A major change, Part 2

Continuing, following Part 1, with the idea that an energetic pressure has been lifted from the Entrenched Elites and their minions, allowing them to better recognize reality and to speak more freely:

If you think that you can escape the clutches of the money confiscators plotting their bank bail-ins by having your money in a US-based money market fund, think again. The SEC (Securities and Exchange Commission)–founded to protect people from the wolves of Wall St but which now protects the wolves–sees the crises rolling toward us and has just ruled that money market funds can suspend withdrawals or place high fees on those withdrawals “during times of market stress.”

     The “Gates” Are Closing: SEC Votes Through Money Market Reform

Some think this attempt to prevent runs on money market funds will actually create such runs since, as more people become aware of such rules, their first reaction during “market stress,” also known as a panic, will be to withdraw their money before the exit gates are closed. Others think they are trying to scare people out of money market funds and into stocks to further enhance the “wealth effect” which allegedly makes people spend more when they feel good because they see the stock market rising as a signal that “everything is OK.” Either way, and as usual these days, this isn’t good for regular people. The government regulators see these runs on the horizon and will try to “protect the system” by controlling what people can do with what is supposed to be their own money.

And if you think you can escape the money confiscation vice by being in bond mutual funds, the Fed sees the potential for runs on these funds, so you’ll soon be out of luck there as well. According to the Financial Times:

Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market…

Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.

Wonder how long it will take before they put exit gates on stock market mutual funds. And then, at some point, the whole stock market. For our own good, of course. To save the system. For national security. All please now rise for a rendition of God Save the Queen.

Next, the so-called BRICS (Brazil, Russia, India, China, and South Africa), home to 3 billion of our fellow inhabitants of Earth, announced that they have had enough of being treated as poor relations on the world economic stage, and enough of broken promises from EUUSUK (European Union, US, and UK), and have formed their own alternative to the IMF (International Monetary Fund) called the New Development Bank. From the joint statement by these five major countries:

“We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness. The IMF reform process is based on high-level commitments, which already strengthened the Fund’s resources and must also lead to the modernization of its governance structure so as to better reflect the increasing weight of EMDCs in the world economy.”

The old guard countries promised the Emerging Market countries, in 2004 and again in 2010, greater say in the governance of the IMF in exchange for greater monetary contributions from the BRICS; they took the money but never come through on their promises. For example, Belgium still has more votes at the IMF than Brazil despite the fact that Brazil’s economy is more than five times larger. And the IMF is strongly dominated by the US despite the fact that, according to the World Bank’s calculations, the Chinese economy will be the world’s largest by the end of 2014. That wasn’t “supposed” to happen till 2020 by US government calculations, but the USgov tends to use very strange calculators that have a button that says, “Make the US economy look better than it is,” and they press that button a lot. Anyway, the BRICS are backing their new bank with $50 billion up front, with another $50 billion promised as a contingency fund.

This presents an alternative for countries in financial distress. No longer is the IMF the only game in town. This is important since IMF “rescues” can often be summed up like this: “Oh, you’re in trouble with your bankers? Tell us absolutely everything about the finances of your country, your banking system, your companies, etc. and then we’ll loan you a bunch of new money that will first and foremost go to paying your international bankers, and be sure to spend some of the rest with the following US and European companies who will help you develop your natural resources and get you a price that will be very fair for those companies. And since you will now have even more debt than before, you’ll have to implement austerity measures that will further impoverish your citizens. Sign here or default on your debts and lose all access to the international capital markets.”

As a side note, this New Development Bank is yet another whack to the US Dollar’s status as the world reserve currency.

