Saturday, March 31, 2012

Europe trying firewalls/ Greece in probable need of bailout/Spain delivers budget

Good evening Ladies and Gentlemen:

Before commencing I would like to report that we had one bank enter our morgue:

Fidelity Bank of Dearborn MICHIGAN.

Gold closed up by $15.00 dollars to finish the comex session at $1670.  Silver rose by 49 cents to $32.47 as the bankers try and contain these two precious metals.

Let us head over to the comex and see how trading effected the price of gold and silver.

The total gold comex open interest fell by 999 contracts on Friday so 406,388 from Thursday's level of 407,387.  The front delivery month of April saw its OI rest at 9004 contracts which should approximate the number of ounces that will stand (900,400 oz).  The next big delivery month for gold is June and here the OI
rose from 220,352 to 237,140 courtesy of the rollovers.  The estimated volume of Friday's at gold comex was extremely weak at 127,800 contracts.  The confirmed volume on Thursday was about the same at 225,338 if you remove all of the rollovers. The repeated attacks by the bankers are causing buyers to seek other avenues to attain their physical as they know the game is "cooked".

The total silver comex OI fell back by 3715 contracts to 110,455 from Thursday's level of 114,170.
The front non delivery month of April saw its OI register 180 contracts as the open interest  and thus  from the start 900,000 oz will stand. The next big delivery month is May and here the OI fell from 51,559 to 49,999.  The estimated volume at the silver comex was low at 36,017 compared to Thursday's level of 40,579.


March 31.2012:

preliminary summary for April: first day notice


Gold
Ounces
Withdrawals from Dealers Inventory in oz
13,599.67 Brinks
Withdrawals from Customer Inventory in oz
43,597.38 (HSBC, Manfra)
Deposits to the Dealer Inventory in oz

nil
Deposits to the Customer Inventory, in
nil
No of oz served (contracts) today
(231)  23,100
No of oz to be served (notices)
8773 (877,300)
Total monthly oz gold served (contracts) so far this month
(231) 23100
Total accumulative withdrawal of gold from the Dealers inventory this month
13,599.67 
Total accumulative withdrawal of gold from the Customer inventory this month

43,597.38


We had no deposits of any kind into the gold vaults which is quite strange on a first day notice.
However we had considerable withdrawals from the customer and dealer.


The dealer at Brinks withdrew 13,599.67 oz.
The customer had the following withdrawals:


1.  Out of HSBC  43,533.08 oz
2.  Out of Manfra:  64.3 oz


total withdrawal by customer: 43,597.38


we had two adjustments with one very massive:


1.  from the vaults of HSBC:  11,255.23 oz was removed from the dealer to repay a customer.
2.  from the vaults of JPM; (who else)  240,433.48 oz was removed from the dealer list and returned back to the customer at JPM. The registered gold or dealer gold falls to 2.396 million oz or 74.52 tonnes of gold.


Friday was first day notice and strangely only 231 notices were served despite a rather high 9004 contracts standing.  Again it looks like the boys are having trouble finding the necessary gold oz. to satisfy our longs.


To calculate what will likely stand, I take the number of notices served  231 x 100oz =  23,100 oz and add the number of notices that need to be served:  8773 x 100 oz  =  877,300 oz


Thus the total number of gold ounces that are likely to stand in April is as follows;


23,100 oz (already served first day notice ) +  877,300 oz (to be served upon during April  =  900,400 oz.


end





the preliminary silver chart for April:    March 31/2012:









Silver
Ounces
Withdrawals from Dealers Inventory603,302.87 (Scotia)
Withdrawals from Customer Inventory31,331.44(Scotia)
Deposits to the Dealer Inventorynil
Deposits to the Customer Inventory 596,947.87 (Delaware,Scotia)
No of oz served (contracts)155 (755,000)
No of oz to be served (notices) 25 (125,000)
Total monthly oz silver served (contracts)155 (755,000 )
Total accumulative withdrawal of silver from the Dealers inventory this month603,302.87
Total accumulative withdrawal of silver from the Customer inventory this month 31,331.44

We had considerable action inside the silver vaults on Friday.
However we did not see any silver deposit into the dealer.  
The dealer did have a massive withdrawal of 603,302.87 oz out of Scotia.
The customer at Scotia had a 31,331.44 oz of silver removed from its vaults.
We had a fairly sizable adjustments where the dealer repaid 190,015 oz back to the customer at HSBC. Together, the dealer withdrawal of 603,302.87 oz plus the adjustment of 190,015 oz
matches closely the number of ounces that were served upon on Friday, the first day notice for the silver comex.


