European turmoil /Portugal/Illinois/

Good evening Ladies and Gentlemen:

Today we had the risk is off trade as Europe is in turmoil due to the lack of progress in dealing with

Greece and other PIIGS nations.  They announce a deal for the new mechanism for funding yet no deal can be found written anywhere. These will be discussed in the body of the commentary but first let us head over to the comex.


The price of gold closed at the comex at $1664.20 for a loss of 13.80.  The price of silver also fell by 32 cents to $31.93. Tonight is the state of the Union message and always the bankers want to make Obama look good so they bomb the precious metals so to make the paper dollar supreme. Options are expiring on Thursday and tomorrow Bernanke deliveries his FOMC two day statement, so again the bankers have their fingers on the sell button.


The total gold comex OI fell by 1800 contracts or so to 436,642 with gold advancing by 14.00 dollars yesterday.  We had some banker liquidation.  The front options delivery month of January saw its OI fall from 42 to 14 for a loss of 28 contracts.  We had 29 delivery notices yesterday so we gained 1 gold contract or 100 oz of additional gold standing.  We are now exactly one week away from first day notice and here the OI fell by 9000 contracts as most rolled into April.  The new OI for February rests tonight at 139,274 which is on the low side.  Of course, we will have to see how many resolute longs we will have willing to take on the likes of the bankers and Blythe Masters. Will they be tempted with bonus fiat dollars to roll or take physical delivery. The estimated volume at the gold comex today came in at 163,849 which is very low for a rollover period. The confirmed volume yesterday was slightly better at 171,616. There is no question that much business has been taken away from the comex to other jurisdictions probably due to the crookedness of the bankers and  of course, the MFGlobal scandal.

Inventory Movements and Delivery Notices for Gold: Jan 24 2012:

Gold	Ounces
Withdrawals from Dealers Inventory in oz	nil
Withdrawals from Customer Inventory in oz	25,608 oz(Scotia)
Deposits to the Dealer Inventory in oz	nil
Deposits to the Customer Inventory, in oz	86,011 (JPM)
No of oz served (contracts) today	2 (200)
No of oz to be served (notices)	12 (1200)
Total monthly oz gold served (contracts) so far this month	1123  (112,300)
Total accumulative withdrawal of gold from the Dealers inventory this month	4598
Total accumulative withdrawal of gold from the Customer inventory this month	253,176 oz

Guys and Gals, there is funny stuff going on.


Here goes:


Scotia bank ADJUSTED out 86,011 oz of gold from its warehouse from the dealer side. (note:  this is not your normal withdrawal from the dealer)
This gold never entered the customer side of Scotia, but entered the customer side of our arch enemy,
the illustrious and "pristine clean" banker:  JPMorgan.
So that is why we see adjusted 86,011 oz of gold out of Scotia dealer,  and a customer deposit of 86,011 oz into JPMorgan. We also had a 98 oz gold adjusted from a dealer at HSBC into a customer at HSBC to repay a prior liability.

We thus had the following customer deposit into JPM  86,011 oz
We had the following customer withdrawal :

1.  Out of JPM  202 oz
2. Out of Scotia;  25,608 oz..

total withdrawal of gold by customer:  25,810 oz

total gold withdrawn out of Scotia:  111,619 oz (dealer and customer inventory)

The total registered gold or dealer gold is represented by 2.377 million oz or 73.99 tonnes of gold.
This does not look like a delivery confirmation as it is generally done this way:

Dealer (registered)  withdrawal:  86,011 (Scotia)
Customer (eligible)  deposit:  86,011 (JPMorgan)

why the adjustment route? It makes no sense to me!!


The CME reported that we had 2 delivery notices filed for a total of 200 oz of gold.
The total number of notices filed so far this month total 1123 for 112300 oz .
To obtain what is left to be filed, I take the OI standing for January (14) and subtract out today's deliveries (2) which leaves me with 12 notices or 1200 oz left to be served upon.


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


112,300 oz (already served)  +  1200 oz (to be served upon our longs)  =   113,500 oz or 3.530 tonnes of gold.  We thus gained 100 oz of additional gold standing in January.
If we were to take the delivery month of December and add the two non delivery months of November and January we have a total of: 74.21 tonnes of gold against an inventory of 73.99 tonnes or 100.29% of registered for dealer gold.  Go figure this one out!!!!!!
And now for silver 

 the chart: January 24 2012:

Month of January now commences:

Silver	Ounces
Withdrawals from Dealers Inventory	nil
Withdrawals fromCustomer Inventory	1,522,467( HSBC Brinks,)
Deposits to theDealer Inventory	592,954 (Brinks,Delaware,JPMorgan)
Deposits to the Customer Inventory	398,746 (Brinks)
No of oz served (contracts)	97 (485,000)
No of oz to be served (notices)	2 (10,000)
Total monthly oz silver served (contracts)	1064  (5,320,000)
Total accumulative withdrawal of silver from the Dealersinventory this month	298,683
Total accumulative withdrawal of silver from the Customer inventory this month	5,329,908

We also had a wild day at the silver vaults:


We had a very big silver deposit at the dealer side of Brinks to the tune of 592,954 oz

we had the following customer deposit:

1. Into Brinks:   4165 oz
2 Into Delaware:   185,437 oz
3. Into JPMorgan;  209,144 oz.

total deposit;  398,746 oz.

we had the following customer withdrawal by the customer:

1. out of Brinks:  595,036 oz
2 out of HSBC  927,431 oz

total withdrawal of silver: 1,522,467 oz.

we had two adjustments
 1.  9694 oz adjusted as a repayment of a lease from a dealer to the customer
2.  a complete removal of 209,194 oz out of Scotia customer.

I guess it kind of shows you the real demand for silver as activity was feverish.
 The CME reported today that we had another biggy of a delivery to the tune of 97 notices or 485,000 oz.
The total number of notices filed so far this month total 1064 for 5,320,000 oz. To obtain what is left to be served upon, I take the OI standing for January (99) and subtract out today's deliveries (97) which leaves us with 2 notices or 10,000 oz.