If Portugal weren’t in the EU, they could probably take advantage of the New Development Bank for their next bailout. The Euro-pols have been parading Portugal as a country bailout success because their economy is expected to expand a meager 0.9% this year. That’s despite the unmentioned fact that said economy will be 16% smaller than it was in 2009. But all that won’t matter now that Portugal’s largest banking group, Espirito Santo, is going down the tubes, and a second bank, Rio Forte, is filing for bankruptcy. And going along with the theme of this post, Portugal’s President Cavaco Silva actually said publicly what politicians never say: that this is going to hurt the economy:

“If some citizens, some investors suffer significant losses (from the Espirito Santo group), they may delay investment decisions, or some of them may find themselves in very big difficulties,” Cavaco Silva said in comments during a visit to South Korea, which were aired on local television. “We cannot ignore that there will be some impact on the real economy.”

Previously, politicians have always claimed any problem is “well-contained,” a tempest in a teapot, nothing to worry about. Perhaps the President is being savvy in trying to distance himself from the Espirito Santo group. Now that everyone knows the banking group is in trouble, there’s little point in hiding the dirty laundry any longer from some misplaced fear that truth about a country’s largest bank will “hurt the economy”. The authorities have detained the man who was that groups’s CEO until his resignation a month ago:

     Banco Espirito Santo CEO, Who Quit Last Month, Detained In Money Laundering Probe

I guess the phrase honest bank executive can be firmly placed in the list of oxymorons along with crash landing, even odds, and good grief.

This points rather nicely (or nastily, depending on one’s point of view) back to the IMF. In its continuing frank admission that countries will never be able to pay back a lot of the money they’ve borrowed, the IMF published another of what Martin Armstrong accurately calls “partial default options” for countries, that is, they are telling countries, “don’t default on all of your debt, here are some ways to not-pay your debts, but in smaller chunks so as to be less noticeable and alarming.” Some of the “options” they have previously discussed:

Financial repression: This is described on the IMF website as:

Financial repression occurs when governments implement policies to channel to themselves funds that in a deregulated market environment would go elsewhere. Policies include directed lending to the government by captive domestic audiences (such as pension funds or domestic banks), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.

This option has already been chosen and activated by the US, the European Union, Japan, the UK, and so forth. This is where governments print money to buy bonds to drive interest rates to near-zero or, in the case of the European Central Bank, negative. This saves the government huge amounts in interest expenses. Instead of paying 5% or 6% interest, a reasonable estimate of the historical average for government debt, they now pay almost nothing. This steals money from savers, pension funds, insurance companies, etc., who get little or no interest on their savings/investments, but it allows national governments to temporarily maintain the appearance of solvency, to keep their power and their empires and, for government’s upper management, to continue to live like royalty.

The IMF website goes on to say:

In the current policy discussion, financial repression issues come under the broad umbrella of “macroprudential regulation”…

Well how do you like that: the new Chairwoman of the US Federal Reserve, Janet Yellen, used the phrase macroprudential regulation repeatedly last week in testimony to Congress and in her press conference. She is telling everyone with ears to hear that she will go further down the road of financial repression during the next phase of the crisis. See the quote above that includes “directed lending to the government by captive domestic audiences,…regulation of cross-border capital movements.” In other words, like they did in Cyprus, if they say so, then your money will have to stay in the country. And it may get lent to the government whether you like it or not. If you think these people won’t pull such stunts when they decide it’s a matter of national security (which equates in their minds with them remaining in power), then you need to study them more carefully. And admittedly this one is semi-coded, but they are informing you up-front that they will take such measures.

What else has the IMF recommended?

Wealth Tax: From this IMF paper:

The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

Folks, if you need to, “distort your behavior”!!! In other words, they have gone on record saying that this tactic only works if they give no advance warning. So that IMF paper is the advance warning. If they pull this tactic, and I think desperate countries will, it will be just as it happened in Cyprus, their test bed: You go to sleep Friday with X dollars in your account, and when you check your balance on Monday, some of it is gone! In the case of Cyprus, a lot of it was gone for some people. And for what? To save a failing bank. So “distort your behavior” ahead of time and get your savings out of their way. Any account balance you can call up on a screen is in their way.

The IMF also calculated just how high they thought each country could raise its income tax rates and not crash their economy. For some countries, the rates were a lot higher than they are now. And of course they recommended higher property tax rates because it’s very difficult for people to hide their houses or move them to another country, so property owners are sitting ducks.

