door after Flicker had already made it off into the starry night.

The other reason they seem not have understood its significance is because of this...

According to this article, they are now looking at pegging their currency to the euro.

"Iceland is considering pegging its crown to a major currency, most likely the euro, its finance minister said on Saturday, amid concerns the small North Atlantic nation"s economy risks overheating."

Pray tell, what jumping onto the deck of the Titanic hours before the band stops playing is meant to do for these fine folks?

What they"re looking for is an anchor of stability. Given that Iceland has no people and imports most everything except fish and sheep, they"re always going to have a currency that is susceptible to the gyrations of those commodities. Pegging currencies is plain stupid. All pegs eventually break.. They"d be better of pegging the krona to myrrh.

Let"s play a hypothetical game and pretend you"re in charge of the CBI... 

Cast your vote here and also see what others would do

- Chris

“Iceland instantly became the only nation on earth that Americans could point to and say, ‘Well, at least we didn’t do that.’ In the end, Icelanders amassed debts amounting to 850 percent of their GDP.” ? Michael Lewis, Boomerang: Travels in the New Third World

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"Is Trump About To Cause Another Crisis?": 2008 Could Be Eclipsed As Bank Restrictions Eliminated

Submitted by Mac Slavo via SHTFPlan.com,

Beware of what may be coming next. We already know the establishment has a plan to blame President Trump for the next financial crisis, and now there are moves being made that will support that narrative.

After the 2008 fiasco, a spotlight on Wall Street misbehavior and some weak, but better-than-nothing regulations were put on the industry in the hopes of preventing another string of bank failures and crippling economic disasters.

But as the system teeters on edge and prepares to endure the backlash of increased rates at the Fed, Trump is also taking off the shackles that have been put in place by the Dodd-Frank Act which instituted certain protections for consumers, including a requirement that pensioners don’t have their nest egg devoured, etc.

For the tens of millions of baby boomer retirees and aging pensioners, the social security net is all they’ve got to count on, apart from a few debt-saddled kids who have hardly been able to save a dime under eight years of Obama.

The 2008 economic crisis penalized everyone with an entire cycle of wage freezes, job starvation and crushing dependence upon government programs for assistance. Wall Street, and the banker class at large were spared from blame or reparations to a society that was robbed blind. Instead, eight years of quantitative easing sent a tidal wave of easy money to the financial sector that created a gorge of asset buy-up from the top – especially in housing, where soaring rates are forcing single households to become renters instead of mortgage debt-slave owners once again.

The election of President Trump created optimism about our collective financial prospects – with seemingly tangible promises of bringing home jobs and returning to American Greatness™. But the banksters also cheered his election; stock markets shot upwards in celebration. Key positions in the White House were offered to Goldman Sachs men and others of their ilk.

Now, President Trump has issued an executive order that has Wall Street once again self-congratulating for backing the right man. The order is expected to gut protections that currently require financial products sellers

As the London Independent reports:

Donald Trump is expected to order a review of the Dodd-Frank Act, which was implemented in the aftermath of the 2008 financial crisis to prevent a repeat of the worst financial crash since the Great Depression.

[…] council has the right to break up banks that it thinks could pose a systemic risk to the global financial order. It also has the ability to demand that banks hold higher reserves, or cash buffers, to minimise a squeeze. Separately, the Dodd-Frank Act also created the Consumer Financial Protection Bureau, to oversee consumer financial products, such as mortgages.

A key part of the Act is the Volcker Rule, which restricts the way that banks are allowed to invest and places restrictions on speculative trading. It also restricts banks from engaging in so-called proprietary trading, or trading for the firm’s direct gain, instead of on behalf of a client.

So in effect, the rule is designed to separate the investment and commercial businesses of banks.

