Global financial system implosion begins

[yield]

Central Bank Stock Buying Binge
Global CBs secretly load up on equities pushing prices higher
Counterpunch June 27-29, 2014

While you can’t expect the media to cover something like this, it’s certainly worth mulling over. The fact is, CBs have taken over economic policy altogether. They’re running the whole shooting match. The various congresses and parliaments across the western world now merely act as a rubber stamp for the austerity measures demanded by their corporate bosses. Fiscal policy is a dead letter in the US, Japan, Australia, Canada, UK and the Eurozone. Everywhere the bank cartel has extended it’s grip, fiscal policy has been jettisoned altogether. It’s bailouts and lavish subsidies for the 1 percenters and belt-tightening, shock therapy for everyone else. Isn’t that how it works? State Capitalism isn’t a conspiracy theory. It’s just class warfare taken to the next level. Check this out from Dave Marsh at Marketwatch:

“Central banks’ foreign-exchange reserves have grown unprecedentedly fast, especially in the developing world. The same authorities that are responsible for maintaining financial stability are often the owners of the large funds that add to liquidity in many markets…

Whole article is well worth a read.

 

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Bulgaria's bank crisis eases after Europe approves credit line
Reuters Mon Jun 30, 2014

Bulgaria's banking crisis eased on Monday, with fewer depositors queuing to withdraw savings after politicians assured them that their cash was safe and the European Commission gave Sofia the green light to provide state aid to its lenders.

Bulgarians had flocked to branches of First Investment Bank on Friday and withdrew 800 million levs ($560 million) after a run had shut down another big lender. The central bank said criminals had tried to disrupt the financial system.

 

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http://www.cnbc.com/id/101809735
FT 03/07/14

Shanghai is leading a race to host the headquarters of a new "Brics" development bank that will challenge for the first time the US postwar dominance of multilateral lending institutions, people familiar with the matter in Brasília and Washington said.

The bank, to be controlled by Brazil, Russia, India, China and South Africa, is expected to start with capital of $50 billion and to be officially launched by the Brics heads of state at a summit in Brazil on July 15.

 

[Falcon]

Some interesting, related items of news:

[1] 75% of all hydrocarbon Exploration and Production companies are now insolvent at an oil price of less than $100 / barrel after CAPEX and dividends (and the global economy can't sustain an oil price higher than $100 / barrel). They are remaining solvent by (i) cancelling the capital expenditure that is required to sustain production against the system's 10% per year decline rate (ii) liquidating themselves [Source: Kopits 2014 "Oil and Economic Growth - A Supply Constrained View"]

[2] The EIA just wrote off 96% of the reserves in the Monterey shale formation. The Monterey was the least uneconomic of global shale oil plays, and the basis of world estimates of future production potential, including UK's. (This is the moment the Ponzi scheme racketeers were dreading.) [Source: Ahmed 2014 "Write-down of two-thirds of US shale oil explodes fracking myth"]

[3] At 10% per year historical increase, average operating cost to lift a barrel of North Sea oil will equal the oil price of $100 / barrel in seven years time, at which point the North Sea (and the UK financial system) will shut down. [Source: McKinsey&Co 2014 "Spiralling North Sea Costs" (subscription required)]

Discerning readers will appreciate that the appearance of viability in the financial system is sustained for as long as the energy system that provides its collateral is viable, and the energy system is no longer viable.

 

[ska invita]

The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.
Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.

“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph.
Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.

http://www.telegraph.co.uk/finance/...-Lehman-crisis-from-worldwide-debt-surge.html

 

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Economic meltdown scenario piles pressure on Russia and the west
The Guardian, Tuesday 22 July 2014

Oil prices above $200 a barrel. Energy shortages in western Europe. The return of recession to the still-fragile global economy. A slump in Russia. That's the fear haunting policymakers as they contemplate how to respond to the shooting down of MH17 over eastern Ukraine last week.

