Big Banks Begin Imposing Gun Control on Their Customers

(ZHE) Seemingly following Andrew Ross Sorkin’s suggestions, and echoing the virtue-signaling from Dick’s Sporting Goods et al., megabank Citigroup is setting restrictions on the sale of firearms by its business customers. As a reminder, Andrew Ross Sorkin wrote in the NY Times that banks could control guns, if Washington won’t. Liberty Blitzkrieg’s Mike Krieger exclaimed that even in today’s world replete […]

In An Unexpected Outcome, Trump Tax Reform Blew Up The Treasury Market

Over the past week we have shown on several occasions that there once again appears to be a sharp, sudden dollar-funding liquidity strain in global markets, manifesting itself in a dramatic widening in FX basis swaps, which - in this particular case - has flowed through in the forward discount for USDJPY spiking from around 0.04 yen to around 0.23 yen overnight. As Bloomberg speculated, this discount for buying yen at future dates widened sharply as non-U.S. banks, which typically buy dollars now with sell-back contracts at a future date, scrambled to procure greenbacks for the year-end.

However, as Deutsche Bank"s Masao Muraki explains, this particular dollar funding shortage is more than just the traditional year-end window dressing or some secret bank funding panic.

Instead, the DB strategist observes that the USD funding costs for Japanese insurers and banks to invest in US Treasuries - which have surged reaching a post-financial-crisis high of 2.35% on 15 Dec - are determined by three things, namely (1) the difference in US and Japanese risk-free rates (OIS), (2) the difference in US and Japanese interbank risk premiums (Libor-OIS), and (3) basis swaps, which illustrate the imbalance in currency-hedged US and Japanese investments.

In this particular case, widening of (1) as a result of Fed rate hikes and tightening of dollar funding conditions inside the US (2) and outside the US (3) have occurred simultaneously. This is shown in the chart below.

What is causing this? Unlike on previous occasions when dollar funding costs blew out due to concerns over the credit and viability of the Japanese and European banks, this time the Fed"s rate hikes could be spurring outflows from the US, European, and Japanese banks’ deposits inside the US. Absent indicators to the contrary, this appears to be the correct explanation since it"s not just Yen funding costs that are soaring. In fact, at present EUR/USD basis swaps are widening more than USD/JPY basis swaps.

According to Deutsche, it is possible that an increase in hedged US investments by Europeans could be indirectly affecting Japan, and that market participants could also be conscious of the risk that the repatriation tax system could spur a massive flow-back into the US, of funds held overseas by US companies

In fact, one can draw one particularly troubling conclusion: the sharp basis swap moves appear to have been catalyzed by the recently passed Trump tax reform.

• Corporate tax reform in the US

The United States House of Representatives and Senate recently passed a tax reform bill that lowers the corporate tax rate from 35% to 21% starting 2018. Lowering corporate taxes would likely accelerate the pace of Fed rate hikes, which could trigger a shift from dollar deposits to Government MMFs. Revisions to interest tax deductions would encourage companies to repay corporate bonds and could spur a decrease in dollar deposits (however, demand to bank loan could also weaken).

• Repatriation tax system

The tax bill also includes the abolishment of taxation (currently 35%) on dividend payments from overseas subsidiaries. However, overseas subsidiaries" retained earnings would be subject to a one-time tax. It is expected that this repatriation tax system would result in reserves held overseas by US companies (we estimate 90% are USD-denominated) flowing back into the US. This could create tighter conditions for USD financing outside the US.

Which leads to a bizarre outcome, that while the GOP tax reform may benefit corporate America, it appears set to punish America itself as buyers of US Treasurys suddenly require far greater yields to offset the surge in funding costs!

* * *

Whatever the cause behind these sharp funding shortages, one thing is clear - dollar funding costs (FX hedging costs) for both Japanese and European insurers and banks to invest in US Treasuries are surging (with Japanese buyers and reached a post-financial-crisis high of 2.35% on 15 Dec. And in terms of practical implications for the treasury market this means that, all else equal, marginal demand for US paper is about to plunge for one simple reason: the FX-hedged yields on US Treasurys have plunged to (negative) levels never seen before (unless of course foreign investors buy US Treasurys unhedged).

To demonstrate this point, the chart below from Deutsche Bank shows the yields on currency-hedged US Treasuries from the perspective of Japanese investors. Japanese financial institutions tend to use 3-month FX forwards when they invest in hedged foreign bonds. Annualized hedge costs have recently risen to 2.33%, which means that investments in 10y US Treasuries result in virtually no yield. Furthermore, yields from investment in shorter than 10y US Treasuries would be less than JGBs and result in negative spreads. This means that unless funding costs slide, Japanese buyers will simple pick JGBs over TSYs, eliminating one of the biggest sources of Treasury demand in receng years.

There is another consideration: as Deutsche Bank notes, whenever it is time to roll over a hedge, financial institutions need to decide whether to (A) sell US Treasuries or (B) hold them as unhedged foreign bonds. Engaging in (B) on a large scale would be difficult unless the institution"s outlook calls for yen depreciation. After implementing (A), institutions should then choose to invest in high-yielding US MBS (high interest rate risk), medium- to low-rated corporate bonds (high credit risk), European and other sovereign bonds, or to reinvest in JGBs.

Moving away from Japan, and looking at Europe one finds an even more dramatic slide in hedged TSY yields, which net of hedge costs have plunged to -0.6%, by far the lowest - and most negative - on record, something we highlighted yesterday in "There"s Never Been A Worse Time For A European Investor To Buy US Treasuries" .

The conclusion is that as a result of the recent surge in funding costs, seemingly in response to the nuances of Trump tax reform as explained above, suddenly buying US Treasurys is no longer an economic option for virtually all foreign buyers! Needless to say, something will need to change because if funding costs stay where they are, yields across the curve will have to jump for US Treasurys to once again be an attractive purchase for foreign buyers, which as a reminder comprise the majority of TSY buyers in recent years.

