Saturday, September 10, 2011

Gold withstands massive attack/ Global Bourses falter

Good morning Ladies and Gentlemen:

Before commencing with my commentary, I would like to announce that we have added one bank to our failed list as this bank entered the morgue last night courtesy of the FDIC guillotine:

First National Bank of Florida,  Milton Florida.
May they rest in peace.

Gold closed the comex session at $1856.40 for a gain of $2.00.  Silver faltered to the tune of 91 cents to $41.56.

The price of gold as I promised you on Thursday night would be extremely volatile and I did not disappoint you with that.  The morning fix of gold at 3 am Friday morning was $1879.50.  It hit its zenith at over $1880.00 a few minutes before that.  It then began to swoon and hit its nadir at around 6 am at 1822.30.  It then started its assault again rising to 1851.50 which became the afternoon London fix.  Another wave of selling brought gold to around $1840 when our gold bugs again took charge and gold never looked back.  It finished the comex session at $1856.40 and in the access market it gained another $2.00 to close out the gold book at $1858.60. It seems the entire planet was aware of the gold manipulation including Goldman Sachs
who are now long in gold as they have not been shy commenting on the manipulation of gold by authorities.
Silver was hit because of its label as an industrial metal.  The Dow suffered a big loss of over 303 points.(2.69%)

Here are the losses of the other major bourses:
1.  The German Dax:  down 218 points or 4.08%
2.  The London FTSE down  77.92 points or 2.76%
3.  The French CAC  down 121.24 points or 3.6%
4. Belgium stock Index  down 70.97 points or 3.24%
5. Japanese Nikkei down 55.46 or .65%

Europe was whacked across the board as rumours spread that Greece might fail this weekend.
We will explore those major stories later in the commentary.  First let us head over to the comex and see how trading fared yesterday.

The total gold comex open interest fell by 3000 contracts to 514,198 from Thursday's reading of 517,132.
Since gold was on a tear on Thursday we must have had some bankers cover a small fraction of their shorts.  The bankers are getting very desperate as the price of gold continues to rise and the losses to the banks mount.  The front options expiry month of September saw its OI fall from 549 to 221 for a loss of 328 contracts.  We had 342 deliveries yesterday so again we lost no gold to cash settlements and we gained some more gold standing.  This has happened for the last 4 days and it definitely shows that the name of the game is physical gold.  The next delivery month is October which is 3 weeks away from first day notice.  Here the OI fell by about 1500 contracts to close out the week at 33,007 OI contracts.  The big December contract will no doubt will be the ultimate battle royale for physical gold and silver.  Friday saw the December OI fall from 345,479 to 342,426 with a rising gold price.  The bankers covered some of their big shorts here.  The estimated volume at the gold comex was very high at 259,854 as Friday saw the bankers throw everything at the gold complex and fail.
The confirmed volume on Thursday, with the huge rise on that day in the gold price saw its reading of 233,695 which is also extremely high.

The total silver comex OI continues again in a narrow channel.  Today the OI registered a gain of around 1000 contracts to 113,213 with the big rise in silver.  The bankers again decided that the arena was too steamy for them and they covered some of their shorts.  They are beginning to realize that the holders of the silver contracts are all in strong hands and it would be difficult to shake the silver leaves from the tree.
However that did not stop them from trying yesterday.  The big December OI contract rose by a tiny 300 contracts.  Now please try and understand this next data point:  the estimated volume at the silver comex yesterday was a paltry 36,912 with the big rise in rise.  You see here that the bankers could not supply or refused to supply any more silver paper short. The confirmed volume on Thursday was also quite low at 38,993.

Inventory Movements and Delivery Notices for Gold: Sept 10.2011: 

Withdrawals from Dealers Inventory in oz
Withdrawals fromCustomer Inventory in oz
2400 (Brinks)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
3200 (32)
No of oz to be served (notices)
18,700  (187)
Total monthly oz gold served (contracts) so far this month
236,300 (2363)
Total accumulative withdrawal of gold from the Dealers inventory this month
98 oz
Total accumulative withdrawal of gold from the Customer inventory this month
43,191 oz

again we had no gold deposited to the dealer as well as no withdrawals by the dealer.
We did have another of our exact round number of deposit to the customer to the tune of 2400.00 oz of
gold and the vault was of course, Brinks which seems to be the only vault that handles
 these exact weights of gold.

We also had an adjustment of 2693 oz of gold whereby the dealer repaid gold back to a customer.

Thus the registered or dealer gold falls to 1.848 million oz.

The CME notified us that we had delivery notices of 32 contracts or 3200 oz of gold.
The total number of gold notices filed so far this month total 2363 for 236300 oz.
To obtain what is left to be served upon, I take the OI standing (221) and subtract out Friday's deliveries (32)
which leaves me with 189 notices or 18900 oz left to be served upon.

Thus the total number of gold oz standing in this non delivery month is as follows:

236,300 oz  (served)  +  18,900 (oz to be served)  =  255,200 oz or 7.937 tonnes.
we gained 1200 oz from yesterday standing.

And now for silver 

First the chart:

Withdrawals from Dealers Inventorynil
Withdrawals fromCustomer Inventory1,134,791(Brinks,Scotia,Delaware)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory3077 oz (Delaware)
No of oz served (contracts)  5,000 (1)
No of oz to be served (notices)3,070,000 (614)
Total monthly oz silver served (contracts)5,045,000 (1009)
Total accumulative withdrawal of silver from the Dealersinventory this month34,963
Total accumulative withdrawal of silver from the Customerinventory this month

oh my goodness, did we get violent activity in the silver vaults today.
However the dealer was again left out of the action.  There were no dealer deposits
and no dealer withdrawals.

The customer  had a single deposit of 3077 oz into a Delaware vault.