The meltdown scenario can be easily sketched out. Every global downturn since 1973 has been associated with a sharp rise in the price of energy. Russia is one of the world's biggest energy suppliers and is responsible for about one-third of Europe's gas. America's economic recovery from the deep recession of 2008-09 has been weak by historic standards, while the European Union's has barely got going. From the car plants of Germany to the finance houses of the City of London and French defence firms, there has been pressure on politicians to be wary of provoking Vladimir Putin into retaliation that might rebound on the west.

 

[Falcon]

Every global downturn since 1973 has been associated with a sharp rise in the price of energy.

It's actually even more correlated than that. Hamilton shows that ten out of all eleven post World War II recessions were preceded by a sharp rise in the price of petroleum. [Source: "Historical Oil Shocks", Hamilton 2011 (link) PDF]

 

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http://www.telegraph.co.uk/finance/...-Lehman-crisis-from-worldwide-debt-surge.html

The warning signs of a new credit crunch
Liam Halligan. The Spectator. 26 July 2014

This blatant rigging of western equity markets has gone on for several years, with stocks soaring despite weak economic fundamentals. While everyone in financial circles knows this, to say as much out loud is to guarantee pariah status — and I should know. But eyebrows are now being publicly raised by genuine insiders, with the Swiss-based Bank for International Settlements, an umbrella organisation for the world’s leading central banks, warning of ‘euphoric’ equity valuations. ‘It is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally,’ it argued in its annual report published earlier this month.

Systemic global risks today may be greater than before the Lehman crisis, the BIS warns, as debts have risen. Across the developed world, the average combined public and private debt ratio is at 275 per cent of GDP, compared with 250 per cent in 2007. And no less than two fifths of new syndicated loans are now sold to dodgy ‘sub-prime’ borrowers, the BIS adds — above the pre–Lehman high.

The balance sheets of the six largest western banks totalled $14.6 trillion at the end of 2012, compared with $10.7 trillion in 2007. In March, the International Monetary Fund admitted such banks still receive annual implicit subsidies of $590 billion, with creditors judging that state bailouts will indeed be forthcoming when reckless, highly leveraged investments go wrong. This flies in the face of political rhetoric that the problem is solved and taxpayers will never again have to bail out bonus-fuelled traders.

Spoiler: Think we've done enough to avoid another financial crisis? Think again

 

[teqniq]

The warning signs of a new credit crunch
Liam Halligan. The Spectator. 26 July 2014

Spoiler: Think we've done enough to avoid another financial crisis? Think again

So, there's going to be another crash because of qualitative easing, or, or, was that just printing money?

Or was it just greed, attendant criminality and believing your own bullshit?

How did we get this far?

It's pretty amazing really.

 

[Falcon]

Spoiler: Think we've done enough to avoid another financial crisis? Think again

We tend to throw the term "trillion" around without much thought.

It's worth recalling, as you note the increase in debt since 2008, that a million seconds is 12 days, 
a billion seconds is 31 years, and a trillion seconds is 31,688 years.

 

[yield]

So, there's going to be another crash because of qualitative easing, or, or, was that just printing money?

Or was it just greed, attendant criminality and believing your own bullshit?

How did we get this far?

It's pretty amazing really.

The story spun by the politicians and central banks in 2008 was that quantitative easing and ultra low interest rates was only a stop gap so that the, too big to fail, banks could get their balance sheets in order.

Given the collapse of Northern Rock, Bear Stears, Lehman Brothers and the nationalisation of RBS and Lloyds/TSB their fears were justified.

5 years on the emergency measures have become the new normal and none of the lessons have been learnt.

If anything the situation is worse.

Former Head of BIS Worried About Cost of QE
forbes.com. 4/27/2014

We just saw the last chapter of that long history. This is the last of a whole series of bubbles that have been blown. In the past, monetary policy has always succeeded in pulling up the economy. But each time, the Fed had to act more vigorously to achieve its results. So, logically, at a certain point, it won’t work anymore. Then we’ll be in big trouble.

http://blogs.wsj.com/economics/2014/07/02/transcript-of-yellen-and-lagarde-comments-at-imf-event/
Also worth a read. As it's their blog hopefully not behind a paywall.

You Can’t Taper a Ponzi Scheme

The question being hotly debated in the blogosphere is, “What then?” Will economies collapse globally? Will life as we know it be a thing of the past?