What is the outlook? Some parting thoughts from Deutsche, which writes that according to the chart below, fundings costs will likely continue widening as the Fed raises interest rates.

DB then also warns that the repatriation tax system that was just passed into law, coupled with ongoing Fed rate hikes, will indirectly result in the widening of dollar funding conditions in and outside of the US. And the punchline: if these indeed continue to widen, and US long-term interest rates stay at a low level, "this would restrict investments in US Treasuries by Japanese financial institutions relying on short-term dollar funding." This could then lead to a sharp move higher in US yields - and rates- as the US finds it needs an aggressive increase in foreign demand to finance the widest US budget deficit in years. 

In other words, by pounding the table on - and recently passing - tax reform, Donald Trump appears to have sown the seeds of the equity market"s own destruction, because remember that the one thing that can bring the house of manipulated cards down faster than you can say covfefe, not to mention burst the equity bubble, is a sharp move higher in long-term yields, rates, and ultimately - inflation.

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.

The Latest Crazy Idea From Economic Experts: Abolish Cash (But Don"t Tell The People)

Via GEFIRA,

In a recent paper - The Macroeconomics of De-Cashing, Alexei Kireyev of the International Monetary Fund advises abolishing cash without having the citizens aware of the process.

First, large banknotes are to be withdrawn from circulation, next limits on cash transactions are to be imposed, then computerization of the world’s financial system and control of international cash transactions are to be enforced and, finally, private companies are to be encouraged to avoid cash transactions.

Kireyev draws on the ideas of former IMF chief Kenneth Rogoff.

In his 2016 book “The Curse of Money”, he advocated the abolition of cash. In his opinion, it would contribute to the fight against crime, tax evasion and the reduction of the grey area.

The ECB obliged him and promised not to print the 500 euro note after 2018.

The government of India did the same thing: on November 9,2016, it unexpectedly devaluated all 500 and 1000 rupee banknotes over the night – a severe blow against the black economy and corruption. The next day, chaos reigned on India’s streets – crowds of people in front of banks, empty ATMs – everyone wanted to withdraw his money, exchange the old rupees for new, valid ones, and there were even casualties.

The other governments eagerly followed this ideas of great economic gurus, not worrying about what was happening in the Indian streets:

Australia wants to withdraw its 100 notes from circulation,and Venezuela has already abolished the 100 bolivar note.

France, Italy, Spain and Greece already have ceilings for cash withdrawals, and a ceiling of EUR €5000 is currently being discussed in Germany.

In some countries, the renunciation of cash is becoming a means of political struggle.

In Poland, Prime Minister Mateusz Morawiecki introduced cashless payments to the state postal service. Soon it will also be possible to pay his tickets directly on the patrol car. Not all Polish politicians probably like the idea that officials will not come into contact with cash – for example, the head of the Polish National Bank Adam Glapi?ski, who introduced the new 500 zloty note at the same time.

The abolition of cash is only one step on the road to even greater insanity: Kenneth Rogoff has other crazy ideas behind him.

The craziest: he demanded negative interest from European politicians, on the grounds that they are necessary anyway when the next crisis comes. We remind the reader that negative interest rate is limited by cash. If interest becomes too negative, people will hoard cash.

What consequences would his idea have if it were implemented? What if the negative interest rates were introduced? The money from accounts would flow into tangible assets, especially jewellery, gold bars and other precious metals. Their prices would rise to unprecedented levels, as would inflation driven by speculation. This would be boosted by rising real estate prices, as people would invest in houses rather than in worthless plastic money. The barter trade and black market would flourish as it did in times of war – the opposite of what is desired would be achieved. And the criminals and corrupt politicians would certainly find another means of exchange to conduct their business – it is well known that arms dealers and terrorist groups pay with diamonds. The abolition of cash and introduction of negative interest rate would dispossess ordinary citizens, making them transparent to the authorities at any time – after all, it would be easier to control and influence the transparent people whose lives can be traced by account statements.

The renowned economists, bankers and governments forget that cash cannot be abolished, only money printed by central banks can be abolished. They do the calculation in their ivory towers without considering the host, without ordinary citizens. The citizens will be outraged by this and take to the streets, as they did after the devaluation of banknotes in India. In the end they will find alternative currencies to do their business without the government’s interference.

The economic gurus don’t care – the experiment on the living organism is important, even if it kills them.

Nomi Prins: "Dark Money" Runs The World

Authored by Nomi Prins via The Daily Reckoning,

Few people know financial markets’ biggest secret...

For the last 40 years, most people believed the stock market always goes up. Simply buy and hold long enough, the theory went, and you could sit back and watch the money accumulate in your account. No thought or hard work needed.

It was a nifty strategy — until the idea burned most investors in 2008. Almost a decade later, the scar tissue is still fresh for many investors.

Even today, after the U.S. stock market has rallied by 271% since the bottom on March 6, 2009 — nearly tripling investors’ money — only about half of Americans are invested in the stock market, according to NPR. That’s down from two-thirds compared to a decade ago.

The rest are in cash on the sidelines. Maybe that’s been you.

And who can blame you? “Fool me once, shame on you,” the saying goes. “Fool me twice, shame on me.”

Last June, Fortune surveyed readers. 71% of respondents said “the economic system in the U.S. is rigged in favor of certain groups.”

A few years earlier, the Los Angeles Times reported “Poll finds 64% of voters believe stock market is rigged against them…”

They’re not wrong.

Somebody’s made gains from all of those sectors in the stock market. It just hasn’t been Main Street.

Since I’ve left the world of big banking, I’ve made it my mission to change that. That leads me to the catalyst for my new project…

Dark money.

Dark money is the #1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

On Wall Street, knowledge of and access to dark money means trillions of dollars per year flowing in and around global stock, bond and derivatives markets.

