Why do the People of the UK Accept Financial Repression?

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It is amusing yet disturbing to see that the UKs media fails to mention the public debt of the UK but refers only to GDP and inflation figures, the ‘everything is awesome’ meme. Both of these numbers are manipulated but asking how the GDP deflator number is derived, what the actual number is and why does it increase GDP and lower inflation? This would be the start of a discussion.

When governments find themselves in a situation where they cannot pay off their accrued debt, they have a number of plays open to them. They will not relinquish power without a good scrap.

1.The first play is hyperinflation and this destroys the currency but also the debt, not ideal if you wish to remain in control.

2. The second is default, also known as the Argentinian option but this eventually leads to the destruction of the currency.

3. The third option is austerity, which is parroted by the political parties as necessary but if we have had austerity for 5 years why has public debt gone up by 80% since the coalition came to power? Currently standing at £1.4 Trillion with £1 billion per week being used to fund interest payments on the debt, £52 billion per year and rising. Austerity is a lie, it’s never worked but we’re all in this together, well most of us as you will see. As public debt has increased so much, interest rates are not going to rise, it’s counterintuitive and illogical for government to do so, they have another option.

4. The fourth and my personal favourite is financial repression, sounds like fun which it is. Repression hits both savers and wage earners, if inflation is higher than interest rates then savers lose out. If inflation is higher than wage increases, the wage earner loses out. If both of these scenarios play out, savers and wage earners lose out and those that hold the debt benefit. Continue reading

Will Our Private Savings Be Sacrificed To Pay Down The Public Debt?

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Courtesy of Adam Taggert @ Peak Prosperity:

Recently, an article by Daniel Amerman caught our attention. Titled Is There A “Back Door” Method For The Government To Pay Down The Federal Debt Using Private Savings?, it details the process known as financial repression, where sovereign debts are slowly paid off by syphoning private savings from an unaware populace.

In this week’s podcast, Chris discusses the mechanics of the process, as well as its probability, with Dan:

To understand financial repression, we have to understand that we’ve been there before. Many nations have gone through periods in the past where they’ve had very high levels of government debt. And there are four traditional ways of dealing with that.

One of them is austerity. Everyone understands that. You raise the tax rates. You lower the government spending. This is a painful choice. It can last for decades. And what do you think the voters think about that?

There is another option and this we can call this the Argentina option. And that’s defaulting on government debts. It’s radical. Everybody understands it. How do the voters feel about it?

There is a third option is rapidly destroying the value of currency. Creating high rates of inflation that very quickly wipe out the true value of a national debt. But that also wipes out the true value of everyone else’s savings and salaries and so forth. It is such an obvious process you can’t really hide it. So how do the voters feel about that?

Those first three – they all work. They’ve all been done before. But they’re all very painful and make the voters very angry.

Now there is a fourth way of doing this. There’s nothing controversial about its existence; it’s not the slightest bit controversial for professional economists or people who have studied economics extensively. It’s financial repression. And it works. It’s what the advanced western nations did after World War II. It was a process that took 25 to 30 years, depending on the country. The West went from an average debt as a percentage of national economy from over 90% to under 30%. So we know it works in practice. Continue reading

Thank Heaven For Gold Manipulators

Courtesy of Antal E Fekete @ Professor Fekete.com and as ever, he has a point:

This rejoinder was prompted by the Daily Bell interview with Bill Murphy of GATA (March 30, 2014).

I shall accept, for the sake of argument, Murphy’s premise that the dollar price of gold is heavily manipulated by the U.S. government in order to keep it in check. But while Murphy thinks that it is a great curse I shall argue, tongue in cheek, that it is a blessing in disguise. The difference between Murphy’s thinking and mine is the difference in financial survival strategies in the face of the U.S. government’s deliberate policy of destroying the dollar and, along with it, the savings and pension rights of people, to say nothing about destroying the world economy.

Apparently Murphy believes that there is only one reasonable investment strategy in gold, namely, buy and hold in the hope of huge capital gains. However, this strategy turns people into sitting ducks for the manipulators. They engineer violent changes in the dollar price of gold. They squeeze holders. They make them buy high and sell low. In a sense, people fall victim to their own faulty understanding of gold. True understanding makes a distinction between the price and the value of gold. The latter is constant (to the extent there are constants in human affairs); the former is the reciprocal of the wobbly value of the irredeemable dollar. When the dollar is down and falling, the gold price is up and rising, and conversely. The mistake most gold bugs make is that they identify the value of gold with its price. No wonder they fall victim to the manipulators’ tactics and consequently get separated from their gold, sometimes with severe losses. No wonder they consider manipulation a curse, even a criminal activity, and try to use legal means to stop it. That’s what GATA is about. Needless to say, this effort is an exercise in futility. It makes manipulation more pervasive, not less. The manipulators are emboldened by the success of their own tactics. Gold bugs get frustrated. Continue reading

China’s First Default Is Coming: Here’s What To Expect

So this is a stress test for the financial system with China Credit Trust Co. Ltd. (CCT) due to default on principle and interest on the 31st of January, time to grab the popcorn. Courtesy of ZeroHedge:

As we first reported one week ago, the first shadow default in Chinese history, the “Credit Equals Gold #1 Collective Trust Product” issued by China Credit Trust Co. Ltd. (CCT) due to mature Jan 31st with $492 million outstanding, appears ready to go down in the record books.

Of course, in a world awash and supported by moral hazard, where tens of trillions in financial asset values are artificial and only exist due to the benevolence of a central banker, it would be all too easy to say that China – fearing an all too likely bank run on comparable shadow products (of where there a many) as a result – would just step in and bail it out. However, at least until today, China has maintained a hard line on the issue, indicating that as part of its deleveraging program it would risk a controlled default detonation, in order to realign China’s credit conduits even though such default would symbolically coincide with the first day of the Chinese New Year.

