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Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behavior.
Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light. What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?
Some of the hedge funds that do black box trading have been very successful in the past 10 - 20 years. One of the best hedge funds started in 1982 by James Simons, Renaissance Technologies (https://www.renfund.com) is said to be one of the most successful hedge funds in the human history. It currently has more than $15 billion in assets under management. Since 1989, the company's $5 billion Medallion Fund has averaged 35% annual returns, after fees.
Video clip below tells a story about greed, fear and randomness from the insides of Wall Street.
Over the summer, billionaires Bill Gates and Warren Buffett announced The Giving Pledge, a commitment to donate the majority of their fortunes to charity -- and to encourage other Americans to do the same.
Dozens of wealthy families have joined the pledge.
Buffett and Gates recently sat down with ABC's Christiane Amanpour to discuss their visions of philanthropy. Melinda Gates joined her husband for the interview.
Amanpour also spoke with media mogul Ted Turner, who has pledged his wealth away.
Bill and Warren spent some time a while in China to promote the same idea. But, it didn't work out well. They did not push mega-wealthy families to sign up for their campaign because China had to develop its own culture of philanthropy.
Philanthropy in China has complications beyond issues like possible waste or corruption that might worry Western donors. Some wealthy Chinese fear generous donations could expose fortunes larger than the government or rivals had calculated, inviting unwanted attention.
1) European peripherals – apocalypse scenario is realized resulting in a depression, including the breakup of the Euro
2) Protectionism – pressure put on Asian countries to appreciate their currencies and correct imbalances fails, pushing the US and/or Europe to enter trade wars or adopt protective measures
3) A US double-dip – still cannot be ruled out following recent weakness in house prices and the build-up in inventory which may cause default rates to rise
4) US municipal debt, home foreclosures, current investigation on insider trading – any one of these issues can impair US bank profitability and liquidity
5) Capital controls – more draconian measures adopted by Asian policymakers resulting in a sharp withdrawal of capital
6) Geopolitical risks flare up in the region – starting with a divided political regime in Thailand compounded by concerns of the King's health; North Korea ups the ante with the South in its military maneuvers; violence in Pakistan escalates and spills over into neighbouring India
7) Sharp rise in inflation – driven by higher food & commodity prices results in unrest in the developing Asian economies
8) China property prices – the decline in house prices is much greater than the consensus estimate of 10-15%
9) US and UK’s AAA ratings are downgraded
10) US$’s status as a reserve currency is challenged
If you think gold could buy you a good inflation hedge, you could be making a big mistake here. Just imagine living in a hyperinflationary environment, how much food you could buy with your gold bar? I think you could probably buy more food if you have something people would like to exchange for? I think it will be more sensible to invest your money in things such as a garden where you could grow your own vegetables and fruits, solar panel, rain collection/water filtration technology and other things people need to stay alive when the entire monetary system collapses.
Gold bubble will eventually burst. It is a matter of time. People are just buying gold for the sake of buying due to the inflationary concern. With the gold marketing gimmick, it further exagerates the true value of gold.
Is gold tracked by exchanged-traded funds such as SPDR Gold Shares(GLD) reaching new highs because of the fear of a double dip? Is it because of quantitative easing? Is it because of the fear of euro collapse? Is it because of the first dip? Is it because of expectations for future inflation? Is the current price movement being fueled by investor speculation or has there truly been a fundamental change in society that can explain the spike?
Let's uncover the real story behind the gold bubble.
There have been four groups who have participated in this run-up:
* Group 1 (November 2007 - April 2009): Hedge funds who were worried the global financial system would crumble as a result of the mark-to-market banking regulatory requirements. * Group 2 (October 2009 - April 2010): Hedge funds who were worried that unprecedented stimulus would result in hyperinflation as global economies recovered. * Group 3 (May 2010 - July 2010): Hedge funds who were worried that the eurozone would collapse, thereby causing currency chaos. * Group 4 (August 2010 - ???): Individual investors who are now buying gold for the first time because they want in on the action.
Before the financial crisis, in January 2007, gold was priced at $650/ounce. The average price of gold had fluctuated between $300 and $500 during the 10 years before. Assuming 5% inflation in the past 10 years, the inflation adjusted gold price as at today is only around $800 plus dollar.
As the financial crisis unfolded, gold served as the ultimate investment vehicle to profit from fear because of its unique characteristics. It isn't valued on fundamentals, it generates no earnings, it pays no interest, it is essentially a perpetual zero-coupon bond that is easy to manipulate into a snowball effect.
This ambiguity made the asset a prime profit-generating allocation during times of uncertainty. Unfortunately for current gold investors, fear/panic is diminishing by the day. Without that essential element, the big money will exit the trade. September's strong stock market performance was the beginning of a new stage -- a stage that I refer to as a "sigh of relief."
Investors have endured panic for three years, and gold has rightfully gone up. Now that the cataclysmic panic is subsiding those left carrying gold in their portfolios are trying to come up with reasons to justify the holding. Quantitative easing is a tough sell. Slow growth isn't enough. The time looks ripe for the investment vehicle of fear to break down. Perhaps, we need to have a war to justify a further rally in gold.
Gold at $1,400 an ounce is eerily similar to oil at $140. Remember all the credible firms extrapolating the speculative action into $200 oil forecasts. Those same bubble-builders are now calling for $2,000-an-ounce gold.