I learned this firsthand from my career on Wall Street. My first full year working on Wall Street was in 1987.

I wasn’t talking about “dark money” or central bank collusion back then. I was just starting out.

Eventually, I would uncover how the dark money system works… how it has corrupted our financial system… and encouraged greed to the point of crisis like in 2008.

When I moved abroad to create and run the analytics department at Bear Stearns London as senior managing director, I got my first look at how dark money flows and its effects cross borders.

The “dark money” comes from central banks. In essence, central banks “print” money or electronically fabricate money by buying bonds or stocks. They use other tools like adjusting interest rate policy and currency agreements with other central banks to pump liquidity into the financial system.

That dark money goes to the biggest private banks and financial institutions first. From there, it spreads out in seemingly infinite directions affecting different financial assets in different ways.

Yet these dark money flows stretch around the world according to a pattern of power, influence and, of course, wealth for select groups. To be a part of the dark money elite means to have control over many. How elite is a matter of degree.

These is not built upon conspiracy theories. To the contrary, alliances make perfect sense and operate publicly. Even better, their exclusive dealings and the consequences that follow are foreseeable — but only if you understand how the system works and follow the dark money flows.

It’s easy to see how this dark money affects the stock market at a high level, because we can monitor its constant movement.

Here’s the smoking gun:

The red line shows you how much “dark money” the Federal Reserve has printed since 2008.

The blue line shows you the S&P 500.

They move together — more dark money drives the market higher. Much higher.

There are dark money charts from around the world, just like the one I showed you for the Federal Reserve and U.S. stock market.

Look at this “dark money” chart from Japan, for example:

The blue line shows the dark money created by their central bank, The Bank of Japan. The red line shows Japan’s major stock index, the Nikkei 225, going up as well. The dark money drove the market much higher over the past eight years.

Or, look at this “dark money” chart from the U.K.:

Again, the blue line shows the “dark money” created since 2009 by the U.K.’s central bank, The Bank of England. The red line shows how the FTSE 100, their stock index, has followed higher in lock-step.

To invest profitably in financial markets, you need to understand the hidden power relationships that drive financial and political events. Ideologies and personal associations among elites are oblivious to political party lines and international boundaries. So is dark money.

Cryptocurrency Bank AriseBank To Acquire 100 Year Old FDIC Bank; Partner With BitShares.

Intro by Vince Lanci

via the Soren K. Group at Marketslant.com

The Next Revolution is already Happening

Over the past few weeks, I"ve had the pleasure of meeting the next revolutionaries in the democratization of money. This was while looking to understand better the guts of the blockchain tech and how it differed from crypto to crypto. I had the  pleasure of meeting with and  speaking to several people involved with Bitshares and those  involved  at the  periphery with Arisebank. During that time, by coincidence, Arisebank was in the process of doing the deal described in the headline. And I was able to look through the glass at this event where people were ,to my eye, looking to facilitate the transition from intellectual ideas to applications in reality. That is what Capitalism is in part about. Providing a service that fills a need and makes it easier which  gets you paid. Not making a dollar and being apathetic if the service actually helped someone. Free market capitalism allows for new ideas to make it (or not) on their own merits. That is what I saw. The potential  for self-clearing markets to  reassert themselves and for money to get to where it is needed most without incumbent toll booth operators throttling ideas fortheri own benefit.

I saw people who will make a bundle of money by adding value to a system in need of overhaul. i spoke wit ha few on a guarantee of anonymity. One key person said to me  in response ot me pointed question that blockchain is the beginning, Bitcoin may be the early pioneer, but like the Palm pilot, it was replaced by better tech. Why wed yourself to Blockchain?:

"Look, the tech is evolving, and we are already looking at how Quantum computing will make different types of tech more palatable than blockchain. I agree with you. In a few years at most, something better will come along. And that is a good thing. Because the goal here is to use these new tools to remove the friction in all things that prevents ideas from getting their chance to make it or not on their own merits. If you ( he was addressing me directly here) have an idea that will make a market more efficient and serve the greater good, I want to hear about it. Because now, I can help you get it into "production" much easier because  of what we can  do."

My response was: Sure, I feel intermediaries in general that do not add value need to be removed. Frankly, I feel Precious metals producers"  have been victims of their own ignorance for years. As a result they are captive clients to intermediaries who tell them when to hedge in order to maintain their credit line. Meanwhile those same firms that manage the producer"s banking, LOC, ISDAs, and production hedging are making money not just from those services, but on the prop-side of being able to benefit from the natural sell order flow captive producers provide. This is too much friction from production to user. It"s like a poorly connected pipeline slows waterflow"

His response was simple:

"Exactly. And we are already working with someone who is working on solving that problem right now. You should connect with them. "

And in 24 hours I was involved in a pressure cooker with a couple geniuses having conceptual discussions on how to use the available tech to make more precious metals distribution from producer to end user more efficient. The point is, the man quoted above was all about making  it happen. And it likely will if the people I"m now talking with and learning from get their wish. i hope to be sharing more on this topic soon. Moving on to the event at hand today.

Better Money Needs a Better Banking Model

If money is the life blood of capitalism, then banks are the valves that control the flow of that blood. In this way, traditional banks can sometimes make errors in allocation of investment capital, errors in custodial trust, and due to their centralized “gatekeeper” status have a Fed sponsored franchise that can be a deterrent to efficient, free markets. If you had the time to listen to my podcast yesterday on this topic you can see where I was coming from in light of today"s events.

This is actually why crypto currencies are vulnerable. They are not regarded as money officially, like Gold is not anymore either . They are also in the process of being regulated via futures listing and “crackdowns” to protect us so we are told; also what happened to precious metals. 

There are many of them, and this fragmentation itself has risk that comes with its promise of economic freedom. Many will not make it. And they exist outside the banking network. 

