martedì 13 settembre 2011

Piazza Pulita per uscire dalla crisi

Chieti,13 Settembre ’11, Martedì, S. Maurillo - Anno XXX n. 306 - www.abruzzopress.info - abruzzopress@yahoo.it - Tr. Ch 1/81 Nuovo ABRUZZOpress >>> Nazionale Servizio Stampa - CF 93030590694 - Tel. 0871 63210 - Fax 0871 404798 - Cell. 333. 2577547 - Dir. Resp. Marino Solfanelli Ap –

Economia 
Piazza Pulita, per uscire dalla crisi 
di Savino Frigiola

 E' stata varata la prima manovra economica di 54 miliardi voluta dai "poteri forti" (prelevati in grandissima parte dalle tasche degli italiani). Insieme all'altra ancora in corso, produce la riduzione della circolazione monetaria sul mercato pari alla somma delle due manovre ed insieme all'aumento dell'IVA un'ulteriore contrazione dei consumi interni e, quindi, un diffuso incremento della povertà per tutti. La manovra, almeno questa è la versione ufficiale, serve per ridurre il mastodontico debito pubblico. Tutti sanno che non sarà l'ultima (hanno già cominciato a prepararci in tal senso), e tutti continuano a ballare allegramente al suono dell'orchestrina delle menzogne, come sul ponte del Titanic mentre stava affondando. Gli analisti in buona fede concordano nell'attribuire all'emissione monetaria, ad opera dei banchieri privati, Banca d'Italia prima e BCE dopo, la causa e la fabbrica del debito pubblico. Il significato del titolo del libro, da me pubblicato nel 1997, "La Fabbrica del Debito, dell'Usura e della Disoccupazione", ritenuto all'inizio incomprensibile, lo stanno appalesando gli accadimenti. In tanti anni non è pervenuta nessuna contestazione ne denunce di vario tipo dagli ambienti economici, bancari e monetari, ma solo prudente ed omertoso silenzio. I fatti oggi stanno impietosamente a dimostrare quanto tempo si è perso e quanti disastri si sarebbero potuti evitare solo se la "politica" avesse svolto la sua legittima e doverosa funzione di controllo, prevenzione e d'indirizzo nei confronti del sistema bancario-monetario a favore dei cittadini e dei propri elettori. La prova che la "politica" continua irresponsabilmente ad ubbidire ai diktat che giungono dagli ambienti bancari-monetari a proprio vantaggio ed a danno dei cittadini, la si ricava proprio dall'impostazione di questa ultima manovra economica. Anche i più sprovveduti sanno che prima, o nella più drammatica delle ipotesi durante lo sgottamento dell'acqua che sta imbarcando il bastimento, bisogna accanirsi a tamponare la falla mediante la quale la nave rischia di affondare. Ciò è indispensabile per impedire che gli addetti allo sgottamento debbano continuare ad espellere l'acqua all'infinito. Ci vengono richiesti 54 miliardi senza farci capire a che titolo e per cosa farne, se servono per abbattere il debito o ancor peggio per pagare gli interessi sul debito pubblico che stanno crescendo a dismisura. Di tamponare la falla che continua a produrre il debito, nessuno ne parla né è dato sapere se rientra nei piani di una qualunque compagine partitica. E' del tutto insensato continuare ad emettere i titoli di debito nazionali, sui quali paghiamo subito gli interessi ai signori banchieri privati, scontarli presso la BCE ed utilizzare il netto ricavo per pagare i titoli di debito in scadenza. Tutti comprendono che se non si blocca questo meccanismo diabolico il debito pubblico non può che continuare a crescere e l'inevitabile strangolo che ne deriva diventa sempre più soffocante. Per interrompere questa spirale malefica è sufficiente che lo Stato smetta di emettere propri titoli di debito e ritorni ad emettere titoli monetari come ha saputo fare benissimo per cento anni dal 1874 al 1975. Alle immancabili perplessità dei soliti "economisti di sistema", ricordiamo loro che il "valore convenzionale della moneta" enunciato da Auriti, nell'interesse dei cittadini lo impone, e per quanto concerne i trattati europei, troppo frettolosamente firmati, e sufficiente un piccolo strappo sulla scia dei numerosi già effettuati anche da Paesi più blasonati di noi. Gli ultimi due, proprio attinenti all'argomento, riguardano quelli della Grecia e dell'Irlanda avvenuti addirittura con la benedizione della Ela (Emergency liliquidity assistance) - BCE. Le banche di questi due Paesi emettono direttamente Euro in proprio. I soliti pateracchi dei banchieri privati e della "Commissione Europea" si evince dalla risposta all'interpellanza del parla-mentare greco Kostantinos Poupakis, che chiedeva lumi sull'accaduto: «la commissione europea non detiene statistiche sulle varie operazioni Ela... Mentre è la BCE che cura questi aspetti.» I fatti sono ineludibili; non è più possibile che la politica tutta permetta che lo Stato italiano così maldestramente continui ad indebitarsi nei confronti dei banchieri privati. Lo Stato, in nome e per conto dei propri cittadini, deve ritornare ad emettere la propria moneta. La deve acquisire a titolo originario e registrarla all'attivo del proprio bilancio al valore corrispondente al signoraggio. L'attività così conseguita dovrà essere utilizzata per le proprie spese istituzionali, per dimostrare che le istituzioni sono al servizio del cittadino e non viceversa. Su queste posizioni bisogna che i cittadini realizzino un fronte comune capace di fare piazza pulita, trasversale ai vecchi apparati partitici a difesa degli interessi nazionali e quindi di tutti. Lasciare agli altri la difesa dei banchieri, delle losche attività finanziarie e dei poteri forti. La nuova linea di demarcazione della politica separa quelli che intendono operare per il benessere dei cittadini da quelli a tutela dei banchieri & C. Solo così sarà possibile rilanciare l'economia e l'occupazione, e ciò che più conta la speranza nel prossimo futuro. Per quanto riguarda il debito pregresso, tra i tanti suggerimenti che ci sono giunti registriamo anche quello del prof. Bruno Amoroso (economista italiano che insegna in una università in Danimarca) che sostiene non solo di "non pagare un debito illegittimo" ma addirittura "chiede i danni" per il mal tolto. Abbiamo tempo per decidere su tutto ciò, intanto pensiamo all'Islanda. Mai come oggi; o con i cittadini o con i banchieri. S. F.