However quite a few customers decided it was necessary to vacate the official vaults at the silver comex:

The total withdrawal by the customer totaled 1,334,791 and here is the summary of those transactions:

1.  715,358 out of Brinks.

2.  24,511 oz out of Delaware

3.  594,922 oz out of Scotia

total withdrawal:  1,334,791 oz

We also had an adjustment of 4994 oz where a customer leased silver to a dealer.
Also we had an accounting error of 4 oz removed from JPMorgan.
The total registered silver remains at 32.048 million oz
The total of all silver lowers to 103,030 oz.

The CME notified us that we got a biggy one contract served upon our longs for a total of 5000 oz
The total number of notices filed for the month now total  1009 for 5,045,000 oz
To obtain what is left to be served, I take the OI standing (615) and subtract out Friday's deliveries (1)
which leaves me with 614 or 3,070,000 oz left to be served upon.

Thus the total number of silver oz standing in this delivery month is as follows:

5,045,000 (served)  +  3,070,000 (oz to be served)  =  8,115,000 oz
we had 8,515,000 oz standing on Thursday so we lost 400,000 oz to cash settlements yesterday.
Blythe is having so much fun handing out fiat bonuses to longs.

Late last night the CME notified us on the deliveries for Monday:

Gold:  56 notices for 5600 oz  (there were 189 contracts standing as of Friday evening)
Silver:  again another biggy:  1 notice or 5000 oz  (there were 614 notices or 3,070,000 oz standing on Friday evening)


Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:

Sprott and Central Fund of Canada.

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.

 GLD inventory changes: Sept 10.2011:

Total Gold in Trust

Tonnes: 1,241.92
Value US$:

Total Gold in Trust:  Sept 8.2011:

Tonnes: 1,231.41
Value US$:

Sept 07.2011 total gold in trust:

Tonnes: 1,232.31
Value US$:

The demand for gold was fierce as 10.51 tonnes was added to the GLD's.  

This was done by way of a swap with the Bank of England who "shipped" the gold to the GLD management in exchange for cash.  The gold moved from one cubby hole at the B. of E. to another.  However the Bank can reswap this transaction at any time and recall their gold as demand for physical gold to be repatriated to foreign shores intensifies similar to what we have seen with Venezuela.  The shareholders will only receive back paper dollars on the reswap and  will

thus not share in the rise in the price of gold. Lawsuits will start flying which no doubt will bring down the LBMA, then the B. of England as the gold in possession of the B. of E is not really theirs but on deposit by wealthy people like Arab sheiks etc.


Now let us see inventory movements in the SLV: Sept 10:2011

Ounces of Silver in Trust316,597,277.300
Tonnes of Silver in Trust Tonnes of Silver in Trust9,847.28

Sept 8.2011:

Ounces of Silver in Trust316,840,752.300
Tonnes of Silver in Trust Tonnes of Silver in Trust9,854.85

Sept  07.2011:
Ounces of Silver in Trust314,503,353.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,782.15
today we lost 243,000  oz of paper silver  from the SLV which probably settles contracts with paper at the comex.

1. Central Fund of Canada: it is trading at a negative 0.1 percent to NAV in usa funds and a negative 0.2% in NAV for Cdn funds. ( sept 10.2011).
2. Sprott silver fund (PSLV): Premium to NAV stayed at a positive 21.17% to NAV sept 10.2011
3. Sprott gold fund (PHYS): premium to NAV fell slightly to a 4.37% to NAV sept 10.2011).

Please note that the central fund of canada again was attacked by our doorknob bankers.
The Sprott silver fund commands a huge premium of 21.17% to its NAV as the bankers refuse to attack Eric and his precious metals funds.
Note: the steady  NAV premium in the gold Sprott.  


Friday night saw the release of the COT report and it was a little surprising.

First the gold COT:

Gold COT Report - Futures
Large Speculators
Change from Prior Reporting Period

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Gold Report - Positions as of
Tuesday, September 06, 2011

Let us see first the gold COT.
Our large speculators that have been long in gold saw the landscape of world finances and jumped into the fray with both feet as they added a huge 11,227 contracts to their longs.
Those large speculators that have been short in gold, succumbed to the bankers folly and added another 3,803 contracts to their short positions and these guys are crying the blues this weekend. They are sweating bullets.

And now for our commercials:

Those commercials that are long in gold did not see the tea-leaves properly as they covered 2375 contracts
of their longs.

And now for our famous commercials that have been perennially short gold from the beginning of time like JPMorgan and cohorts:

they added surprisingly 7984 contracts to the shorts.  These guys were providing the paper.

The small specs that were long in gold read the tea-leaves properly and added 3520 contracts to their longs.
The small specs that have been short in gold added a tiny 585 contracts to their shorts.

Please remember that all COT reports are from Tuesday to Tuesday. This report  ends Sept 06.2011


the bankers are supplying the paper at higher and higher prices which becomes very scary for them especially if London is on the verge of defaulting on physical requests for repatriation.

and now for our silver COT:

Silver COT Report - Futures
Large Speculators

Small Speculators

Open Interest



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, September 06, 2011

Here those speculators that have been long in silver added a smallish 648 contracts to their positions.  This would be normal as silver has such huge margin constraints on them.
Those large speculators that have been short in silver added a tiny 284 contracts to their shorts and these guys are not happy campers this weekend.
And now for our commercials:

Those large commercials who have been long in silver and are close to the physical scene covered a large 1,381 contracts of their longs.  This could also been are short bankers who buy a long contract in another future month which is the same as covering for them.

And now for our commercials that are always short in silver:  these guys were quite timid in providing the paper as they only increased their shorts by 777 contracts.
The smalls specs are finally getting their feet wet in silver.  They must be careful dealing with the crooked bankers.