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


5,320,000 oz (served)  +  10,000 (oz to be served upon) =  5,340,000 oz.


we now have January which is a non delivery month exceed deliveries by over 200,000 oz from the  December month( which is generally considered the largest delivery month in the year for silver).


So far this month the USA Mint has struck in excess, 5 million oz of silver eagles.
Last year the USA mint fabricated  over 40 million oz of silver
The USA mines produced only 35 million oz last year of silver
The Canadian and USA mines have produced 55 million oz of silver last fiscal year, yet silver maples and silver eagles have mintage that exceeds 65 million oz.  Thus the comex must secure silver from Europe in excess of 10 million oz.  Not only that but the jewelers must as well buy from Europe.  Eric Sprott must find his supply from Europe.
It makes no sense whatsoever that the bankers raid silver with non backed silver comex paper with silver in such scarce supply and high demand. It is such a farce!!

end.

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.

Jan 24. 2012:

Total Gold in Trust

Tonnes:1,250.53

Ounces:40,205,808.06

Value US$:66,942,194,113.52

jan 23.2012:

TOTAL GOLD IN TRUST

Tonnes:1,250.53

Ounces:40,205,808.06

Value US$:67,344,983,810.84

WE LOST ZERO OZ OF GOLD FROM THE GLD.  

And now for silver Jan 24 2012: 

Ounces of Silver in Trust	305,970,641.100
Tonnes of Silver in Trust	9,516.75

jAN 23.2012

Ounces of Silver in Trust	305,970,641.100
Tonnes of Silver in Trust	9,516.75

Jan 21.2012:

Ounces of Silver in Trust	305,970,641.100
Tonnes of Silver in Trust	9,516.75

we neither gained nor lost any silver today in the SLV.

Again very strange with the huge activity in the price of silver last week and on Monday and Tuesday of this week.  No additions whatsoever.

end.

And now for our premiums to NAV for the funds I follow:

1. Central Fund of Canada: traded to a positive 3.1 percent to NAV in usa funds and a positive 3.0% to NAV for Cdn funds. ( Jan 24 2012.).

2. Sprott silver fund (PSLV): Premium to NAV fell  to  5.78.% to NAV  Jan 24 2012:
3. Sprott gold fund (PHYS): premium to NAV fell  to a 4.68% positive to NAV Jan 24. 2012). 

It seems that Sprott funds are being punished as they try and obtain the 8.5 million oz of silver that is in scarce supply. Shareholders of silver should be delighted.

end

Let us see some of the big stories of the day which effects the price of gold.

I brought you this story yesterday where the Iran crisis is causing nations to deal with Iran and its oil in currencies other than the USA dollar.  Now for the first time in over 41 years it appears that gold will  be used as a currency:

Iranian Crisis Evolving into Dollar Hegemony and Western Power Challenge

By Chris Blasi

Profoundly significant news came out of the Middle East on Monday January 23, 2012.  The headline via DEBKAfile* reads:

India to Pay Gold Instead of Dollars for Iranian Oil.  Oil and Gold Markets Stunned

Within the body of the report were gleaned these crucial items:

1.    India has become the first buyer of Iranian oil to agree to settle purchases in gold.

2.    China is expected to follow India's move.

3.    Approximately 40% of Iran's total oil exports are consumed by India and China.

4.    Settling oil transactions in gold enables Tehran to circumvent the EU's upcoming freeze on Iran's Central Bank assets and the oil embargo announced Monday January 23rd.

5.    Due to the magnitude of the transactions proposed, the price of gold is expected to rise and the Dollar's value depressed on world markets.

6.    The EU currently accounts for approximately 20% of Iran's oil exports.

7.    The transactions are to be facilitated via two Indian state owned banks and a Turkish state owned bank.

8.    Financial mechanisms have also been implemented between Iran and Russia for the settlement of oil purchases in currencies other than the US Dollar.

At this point in time it is unnecessary to rehash the dismal state of fiscal and monetary affairs that plague the US.  Excluding the willfully delusional, it is clear to any honest analyst that the gargantuan debts of the US can never be paid in full with dollars retaining current purchasing power.  Further, with the insatiable need to issue exponentially growing volumes of debt to keep the welfare/warfare state hobbling along, who would willingly continue to finance such a debacle?  All that's left to supports this failing fiat experiment is an entrenched, yet deteriorating, reserve currency system to which there has not been a functioning alternative to date.

It is because of this macroeconomic environment, and the policies that gutted a previously productive goods producing economy, that the only tool left for the US to maintain the status quo is to defend at all costs the Dollar's reserve currency status....and its foundational component the Petro Dollar.  This is most likely the motive behind the quickening drumbeat to go to war with Iran. If keeping the world safe from rogue states with nuclear capabilities were the sole motive, than why have North Korea and Pakistan been given a pass?

Unlike the invasion of Iraq, whereby that oil rich nation had no allies come to its aid or at least none with the wherewithal to dare protest in a meaningful way, the Iranian crisis is developing into a far more serious geopolitical happening.  Just as most wars are a smokescreen for behind the scenes power plays between the various ruling class, the events unfolding in the Persian Gulf look to be such in spades.  What will shock the world when the actions reported above are fully digested is the choosing of sides and the clandestine development of alternative financial mechanisms by those nations previously believed not ready or unable to challenge the Western elites.

Following years of speculation as to the fate of the US Dollar and the lengths to which Western bankers would go to defend the system that serves them so well, could today's headlines be the proverbial ringing bell?  Unfortunately, the actions of most bankrupt and overextended empires is to march its people into a calamitous war.  As with all historically recorded futile endeavors in defending the indefensible (i.e. a debt based paper monetary system), the most likely financial survivor will again be gold.