GLD in public relations backfire

CNBC, HSBC, and GLD in public relations backfire

 Section: 
8:35p ET Monday, September 12, 2011
Dear Friend of GATA and Gold:
GoldSilver.com today notes CNBC's backtracking on its Bob Pisani's reporting September 1 from the secret vault said by gold custodian HSBC to house the metal held by the gold exchange-traded fund GLD. While Pisani twice asserted on camera that "all" the metal in the vault belonged to GLD, he displayed a gold bar that turns out to have belonged to another gold ETF for which HSBC is also the custodian, and CNBC subsequently noted on its Internet site that the vault does indeed hold gold for more than GLD. But no doubt there's still enough there for HSBC to continue to help manage the Western fractional-reserve gold banking system. The GoldSilver.com report is headlined "CNBC-HSBC-GLD Public Relations Backfire" and it can be found here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Gold to reach $2,000 in 45 days


Gold to reach $2,000 in 45 days, Turk tells King World News

 Section: 
8p ET Monday, September 12, 2011
Dear Friend of GATA and Gold:
Sharp selloffs in gold and silver this year have been followed by steady increases, GoldMoney founder James Turk tells King World News today, and he expects that pattern to continue -- not only continue but to bring gold to $2,000 within 45 days. An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

lunedì 12 settembre 2011

Italy town rebels against Rome, wants own currency

Age of Austerity: Italy town rebels against Rome, wants own currency

Italy's much-disputed 54-billion-Euro austerity package to slash the country's crippling debt will go through a final debate at the lower house of Parliament on Monday. It would increase taxes and cut government spending to balance the budget by 2013. But constant changes to the plan and squabbling between lawmakers has damaged people's faith in it. And as Ivor Bennett reports, there's a town that's decided it doesn't want to wait for the cuts.

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Calls for Greek euro exit

Merkel coalition rattled by calls for Greek euro exit [fr]
Euractiv, 12 September 2011

Senior politicians in German Chancellor Angela Merkel's centre-right coalition have started talking openly about a Greek default, reflecting mounting concern about the management of the euro zone's debt crisis. On Friday Jürgen Stark – Germany's top official at the European Central Bank – announced his resignation, highlighting deep divisions over the bank's bond purchasing programme. "To stabilise the euro, there can no longer be any taboos," Philipp Roesler, economy minister and leader of Merkel's junior coalition partner, the Free Democrats (FDP), told newspaper Die Welt. "That includes, if necessary, an orderly bankruptcy of Greece, if the required instruments are available," he said. Roesler, who is also vice chancellor, said sanctions should be imposed on states failing to tackle big deficits, including the possible withdrawal of EU voting rights. FDP General Secretary Christian Lindner went further, telling the Berliner Morgenpost his party had not ruled out the possibility of Greece leaving the euro zone. Even senior figures in Merkel's conservative Christian Democrats (CDU) are leaving open the possibility of default. "The way things are looking, you can no longer rule out a possible Greek restructuring," CDU budget expert Norbert Barthle told Reuters when asked about a default or eurozone exit. Germany has repeatedly said Greece must meet conditions set by the European Union, European Central Bank and International Monetary Fund to get the next tranche of aid. Partly to ramp up the pressure on Greece to comply, German lawmakers have adopted a tougher tone in the past few days. Der Spiegel magazine reported that German finance ministry officials were preparing for the possibility of a default by Greece and working through scenarios including the reintroduction of the drachma.