The small specs that have been short silver added 478 contracts to their short side.
The small specs that have been long added a large 2272 contracts to their long side. 

Conclusion:  more bullish than the gold COT.
The silver comex is becoming strictly a physical market due to the high margin requirements.
This is why the OI remains in a narrow channel of around 111,000-113,000 and the holders of the longs are very strong.


Let us now see some of the major stories of yesterday that shapes the price of gold and silver.
This startled Europe yesterday and sent all bourses to their nadir as this is the second German banker to leave the ECB after Axel Weber.  He opposes the huge purchases of bonds of the PIIGS countries:  (courtesy Bloomberg)

ECB Dealt Blow as Executive Board Member Stark Resigns Before End of Term


Juergen Stark resigned from the European Central Bank’s Executive Board after protesting the bank’s bond purchases on a conference call earlier this week, said a euro-area central bank official familiar with the meeting.
During the Sept. 4 call, Stark, 63, expressed his strong opposition to the program, which was expanded last month when the ECB started buying Italian and Spanish bonds, said the official, who spoke on condition of anonymity because the discussions are confidential. Stark was supported by the central banks of Austria and the Netherlands, the person said. The resignation of Stark, the ECB’s chief economist, is a blow to the bank, the official said, noting he is the second German ECB member after Axel Weber to leave over the bond program.
Stark’s resignation, less than two months before President Jean-Claude Trichet’s term ends, suggests policy makers are increasingly split over the best way to fight Europe’s debt crisis. The ECB’s bond purchases have also been opposed by Bundesbank President Jens Weidmann and his predecessor Weber, who earlier this year pulled out of the running to succeed Trichet.
“There is quite a severe row going on,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. “It seems that it went too far.”

‘Personal Reasons’

The euro extended its decline after news of Stark’s possible resignation was first published. It traded at $1.3662 at 5:37 p.m. in Frankfurt, down 1.6 percent on the day.
Stark today informed Trichet that, “for personal reasons, he will resign from his position,” the Frankfurt-based ECB said in a statement. “Stark will stay on in his current position until a successor is appointed, which, according to the appointment procedure, will be by the end of this year.”
The German government will nominate Deputy Finance Minister Joerg Asmussen to replace Stark on the ECB’s six-member board, Germany’s N-TV reported, without saying where it got the information.
The ECB, which started its bond program in May last year when Greece’s fiscal crisis began to spread to other euro-area countries, has so far spent 129 billion euros ($176 billion) on the bonds of distressed governments in an attempt to lower their yields. While the ECB says it is trying to ensure the transmission of its interest rates, Stark told Bloomberg News on Aug. 18 that the purchases blur the line between monetary and fiscal policy.

No ‘Glowing Advocate’

“It’s generally known that I’m not a glowing advocate of these purchases,” Stark said. “I see the rationale. Our accommodative monetary policy isn’t being transmitted in certain regions. So it’s justifiable from a policy point of view. But there’s an important point -- we are also reducing interest rates for the sovereign. That’s where the problem is.”
Stark’s eight-year term was due to end on May 31, 2014. When he and Trichet depart, half of the ECB’s board will be new. Belgium’s Peter Praet joined in June. Bank of Italy Governor Mario Draghi will take the ECB’s helm on Nov. 1.
Trichet yesterday said the central bank has cut its growth forecasts for this year and next and reduced its assessment of inflation risks, opening the door for further stimulus measures. Stark is one of the ECB’s most ardent inflation fighters.
“Things do not look too good from outside, with a second German leaving the Governing Council to openly criticize the ECB after Weber,” said Laurent Bilke, a former ECB economist now working at Nomura International in London. “Good luck to Mario Draghi.”
To contact the reporters on this story: Matthew Brockett in Frankfurt; Jeffrey Black in Frankfurt at


The news caused the Euro to plummet and it finished at 1.36493 to the dollar on fears that Greece may default as early as this weekend.  (courtesy Bloomberg)

Euro Falls Most in a Year on Greek Financial Distress, ECB; Dollar Surges

The euro had its biggest loss against the dollar in more than a year on speculation the European Central Bank will cut interest rates amid record Greek bond yields and the region’s deepening debt crisis.
The franc posted the largest weekly decline against the euro since the shared currency was introduced in 1999 after the Swiss National Bankimposed a 1.20 ceiling on the currency. The Dollar Index rallied to its strongest weekly result in 13 months as investors sought safety, pushing yields on the 10-year note to a record low before the Federal Reserve holds a policy meeting Sept. 20 and 21.
“The momentum on the weaker euro trend is set to accelerate,” said Ken Dickson, investment director of currencies at Standard Life Investments in Edinburgh, with more than $250 billion under management. “The solutions coming out of Europe are not working and not helping the periphery or the bond markets to stabilize.”
The euro fell 3.9 percent to $1.3656, from $1.4205 on Sept. 2, the biggest weekly drop since July 12, 2010. The shared currency fell 2.9 percent versus the yen to 105.99 from 109.11.
Dickson said he expects the euro to fall to $1.34 during the next few weeks with potential to slump to $1.30 by the end of the year.
The dollar rose for the third week against the Japanese currency, strengthening 1.1 percent to 77.61, from 76.80.

Tumbling Franc

The franc had the biggest intraday loss ever against the euro on Sept. 6, falling as much as 8.7 percent after the nation’s central bank said it would defend the 1.20 ceiling with the “utmost determination.”
The Swiss currency is still the best performer this year among a basket of the currencies of 10 developed markets, appreciating 3.1 percent, according to Bloomberg Correlation- Weighted Currency Indexes. The dollar was the worst performing currency, losing 3.2 percent.
“In circumstances of a continued crisis in the euro zone, we believe that the SNB may be required to purchase foreign currency of between $500 billion and $1 trillion,” Derek Halpenny, European head of currency research at Bank of Tokyo- Misubishi UFJ Ltd. in London, wrote to clients.
Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, estimated the central bank may absorb 200 billion euros ($273 billion) in two months to defend the peg, during a conference call to clients.