Chris Blasi

www.NeptuneGlobal.com

Email: GroupDirector@NeptuneGlobal.com

end


This is such an important topic that I would like to print out what Bill Holter had to say about
this over at GATA's website www. Lemetropolecafe.com.
I have been part of GATA right from the beginning and they have done such great work exposing the crooks.
Bill Murphy, Chris Powell, Adrian Douglas should be complimented for their tireless work. They are an extremely important organization and they would be excited if you join them as official members.

 (Bill Holter)




http://www.forexcrunch.com/gold-for-oil-india-and-iran-ditch-dollar-report/
To all; "India trades Gold for oil with Iran", this news came out yesterday with little fanfare and even less response from the markets. This is really BIG news! India is entering into an area that has been absolutely taboo since the 1947 Bretton Woods conference. It has been "expressly forbidden" to conduct trade amongst nations using Gold as the medium for settlement. Now, India is skirting the plans and wishes (demands) of the U.S. that the world embargo Iranian oil. Not only that, as a side irritation to the U.S., our "ally" Turkey, is facilitating trade with Iran through their banking system. Oh yes, lest we forget, Russia and China have set up trade deals amongst themselves AND with other trading partners where the Dollar will not be used. It is this "settlement of trade" function that has been a source of huge Dollar demand during our entire lifetimes that is now being threatened.

end.


Get a load of the following story.  I can see fireworks brewing between the French and Italians as Fitch is Paris based:


(courtesy zero hedge)

Italy Police Busts Fitch Milan Office

Submitted by Tyler Durden on 01/24/2012 09:47 -0500

• Egan-Jones
  
• Egan-Jones
   
• Fitch
   
• Insider Trading
   
• Italy
   
• Market Manipulation
   
• Rating Agency
   
• ratings
   
• Reuters

The USS Europa Discorida story just gets more and more surreal.

• ITALY PROSECUTORS WIDEN RATINGS AGENCY PROBE TO FITCH, UNDER INVESTIGATION FOR MARKET ABUSE, INSIDER TRADING - INVESTIGATIVE SOURCE
• ITALY FINANCE POLICE SEARCHING FITCH OFFICE IN MILAN, ANSA SAYS

S&P maybe? Sure. But piss off the French rating agency? As if anyone even trades in collusion with the completely unmoving announcements by the most irrelevant of the NRSROs? This is just the definition of irrational Italian scapegoating which will do nothing to help Italy-French relations, but at least it will provide "justification" for Fitch's evil downgrade when it comes - after all it was obviously in retaliation for the Italian police just doing its job. Finally, how long would an Egan-Jones office in Milan stand before it was burned to the ground: 1 week? 1 day? 1 hour?

More from Reuters

The Italian tax police was in the offices of ratings agency Fitch in Milan on Tuesday to carry out checks ordered by prosecutors investigating rival agencies Standard & Poor's and Moody's, a senior prosecutor told Reuters.

"Men from the financial police are at Fitch in Milan," said Carlo Maria Capristo, chief prosecutor in Trani.

The Trani prosecutors are investigating possible crimes of market manipulation and illicit use of privileged information when Standard & Poor's downgraded Italy earlier this month.

As part of the same probe, they are also investigating the impact reports by Standard & Poor's and Moody's on Italy and its banking system had on markets and whether any crimes were committed.

S and P now warn of a Greek default and its ramifications:

(courtesy zero hedge)

S&P Warning Of Imminent Greek Default Again, But Promises All Shall Be Well, Dallara Speaks

Submitted by Tyler Durden on 01/24/2012 08:56 -0500

• Creditors
  
• default
   
• Greece
   
• Portugal

Just a week over the last time S&P said Greece would likely default any second, it reminds us once again why we should care.

• GREECE IN ALL LIKELIHOOD WOULD QUALIFY AS A DEFAULT: CHAMBERS
• S&P'S CHAMBERS SAYS IT'S NOT GIVEN THAT GREECE DEFAULT WOULD HAVE DOMINO EFFECT IN THE EURO ZONE

Perhaps just as irrelevant if notable is that S&P basically said just that back on May 9, 2011. As for Greece, it is a given that if the country proceeds with CACs it will default. Period. And yet that is just what will happen. However a far bigger question, as we touched on yesterday, is what happens next, when Portugal decides to follow the same framework of "deleveraging" only to find that courtesy of having strong creditor protection bonds it can't? Or when the Troika figures out that due to strong negative pledges, the country's balance sheet can not be primed and thus subordinated, and thus is ineligible for secured financing. And what happens when Europe realizes that Portugal is ineligible for saving in the conventional sense? Or Spain? and so forth.

Finally, here is Dalarra's long awaited commentary on the progress of the Greek exchange offer, via Bloomberg.

• IIF'S DALLARA SAYS INDICATED 50% HAIRCUT ON NOMINAL CLAIMS
• IIF'S DALLARA CALLS ON ALL PARTIES TO HONOUR THAT AGREEMENT
• IIF'S DALLARA PRIVATE CREDITORS HOLD 60% OF GREEK GOVT DEBT
• IIF'S DALLARA SAYS REMAINING GREEK DEBT IS IN OFFICIAL HANDS
• IIF'S DALLARA SAYS IMPORTANT ISSUES OF BURDEN SHARING ARISING
• IIF DALLARA SAYS GREEK EFFORTS SOMETIMES NOT FULLY APPRECIATED

In Europe beggars no longer can be choosers:

• DALLARA SAYS A LOT RIDING ON RESOLVING GREECE COOPERATIVELY

Translation: the future of Europe is in the hands of a few good hedge funds. As predicted on Zero Hedge last June.

end

 Now Portugal has its hand out for a bailout rescue similar to Greece.  The problem here is that the Portuguese debt is based on British law and it would be almost impossible to severe debtor rights here.


