Europe"s Runaway Train Towards Full Digitization Of Money & Labor

Authored by Peter Koenig via The Saker blog,

The other day I was in a shopping mall looking for an ATM to get some cash. There was no ATM. A week ago, there was still a branch office of a local bank – no more, gone. A Starbucks will replace the space left empty by the bank. I asked around – there will be no more cash automats in this mall – and this pattern is repeated over and over throughout Switzerland and throughout western Europe. Cash machines gradually but ever so faster disappear, not only from shopping malls, also from street corners. Will Switzerland become the first country fully running on digital money?

This new cashless money model is progressively but brutally introduced to the Swiss and Europeans at large – as they are not told what’s really happening behind the scene. If anything, the populace is being told that paying will become much easier. You just swipe your card – and bingo. No more signatures, no more looking for cash machines – your bank account is directly charged for whatever small or large amount you are spending. And naturally and gradually a ‘small fee’ will be introduced by the banks. And you are powerless, as a cash alternative will have been wiped out.

The upwards limit of how much you may charge onto your bank account is mainly set by yourself, as long as it doesn’t exceed the banks tolerance. But the banks’ tolerance is generous. If you exceed your credit, the balance on your account quietly slides into the red and at the end of the month you pay a hefty interest; or interest on unpaid interest – and so on. And that even though interbank interest rates are at a historic low. The Swiss Central Bank’s interest to banks, for example, is even negative; one of the few central banks in the world with negative interest, others include Japan and Denmark.

When I talked recently to the manager of a Geneva bank, he said, it’s getting much worse. ‘We are already closing all bank tellers, and so are most of the other banks’. Which means staff layoffs – which of course makes it only selectively to the news. Bank employees and managers must pass an exam with the Swiss banking commission, for which they have study hundreds of extra hours within a few months to pass a test – usually planned for weekends, so as not to infringe on the banks’ business hours. You got to chances to pass. If you fail you are out, joining the ranks of the unemployed. The trend is similar throughout Europe. The manager didn’t reveal the topic and reason behind the ‘retraining’ – but it became obvious from the ensuing conversation that it had to do with the ‘cashless overtake’ of people by the banks. These are my words, but he, an insider, was as concerned as I, if not more.

Surveillance is everywhere. Now, not only our phone calls and e-mails are spied on, but our bank accounts are too. And what’s worse, with a cashless economy, our accounts are vulnerable to be invaded by the state, by thieves, by the police, by the tax authority, by any kind of authority – and, of course, by the very banks that have had your trust for all your life. Remember the ‘bail-ins’ first tested in early 2013 in Cyprus? – Bail-ins will become common practice for any bank that has abused its greed for profit and would go belly-up, if there wouldn’t be all those deposits from customers. Even shareholders are not safe. This has been quietly decided on some two years ago, both in the US and also by the non-elected white-collar mafia, the European Commission – EC.

The point is, ‘banks über alles’. And which country would be better suited to introduce ‘cashless living’ than Switzerland, the epicenter – along with Wall Street – of international banking. Bank’s will call the shots in the future, on your personal economy and that of the state. They are globalized, following the same principles of deregulation worldwide. They are in collusion with globalized corporations. They will decide whether you eat or become enslaved. They are one of the tree major weapons of the 0.1 % to beat the 99.9% into submission. The other two at the service of the master hegemon’s Full Spectrum Dominance drive, are the war- and security industry and the ever more brazen propaganda lie-machine. Banking deregulation has become another little-propagated rule of the World Trade Organization (WTO). Countries who want to join WTO, must deregulate their banking sector, prying it open for the globalized money-sharks, the Zion-controlled banking conglomerates.

Retrenchment of personnel in the banking employment market is increasing. The news only selectively reports on it, when there are large amounts of jobs being eliminated. Statistics lie everywhere, in the EU as well as in Washington. – Why scare people? They will be scared enough, when they are offered jobs at salaries on which they can barely survive. That’s happening already. It used to be a tactic applied for developing countries: Keep them enslaved by debt and low pay, so they don’t have time and energy to take to the streets to protest – they have to look for food and work, whatever menial jobs they can get, to feed their families. It’s now hitting Europe, the West in general. Some countries way more than Switzerland.

Cashless trials are going on elsewhere, especially in Nordic countries, where selected department stores and supermarkets do no longer take cash. Another monstrous trial has been carried out in India a year ago, in the last quarter of 2016, where from one day to another 80% of the most popular money notes were eliminated, and could only be exchanged for new notes by banks and through bank accounts. And this in an almost pure cash country, where half the population has no bank account, and where remote rural areas have no banks. People were lied to so that the sudden introduction had maximum effect.

It caused massive famine and thousands of people died, as they had suddenly no acceptable cash to buy food – all instigated by the USAID Project ‘Catalyst’, in connivance with the Indian rulers and central bank. It was a trial. It was a disaster. If it works in India with 1.3 billion people, two thirds of whom live in rural areas and most of them have no bank account, the scam could be applied in any developing country – see also India – Crime of the Century – Financial Genocide

What is going on in Switzerland is a trial with the high end of populations. How is the upper crust taking to such radical changes in our daily monetary routine? – So far not many protests have been noticed. There is a weak referendum being launched by a group of people who want the Swiss Central Bank be the only institution that can make money, like in the ‘olden days’. Though a very respectable idea, the referendum has no chance in today’s banking and debt-finance environment, where youth is being indoctrinated with the idea that swiping your card in front of an electronic eye is cool. Today, most money is made by private banks, like elsewhere in Europe and the US. Worldwide banking deregulation, initiated by the Clinton Administration in the 1990s – today a rule for any member of the World Trade Organization (WTO) – has made this all possible.

Digitalization and robotization is just beginning. Staffed check-out counters in supermarkets are dwindling; most of them are automatic – and that happened within the last year. – Where are the employees gone? – I asked an attendant who helped the customers through the self-checkout. ‘They joined the ranks of unemployed’, she said with a sad face, having lost several of her colleagues. ‘It will hit me too, as soon as they don’t need me anymore to show the customers on how to auto-pay.’

Bitcoins

Digitalization also includes the cryptocurrencies, the blockchain moneys floating around – of which the most famous one is Bitcoin. It brings digitalization of money to an apex. The system is complex and seems to lend itself only to ‘experts’. Cryptocurrencies are fiat money, based on nothing, not even on gold. Cryptos are electronic, invisible and highly, but highly speculative, an invitation for gangsters and fraudsters. With extreme speculative values, it looks as if cryptocurrencies were designed for crooks and speculators.

Bitcoin was allegedly invented by Satoshi Nakamoto which could be a pseudonym of a man or a group of people, suspected to live in the US. “Nakamoto’s” identity is believed to be commonwealth origin, due to the vocabulary used in his writings. One of his close associates is purportedly a Swiss coder, who is also an active member of the cryptocurrency community. He is said to have graphed the time stamp of each of Nakamoto’s more than 500 bitcoin forum posts. Such ‘forum posts’ exist in the thousands, worldwide. They form an elaborate network based on algorithms.

Bitcoin was formally created in January 2009 with a fix amount of 21 million ‘coins’, of which more than half are already in circulation, and 1 million, or about 4.75% (of the total) can be traced to Nakamoto – which according to the current market value corresponds to close to US$15 billion. Today’s overall Bitcoin market cap is more than US$ 315 billion. The market is highly volatile. Drastic daily fluctuations are common, especially within the last 12 months. If one of the major Bitcoin holders, like Nakamoto, would capitalize his profit by selling a big portion of his holdings, the Bitcoin price would be in free fall, functioning pretty similar to the regular stock exchange.