But what happens if a crypto (or all crypto currencies) gets access to the circulatory system itself? What happens when a cryptocurrency, due to Blockchain’s distributed ledger accounting tech, obviates the need for those custodial trustee valves that  exist like manned toll booths when ez pass exist? They unionize in a panic to protect their jobs. That is what happens. And that has begun. 

To digress a second, we actually pay to get access to our money now. Cash Remember the advent of the ATM? It was heralded as a cost reducer for banks and a convenience for the client. Now, it is a profit center where people frequently are charged to get their money. This is basically cash trading at a discount to digital cash. You are paying the bank money to use your money in private transactions . But Quick-Pay, in which they monitor all cash use and collect data from, is free; for now. 

Supply Side Scalability is No Longer a Viable Business Model in a World Without Scarcity. Demand Side"s Network Effect Model Is

Banking’s centralized method of  “service” which at one time was necessary for orderly and counter-party trustworthiness in markets, has either outlived itself or become easily abused in its use. The trust resided in the person who did the  custodial duties.  Their supply side-market structure based on scalability, key to the industrial revolution, is no longer the most efficient. Scarcity is not the problem anymore. Distribution is. And that means another business model applies more efficiently. It is the demand side market structure model based on the network effect. And  to implement that, we need  a better way of mitigating counterparty trust that removes the  human element and bottleneck that comes along with its centralized systems. 

Traditional brick and mortar centralized Banking, like every industry before it, is jeopardized by the most important concept behind the current disruptive technological movement: decentralization. The problem with decentralization for banking until the advent of Crypto and blockchain tech is: it was not compatible with mitigating counterparty risk.  Therefore a centralized authority was needed. Distributed ledger accounting tech removes the need for a central custodial trustee to protect you from counter-party risk. This is what tech geeks say when they refer to a "trustless" transaction. They mean; there is no need for a human to verify the authenticity of the deal. The trust is verified at its DNA level so to speak.

The Bank Teller"s Revenge

When they fired the tellers it was a good thing for everyone but the tellers. What happens when the credit officers are not needed in a few years? What happens when those technologies that banks use to lower costs actually replace their revenue streams like Letters of Credit, banking fees and other overpriced franchises? White collar people get fired, that"s what happens. Credit lawyers alongside operations managers. The corporation will triage every extremity it has to, to continue to perpetuate its own incumbent authority and existence. It could get very weird. Call it the Teller"s Revenge if it plays out as it could.

The replacement is not crypto per-se; it is Crypto , Gold, Fiat, or anything that people agree is money but in a decentralized system where perfect money (whatever that may be) can exist in a perfect banking system. One that does not need to violate privacy to ensure custodial trust anymore.

Centralized Clearing will be less needed like centralized execution was obviated before it by things like Globex.  Electronic trading platforms removed the need for Central Limit Order Books (CLOBberred Clients) in commodities. CLOBs were comprised of resting orders entrusted by clients and handled by their bankers who traded both principle and agency. This was how the Gold , Silver and LiBor Fixes were run, and we now know how that worked out.

Specifically, a decentralized crypto-exchange that operates network across the borders of nation states on combination with decentralized bank with FDIC approval? Globalism without centralization, organically better for all and a remover of walls for the flow of free capital would be possible. Enter Arisebank in partnership with Bitshares..

- Vince Lanci

contact Vince at vlanci@echobay.com

Cryptocurrency Bank AriseBank To Acquire FDIC-Insured Bank; Partners With BitShares.

Written by Michael Taggart at Huffington post

 

Arise Bank offers a myriad of services to consumers looking for a banking alternative. 

 

Dallas, TX —- AriseBank announced that they have reached an agreement with an FDIC insured bank, that has been operating in the United States for over a century, that they will acquire them before the end of the year. This comes on the heels of their record ICO launch, where AriseBank plans to raise one billion dollars, which would end up being a record in the ICO investment space. 

“We are very excited to be at the forefront of history today. We feel like this was going to happen eventually and wanted to get the process started for the industry as a whole. There are certain people who may disagree with this move but, it has to happen eventually. The bank we are acquiring has hundreds of banking partnerships across the world and many certifications and licenses that make sense when it comes to interacting with our decentralized cryptocurrency platform”, said Jared Rice Sr., a co-founder and current CEO of AriseBank. 

 

Arise Bank is the worlds first decentralized bank.

 

With this acquisition, AriseBank, the world’s first decentralized cryptocurrency bank, now has the full financial capabilities of traditional banking coupled with the power and platform of real-time crypto-banking including a global network of ATM’s, debit cards and an AI trading platform. 

“The world’s first federally compliant, decentralized bank invites visionary strategic partners from all countries”, said Eddy Taylor a BitShares partner and a current advisor to AriseBank. “Arise features will include quantum computer-safe operating systems, multi-crypto debit cards, cell to satellite global outreach and much more”, he said. 

Also included in the acquisition is a 25-year old investment bank that Arise plans on converting to a crypto-investment house for consumers around the world. “We plan on growing investor confidence outside of our decentralized platform, which will enable many other outside services in areas like real estate, among many others on a global scale. 

 

Bitshares DEX is the worlds first decentralized cryptocurrency exchange.

 

This acquisition is happening concurrently with the announcement of a strategic partnership with BitShares, the world’s busiest financial blockchain as seen on blocktivity.info. AriseBank, the first decentralized bank is teaming with BitShares, the first decentralized exchange to provide a comprehensive platform for real-time delivery of incorruptible financial products and services. 

BitShares (BTS), with a market cap of $680M, is also a smart coin factory with hundreds of innovative financial products and compliant ICO offerings. It currently holds the record for over one million blockchain transactions per day dwarfing the performance of Bitcoin and all other blockchain networks. BitShares has in turn, teamed with the United Precious Metals Association (UPMA) to bring real-time metal-backed digital currencies into the mainstream. 

 

Gold and Silver can be used as legal tender in many states in the US, and other countries around the world.

