Monday, June 22, 2015

Making the Rich Richer Is Not Good For Growth, Says International Monetary Fund

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IMF’s latest report on inequality, Nicolas Mombrial, Head of Oxfam International’s office in Washington DC, said:

“Fighting inequality is not just an issue of fairness but an economic necessity. That’s not Oxfam speaking, but the International Monetary Fund today. Their latest report, ‘
Causes and Consequences of Income Inequality’, shows how it’s not just inequality that has a negative impact on growth, but the currently limited distribution of income.

“The IMF proves that making the rich richer does not work for growth, while focusing on the poor and the middle class does. This reinforces Oxfam’s call on how we need to reduce the income gap between the haves and have nots, and scrutinize why the richest 10% and top 1% have so much wealth.

“By releasing this report, the IMF has shown that ‘trickle down’ economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us. Governments must urgently refocus their policies to close the gap between the richest and the rest if economies and societies are to grow.

“The IMF has set off the alarm for governments to wake up and start actively closing the inequality gap, not just between the rich and poor, but for the middle class too. Their message to them is pretty clear: if you want growth, you'd better invest in the poor, invest in essential services and promote redistributive tax policies.

“Governments can do this in line with the IMF’s own report recommendations, which Oxfam backs, namely a package of progressive taxation measures, including clamping down on tax evasion and tax avoidance, investment in essential public services, like health and education, and labor market policies such as minimum wages. But the IMF should also walk the talk and apply its own recommendations to its future lending and advice.

In the same vein as Oxfam’s inequality campaign, the IMF does appear to be telling governments that it is time to Even It Up.”