On 24 August 2010, when Bitcoin was first traded, its value was US$ 0.06. On 24 December 2017, the coin was worth US$ 13,800, an increase of 230,000%. In the last twelve months, its value increased from about US$ 800 in December 2016 to a peak of close to US$ 20,000 in December 2017, an increase of nearly 2,500 %. However, in the last 7 days, the price has dropped by US$ 5,160, i.e. by more than 27%, and the trend seems to be downward; perhaps a sign of quick profit-taking? However, this shows how instable this cryptocurrency is, apparently much more so than trading corporate shares on the stock market.

The number of cryptocurrencies available over the internet as of 27 November 2017 is above 1300 and growing. A new cryptocurrency can be created at any time and by anyone. By market capitalization, Bitcoin is presently the largest blockchain network (database network, storing data in different publicly verifiable places), followed by Ethereum, Bitcoin Cash, Ripple and Litecoin.

Bitcoin may be the next bubble, bringing down a parallel economy which has already its fingers clawing into our regular western economy. Cryptocurrencies are officially forbidden in Russia and China, though stopping cryptocurrency dealings by individuals is hardly possible. They do not touch the traditional banking system. That’s why major banks hate them. They circumvent the banking suckers, prevent them from making ever higher profits from horrendous commissions, against which the people at large are powerless.

Here is Bitcoin’s positive value. It escapes bank and state controls. If countries’ economies were run on Bitcoins or another cryptocurrency, they would escape US sanctions which function only because western currencies are foster-children of the US-dollar, hence, subject to the dollar hegemony; meaning all international transactions have to pass through a US bank. A typical case is ‘banking blockades’, when Washington decides to stop all international transactions of a country until it submits to the wishes of the empire. It is blackmail; totally illegal, but unless there is a monetary alternative, the (western) world is subject to this system.

A typical case was Argentina, when she was forced by a New York judge in June 2014 to pay a New York based Vulture Fund US$1.6 billion, an illegal ruling according to a UN resolution. Argentina refuse to pay, so the judge, interfering in a sovereign nation, blocked more than US$ 500 million in Argentina’s debt payment to creditors, bringing Argentina to the brink of a second bankruptcy in 13 years. Eventually, neoliberal Macri negotiated a deal with the Vultures of a payment in excess of US$ 400 million.

This US blackmail would not have been possible had Argentina been able to make its foreign transactions in Bitcoins or another cryptocurrency. Venezuela is currently using a national cryptocurrency for some of its foreign transactions, thereby escaping the sanctions stranglehold of Washington. Had Greek and Cyprus citizens had a cryptocurrency alternative to the euro, they would not have been subject to the cash control imposed by the European Central Bank.

On the other hand, funding of terror organizations, like ISIS, cannot be disrupted, if the terror group deals in cryptocurrencies. – This shows, for good or for bad, Bitcoins, or cryptocurrencies are for now unique in resisiting censure and blackmail, or any kind of authoritarian outside interference in electronic money transactions.

Cashless Living

If Switzerland accepts the change to digital money, a country where until relatively recently most people went to pay their monthly bills in cash to the nearest post office – then we, in the western world, are on a fast track to total enslavement by the financial institutions. It goes, of course, hand-in-hand with the rest of systematic and ever faster advancing oppression and robotization of the 99.9% by the 0.1%.

We are currently at cross-roads, where we still can either decide to follow the discourse of a new electronic monetary era, with ever less to say about the product of our work, our money; or whether, We the People, will resist a banking / finance system that has full control over our financial resources, and which can literally starve us into submission or death, if we don’t behave. In order to resist we need an alternative monetary system or monetary network, away from the dollar-euro hegemony.

All the more important is the ascent of another economy, another payment and transfer scheme which already exists in the East, the Chinese International Paymen, totally System (CIPS), effectively a replacement of SWIFT, totally privately run and linked to the US-dollar and US banks. The world needs a multipolar economy, based on the real output of a country or society, as is the case in China and Russia, not one based on fiat money as is the current western economy.

Will Switzerland, the stronghold of world finance, along with New York, London and Hongkong, resist the temptation of increased profit, power and control, offered by digital money? – We, the People, have still the chance to decide either for continuing rotting in a fraud economy, based on wars and greed – for which digital money, exacerbated by cryptocurrencies, is a new tool for a new maximizing profit bonanza on the back of the common people; or do we opt for an honest future and for a life that leaves us free to take sovereign political and monetary decisions in a full cash society. For the latter we must wake up to see the propaganda fraud going on before our eyes, and to resist the robot and electronic money onslaught being unleashed on us.

Now That Xmas Is Over - Mapping The US States With The Most People In Debt

With Americans left with only one option - indentured servitude - to maintain any semblance of normal quality of life - especially at Christmas - we thought it worthwhile considering which US States have the most people in debt.

Using data from anonymous consumer-level records from a major credit bureau, the Urban Institute was able to release figures on debt levels across America.

Statista"s Niall McCarthy points out that nationwide, 33 percent of people have debt that has gone into collections which means they have unpaid bills creditors have either closed or are trying to collect.

You will find more statistics at Statista

Between states, the share of people in debt fluctuates considerably and the lowest levels were recorded in Minnesota (17 percent), South Dakota (18 percent) and North Dakota (19 percent).

Louisiana is at the opposite end of the scale with nearly half its residents in debt with collections. Last year, 46 percent of people living in Louisiana were in debt and the median amount owed was $1,486.

The majority of U.S. states with high levels of debt are concentrated in the south. Texas is second with 44 percent of its residents in debt and South Carolina comes third with 43 percent.

The Dollar"s Reign As The Global Reserve Currency Is Running Out - Fast

The dollar’s hegemony over the global financial system can’t last forever. Like all things, it will eventually come to an end.

The only question left, as MacroVoices" Erik Townsend puts it, is whether we’re in the second inning and there’s going to be another hundred years of the dollar serving as the world’s global reserve currency? Or whether we’re in the bottom of the ninth and it’s all about to fall apart? Or maybe somewhere in between.

In an interview with Jeffrey Snider, CIO at Alhambra Partners, Luke Gromen, founder of Forest for the Trees, and Mark Yusko, founder and fund manager for Morgan Creek, Townsend explores the issue in greater detail. For many, the decline of the dollar as the world’s reserve currency is difficult to imagine. But the first blow to the petrodollar system has already been delivered: By refusing to accept oil payments in dollars, Venezuela has demonstrated to the world that an alternative system to the petrodollar is indeed possible. Furthermore, Latin America’s socialist paradise has begun publishing an oil-price index denominated in yuan. We"ve also highlighted reports that Russia, Venezuela and Iran - three countries that have trouble accumulating dollars because of Treasury Department sanctions - are considering launching a cryptocurrency backed by oil.

Townsend begins his interview with Gromen, who points out that, counterintuitively, the dollar’s rapid appreciation beginning in Q3 2014 has coincided with a drop in the share of global trade settled in dollars. Gromen predicts that this trend will continue to benefit the dollar – until it doesn’t.

I would probably say in the later innings. Certainly the last third of the game. Maybe the eighth inning.

 

The reason I say that is that, given the Eurodollar system as it’s structured, early on, if any nations or major parties wanted to move away from using the dollar for any number of reasons, ironically, what that moving away from the dollar would do would drive significant dollar strength. So, ironically, accelerating moves to dump the dollar in global trade usage, which in the long run is the most bearish development for the dollar, in the near term is the most bullish development for the dollar.

 

And so when we look back, we think, beginning in 3Q14 was when you started to see a marked acceleration in the dollar’s share loss in global trade. And, in particular, in energy trade centered between China and Russia. And so we think things began to accelerate in 3Q14 and, like we’ve said, the process of moving away from the dollar, or the dollar losing share in trade, is a big positive for the dollar – until it’s not.