 

The combined strengths of a conventional bank + decentralized bank + decentralized exchange + smart coin factory + gold depository + enterprise integrator makes the first full service alternative financial system to offer honest money and a level the playing field for all mankind. 

For more information contact:

Eddy Taylor (310) 940-2404 or visit SovereignHero.com.

John 469-71-ARISE or visit AriseBank.com

A Question For Every Investor

Authored by 720Global"s Michael Lebowitz via RealInvestmentAdvice.com,

Recently we received the following question from a subscriber:

“If a correction in the stock or bond markets comes, the Central Banks will buy stocks with printed money, like the Japanese Central Bank, etc. Will there ever be a shakeout of the garbage and junk in the system? I am losing all confidence.” –Ron H.

Questions like Ron’s that suggest the decay of capitalism and free markets should raise concerns for anyone’s market thesis, bullish, bearish or agnostic. What stops a central bank from manipulating asset prices? When do they cross a line from marginal manipulation to absolute price control? Unfortunately, there are no concrete answers to these questions, but there are clues.

Global central banks’ post-financial crisis monetary policies have collectively been more aggressive than anything witnessed in modern financial history. Over the last ten years, the six largest central banks have printed unprecedented amounts of money to purchase approximately $14 trillion of financial assets as shown below. Before the financial crisis of 2008, the only central bank printing money of any consequence was the Peoples Bank of China (PBoC).

The central banks’ goals, in general, are threefold:

• Expand the money supply allowing for the further proliferation of debt, which has sadly become the lifeline of most developed economies.


• Drive financial asset prices higher to create a wealth effect. This myth is premised on the belief that higher financial asset prices result in greater economic growth as wealth is spread to the masses.
  
  • “And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”– Ben Bernanke Editorial Washington Post 11/4/2010.
  
  


• Lastly, generate inflation, to help lessen the burden of debt.

QE has forced interest rates downward and lowered interest expenses for all debtors. Simultaneously, it boosted the amount of outstanding debt. The net effect is that the global debt burden has grown on a nominal basis and as a percentage of economic growth since 2008. The debt burden has become even more burdensome.

The wealth effect is putting riches in the hands of a small minority of the population, with negligible benefits, if any, flowing to the majority of the population. Bernanke’s version of the virtuous circle, as highlighted above, is far from virtuous unless you are in the upper five to ten percent of households by wealth.  To understand how a real economic virtuous circle works, we recommend you read our article The Death of the Virtuous Cycle and watch The Animated Virtuous Cycle.

Inflation has been low since 2008 and deflation continues to be a chief concern of most central bankers. Because QE, in all cases, was focused on financial asset prices and not the prices of everyday goods and services, the inflation they aimlessly seek has not occurred.

To summarize our views, largely ineffective monetary policies are providing few economic benefits. They are increasing the debt burden and furthering socially destabilizing trends. Worse, these policies are packed with consequences that lie dormant and have yet to emerge. One of our concerns, which is being heralded as a positive, is the massive distortions in financial asset prices worldwide. Consider a few of these facts below and whether they are sustainable:

• U.S. yields have been among the lowest ever on record dating back to 1776


• U.S. equity valuations have risen to levels rarely observed and from this perch have always been followed by massive losses


• Over $9 trillion in sovereign bonds yields in many European countries and Japan have negative current yields


• European junk-grade debt now trades at yields lower than U.S. Treasuries


• Veolia, a French BBB rated company, recently issued a 3-year bond at a yield of -.026%.


• Italian 3-year government bonds yield -0.337%, despite the 3^rd highest debt to GDP ratio of all developed nations (132%)


• Argentina, which has defaulted 6 times in the past 100 years, issued a $2.75 billion 100-year bond paying a paltry 8% interest


• The BOJ owns over 75% of all Japanese ETFs


• The Swiss National Bank owns 19.2 million shares of Apple, or 3% of total shares outstanding, and $84 billion in aggregate of U.S. stocks

Yes, Ron, the central bankers have clearly crossed the line between free markets and government controlled markets. To answer your question about the “shakeout,” we must wait until the inevitable day comes and asset prices are in free-fall. When this occurs, we will learn the full extent of their support and how far they have crossed the line. We like to think the central bankers are willing to endure the short-term pain of such a situation and allow the natural cycle of economies and asset prices to run their course. The reality, however, is that the pattern of their actions in the post-financial crisis era argue that they are unlikely to relinquish their grip. To the extent that authority and power is extended to the Fed through the U.S. Congress, it does not seem likely for career politicians to urge action that may be painful in the short-term but highly beneficial in the long-term.

This premonition was supported by recent statements from the October 2017 Federal Reserve minutes and appointed Fed Chairman Jerome Powell respectively. Fed Minutes:

“In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances,” further “They worried that a sharp reversal in asset prices could have damaging effects on the economy.” Jerome Powell, in prepared remarks to Congress stated: “(the Fed) will respond with force to threats to the nation’s stability.”

Putting two and two together, one can quickly figure out that falling asset prices and the “damaging effects” they will inflict on the economy will not be tolerated by the Fed. 

Ron, while we cannot answer your question with certainty, we are relatively confident the Fed and other central banks’ influence on markets will only increase in time as they continue to perpetuate the debt and economic problems they helped create. Naturally, the next question for consideration is to what extent markets may be bigger than the Fed? That is an article for another day.

Think People Got Rich From Bitcoin? We Haven"t Seen Anything Yet..

Authored by Simon Black via SovereignMan.com,

Recently a group of archaeologists and anthropologists published a really interesting, comprehensive study of prehistoric civilizations and their sources in wealth.

It turns out that the most prosperous people and civilizations across ancient history– and I’m talking 10,000+ years ago before any recorded history– were those who harnessed new technologies to become more productive.

Back then it was all about agriculture.

And while it all seems so simple and obvious to us now, the use of large animals like horses and oxen to plow fields was considered game-changing technology for these prehistoric tribes.