Dollar Gains

The dollar rose against all 16 of its most-traded counterparts after President Barack Obama detailed his $447 billion plan to boost hiring in a Sept. 8 address to Congress. The U.S. economy slowed to 1 percent annual growth rate in the second quarter and the unemployment remains at 9.1 percent in August.
The Dollar Index, which tracks the greenback versus the currencies of six U.S. trading partners, rose 3.3 percent to 77.199 from 74.756, the biggest weekly gain since October 2008.
The yen strengthened against most of its major peers as Group of Seven finance ministers and central bankers met today and yesterday in Marseille, France.
“We’re very concerned about excessive yen gains and I want to clearly state that we are watching speculative movements with great interest”, Japan’s Finance Minister Jun Azumi told reporters in Tokyo Sept. 6.

Japan Policy

The Bank of Japan kept monetary policy unchanged Sept.7 and said it would gauge the effects of adding 10 trillion yen ($130 billion) stimulus last month on the yen near a postwar high.
Norway’s krone reached an eight-year high against the euro and the Swedish krona advanced as investors sought alternatives to the franc.
“In light of the move of the SNB to intervene against Swiss, the number of available safe havens has diminished, and that is a negative for the euro against other currencies,” said Aroop Chatterjee, a currency strategist in New York at Barclays Plc in New York. “Investors will be looking to sell the euro against the dollar and the more stable European currencies such as the Norwegian krone and Swedish krona.”
Riksbank only “slightly” cut its guidance for future increases in interest rates on Sept. 7 while signaling it may raise the benchmark next quarter.
The krone rose 1.2 percent to 7.5743 per euro, from 7.6676. It touched 7.4887 on Sept. 7, the strongest since May 2003. Sweden’s krona jumped 1.6 percent to 8.9316 against the euro from 9.0736.

ECB Update

The euro had its biggest intraday loss in a month against the dollar on Sept. 8, tumbling 1.6 percent, after European Central Bank President Jean-Claude Trichet said “downside risks” to the region’s economy have intensified.
The ECB left its benchmark rate at 1.5 percent and cut its 2011 and 2012 growth forecasts at the Sept. 8 policy meeting in Frankfurt. The implied yield on Euribor futures for June slid four basis points to 0.98 percent on Sept. 9, showing traders were adding to wagers for lower borrowing costs.
“The direction of euro-zone risks on the cyclical and financial stability fronts mean it is only a matter of time before the ECB is forced to ease policy, which is likely to happen via an expanded balance sheet and a lower deposit rate over the coming months,” said Lena Komileva, global head of G- 10 strategy in London at Brown Brothers Harriman & Co.

Euro Sales

Axel Merk, president and chief investment officer at Merk Investments LLC, said his firm sold $90 million of euros yesterday after European Central Bank President Jean-Claude Trichet took a “more dovish tone.” Merk Investments manages more than $700 million in assets and runs the Merk Hard Currency Fund. Merk disclosed the sale in a note Sept. 9.
The euro traded at less than its 200-day moving average on Sept. 8, falling below $1.37 for the first time since Feb. 23 yesterday, as credit-default swaps showing a more than 90 percent probability that Greece won’t meet its debt commitments.
Two-year German yields fell to a record 0.385 percent and Greek debt yields reached record highs yesterday.
Greece is relying on a sixth payment of 8 billion euros in international bailout loans that had been scheduled to be paid this month. European Union Economic and Monetary Affairs Commissioner Olli Rehn said Sept. 7 he expects a decision by the EU and the IMF on the next quarterly tranche in coming weeks and “trusts” Greece will meet the necessary budget austerity conditions.

‘Periphery Concern’

“Whenever there are things like ‘Greece is not doing enough’ is said, that is when people get the most scared because of a possibility they may not get the next tranche of aid,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “Periphery concern has continued to be the overarching theme.”
Futures traders increased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 36,443 on Sept. 6, compared with net shorts of 384 a week earlier.
To contact the reporters on this story: Allison Bennett in New York;
To contact the editor responsible for this story: Dave Liedtka at

Here is the Dow Jones newswire report on the potential default of Greece this weekend:
11:14 Greece denies talk of weekend default plans -- Dow Jones citing Greek Finance Minister * The comment follows a number of circulating rumors that Greece may default as early as this week-end as Bond yields continue to rise sharply.* CNBC also reported a denial of the rumor about a half hour ago. 

This story scared the delights out of everyone as the realization that Greece will fail finally hit home. The problem of a default will be the huge losses for the French and German banks and the massive credit default swaps written upon them.  

(courtesy Bloomberg)

Germany Said to Ready Plan to Help Banks If Greece Defaults

Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.
The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.
The existence of a “Plan B” underscores German concerns thatGreece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.
Greece is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, “it’s up to Greece to figure out how to get financing without the euro zone’s help,” he later said in a speech to parliament.
Schaeuble travelled to a meeting of central bankers and finance ministers from the Group of Seven nations in Marseille, France, today as they face calls to boost growth amid increasing threats fromEurope’s debt crisis and a slowing global recovery.

Progress Report

The German government is awaiting the results of the Greek progress report and will decide what course of action then, a government spokesman said, speaking on customary condition of anonymity.
European bank credit risk surged to an all-time high today and stocks fell worldwide on concern that the debt crisis is escalating. German two-year yields declined to a record as investors sought a haven and Greek two-year note yields added as much as 86 basis points to 55.91 percent, a euro-era record.
Credit-default swaps insuring Greek sovereign bonds jumped 212 basis points to a record 3,238, according to CMA. The five- year contracts signal there’s a 92 percent probability the country won’t meet its debt commitments.
“Countries must act now and act boldly to steer their economies through this dangerous new phase of the recovery,” International Monetary Fund Managing Director Christine Lagarde said in a speech in London today. “We must not underestimate the risks of a further spread of economic weakness or even a debilitating liquidity crisis,” she said. “That is why action is needed urgently so banks can return to the business of financing economic activity.”