So what is the IMF’s recent addition to this list?

Duration extension: For this one, they came up with the name “re-profiling.” Which means I’m wrong that maybe they now they think they can really call a spade and spade: they still feel the need to make up BS names for the tricks they pull on people. Still, I think the last couple of months have shown a striking increase in honesty from these folks. Anyway, what’s this re-profiling?

This would be the ability to extend the duration of debt at will. Sounds esoteric, but it’s really rather simple. Most government borrowing is very short term, say 30 days to 90 days: The government says, “Lend me some money, I’ll pay you back, plus a little bit of interest, in 30 days.” These short-term debt instruments end up in money market funds, corporate treasuries, etc. Most people treat their money market fund like cash, that is, they write checks from it, pay bills from it, etc. But this tactic would allow the government to say: that 30-day Treasury Bill is now a 5-year Bond, that is, we’re not going to pay the principal back in 30 days, we’re going to pay it back in 5 years. And we’ll give you the same miniscule interest rate we have been paying on that 30-day bill, namely something like 0.01%. So then lots of people who thought they had ready access to their cash? They would find out their “cash” was now tied up for years. This would enable the government to put off its own bills till way off in the future, giving them free reign to continue ordering caviar and champagne for their free red-carpet junkets around the world.

In my view, the best thing about all this is they are telling people up front what they plan to do. I hope regular readers have already taken the appropriate measures to protect themselves from these tactics, but if you haven’t, it still isn’t too late.

I am remembering a scene in the movie Body Heat where a hardened white-collar criminal chides William Hurt for being someone who won’t “do whatever it takes.” Be assured that when the next inevitable phase of this ongoing financial and political crisis hits, those in power will “do whatever it takes” to stay there.

In the longer term, their efforts will fail. But there’s some road to travel before we get to that longer term. From recent events, it’s fairly clear that part of that road involves war. So far, the biggest downside I can see to this lifting of pressure from the Elites and their minions is that they seem to think they can do and say just about anything they want in terms of threatening, and in some cases attacking, other countries. I’ll take up this topic soon in an update on the War Cycle.

A major change, Part 1

A significant change has taken place. A pressure seems to have been lifted from members of the so-called Elites. This can be seen by two effects:

1. Some of these System Controllers are taking a look around and are none too pleased with what they see.

2.  Some of them realize they can now speak more freely.

Here are some examples. The first is a set of quotes from the Chief Investment Officer of Allianz, by some metrics Europe’s largest insurer, and the third largest insurance company in the world:

The fundamental problems are not solved and everybody knows it.

Let’s hear that again:

The fundamental problems are not solved and everybody knows it.

Wow, for the last five years, one had to peruse surly blogs to hear that truth, but this is from Maximilian Zimmerer, the guy in charge of the assets for one of the 20 largest corporations in the world. He also stated that the “euro crisis is not over.” With that latter quote, he just told us that all those Euro-pols running around saying the “euro crisis is over” and “Europe has been fixed” are very mistaken and/or very full of it.

Next, someone let the Wall St Journal know that the US Federal Reserve has been railing about extreme problems at Germany’s top bank, Deutsche Bank:

In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank’s U.S. arms “are of low quality, inaccurate and unreliable.”

It said examiners found “material errors and poor data integrity”…The shortcomings amount to a “systemic breakdown” and “expose the firm to significant operational risk…”

So what’s the US central bank doing castigating Germany’s largest commercial bank? DB has large US operations; we showed here that half of the Fed’s money printing went to European banks, so DB probably has a lot of that cash, that is, from the Fed’s point of view, they had to bail out DB before, they don’t want to have to do it again; and, drumroll please, DB has the largest exposure to derivatives of any bank in the world. Again, what are derivatives? They are highly leveraged bets on every imaginable financial price movement. Here’s what ZeroHedge says about DB and derivatives:

Recall that as we have shown for two years in a row, Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.