However, Gorman believes an important shift happened in Q3 2016 when the dollar’s share loss in global trade started to accelerate. At that point, the dollar’s climb from 2014 and 2015 had already been unwound to a degree. Furthermore, Gorman posits that the dollar will weaken because it’s in the national security interest of the US for the dollar to weaken.

And then the “until it’s not” part of this movie began over a year ago now, in 3Q16. The reason we say that is because from 3Q14 until 3Q16 you saw a rising dollar, rising Libor, and a pretty traditional dollar strengthening cycle up to that point.

 

Where it started to become non-traditional relative to what pretty much any market participant trading in markets today – or even alive today – was when in 3Q16 rising dollar, rising Libor, drove a year-over- year decline in US tax receipts and therefore an increase in the US deficit as a percent of GDP. And it did this before you had a major emerging crisis.

 

This was the first time the US’s tax receipts declined before a major emerging market crisis, in a dollar-tightening cycle, in the post-Bretton Woods period.

 

And so, then, when you combine that with what has become effectively a system that requires as infinitum asset price appreciation in order to drive tax receipts for the US government, it sets up – beginning in 3Q16, where we started to get into late innings of this game. Where, not only are foreign creditors looking to move away from the dollar in trade usage for a number of reasons, but it also started to become a matter of national security for the

 

US government for the dollar to weaken.

Moving on, Townsend turns next to Jeff Snider, CIO at Alhambra investments. Snider explains how the Eurodollar system harms emerging-market economies and ultimately weakens the global financial system with each cycle of tightening.

The last tightening cycle, which lasted from 2014 through 2016, was particularly destabilizing, Snider explained, particularly for emerging markets like Brazil, Russia, and China. Many EM countries and corporations based in those countries issue dollar-denominated debt, which becomes more expensive to pay down when the greenback climbs.

But, for now at least, Snider expects the system to endure – if for no other reason than there’s nothing to take its place.

My position is that the dollar system, the supply of dollars in the global network of trade, continues to be a problem. But it isn’t a problem in a straight line. It’s not like it’s a straight-line decay from where you can draw a singular line from 2007 to 2013. Instead, it’s more of an intermittent type of thing where we have these alternating periods where things tighten up. Then they loosen up relatively.

 

But, as we go through each of these periods, the system is worse off for having gone through each one. And so the last tightening episode, starting in 2014 and lasting through 2016, was severe. Especially in emerging markets like Brazil, Russia, and China, the BRICs, because that’s where that part of the dysfunction was focused. More in FX and more into the Asian part of the system, as it has evolved since 2007 in that direction.

 

So, from my perspective, nothing has really changed except the system continues to get weaker. And I think right now where we are is we’re waiting for the next tightening event to start taking place. That there’s plenty of evidence that the system continues to decay, particularly with China and some of the other emerging markets.

 

So it doesn’t add up to a bullish position, necessarily. And I think that’s one of the things I want to define, is what exactly is a rising dollar? And it’s not bullish. And I’m certainly not of the position that most dollar bulls take, which is that the dollar goes up because the US is going to strengthen either economically, financially, or otherwise. I think that’s just not the case. So if we couch these in terms of the Eurodollar system and its continued decay, it’s not a bullish thing. But I think the dollar continues to go up, at least for the next little while. Because, frankly, there is nothing there to take its place.

 

So we’re kind of stuck with it.

Moving on, while Yusko didn’t feel comfortable attaching an expected expiration date for global dollar hegemony, he did draw some interesting parallels between the dollar and the British pound, the global reserve currency that immediately preceded the dollar.

You know, the interesting thing about world reserve currency is there have been lots of them over time. And I always joked that Americans are like Notre Dame football fans – they remember a past that never was. Notre Dame football fans think that we win all the time, which, clearly, we don’t. I was down in Miami. That was horrible.

 

And, you know, Americans think that we’ve always been the world reserve currency, for some reason. And we clearly haven’t. It’s only been since 1944. What’s interesting about that is the transition can last a long time. The sun never set on the British Empire for 70 years. They had the world reserve currency. They had the strongest navy.

 

And then in 1913 they invaded Mesopotamia, incurred a bunch of debt, the pound sterling collapsed, the dollar ascended. We, 31 years later, became the world reserve currency. And then in 2013, we (coincidentally) invaded Mesopotamia, incurred a bunch of debt, the dollar collapsed, and the Renminbi ascended.

 

Well, that hasn’t all happened yet. But I think it’s on its way to happening. And when I look around the world, I think it’s supremely clear that China has a plan. And for the last 50 years, their stated goal was a harmonious rise.

 

Doesn’t that sound poetic? It’s beautiful. It’s non-confrontational.

Ultimately, Yusko believes the Chinese yuan will replace the dollar as the world’s reserve currency sometime before 2050, the time by which Yusko expects China will become the dominant global power.

This contrasts with the consensus view, that, after the dollar, there won’t be one dominant currency, but several in separate spheres of influence.

The conversation is part one of a five-part series from MacroVoices exploring the dollar’s future as the world’s dominant currency.

Readers can listen to the whole conversation below:

ECB Trapped: Steinhoff Liquidity Collapses As Lenders Pull Credit Lines

When yesterday we discussed the latest troubles facing embattled retailer Steinhoff, whose bonds are owned by none other than the ECB, we said that while the company"s bonds mature in 2025, its bankruptcy is at most months away. In retrospect, and in light of the latest news, that may have been optimistic, because it now appears that a bankruptcy may be imminent and is at most just weeks away. According to Bloomberg, Steinhoff - which is facing an accounting scandal that led to the recent departure of its CEO and destroyed most of the company"s value - said lenders are starting to cut off support.

The reason why Steinhoff is suddenly facing not only a solvency but liquidity crisis is that the company which owns Conforama in France, Mattress Firm in the U.S. and Poundland in the U.K. isn’t yet able to assess the magnitude of financial irregularities disclosed two weeks ago, it said in a presentation to lenders in London on Tuesday (presentation below). The South African company also said it didn’t know when it would be able to publish audited results for 2017 and 2016, nor whether additional years will need to be restated.

Furthermore, Steinhoff also revealed that it didn’t have “detailed visibility” of the cash flows of individual operating companies. The units rely on the company for working capital and “the forecast position for each operating company is evolving daily,” it said. PricewaterhouseCoopers has been hired to investigate the accounts, while AlixPartners LLP is working on an analysis of the cash flow.

In short, the company is flying blind with no budgeting and no corporate overnight.

The presentation also said that the company is still grappling with the task of getting to the bottom of the crisis, which has led to the resignations of CEO Markus Jooste and billionaire Chairman Christo Wiese. As Bloomberg adds, Steinhoff said earlier Tuesday that Chief Operating Officer Danie van der Merwe, 59, had been made interim CEO to helm the recovery attempt, while Conforama boss Alexandre Nodale will serve as his deputy in a new four-member management board.

Needless to say, the last thing secured creditors want, is not knowing the "revised" value of the collateral that secures their loans, especially in the case of a rollup which "suddenly" turned out to also be fraud. Hence: everyone is rushing to get out the back door. Predictably, Steinhoff"s shares - already decimated - resumed their plunge, and ended their recent dead cat bounce by slumping more than 205% in Frankfurt to the lowest since Dec. 8 before paring losses to trade 12 percent lower.

Finally, Steinhoff revealed that it had outstanding debt of 10.7 billion euros ($12.7 billion) as of Dec. 14, the slide below revealed. Almost 4.8 billion euros of that was in Steinhoff Europe AG, an operation based in Austria. About 690 million euros in notional facilities have been rolled over to date, according to the presentation.

As a reminder, the ECB is a creditor to Steinhoff Europe AG Austria.

Which brings us to the question he brought up yesterday: will, or rather when now that Steinhoff"s bankruptcy now appears imminent, will the ECB sell its Steinhoff bond holdings? As we showed yesterday, Mario Draghi appears to be getting ready to do just that. As BofA pointed out, Draghi seems to be taking a more defensive stance with regards to owning Fallen Angel bonds like Steinhoff"s.