Stark resignation

Talk of an orderly Greek default came as Jürgen Stark, Germany's top official at the European Central Bank, announced his resignation on Friday, citing "personal reasons". The move highlighted mounting tensions between Stark and the bank's policy of buying government bonds to combat the euro zone's debt crisis. "This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB," said Manfred Neumann, emeritus economics professor at Bonn University. Stark's shock resignation caused stock markets to tumble on Friday, bringing the euro down to $1.37 for the first time since February. Stark was one of four members of the ECB's policymaking governing council who sources said voted against last month's controversial decision to revive the dormant bond-buying programme and start buying Italian and Spanish debt after the two countries' borrowing costs had ballooned. Since then the ECB has bought more than €35 billion in bonds, significantly reducing Italian and Spanish spreads over benchmark German Bunds, on top of the €76 billion in Greek, Irish and Portuguese bonds it has bought since May 2010. The ECB has faced sharp criticism in Germany for buying bonds – a move which many there see as taking the bank into the fiscal arena and threatening its core role of fighting inflation. Joerg Asmussen, a pragmatic civil servant seen as a Europhile who has been at the heart of financial crisis management, was nominated to replace Stark on the ECB's executive board.

Vote on the EFSF due

Meanwhile, Stark's resignation and the FDP's calls for an orderly default of Greece raised the stakes for Chancellor Angela Merkel, who is battling to convince rebels in her coalition to vote for new powers for the European Financial Stability Facility (EFSF) on 29 September. Although she will get the law through due to support from opposition parties, if she fails to secure a majority from the ranks of her own coalition parties her authority will be seriously dented and she may even have to call elections. Some members of her party have raised questions about Greece's continued membership of the euro zone. "If the Greek government's efforts to make cuts and reform are not successful, we must also ask the question whether we do not need new rules which make possible the exit of a state from the currency union," Der Spiegel quoted senior CDU member Volker Bouffier as saying. Merkel herself has ruled out an expulsion of Greece, saying it would trigger a domino effect, but rifts have been opening up in her coalition on the subject. On Saturday, the conservative Christian Social Union (CSU) proposed threatening heavily indebted states with having to leave the currency union . Merkel is in a bind as she tries to push an agenda of greater economic integration as Germans grow more sceptical. A poll this week found 76% of Germans opposed to granting any further aid to heavily indebted Greece. Former German Foreign Minister Joschka Fischer fed public concern, saying on Sunday that the euro could even collapse. "The situation in Europe is really as serious as it has ever been. Until now, I did not think the euro would fail, but if things continue like this then it will collapse," Fischer, foreign minister for the Greens in their coalition with the Social Democrats from 1998-2005, told Bild am Sonntag. Peer Steinbrueck, tipped as the Social Democrats' challenger to Merkel in 2013 elections, said the EU needed new structures to cope with the new reality, including common eurozone debt issuance – a move Merkel has ruled out. "That means, of course, that Germany has to pay. But the money is well invested in the future – ours and that of Europe – in peace and affluence."

EurActiv with Reuters


domenica 11 settembre 2011

Gold Rise to Continue on Fed Manipulation

Jim Rickards - Gold Rise to Continue on Fed Manipulation

With extraordinary volatility in stock markets and continued strong accumulation of physical gold, Jim Rickards put together the following piece exclusively for King World News. One of the reasons Rickards has gained worldwide recognition is because of his ability to forecast ahead of time key moves by both the Fed and central planners. Jim Rickards clients include private investment funds and banks, government directorates around the globe in national security and defense and he has worked directly with the Fed and US Treasury. Jim is also a KWN resident expert and author of the extraordinary new book, “Currency Wars: The Making of the Next Global Crisis.”