The registered silver rests this weekend at 34.03 million oz
The total of all silver rests at 137.07 million oz.


The CME reported that on first day notice we had 155 notices served for 775,000 oz.
To obtain what is left to be served upon, we take the OI standing for April (180) and subtract out the first day deliveries (155) which leaves us with 25 notices or 125,000 oz left to be served upon our longs.


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


775,000 oz (served)  +   125,000 oz (to be served upon)  =  900,000 oz


I have asked JB Slear to check again as to how the options of a non delivery month are treated.
In a delivery month a futures contract is given once an option is exercised.  So we are now in the month of April and all in contracts in the money by March 31 will receive a futures April contract and thus are standing for delivery if they did not roll. The player must pay the entire amount of dollars per contract to stand.


It seems that in a non delivery month like April silver, the investor who exercises his option
receives not an April contract but May, the next delivery month. We are checking whether the option holder must pay the entire contract or wait until May goes off the board.
It seems kind of silly that anyone can by pluck his money down can stand in any month but this is what we have found out so far.


Here is the letter sent to me from JB explaining what he discovered.
Needless to say, he does not use options on an non delivery month as this was quite surprising to him:






Hello Harvey,
  I spoke with the pit boss. He didn’t go to the CMEgroup website either (They’ve been caught many times doing a cut and paste up on their website from the past owners of CME without confirming any changes), but to another type of financial directory. He claims if an individual does get exercised into a futures in a serial month they will be exercised into a “deliverable” month. We started wracking our brains on why they would do this instead of delivering the month listed. I asked the question based on a working position; If a buyer of a March Gold $1500 Call option wants to hold the position where it becomes a futures contract in which he stands for delivery, he “will” be delivered into a “June” contract (even though there are over 900+ working contracts in the April contract). This is backwards to me, after all we’ve taken delivery of physical in the serial months all the time for years now. In closing, it looks like our banker friend is correct, but I still challenge this because it doesn’t jive with common sense (and that may be why I’m wrong, it’s common sense that I’m using). I have a client that might be taking on a Deep in the Money Gold Call Option in the near future, if he buys a May Gold Call, I’ll let you know how it’s exercised, because it should be delivered into the same contract month and not the next one out. Sorry for giving you wrong data, apparently we can’t prove we’re right till a client is willing to post his/her own findings. Without that, the written word is still to be followed.

JB Slear
Fort Wealth Trading Co LLC.
www.FortWealth.com  


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.



March 31.2012:

Total Gold in Trust

Tonnes:1,286.62

Ounces:41,366,147.03

Value US$:68,743,248,171.52





March 29.2012:




TOTAL GOLD IN TRUST

Tonnes:1,286.62

Ounces:41,366,147.03

Value US$:68,537,168,736.93





MARCH 28.2012



TOTAL GOLD IN TRUST

Tonnes:1,286.62

Ounces:41,366,147.03

Value US$:69,303,191,505.25









March 27.2012:



TOTAL GOLD IN TRUST

Tonnes:1,286.62

Ounces:41,366,147.03

Value US$:69,965,807,277.91









we neither had a gain nor a loss of any gold into or out of GLD vaults today.


end




And now for silver March 31; 2012:


Ounces of Silver in Trust312,972,913.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,734.55


March 29.2012


Ounces of Silver in Trust312,390,225.200
Tonnes of Silver in Trust Tonnes of Silver in Trust9,716.42



we gained 583,000 oz of silver into the SLV vaults.