Note that the CSPP Q&A has been updated as of 29th November 2017, and the paragraph on ECB selling now reads as follows:

Q1.5 Will the Eurosystem sell its holdings of bonds if they lose eligibility?

The Eurosystem may choose to, but is not required to sell its holdings in the event of a loss of eligibility, e.g. in case of a downgrade below the credit quality rating requirement.

Previously this phrasing was far more specific, with forced selling (or otherwise) not even presented as an option:

Q8 Will the Eurosystem sell its holdings of bonds if they lose eligibility? For example, if they are downgraded and lose investment grade status?

The Eurosystem is not required to sell its holdings in the event of a downgrade below the credit quality rating requirement for eligibility.

Of course, once the ECB breaks the seal and it become public knowledge that the world"s biggest hedge fund not only buys - as everyone had known - but also sells when it has to, all hell could break loose for those IG bonds on its books which are about to be downgraded to junk by one or more rating agencies, leading to the perilous scenario we described yesterday, in which "fallen angels" become very painful "falling knives."

Until then, we will just keep an eye on Mario Draghi for the answer how long he can continue to burn taxpayer money by holding insolvent bonds and pretending that nothing has changed...

* * *

Steinhoff"s full presentation to (evaporating) investors is below (link)

Peter Schiff Warns Of "Too Big To Pop" Bubble - "Everybody Is Going To Get Wiped Out!"

via Greg Hunter"s USAWatchdog.com,

Money manager Peter Schiff correctly predicted the financial meltdown in 2008.

Now, 10 years later, what does Schiff see today?  Schiff says,

“I predicted a lot more than just the stock market going down back then.  I predicted the financial crisis, but more importantly, I predicted what the government would do as a result of the financial crisis and what the consequences of that would be because that’s where we’re headed. 

 

The real crash I wrote about in my most recent book is still coming...

 

This is the third gigantic bubble that the Fed has inflated, and when this one pops, it’s not going to be ‘the third time is a charm.’  It’s going to be ‘three strikes and you’re out.’ 

 

I think this bubble is too big to pop.  I think it’s the mother of all bubbles, and when it bursts, there is not a bigger one that the Fed is going to be able to inflate to mask these problems, meaning we can’t kick the can down the road anymore.”

This time, the crisis is going to hit everyone in the wallet. Schiff goes on to say,

“I think the problem we are going to be confronted with is going to be much worse than a financial crisis.  It is going to be a dollar crisis, and it is going to be a sovereign debt crisis where the bonds people are worried about are not some sub-prime mortgages...

 

It’s going to be the U.S. government that people are worried about and the solvency of the U.S. government and the Treasury bonds.  If it’s a dollar crisis and people are worried about the dollar, the only thing worse than owning a dollar today is owning the promise of being paid in dollars in the future. 

 

I don’t think we have the courage to default and admit to our creditors that we don’t have the money and we can’t repay.  I think we will create all the money that we need so we can pretend to repay, but what we end up doing is wiping out the debt with inflation.”

So, how long can it go on? Schiff says,

“How high can the debt go?  I don’t know and you don’t know...

 

How many straws can you put on a camel’s back?  You don’t know until you put that final straw that’s one too many and you break his back.  So, can we go to $25 trillion in debt?  Maybe.  At some point, we are going to break the back of the camel with all this debt.  Then we are going to find out how much debt we can pile on, and it’s not going to be pretty. 

 

Everybody is going to lose.  Everybody is going to get wiped out who has been partying in the stock market, the bond market and the real estate market.  The dollar is going to tank, and purchasing power is going to get wiped out.”

Inversely, Schiff says it is the same with the suppressed gold and silver markets. Schiff contends,

“They can’t keep doing it, and it will end.  It’s just like how much debt can we take on.  It’s not an unlimited amount.  We will know when we get there. 

 

How long can they keep the price of gold suppressed?  We will know when we get there.  At some point, the price is going to explode because there is real physical buying, and all that paper selling can’t camouflage that...

 

People don’t trust fiat currencies . . . . More and more people are looking for alternatives, and the real alternative is gold.  When they embrace it, it’s going to overwhelm central banks’ ability to suppress the price.  In the meantime, enjoy the gift that they are giving.”

Join Greg Hunter as he goes One-on-One with money manager and financial expert Peter Schiff, founder of Euro Pacific Capital...

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China: Systemic Risk Surges As HNA"s High Coupon Borrowing Binge Accelerates

In early November 2017, we returned to one of our favourite subjects, systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda. In particular, we asked whether the extortionately high coupon of 9% on an HNA dollar bond issue, with less than one year to maturity, marked the beginning of China’s Minsky moment? As we noted at the time, HNA has $28 billion of short-term debt maturing before the end of June 2018, much of it accumulated during an acquisition binge over the last two years, which has seen it become a major shareholder in companies such as Deutsche Bank AG and Hilton Worldwide Holdings.

Speaking to Bloomberg at the time, Warut Promboon, managing partner at credit research firm, Bondcritic, noted...

“Nine percent is really high for one year. Basically, it tells you that the worry is real."

In a sign that HNA is under pressure, both from the Chinese government and its creditors, CEO Adam Tan announced last week that the company was reversing its previous strategy. From Reuters.

HNA Group CEO Adam Tan said the acquisitive company is making adjustments to conform with national policies, and has sold some investments and real estate projects to improve its liquidity, domestic media reported on Tuesday.

 

Tan said the company would not invest in those areas not backed by the government, while supporting Beijing’s Belt and Road initiative, the 21st Century Herald reported. “Companies cannot invest chaotically overseas, because chaotic investment creates trouble,” Tan was quoted in a separate article by the media portal Sina.com.

HNA is already in trouble, the question is how much? The group is planning an IPO of Gategroup Holding AG, an airline catering company it only purchased in 2016 for $1.5 billion, next year. However, its interest expenses have been rising rapidly and paying 9% coupons is only going to make it worse.

Meanwhile, it continues to tap bond markets at high rates, this time paying 8.2% for an issue by a subsidiary of Hainan Airlines, the core business from which HNA developed. According to Bloomberg, units of HNA Group Co. are stepping up fundraising in the local bond market even as borrowing costs soar, adding to concerns about the Chinese conglomerate’s debt burden. Yunnan Lucky Air Co., a unit of Hainan Airlines Holding Co. -- HNA’s flag carrier -- sold a 270-day yuan bond to yield 8.2 percent last week, the highest coupon rate ever for the Yunnan airline. Tianjin Airlines Co., another subsidiary of Hainan Airlines, issued similar-maturity notes at the highest coupon rate in five years in November.

As Bloomberg notes, while other Chinese companies have cancelled bond issues, HNA doesn’t have that luxury.

While surging onshore bond yields last month forced Chinese companies to cancel the most bond offerings since April, HNA’s units didn’t slow their pace of financing. They revived debt sales from November, following a lull after news emerged in June about a crackdown by China’s banking regulator. The accelerated fundraising suggests a need for money and may hurt the conglomerate’s credit profile, according to credit research firm Bondcritic Ltd.

“They just keep piling on debt,” said Warut Promboon, managing partner at Bondcritic. “It’s not going to work.”

 

Two calls to Hainan Airlines’ public relations officers weren’t answered. There were no replies to questions sent via text messages.

The flood of issues from constituents of the HNA group is expected to continue, assuming that bond markets are amenable.

Hainan Airlines said last week that it is planning to sell 1 billion yuan of perpetual bonds on Dec. 6. That would be its third note sale in the local Chinese market in a month, according to Bloomberg-compiled data. In the carrier’s most recent sale of onshore securities last month, the company, which has top ratings from local credit assessors, issued local bonds at yields equivalent to junk notes in the nation.