This is an important commentary:

Portugal Reenters Bailout Radar As Traders Realize Greek "Rescue" Model Is Not Feasible Here

Submitted by Tyler Durden on 01/23/2012 23:04 -0500

• CDS
 
• Cramdown
 
• Creditors
 
• default
 
• fixed
 
• Greece
 
• International Monetary Fund
 
• Portugal
 
• Reuters
 
• Sovereign Debt

Remember when Europe was fixed, if only for a few weeks? Those were the times, too bad they are now officially over. EURUSD is back under 1.30 in thin volume because even as we "shockingly" find that, no, Greece did not have the "upper hand" since Greek bondholder negotiations just broke down (and that over the matter of a cash coupon delta between 3.5% and 4.0%, which implicitly means that from a bondholder IRR perspective, when taking a 15 cent EFSF Bill into consideration, the hedge fund community fully expects the country to be in default even post reorg in at about two years). But it is that "other" European country which was recently junked by S&P (causing the 10 year to soar to new records), that is now the focus point of (re)bailout concerns. Reuters reports: "The euro nudges down some 20 pips to $1.2995 in thin, illiquid trade with Tokyo dealers citing renwed fears Portugal may need a second bailout. Undermining the glow of Lisbon's achievements in reforming the country's labour market is the rapidly rising market concern that it is the next potential candidate to default in the euro zone after Greece -- a point that is fast becoming clear as Athens approaches the end of its debt restructuring talks." And here is the paradox: if Greece succeeds in persuading the ad hoc creditors to accept a 3.5% coupon, which it won't absent cramdown and CDS trigger, Portugal will immediately if not sooner proceed with the same steps. There is however, a problem. Unlike Greece, where the bulk, or over 90%, of the bonds are under Local Law, and thus have no bondholder protections (a fact about to be used by Greece to test the legal skills of asset managers who can retain the smartest lawyers in the world and generate par recoveries on their bonds in due course), in a generic Portuguese Euro Medium Term note Programme prospectus we find the following:

Oops: negative pledge (a simple one at that, not that garbled monstrosity of verbiage that some Greek bonds have) and UK-law. Looks like the Greek Modus Operandi of dealing with its uber-leverage problems will be quite hindered (read impossible) when its comes to Portugal, where a substantial portion of its sovereign debt actually does have significant creditor protections. It also means good luck not only trying to enforce a coercive cram down, but also attempting to layer on a primed piece of debt with liens on top of the EMTNs (i.e. IMF bailout capital), without every asset manager in possession of these bonds suing the country into oblivion at a London court of law.

Finally look for creditors to flock to these bonds at the expense of any other bonds (Interbolsa, older issues) that do not, as we predicted over the weekend.

So much for the Greek deleveraging case study applied to other European countries: think fast Troika.

end


And then there was Spain who did not want to left out of the cold;

(courtesy zero hedge)

Desperate Spain Wants European Rescue Fund To Be "The Bigger The Better"

Submitted by Tyler Durden on 01/24/2012 14:49 -0500

• Budget Deficit
 
• Gross Domestic Product
 
• Lehman
 
• Reuters
• Unemployment

No, there is no desperation in Spanish PM's Rajoy statement at all. The head of the economy, whose unemployment rate just soared to a ridiculous 23% in the past quarter, registering the largest drop since the Lehman collapse, pretty much made it clear that without European (read German) fiscal aid viagra, the unemployment rate may soon reach that of Chicago, only without the typo. Reuters reports that Spain favours the creation of the largest possible European financial rescue fund to prevent future crises, Prime Minister Mariano Rajoy said on Tuesday, adding that his government will meet its budget deficit target this year. "We support a rescue mechanism, the bigger the better, for it to act as a dissuading element for certain things that we've been going through lately," Rajoy told reporters after meeting his Portuguese counterpart, Pedro Passos Coelho. He said Spain will meet its budget gap goal of 4.4 percent of GDP this year. Judging by the Spanish (un)employment chart, and specifically recent trends therein, we will take the under. And the over on the Enzyte jokes.

end




In my opening paragraph I described how the EU ministers have announced some sort of breakthrough in the funding for the new ESM.  This is nothing but a phony.  Nobody has any text of their so called agreement;


(courtesy zero hedge)

Guest Post: EU Finance Ministers Push Through ESM Treaty in Fishy Fly-by-Night Move

Submitted by Tyler Durden on 01/24/2012 07:50 -0500

• Eurozone
  
• Federal Reserve
   
• Guest Post
   
• International Monetary Fund

Submitted by The Prudent Investor

EU Finance Ministers Push Through ESM Treaty in Fishy Fly-by-Night Move

RED ALERT TO EVERYBODY INTERESTED IN THE ESM: THERE IS NO CURRENT VERSION OF THE ESM TREATY AVAILABLE!!!

Europe's most important treaty on the European Stability Mechanism (ESM), which will lead the EU into a financial dictatorship, has been pushed through by EU finance ministers late Monday evening.

But the latest version of the ESM cannot be found on English and German EU websites. A link on consilium EU only leads to a 'file not found' message and the German EU website "Europa von A - Z" does not mention the ESM at all. This reminds one of the secrecy around the Federal Reserve Act, that was pushed through in 1912. Is the EU Commission now playing the same fishy game 100 years later?

Media reports from last midnight only said that the ESM treaty was agreed on by EU finance ministers and mentioned January 30 as the date when the treaty will be officially signed.

Significant changes have been made, a few media reported.

The capital of the ESM will now be only €80 billion instead of the €700 billion proposed in the only available draft version from July 2011 (see treaty text below). The finance ministers also agreed to bring the ESM into existence one year earlier by July 2012, putting national governments under immense pressure to ratify the ESM treaty without sufficient public discussion.

German state TV ZDF reported shortly after Monday midnight that the fund shall have a financing volume of €500 billion, but this figure is a moving goal post. IMF head Christine Lagarde proposed a volume of €1 trillion whereas Italian prime minister Mario Monti and Austrian finance minister Maria 'Mizzi' Fekter said later that the ESM should be upped to €750 billion. Such important changes cannot be found in publicly released EU documents anywhere on the web. The ESM will be the successor of the European Financial Stability Fund (EFSF) which lost its AAA rating a few days ago.