   


end



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



1. Central Fund of Canada: traded to a positive 3.9percent to NAV in usa funds and a positive 3.7% to NAV for Cdn funds. ( March 31.2012)

2. Sprott silver fund (PSLV): Premium to NAV  rose slightly   to  6.62% to NAV  March 31.2012 :
3. Sprott gold fund (PHYS): premium to NAV rose to  3.02% positive to NAV March 31 2012). 

end


Friday saw the release of the COT report:


Gold COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
182,369
34,548
22,659
152,335
337,411
357,363
394,618
Change from Prior Reporting Period
7,360
-8,998
-9,060
-14,524
4,414
-16,224
-13,644
Traders
174
55
70
47
48
253
147


Small Speculators




Long
Short
Open Interest



59,941
22,686
417,304



2,489
-91
-13,735



non reportable positions
Change from the previous reporting period

Our large speculators:

Those large speculators that have been long in gold added a surprisingly high 7360 contracts as these guys sensed that the commercials were done with their short selling.

Those large speculators that have been short, covered a huge 8998 contracts from their short side.

Our commercials;

Those commercials who are close to the physical scene and long in gold
removed a huge 14,524 contracts from their long side.

Those commercials who are perennially short in gold added 4414 contracts to their short side.

Our small specs;

Those small specs that have been long in gold added 2489 contracts to their long side.

and those specs that have been short in gold covered a tiny 91 contracts from their short side.

Conclusion:  the bankers are loading up again on the short side ready to pounce on our longs when the time is right.  They know the regulators are on their side so they are fearless in their criminal collusive behaviour.

end

Silver COT Report - Futures
Large Speculators
Commercial
Total
Long
Short
Spreading
Long
Short
Long
Short
26,897
8,242
23,006
38,722
68,400
88,625
99,648
-1,592
922
-1,240
1,100
-1,348
-1,732
-1,666
Traders
63
32
41
37
45
122
99

Small Speculators




Long
Short
Open Interest



21,234
10,211
109,859



169
103
-1,563



non reportable positions
Change from the previous reporting period

COT Silver Report - Positions as of
Tuesday, March 27, 2012


Large Speculators:

Those large speculators that have been long in silver pitched 1592 contracts from their longs.  

Those large speculators that have been short in silver added a smallish 922 contracts to their shorts.

Our commercials;

Those commercials who are long in silver and are close to the physical scene
added 1100 contracts to their long side.

Those commercials who are perennially short in silver and are subject to the silver probe by the CFTC surprisingly covered 1348 contracts.

Our small specs;

those small specs that are long in silver added a tiny 169 contracts to their long side

and those small specs that are short in silver added a tiny 103 contracts to their short side.

Conclusion: extremely bullish again for silver.  It is even better than last week.
It seems that our banker friends are having trouble in the silver arena.

end

Speaking of silver, Ben Traynor goes a great commentary on gold and silver.  Please note that India is now importing 969 tonnes of physical gold or roughly 44% of annual global supply:

(courtesy Ben traynor/Bullion vault)

Silver Avoids 4th Straight Quarterly Loss, Gold Heads for Gains, India's Imports "Overstate Trade Deficit"



By: Ben Traynor, BullionVault


-- Posted Friday, 30 March 2012 | Share this article | Source: GoldSeek.com


London Gold Market Report

U.S. DOLLAR gold bullion prices hit $1669 an ounce ahead of US trading, more or less in line with where they started the week.

Stocks and commodities edged higher and US Treasuries dipped, while the Euro gained ahead of today's Eurozone finance ministers' meeting in Copenhagen.

Silver bullion meantime rose to $32.61 – a gain of 1% from the start of the week.

Heading towards the end of the first quarter of the year, gold bullion prices looked set to record their highest ever quarter-end London Fix of in Dollars, Euros and Sterling. 

Silver meantime avoided a fourth straight losing quarter, positing gains of 15% in Dollars, 11% in Sterling and 11.6% in Euros. 

However, most of the net gains in gold and silver for Q1 came in the first week of January, with gold having fallen sharply since gold failed to break $1800 last month.