Barroso Meeting

Merkel, who is due to discuss the crisis with European Commission President Jose Barroso in Berlin on Sept. 12, is battling to secure a majority among her coalition bloc to push an overhaul of the European Financial Stability Facility through the lower house of parliament on Sept. 29. The changes would give the EFSF the power to buy bonds in the secondary market, raising German guarantees to 211 billion euros ($290 billion) from 123 billion euros.
Longer term, euro countries will “only preserve the common currency if there is more integration” in the European Union, Merkel said in a speech in Berlin today. The EU “won’t be able to avoid treaty change.” While intensive discussions lie ahead and the path won’t be easy, policy makers “shouldn’t be afraid” of tackling the challenge, she said.
Policy makers in Europe “are moving,” U.S. Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview from the G-7 in Marseille. “But I think they’re going to have to demonstrate to the world they have enough political will.”
To contact the reporter on this story: Alan Crawford in Berlin at
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.

On Thursday night, Obama's long awaited speech on how he was going to fix the huge unemployment picture surprised many with a much larger stimulus plan that previously thought.
Here is the GoldenTruth's commentary on this QEIII proposal:


You Can't Be Serious

We have a monetary system that is accountable to no one and that’s a very good start. If you think about it, the way that the monetary system is structured, the government at this point can literally spend money on anything. They talk about capping the federal deficits and all that, but they’ll get past that in no time at all.
That quote is from a must-read interview:  LINK  Please read this so you are not just hearing this truth from people like me.

I didn't bother watching The Big Speech last night, mainly because I had a competitive tennis match (which I won) but I would have found something otherwise productive or value-added to do with my life in lieu of watching a snake-oil salesman get in front of the nation and put out a program of massive Government spending that is nothing more than an enormous attempt to buy votes from what is now his largest constituency:  the rapidly growing and large segment of the population that is dependent on direct Government transfer payments.

For anyone not familiar with the details of the prosposed "stimulus" program, a good summary can be found HERE (Link)  The most ABSURD idea is his proposal to spend $105 billion on school modernization, transportation projects and vacant land rehabilitation.  Vacant land rehabilitation?

To be sure some of the ideas are based in good intent (I guess).  Like updating schools and keeping teachers to work.  But these are the luxuries of a country that can easily afford programs like that.  Not the vote-buying effort of the failing President of a country with spending deficits and debt obligations that are beyond manageable and growing everyday - at an accelerating rate.   Vacant land rehabilitation?

The proposed spending cut "off-sets," which is the part that Obama promises will "off-set" the cost of the Government's funding of his massive proposal, would occur over the next decade.  Quite honestly, it takes brass balls for someone who just transferred $500 million of Taxpayer money to the failed solar company of a wealthy campaign contributor to get up in front of the American public and ask them to believe in the tooth fairy. Seriously.

There is no easy fix to our country's ongoing systemic failure.  I have said for many years that we need a financial and political "do over."  The former would entail figuring out a way to "re-set" the nation's debt-balance to zero, which will unfortunately require a massive decline in the standard of living for everyone but the most wealthy (those with enough ready-cash to own their own Congressman or President - Buffet, for example).  This will never happen without one big systemic collapse.  And a political "do over?"  Unfortunately, if put to the test of human history, these never happen without a revolution or war.

To end with a note of humor, I thought I would put in a video link to what it was probably like for Obama to learn about the business of Wall Street after he was elected, since he had absolutely no real world work experience in his entire life:

Have a great weekend!

This weekend the G7 are meeting.  Here is zero hedges summary of what was said:

Here Comes The Non-Boring Weekend: G7 Says "Central Banks Ready To Provide Liquidity As Required"

Tyler Durden's picture

The G-7 is in full panic mode. The organization for the prevention of harm to the Status Quo was expected to release a communique possibly over the weekend, but the speed with which one was dropped for mass circulation is stunning and confirms that its members are in full meltdown as the weekend comes. It is now certain that the G-7 will attempt some major intervention over the next 48 hours to inject a last dose of hope into capital markets, or else the Monday open will be an epic collapse.
G-7 Statement on Tackling Slowdown, Supporting Banks
“We met at a time of new challenges to global economic recovery, with significant challenges to growth, fiscal deficits and sovereign debt, stemming from past accumulated imbalances.
This is reflected in heightened tensions in financial markets.
There are now clear signs of a slowdown in global growth. We are committed to a strong and coordinated international response to these challenges.
“We are taking strong actions to maintain financial stability, restore confidence and support growth. In the U.S., President Obama has put forward a significant package to strengthen growth and employment through public investments, tax incentives and targeted job measures, combined with fiscal reforms designed to restore fiscal sustainability over the medium term. Euro area countries are implementing the decisions taken on July 21 to address financial tensions, notably through theflexibilization of the EFSF, reaffirming their inflexible determination to honor fully their own individual sovereign signatures and their commitments to sustainable fiscal conditions and structure reforms. Japan is implementing substantial fiscal measures for reconstruction from the earthquake while ensuring the commitment to medium-term fiscal consolidation.
“Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth. We must all set out and implement ambitious and growth-friendly fiscal consolidation plans rooted within credible fiscal frameworks.
Fiscal policy faces a delicate balancing act. Given the still fragile nature of the recovery, we must tread the difficult path of achieving fiscal adjustment plans while supporting economic activity, taking into account different national circumstances.
“Monetary policies will maintain price stability and continue to support economic recovery. Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets. In this context we reaffirm our commitment to implement fully Basel III.
“We reaffirmed our shared interest in a strong and stable international financial system, and our support for market- determined exchange rates. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate.
“We look forward to working with our colleagues in the G20 and the IMF in the coming weeks to rebalance demand and strengthen global growth. As previously agreed, structural reforms will make an important contribution in this regard.”