 

Another HNA unit, Sanya Phoenix International Airport Co., is planning its third bond sale in three weeks on Monday, according to a statement on Nov. 29.

During his presentation last week, CEO Adam Tan commented that “Each of our business groups has its own cash flow management”. However, if Hainan Airlines is paying junk rates despite its “top” local ratings, it suggests that creditors are assessing risk from a group perspective…and unfavourably. Last week, Bloomberg noted that S&P cuts the HNA Group’s credit rating to five times below junk, citing its significant debt maturities, rising borrowing costs and proposed acquisition of New Zealand’s UDC Finance (will it ever learn).

S&P said on Wednesday it lowered HNA’s credit profile by one notch to b, or five levels below investment grade, from b+. The change was disclosed in a report by S&P on New Zealand’s UDC Finance Ltd., which HNA is seeking to buy.

 

“HNA Group has significant debt maturities over the next several years and its funding costs are meaningfully higher than that of a year ago," Andrew Mayes and Sharad Jain, analysts at S&P, wrote in their report. "We will closely monitor HNA Group’s access to capital markets and funding costs to determine whether additional actions are necessary.”

 

As to Australia & New Zealand Banking Group Ltd.’s UDC Finance, S&P said it may cut the company’s long-term debt rating by four notches to a junk level of BB- from BBB if its sale to HNA is completed. The deal, announced in January, has yet to be completed pending approval from New Zealand’s overseas investment approvals board.

It’s possible that HNA is approaching the “catastrophic margin call”, from its practice of pledging its own shares and those of its investments, which we first postulated in July 2017 in “A Reverse Rollup From Hell’: China"s ‘Boldest Dealmaker’ Faces Margin Call Disintegration”. From our post.

…while most Chinese companies pledged "only" their own shares to get loans, a handful of companies also used shares of the acquired companies as pledged collateral. This is precisely what HNA Group did, which now faces not only growing regulatory scrutiny from Beijing that threatens to spook bond investors and raise HNA’s financing costs, but also send its shares plunging as holders are forced to liquidate even as most of the shares pledged to fund its buying spree are already declining, accelerating its demise. And, in a scenario that can only be dubbed as a "reverse rollup from hell" - on steroids and margin - one that would make even Valeant blush and snicker, if the value of its collateral, i.e. stock price, falls enough, HNA will soon be forced to sell its holdings to repay debt, thereby resulting in the disintegration of the company.

HNA is a private company, hence a detailed breakdown of its borrowing position and its share pledges is not available. However, the circumstantial evidence remains highly negative and the systemic risk it poses for China is likely rising not falling.

Michael Hudson: America"s Monetary Imperialism

Authored by Michael Hudson via Counterpunch.org,

In theory, the global financial system is supposed to help every country gain. Mainstream teaching of international finance, trade and “foreign aid” (defined simply as any government credit) depicts an almost utopian system uplifting all countries, not stripping their assets and imposing austerity.

The reality since World War I is that the United States has taken the lead in shaping the international financial system to promote gains for its own bankers, farm exporters, its oil and gas sector, and buyers of foreign resources – and most of all, to collect on debts owed to it.

Each time this global system has broken down over the past century, the major destabilizing force has been American over-reach and the drive by its bankers and bondholders for short-term gains. The dollar-centered financial system is leaving more industrial as well as Third World countries debt-strapped. Its three institutional pillars – the International Monetary Fund (IMF), World Bank and World Trade Organization – have imposed monetary, fiscal and financial dependency, most recently by the post-Soviet Baltics, Greece and the rest of southern Europe. The resulting strains are now reaching the point where they are breaking apart the arrangements put in place after World War II.

The most destructive fiction of international finance is that all debts can be paid, and indeed should be paid, even when this tears economies apart by forcing them into austerity – to save bondholders, not labor and industry. Yet European countries, and especially Germany, have shied from pressing for a more balanced global economy that would foster growth for all countries and avoid the current economic slowdown and debt deflation.

Imposing Austerity on Germany After World War I

After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts. Headed by John Maynard Keynes, British diplomats sought to clean their hands of responsibility for the consequences by promising that all the money they received from Germany would simply be forwarded to the U.S. Treasury.

The sums were so unpayably high that Germany was driven into austerity and collapse. The nation suffered hyperinflation as the Reichsbank printed marks to throw onto the foreign exchange market. The currency declined, import prices soared, raising domestic prices as well. The debt deflation was much like that of Third World debtors a generation ago, and today’s southern European PIIGS (Portugal, Ireland, Italy, Greece and Spain).

In a pretense that the reparations and Inter-Ally debt tangle could be made solvent, a triangular flow of payments was facilitated by a convoluted U.S. easy-money policy. American investors sought high returns by buying German local bonds; German municipalities turned over the dollars they received to the Reichsbank for domestic currency; and the Reichsbank used this foreign exchange to pay reparations to Britain and other Allies, enabling these countries to pay the United States what it demanded.

But solutions based on attempts to keep debts of such magnitude in place by lending debtors the money to pay can only be temporary. The U.S. Federal Reserve sustained this triangular flow by holding down U.S. interest rates. This made it attractive for American investors to buy German municipal bonds and other high-yielding debts. It also deterred Wall Street from drawing funds away from Britain, which would have driven its economy deeper into austerity after the General Strike of 1926. But domestically, low U.S. interest rates and easy credit spurred a real estate bubble, followed by a stock market bubble that burst in 1929. The triangular flow of payments broke down in 1931, leaving a legacy of debt deflation burdening the U.S. and European economies. The Great Depression lasted until outbreak of World War II in 1939.

Planning for the postwar period took shape as the war neared its end. U.S. diplomats had learned an important lesson. This time there would be no arms debts or reparations. The global financial system would be stabilized – on the basis of gold, and on creditor-oriented rules. By the end of the 1940s the Untied States held some 75 percent of the world’s monetary gold stock. That established the U.S. dollar as the world’s reserve currency, freely convertible into gold at the 1933 parity of $35 an ounce.

It also implied that once again, as in the 1920s, European balance-of-payments deficits would have to be financed mainly by the United States. Recycling of official government credit was to be filtered via the IMF and World Bank, in which U.S. diplomats alone had veto power to reject policies they found not to be in their national interest. International financial “stability” thus became a global control mechanism – to maintain creditor-oriented rules centered in the United States.

To obtain gold or dollars as backing for their own domestic monetary systems, other countries had to follow the trade and investment rules laid down by the United States.

These rules called for relinquishing control over capital movements or restrictions on foreign takeovers of natural resources and the public domain as well as local industry and banking systems.

By 1950 the dollar-based global economic system had become increasingly untenable. Gold continued flowing to the United States, strengthening the dollar – until the Korean War reversed matters. From 1951 through 1971 the United States ran a deepening balance-of-payments deficit, which stemmed entirely from overseas military spending. (Private-sector trade and investment was steadily in balance.)

U.S. Treasury Debt Replaces the Gold Exchange Standard

The foreign military spending that helped return American gold to Europe became a flood as the Vietnam War spread across Asia after 1962. The Treasury kept the dollar’s exchange rate stable by selling gold via the London Gold Pool at $35 an ounce. Finally, in August 1971, President Nixon stopped the drain by closing the Gold Pool and halting gold convertibility of the dollar.

There was no plan for what would happen next. Most observers viewed cutting the dollar’s link to gold as a defeat for the United States. It certainly ended the postwar financial order as designed in 1944. But what happened next was just the reverse of a defeat. No longer able to buy gold after 1971 (without inciting strong U.S. disapproval), central banks found only one asset in which to hold their balance-of-payments surpluses: U.S. Treasury debt. These securities no longer were “as good as gold.” The United States issued them at will to finance soaring domestic budget deficits.