"The physical market has stopped playing an important supportive role," one Singapore dealer told news agency Reuters this morning.

"There is so much physical material, yet we don't see any good offtake, as people are worried that it's not the right time to invest in gold now...we don't expect to see real physical demand until prices drop below $1600."

Many Indian gold dealers remained on strike Friday, having closed their stores for the past fortnight following the Union Budget on March 16 which doubled the import duty on gold bullion and introduced a 1% tax on gold jewelry sales.

India's government has said it is reviewing the gold sales tax, but finance minister Pranab Mukherjee says the import duty hike will not be reversed.

India imported an estimated 969 tonnes of gold bullion in 2011, according to World Gold Council data.

Including gold bullion imports in its trade figures may be "overestimating" India's current account deficit problem, according to Rajeev Malik, senior economist at Asia-Pacific investment group CLSA.

"Although it is technically correct to include gold imports and exports in the current account balance as per IMF guidelines," Malik says, "we peg the 'overestimation' of the current account deficit due to net gold imports to be around 20 to 30%."

"The close to $200 billion in imported gold over the past decade does not represent a drain on India's resources," adds Taimur Baig, chief economist India, Indonesia and Philippines at Deutsche Bank.

"Rather [it is] a diversification of India's wealth into precious metals."

One senior gold industry figure, Rajan Venkatesh of bullion bank Scotia Mocatta, suggested this week that the Indian government could encourage gold certificates and other measures to encourage people to deposit gold with the banking sector.

Turkey meantime, which like India has a current account deficit and satisfies much of its gold consumption via imports, is also considering proposals designed to encourage the growth of gold deposit accounts in its banking sector.

"Turkey has historically been affected by repeated currency crises and resultant inflationary pressures, hence households traditionally hold substantial amounts of gold," says the latest precious metals note from French bank Natixis.

This week, Turkey raised the proportion of Turkish Lira reserves banks can hold as gold from 10% to 20% – while cutting the proportion of foreign exchange reserves that can be held as gold from 10% to zero.

Combined with the move to encourage gold deposits with banks, the moves represents "an easing of monetary conditions, as well as enabling the Turkish banks to bolster their balance sheets through the use of a cheap source of capital," says Natixis.

Back to Friday, and "focus is firmly on the Eurozone," says a note from Marc Ground, commodities strategist at Standard Bank.

"We expect precious metals to follow the gyrations of the Euro/Dollar as markets react to speculations and/or announcements on this front." 

Eurozone finance ministers were today expected to approve combining the €440 billion temporary European Financial Stability Facility with the €500 billion permanent European Stability Mechanism when the latter becomes operational in July.

The move is aimed at raising Europe's so-called 'firewall' against sovereign debt contagion, which was identified at last month's G20 meeting as a prerequisite for additional International Monetary Fund aid.

"If the investors deem the plan as sufficient in reducing near-term Eurozone liquidity issues, we believe risk assets including gold may benefit," says a note from HSBC today.

Since many Eurozone policy announcements have already been leaked, however, any moves in gold and silver prices are likely to be "knee-jerk reactions, rather than signal a new longer-term trend" says Standard Bank's Ground.

Spain, which was hit by a general strike yesterday, was due to unveil a so-called austerity budget Friday.

Norway's $610 billion sovereign wealth fund meantime – which owns 2% of all European stocks – is to cut its exposure to Europe from 60% of its assets to 40%, the Financial Times reports.

Iran has been helping Syria to ship oil to China in defiance of Western sanctions, Reuters reported today.

Ben Traynor.


end.