It seems clear enough that this move benefits many of those at the top of the pyramid, but a Bloomberg report directly quoting from senior leadership on Wall Street, and now inside the Trump Administration, makes crystal clear that the intentions are quite self-interested:

Chief executives including Goldman Sachs Group Inc.’s Lloyd Blankfein and JPMorgan Chase & Co.’s Jamie Dimon have been pushing for changes for years, arguing that the industry has been too constrained by the system put in place by the 2010 Dodd-Frank Act. After Trump focused on limiting trade and immigration during his first two weeks in office — policies opposed by many in the financial industry — the president’s stroke of a pen unleashes a process to undo many of the rules they find most irksome.

“We’re going to attack all aspects of Dodd-Frank,” Gary Cohn, director of the White House National Economic Council, said Friday in an interview with Bloomberg Television. “We are going to engage the House, we’re going to engage the Senate. They are equally interested in reforming some of the regulatory processes as well. We can do quite a bit without them, but the more help we get from Congress the better off we’re all going to be.”

Not necessarily the brightest news for the people.

Though it isn’t immediately obvious that this change in the rules would cause immediate trouble, there is reason for concern. If the limitations – inadequate as they were – are lifted off the banks, specifically with investing in commercial banking and with pensions, things could once again take a turn for the worse.

If the same reckless behavior is repeated, it could not only bring the system to a halt, and crash the stock market, but it could potentially wipe out the holdings of those who need it most – pensioners.

Meanwhile, defaults and the burden of a debt-supercycle are also threatening to topple the system. One way or another, the next era will have to handle enormous risk of total economic crisis.

As the Independent notes:

Does this mean we’re at risk of facing another financial crisis? Some economists have even been bold enough to say that getting rid of Dodd-Frank could indeed pave the way for another crisis.

What makes matters a lot worse, is that many experts believe that global financial systems and economies are more vulnerable now than they were ahead of the last financial crisis. So if we do suffer another major crash, the damage has the potential to be a lot more grave.

Central banks around the world have already slashed interest rates to record lows leaving them with limited ammunition to do more to stimulate economic growth. Government debt has also sky rocketed over the decade since the last crisis.

Whatever comes next, there is a toxic cycle that is waiting to crash down upon us with a tsunami of financial misfortune.

Federal Reserve policies in the wake of the last crisis set up the American people for a very bad fall. Economic vibrancy among the middle class and general population has been sucked dry, and they will be ill prepared to handle a new crunch in credit and possible hyper inflationary/deflationary crisis.

Trump’s pro-business, pro-American policies may help if they are instituted correctly, but enabling the financial sector to once again prey upon people and fuel the rise-and-collapse of a massive series of bubbles and a derivatives WMD is not a healthy option.

The stage has been set for a nightmare that we must pray never comes.

Euronomics Decomposing, Raise a Glass of Cheer!

Europeans must have been delighted to discover that one thing is working as well as it has since the start of the Great Recession. Behemoth banks that are failing are still able to pay their Christmas bonuses to their top executives and give nice dividends to their shareholders thanks to Super Mario Draghi. 

Keeping up the tradition of central bankers looking out for other bankers, Mario Draghi, chief of the European Central Bank “agreed to lower the minimum capital requirements for Deutsche Bank on Tuesday, ‘giving the lender more leeway to structure bonus payments and dividends."” (Zero Hedge).

Thank God for that, huh? The needs of the stockholders and top execs have been taken care of before one of the world’s oldest megabanks falls on everyone else. While Deutsche Bank’s stocks sit at all-time lows after it has been required to pay $8 billion in fines, at least the golden parachutes are in top condition.

Italy surrenders to Germany

Meanwhile, the world’s oldest bank in Italy got nationalized for Christmas so that the losses of capitalists — many of whom exist outside of Italy — could all be socialized to the people of Italy. However, when the People’s Republic of Italy became the new owner of the bank, they found out the hole in the bank’s core was bigger than they thought. (Surprise.)

The ECB now estimates the hole to be 8.8 billion euros, rather than the 5 billion of additional capital they formerly believed it needed. That’s a 75% increase in the bank’s capital shortfall that took place from November through December. What a sleigh ride!