Geroge Soros has highlighted the danger of gold bubble recently. We might not be able to tell what his real agenda is. He might be telling the market one thing and doing the reverse in his own book. This is not uncommon for the big boys to do such things in the market. However, Soros Fund Management LLC sold 547,689 SPDR Gold shares as of Sept. 30, according to a filing with the U.S. Securities and Exchange Commission. The disposal represented 10 percent of Soros’s holding in SPDR Gold, according to Bloomberg calculations, and follows sales in the first two quarters. Still, SPDR Gold remains the Soros Fund’s largest single equity holding. This could be a real early warning sign.
Soros said that gold’s rally may continue, Reuters reported in September, citing an interview. “I called gold the ultimate bubble which means it may go higher but it’s certainly not safe and it’s not going to last forever,” Soros was cited as saying.
Fasten your seat belt!
*some of the inputs are taken from "thestreet.com"
The Federal Reserve, or the Fed as it is lovingly called, may be one of the most mysterious entities in modern American government. It was created during Wilson's presidency to protect the economy in times of financial turmoil, its real business remains to be discovered. During the Wilson presidency, the U.S. government sanctions the creation of the Federal Reserve. Thought by many to be a government organization maintained to provide financial accountability in the event of a domestic depression, the actual business of the Fed is shrouded in secrecy.
Many Americans will be shocked to discover that the principle business of the Fed is to print money from nothing, lend it to the U.S. government and charge interest on these loans. Who keeps the interest? Good question. Find out as the connective tissue between this and other top-secret international organizations is explored and exposed.
With the recent crisis, the East asserted with increasing confidence that their system was superior than the West: Societies that accepted strong, even authoritarian governments and were willing to limit individual liberties in the interest of achieving overall net gain, take charge of their economics, and sacrifice short run consumer interests for the sake of growth would eventually outperform the increasingly chaotic societies of the West.
Before turning to Asian growth, it may be useful to introduce the concept of growth accounting and review some important pieces of economic history. Economic expansion represents the sum of two sources of growth: (1) increase in inputs – growth in employment, in the education level of workers, and in the stock of physical capital (2) increase in productivity – may result from better management or better economic policy, but in the long run, it is primarily due to increase in knowledge. The growth accounting can tell us how much of growth is due to each input – say capital as opposed to labor and how much of it is due to improved efficiency.
Now, let’s turn to the example of rapid Soviet economic growth four to five decades ago. It was one of the wonders of the world. Official soviet growth numbers were consistently being criticized. Nonetheless, Soviet claimed that the astonishing achievement was fully justified: their economy was achieving a rate of growth twice as high as that attained by any important capitalistic country over any considerable number of years and three times as high as the average annual GDP growth rate in the US by the early 1970s. When economists began to study the growth of the Soviet economy by using growth accounting, they actually found that Soviet growth was based on rapid growth inputs, rather than efficiency growth. By some estimates, the efficiency growth was almost nonexistent. The Soviet moved millions of workers from farms to cities, pushed millions of women into the labour force and millions of labours into longer hours, pursued massive programs of education, and plowed the ever-growing industrial output back into the construction of new factories. Soviet rapid expansion did eventually come to an end.
It is hard to see anything in common between the Asian success stories of recent years and the Soviet Union five decades ago. Indeed, it is safe to say that a typical business traveler flying into Singapore’s remarkable harbour with thousands of cargo boats in endless lines off the coast, never even thinks of any parallel to its roach-infested counterpart in Moscow. How is this Soviet example relevant to the modern world? Yet there are surprising similarities. The newly industrializing countries in Asia, like Soviet Union of the 1950, have achieved rapid growth in large part through an astonishing mobilization of resources, rather than by gains in efficiency.
Singapore grew through a mobilization of resources. Some statistics show that its productivity growth has been very much flat in the past few decades. Of course, Singapore today is far more prosperous than the Soviet when it was at its peak, because Singapore is closer to, though still below, the efficiency of Western countries. The point, however, is that Singapore’s economy has always been relatively efficient, it just used to be starved of capital and educated workers.
Singapore’s case is admittedly the most extreme. Other rapidly growing East Asian economies have not increased their labour force participation as much, made such dramatic improvements in education levels, or raised investment rates quite as far. Nonetheless, the basic conclusion is the same – there is little evidence suggesting improvements in efficiency.
What about Japan and China? Japan, unlike the East Asian tigers, seems to have grown both through high rates of input growth and through high rates of efficiency growth. Today’s fast growing economics are nowhere near converging on the US efficiency levels, but Japan is staging an unmistakable technological catch-up. However, for China, it is still a relatively poor country by GDP per capita standard. Its population is so huge that it will become the next economic power if it achieves even a fraction of Western productivity levels. And China, unlike Japan, has in recent years posted truly impressive rates of economic growth. Back to growth accounting, it is unclear what year to use as a baseline for the growth assessment in China. If one measures Chinese growth from the point at which it made a decisive turn toward the market, say 1978 Mao Zedong’s later years, there is little question that there has been dramatic improvement in efficiency as well as rapid growth in inputs. If one measures growth from before the cultural Revolution, say 1964m the picture looks more like the East Asian “tigers” – only modest growth in efficiency, with most growth driven by inputs.