By shifting from gold to the dollars thrown off by the U.S. balance-of-payments deficit, the foundation of global monetary reserves came to be dominated by the U.S. military spending that continued to flood foreign central banks with surplus dollars. America’s balance-of-payments deficit thus supplied the dollars that financed its domestic budget deficits and bank credit creation – via foreign central banks recycling U.S. foreign spending back to the U.S. Treasury.

In effect, foreign countries have been taxed without representation over how their loans to the U.S. Government are employed. European central banks were not yet prepared to create their own sovereign wealth funds to invest their dollar inflows in foreign stocks or direct ownership of businesses. They simply used their trade and payments surpluses to finance the U.S. budget deficit. This enabled the Treasury to cut domestic tax rates, above all on the highest income brackets.

U.S. monetary imperialism confronted European and Asian central banks with a dilemma that remains today: If they do not turn around and buy dollar assets, their currencies will rise against the dollar. Buying U.S. Treasury securities is the only practical way to stabilize their exchange rates – and in so doing, to prevent their exports from rising in dollar terms and being priced out of dollar-area markets.

The system may have developed without foresight, but quickly became deliberate. My book Super Imperialism sold best in the Washington DC area, and I was given a large contract through the Hudson Institute to explain to the Defense Department exactly how this extractive financial system worked. I was brought to the White House to explain it, and U.S. geostrategists used my book as a how-to-do-it manual (not my original intention).

Attention soon focused on the oil-exporting countries. After the U.S. quadrupled its grain export prices shortly after the 1971 gold suspension, the oil-exporting countries quadrupled their oil prices. I was informed at a White House meeting that U.S. diplomats had let Saudi Arabia and other Arab countries know that they could charge as much as they wanted for their oil, but that the United States would treat it as an act of war not to keep their oil proceeds in U.S. dollar assets.

This was the point at which the international financial system became explicitly extractive. But it took until 2009, for the first attempt to withdraw from this system to occur. A conference was convened at Yekaterinburg, Russia, by the Shanghai Cooperation Organization (SCO). The alliance comprised Russia, China, Kazakhstan, Tajikistan, Kirghizstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. U.S. officials asked to attend as observers, but their request was rejected.

The U.S. response has been to extend the new Cold War into the financial sector, rewriting the rules of international finance to benefit the United States and its satellites – and to deter countries from seeking to break free from America’s financial free ride.

The IMF Changes Its Rules to Isolate Russia and China

Aiming to isolate Russia and China, the Obama Administration’s confrontational diplomacy has drawn the Bretton Woods institutions more tightly under US/NATO control. In so doing, it is disrupting the linkages put in place after World War II.

The U.S. plan was to hurt Russia’s economy so much that it would be ripe for regime change (“color revolution”). But the effect was to drive it eastward, away from Western Europe to consolidate its long-term relations with China and Central Asia. Pressing Europe to shift its oil and gas purchases to U.S. allies, U.S. sanctions have disrupted German and other European trade and investment with Russia and China. It also has meant lost opportunities for European farmers, other exporters and investors – and a flood of refugees from failed post-Soviet states drawn into the NATO orbit, most recently Ukraine.

To U.S. strategists, what made changing IMF rules urgent was Ukraine’s $3 billion debt falling due to Russia’s National Wealth Fund in December 2015. The IMF had long withheld credit to countries refusing to pay other governments. This policy aimed primarily at protecting the financial claims of the U.S. Government, which usually played a lead role in consortia with other governments and U.S. banks. But under American pressure the IMF changed its rules in January 2015. Henceforth, it announced, it would indeed be willing to provide credit to countries in arrears other governments – implicitly headed by China (which U.S. geostrategists consider to be their main long-term adversary), Russia and others that U.S. financial warriors might want to isolate in order to force neoliberal privatization policies.

Article I of the IMF’s 1944-45 founding charter prohibits it from lending to a member engaged in civil war or at war with another member state, or for military purposes generally. An obvious reason for this rule is that such a country is unlikely to earn the foreign exchange to pay its debt. Bombing Ukraine’s own Donbass region in the East after its February 2014 coup d’état destroyed its export industry, mainly to Russia.

Withholding IMF credit could have been a lever to force adherence to the Minsk peace agreements, but U.S. diplomacy rejected that opportunity. When IMF head Christine Lagarde made a new loan to Ukraine in spring 2015, she merely expressed a verbal hope for peace. Ukrainian President Porochenko announced the next day that he would step up his civil war against the Russian-speaking population in eastern Ukraine. One and a half-billion dollars of the IMF loan were given to banker Ihor Kolomoiski and disappeared offshore, while the oligarch used his domestic money to finance an anti-Donbass army. A million refugees were driven east into Russia; others fled west via Poland as the economy and Ukraine’s currency plunged.

The IMF broke four of its rules by lending to Ukraine: (1) Not to lend to a country that has no visible means to pay back the loan (the “No More Argentinas” rule, adopted after the IMF’s disastrous 2001 loan to that country). (2) Not to lend to a country that repudiates its debt to official creditors (the rule originally intended to enforce payment to U.S.-based institutions). (3) Not to lend to a country at war – and indeed, destroying its export capacity and hence its balance-of-payments ability to pay back the loan. Finally (4), not to lend to a country unlikely to impose the IMF’s austerity “conditionalities.” Ukraine did agree to override democratic opposition and cut back pensions, but its junta proved too unstable to impose the austerity terms on which the IMF insisted.

U.S. Neoliberalism Promotes Privatization Carve-Ups of Debtor Countries

Since World War II the United States has used the Dollar Standard and its dominant role in the IMF and World Bank to steer trade and investment along lines benefiting its own economy. But now that the growth of China’s mixed economy has outstripped all others while Russia finally is beginning to recover, countries have the option of borrowing from the Asian Infrastructure Investment Bank (AIIB) and other non-U.S. consortia.

At stake is much more than just which nations will get the contracting and banking business. At issue is whether the philosophy of development will follow the classical path based on public infrastructure investment, or whether public sectors will be privatized and planning turned over to rent-seeking corporations.

What made the United States and Germany the leading industrial nations of the 20^th century – and more recently, China – has been public investment in economic infrastructure. The aim was to lower the price of living and doing business by providing basic services on a subsidized basis or freely. By contrast, U.S. privatizers have brought debt leverage to bear on Third World countries, post-Soviet economies and most recently on southern Europe to force selloffs. Current plans to cap neoliberal policy with the Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP) and Transatlantic Free Trade Agreement (TAFTA) go so far as to disable government planning power to the financial and corporate sector.

American strategists evidently hoped that the threat of isolating Russia, China and other countries would bring them to heel if they tried to denominate trade and investment in their own national currencies. Their choice would be either to suffer sanctions like those imposed on Cuba and Iran, or to avoid exclusion by acquiescing in the dollarized financial and trade system and its drives to financialize their economies under U.S. control.

The problem with surrendering is that this Washington Consensus is extractive and lives in the short run, laying the seeds of financial dependency, debt-leveraged bubbles and subsequent debt deflation and austerity. The financial business plan is to carve out opportunities for price gouging and corporate profits. Today’s U.S.-sponsored trade and investment treaties would make governments pay fines equal to the amount that environmental and price regulations, laws protecting consumers and other social policies might reduce corporate profits. “Companies would be able to demand compensation from countries whose health, financial, environmental and other public interest policies they thought to be undermining their interests, and take governments before extrajudicial tribunals. These tribunals, organised under World Bank and UN rules, would have the power to order taxpayers to pay extensive compensation over legislation seen as undermining a company’s ‘expected future profits.’”