Officially here is what was happening in Copenhagen Friday:





Euro zone agrees to boost rescue capacity

COPENHAGEN | Fri Mar 30, 2012 9:11am EDT
(Reuters) - Euro zone finance ministers agreed on Friday to raise their financial firewall to prevent a new flare-up of Europe's sovereign debt crisis, but it was unclear if markets and Europe's G20 partners would see the boost as sufficient.The 17-nation currency area agreed to combine its two rescue funds to make 500 billion euros of new funds available in case of emergency until mid-2013, on top of 200 billion euros already committed to bailouts for Greece, Ireland and Portugal.
The executive European Commission had proposed raising the total amount to 940 billion euros, of which 740 billion would have been as yet uncommitted funds, but EU paymaster Germany resisted a higher number.
Initial market reaction was positive, with the yields on Spanish bonds falling as investors weighed the ministers' decision and awaited a draconian Spanish austerity budget.
"Today's decision is a classic European compromise. It was as far as the German government was willing to go and it was the minimum most other euro zone countries were expecting," said Carsten Brzeski, economist at ING bank in Brussels.
"Obviously, a bigger increase along the lines of earlier discussed options could have sent a stronger signal and would have been more convincing," he said.
"With today's increase, the role of the ECB (European Central Bank) as Eurozone fire brigade is likely to continue."
An official statement said ministers had lifted the combined lending capacity of the temporary European Financial Stability Facility (EFSF) and the permanent European Stability Mechanism (ESM) to 700 billion euros from 500 billion.
"The current overall ceiling for ESM/EFSF lending ... will be raised to 700 billion euros," it said. "All together, the euro area is mobilizing an overall firewall of approximately 800 billion euros, more than 1 trillion dollars."
However, the highest headline number included money already disbursed from the EFSF, a smaller bailout fund controlled by the European Commission and bilateral loans which euro zone countries extended to Greece under the first bailout.
The 500 billion in fresh lending capacity for the combined funds until July 2013 takes account of the fact that the ESM will not start its operations at full capacity, but only grow into it as capital is paid in over three years.
It means 240 billion of uncommitted funds in the EFSF could be tapped if necessary until the ESM becomes bigger.
French Finance Minister Francois Baroin said the decision gave Europe a stronger hand to persuade other major economies to increase the International Monetary Fund's resources to fight contagion from the euro zone crisis if necessary.
"We are now in a strong position for discussion on the IMF in April. It is a good signal," Baroin said.
Some bond market players questioned whether the compromise would provide sufficient money to help Spain, the euro zone's number four economy, if it needs a bailout to overcome a banking crisis due to the collapse of a real estate bubble.
"At the end of the day the key question is whether this new firepower is enough," said Steve Barrow, head of G10 strategy at Standard Bank in London. "Clearly if things turn down again, and especially if more bailouts are needed, the tricky issue of underfunding the ESM/EFSF relative to the potential bailout need is bound to resurface."
After tempers flared, Eurogroup chairman Jean-Claude Juncker called off a scheduled news conference, saying Austrian Finance Minister Maria Fekter had already announced the outcome.
Juncker said the appointment of a new European Central Bank executive board member had been postponed until mid-April. He had earlier said fellow Luxembourger Yves Mersch was the strongest candidate for the ECB job.
The delay may have been due France's request to hold off on choosing a successor to Juncker as Eurogroup chairman until after the April-May French presidential election.
Diplomats said French President Nicolas Sarkozy wanted to avoid political embarrassment from the likely choice of German Finance Minister Wolfgang Schaeuble, which his opponents could portray as a sign of German dominance in the euro zone.
Commerzbank analyst Christoph Weil said the firewall boost, combined with extra assistance from the IMF, would probably be big enough to "offer shelter to Spain and Italy if necessary".
"Nonetheless, there is reason to fear that investors will remain skeptical and continue to demand high risk premiums for peripheral bonds," he wrote in a note.
SPANISH AUSTERITY
Countries sharing the euro have already agreed to adopt more strictly enforced balanced-budget rules in an effort to convince markets that their public finances will be sustainable.
They also agreed to slap fines on countries that run excessive budget deficits or have large imbalances in their economies.
Spain, which has rejected all talk of seeking assistance, was set to unveil a tough austerity budget on Friday designed to reduce its public deficit to 5.3 percent of gross domestic product this year from 8.5 percent in 2011 despite a recession.
"This is a budget that will be convincing, I am sure of that, and show the Spanish government's commitment to austerity and fiscal consolidation," Economy Minister Luis de Guindos said in Copenhagen.
He played down a general strike and mass street protests on Thursday that highlighted the scale of opposition to a new labor law making it easier to fire workers and dismantling collective wage bargaining. Hundreds of thousands of Spaniards marched in protest, with violence flaring in Barcelona.
Spanish bond yields rose again amid market doubts about Madrid's ability to implement reforms and repair public finances threatened by the recession and the banking crisis, at a time when unemployment is already 23 percent, the highest in the EU.
After a deal with investors this month to restructure Greek debt, increasing the amount of money the euro zone can provide to help members cut off from markets is seen as the next step to boost investor confidence.
In another move to ease the immediate crisis, Ireland managed to avoid a 3.1 billion euro payment to one of its failed banks, settling the bill by issuing a 13-year bond, Finance Minister Michael Noonan announced on Thursday.
CONDITION FOR MORE MONEY FOR THE IMF
The European Commission and several of the world's biggest economies have been pushing to increase the euro zone bailout capacity as much as possible, in the belief that once investors see a wall of money supporting euro zone debt, confidence would return and the rescue funds would never have to be used.
But Germany, where public opinion is hostile to bailouts, has been against raising the contingency funds, noting that markets have calmed down from the peak of the debt crisis.
Yet market concern about Spain, which badly missed its budget deficit target in 2011 and negotiated with the euro zone a softer target for 2012, have put the bailout capability discussion back on the table.
A higher euro zone bailout capacity is a pre-condition for most G20 countries to contribute more money to the IMF.
Euro zone diplomats are confident that the proposed temporary boost will be sufficient to unlock an additional 500 billion euros in contingency funds for the IMF.
The ministers are also to say that they will continue to review the adequacy of the ESM capital "as appropriate" and "in particular when used EFSF guarantees are freed once financial assistance is repaid".
(Additional reporting by Annika Breidthardt and Robin Emmott in Copenhagen, Swaha Pattanaik and Anirban Nag in London; Writing by Jan Strupczewski and Paul Taylor; Editing by Philippa Fletcher)