Not likely, argues John Michael Greer in a March 2014 article called “American Delusionalism, or Why History Matters.” If history is any indication, governments will simply, once again, change the rules.

 

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Deutsche Bank, HSBC Accused of Silver Fix Manipulation
Bloomberg 2014-07-26

Deutsche Bank AG (DBK), HSBC Holdings Plc (HSBA) and Bank of Nova Scotia were accused in a lawsuit of rigging the price of billions of dollars in silver, an allegation similar to earlier suits involving the London gold fix.

The banks unlawfully manipulated the price of the metal and its derivatives, an investor claims in a complaint filed yesterday in federal court in Manhattan. The banks abused their position of controlling the daily silver fix to reap illegitimate profit from trading, hurting other investors in the silver market who use the benchmark in billions of dollars of transactions, according to the suit.

“The extreme level of secrecy creates an environment that is ripe for manipulation,” according to the complaint. “Defendants have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the public release of silver fixing results, allowing them to reap large illegitimate profits.”

Free markets and price discovery etc lol.

Shorting Junk Loans Just Got Easier as New Derivatives Unveiled
Bloomberg. July 24, 2014

“The loan market needs tools” to make it easier for buyers to slip in and out, Morgan Stanley (MS:US) analysts led by Sivan Mahadevan wrote in a July 11 report. “A maturing credit cycle and a deterioration in the quality of new issuance has led to a debate about loan valuations going forward.”

Translation: There are a lot of investors out there who are considering going short.

So, Wall Street’s trying to fill in the gaps. The question is whether the latest innovations will help prevent losses when the tide turns, or add to them.

Because they're junk for a reason lol

 

[Bernie Gunther]

Hayek's head on a spike ...

 

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Lloyds to pay £217 million in fines over Libor rigging
Independent Monday 28 July 2014

Lloyds Banking Group was hit with £217m in fines today after its traders manipulated interest rates to rip off the Bank of England on a taxpayer-backed scheme intended to keep their employer afloat.

The manner in which traders bit the hand that fed them appeared to shock even regulators, who said the misconduct was unique among recent rate-fiddling scandals.

It "appeared to shock even regulators"

 

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The Typical Household, Now Worth a Third Less
NYTimes JULY 26, 2014

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

 

[hipipol]

Sept looks like a good shout for some turmoil

 

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HSBC chairman warns against banking reforms
The Guardian, Monday 4 August 2014

The chairman of HSBC warned yesterday that fear of hefty fines was forcing banks to become risk averse as they grapple with unprecedented regulatory reforms in the wake of the financial crisis.

As Britain's biggest bank revealed it was putting aside $367m (£218m) to cover compensation for mistakes in loan statements to UK customers, Douglas Flint said there was an "observable and growing danger of disproportionate risk aversion".

He warned of "growing fatigue" in some of the bank's operations, where staff were having to work at weekends to implement systems changes. One concern was that "there are only 52 weekends in a year".

Such hubris. Cutting into their profits. My heart bleeds.

UK watchdog bans sale of bank CoCo bonds to mass retail market
Reuters Aug 5

Britain's banks are banned from offering risky and complex hybrid debt known as contingent convertible bonds or CoCos to the mass market from October, the country's Financial Conduct Authority (FCA) said on Tuesday.

Faced with pressure from regulators to bolster their capital cushions, banks are set to issue CoCo bonds in ever larger amounts to shield taxpayers from having to rescue failing lenders like in the 2007-09 financial crisis.

CoCos also known as "death spiral" bonds.

 

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India’s Rajan sounds alarm on asset bubbles
FT. 7 Aug 2014

The world is at risk of another financial crash following a steep rise in asset prices, according to Raghuram Rajan, governor of the Reserve Bank of India – and one of the few people to have warned of the last financial crisis.

“Some of our macroeconomists are not recognising the overall build-up of risks,” Mr Rajan, a former chief economist at the International Monetary Fund, said in an interview in the Central Banking Journal. “We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost.”