And here is that text in chart format:

So that’s Germany’s total economy in green on the left; Europe’s economy in blue in the center; and Deutsche Bank’s derivative bets in red on the right. So when it becomes clear that DB has a serious problem, it will be way too big for Germany to handle; probably way to big for Europe to handle; and possibly way too big for anyone to handle, that is, it could be game over, system down, everyone start from scratch. What the US Fed is saying is that DB’s recordkeeping and reporting is so bad that it results in “significant operational risk.” We likely won’t know till after DB goes down the tubes whether this was error or intentional obfuscation on their part. My guess is it’s probably a lot of both: their business is so huge, they have little understanding of many of its parts, some of which likely have twenty-something rogue traders putting on huge derivative bets; and they have plenty to hide.

Next, the Bank for International Settlements (BIS) has overtly questioned the sanity of just about all central banks and just about everyone participating in the financial markets. So why should anyone care? Perhaps you’ve been blessed during this lifetime and have never heard of the BIS. It is the organization that was described as follows on Bloomberg:

It was especially useful to the Nazis.

Though headed by an American during World War II, the BIS adhered to a priestly neutrality…in order to continue dealing with all sides in the conflict. Unfortunately, this put the institution squarely in the position of abetting Nazi terror.

The BIS accepted plundered gold and made it possible for Germany to acquire desperately needed war materiel. It even permitted Germany, once it had invaded Czechoslovakia, to confiscate that nation’s gold reserves.

I can just hear you saying: “Oh that BIS.” Anyway, from such disgusting beginnings, the BIS has continued its traditions and thereby has risen to be the central bank above all other central banks, that is, if you are the head of a major central bank in the world, you get a seat at the table at the BIS. Here it is, what some call the Tower of Basel, such a friendly-looking nuclear plant cooling tower place:

I’m told that if you’ve got a war to finance or a lot of drug money to launder, the BIS is your one-stop-shopping place. But I digress. In this article:

     BIS Slams “Market Euphoria”, Finds “Puzzling Disconnect” Between Economy And Market

you can find the Financial Times summary of the latest BIS Annual Report:

The Bank for International Settlements has warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise, as it called for governments to ditch policies that risk stoking unsustainable asset booms.

While the global economy is struggling to escape the shadow of the crisis of 2007-09, capital markets are “extraordinarily buoyant”, the Basel-based bank said, in part because of the ultra-low-rate monetary policy being pursued around the world…calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity.

In its annual report, the BIS also warned of the risks brewing in emerging markets, setting out early warning indicators of possible banking crises in a number of jurisdictions, including most notably China.

So there you have it, the ultimate insider organization saying what the surly blogs have been saying for years: stock and bond markets are wildly detached from economic reality, central banks are keeping interest rates too low and printing too much money, expect banks to fail all over the world, especially in places like China, etc.

Next, speaking of bank failures, the EU, US, and UK (I think an appropriate pronounceable acronym for this particular axis of evil is EUUSUK) have decided to “show us their feelings” about bank bailouts and have come clean about their attempt to get all countries to go along with their scheme to replace bank bailouts with bail-ins, through which, if you have money in a bank that fails, they are going to steal a bunch of your money to save the bank, like they did in the test case, Cyprus:

     Bank Of England Leads Push For Deposit Confiscation – Japan, China, Russia Against Bail-Ins

They are pushing all major countries to go along with this plan for an obvious reason: Let’s say you are a global corporation or a gazillionaire and can place your money in whatever countries you choose. Why would you keep your money in countries where you could lose a lot of money in a bail-in? You wouldn’t be such a fool, of course, you’d move that money to safer countries, or into safer forms such as gold. However, the EUUSUK axis is being brutally honest here about their intent. Perhaps people living within the axis will be helped by the reluctance of the Asians and Russians to go along with this draconian plan to continue saving reckless banks by theft from regular people; but I doubt it.

Let’s call it a day and save more of this new-found realism and truth-telling for Part 2.