In turn, virtually every sellside desk has issued notes and papers advising what this event would mean (“don’t panic, here’s a towel”, and “all shall be well”), and is holding conference calls with clients to put their mind at ease in the increasingly likely scenario that there is indeed a historic “first” default for a country in which such events have previously been prohibited. Continue reading

America Days Away from Default…Obama Making Sandwichs

It’s as if The Onion is now writing the headlines but this is courtesy of The Huffington Post. While America is teetering on default and descending the world into a slam dunk depression, Obama is making sarneys.

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For shits, giggles and all you breaking bad fans out there, there is a Walter White in Obama….

Heroin from Afghanistan – check

Cocaine from South America courtesy of the Sinoloa Cartel – check

Crystal Meth of 90% purity provided by said cartel – check

SSRI’s, opiates, and more pharmaceutical lovelies – check

Yes we Can

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THE COMEX WAREHOUSE STOCK REPORT FRAUD CLARIFIED

As mentioned here the Crimex or Comex as its officially known, is covering itself for a default when the metal that is meant to be there, is there no longer. Here is the full article from Truth in Gold:

I realized after assessing some comments posted on my Tuesday blog post about the fraud going on at the Comex that I did not articulate a key point about the credibility of bank financial reporting. It seems that there is still a contingency of people who are willing to believe that if a bank issues an accounting report, it must be valid.

Let me preface this clarification post by saying that given the long laundry list of charged and prosecuted high profile fraud cases against all of the big banks, I just assumed that everyone understood that banks can not be trusted at all. Here’s my Golden Rule: banks can not be trusted at all. Fool me once, shame on you; fool me twice, shame on me; fool me three times, I’m a moron. Got it?

With that in mind let me clarify how the Comex warehouse gold and silver stock reports are produced. Each bank that operates a Comex vault is responsible for keeping and maintaining all accounting records in connection with operating their vault. This means that all of the reports and data that the CME uses to produce its warehouse stock reports come from the banks themselves. They are paper accounting records the bank produces and sends to the bean counters at the CME. There is no actual independent audit of the reports OR of the bars themselves that are reported to be held in each bank vault. Everything the CME publishes is based on what is reported from the banks. Do you still trust these reports? If you do, re-read my Golden Rule.

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Please DO NOT CONFUSE the reliability of paper records and the reliability of any bank not acting fraudulently with regard to those paper claims with actual physical gold that is sitting in an allocated account and bars for which the rightful owner has legal entitlement. Paper is NOT to be trusted – in any form.

A large portion of the gold that is being reported by the Comex vault operators is likely not really there to be reported. Now, “not being there” could well mean that there is a lease-claim attached to it or some other form of hypothecation. Just because bars are sitting physically in “registered” or “eligible” accounts does not mean that the intended owner of that bar has a legal entitlement to that bar.

Review the laws connected with short-selling and hypothecation. When an asset is sold short or hypothecated, the original holder of that asset unknowingly loses legal title to it. The fact that the legal department at the CME now requires a disclaimer about the bank reports that are used to produce the Comex warehouse gold and silver stock should tell us all we need to know about the nature of those bank reports, especially when considered in the context of all of the other fraud that banks have been involved in over the last couple decades.

Now, I also believe – per the recent 35% drain of gold inventory from the Comex – that a lot of the bars have been physically removed upon demand by entitled owners. By “entitled,” I mean the party who possess the legal title to the bars. The disclaimer was added to the inventory report as an attempt to exonerate the CME from the legal liability of fraudulent reporting by the vault operators, who are responsible for the record-keeping and accounting and reporting of the bar inventory that is supposed to be in their vaults. Moreover, a high percentage of the gold that remains in the Comex vaults has likely been leased out or hypothecated. In other words, the financial reports from the banks do not legally present the actual amount of gold or silver in Comex vaults that can be immediately removed upon demand by the original intended owner. Think this is far-fetched? Explain why the Bundesbank demanded some of Germany’s gold to be shipped back to Germany and the Fed requires 7 years to ship back just 300 tonnes of Germany’s 1800 tonnes supposedly sitting in the Fed’s NY vault? (Please note that Venezuela was able to have 200 tonnes of its gold shipped back to Venezuela within about 4 months).

This is the same kind of situation with GLD. Same wine, different bottle.

Now as far as Comex bar quality standards, not only am I well aware of the criterion and rules, but we have taken delivery of both gold and silver bars FROM the Comex. I am experienced in the entire process from start to finish.

This is also why I DO NOT trust the Comex reports. Back in April 2010, we took delivery and were given notice by HSBC for several silver bars. BY THE RULES, HSBC was required to deliver the bars to our possession by April 30, the last delivery day. They are given 3 days of leeway. Not only did we NOT receive the bars within the legal time frame, it took 7 full weeks for HSBC to make good on the delivery. If our fund was a lot bigger and we could have reasonably afforded the litigation, we would have gone after HSBC for breach and damages.

Moreover, during 2010, HSBC changed its delivery policy for off-Comex deliveries, making it more cumbersome and more expensive to get bars delivered to your possession from their vault.

Need I remind you that HSBC has recently been charged in several fraudulent banking activities AND convicted on a couple. They are connected to the recent HKMex gold scandal in Honk Kong, as well.

This clarification is to explain exactly why bank-produced paper reports at the Comex are more than likely riddled with fraud and it clarifies the difference between owning physical gold in your own possession vs. owning a paper claim on gold sitting somewhere else and a claim which can be hypothecated such that you actually lose legal entitlement to that underlying asset. The Comex is just as fraudulent as Enron, Refco, Amaranth, AIG, etc. Capito?