 

[Falcon]

Cash from operations for major energy companies has flattened in line with flat crude oil prices, which have had the lowest price volatility in years. Based on data compiled from quarterly reports, for the year ending March 31, 2014, cash from operations for 127 major oil and natural gas companies totaled $568 billion, and major uses of cash totaled $677 billion, a difference of almost $110 billion. This shortfall was filled through a $106 billion net increase in debt and $73 billion from sales of assets, which increased the overall cash balance. The gap between cash from operations and major uses of cash has widened in recent years from a low of $18 billion in 2010 to $100 billion to $120 billion during the past three years...The increased debt load is anticipated to be met with increased production, generating more revenue to service future debt payments.

- "As cash flow flattens, major energy companies increase debt, sell assets", EIA, 29 July 2014 (link)

Short form: Major energy companies now need to borrow >$100 billion a year to meet their operating costs, are liquidating to offset some of the shortfall, and require production increases to service the accumulating debt.

There is no increased production to service the accumulating debt:

As the graph above shows, productivity of capital has deteriorated by a factor of four, from $5,300 capex b/d of oil production in 2004 to $21,400 in 2013. This deterioration is net of technology improvements. Geology is not only winning, it is crushing technology. Hamilton’s graph testifies to the grizzly unraveling of the economics underpinning oil production since 2005. For the oil business as a whole, productivity has imploded, not improved.
- "Guest blog: Hamilton has it right on oil", Kopitz, July 30 (link)

This rapidly accelerating unravelling of the energy supply underpinning the financial system is the principle driver of its impending collapse.

 

[gosub]

could someone with a nice data interface, pull me out a chart of UK CDS 5yr since Jan. Thanks in advance, need it for an argument.

 

[Coolfonz]

That's a hell of an argument you're having

 

[ItWillNeverWork]

It wont implode, despite all the doomongering

zoltan was last seen: Feb 25, 2009

 

[gosub]

That's a hell of an argument you're having

Assuming everything is hedged, and fit for purpose. It would very strange if the markets didn't go a bit funny in the run up.

 

[yield]

White House Delays Proposal To Reclassify 'Factoryless Goods Producers'
ibtimes. August 08 2014

After an outcry by labor unions and consumer groups, the Obama administration announced Friday it would delay a controversial proposal to classify so-called factoryless goods producers as domestic manufacturers, even if the manufacturing jobs associated with those producers are offshore.

See also.

We Didn’t Offshore Manufacturing?
Let's Just Pretend
Counterpunch. July 4-6, 2014

'Factoryless Goods Producers' so they'd be GDP for China and USA. Doublethink.

 

[DairyQueen]

So, there's going to be another crash because of qualitative easing, or, or, was that just printing money?

Or was it just greed, attendant criminality and believing your own bullshit?

How did we get this far?

It's pretty amazing really.

As a left-winger, it is very difficult for me to work out if my conclusions are founded on Marxist predictions or evidence-based predictions. Might QE be hitting poorer countries?

 

[teqniq]

As a left-winger, it is very difficult for me to work out if my conclusions are founded on Marxist predictions or evidence-based predictions. Might QE be hitting poorer countries?

You will have to ask one of the more well-informed financial types, I am just an interested party, but for what it's worth imo QE is just another scam to keep the whole thing afloat. I suppose it would/might hit poorer countries inasmuch as they would have less credibility and hard reserves to draw upon.

 

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'Good news' shock could kill the five-year-old bull market
Reuters. Wed Aug 20, 2014

"Markets just don't die of old age, they usually get killed off by a shock," said Kerry Craig, global markets strategist at JPMorgan Asset Management.

A monetary shock of that scale looks far fetched right now, with global inflation near its lowest across the Group of Seven richest countries in over 40 years. Craig at JPMAM, for example, reckons the slow growth, low inflation and decent earnings story can persist for much longer.

To be sure, geopolitics always has the potential to shock, but the power of that punch to the economy usually needs an added factor such as an oil price spike.

And despite the rampaging conflicts across the Middle East and eastern Europe this year, that's just not happened. Crude markets are sufficiently well supplied to see oil prices fall to their lowest in over a year.