It does not exactly reassure Eurozone citizens when European leaders throw around figures between €500 million and €1 Trillion, proving they have no other clue than to fight debt with more debt if the fund is going to be leveraged inthe proposed style.

It all the more troubling that last night's agreement changes have not been communicated by the EU at all. It reminds one of the ACTA act that was signed in a non-public meeting of the Agriculture and Fishing Commission and is designed to destroy the freedom on the internet. As a side note: Anonymous brought down the websites of three Austrian ministries and the Austrian chancellery on Monday evening, protesting that Austria will be one of the first countries to ratify this attack on internet freedom. This was not reported by Austrian state broadcaster ORF.
I have published my objections to the ESM in this post from last December. Nothing has changed since except for the reduction of the proposed capital and the date the treaty shall go into effect. The ESM and its staff will be completely immune and cannot be sued, but can sue itself. This stinks.

Here is a video describing the democratic shortfalls of the ESM treaty in German with English subtitles.

Average:

end


Here is a great summary courtesy of Wolf Richter on the art of extortion.


Today it is the IMF who is asking for 1 trillion euros.  Where on earth are these paper notes going to come from?


(courtesy Wolf Richter) 

The Art Of Extortion: Now At The IMF

Submitted by testosteronepit on 01/23/2012 21:45 -0500

• default
  
• Eurozone
   
• France
   
• Germany
   
• Great Depression
   
• Gross Domestic Product
   
• International Monetary Fund
   
• Italy
   
• Japan
   
• TARP

Wolf Richter   www.testosteronepit.com

Treasury Secretary “Hank” Paulson was the trailblazer with his proposal for TARP in September 2008. He walked into the Capitol with a list of demands—unlimited powers to hand unlimited amounts of taxpayer money to whomever—and threatened that the whole world would collapse if his demands weren’t met immediately.

When Congress didn’t go for it, markets fell off a cliff, and Paulson’s world of finance appeared to come to an end. So Congress approved a more limited TARP, which ended up being irrelevant compared to the trillions the Fed would hand out. Thus, Paulson’s extortion had worked—though the source of money had shifted from the Treasury to the Fed. It would be copied.

In November, just after the G-20 meeting in Cannes, France, it was Greek Prime Minister Giorgios Papandreou’s turn. With a single sentence about a referendum on Greece's exit from the Eurozone, he knocked the world’s financial markets into a tailspin. His message: give me more money and larger write-downs on Greek debt, or else I will say a whole paragraph. It reopened the spigot, and money started flowing again (temporarily).

In early January, it was Greece’s new Prime Minister Lucas Papademos. He threatened the world with “disorderly default.” His goal: impose salary cuts on private-sector workers and ever bigger “voluntary” haircuts on banks and hedge funds that hold Greek debt. “So we can get the next loan installment,” he explained. Unions rebelled, and bondholders dug in their heels, but they started talking again. For that whole debacle, read....Greece’s Extortion Racket Maxed Out.

Now Christine Lagarde, managing director of the IMF, has stepped into the extortion racket herself and threatened that there would be another Great Depression—the red line on the financial threat-o-meter—if certain countries and their taxpayers didn’t fork over more money. She never mentioned Germany and the US by name, but those were her prime targets.  

"It is about avoiding a 1930s moment," she said at the German Council of Foreign Affairs in Berlin, "a moment, ultimately, leading to a downward spiral that could engulf the entire world."

Paulson couldn’t have phrased it more darkly.

The discussions Sunday evening between her and German Chancellor Angela Merkel must have been interesting, and there was no dog and pony show or even common statement afterwards. But Monday, Lagarde made clear what she wanted:

- €500 billion in mostly German taxpayer money to double the size of the future bailout fund, the ESM, to €1 trillion, so that it would be large enough to bail out Italy and Spain. Their insolvency "would have disastrous implications for systemic stability," she threatened. So, pay up German taxpayers.

- $500 billion in taxpayer money from around the world, specifically from the US, Japan, and Germany, the three largest contributors to the IMF, to double its bailout lending power to $1 trillion.

- More government spending in those European countries that can afford it, to stimulate the economy for everyone else. She didn't mention Germany, but German taxpayers, please step up to the plate. Your money is needed elsewhere. Or else—

- Common liabilities, such as Eurobonds, through which taxpayers in fiscally stronger countries, like Germany, would guarantee the debt of others.

- Elimination of trade imbalances by stimulating internal demand in countries with large trade surpluses. Alas, Germany’s economy lives and dies by its exports, and a drop in the surplus has a vicious effect on GDP. Read.... Germany’s Export Debacle.

Merkel and her government immediately rejected Lagarde’s demands on essentially all fronts. To commit more money to the ESM would also require a vote in the Bundestag where the last bailout increase passed only by a thin margin. And the US Congress is in no mood to hand over more money to the IMF. But as Paulson’s efforts have shown, extortion has a way of migrating. If recent history is any guide, Lagarde’s threat of another Great Depression will work, and money will start flowing from taxpayers to her anointed recipients.