Fast-track Hands the Money Monopoly to Private Banks — Permanently

It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.                                                                                                                                                                        — Attributed to Henry Ford
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In March 2014, the Bank of England let the cat out of the bag: money is just an IOU, and the banks are rolling in it. So wrote David Graeber in The Guardian the same month, referring to a BOE paper called “Money Creation in the Modern Economy.” The paper stated outright that most common assumptions of how banking works are simply wrong. The result, said Graeber, was to throw the entire theoretical basis for austerity out of the window.
The revelation may have done more than that. The entire basis for maintaining our private extractive banking monopoly may have been thrown out the window. And that could help explain the desperate rush to “fast track” not only the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP), but the Trade in Services Agreement (TiSA). TiSA would nip attempts to implement public banking and other monetary reforms in the bud.
The Banking Game Exposed
The BOE report confirmed what money reformers have been saying for decades: that banks do not act simply as intermediaries, taking in the deposits of “savers” and lending them to borrowers, keeping the spread in interest rates. Rather, banks actually createdeposits when they make loans. The BOE report said that private banks now create 97 percent of the British money supply. The US money supply is created in the same way.
Graeber underscored the dramatic implications:
. . . [M]oney is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There’s really no limit on how much banks could create, provided they can find someone willing to borrow it.
Politically, said Graeber, revealing these facts is taking an enormous risk:
Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.
If money is just an IOU, why are we delivering the exclusive power to create it to an unelected, unaccountable, non-transparent private banking monopoly? Why are we buying into the notion that the government is broke – that it must sell off public assets and slash public services in order to pay off its debts? The government could pay its debts in the same way private banks pay them, simply with accounting entries on its books. What will happen when a critical mass of the populace realizes that we’ve been vassals of a parasitic banking system based on a fraud – that we the people could be creating money as credit ourselves, through publicly-owned banks that returned the profits to the people?
Henry Ford predicted that a monetary revolution would follow. There might even be a move to nationalize the whole banking system and turn it into a public utility.
It is not hard to predict that the international bankers and related big-money interests, anticipating this move, would counter with legislation that locked the current system in place, so that there was no way to return money and banking to the service of the people – even if the current private model ended in disaster, as many pundits also predict.
And that is precisely the effect of the Trade in Services Agreement (TiSA), which was slipped into the “fast track” legislation now before Congress. It is also the effect of the bail-in policies currently being railroaded into law in the Eurozone, and of the suspicious “war on cash” seen globally; but those developments will be the subject of another article.
TiSA Exposed
On June 3, 2015, WikiLeaks released 17 key documents related to TiSA, which is considered perhaps the most important of the three deals being negotiated for “fast track” trade authority. The documents were supposed to remain classified for five years after being signed, displaying a level of secrecy that outstrips even the TPP’s four-year classification.
TiSA involves 51 countries, including every advanced economy except the BRICS (Brazil, Russia, India, China, and South Africa). The deal would liberalize global trade in services covering close to 80% of the US economy, including financial services, healthcare, education, engineering, telecommunications, and many more. It would restrict how governments can manage their public laws, and it could dismantle and privatize state-owned enterprises, turning those services over to the private sector.
Recall the secret plan devised by Wall Street and U.S. Treasury officials in the 1990s to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally, so that money would not flee to nations with safer banking laws.  The vehicle used was the Financial Services Agreement concluded under the auspices of the World Trade Organization’s General Agreement on Trade in Services (GATS). The plan worked, and most countries were roped into this “liberalization” of their banking rules. The upshot was that the 2008 credit crisis took down not just the US economy but economies globally.
TiSA picks up where the Financial Services Agreement left off, opening yet more doors for private banks and other commercial service industries, and slamming doors on governments that might consider opening their private banking sectors to public ownership.
Blocking the Trend Toward “Remunicipalization”
In a report from Public Services International called “TISA versus Public Services: The Trade in Services Agreement and the Corporate Agenda,” Scott Sinclair and Hadrian Mertins-Kirkwood note that the already formidable challenges to safeguarding public services under GATS will be greatly exasperated by TiSA, which blocks the emerging trend to return privatized services to the public sector. Communities worldwide are reevaluating the privatization approach and “re-municipalizing” these services, following negative experiences with profit-driven models. These reversals typically occur at the municipal level, but they can also occur at the national level.
One cited example is water remunicipalization in Argentina, Canada, France, Tanzania and Malaysia, where an increasing frustration with broken promises, service cutoffs to the poor, and a lack of integrated planning by private water companies led to a public takeover of the service.
Another example is the remunicipalization of electrical services in Germany. Hundreds of German municipalities have remunicipalized private electricity providers or have created new public energy utilities, following dissatisfaction with private providers’ inflated prices and poor record in shifting to renewable energy. Remunicipalization has brought electricity prices down. Other sectors involved in remunicipalization projects include public transit, waste management, and housing.
Sinclair and Mertins-Kirkwood observe:
The TISA would limit and may even prohibit remunicipalization because it would prevent governments from creating or reestablishing public monopolies or similarly “uncompetitive” forms of service delivery. . . .
Like GATS Article XVI, the TISA would prohibit public monopolies and exclusive service suppliers in fully committed sectors, even on a regional or local level. Of particular concern for remunicipalization projects are the proposed “standstill” and “ratchet” provisions in TISA. The standstill clause would lock in current levels of services liberalization in each country, effectively banning any moves from a market-based to a state-based provision of public services. This clause . . . would prohibit the creation of public monopolies in sectors that are currently open to private sector competition.
Similarly, the ratchet clause would automatically lock in any future actions taken to liberalize services in a given country. . . . [I]f a government did decide to privatize a public service, that government would be unable to return to a public model at a later date.
That means we can forget about turning banking and credit services into public utilities. TiSA is a one-way street. Industries once privatized remain privatized.
The disturbing revelations concerning TiSA are yet another reason to try to block these secretive trade agreements. For more information and to get involved, visit:

Failures of Central Banks, Interest Rates, Derivatives and Crisis in the Credit Market