King Vol 
by Jim Rickards, Sr. Managing Dir. Tangent Capital

September 11 (King World News) - Market commentators are never at a loss for reasons why stocks, bonds or currencies behaved in a certain way, especially on volatile days. From the European debt crisis to debt ceiling debates in the U.S. to natural disasters, there is always some phenomena that can be pointed to as a reason markets go up or down. In addition to these mini-themes, there are some mega-themes that have more explanatory power. From mid-2010 until mid-2011, the “risk on”/“risk off” explanation prevailed. The idea was that as U.S. growth emerged and the European crisis abated, traders would put on riskier trades such as stocks and gold but as growth faltered and Europe stumbled the risk-off paradigm would prevail and traders would move to Treasuries and the U.S. dollar. Lately all of the news seems bad and the risk-off mode dominates, although gold has advanced anyway as the perception of gold has morphed from risky bet to safe-haven where it should have been all along. A new mega-theme has emerged – call it the “conversation of volatility.” To understand it, begin with the three most important trading markets in the world – stocks, bonds and currencies. These markets have always affected each other although the interaction is greater at some times than others. Generally as interest rates in a country rise, the currency of that country strengthens. Likewise, as rates rise, stock prices go down because the discount rate applied to future earnings is greater and present values are lower. All three markets have certain historical volatilities but that volatility can shift as the influence of one market on the other becomes more pronounced. For example, if stock prices rise sharply, interest rates rise as credit demands increase and inflation takes off. This can cause the stock price rise to moderate shifting volatility from stocks to bonds. The same phenomena can play out between rates and currencies. The notion is that there is a quantity of potential volatility in the system at any one time based on the scale of the system and that volatility will move among stocks, bonds and currencies based on the credit cycle. Now consider the impact of Fed market manipulations. The Fed has set its short-term policy rate near zero and promised to keep it there until 2013. Through QE, QE2 and the new Operation Twist 2 the Fed has also squashed medium-to-long term rates. The result has been to take volatility out of the U.S. Treasury markets. Because currencies move largely based on interest rates, reduced volatility in interest rates also means reduced volatility in foreign exchange pairs except where governments dramatically intervene as in Switzerland recently. So we are living in a world where interest rate and foreign exchange volatility are greatly reduced due to Fed manipulation. Applying our notion of the conservation of volatility it quickly becomes apparent that if you take vol out of rates and FX then all of the volatility in trading markets must go toward stocks. For example, in prior periods, if stocks rose too far too fast, interest rate hikes might be expected that would cool off the action in stocks. Conversely, if stocks collapsed, rate cuts might stabilize the situation. Now as stocks gyrate wildly, there is no interest rate mechanism to absorb the shocks and stocks lunge deep into overbought and oversold situations. This is one explanation for the 200-plus point swings in the Dow Jones average that we have seen day after day. The stock market is like a racing car that has been fueled with nitroglycerine and had its brakes removed. For investors this is one more reason to avoid stocks. The removal of volatility from rates and currencies and the transfer of that volatility to stocks, combined with other destabilizing factors such as high-frequency trading and leveraged ETF’s, have detached stocks from fundamentals and resulted in the stock market being highly unstable and perhaps just one snowflake shy of an avalanche. In the short run, this will mean volatility in gold markets also as 400 point down days on the Dow cause forced selling of gold to meet margin calls. However, in the longer run the safe haven aspects of gold will become even more apparent as investors flee from stocks. The relentless push higher in gold will accelerate albeit with volatility along the way. Unless the Fed stops its manipulations and returns to a strong and stable dollar, the conditions for gold’s push to $5,000 per ounce or higher are still intact. 

James Rickards is a Senior Managing Director of Tangent Capital in New York and the author of “Currency Wars: The Making of the Next Global Crisis” Penguin/Portfolio Nov., 2011, to pre-order CLICK HERE.

Central banks and the gold price


Gold Research Analysis
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Central banks and the gold price


gold coinsLast week the Swiss National Bank suddenly announced that it was “no longer going to tolerate a EUR/CHF exchange rate below the minimum rate of CHF1.20”. Just before the announcement the franc had been trading at CHF1.10, so it represented a devaluation of about 9%. The Swiss Franc had been as strong as parity about a month before the move, so the decision appears to have been based on more than simple currency over-valuation.
The SNB definitely has a problem. Switzerland is a successful economy surrounded by nations in a currency union that threatens to disintegrate. Essentially, Switzerland’s success is out of step with the rest of Europe. This is obvious, but the motivations for central banks are rarely stated plainly, and there is usually more to an action such as this than meets the eye.
It was gold’s reaction to the news that surprised everyone, because gold fell $60 from its high at the time of the announcement, when the SNB’s action was expected to be good for gold. Half the fall in the gold price occurred in the few minutes ahead of the SNB’s announcement at 10.00am European time, so it appears that the gold price was getting some guidance from the central banks. Furthermore, very late that evening US time, when trade is thin and Europe was asleep someone dumped 4,000 futures contracts, driving the price down over $50 to $1,816. The first trade was on privileged information, while the second was clearly timed for maximum effect.
Rarely do we see such a public determination to hit the gold price. Indeed, the promptness of the action suggests that the move on the Swiss franc was designed to get the gold price down as much as it was the franc itself. If this is the case, then there must be a good reason, and we should bear in mind that the central banks have it in their interest to reduce volatility in bullion markets as well as currencies.
In common with dealers and market makers in all markets, bullion traders run short positions in bull markets. The turnover on the bullion markets is massive, and a dealer active on behalf of its customers and its own trading book can make substantial dealing profits. So long as those profits exceed the losses on their short positions, all is well. This is why the greatest threat to the bullion market is not the bull market itself, but prices rising too rapidly.
In the last two months, the market for gold has been particularly strong, erasing trading profits for many bullion dealers. Central bankers see this as the result of financial flows building due to the difficulties in the euro area. The targets for these flows out of the euro are the Swiss franc and gold, so the SNB’s move is designed to take the heat out of both of them.
Attempts to keep the price of gold down are unlikely to succeed for long. Westerners who buy gold may be unhelpful to the central banks, but you cannot stop a few hundred million Chinese and Indians from protecting their hard-earned savings. And the Chinese are busy developing their bullion markets, taking control away from the Western central banking cartel.