Meanwhile, in one of the most above-board shining examples of a virtuous country in the Eurozone—the outright opposite of Greece—there has been a hiccup. Read.... Bribery, Kickbacks, and Money Laundering at the Austrian National Bank.

end

The IMF has now cut global growth forecasts equal to 3.3%.  This includes China with a 9% growth.  If nothing is done to curtail the European crisis the entire region will lose another 4%:

(courtesy zero hedge)

IMF Cuts Global Forecast, Sees European Recession, Warns Of 4% Economic Crunch If No Euroarea Action

Submitted by Tyler Durden on 01/24/2012 10:12 -0500

• Bond
 
• China
 
• Eurozone
 
• Gross Domestic Product
 
• International Monetary Fund
 
• Japan
 
• Lehman
 
• Market Conditions
 
• Real estate
• Recession
 
• recovery
 
• Sovereign Debt
 
• United Kingdom
 
• World Bank

The latest IMF Global Financial Stability Report is out and it is not pretty. The IMF now sees:

• 2012 world growth outlook cut to 3.3% from 4.0%, 2013 growth revised lower to 3.9% from 4.5%
• 2012 US growth of 1.8%, 2013 at 2.2%
• 2012 UK growth of 0.6%, down from 1.6%
• 2012 China growth of 8.2%, down from 9.0%
• Eurozone to enter "mild" recession, whatever that is, with -0.5% economic growth, to grow again in 2013 by 0.8%. Unclear just how with all the deleveraging...

IMF also adds that without action, the debt crisis may force a 4% Euro-area contraction, in line with what the World Bank, controlled by a former Goldmanite, said. Lastly, the IMF says that Europe needs a larger firewall and bank deleveraging limits. Well there is always that €X trillion February 29 LTRO.

Some selections:

The recovery is expected to stall in many economies

The updated WEO projections see global activity decelerating but not collapsing. Most advanced economies avoid falling back into a recession, while activity in emerging and developing economies slows from a high pace. However, this is predicated on the assumption that in the euro area,  policymakers intensify efforts to address the crisis. As a result, sovereign bond premiums stabilize near current levels and start to normalize in early 2013. Also, policies succeed in limiting deleveraging by euro area banks. Credit and investment in the euro area contract only modestly, with limited financial and trade spillovers to other regions.

Downside risks have risen sharply

Downside risks stem from several sources. The most immediate risk is intensification of the adverse feedback loops between sovereign and bank funding pressures in the euro area, resulting in much larger and more protracted bank deleveraging and sizable contractions in credit and output.  Figure 4 presents such a downside scenario. It assumes that sovereign spreads temporarily rise. Increased concerns about fiscal sustainability force a more front-loaded fiscal consolidation, which depresses near-term demand and growth. Bank asset quality deteriorates by more than in the baseline, owing to higher losses on sovereign debt holdings and on loans to the private sector. Private investment contracts by additional 1¾ percentage points of GDP (relative to WEO projections). As a result, euro area output is reduced by about 4 percent relative to the WEO forecast. Assuming that financial contagion to the rest of the world is more intense than in the baseline (but weaker than following the collapse of Lehman  Brothers in 2008) and taking into consideration spillovers via international trade, global output will be lower than the WEO projections by about 2 percent.

Another downside risk arises from insufficient progress in developing medium-term fiscal consolidation plans in the United States and Japan. In the short term, this risk might be mitigated as the turbulence in the euro area makes government debt of these economies more attractive to  investors. However, as long as public debt levels are projected to rise over the medium term, and in the absence of well-defined and credible fiscal consolidation strategies, there is the possibility of turmoil in global bond and currency markets. A more immediate risk is that an accident-prone political economy will lead to excessive fiscal tightening in the near term in the United States. In key emerging economies, risks relate to the possibility of a hard landing, especially in the context of uncertain (possibly slowing) potential output. In recent years, a number of major emerging economies experienced buoyant credit and asset price growth as well as rising financial vulnerabilities. This has buoyed demand and may have led to overestimation of the trend growth rates in these economies. Should the dynamics of real estate and credit markets unwind triggered by losses in confidence and a paring back of expectations at home or by falling demand from abroad—the impact on economic activity could be very damaging.

Moreover, concerns about geopolitical oil supply risks are increasing again. The oil market impact of  intensified concerns about an Iran-related oil supply shock (or an actual disruption) would be large, given limited inventory and spare capacity buffers, as well as the still-tight physical market conditions expected throughout 2012.

(for full report go to www.zerohedge.com)

end

The Dow Jones reports on the same subject as above:

DJ IMF: Without Action, Debt Crisis May Force 4% Euro-Area Contraction
Tue Jan 24 10:00:10 2012 EST
WASHINGTON (Dow Jones)--The International Monetary Fund Tuesday trimmed its global growth estimates for the year to 3.3%, but warned the euro-zone debt crisis could lop roughly two percentage points off worldwide output if euro zone leaders don't act soon.
The IMF said inaction could push the teetering euro zone headlong into a severe recession where growth contracts by 4% over the next two years.
"The most immediate risk is intensification of the adverse feedback loops between sovereign and bank funding pressures in the euro area," the IMF said in its updated World Economic Outlook. Such a scenario would force "larger and more protracted bank deleveraging and sizable contractions in credit and output," the IMF said.
In three IMF staff reports--including the WEO, the Fiscal Monitor and the Global Financial Stability Report--the IMF outlines the economic basis for chief Christine Lagarde's dire warning Monday of a possible depression-era collapse in the global economy.
Lagarde and her IMF lieutenants are urging zone leaders to boost the size of the European debt-crisis firewall, to implement progrowth policies and further integrate the monetary union.
Funding costs for some of the region's biggest economies are hitting highs not seen since the launch of the European Economic and Monetary Union two decades ago. Combined with thinning credit in financial markets and governments tightening their fiscal belts, Europe is likely to face at the very least a mild recession.
If Europe quickly follows IMF recommendations, the fund expects the euro area may only face a 0.5% contraction this year. The fund shaved off 1.6 percentage points from its last forecast for 2010 in September after risks escalated sharply in the last quarter of the year, when the debt crisis "entered a perilous new phase." The IMF expects growth to return to the region next year.
Economists increasingly expect Greece could default within weeks. More worryingly, Spain and Italy are now in the market's targets. The IMF slashed its 2012 forecasts for both countries by at least 2.5 percentage points. It now expects Italy to face a 2.2% contraction and Spain's economy to shrink by 1.7%. Both are seen in recession through 2013.
Advanced economies are only expected to expand by 1.5% on average through 2013, a growth rate too sluggish to make a major dent in very high unemployment levels.
Growth in emerging and developing economies has slowed as European banks spent less abroad and euro-area area demand contracted. The IMF forecasts those countries will expand as a bloc by 5.4% this year and 5.9% next year, shaving more than half a percentage point off their growth estimates. The fund lowered China's growth by nearly a percentage point to 8.2% for the year.
But key emerging economies face a real risk of a hard landing. Should real estate and credit markets unwind, "the impact on economic activity could be very damaging," the IMF said.
Overall, the IMF sees global activity decelerating, but not collapsing, and many advanced economies avoiding a double-dip recession.
"However, this is predicated on the assumption that in the euro area, policy-makers intensify efforts to address the crisis," IMF said. In their optimistic scenario, sovereign bond costs stabilize, regulators are able to limit banks shrinking their balance sheets too much and credit only contracts modestly.
The IMF wants Europe to double the size of their emergency bailout fund. It's also urging the Group of 20 largest industrialized and developing countries to boost its resource base to over $1 trillion. That way, Europe could use its bailout fund to help boost banks' capital levels and keep its members' financing costs down while the IMF backstops their efforts. In the meanwhile, the fund wants the European Central Bank to continue its bond-buying program, maintain credit in the financial system and ease policy rates.
There are major political hurdles for Europe to follow through on the IMF's recommendations, however. In particular, Germany has so far resisted bulking up the bailout facilities beyond what has already been promised and the ECB has publicly rejected a bailout role.
It's noteworthy that the IMF's new forecasts for the euro zone are actually in line with the fund's downside scenario forecast in September.
While the IMF praised the efforts of many euro zone members to reduce their massive debt overhangs and bloated budgets, it warned against further near-term budget cuts that could exacerbate the economic stall.
"Given the large adjustment already in train this year, governments should avoid responding to any unexpected downturn in growth by further tightening policies," IMF staff said in the Fiscal Monitor. Countries with the space, including in the euro area, "should reconsider the pace of near-term adjustment," they said.
The IMF also reiterated its concerns that the U.S. and Japan hadn't made enough progress developing a medium-term fiscal consolidation plans. If investors didn't have to choose the best of bad situations, the IMF said, markets would have likely have been more aggressive in selling off the two economies. In the absence of action, "there is the possibility of turmoil in global bond and currency markets," it said.
-END-

Early this morning the largest European refiner filed for bankruptcy protection.

Gasoline prices will head north.  Coupled with the Iranian sanctions, we may see double digit gains in gasoline prices throughout Europe:


(courtesy zero hedge)

PetroPlus, Largest European Refiner By Capacity, Files Bankruptcy

Submitted by Tyler Durden on 01/24/2012 07:07 -0500

• BLS
 
• Bureau of Labor Statistics
 
• Credit Suisse
 
• default
 
• Deutsche Bank
• Excess Reserves
 
• Germany
 
• Initial Jobless Claims
 
• Iran
 
• Morgan Stanley
 
• Recession
 
• Switzerland
 
• United Kingdom

Back on December 30, we noted that a little known name in the US, but very well known in Europe, PetroPlus is having significant solvency issues as banks froze a $1 billion revolver. Less than a month later the situation has proceeded to the next evolutionary step, as Europe's largest refiner by capacity has announced it will file for bankruptcy protection. And while operations should not be impacted, the fact that this comes just as Europe imposes an oil embargo on Iran, virtually guarantees that the continent's gasoline prices, already among the highest in the world are likely to set off even higher, paradoxically even as end-market demand is at lows. The bankruptcy will also guarantee that European initial jobless claims will plunge, especially if the BLS opens a Brussels office and applies its own very unique brand of "logic" to Europe.

From the WSJ:

Swiss-based refiner Petroplus Tuesday announced plans to file for insolvency after talks with its lenders to unblock credit lines failed.

Petroplus, which employs 2,500 and owns five refineries in Europe, said it was working to "safely shut down" operations as it prepares the necessary bankruptcy papers in Switzerland "as soon as possible." The company had already shuttered three of the five plants earlier this month, while keeping open refineries in Germany and the United Kingdom at reduced rates.

Petroplus shares were recently down 84% to 0.23 Swiss Francs. Trading was temporarily halted earlier Tuesday after shares dropped 88% soon after the open.

The company's demise comes as European refiners struggle with overcapacity, weak demand and an increasingly tight credit market. Petroplus engaged political leaders in many of its markets in its efforts to persuade financiers to keep credit lines open, but those efforts have come up short.

"We have worked hard to avoid this outcome, but were ultimately not able to come to an agreement with our lenders to resolve these issues given the very tight and difficult European credit and refining markets," Petroplus's Chief Executive Jean-Paul Vettier said in the statement. "We are fully aware of the impact that this will have on our workforce."

What is scary is that instead of finding a resolution, banks decided to accelerate and seek to control the underlying assets, in what continues to confirm that all of Europe is desperately battling a wholesale collateral crunch, and banks will do anything to procure any viable assets, even send the obligor in bankruptcy court.

The company has been negotiating with its banks—BNP Paribas, Société Générale, Natixis, Credit Suisse, Morgan Stanley, Deutsche Bank, Rabobank, ING, and Comerzbank. But the negotiations "have not been successful," Petroplus said in the Tuesday statement.

The lenders have served notice of acceleration, commenced enforcement actions and appointed a receiver, moves that "constitute an event of default" under the lending facility, Petroplus said.

One wonders what happens to Europe when end-demand returns yet refinery capacity is stuck at recession levels. Then again, one probably should wonder what will happen to inflation once US economic growth returns (yes, we know), and banks suddenly inject $1.5 trillion in excess reserves, or 150% the currency base, into the economy. 

end

Here is a great piece that suggests that Illinois' problems are bigger than Greece:

(courtesy John Robino/Dollar collapse.com)

Why Isn’t Illinois A Bigger Story Than Greece?

by JOHN RUBINO on JANUARY 22, 2012

0

As the Greek default (and it is a default no matter what they end up calling it) is finalized this week, the consensus seems to be that failure to reach a deal would cause a global financial apocalypse.