If growth in East Asia is indeed running into diminishing returns, it is likely that growth in East Asia will continue to outpace growth in the West for the next decade and beyond without improving efficiency, but it will not do so at the pace of recent years. Going forward, the next priority on the list for Asian nations is to focus more on the long term sustainability of their economies, rather than the short term gains. To achieve this, investments in education, infrastructure, social benefits, technology and higher-value industries will have to be increased. The good news is, technology now increasingly flows across borders, and that newly industrializing nations are increasingly able to match the productivity of more established economies within a much shorter period of time. Diffusion of technology will place huge strains on Western world as capital flows into the emerging world and imports from these nations undermine the West’s industrial base.
If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain.
~ Summary of Paul Krugman's "The Myth of Asia's Miracle" article from MIT
With the US Congress hurtling toward a deadline on expiring tax cuts, a growing number of wealthy people are calling for higher taxes on the rich to help restore America's fiscal health.
One effort gathered over 45 millionaires who signed an open petition calling for the end of the tax cuts adopted since 2001 on those with annual incomes exceeding one million dollars.
Tax breaks for the wealthy should expire "for the fiscal health of our nation and the well-being of our fellow citizens," the letter said. It was signed by Ben & Jerry's ice cream founder Ben Cohen, hedge fund manager Michael Steinhardt and others.
Guy Saperstein, a retired California trial lawyer who organized the effort, said he was "frustrated" that President Barack Obama appeared to be wavering on his pledge to end tax cuts for the wealthy.
"I think the country's in trouble," Saperstein told AFP. "In hard times, the top strata who have done fabulously well need to sacrifice a bit, and it's not much of a sacrifice... We have among the lowest tax rates of any industrialized democracy."
Saperstein said an estimated 1,500 people have signed the letter although some of them did not want to be publicly identified on the group's website.
Philippe Villers, a French-born US businessman who founded Computervision in the 1960s and now heads Grain Pro, says he signed the letter even though it would mean higher taxes for himself.
"I don't think (extending the tax cuts for the wealthy) are fair or in the interest of building a strong economy," he said.
Villers argued that tax cuts enacted under former president George W. Bush gave a "disproportionate benefit to people with means" and contributed to the current economic woes.
Another 410 high-income Americans have signed a similar petition by Wealth for the Common Good, a network of business and civic leaders, calling for tax cuts to expire for families with incomes above 250,000 dollars.
"I've had a good run over the last few years. There's no question that others now deserve to share in that prosperity," said one of the signatories, Jeffrey Hayes, president of Stratalys Research & Consulting.
Similar comments have come from Warren Buffett, the investment guru who ranks among the world's richest individuals.
"I think that people at the high end -- people like myself -- should be paying a lot more in taxes. We have it better than we've ever had it," Buffett said in an ABC News interview.
The efforts come with Congress struggling in the face of tax cuts expiring at the end of this year.
If no action is taken by December 31, the current top rates of 33 and 35 percent would return to pre-Bush levels of 36 and 39.6 percent for the richest Americans. But taxes would also rise on all Americans if Congress fails to act.
Many Republicans are pressing to extend the tax cuts to stimulate a wobbly economy.
Obama and his Democratic allies are urging extended tax cuts for all but the wealthiest two percent of Americans -- claiming this move would help raise 700 billion dollars over 10 years to ease a crushing deficit.
"I'm glad there is a group of people who are sticking out their necks to say, 'Tax me more,'" said Mike Lapham of United For a Fair Economy's Responsible Wealth project, which has recruited 700 people in high-income brackets to work for a more progressive tax structure.
"People complain that the government should do more for New Orleans (after Hurricane Katrina) and for the (Gulf of Mexico) oil spill, but the reality is we've cut back on a lot of the things our government could do."
Jim Nunns, a senior fellow with the Tax Policy Center of the Brookings Institution and Urban Institute, said there is some momentum to raise taxes on the wealthy "because they've captured most of the growth in incomes over the last 30 to 40 years," creating a wider rich-poor gap.
But Nunns said taxing the rich alone would not solve US fiscal problems.
The better solution is to "broaden the base" so that all taxpayers contribute more, he said.
Analysts also acknowledge a climate where any tax hike is politically unpopular, especially in view of the belief that increases could choke off the economic recovery.
Bruce Josten of the US Chamber of Commerce said in an open letter to Congress that all tax cuts should be extended to boost confidence and end uncertainty about tax policy.
"The Chamber believes that no one should have their taxes raised during a time of economic weakness -- not individuals, not small businesses, not large businesses," he said, adding that this "would only hinder the already too weak recovery."
UK-based Taliban spend months fighting Nato forces in Afghanistan
Taliban fighter reveals he lives for most of year in London and heads to Afghanistan for combatholidays
British-based men of Afghan origin are spending months at a time in Afghanistan fighting Nato forces before returning to the UK, the Guardian has learned. They also send money to the Taliban.
A Taliban fighter in Dhani-Ghorri in northern Afghanistan last month told the Guardian he lived most of the time in east London, but came to Afghanistan for three months of the year for combat.
"I work as a minicab driver," said the man, who has the rank of a mid-level Taliban commander. "I make good money there [in the UK], you know. But these people are my friends and my family and it's my duty to come to fight the jihad with them."
"There are many people like me in London," he added. "We collect money for the jihad all year and come and fight if we can."
His older brother, a senior cleric or mawlawi who also fought in Dhani-Ghorri, lives in London as well.
Intelligence officials have long suspected that British Muslims travel to Afghanistan and Pakistan each year to train with extremist groups.