end


The zero hedge response:


(courtesy zero hedge)









The Full Math Behind The "Expanded" European Bailout Fund

Tyler Durden's picture





As noted earlier, futures this morning are higher despite a plethora of economic misses (and despite 57% of March US data missing as per DB), simply on regurgitated headlines of an "expanded" European €7/800 billion bailout fund. There is one problem with this: the headlines are all wrong, as none apparently have taken the time to do the math. Which, courtesy of think tank OpenEurope, is as follows: "The real amount of cash that is still available to back stop struggling states, should it come to that, is only around €500bn." Of course, that would hardly be headline inspiring: recall that that is simply the full size of the ESM as is. But even that number will hardly ever be attained, and the ECB will have to step in long before Europe needs anything close to a full drawdown: "The problem here is that if it’s too big and terrible to ever be used, it’s likely that it won’t ever be used. Even jittery markets will be able to figure out that a large fund which would damage French and German credit ratings if ever extended will never be fully tapped. So clearly some circular logic at play. And let's not forget that it’s still far too small to save Italy and Spain should if worse come to worse." Circular logic? Check. Another check kiting scheme? Check. Spain and Italy still out in the cold? Check. Conclusion -> buy EURUSD, and thus the ES, which has now recoupled with every uptick in the pair, but not downtick.
Who's Afraid Of The Big Bad Bailout Fund?