So what could juice up the economic numbers enough to force central banks to reconsider their assumed monetary timelines?

Bizarro world

 

[yield]

Orginal FT article behind paywall
Investors dine on fresh menu of credit derivatives

Financial Times: Wall Street Plays Dangerous Derivatives Games — Again
Tuesday, 19 Aug 2014

The same kinds of complex, confusing derivatives that almost brought down the global financial system in 2008 are back in spades, according to the Financial Times. As one trader put it: "We've reformed nothing."

The U.K. newspaper suggested investors may be fooled by a false sense of security, and are therefore “chasing levered returns via certain types of US credit derivatives that Wall Street is willingly providing in the current climate of low interest rates and moribund volatility.”

The developments suggest that the financial industry learned little from the 2008 meltdown and that reforms put in place since then are ineffective.

“While standardized derivatives such as interest rate swaps are now transacted in exchange- type venues and centrally cleared, the flourishing area of opaque products are not, and moreover there are few records of activity that regulators can monitor,” the Times said.

The newspaper warned that strong growth in the use of complex derivatives may exaggerate the impact of the next major market reversal. The deja vu boom in credit derivatives is being fueled by yield-hungry investors and Wall Street’s quest for new revenues.

“We’ve reformed nothing,” said Janet Tavakoli, president of Tavakoli Structured Finance. “We have more leverage and more derivatives risk than we’ve ever had.”

See also

Jamie Dimon’s $13 Billion Secret
The inside story of JPMorgan Chase’s landmark mortgage settlement
August 13, 2014 | The Nation.

 

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Spectre of 1929 crash looms over FTSE 100 as traders take on record debts
Telegraph. 01 Sep 2014

Nothing has been learnt from the madness of the 1929 stock market crash as once again traders reach for record amounts of debt to pile into rising share prices.

The level of margin debt that traders are using to buy shares in the stock market reached the highest levels on record, according the latest data from the New York stock exchange.

US traders borrowed $460bn from banks and financial institutions to back shares, and once cash and credit balances held in margin accounts of $278bn is subtracted this left net margin debt of $182bn in July

Traders are now more exposed to a fall in share prices than at the height of the dot-com bubble at the turn of the century, and just before the financial crisis during the 2007 peak.

The FTSE is at a 14 year high, the Dow Jones and S&P 500 are at record highs. Such a disconnect with the majority seeing a fall in their standard of living.

ECB unveils surprise package to shore up euro zone
Reuters. Thu Sep 4, 2014

The European Central Bank cut interest rates to a fresh record low on Thursday and launched a new scheme to push money into the flagging euro zone economy, surprising markets and leaving open the option of more to come.

In a series of measures highlighting growing concern about the currency bloc's health, the ECB cut its main refinancing rate to 0.05 percent from 0.15 percent and drove the overnight deposit rate deeper into negative territory, now charging banks 0.20 percent to park funds with the central bank.

Draghi announced plans for an asset-backed securities (ABS) and covered bond purchase programme to help ease credit conditions in the bloc. Sources told Reuters it could amount to 500 billion euros (397.5 billion pounds) over three years.

More negative interest rates? Can't see this doing what they want. Draghi's last chance. I could well see the EU breaking up.

 

[yield]

Spoiler: youtube

Interesting interview with Ambrose Evans-Pritchard (Cambridge University and La Sorbonne) a staunch Atlanticist and liberal.

He discusses massive increase in Chinese debt and their use of Yuan rather than Dollars for trade.

"People talk about having the exorbitant privilege of having the world's reserve currency but it's also an exorbitant burden."

Also talks about financial sanctions on Russia.

“Ironically, America has never been as powerful financially as it is now”

Mentions the following as an alternative in the event of a "new" recession. That or a massive public works campaign like in 1930's Japan.

IMF's epic plan to conjure away debt and dethrone bankers
Telegraph. 21 Oct 2012

One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.

The conjuring trick is to replace our system of private bank-created money -- roughly 97pc of the money supply -- with state-created money. We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.

Specifically, it means an assault on "fractional reserve banking". If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.

The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.