Turns out that all the talk of nationalizing the bank caused depositors to rapidly withdraw funds (who woulda thought?), creating something of a black hole in the bank’s core. Lingering depositors don’t need to worry, though, because the Italian parliament has assured them that all Italians are equally on the hook for the bank’s losses by guaranteeing a 20-billion euro fund to stabilize any Italian banks that are too big to fail.

In Monte’s case, the Italian government will invest 6.3 billion euros of this fund into filling the growing hole, and the rest will be squeezed out of bond-holders. (Of course, that news is bound to send even the lingerers running if they know what’s good for them, but obviously they don’t, or they wouldn’t still have been there when all this went down, as warnings have been evident for a couple of years.)

Gee, whatever happened to bail-ins putting the bank’s salvation primarily in the hands of share-holders, bond-holders and major depositors? Look’s like the government still believes general taxpayers should front the biggest wad. So, you’ll be glad to know that, even in Italy, the principles of saving too-big-to-fail banks at the start of the Great Recession are still largely in play. The costs of failing capitalists shall be largely socialized upon the poorer parts of the population because their citizens have happily allowed banks to remain too big to fail.

Maybe the depositors were all withdrawing their money to buy Christmas presents, so Italy will be saved by a Santa Clause rally. (It is no more wishful than thinking these banks will not ultimately pull down their governments. This was, after all, the bank’s third bailout. Keep bailing.)

Italy is the eighth-largest economy in the world, third-largest in Europe, and its GDP per capita hasn’t grown since the Great Recession. It has issued the third-largest amount of sovereign bonds in the world to survive its relentlessly unfolding debt catastrophe, with many of its debts being held by banks and central banks outside of Italy.

On top of that, eighteen percent of all bank loans in Italy are bad debt that has been carried on the books since the Great Recession. Italian banks don’t write off this long-term bad debt because they have less than 50% of the capital they need in order to cover it. So, they pretend their customers will all win the Italian Liralicious Lotto and pay up. Since GDP per capita is actually sinking, the ability of each customer to ever pay one of these debts off is ever diminishing. The Super Mario jackpot better pay off real soon.

No wonder Italians took a big step toward their own euro exit on December 4th. Back when they had their own currency, they could, at least, try to inflate their way out of trouble. They could lower the lira’s value in order to draw trade away from Germany and toward Italian products. Now they socialize debts away from German (and other non-Italian) bond owners and bank holders toward the Italian populace.

Owed to Grecians earning less

Meanwhile in Greece, people have started rejecting their own inheritances in order to save themselves. At this point in the Greek crisis, so much real estate is underwater that it is worth less than it is worth. You don’t even want to inherit it for free because you cannot sell it for enough to pay off its debt if you accept it.

With incomes falling (unemployment is at 23%) and taxes rising (particularly property tax) to meet Eurozone austerity requirements, old people have heaped mortgages onto their properties to make it through their declining years. To receive an inheritance from your parents is to receive their bundled debts.

Thirty-two percent of all property loans in Greece are now delinquent. So much for the ultimate safe haven. So many properties in foreclosure sales drives down the price, making the next round worse. So, beware of dead Greeks bearing gifts if they are willing them to you. Gift recipients are lining up in government cues to decline their inheritance. Wealth destruction via real estate.

But Europe has this solved. If everything goes well with Greece, the Greek’s condition is expected to resolve back to a normal economy in just fifty years! The Greek debt burden is about 177% of its entire Gross Domestic Product; compare that to the US now at a paltry 100%. Europe calculates the Greek’s situation will improve by 20% come the year 2060. Do you think maybe these people are debt slaves for life? I think they were better off under Rome in AD Zero than under Germany.