That may be true. And if it is, why aren’t we more worried about Illinois? It’s more or less the same size as Greece, its finances are in the same generally catastrophic shape, and its leaders are just as feckless and dishonest. It owes tens of billions of dollars to various investors and stakeholders and will clearly have to stiff many of them at some point. The following article captures the “failed state” dilemma perfectly:

Dripping with red ink: Will anyone fix Illinois’ budget mess?
The question isn’t whether Illinois’ finances are in dreadful shape, it’s how to fix the problem. Or perhaps more accurately, will legislators have the political will to fix it when they return to Springfield for their spring session?

Even though the legislature and Gov. Pat Quinn last year imposed a temporary 67 percent state income tax increase, Quinn’s office expects to have a $500 million budget deficit this year.

Quinn is calling for a 9 percent cut in most areas of state government, except education and health care. But even with cuts at that level, the state would have a projected $800 million budget deficit for fiscal 2015, the year when most of the tax hike expires.

Quinn’s budget spokesman, Kelly Kraft, said the state’s fiscal situation is not pretty.

“These projections clearly demonstrate that action must be taken to control not only Medicaid costs but also (pension) costs, or all other areas of government will continue to be squeezed,” Kraft said.

Looking at the bigger picture, the state has a backlog of about $8.5 billion in unpaid bills and owes about $27 billion in outstanding bonds. And then there’s the roughly $80 billion owed to the state’s public employee pension funds.

Now, legislative leaders and Quinn are floating ideas to cut the two areas that account for the biggest chunks of the state budget — pension contributions and Medicaid.

In the proposed $33.7 billion budget for fiscal 2013, the state’s pension payment will be $5.3 billion, and Medicaid will cost taxpayers about $7 billion.

Proposals include reducing the benefits or the eligibility for Medicaid. On pensions, ideas include decreasing the benefits and increasing the contributions for current employees. A new pension system was approved last year, but it’s only for new employees, and there’s debate on whether the benefits for existing employees can legally be changed.

One of Quinn’s ideas for reducing the state’s pension costs is to shift the burden somewhere else: to local school districts.

“About 21 percent of what the state puts in … is for state employees,” Quinn told reporters earlier this month. “More than half of the money we contribute every year is for teachers who are outside of the city of Chicago — suburban and downstate teachers.”

Supporters of the idea say it would make school districts think twice about giving employees big raises at the end of their careers to boost their pensions. School districts would have some skin in the game if they had to pay for those pension boosts, rather than the state, the supporters say.

Opponents argue that shifting costs to local school districts isn’t real reform, and would just force them to increase local property taxes.

Improving the picture won’t be easy when the legislature reconvenes Jan. 31, particularly in an election year, when politicians might find it difficult to cut services for constituents or hurt the feelings of unions that represent state workers.

To summarize, even after a massive tax increase Illinois is looking at a half a billion dollar deficit. That actually sounds manageable in the scheme of things — not even a billion dollars, chump change in this inflation-ravaged world. But the annual deficit is less of a threat than all those accumulated liabilities: “Looking at the bigger picture, the state has a backlog of about $8.5 billion in unpaid bills and owes about $27 billion in outstanding bonds. And then there’s the roughly $80 billion owed to the state’s public employee pension funds.”

The reported deficit, in other words, doesn’t include all the stuff that should have appeared in past budgets but was hidden in order to get through the next election. How a state with a constitutional mandate to balance its budget can do this in the first place — and how an “unpaid bill” can be excluded from the annual budget — is a question for future prosecutors. But for investors it’s a clear sign that some sort of default is coming.

Why then would anyone buy an Illinois municipal bond, or accept a state contract that requires future payments, or move a business to the state, or keep a business in the state, or do anything else that required faith in the willingness or ability of the state to pay its bills? The only possible answer is that Illinois isn’t Greece; it’s Spain or Italy, an entity so big and important that its failure is inconceivable. When it hits the wall, Washington will have no choice but to step in and cover its unfunded pensions and teacher salaries and muni bond interest. In the same way that a Spanish bond is really a German bond because Germany has no choice but to make good on it, the big insolvent US states are wards of the central government.

The bottom line effect of all this stepping up and bailing out is to exchange a solvency/debt crisis for a currency crisis in which the markets at some point figure out that failed states are so numerous and their needs so great that the printing presses will never stop.

end.

And lastly from Gata:

Warsh speech on 'financial repression' to be broadcast at Stanford's Internet site

Submitted by cpowell on Tue, 2012-01-24 18:21. Section: Daily Dispatches

10:15a PT Tuesday, January 25, 2012

Dear Friend of GATA and Gold:

Video of this Thursday's address at the Stanford University Institute for Economic Policy Research by former Federal Reserve Board of Governors member Kevin M. Warsh, who lately has complained about "financial repression" -- government intervention against free markets (see http://www.gata.org/node/10909) -- is expected to be broadcast live at 8 p.m. Eastern time at Stanford's Internet site here:

http://siepr.stanford.edu/

The video is expected to remain on the Stanford site for viewing afterward.

In an essay in The Wall Street Journal on December 6 (http://www.gata.org/node/10839), Warsh wrote that "policy makers are finding it tempting to pursue 'financial repression' -- suppressing market prices that they don't like." Warsh said last week he planned to elaborate on "financial repression" in his remarks at Stanford and GATA has urged him to identify which policy makers and which markets are involved, to explain whether he learned about this "financial represssion" through his service at the Federal Reserve, and to say whether the public and the markets have the right to know exactly how "financial repression" is being targeted.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

i HOPE YOU ALL HAVE AN ENJOYABLE EVENING AND I WILL SPEAK TO YOU TOMORROW

HARVEY