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Global markets are changing drastically and showing volatilities like we saw back in late 2008.  I am not talking about stock markets, it is the debt and currency markets that are schizophrenic.  Oddly, even after all of the various Western “QE’s”, liquidity suddenly looks like it is drying up.  A great article as to why even the depth in the U.S. Treasury market has disappeared can be read here
Various credit markets (important one’s!) have cracked over the last month and the myth of “zero percent interest” rates is in the process of being shattered.  I want to visit several topics in this piece, each one with the ability to break the derivatives chain which is exactly what we are headed for!
First and foremost, I believe we are about to find out central banks are not the omnipotent powers we’ve been led to believe.  You might as well say central banks have been perceived as all powerful, all knowing and the savior of any and all things “bad”.  The confidence in central bank’s abilities to fix anything and everything has grown to epic proportions and is now ingrained everywhere.  This thought process is so prevalent, we might as well say it is “imprinted” in the mass psyche from birth!
What we are seeing now are credit markets revolting against the risk of over levered sovereign treasuries and the fact of receiving zero compensation for the outsized risk.  Investors were led and cajoled by central banks into this corner of uncompensated risk.  It was easy.  Central banks led by the Fed only needed to announce their “plans” and investors stormed the credit markets in front running fashion.
A natural problem or two is arising.  Interest rates have been zeroed out for too long.  As the three Fed stooges finally admitted last week, zero interest rates are only justified by crisis.  Continued zero interest can mean only one of two things, we are still in a crisis behind the scenes or rising interest rates cannot be tolerated by markets with no margin left.  Both of these are the reality!  Before going any further, one thing needs to be made clear.  Central banks do not, better said CANNOT set interest rates.  Yes, they can push, pull, “suggest” and even buy sectors of the credit market to affect interest rates…
…BUT ONLY in the short run.  My point is this, “the short run” is ending!  The central banks are running up against the “confidence clock” if you will.  The economic and financial lies told are now being revealed for what they are, WHOPPERS!  Think about it, do any numbers make sense?  Inflation?  GDP?  Employment?  Spending?  Housing?  Nothing reported now makes any sense at all and the lies have by necessity gotten so big, even little children know them not to be true.
The truly HUGE problems lay in the derivatives markets.  These are multiples of all markets …with very thin margins allowed for losses.  The volatility seen in currencies and debt over the last month have surely bankrupted many.  You see, it was the use of derivatives markets in the first place to “engineer” the bubbles …which are now bursting!  It is quite simple, the leverage afforded by derivatives, funded by credit and freely printed currency blew the bubbles to begin with.  Margin calls and forced closure of many of these derivatives will be the driving force of the coming collapse.  A broken derivatives chain will break everything beneath them including the currencies themselves.
The following is how Jim Sinclair has described derivatives:
There is no such thing as a derivative that does not have an implied or defined interest rate characteristics. This is the chain that connects them all.
That makes this problems larger than one quadrillion dollars, the true level of the notional value derivatives outstanding before the BIS got into Whoopers, changed the computer program for measurement and reduced outstanding notional value of derivative outstanding to just $700 trillion in 2007. Here is the concept you must understand. Notional value of a derivative becomes real value of the derivative in the event of derivative bankruptcy. Derivative bankruptcy is defined as the breaking of the interlocking chain, interest rates. Now, you the reader, have a feel for how big this problem is. This unwelcome change in the interest rates market, the bond market, is truly the god of Death for the world’s financial system. When the smoke clears, gold will be the only true measure of value (a definition of money) with gold’s only mechanism for price discovery being the now growing and transparent physical market, the paper market will be in tatters as will be the paper exchanges and paper public companies that own these exchanges.
In a nutshell, derivatives NEVER DIE, THEY ONLY GROW LARGER!
Before moving on, HUGE NEWS has broken today, the two CEO’s of Deutsche-Bank have stepped down! http://www.usatoday.com/story/money/2015/06/07/deutsche-bank-ceos-step-down/28641471/