Last year it was reported that RAF spy planes operating in Helmand in southern Afghanistan had detected strong Yorkshire and Birmingham accents on fighters using radios and telephones. They apparently spoke the main Afghan languages of Dari and Pashtu, but lapsed into English when they were lost for the right words. The threat was deemed sufficiently serious that spy planes have patrolled British skies in the hope of picking up the same voice signatures of the fighters after their return to the UK.
The dead body of an insurgent who had an Aston Villa tattoo has also been discovered in southern Afghanistan.
British military officials say there have been no recent reports of British Taliban in Helmand in southern Afghanistan and that the overwhelming majority of foreign fighters are Pakistanis. Not since John Walker Lindh, the so-called American Taliban, was captured in late 2001, has the US admitted to having successfully captured an insurgent from a western country.
In the main US-run prison near Bagram airfield, there are just 50 "third country nationals" being held, a spokeswoman said.
"Most of these are Pakistani, with small numbers from other countries in the region," she said.
According to a senior officer at the National Directorate of Security, Afghanistan's equivalent of MI5, foreign fighters tend to be Arabs, Chechens, Pakistanis or from central Asia's former Soviet republics such as Tajikistan and Uzbekistan.
Before you start reading, I would like to summarise this whole article with one sentence - As long as there is confidence in the US democratic system, America will do just fine going forward.
ECONOMIC gloom and doom aside, America remains the world's richest large country. It's generally estimated to have a per capita GDP level around $45,000, while the richest European nations manage only a $40,000 or so per capita GDP (setting aside low population, oil-rich states like Norway). Wealth underlies America's sense of itself as a special country, and it's also cited as evidence that America is better than other economies on a range of variables, from economic freedom to optimism to business savvy to work ethic.
But why exactly is America so rich? Karl Smith ventures an explanation:
I am going to go pretty conventional on this one and say a combination of three big factors
1. The Common Law 2. Massive Immigration 3. The Great Scientific Exodus during WWII
You’ll notice that four of the top five countries in the Human Development Index have the Common Law and the top, Norway, is a awash in oil. Without the petro-kronors they probably wouldn’t be so hot.
You’ll also notice that 3 of the top 4, again with Norway the odd man out, are immigrant nations. The founder effect here should be clear.
The bonus from the great exodus is definitely waning. Most of our hey-day German and Jewish scientists are dying off, but its still given us a boost that lingers to this day. There is no fundamental reason why the US should be the center of the scientific world but for a time it was the only place in the world safe for many scientists.
It's a difficult question to tackle because there's so very much to it. America jumped to a huge productivity lead early last century by developing a resource- and capital-intense, high-throughput style of manufacturing producing mass market goods. The fractious, class-riven European continent struggled to copy this technology, and while adoption of these methods eventually led to a period of rapid catch-up growth, the process of catch-up was never quite completed. And so that's one gap to explore.
There's also the question of what exactly one is comparing. What if we take similar European and American metropolitan areas and adjust for human capital and hours worked? On that basis, the difference between America and northern Europe looks relatively small. One might then focus on the ways in which America's more integrated domestic market leads to a lower level of within-continent inequality, even though national inequality levels in Europe compare favourably with America's.
The size of the market may be more important than we imagine. As Mr Smith notes, four of the top five HDI countries share the Common Law. They also speak English. In a world in which national and cultural barriers still bite, America's wealth could be chalked up to the fact that it's a uniquely large and uniform nation. Common rules, culture, language, and so on facilitate high levels of trade and mobility. National and cultural barriers within Europe, by contrast, work to limit the extent to which the economic potential of the continent can be reached.
Mr Smith also gets at something important in discussing immigration and talent. The economic geography of the world is lumpy, and talent likes to clump together into centres of innovation. Through fortune and foresight, America managed to develop world-leading centres of talent in places like Silicon Valley, Boston, and New York. Relatively open immigration rules and the promise of a safe harbour for war refugees, including persecuted Jews, helped build these knowledge centres. When one combines that innovative capacity with a system that makes it relatively easy to develop ideas and relatively lucrative to exploit them economically, the potential is there for rapid and sustained growth.
America does seem to be special in important ways, but it's not always clear what those ways are. A liberal economic order and geographically mobile population are important, but so is the level of education, the promise of social mobility, and the openness of America's borders. It's worth keeping all of that in mind as the country's leaders think about the ways economic policy should change in the wake of the Great Recession.
Do we live on a bubble? Is it possible for the heavily indebted American economy to collapse and take all of us down in a free fall with it? Have the days of the dollar been counted? Is it really unimaginable that we will see the time of the Great Depression repeating itself?
VPRO Backlight and Dutch national newspaper NRC Handelsblad present this ‘what if’ scenario. What if the dollar collapses? Fiction meets facts in this 24 hour scenario. At 9AM a Singapore trader is ordered to sell a large amount of dollars, which sends off the enormous downfall of the dollar.
This film shows the results for the world economy every following hour. It ends in Amsterdam, where the only currency accepted by a taxi driver is cigarettes.
The weak US Dollar seemed to have caught up with this 2005 film...
Here is another similar clip about the fall of US Dollar:
Nassim Nicholas Taleb (Arabic: نسيم نيقولا نجيب طالب, alternatively Nessim or Nissim, born 1960) is a Lebanese philosophical essayist, scholar and practitioner of mathematical financial economics. He is best known as the author of the 2007 book (completed 2010) The Black Swan.