The researchers surveyed data across a number of civilizations and found a much higher level of prosperity in places that used animals, versus places where farmers plowed their fields by hand.

The use of animals was a huge multiple of human labor, so farmers could extend their fields far beyond what was ever thought possible… and hence produce a massive surplus of food.

Moreover, they soon discovered that animal manure was an effective fertilizer that only enhanced crop yields.

More volume, more efficiency, higher yields… precisely the results that great technology produces.

Quite simply, the people and civilizations which embraced and used the technology prospered. Those who didn’t got left behind.

We’ve seen this over and over again throughout history. The printing press. The advent of machinery in the Industrial Revolution. The emergence of the microchip. The Internet.

Now it’s the technology behind cryptofinance which absolutely has revolutionary power to disrupt the existing financial system.

Think about it– every single financial function that banks currently monopolize, from deposits to lending to money transfers and currency exchange, can already be done better, faster, and cheaper outside of the banking system.

Banks take days to transfer funds. Blockchain transactions take an hour, maybe minutes… sometimes seconds.

Banks charge exorbitant fees to change from one currency into another, as if they have to put a ton of work into finding a buyer for their customers’ euros and US dollars. Give me a break.

Online platforms can do it at practically no cost.

Banks also charge exorbitant fees to make loans; it’s pretty standard for borrowers to pay at least a 1% to 3% origination fee up front, before you start paying interest.

Yet Peer-to-Peer sites squash these costs down to almost nothing.

Banks no longer have a competitive advantage in finance, and it’s only going to get worse for them.

The technology is powerful and game-changing. And again, those who don’t adapt will be left behind.

On the flip side, it’s obvious that a lot of people have made a lot of money in cryptocurrency.

And that’s great. Plenty of money has been made… and there may likely be plenty more money to be made speculating in the cryptocurrencies themselves.

But the big money has always been made by the folks who were on the forefront of developing the technology and applying it to bigger and bolder uses… NOT speculating on price volatility.

Back in ancient times, once people discovered that horses and oxen could multiply the labor of human beings, there were probably plenty of traders who made money speculating in animal prices.

But the real wealth was made by people who applied that new ‘technology’ to bigger problems and fundamentally changed the way their societies did business.

This will very much be the case with crypofinance.

The real prosperity isn’t in chasing the Bitcoin price higher, and certainly not in the latest ICO craze.

The real prosperity will be for the visionaries, entrepreneurs, and investors who back them– those who develop this technology and apply it in ways that fundamentally change the way we engage in finance and commerce.

So if you feel like you ‘missed’ Bitcoin, don’t worry: we’re just at the beginning of this phase... you haven’t missed anything.

In fact we haven’t even begun to scratch the surface of those application opportunities.

And the wealth and value that will be created from them will absolutely dwarf all the gains made in crypto so far. We haven’t seen anything yet.

And to continue learning how to safely grow your wealth, I encourage you to download our free Perfect Plan B Guide.

How Will The Market Absorb Trillions Of US Treasury Bonds to Replace The Feds Balance Sheet Wind Down?

First, the facts:

At Powell"s Nov 28th 2017 testimony to Congress, Powell said that as the Fed allows its 4 trillion dollar balance sheet to wind down, the US Treasury would issue new bonds to the market to replace them (so, technically, US notional debt will neither increase nor decrease as a result of QE).

Recall that QE is a sterile operation (this is why we don"t have hyper-inflation).  What does that mean?  Sterile means that the US public debt will neither increase or decrease as a result of QE, and neither will the money supply.  Another way to say this is that QE is a cash neutral operation.  Where cash is pushed into the system at one point, it must be drained someplace else (in our case, the Fed offers interest to banks to store their cash at the Fed...mostly with IOER - interest on excess reserves..and all the banks have indeed been doing this).  This is also why banks are not over-excited to lend you money...they get risk free money to deposit their cash at the Fed.  QE simply took US debt off the markets balance sheet, and placed onto the Fed"s (yes, the Fed printed digital fiat currency to make this happen...but the unwind will reverse  this "money" creation).  So, the Fed bought 10yr notes with funny money..will hold them to maturity...and then when those 10yr notes mature, the US Treasury will auction new bonds into the market to repay the Fed, making the funny money disapear like magic.  This whole process together "sterilizes" the Feds money printing...but in the meatime, the market pushed that money into other assets (mostly stocks).

Here is the simplified flow of money:
Fed QE --> bond market --> stock market --> bank accounts --> Fed accounts(IOER)

Such that total dollars in circulation didn"t change much...they ended up back at the Fed (with a nice uptick in asset prices as an inbetween step).
There was a nice side effect to this...while the Fed holds a large balance sheet...the US Treasury doesn"t have to pay interest on its debt (because the Fed remits all its profits back to the Treasury...and interest income is considered profit).  When the Fed winds down its balance sheet, the Treasury will have to start paying interest on that debt again.

The interesting question is thus:  When the US Treasury tries to sell 1-2 Trillion dollars of long term debt back into the market...what happens to interest rates and the stock market?  Recall #1 that after the Trump election, 10 year interest rates moved from 1.80% to now 2.40% (expectation of Trump borrowing lots of long term money to finance his infrastructure and deregulation projects).  But that hasn"t even happend yet (analysis of the Republican tax plan cost estimates an additional 1 Trillion US long term debt).  Recall #2 that the Fed is currently holding a lot of that debt...which minimized the need to liquidate bad long positions in the post Trump bond market selloff.  US Treasury debt is "high quality" and so the market will buy it...but at what price?  This is the big question.  Will the market sell stocks to make room to buy up all this new debt (reverse QE)?  Does this cause the next stock market crash?  (hint hint - probably)

 

The piper must be paid eventualy.  However, just like in Cyprus...the banks will have a heads up...and their assets will be safe.  What will happen to yours?