Translation: the great experiment in encroaching statism, failed monetary policy and central planning continues... Until imminent failure.

And select soundbites of last ditch desperation courtesy of Reuters:

"The G7 reaffirmed its comittment to safeguarding the solidity of sovereign ratings."
"We have to get away from the idea there is only one solution for all... It's not rigour versus growth."
"It was a G7 where everything was raised. There was no dead time."
"There is an extreme tension on the markets, what's important is that very strong measures are taken by governments concerned."
"It was really a meeting of great cohesion and force. There was a determination by everyone to meet challenges."
"The G7 sees a need for a concerted effort at global level in support of strong, sustainable and balanced growth.
"We must all set out and implement ambitious and growth-friendly fiscal consolidation plans rooted within credible frameworks.
"The G7 affirmed its interest in a strong, stable international financial system."
"It is completely within the capacity of the stronger members of the euro area to absorb those costs. Those costs would be much, much greater for them and their economies if they sit here and do nothing and they recognize that."
"I hope we would all agree we have to stay the course, that we have to go through the pain of fiscal consolidation. It's not easy, it creates stresses in some countries, but it's necessary, we have to get through this rough patch.
"There's no point kicking the can down the road. If we don't deal with it now we'll have to deal with it later and we know that these problems do not get better with the passage of time."
"We support the United States in its work so that the U.S. recovery can continue, while in Europe we have our own challenges related to fiscal consolidation and restoring confidence in the European economy."
On bank funding:
"Solutions should be found from private markets, from private investors and if that is not is possible there should be national backstops in place to ensure recapitalisations or restructuring for these banks."

Christine Lagarde of the IMF urges bold action on the global front:

IMF's Christine Lagarde urges global action as G7 meet

International Monetary Fund chief Christine Lagarde has urged "bold action" on the faltering world economy, as the G7 group of leading economies met for talks in Marseille.

Below is her speech on why global stimulus is necessary:
The G7 is discussing a "coordinated response" to the economic turmoil.
The two-day meeting comes as the Organisation for Economic Co-operation and Development (OECD) predicted a global slowdown this year.
Europe is also struggling with a sovereign debt crisis.
"The key message I wish to convey today [Friday] is that countries must act now - and act boldly - to steer their economies through this dangerous new phase of the recovery," Ms Lagarde said in London, before flying to the G7 meeting.
She also praised President Barack Obama's new $450bn (£282bn) jobs plan to try to boost the world's largest economy.
"All this is happening at a time when the scope for policy action is considerably narrower than when the crisis first erupted," she said. "But while the policy options may be fewer, there is a path to recovery."
'Credible' plans

Start Quote

It should probably be a matter of national pride that investors now apparently have more confidence when lending to the UK as a sovereign than to Germany.”
Speaking at the same event in London before leaving for the G7 talks, Chancellor George Osborne vowed to stick to the UK's deficit reduction plan - which has so far helped the UK avoid the kind of bond market turmoil seen in the eurozone.
"It is the rock of stability on which our economy is built," he said.
The IMF chief praised the UK's plans - with several caveats.
"Since the summer, the outlook has become more subdued - including in the rest of Europe and the United States, the UK's major trading partners. So risk levels are rising," she said.
Chancellor George Osborne: "The plan is the rock of stability upon which our recovery is built"
"The policy stance remains appropriate, but this heightened risk means a heightened readiness to respond - particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment."
In response, Labour's Ed Balls again argued for temporary tax cuts to help kick-start the economy.
"While George Osborne insists there can never be a change of course and we must plough on regardless, Christine Lagarde rightly warns ministers will need to act if slow growth and high unemployment continues," the shadow chancellor said.
Rocky road ahead
No communique will be issued after the talks in Marseille, according to French Finance Minister Francois Baroin.
Earlier, Japanese Finance Minister Jun Azumi said he would explain his nation's intervention to stem the increase in its currency, which has hurt its exporters.
"Japan's economy has been steadily recovering, but I'm concerned that it is showing some signs of downturn due to the yen's rise," Mr Azumi said.
"I want to share the view that it would be bad for the world economy if Japan's economy faces downturn."
The OECD predicts the G7 economies will grow by just 0.2% in the last three months of the year.
The group also expects 0.3% growth in the UK in the fourth quarter, but said the economy could contract by as much as 1%.
and this commentary from the IMF on the threats to the International Monetary system and the need for members of the IMF to pony up for money to rescue Europe:
(courtesy zero hedge)_

The IMF Proudly Presents.... "Threat To The International Monetary System" Part Three