War – The Fiscal Stimulus of Last Resort


War – The Fiscal Stimulus of Last Resort

Politics / US PoliticsThe Market Oracle, Sep 10, 2011 - 12:33 PM

“War! Good God, ya’ll. What is it good for? Absolutely nothin’!” 


 So went the Bruce Springsteen pop hit of the 1980s, first produced as an anti-Vietnam War song in 1969. The song echoed popular sentiment. The Vietnam War ended. Then the Cold War ended. Yet military spending remains the government’s number one expenditure. When veterans’ benefits and other past military costs are factored in, half the government’s budget now goes to the military/industrial complex. Protesters have been trying to stop this juggernaut ever since the end of World War II, yet the war machine is more powerful and influential than ever. Why? The veiled powers pulling the strings no doubt have their own dark agenda, but why has our much-trumpeted system of political democracy not been able to stop them? The answer may involve our individualistic, laissez-faire brand of capitalism, which forbids the government to compete with private business except in cases of “national emergency.” The problem is that private business needs the government to get money into people’s pockets and stimulate demand. The process has to start somewhere, and government has the tools to do it. But in our culture, any hint of “socialism” is anathema. The result has been a state of “national emergency” has had to be declared virtually all of the time, just to get the government’s money into the economy. Other avenues being blocked, the productive civilian economy has been systematically sucked into the non-productive military sector, until war is now our number one export. War is where the money is and where the jobs are. The United States has been turned into a permanent war economy and military state. 


 War as Economic Stimulus 


 The notion that war is good for the economy goes back at least to World War II. Critics of Keynesian-style deficit spending insisted that it was war, not deficit spending, that got the U.S. out of the Great Depression. But while war may have triggered the surge in productivity that followed, the reason war worked was that it opened the deficit floodgates. The war was a huge stimulus to economic growth, not because it was a cost-effective use of resources, but because nobody worries about deficits in wartime. In peacetime, on the other hand, when the government was not supposed to engage in competitive enterprise. As Nobel Prize winner Frederick Soddy observed: The old extreme laissez-faire policy of individualistic economics jealously denied to the State the right of competing in any way with individuals in the ownership of productive enterprise, out of which monetary interest or profit can be made . . . . In the 1930s, the government was allowed to invest in such domestic ventures as the Tennessee Valley Authority, but this was largely because private sector investors did not believe they could turn a sufficient profit on the projects themselves. The upshot was that the years between 1933 and 1937 proved to be the biggest cyclical boom in U.S. history. Real gross domestic product (GDP) grew at a 12 percent rate and nominal GDP grew at a 14 percent rate. But when the economy appeared to be back on its feet in 1937, Roosevelt was leaned on to cut back on public investment. The result was a surge in unemployment. The economic boom died and the economy slipped back into depression. World War II reversed this cycle by re-opening the money spigots. “National security” trumped all, as Congress spent with reckless abandon to “preserve our way of life.” The all-out challenge of World War II allowed Congress to fund a flurry of industrial activity, as it ran up a tab on the national credit card that was 120% of GDP. The government ran up the largest debt in its history. Yet the hyperinflation, currency devaluation, and economic collapse predicted by the deficit hawks did not occur. Rather, the machinery and infrastructure built during that booming period set the nation up to lead the world in productivity for the next half century. By the 1970s, the debt-to-GDP ratio had dropped from 120% to less than 40%, not because people sacrificed to pay back the debt, but because the economy was so productive that GDP rose to close the gap. 


Stimulus Without War 


 World War II may have created jobs; but like all wars, it took a terrible toll. Economist John Maynard Keynes observed: Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better. [Emphasis added.] War was the economic stimulus of last resort when politicians were so confused in their understanding of economics that they would not allow the government to go into debt except for national emergencies. But Keynes said there are less destructive ways to get money into people’s pockets and stimulate the economy. Workers could be paid to dig ditches and fill them back up, and it would stimulate the economy. What a lagging economy needed was simply demand (available purchasing power). Demand would then stimulate businesses to produce more “supply”, creating more jobs and driving productivity. The key was that demand (money to spend) must come first. The Chinese have put workers to work building massive malls and apartment buildings, many of which are standing empty for lack of customers and purchasers. It may be a wasteful use of resources, but it has succeeded in putting wages in workers’ pockets, giving them the purchasing power to spend on products and services, stimulating economic growth; and unlike wasteful war spending, the Chinese approach has not involved death and destruction. A less costly alternative would be Milton Friedman’s hypothetical solution: simply drop money from helicopters. This has been linked to “quantitative easing” (QE), but QE as currently applied is not what Friedman described. The money has not been showered on the people and the local economy, putting money in people’s pockets, stimulating spending. It has been dropped into the reserve accounts of banks, where it has simply accumulated without reaching the productive economy. “Excess” reserves of $1.6 trillion are now sitting in reserve accounts at the Federal Reserve. A helicopter drop of the sort proposed by Friedman has not been tried. 