Taleb has had three distinct careers, built around what he calls "epistemic limitations and constraints": probability, uncertainty and the fragility of human knowledge, which he packaged as the theory of Black Swan Events. Firstly, he is a bestselling author with 2.7 million copies sold in 31 languages. Secondly, he is a university professor in Risk Engineering (Distinguished Professor), a scholar, an epistemologist and a philosopher of science. Finally, he is a former senior Wall Street trader, risk expert, and practitioner of mathematical finance.
Taleb has been critical of the finance industry and has been credited with making warnings regarding financial crises and making a fortune out of the 2008 crisis. Taleb is an activist and a promoter of what he calls a "Black Swan robust" society as well as aggressive "stochastic tinkering" as a means of scientific discovery.
The Black Swan has been described by The Times as one of the 12 most influential books since World War II. Among the people Taleb has influenced are writer Malcolm Gladwell and British Prime Minister David Cameron, who uses his black swan robustness idea as "intellectual ballast" for his program. Taleb's idiosyncratic writing style mixes narrative fiction (often semi-autobiographical) and short philosophical tales with historical and scientific commentary.
Taleb wrote in Fooled by Randomness that he considers himself less a businessman than an epistemologist of randomness and used trading to attain his independence and freedom from authority. As a trader, he was a pioneer of tail risk hedging (now called "Black Swan Protection") and has held the following positions: managing director and proprietary trader at UBS; worldwide chief proprietary arbitrage derivatives trader for currencies, commodities and non-dollar fixed income at CS First Boston; chief currency derivatives trader for Banque Indosuez; managing director and worldwide head of financial option arbitrage at CIBC Wood Gundy; derivatives arbitrage trader at Bankers Trust, proprietary trader at BNP Paribas, as well as independent option market maker on the Chicago Mercantile Exchange; and founder of Empirica Capital after which Taleb retired from trading and became a full-time author and scholar in 2004. Taleb is currently Principal/Senior Scientific Adviser at Universa Investments in Santa Monica, California, a tail protection firm owned and managed by former Empirica partner Mark Spitznagel.
“Tell me how this ends,” was the question posed by General David Petraeus about the Iraq war. European leaders are asking the same question as they contemplate the crisis in the eurozone.
Having failed to construct a firebreak in Greece, the Europeans are hoping that they can stop the euro crisis in Ireland. But, even as an Irish rescue package is put together, the bond markets are already looking with unhealthy interest at Portugal. After Portugal, Spain is assumed to be next. And, if a really big economy such as Spain needed to call the financial fire brigade, the whole future of the euro would be in serious peril.
The question of “how this ends” is therefore obvious and urgent – but also fiendishly difficult to answer. It is like watching a three-dimensional game of chess – in which the financial, economic and political levels all interact with each other.
My current best guess is that the single currency will indeed eventually break up – and that the euro’s executioner will be Germany, the most powerful country and economy inside the European Union.
The headline on one of the most-read stories in the Financial Times last week was “Anger at Germany boils over” – reporting accusations by some Europeans that the latest twist in the euro crisis had been triggered by inflexible German policies.
But Germans themselves have plenty of reasons to be cross about the way the single currency is developing. Their country has been through a painful decade of wage restraint and cuts in government services. Many voters are outraged that their tax-euros might be used to finance early retirement for Greeks, or Ireland’s super-low corporate tax.
Across the globe: Read the FT’s international affairs columnist’s authoritative and lively commentary
The German people were also promised that the euro would be as stable as the Deutschmark – and that there would be a “no bail-out clause” that would prevent the richer countries in Europe having to save the indigent. Both promises look perilously close to being violated. That, in turn, is triggering growing concern that Germany’s constitutional court could declare their government’s participation in European “bail-outs” illegal.
The German government’s fear of its own constitutional court has already been a crucial driver of the crisis. This year, the Germans were accused of acting far too slowly to organise a rescue for Greece. But official sloth was driven by a fear that speedy action would be deemed to violate the European treaties.
The immediate crisis in Ireland was triggered about a month ago when Angela Merkel suggested that, in future euro crises, private bondholders should bear more of the losses and that further European treaty changes were needed. This remark was also made under pressure from the courts.
Germany’s actions have, in turn, created political and legal pressures in bail-out nations. In Greece, we have seen deadly riots in Athens and a senior government minister evoking the Nazi occupation of the 1940s. In Ireland, there is much lamentation about the threat to national sovereignty. on Monday, the government itself was wobbling.
So if the euro is to break up, the country that sues for divorce is likely to be a strong economy – with Germany as the likeliest litigant. The Germans would not take this step quickly or lightly. A commitment to European integration has been a leitmotif of German foreign policy for half a century.
But if the Germans became convinced that their eurozone partners were simply impossible to deal with – and that therefore the whole single currency experiment could not work – they might decide to quit. There are two ways I could imagine this happening.
The first is a successive wave of financial crises across the eurozone, affecting larger countries, which gradually sap German taxpayer confidence that the “loans” that the EU is extending to its weaker members will ever be repaid. The second is if, as seems quite likely, the treaty changes that the German government is demanding to satisfy its courts fail to be ratified by some of the other 26 EU members. At that point, the Germans might throw up their hands and say, in effect, “Well, we tried our best, but the other Europeans won’t do what is necessary to save themselves.” Germany might then feel released from its historic obligation to “build Europe”.
I realise that, in setting out these scenarios, I am laying supposition upon supposition. It only takes one point in the chain of argument to be wrong and events could charge off in another direction. All I would point out is that the optimists who put together the euro – and still argue that the currency will surmount its current problems – also made a lot of suppositions. And theirs don’t seem to be working out too well.