Tyler Durden's picture

It's that time again when the IMF has just telegraphed something very big and very bad is about to happen. But let's back up, and paraphrase our post from March: "Back in April 2010, before Waddell and Reed sold a few shares of ES, effectively destroying the market on news that Europe was insolvent, we made the following observation: "The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion." Little did we know that our conclusion "something big must be coming" would prove spot on just a month later after Greece, then Ireland, then Portgual, and soon Spain, Italy, Belgium, and pretty much all other European countries would topple like dominoes tethered together by a flawed monetary regime. Well, based on news from Dow Jones we can now safely predict the following: "something bigger must be coming." The specific reason for this prediction was the following: "the International Monetary Fund is expected to soon activate a special funding pool that will boost the fund's ability to prevent or resolve economic crises." Sure enough something bigger came, and then some: Greece received its second bailout package about 4 months later, only to see the entire Eurozone hang by a thread following the political fallout that has since ensued. Well, it is time to shift from the comparative to the superlative: "something biggest must be coming."
According to Dow Jones the "International Monetary Fund will likely re-activate a $580 billion resource pool in coming weeks to ensure it has funds to help cover Europe's worsening sovereign-debt crisis, according to several people close to the matter." Why is this a big flashing red light? "According to the IMF, the pool of supplementary resources are only to be activated when "needed to forestall or cope with a threat to the international monetary system." So it is settled: just like on the previous two occasions, the biggest load of feces yet is about to hit the fan. The only real question is: how many trillions will the real global backstopper, China, be forced to match this massive expansion of the former world rescuer with... Also, what comes after "biggest"?
From Dow Jones:
The IMF activated the so-called New Arrangements to Borrow in April of this year for a six-month period. The IMF's board, which met informally on the issue late Friday afternoon, would have to approve re-activation of the resource pool if the fund wants to tap it beyond September.

"A large majority of the board members are in favor of re-activating the NAB," as a precautionary measure, one of the people said. The board is scheduled to formally approve activation next Friday, the person said.

David Lipton, first deputy managing director at the IMF, said recently in a private meeting that keeping the NAB available may be necessary in coming months given Europe's debt meltdown, people familiar with the matter said. The crisis is entering a dangerous new phase as the risk of Greece defaulting rises and Italy and Spain's sovereign debt has come under attack.

Lipton didn't specify whether the facility needed to be tapped for a specific country, the people said. The IMF declined to comment.

According to the IMF, the pool of supplementary resources are only to be activated when "needed to forestall or cope with a threat to the international monetary system." The pool can only be activated by the board after IMF managing director makes a special request.
And while America is guaranteed to foot the bill once again (with China below the US in terms of priority payments despite its much higher cost basis and implicit investment into Europe), it will do so only on a provisional basis - none of the biggest IMF contributors have enacted the formal quota increase. Which means that the US will be stuck in legal limbo when Europe pulls a Greece, collects American cash, and then finds it has no collateral to pay back with.
So far, the IMF has already allocated nearly $7 billion from the NAB. In total, the NAB can provide up to about $580 billion in supplemental resources to the IMF, but only around $331 billion is currently available for use. Based on how much cash the fund can commit to within the next year--around $394 billion--without the special kitty, the IMF would only have around $60 billion on hand.
The special resource base, funded through bilateral loans from countries such as the U.S. and China, was designed as a temporary measure. It is expected to be largely replaced by an agreement late last year by the fund's board of directors to increase quotas, the share of contributions that each member must give to fund IMF lending.
The board of governors agreed in December to roughly double quotas from around $375 billion to around $750 billion. But out of the 187 member countries, only 17 have legally accepted the increase, including Japan, the U.K. and Korea.Most of the countries with the biggest quotas, such as the U.S., China and Germany, haven't yet gone through the legal process, such as parliamentary or congressional approval, need to hand over their promised dues.
There is little we can add here that was not said during one of the two prior massive IMF intervention attempts, both of which predicted a huge global shake up within months.
Which is why we will end this post with the same words we ended the previous iteration in the IMF global rescue series:
"US taxpayers: our condolences."

Now that Germany has passed its constitutional hurdle, today they are facing a new one as the FDP party in Germany seeks a referendum from the German citizens over the EFSF.  The German citizens are over 90% in opposition to the bailouts:
(courtesy zero hedge)

Things In Europe Go From Bad To Worse As Germany's FDP Party Seeks Referendum Over EFSF

Tyler Durden's picture

No sooner has the EFSF "passed" the German constitutional court (with large caveats, most notably that the German government will have a much greater say in any and all future European bailouts, assuming such are actually needed and the Euro does not implode), that we learn that yet another hurdle for the Greek bailout presents itself courtesy of primary fund provider, Germany, which is now finally very angry (as suggested first here "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout#2 Could Cost Up To 56% Of German GDP" two months ago) at what it realizes is an ongoing transfer without checks and balances (remember: the insolvent PIIGS hold all the trump cards) of capital from Europe's prudent workers to those who are, well, not. To wit, according to the Spiegel, German FDP Party has just announced that it will seek a referendum on the ESM/EFSF. What this means is that while the hurdle is not insurmountable from a legal perspective, it will merely add further uncertainty to the final bailout of a country that according to the market at least is 100% bankrupt in an alternative universe in which fundamentals matters.
Several front against the Liberals make permanent euro rescue ESM. With a membership vote, a group wants to prevent the FDP politician Schäffler and stag party for the approval of the aid package.

The Christian Lindner letter reached Friday afternoon by 17 clock by messenger. Since then, should the weekends of the FDP-General to be thrown overboard. In order to prevent the approval of the FDP faction in the Bundestag for permanent euro rescue ESM in the fall, a group aimed at the euro-skeptic Frank Schäffler and the Old Liberals Burkhard Hirsch, a membership vote on. "The discussion in the FDP on more measures to rescue debt-ridden countries in Europe is an important political issue and requires a broad discussion in the FDP," it said in a letter to FDP General Secretary Christian Lindner on Friday. The letter is from SPIEGEL ONLINE.

In a decision that the critics of the euro rescue measures apply to "permanent emergency measures for which Germany is liable for the debts of other European states." It continues: "The FDP opposes hence the establishment of a permanent European Stability Mechanism (ESM)." Should not the previously agreed measures prove to be sufficient, says the FDP in favor of over-indebted countries in an orderly exit from the to allow Euro to avoid a messy break-up of our currency. "

For Chancellor Angela Merkel (CDU) and the FDP, the party leadership is bad news. And it comes at an inopportune time. Just ECB chief economist Juergen Stark has resigned. In addition, the conservative-liberal government is currently fighting for the majority of the extended, temporary rescue EFSF. Now threatens the later vote on the following permanent pilot chute for ESM to be cliffhanger. Lacks the Chancellor with such a central issue in European politics with a majority, it could mean the end for the black-yellow coalition.