Chinese Banks Push Back On Shadow Banking Regulations - Expose "Catch-22" For Financial System

In November, we discussed how the post-Party Congress measures to deleverage and crackdown on the worst abuses in China’s credit bubble took an important step forward with the announcement of a new era of regulation for China’s $15 trillion shadow banking and asset management industry. See "A New Era In Chinese Regulation Means Turmoil For $15 Trillion In China"s Shadows". In particular, the authorities turned their sights on wealth management products (WMPs).

On the way out are “guaranteed returns” and “capital pools” which had turned the $4 trillion sector into a leveraged Ponzi scheme. We joked that in a “radical and shocking” departure from the norm, financial institutions would have to offer yields based on the risk and returns of the underlying assets. Paying out guaranteed returns with new funds from depositors would no longer be allowed.

Commentators at the time described it as “a new era of regulation” which would lead to tighter risk control and slower but higher quality growth in the Chinese economy, blah, blah. However, our interest was piqued by the implementation date for the new rules. This is slated for the end of June 2019, providing Chinese banks and the entire shadow banking system a grade period to get their house in order. As we suggested.

We can only guess the delay reflects the enormity of the problems discovered by China’s regulators when they finally looked under the hood.

We didn’t have to wait long for confirmation that our cynicism was justified. It turns out that there was a “closed-door meeting” last week during which Chinese banks laid out the systemic risk if the regulators pursue their reform plan. According to Reuters.

Ten Chinese banks have raised strong objections to the central bank’s recent move to tighten rules on the asset management sector, saying it may cause a rush of redemptions among other risks, three sources with knowledge of the matter told Reuters.

Senior executives from the joint-stock banks said during a closed-door meeting in Shanghai last week that the rules would have a big impact on financial markets and could even “trigger systemic financial risks”, according to the sources, who declined to be identified due to the sensitivity of the matter. The executives also said the new rules on removing implicit guarantees for wealth management products (WMPs) could spark liquidity risks and increase market volatility, the sources said late on Thursday.

Unlike the Big Four state-owned banks, the smaller banks have limited scope to increase lending in the absence of WMP funding...and that"s ignoring the "black holes" hidden beneath the surface.

In short, the entire Chinese financial system, from depositors to banks to asset management companies, has become addicted to the WPM model. Reforming it will only advance the crystallization of losses and bankruptcies, never mind largescale protests from investors who have always assumed that, somehow, the banks would make good on their promises. On a small scale, the clearest example of the near-impossibility of reforming WMPs without threatening China’s financial system, was the example of Foresea Life Insurance in May this year. This report from Fortune captured Ponzi nature and risk of civil unrest.

A Chinese insurer has warned the country’s regulators of defaults in the billions and possible unrest unless it is allowed to launch new products again. Foresea Life Insurance asked the China Insurance Regulatory Commission (CIRC) in a letter dated Apr. 28 to lift its ban, “in order to avoid inciting mass incidents by clients and localized and systemic risks, producing greater damage to the industry,” reports the Financial Times. It further warned that, with an expected redemption of $8.7 billion this year, the insurer might not be able to meet payouts without selling new products.

The Bloomberg article portrays the feedback they gave to regulators on the new regime as “a rare protest by Chinese bankers as pressure mounts amid a government campaign to de-leverage and de-risk the country’s massive and increasingly complex financial system”. However, it’s much more than that, it’s essentially a plea for the survival on the part of smaller banks. Without large pools of deposits, smaller banks have relied on WMP and other shadow banking conduits for funding. In the absence of guaranteed returns, leverage and fraud, that might not have been a problem.

The new rules will pose a direct challenge to a business model that small- and mid-tier banks have been relying on to drive asset expansion and profit growth, bankers told Reuters earlier. “Every time when the regulators announce tighter regulations it would almost always benefit the large state banks and hurt the smaller ones, because they (the latter) are taking much bigger risks,” said a senior executive at one of the country’s big four state-controlled lenders.

The joint-stock banks, which are unable to compete against large state banks for public deposits, have depended on selling WMPs with implicit guarantee of fixed returns to attract retail funds. In turn, they invest the money they manage into stocks, bonds and non-standard debt assets to generate profit. Bank executives said at the meeting the 28.38 trillion yuan of banks’ WMPs, part of the so-called shadow banking sector, have allowed them to bypass regulatory restrictions on credit expansion and capital constraints.

The problem for Xi Jinping and his cronies is that they left the situation to fester for way too long before attempting to intervene. In an effort to dissuade the authorities, here is Reuters on more warnings from the threatened banks.

If the current draft of the rules takes effect, banks will be forced to offload assets beforehand, including selling bonds, stocks and other liquid assets at a discount and asking clients to repay loans before time, the sources said. “No matter which solution we choose, it will hit financial markets,” they added.

The banks also said rules on strictly limiting bank WMP investments in non-standard debt assets and private equities would reduce their support for the real economy and increase financing costs for companies, the sources said. They also suggested the central bank remove certain rules and extend the transition period for the new rules - currently up to June 2019 - to three years to smooth the impact, the sources said.

…which basically amounts to a “Catch-22” situation for China’s financial system.

Meanwhile, it’s worth highlighting a (very) recent example of fraud in the Chinese banking system which encompassed the WMP sector. Last Friday, the South China Morning Post (SCMP) reported on the 722 million yuan ($109 million) fine – the industry’s biggest penalty - served on Guangfa Bank, the largest bank in Guangzhou city. The bank covered up the default of two bonds issued by phone maker, Cosun Group, which had ben sold on an Ant Financial Holdings’ WMP platform. As the SCMP explains.

Ant Financial and 10 other banks sought compensation for investors from Zheshang Property and Casualty Insurance, which had provided insurance coverage on the debt, only to discover that the insurer had been issued fake letters of guarantee by Guangfa’s branch in Huizhou city. The fraudulent documents were created using counterfeit corporate seals made by branch staff. The case involved as much as 12 billion yuan, as the bank tried to channel money to cover its mounting bad loans and operational losses.