 A Better Solution 


 War, digging ditches, and dropping money from helicopters could all work to stimulate demand and increase purchasing power, but there are better alternatives. Today we have major unmet needs -- infrastructure that is falling apart, overcrowded classrooms, energy systems waiting for development, research labs in need of funding. The most cost-effective solution today would be for the government to stimulate the economy by spending on work that actually improves the standard of living of the people. This could be done while actually reducing the national debt. In a recent article, David Swanson cites a study by Robert Greenwald and Derrick Crowe, looking at the $60 billion lost by the Pentagon to waste and fraud in Iraq and Afghanistan. They calculated that this money could have created 193,000 more jobs than its military use created, if diverted to domestic commercial purposes. Swanson goes on: There are some other calculations in the same study . . . . If we had spent that $60 billion on clean energy, we would have created (directly or indirectly) 330,000 more jobs. If we'd spent it on healthcare, we'd have created 480,000 more jobs. And if we'd spent it on education, we'd have created 1.05 million more jobs. . . . Let's say we want to create 29 million jobs in 10 years. That's 2.9 million each year. Here's one way to do it. Take $100 billion from the Department of Defense and move it into education. That creates 1.75 million jobs per year. Take another $50 billion and move it into healthcare spending. There's an additional 400,000 jobs. Take another $100 billion and move it into clean energy. There's another 550,000 jobs. And take another $62 billion and turn it into tax cuts, generating an additional 200,000 jobs. Now the military spending in the Department of Energy, the State Department, Homeland Security, and so forth have not been touched. And the Department of Defense has been cut back to about $388 billion, which is to say: more than it was getting 10 years ago when our country went collectively insane. Labor and resources are sitting idle while the bogeyman of “deficits” deprives the population of the goods and services they could create. Diverting a portion of our massive war spending to peaceful use could add jobs, improve living standards, and add infrastructure, while reducing the national debt and balancing the government’s budget by increasing the tax base and government revenues. 


Prepared for “The Military Industrial Complex at 50”, a conference in Charlottesville, VA, September 16-18, 2011 


 Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com. Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown © Copyright Ellen Brown , Global Research, 2011

venerdì 9 settembre 2011

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP


Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP


article from DailyFinance:http://srph.it/epTHYS


One of the biggest risks to the world's financial health is the $1.2 quadrillion derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost -- and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world's leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon's), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world's annual gross domestic product is between $50 trillion and $60 trillion.

To understand the concept of "notional value," it's useful to have an example. Let's say you borrow $1 million to buy an apartment and the interest rate on that loan gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly fixed rate. If all your expenses including interest are less than the rent, you make money. But if the interest and expenses get bigger than the rent, you lose.

You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you'd need to find a counterparty who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one.

The actual cash amount of the interest rates swaps might be 1% of the $1 million debt, while that $1 million is the "notional" amount. Applying that same 1% to the $1.2 quadrillion derivatives market would leave a cash amount of the derivatives market of $12 trillion -- far smaller, but still 20% of the world economy.

Getting a Handle on Derivatives Risk

How big is the risk to the world economy from these derivatives? According to Wilmott, it's impossible to know unless you understand the details of the derivatives contracts. But since they're unregulated and likely to remain so, it is hard to gauge the risk.

But Wilmott gives an example of an over-the-counter "customized" derivative that could be very risky indeed, and could also put its practitioners in a position of what he called "moral hazard." Suppose Bank 1 (B1) and Bank 2 (B2) decide to hedge against the risk that Bank 3 (B3) and Bank 4 (B4) might fail to repay their debt to B1 and B2. To guard against that, B1 and B2 might hedge the risk through derivatives.

In so doing, B1 and B2 might buy a credit default swap (CDS) on B3 and B4 debt. The CDS would pay B1 and B2 if B3 and B4 failed to repay their loan. B1 and B2 might also bet on the decline in shares of B3 and B4 through a short sale.

At that point, any action that B1 and B2 might take to boost the odds that B3 and B4 might default would increase the value of their derivatives. That possibility might tempt B1 and B2 to take actions that would boost the odds of failure for B3 and B4. As I wrote back inSeptember 2008onDailyFinance'ssister site,BloggingStocks, this kind of behavior -- in which hedge funds pulled their money out of banks whose stock they were shorting -- may have contributed to the failures of Bear Stearns and Lehman Brothers.