Nigel Farage: 'Who the Hell do You Think You Are: The Euro Game Is Up!'
Texas (Kitco News) -- U.S. Rep. Ron Paul , R-Tex., plans to introduce a new bill next year that will allow for an audit of US gold reserves, he told Kitco News in an exclusive interview.
Paul dropped the news in the interview, indicating that the bill still does not have an official name yet but will be unveiled at the start of the new U.S. Congress.
“If there was no question, you'd think they would be very anxious to prove to us that the gold is there,” he said.
This is not the first time the congressman has made his pitch. “In the early 1980s when I was on the gold commission, I asked them to recommend to the Congress that they audit the gold reserves – we had 17 members of the commission and 15 voted not to the audit,” said Paul. “I think there was only one decent audit done 50 years ago,” he said.
Though Paul did not say whether there is any truth to claims that there is no gold in Fort Knox or the New York Federal Reserve, he said, “I think it is a possibility.”
“If we ever get around to deciding we should use gold in relationship to our currency we ought to know how much is there,” said Paul. “Our Federal Reserve admits to nothing and they should prove all the gold is there. There is a reason to be suspicious and even if you are not suspicious why wouldn’t you have an audit?” he said.
The gold audit follows his crusade last year looking to audit the Federal Reserve, which he says is the chief culprit behind the economic crisis.
“I don’t think the Federal Reserve should exist – it would be best for congress to exert their responsibilities and that is find out what they are doing”' said Paul. "It is an ominous amount of power they have to create money out of thin air and being the reserve currency of the world and be able to finance runaway spending whether it is for welfare or warfare; it seems so strange that we have been so complacent not to even look at the books. If we knew exactly what they were doing, who they were taking care of, there would be a growing momentum to reassess the whole system,” he told Kitco News.
Before the creation of the Federal Reserve however, the US saw 16 recessions from 1850 to 1910; they averaged 22 months long. During this time, the U.S. was in recession 60 out of 91 months. Many would argue that the severity of these recessions led to the creation of the Federal Reserve System.
“I think they would be exaggerating what happened before 1913,” Paul responds. “We had some panics …they were usually short and there were no long depressions,” he said. “The Fed creates the bubbles and they are much worse since 1913, if you think of the size of the government and the valuation of the dollar, we are down to about a 2 cent dollar from the 1913 dollar.”
Paul said everyone accuses him of wanting the gold standard but he said he doesn't accept that. “I accept the idea of a gold coin standard and I think we can do much better than what we had," he said. "There was a lot that they did pre-Fed that was not exactly right but we never had a disastrous loss of purchasing power long-term, we didn’t have a great depression, we didn’t have the 1970s with stagflation and we wouldn’t have what we have right now.”
Since the Fed’s creation in 1913 the dollar has lost more than 96% of its value, and by inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar said Paul.
Paul’s solution is to not replace the Fed with anything. “It would make the dollar strong… who wants money to be devalued? I want a strong dollar and if it were equivalent to gold it would remain strong.”
Paul also said he wants to legalize the freedom for people to choose. “My proposal for now is to legalize the constitution to use gold and silver as legal tender in a parallel standard and have it compete with paper money. If people get tired of using the paper standard they can deal in gold or silver,” he said.
On the topic of gold price manipulation, Paul said, “I think it is probably true.”
“I am not the one to lay out proof of this, others have done a lot of investigation. One of the reasons I don’t dwell on that is they are not going to listen to us" he said. "But I think it is very important somebody talks about it and emphasizes it just as a warning to be careful; you don’t have to only anticipate what the markets are doing, but you have to anticipate what the government is doing.”
The best example of manipulating the ratio of gold to paper would have been from the late 1950s to 1971, said Paul. “We printed money like currency, we printed too many dollars against the gold, so they said, ‘we will take your gold.’ …if they are capable of that they are capable of doing this as well, because they don’t want their cover blown, ” said Paul. If the markets are saying not to trust paper money, they have to do everything they can to “destroy gold,” said Paul.
Recounting a visit with Paul Volcker, former Chairman of the Fed Reserve, Rep. Paul said the Chairman walked straight into the room, went immediately to his staffer and asked what the price of gold was. “They know gold is important. I think they are quite willing to manipulate it. That is the only way they can maintain this false illusion about gold.”
“If they are involved isn’t it pretty amazing what has happened in past year? What will happen if they throw in the towel?” said Paul.
The current economic situation is very healthy for gold, said Paul. “You see people rushing just to put their money in any place …they don’t even care about making money.”
New Regulations When asked what regulations the Congressman is currently worried about, he said, “All of them.” However, Paul specifically points to the 1099 provision, a portion of the health-care act, passed earlier in the year. “For every transaction of over $600, gold dealers have to fill out a form, it is a lot of paperwork,” said the congressman. Entities must file a Form 1099 with the Internal Revenue Service whenever they make transactions paying out $600 a year to another party.
US economy
It is going to continue to go downhill said Paul on the US economy. “I don’t believe in a double dip, I believe we have single-dip and it has been continuous.”
“The only reason it doesn’t look so bad is if you spend $2 trillion dollars and you have a $5 hundred billion increase in some GDP figures, you didn’t get much for your trillion dollars but it might improve your statistics, so it was a fake recovery.”
As for another presidency run, Paul says it is too early to tell.
End of Liberty exposes from a real life perspective how the U.S. is headed for a complete societal collapse. All Americans are now experiencing countless warning signs on a daily basis that a societal collapse is near.