Germany is helping out, after requiring some rather Spartan austerity, by proposing that all of Europe send its refugees goose-stepping toward Greece in order to save the northern states of Europe from those social and financial burdens. That ought to stomp out the tiny nation, which can’t even look out for its own welfare. Greece already has bottled up huge amounts of resentment against both Europe and its own government. Germany seems blindly determined to use its immigration policies to destroy its own European union. “Here, feed our poor and wandering masses while you Greeks lick the bottoms of our boots for nourishment.”

Not sure who’s doing the math over there, but it doesn’t add up to success.

And now for a Bilderberg Bonanza:

(In case you are stunningly new to the world of conspiracy theories, the uber-elite one-percenters meet at the Hotel Bilderberg once a year to control the world through sub committees like the Illuminati … or something like that. Anyway, they’re really rich, and they suck.)

The hacker group Anonymous seized control of the Bilderberg website today, posting the following message as the site’s new home page:

…Dear Bilderberg mEmBers, From NoW(), each OnE of you have 1 year (365 days) to truly work in faVor of HumaNs and not youR private interests…. MiNd the cuRrent situation: We conTrol your expensive connected cars, we control your connecteD house security devices, we control your daughter laptop, we control your wife’s mobile, we tape YoUR seCret meetings, we reAD your emaiLs, we control your faVoriTe eScort girl smartWatch, we ARe inside your beLoved banks and we Are reading YoUr assets  You wont be safe anywhere near electricity anyMore  We WiLL watch yOu, from NoW on you got to WoRk for Us, Humanity, the People

They had other choice words, too; but I don’t know if I recommend going to their site to check it out because who knows what it does to your computer while you’re there, but the link is provided for the brave of heart. I did and lived to tell about it. Maybe I’ll find out otherwise when a certain date clicks by.

It’s getting harder for the globalists to feel safe in their dark-paneled, smoke filled hotel meeting rooms, high in the citadels of Germany, Switzerland, or down inhabiting the swampy Netherlands and other such heady retreats … and this is why they want to control the internet.

The Christmas present from Fundamentalist Islam

Subsequent to the Christmas bombing in Berlin, Europe is proposing tighter restrictions on the movement of cash and precious metals. (This is one more reason that gold is not necessarily a safe haven in any nation because stringent controls were placed on gold in the US during the Great Depression, too. It happens; so, diversify.)

The European Commission says that tighter controls will help shut down funding for militant operations on the continent. I’m not sure how that will stop a guy from driving a truck into a crowd in Berlin, but maybe it will keep him from getting money for fuel. I think it is more likely that any excuse will do when bankers see people fleeing their proprietary product (money) for generic gold and need to find reasons to slow down the gold traffic. Probably more concerned about that than they are thinking this plan will slow down truck traffic in crowded streets.

Of course, that’s also why central banks own so much of the yellow stuff they hate — so they can throw it off as ballast whenever there is a run on banks in order to try to kill the price of gold and scare people away from it. Why else would they keep so much of something they say is a poor investment, other than to control the only competition in town to their monopoly?

The EU is also proposing stricter controls on the movement of Bitcoin funds. The new rules will allow seizure of funds, including gold, wherever “there are suspicions of criminal activity.” It’s unclear whether suspicion also requires a warrant, or just (that’s a lot of money, and I think you look funny or you had a drink with a bad guy).

While the European Commission solves its immigrant-created catastrophes with golden rules, widespread unrest is becoming the norm due to the over-exuberant globalists’ drive to soak up unscreened Muslim refuges that are not integrating well into European society. They are almost entirely unemployed and sucking up social welfare that those unemployed Greeks and Italians could sure use. That has got to be a short-fused bomb.

While the news is bad all over Europe, it’s not going so well for the globalists in the new year either! In light of extenuating circumstances, who could ask for anything more? The serfs are up, and the sooner they set sail from the Eurozone and its globalist control, the sooner they can have a real economy back. So, raise a cup of cheer; the New Year is here!

And now, for some lighthearted New Year"s fun, here are my favorite Putin-Obama cartoons.