Especially since it is not excluded that the Euro-critics with their application be successful. 3,400 signatures have to collect the protesters for the action, which is five percent of about 68,000 FDP members. It provides for the Rules of Procedure. The last and only time the FDP had consulted their members in 1997 when the Great eavesdropping. The party leadership has the opportunity to amend the critics with its own alternative proposal to counter. One-third of the members involved in the decision, the result is official policy position of the FDP. The faction in the Bundestag must vote accordingly.

Initiator of the request is € tireless critic Frank Schäffler. That he is supported by Burkhard Hirsch, a Liberal of the old school, his concerns should give a new impetus. "I'm for Europe. But I am afraid that the way we want to save the euro, it says that we will divide Europe at the end," said Hirsch SPIEGEL ONLINE. "I am against a slide into a debt union. So far, all the billions we have paid to Greece, led to no result."
We expect the market will take the usual several hours to process this.

Finally, I will leave you with this Ambrose Evans-Pritchard article which highlights the flight of European banks.  The unwinding of the yen carry trade and dollar carry trade has caused massive holes in the balance sheets of Europeans and the need for massive dollars to plug the leak.
Central banks are loathe to leave deposits in Europe so they are seeking the Federal Reserve.
The entire European banking system is in turmoil:  (courtesy Ambrose Evans Pritchard, UKTelegraph)

Central bank flight to Federal Reserve safety tops 

Lehman crisis

A key warning signal of global financial stress has shot above the extreme levels seen at the height of the Lehman crisis in 2008.

Graph: Factors Absorbing Reserve Funds - Reverse Repurchase Agreements - Foreign Official and International Accounts
Graph: Factors Absorbing Reserve Funds - Reverse Repurchase Agreements - Foreign Official and International Accounts 

Central banks and official bodies have parked record sums of dollars at the US Federal Reserve for safe-keeping, indicating a clear loss of trust in commercial banks.
Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.
"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."
These dollar accounts are just over $100bn (£62bn) and are small beer compared to the vast sums invested in bonds as foreign reserve holdings. Yet they serve as stress indicator, reflecting the operating decisions of the world's top insiders.
The dollar data refers specifically to reverse repurchase agreements.
Lars Tranberg from Danske Bank said European banks are reduced to borrowing dollar funds for "a week at a time" rather than the usual six to 12 months. "This closely resembles what happened in late 2008, though the difference this time is that the major central banks have dollar swap lines in place. If the dollar funding markets completely freeze up, the European Central Bank can act as a backstop."
Mr Tranberg said dollar deposits of US banks have increased by $400bn since mid-June, mostly offset by dollar reductions in Europe. "It is clear that the problem lies with the European banks. The credit default swaps on these banks are very high and provide a risk gauge."
The Bank for International Settlements says European and British banks have a dollar "funding gap" of up to $1.8 trillion stemming from global expansion during the boom that relies on dollar financing and has to be rolled over. This is not normally a problem but funding can seize up in a crisis.
European officials hotly disputed claims in a leaked document from International Monetary Fund claiming that a realistic "mark-to-market" of Italian, Spanish, Greek, Irish, Portuguese and Belgian sovereign debt would reduce the tangible equity of Europe's banks by €200bn (£176bn).
"French banks passed stress tests which were extremely tough less than a month ago: there is no cause for worry," said Valerie Pecresse, France's budget minister.
"It is ill advised to provoke alarm," said Michael Kummer, head of Germany's BdB bank federation.
The IMF was attacked as a Cassandra when it warned early in the credit crisis that debt write-downs would reach $600bn, yet losses have since reached $2.1 trillion.
European banks are still struggling to access America's $7 trillion money market funds. Fitch Ratings said last week that Spanish and Italian banks have been cut off altogether.
Investors do not fully believe EU pledges that the 21pc "haircut" agreed for private holders of Greek debt is the end of the story, or will remain confined to Greece, as the second Greek rescue is already unravelling. A Greek parliament report concluded that deep recession is pushing the country into a downward spiral, causing debt dynamics to fly "out of control". Public debt will reach 172pc of GDP next year.
Simon Derrick from BNY Mellon said Germany, Holland, and Finland may balk at a third rescue in the current tetchy mood, implying bigger haircuts instead. That will set a precedent for Portugal, and others. Until markets can see an end to the blood-letting, Europe's banks will remain untouchables.


Another way of viewing the parking of dollars from Europe at the Fed can be highlighted by the difference in spread of the Euri-Libor vs the USA -Libor:  the European banks are surely in trouble here:

courtesy   Zero hedge and author Peter Tchir:

Guest Post: Euribor-Libor Basis Swap Highlights Funding Stress For EU Banks

Tyler Durden's picture

From Peter Tchir of TF Market Advisors
I can't take credit for finding this graph of Eur Basis Swap [the cross currency basis swap between 3M EURIBOR and 3M LIBOR], but it seems to be a decent indicator of European banks having difficulty funding their USD business.  Maybe I'm reading more into the chart than there is, but that is what I see going on.
It makes sense with all the other data that is out there and the anecdotal evidence that US banks are pulling back their lending to European banks.
Germany just announced they are preparing to prepare for a Greek default (my take on Merkel's statement). I have been arguing for a long time that they have to let Greece default and then try and pick up the pieces in a less complex and less intertwined world.
Chart: Bloomberg

I guess it is time to say goodbye until Monday night.
I hope you all have a grand weekend.

all the best

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