Unfortunately, most Americans don’t understand the significance of these warning signs.
Each warning sign by itself doesn’t appear to have a lot of meaning, but together these warning signs present a very detailed picture of the current state of the U.S. economy and where this country is soon headed.
The documentary is over an hour long and features Gerald Celente, the most accurate trends forecaster in U.S. history.
End of Liberty also features the National Inflation Association‘s president Gerard Adams, who on February 5th purchased call options in the silver ETF at $0.89 (NIA publicly announced his purchase to NIA members on February 8th) that he sold last week at $4.25 for a gain of 378% in a little over eight months.
This film was written with the help of thousands of NIA members who submitted their ideas of warning signs that a societal collapse is near.
NIA’s critically acclaimed documentaries Meltup, The Dollar Bubble, and Hyperinflation Nation have now received a combined 2.1 million views.
In all three of NIA’s previous documentaries, NIA strongly urged its viewers to consider investing into gold and silver, in order to protect themselves from a collapsing U.S. dollar.
Since the release of NIA’s first documentary Hyperinflation Nation on June 28th, 2009, gold has risen by 48% from $940 per ounce to a new all time high of $1,388 per ounce, and silver has risen by 74% from $14.13 per ounce to a new 30-year high of $24.65 per ounce.
Historian and diplomat Joseph Nye gives us the 30,000-foot view of the shifts in power between China and the US, and the global implications as economic, political and "soft" power shifts and moves around the globe.
Asian central bankers see a ghost from the past in the U.S. Federal Reserve’s plan to pump $600 billion into the banking system. To them it's like the rolling mid-1990s again, except that they know how this party is going to end.
Here's the scenario: This tsunami of cheap dollars would flood Asia's stock, property, commodities and other asset markets, pushing up prices, then forming bubbles that would eventually burst and result in another ruinous recession like the 1997 Asian financial crisis.
Even scarier now than 13 years ago is that options to manage this cash onslaught have come down to a hard dilemma for central bankers in Asia: If they raise interest rates to absorb excess capital, which would almost definitely be higher than the rates in the U.S. and Europe, it would only attract more of that cheap money. If they leave the markets alone, the risk of a severe shock multiplies. Hot money comes in fast, and flees just as easily.
Compounding the situation is that these economies have only just come off their own stimulus in 2008-2009. So the Fed's move is like a double stimulus for them, piling on top of the money still sloshing around.
“The launch of QE2 [this second round of quantitative easing] will definitely add pressure to the asset markets in the emerging market economies such as Hong Kong’s. As far as Hong Kong is concerned, we will take measures that are specific to the housing market,” said Norman Chan, chief executive of the Hong Kong Monetary Authority, the city’s de facto central bank.
Property prices in Hong Kong have risen to their highest since 1997, the peak of the last bubble. The Hang Seng index this week reached a two-year high in anticipation of the Fed's loose money. With a highly liquid market and no capital controls (unlike mainland China), Hong Kong is a natural proxy for investors seeking a China exposure. In the first 10 months of the year, HK$345.9 billion ($44.6 billion) was raised in Hong Kong from initial public offerings. That shows just how much money has been circulating. Hong Kong hardly needs more.
Property speculation is a major concern too in China, Malaysia and Singapore — all three already curbing mortgages. In South Korea, stocks reached their highest level in nearly three years this week. Bailed out by the International Monetary Fund in 1997 — South Korea came out with a combative tone against effect of the stimulus, signaling it will “actively” seek measures to control the flow of capital, which could include taxing foreign investments in government bonds. Thailand — another poster country of the 1997 crisis — already did that last month.
Surely, Asian authorities want to see the U.S. economy pick up – after all they sell a lot of their exports to America? However, the Fed’s intervention, although anticipated, still conjures U.S. unilateralism, an attempt by America to save itself regardless of how it would affect others.
“The main issue here is that the United States conducts monetary policy that has consequences not only on the United States. The U.S. dollar, for better or for worse, is the only serious international reserve currency,” said Uwe Parpart, chief Asia economist and strategist of Cantor Fitzgerald in Hong Kong.
The Fed’s stimulus was a de facto weakening of the dollar. Conversely, it means the Fed has just engineered for the value of Asian currencies to go up.
So how is that different from the Bank of Japan intervening in the foreign exchange market to weaken the yen? Or from China managing its exchange rate?
Whatever happened to global coordination of policies to prevent a currency war? Did the Fed just precipitate that? Only a few weeks ago, Treasury Secretary Tim Geithner said there was “no risk” of a currency war.
This only gives Beijing ammunition to counter the expected clamor at the G20 next week for the yuan’s appreciation and it allows central banks in Asia to justify future foreign exchange interventions.
Already, the currencies of big exporting economies such as Japan, South Korea and Thailand have risen to multi-year highs. This makes their products more expensive abroad and they are unsurprisingly, not happy with that (although a strong currency also makes imported components cheaper.) More foreign capital flows further raise the values of their currencies as foreign investors buy local currencies.
The Japanese yen hovers around a 15-year high against the dollar despite a massive purchase of dollars by the Japanese central bank in September to weaken the yen.
There are indications that Asian central banks may take concerted actions to control the flow of capital into their economies. Capital controls work well when done together, but a robust common policy may be hard to come by because some Asian economy stand differently today, than say, in 2008, when all agreed on stimulus measures.