It's also the sort of conduct that makes it extremely difficult to estimate the risk of the derivatives market.

How Positive Feedback Loops Crash Markets

Another kind of market conduct that makes markets volatile is what Wilmott calls positive and negative feedback loops. These relatively bland-sounding terms mask some really scary behavior for investors who are not clued into it. Wilmott argues that a positive feedback loop contributed to the 22.6% crash in the Dow back in October 1987.

In the 1980s, a firm run by some former academics came up with the idea of portfolio insurance.

Their idea was that if investors are worried about their assets losing value, they can buy puts -- the option to sell their investments at pre-determined prices. They can sell everything -- which would be embarrassing if the market then started to rise -- or they could sell a fixed proportion of their portfolio depending on the percentage decline in a particular stock market index.

This latter idea is portfolio insurance. If the Dow, for example, fell 3%; it might suggest that investors should sell 20% of their portfolio. And if the Dow fell 20%, it would indicate that investors should sell 100% of their portfolio.

That positive feedback loop -- in which a stock price decline leads to more selling -- boosts market volatility. Portfolio insurance causes more investors to sell as the market declines by, say 3%, which causes an even deeper plunge in the value of investors' holdings. And that deeper decline leads to more selling. Before you know it, many investors are selling everything.

The portfolio insurance firm started off with $5 billion, but as its reputation spread, it ended up managing $50 billion. In 1987, that was a lot of money. So when that positive feedback loop got going, it took the Dow down 22.6% in a day.

The big problem back then was the absence of a sufficient number of traders using a negative feedback loop strategy. With a negative feedback loop, a trader would sell stocks as they rose and buy them as they declined. With a negative feedback loop strategy, volatility would be far lower.

Unfortunately, data on how much money has been going into negative and positive feedback loop strategies is not available. Therefore, it's hard to know how the positive feedback loops have gained such a hold on the market.

But it is not hard to imagine that if a particular investor made huge amounts of money following a positive feedback loop strategy, other investors would hear about it and copy it. Moreover, the way traders get compensated suggests that it's better for them to take more and more risk to replicate what their peers are doing.

Traders Make More Money By Following the Pack

There is a clear economic incentive for traders to follow what their peers are doing. According to Wilmott, to understand why, it helps to imagine a simplified example of a trading floor. Picture yourself as a new college graduate joining a bank's trading floor with 100 traders. Those 100 traders each trade $10 million: They "win" if a coin toss lands on heads and "lose" if it lands on tails. But now imagine you've come up with a magic coin that has a 75% chance of landing on heads -- you can make a better bet than the other 100 traders with their 50-50 coin.

You might think that the best strategy for you would be to bet your $10 million on that magic coin. But you'd be wrong. According to Wilmott, if the magic coin lands on a head but the other 100 traders flip tails, the bank loses $1 billion while you get a relatively paltry $10 million.

The best possible outcome for you is a 37.5% chance that everyone makes money (the 75% chance of you tossing heads multiplied by the 50% chance of the other traders getting a head). If instead, you use the same coin as everyone else on the floor, the probability of everyone getting a bonus rises to 50%.

When Traders Say 'Jump,' Risk Managers Ask 'How High?'

Traders are a huge source of profit on Wall Street these days and they have an incentive to bet together and to bet big. According to Wilmott, traders get a bonus based on the one-year profits of those on their trading floor. If the trading floor makes big money, all the traders get a big bonus. And if it loses money, they get no bonus -- but at least they don't have to repay their capital providers for the losses.

Given that bonus structure, a trader is always better off risking $1 billion than $1 million. So if the trader, who is the king of the hill at the bank, asks alowly risk managerto analyze how much risk the trader is taking, that risk manager is on the spot. If the risk manager comes back with a risk level that limits how big a bet the trader can take, the trader will demand that the risk manager recalculate the risk level lower so the trader can take the bigger bet.

Traders also manipulate their bonuses by assuming the existence of trading profits before they are actually realized. This happens when traders get involved with derivatives that will not unwind for 20 years.

Although the profits or losses on that trade have not been realized at the end of the first year, the bank will make an assumption about whether that trade made or lost money each year. Given the power traders wield, they can make the number come out positive so they can receive a hefty bonus -- even though it is too early to tell what the real outcome of the trade will be.

How Trader Incentives Caused the CDO Bubble

Wilmott imagines that this greater incentive to follow the pack is what happened when many traders were piling into collateralized debt obligations. In Wilmott's view, CDO risk managers who had analyzed a future scenario in which housing prices fell and interest rates rose would have concluded that the CDOs would become worthless under that scenario. He imagines that when notified of that possible outcome, CDO traders would have demanded that the risk managers shred that nasty scenario so they could keep trading more CDOs.

Incidentally, the traders who profited by going against the CDO crowd were lone wolves whose compensation did not depend on following the trading floor pack. This reinforces the idea that big bank compensation policies drive dangerous behavior that boosts market volatility.