This policy threat is splitting the world into pro-U.S. satellites and economies maintaining public infrastructure investment and what used to be viewed as progressive capitalism. U.S.-sponsored neoliberalism supporting its own financial and corporate interests has driven Russia, China and other members of the Shanghai Cooperation Organization into an alliance to protect their economic self-sufficiency rather than becoming dependent on dollarized credit enmeshing them in foreign-currency debt.

At the center of today’s global split are the last few centuries of Western social and democratic reform. Seeking to follow the classical Western development path by retaining a mixed public/private economy, China, Russia and other nations find it easier to create new institutions such as the AIIB than to reform the dollar standard IMF and World Bank. Their choice is between short-term gains by dependency leading to austerity, or long-term development with independence and ultimate prosperity.

The price of resistance involves risking military or covert overthrow. Long before the Ukraine crisis, the United States has dropped the pretense of backing democracies. The die was cast in 1953 with the coup against Iran’s secular government, and the 1954 coup in Guatemala to oppose land reform. Support for client oligarchies and dictatorships in Latin America in the 1960 and ‘70s was highlighted by the overthrow of Allende in Chile and Operation Condor’s assassination program throughout the continent. Under President Barack Obama and Secretary of State Hillary Clinton, the United States has claimed that America’s status as the world’s “indispensible nation” entitled it back the recent coups in Honduras and Ukraine, and to sponsor the NATO attack on Libya and Syria, leaving Europe to absorb the refugees.

Germany’s Choice

This is not how the Enlightenment was supposed to evolve. The industrial takeoff of Germany and other European nations involved a long fight to free markets from the land rents and financial charges siphoned off by their landed aristocracies and bankers. That was the essence of classical 19^th-century political economy and 20^th-century social democracy. Most economists a century ago expected industrial capitalism to produce an economy of abundance, and democratic reforms to endorse public infrastructure investment and regulation to hold down the cost of living and doing business. But U.S. economic diplomacy now threatens to radically reverse this economic ideology by aiming to dismantle public regulatory power and impose a radical privatization agenda under the TTIP and TAFTA.

Textbook trade theory depicts trade and investment as helping poorer countries catch up, compelling them to survive by becoming more democratic to overcome their vested interests and oligarchies along the lines pioneered by European and North American industrial economies. Instead, the world is polarizing, not converging. The trans-Atlantic financial bubble has left a legacy of austerity since 2008. Debt-ridden economies are being told to cope with their downturns by privatizing their public domain.

The immediate question facing Germany and the rest of Western Europe is how long they will sacrifice their trade and investment opportunities with Russia, Iran and other economies by adhering to U.S.-sponsored sanctions. American intransigence threatens to force an either/or choice in what looms as a seismic geopolitical shift over the proper role of governments: Should their public sectors provide basic services and protect populations from predatory monopolies, rent extraction and financial polarization?

Today’s global financial crisis can be traced back to World War I and its aftermath. The principle that needed to be voiced was the right of sovereign nations not to be forced to sacrifice their economic survival on the altar of inter-government and private debt demands. The concept of nationhood embodied in the 1648 Treaty of Westphalia based international law on the principle of parity of sovereign states and non-interference. Without a global alternative to letting debt dynamics polarize societies and tear economies apart, monetary imperialism by creditor nations is inevitable.

The past century’s global fracture between creditor and debtor economies has interrupted what seemed to be Europe’s democratic destiny to empower governments to override financial and other rentier interests. Instead, the West is following U.S. diplomatic leadership back into the age when these interests ruled governments. This conflict between creditors and democracy, between oligarchy and economic growth (and indeed, survival) will remain the defining issue of our epoch over the next generation, and probably for the remainder of the 21^st century.

2nd Largest Gunmaker Nears Default As Americans Buy Fewer Firearms Post-Obama

2017 has seen the biggest drop in American firearms sales in history.

After 8 years of almost incessant rises in NICS Firearms Checks (a proxy for "legal" arms sales) under President Obama...

source: NICS

2017 has seen a considerable drop (year-to-date) - the biggest on NICS records...

source: NICS

This sudden drop in demand after President Trump"s election has meant Remington Outdoor, the second-largest U.S. gunmaker, has suffered a “rapid” and “sharp” deterioration in sales and a similar drop in profits since January, and faces “continued softness in consumer demand for firearms,” according to credit analysts at Standard & Poor’s Global Ratings.

As Philly.com"s Joseph DiStefano reports, S&P cut the company’s corporate credit rating - already at a junk-bond-level CCC+ - two full notches, to CCC- as:

...a backlog of unsold, unwanted firearms will force Remington to operate at a loss and “pressure the company’s sales and profitability at least through early 2018, resulting in insufficient cash flow for debt service and fixed charges,” unless Remington gives up cash to pay for ongoing operations.

 

S&P expects “a heightened risk of a restructuring” of Remington’s $575 million senior secured loan and asset-based lending facility, which it is supposed to pay back in 2019.

 

If Remington defaults on its payments, based on the company’s current value, S&P expects first-lien creditors may receive around 35 cents back from every dollar they have lent or invested. Lower-rated creditors would get back less, or nothing.

While the report said that default is not yet "a virtual certainty," judging by the collapse in Remington"s bond prices this week... the market is pretty sure.

And while Remington is not public, it is not alone in pain as shown below...

ECB Proposes End To Deposit Protection

Submitted by GoldCore

It is the "opinion of the European Central Bank" that the deposit protection scheme is no longer necessary:

"covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility."

To translate the legalese jargon of the ECB bureaucrats this could mean that the current €100,000 (£85,000) deposit level currently protected in the event of a bail-in may soon be no more. But worry not fellow savers, as the ECB is fully aware of the uproar this may cause so they have been kind enough to propose that:

"...during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request."

So that"s a relief, you"ll only need to wait five days for some "competent authority" to deem what is an "appropriate amount" of your own money for you to have access to in order eat, pay bills and get to work.

The above has been taken from an ECB paper published on 8 November 2017 entitled "on revisions to the Union crisis management framework".

It"s 58 pages long, the majority of which are proposed amendments to the Union crisis management framework and the current text of the Capital Requirements Directive (CRD).

It"s pretty boring reading but there are some key snippets which should be raising a few alarms. It is evidence that once again a central bank can keep manipulating situations well beyond the likes of monetary policy. It is also a lesson for savers to diversify their assets in order to reduce their exposure to counterparty risks.

Bail-ins, who are they for?

According to the May 2016 Financial Stability Review, the EU bail-in tool is "welcome" as it:

 

 

...contributes to reducing the burden on taxpayers when resolving large, systemic financial institutions and mitigates some of the moral hazard incentives associated with too-big-to-fail institutions.

As we have discussed in the past, we"re confused by the apparent separation between "taxpayer" and those who have put their hard-earned cash into the bank. After all, are they not taxpayers? This doesn"t matter, believes Matthew C.Klein in the FT who recently arguedthat "Bail-ins are theoretically preferable because they preserve market discipline without causing undue harm to innocent people."

 

Ultimately bail-ins are so central banks can keep their merry game of easy money and irresponsibility going. They have been sanctioned because rather than fix and learn from the mess of the bailouts nearly a decade ago, they have just decided to find an even bigger band-aid to patch up the system.

 

 

"Bailouts, by contrast, are unfair and inefficient. Governments tend to do them, however, out of misplaced concern about “preserving the system”. This stokes (justified) resentment that elites care about protecting their friends more than they care about helping regular people." - Matthew C. Klein

But what about the regular people who have placed their money in the bank, believing they"re safe from another financial crisis? Are they not "innocent" and deserving of protection?

When Klein wrote his latest on bail-ins, it was just over a week before the release of this latest ECB paper. With fairness to Klein at the time of his writing depositors with less than €100,000 in the bank were protected under the terms of the ECB covered deposit rules.