Japan, for instance, has mirrored the sluggish economic recovery of the United States and may even implement its own quantitative easing (expected Friday).
China, too, attracts foreign capital, perhaps more than others, because of its expected 10-percent growth rate this year. But because the yuan is heavily managed by the central bank and because of existing capital controls and foreign investment restrictions, it has some built-in safeguard against capital inflows.
All told, Asian monetary authorities are probably reaching for their antacids now. Yes, they want the U.S. economy to grow to stabilize the global economy. But they don’t want the imported inflation and the instability risks. They didn’t survive two severe financial crises in less than 15 years to be sitting ducks for another one.
The question now is, how far would Asian leaders assert themselves at the G20 talks in Seoul next week (Nov. 11-12) against the United States and the weak dollar?
The U.S. Federal Reserve’s bond purchase plan will further drive the rally for global stocks and push commodity prices “higher and higher,” said Templeton Asset Management Ltd.’s Mark Mobius.
“We could have an optimistic scenario for quite some time,” Mobius, who oversees about $34 billion, said in a telephone interview from Beijing yesterday. “Commodities are the big area for us. We are great believers in higher commodity prices and therefore are investing in commodity companies.”
The MSCI World Index yesterday surged to a two-year high, gold jumped to a record and crude oil advanced to a seven-month high after the Fed announced Nov. 3 plans for $600 billion in bond purchases through next June. Asian stocks rose today, pushing a benchmark gauge to its best weekly advance this year, on speculation the Fed will succeed in stoking growth in the world’s biggest economy.
The liquidity flooding the global economy from the Fed’s quantitative easing will extend record gains for commodities and dollar depreciation cannot be avoided, said Mobius, 74, who is also the chairman of Templeton’s emerging markets group.
The U.S. economy is growing and that will have a positive effect on Europe and spread to other countries, Mobius said. The “bright spot” is the emerging markets where demand continues to grow, he said. Rising incomes in developing nations are especially good for consumer stocks, he said.
Mobius joins Goldman Sachs Asset Management’s Jim O’Neill in saying the Fed’s measures to boost the U.S. economy will spur further gains for global equities. O’Neill, creator of the BRICs acronym to describe the large emerging markets of Brazil, Russia, India and China, said this week that while a new “bull market” in global equities probably started in the past 15 months, current valuations are far from a “bubble.”
China Bull
The MSCI Emerging Markets Index has jumped 17 percent this year, compared with an 8.4 percent advance for a measure of developed markets.
Mobius said he’s “very bullish” on China as the country has “no big problems.” Even though stock valuations are not as attractive as last year they are “not out of sight” and Templeton funds are buying companies that are expanding in the nation’s less developed regions, particularly consumer companies.
“It’s not as easy as it was but we’re still buying and finding opportunities,” he said.
The Shanghai Composite Index has rebounded 32 percent since reaching this year’s low on July 5 on expectations central banks around the world will inject more cash into their economies to boost growth. It remains down 4.5 percent this year after the government raised bank reserve requirements and curbed lending growth to cool the economy.
‘Wouldn’t Touch’
Demand is so strong in China that Mobius is now looking at airline stocks, an industry that he said he normally “wouldn’t touch” because of low profit margins.
Emerging markets may faces inflationary pressure from the capital inflows spurred by the Fed’s measures, he said.
Inflows into emerging-market stock funds have surpassed $60 billion and exceeded $46 billion in bond funds, both poised for their best year since Cambridge, Massachusetts-based EPFR Global started tracking them in 1995.
Central banks in emerging markets will buy dollars to prevent their currencies from rising too fast and as their foreign exchange reserves increase in size so they will appear increasingly safe to investors looking for markets with higher economic growth and yields, Mobius said.
“It’s a vicious cycle,” he said. “The consequences could be not too good going forward. It’s something we have to watch carefully.”
China Concern
The Fed needs to explain this week’s decision to purchase bonds to pump money into the world’s biggest economy or risk undermining the global recovery, Cui Tiankai, China’s Vice Foreign Minister, said at a press briefing in Beijing today.
Cui’s remarks echo concerns raised across Asia as countries brace themselves for stronger currencies and possible asset- price inflation. German Finance Minister Wolfgang Schaeuble yesterday said the U.S. was creating problems for the world and the subject would be raised during next week’s Group of 20 leaders’ summit in Seoul.
For now, capital inflows in emerging markets are being counterbalanced by “hundreds of billions” of funds being raised by new stock sales and secondary fund raisings, Mobius said.
If funds keep pouring in and companies that have raised cash begin using it to buy assets, prices will be pushed up in a “snowball effect,” he said.
The worst-case outcome is a bubble that bursts after prices rise too fast, with “people getting hurt” because they were too optimistic, Mobius said.
If the U.S. government’s quantitative easing plan fails and fiscal tightening follows, Western economies may be back into recession, Albert Edwards, Societe General SA’s London-based strategist, wrote in a report yesterday. That will trigger a 60 percent drop in equity prices, he said.
Mobius said none of these outcomes is likely in the short term and his funds are fully invested. “I’m pretty optimistic,” he said. “I don’t see any risks any time soon. These things can last for years and years.”
Hedge fund legend Julian Robertson tells CNBC's Erin Burnett why he thinks quantitative easing is a bad idea and how fighting obesity could improve GDP by $1 trillion.
James Stock, a professor at Harvard University, discusses expectations for inflation and the outlook for Federal Reserve monetary policy. Stock talks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