What You Don't Understand, You Can't Properly Regulate

Wilmott believes that derivatives represent a risk of unknown proportions. But unless there is a change to trader compensation policies -- one which would force traders to put their compensation at risk for the life of the derivative -- then this risk could remain difficult to manage.

Unfortunately, he thinks that regulators aren't in a good position to assess the risks of derivatives because they don't understand them. Wilmott offers training in risk management. While traders and risk managers at banks and hedge funds have taken his course, regulators so far have not.

And if regulators don't understand the risks in derivatives, chances are great that Congress does not understand them either.


'Contagion' would 'destroy euro zone'

Poland warns Italy: 'Contagion' would 'destroy euro zone' 
EurActiv, 09 September 2011

 The euro zone needs to get ahead of the curve in tackling its sovereign debt crisis, preventing it from infecting Italy, or else face disaster, the finance minister of Poland, the current holder of the EU's rotating presidency, said yesterday (8 September) at an economic forum in Krynica. Poland, the largest of the European Union's new member states, does not belong to the euro zone but says it still hopes to join the common currency once the crisis has been resolved. "There is no way the euro zone will survive a sovereign debt crisis in Italy," Jacek Rostowski told the economic forum in Krynica, southern Poland. "If a large eurozone country gets embroiled in the crisis, we would have an extremely dangerous situation." The European Central Bank last month began buying the debt of Italy and Spain – respectively the third and fourth-largest economies in the euro zone – after a big jump in their bond yields. With that decision, Rostowski said, European Central Bank governor Jean-Claude Trichet had "saved the euro zone" and possibly the EU. "The ECB has bought us some time but this is a temporary solution," said Rostowski, who told Reuters in an interview last month he believed the euro zone was moving towards a fiscal union. Squabbling over the size of the euro zone's new rescue fund, the European Financial Stability Facility (EFSF), exemplifies the weakness of its approach, he said. "We are always behind the curve [...] If we had created an EFSF with firepower totalling 450 billion euros of real disbursable funds, not 250 billion euros, we would not have had the problems we have had," he said. European leaders agreed in the summer to boost the size of the EFSF, whose "effective lending capacity" is now around 250 billion euros, to 440 billion, but this must be approved by national parliaments in the 17-nation euro zone. Economists say rich eurozone countries may eventually have to override opposition from their taxpayers and pledge to contribute to a drastic expansion of the EFSF – possibly doubling or trebling it – to end the crisis. Rostowski, a British-educated economist, also took a swipe at those who suggest that surplus countries such as Germany, one of the world's biggest exporters, might consider quitting the euro and forging a new strong currency. "Do the surplus countries really want to create their own currency and see it appreciate like the Swiss franc?" he said, referring to the Swiss Central Bank's decision this week to set a ceiling on the value of its currency versus the euro. EurActiv with Reuters
POSITIONS: 
Nations that have joined the European Union since 2004 must get a fair hearing as the bloc strives to solve a string of crises, Polish Prime Minister Donald Tusk said at the opening ceremony of the Krynica forum on Wednesday, quoted by AFP.
"When we look at those who joined recently, they are now doing their homework much better than their teachers," he said in a keynote address to the three-day annual gathering dubbed the 'Davos of the East'.
"That's why our voice should be heard when we are defending Schengen, Maastricht and the idea of an integrated Europe," he added.
Mercedes Bresso, chair of the EU's Committee of the Regions, said at a panel of the Krynica summit organised by Polish daily Rzeczpospolita that solidarity among European countries is possible on the condition that joint system solutions are implemented.
"The suggestion of [German] Chancellor [Angela] Merkel and [French] President [Nicolas] Sarkozy regarding the joint economic government for the euro zone is good and of key importance," Bresso explained. "However, we have to think through the model of a common Europe in terms of strengthening its structures, because the future exists but only as long as we act together," she added.
According to Paweł Lisicki, chief editor of Rzeczpospolita, it might be true that actions have to be realised in a joint manner. However, he questioned what role was reserved for countries like Poland, which do not belong to the euro zone.
Grzegorz Schetyna, speaker of the Polish Sejm, stated that the most important thing was to look for experts in the debate about solidarity. "The economies of European countries are different and the people in charge of them have to feel responsible," Schetyna said.
"The first thing we should take care of is equalling the disproportions and the countries which cannot manage in a given situation should feel support but also control so that a joint policy can bring the best possible results," the Polish MP said.
"It is the countries themselves that need to be reformed in the first place. Support will be given but it has to be clearly communicated to people that they will have to repay these debts one day," stated  German MEP Elmar Brok (European People's Party).
Michael Barrington, managing partner for Central and Eastern Europe at Deloitte, admitted that decisive measures had to be undertaken on all the levels as otherwise Europe would depart from the road to more competitiveness and stronger economies.