This still seemed absurd to us who thought it questionable that anyone"s money in the bank could suddenly be sanctioned for use to prop up an ailing institution. We have regularly pointed out that just because there is currently a protected level at which deposits will not be pilfered, this could change at any minute.

The latest proposed amendments suggest this is about to happen.

 

Why change the bail-in rules?

The ECB"s 58-page amendment proposal is tough going but it is about halfway through when you come across the suggestion that "covered deposits" no longer need to be protected. This is determined because the ECB is concerned about a run on the failing bank:

 

 

If the failure of a bank appears to be imminent, a substantial number of covered depositors might still withdraw their funds immediately in order to ensure uninterrupted access or because they have no faith in the guarantee scheme.

This could be particularly damning for big banks and cause a further crisis of confidence in the system:

 

 

Such a scenario is particularly likely for large banks, where the sheer amount of covered deposits might erode confidence in the capacity of the deposit guarantee scheme. In such a scenario, if the scope of the moratorium power does not include covered deposits, the moratorium might alert covered depositors of the strong possibility that the institution has a failing or likely to fail assessment.

Therefore, argue the ECB the current moratorium that protects deposits could be "counterproductive". (For the banks, obviously, not for the people whose money it really is:

 

 

The moratorium would therefore be counterproductive, causing a bank run instead of preventing it. Such an outcome could be detrimental to the bank’s orderly resolution, which could ultimately cause severe harm to creditors and significantly strain the deposit guarantee scheme. In addition, such an exemption could lead to a worse treatment for depositor funded banks, as the exemption needs to be factored in when determining the seriousness of the liquidity situation of the bank. Finally, any potential technical impediments may require further assessment.

The ECB instead proposes that "certain safeguards" be put in place to allow restricted access to deposits...for no more than five working days. But let"s see how long that lasts for.

 

 

Therefore, an exception for covered depositors from the application of the moratorium would cast serious doubts on the overall usefulness of the tool. Instead of mandating a general exemption, the BRRD should instead include certain safeguards to protect the rights of depositors, such as clear communication on when access will be regained and a restriction of the suspension to a maximum of five working days by avoiding a cumulative use by the competent authority and the resolution authority.

Even after a year of studying and reading bail-ins I am still horrified that something like this is deemed to be preferable and fairer to other solutions, namely fixing the banking system. The bureaucrats running the EU and ECB are still blind to the pain such proposals can cause and have caused.

Look to Italy for damage prevention

At the beginning of the month, we explained how the banking meltdown in Veneto Italy destroyed 200,000 savers and 40,000 businesses.

In that same article, we outlined how exposed Italians were to the banking system. Over €31 billion of sub-retail bonds have been sold to everyday savers, investors, and pensioners. It is these bonds that will be sucked into the sinkhole each time a bank goes under.

A 2015 IMF study found that the majority of Italy’s 15 largest banks a bank rescue would ‘imply bail-in of retail investors of subordinated debt’. Only two-thirds of potential bail-ins would affect senior bond-holders, i.e. those who are most likely to be institutional investors rather than pensioners with limited funds.

Why is this the case? As we have previously explained:

 

 

Bondholders are seen as creditors. The same type of creditor that EU rules state must take responsibility for a bank’s financial failure, rather than the taxpayer. This is a bail-in scenario.

 

In a bail-in scenario the type of junior bonds held by the retail investors in the street is the first to take the hit. When the world’s oldest bank Monte dei Paschi di Siena collapsed ordinary people (who also happen to be taxpayers) owned €5 billion ($5.5 billion) of subordinated debt. It vanished.

Despite the biggest bail-in in history occurring within the EU, few people have paid attention and protested against such measures. A bail-in is not unique to Italy, it is possible for all those living and banking within the EU.

Yet, so far there have been no protests. We"re not talking about protesting on the streets, we"re talking about protesting where it hurts - with your money.

As we have seen from the EU"s response to Brexit and Catalonia, officials could not give two hoots about the grievances of its citizens. So when it comes to banking there is little point in expressing disgust in the same way. Instead, investors must take stock and assess the best way for them to protect their savings from the tyranny of central bank policy.

To refresh your memory, the ECB is proposing that in the event of a bail-in it will give you an allowance from your own savings. An allowance it will control:

"...during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request."

Savers should be looking for means in which they can keep their money within instant reach and their reach only. At this point physical, allocated and segregated gold and silver comes to mind. This gives you outright legal ownership. There are no counterparties who can claim it is legally theirs (unlike with cash in the bank) or legislation that rules they get first dibs on it. Gold and silver are the financial insurance against bail-ins, political mismanagement, and overreaching government bodies. As each year goes by it becomes more pertinent than ever to protect yourself from such risks.

 

NYC Subway Managers Receive $300,000 Salaries While MTA Cuts Mechanics

During a  long-ranging investigation, The New York Times interviewed more than 300 people and poured over thousands of documents to sketch out the history of neglect, abuse and mismanagement that fostered the New York City subway"s current state of crisis in what"s probably the most comprehensive explanation of the woes plaguing the MTA.

Century-old tunnels and track routes are crubling, but the Times found that the MTA’s budget for subway aintenance has barely grown, in inflation adjusted terms, since 1992.

Signal problems and equipment failures are occurring twice as frequently as they did a decade ago – a sign of just how rapidly the transit system is deteriorating.

What’s worse, is that hundreds of mechanic positions have been cut even as the century-old system groaned under the damage caused by Superstorm Sandy. Meanwhile, compensation for managers has ballooned to nearly $300,000 a year.

Daily ridership has doubled in the past decade to 5.7 million people. Yet, New York City is the only city in the world with fewer miles of track than it had during World War II.

Given the unconscionable state of neglect paid to its budget, it should come as no surprise that New York City’s subway system has the worst performance of any major urban transportation system in the world. Only 65% of weekday trains make it to their destination on time.

The Times claims that the deplorable state of the city’s transit system is the result of negligence by both Republican and Democratic politicians, including former Gov. George Pataki, former mayor Rudolph Giuliani, as well as Mayor Bill De Blasio and Gov. Andrew Cuomo.

Over the past two decades, politicians have diverted a whopping $1.5 billion in tax revenue from the MTA to other political priorities. Politicians are also largely responsible for pressing the agency to spend money on opulent station makeovers, like the new Fulton Street station, that do little to improve service. Politicians also locked the MTA into an unfavorable agreement with creditors that secured a needed short-term cash infusion but left it saddled with $5 billion in interest payments.

Perhaps most egregiously, Gov. Cuomo recently forced the MTA to send $5 million to three upstate ski resorts that were struggling with a warm winter.

The MTA has also suffered from high turnover in its senior ranks, as dozens of high-level officials have taken advantage of a lucrative revolving door whereby they leave jobs at the MTA for high-up jobs at contractors that do business with the MTA.

Seemingly at every turn, politicians have failed to act on a series of chances to turn things around. They ignored decades of warnings from state and city comptrollers about MTA funding. They failed to pass a congestion pricing plan in 2008. Thy chose not to give mass transit much of the proceeds from bank settlements after the financial crisis. And they brushed off findings from official commission reports pointing out the system’s defects.

All of this has amounted to a shocking development: The number of subway riders declined slightly last year, even as the population of NYC has continued to expand rapidly.

Problems worsened under Cuomo as the governor tried to micromanage decision making at the agency, a move that only worsened its problems. For example, a few months ago, the MTA cut $500 million from the signal-repair budget to fund other projects that are more important to Cuomo. For context, signal malfunctions are the biggest contributing factor in train delays.

But perhaps the most fundamental flaw in how the MTA is managed is the fact that many of its most high-level decisions are made by a committee of bureaucrats and politicians, the Times reported.

“A camel is a horse designed by committee, and the MTA is a train service run by committee,” a Cuomo spokeswoman said.