Deutsche-Bank is the largest holder of derivatives in the world, equaled ONLY by JP Morgan holding a “cool” $75 TRILLION!!!  Please view the following chart of the 10yr Bund, rates have exploded higher in a very short time span.   Huge losses have been incurred as ALL derivatives have interest rates assumptions within, no doubt your reason for the sudden resignations!
Courtesy, thekeystonespeculator
 Something has clearly BROKEN!
The next false belief is about debt itself.  I had the privilege the other day to personally listen to Greg Hunter go on a tirade about this.  He said “the biggest lie in the world is that debt is an asset and debt is money”.  He went on to say “NO IT’S NOT! Debt is ALWAYS A LIABILITY!”  This is absolutely true, simple to understand, and 180 degrees counter to what the world believes …for now.  Let me explain this a little because it is “core to everything” (pun intended as you will see).
Debt is the foundation to everything.  “Currency” itself is created ONLY by the creation of debt.  Better said, currency is created by the increase in the amount of debt outstanding.  Debt stands as the foundation to all bank portfolios, all pension plans, the “value” of and “liquidity” of all real estate and equity markets.  “Debt” is THE foundation to what 99% of the world calls their “net worth”.
Before tying this part up for you, one other item needs mentioning.  This past week, Christine Lagarde of the IMF was out publicly “stating” (could be called demanding, asking or even PLEADING) the Fed should not raise interest rates until sometime next year.  (As a side note, can you remember when “raising rates” was first mentioned?  2010!  It has always been “next year” since then!).  The interesting thing is Janet Yellen was talking about raising rates at the same time Ms. Lagarde was speaking.
“Houston, we have a problem”!  Do you see the problem?  Switzerland broke the peg with the euro back in January …and forgot to give the IMF a heads up ahead of time!  This affected MANY banks including central banks themselves.  Did they give a heads up to the BIS?  Probably.  If so, was this the first sign of the “Western” IMF being isolated and in the dark?  I believe it was and I also believe Ms. Lagarde is terrified the Fed may actually try to raise rates one token time for whatever reason, to save face, for legacy or whatever.  (I am on the record many times before, I do not believe the markets will even function within 48 hours of an actual Fed rate hike).  One other question, can the Fed or other central banks really sit idly by as market rates run interest rates away from them to the upside?  A true dilemma!!!
Do you now see where I am going with this?  Market rates are now clearly going higher whether central banks like it or not …with or without them!  This part is important because it speaks to “confidence” or the lack of, it is however not the MOST important.  What is most important of all is this, EVERYTHING financial in the world is “discounted” against current, prevailing and EXPECTED interest rates.  The higher the rate and the higher the expectation of rates …the lower someone is willing to pay for a current asset!  Can you say “everyone out of the water”!
There is also another aspect.  Since “debt” underlies everything, as interest rates do rise, bond “prices” (values) drop.  What do you think lower debt values will do to bank portfolios, pension plans, insurance programs etc.?  You got it!  More and more “assets” become “unfunded”!  Obviously, starkly higher interest rates in a very short time also blow up ALL derivative’s interest rate assumptions.  We are talking about TRILLION’s being turned on their head!
To wrap this up, the world CANNOT in any way have higher interest rates but this is exactly what is happening.  Interest rates were forced to zero because that was the only rate where debt services could be made and asset prices “supported”.  Rates are reversing, many debts will not be paid nor able to be rolled over (at higher rather than lower rates), asset values of all sorts will plummet, financial structures and promises will be hollowed out …and even the currencies themselves will be questioned.
Once the belief that “debt is an asset …or even money” is broken, just as a spooked herd of cattle runs wild, so will investors.  They will seek the safety of “no one’s liability” because no one will be trusted.  This includes the central banks and sovereign treasuries themselves.  Gold, (no one’s liability) will not pay you interest and will not make promises that cannot be kept, it will simply “remain”.  Gold will remain as the world’s purest asset and purest money.  In a world where most all “assets” are finally understood to really be someone else’s liability, there is no telling what value might be placed on the purest form of asset/money?  Gold will be seen as the “anti liability of last resort”.  I guess better said, gold is the ultimate central bank for the asset side of the balance sheet!