“Guangfa did everything that regulators hate the most,” said Chen Shujin, chief financial analyst at Huatai Securities. “They gave an under-the-table guarantee, and made illegal interbank investments to cover up a non-performing loan.”

The epidemic of fraud across China’s financial system has been obvious for years. The Catch-22 situation faced by the Chinese authorities boils down to a timing preference. With Xi’s position cemented for the next five years, the authorities can bring on the “Minsky moment” adjustment, knowing that the economy can recover by 2022. Or they can postpone it, leading to a truly catastrophic collapse down the road.
 

 

The End Is Near?

Written by Craig Hemke, Sprott Money News & TF Metals Report

 

 

For gold investors, the major thorn in our side continues to be the USDJPY so we need to discuss it again.

 

Over the past weekend at TFMR, we had a discussion about how so many well-intentioned people could have been so wrong about "the metals" over the past five years. It included this sentence: "What we failed to predict was the successful, collective manipulation of nearly all "markets" by the CBs, their primary dealers and their willing/sycophant media through HFT."

 

That one sentence could be the subject of a full post or podcast but, for now, let"s just focus upon the market manipulation through HFT. As you know by now, the USDJPY is just about the single most important general input for HFT buy/sell decisions. Whether it"s S&P futures, bond futures or Comex Gold, the direction of the USDJPY generally impacts all of these "markets" more than anything else. The chart below plots the inverse of USDJPY (JPYUSD) with gold futures. Note clear correlation that began in 2008.

 

 

 

 

 

 

In observing the central bank market manipulation...when we see the same pattern again and again...and this pattern is followed by the desired equity or bond market reaction...then you know something is up. How many times have we captured screenshots of the BoJ, Fed, SNB or whomever buying the USDJPY in size at just the right moment to create and paint a double bottom on the chart? From there, how many times have we watched a near perfect and uninterrupted, 45-degree angle recovery ensue?

 

Here are just a couple of egregious examples that I just chose at random from my desktop folder that holds about 40 charts. (I"ve only been keeping them since late summer.)

 

 

 

 

 

 

 

 

Well, since we just used the term "egregious", let"s apply it again to the charts below. Recall that things were sailing along surprisingly well last Monday. Over the previous week, the USDJPY had failed to hold support near 113 and again near 112 and it had fallen to near and just below the very-important 111 level. Then, as we chronicled that day, a sudden spike occurred on NO NEWS and not even any rumors. Just a spike from out of the blue that drove the pair immediately back above 111.

 

 

 

 

And what followed over the next five days? Well, outside of the sudden plunge on the now disproven stories from Brian Ross at ABC News, the USDJPY has followed the same glide path all the way back to 113. Also, IT"S VERY IMPORTANT TO NOTE where USDJPY reopened Sunday afternoon...RIGHT ON the glidepath. Remove the reaction to Friday"s unexpected headlines and it"s a near-perfect, 45-degree angle for nearly FIVE FULL DAYS.

 

 

 

 

 

 

(And in case you"re wondering which tail wags which dog, note the turn in USDJPY last Monday clearly preceded the turn in the S&P.)

 

How is this even possible? It"s not...well, at least not in the traditional and "free market" sense...the pre-2008 and pre-2012 sense. All of these things used to move somewhat independently as human, carbon-based traders made rational investment decisions based upon a number of inputs. However, in 2017, where 90% of all trading is now done through HFT....well, the results are pretty clear. The Central Banks and their Primary Dealer trading desks manipulate the key inputs and HFT does the rest. This is why yours truly and so many other "experts and mavens" have been confounded for the past five years. It"s not nefarious intent and it"s not because gold bugs are cruel, heartless charlatans who are intent upon stealing as many dollars as possible from the easily-duped. Instead, it is a failure to anticipate the levels to which The Central Banks would successfully go to keep their system alive.

 

Understanding this is why you consistently hear me cite the refrain of PHYSICAL DEMAND. It is only through a renewed crisis of confidence that this system can be broken...at least as it pertains to the precious metals. Physical demand will bust The Bullion Banks by breaking their just-in-time and unallocated delivery system. Physical demand will force price to be discovered through the exchange of physical metal, not the alchemized digital garbage that permeates the system today.

 

We"ll leave you today with stories from each end of The Bank monster. The first, and one that we"ve been following closely since last March, is the continued run-up to renewed war on The Korean Peninsula. WHILE NO ONE IN THEIR RIGHT MIND IS CHEERING THIS ON, it is important to be prepared for all of the unknown unknowns that would come with such a catastrophe, one of them being financial calamity that could again shatter confidence in the current system.

 

http://theweek.com/articles/740264/why-north-korea...

 

And the other story deals with gold alchemy and the continued shunting of physical demand into sham/scam paper investments. It seems the World Gold Council is hungry to increase their fees. They are apparently planning to offer a whole new "gold" ETF, perhaps designed to compete with the IAU. Ask yourself, from where will this fund get the 200-300 metric tonnes of gold needed to fund its "inventory"? Once again, The Banks will simply perform the alchemy of leveraging current unallocated stockpiles into more and more digital "gold".

 

http://www.etf.com/sections/daily-etf-watch/new-ph...

 

Again, true physical demand is the only antidote to the poison created by the Central Bankers and the Bullion Banks. Sadly, 2018 promises another surge in war, debt, negative interest rates and de-dollarization. Will these events finally prompt enough physical demand to break The Banks? Only time will tell.

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

The End Is Near?

Written by Craig Hemke, Sprott Money News & TF Metals Report

 

 

Check out these other articles by our contributors:

Craig Hemke -   Another Tradable Low Coming

John Rubino - Finally, An Honest Inflation Index – Guess What It Shows

Jeff Thomas - Tilt! Game Over

Ask The Expert: Jim Willie