Update - 12:10: Eurozone finance ministers have already reached an agreement and put out a statement. It's pretty much exactly as we expected, with all assigned funds being rolled into the headline lending volume to give the €800bn.
The fact remains though that, even combined, the funds will not be able to introduce more than €500bn in fresh lending. This was the aim all along. In fact, all eurozone finance ministers have done is correct a previous mistake which would have limited the combined lending capacity to €300bn (as originally the treaty essentially specified that only €500bn in loans could be outstanding at any one time). There should be no illusions that this changes almost nothing (we expect not even the markets which have been reacting to every piece of news will be moved much by this). One thing is for certain though this is a clear win for Germany.
Eurozone finance ministers are meeting today, in what looks to be the most chilled get-together of this group in recent time. They’re set to sign off on an agreement that will see the combination of the eurozone’s temporary and permanent bailout funds, the EFSF and ESM. On paper, the funds have the potential to produce a combined firewall of €940bn. Still far too little if Italy and Spain went, but an impressive sum nonetheless. That is, on paper. In reality they won’t even come close to this.
In an interview with Bild this morning, German Finance Minister Wolfgang Schauble said he didn’t want to “unnerve markets with numbers”, but in a speech in Copenhagen he did just that, saying,
"We have 500 billion euros in fresh money available, together with the programs already agreed for Ireland, Portugal and the new program for Greece. It is about 800 billion (euros). I think it's enough."
Apparently, Schauble reached this number by adding €500bn from the ESM, €200bn from the EFSF, €56bn in bilateral loans to Greece and €60 billion from the third bailout fund, the European Financial Stability Mechanism (EFSM) – which is underwritten by all 27 member states via the EU budget. But much of this cash has already been spent, i.e. the EFSM only has €11bn left, and some of the other money can’t actually be lent out. In addition, the remaining €240bn in unused EFSF capacity will be held back for ‘exceptional circumstances’ until mid-2013.
As we’ve been reminded of time and again, the only thing that matters is effective lending capacity. The real amount of cash that is still available to back stop struggling states, should it come to that, is only around €500bn. Here’s the lending capacity math (courtesy of some excellent analysis by the WSJ):
  • Mid-2012 – The ESM will be limited to €210bn (as it will only have €32bn in paid-in capital). Along with the €240bn in ‘exceptional’ funds, this gives a total potential lending of €450bn. (The money which is already out the door should be ignored)
  • Mid-2013 – Following a second instalment of capital the ESM will be able to lend €420bn. The ‘exceptional’ funds will be wound down around this point.
  • Mid-2014 – All ESM capital paid-in, reaches total lending capacity of €500bn.
(There is one caveat to these figures, in that the eurozone could decide to speed up the paying in of ESM capital if the funds were needed. However, this would likely face significant opposition from the likes of Germany and Finland, and is therefore most certainly a last resort).
So despite Schauble’s comment, euro finance ministers continue to throw various different numbers around, which bear few resemblances to reality. We also note that the French Finance Minister, Fran├žois Baroin, yesterday floated an unfortunate analogy. He said,
"The bailout fund is a bit like the nuclear weapon in the military domain…It is not intended to be used but to act as a deterrent."
The problem here is that if it’s too big and terrible to ever be used, it’s likely that it won’t ever be used. Even jittery markets will be able to figure out that a large fund which would damage French and German credit ratings if ever extended will never be fully tapped. So clearly some circular logic at play. And let's not forget that it’s still far too small to save Italy and Spain should if worse come to worse.
But at least eurozone ministers can look forward to a quieter Friday than usual...


end

This did not take long:

Greek PM does not rule out new bailout package


(Reuters) - Prime Minister Lucas Papademos said on Friday Greece may need a third bailout package if the sweeping austerity measures demanded by its international creditors fail to stabilize its shattered economy and restore market confidence.
It was the first time Papademos publicly confronted his people with the risk, already mooted by wary EU, IMF and German officials, that the austerity program might fall through if they don't try hard enough.
His remarks were seen as an encouragement to support pro-bailout parties in a snap election expected on May 6.
"Greece will do everything possible to make a third adjustment program unnecessary," Papademos told Italian business daily Il Sole 24 Ore, according to a transcript of his remarks. "Having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed on.
"It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome."
Greece secured a 130 billion euro bailout from the International Monetary Fund and the European Union last month after it won agreement from private sector creditors to take part in the biggest debt restructuring in history.
But with its economy in the fifth year of deep recession, skepticism about the effectiveness of government reform measures and deep public resistance to further doses of austerity, there have been widespread expectations that more aid will be needed.
According to an analysis from the IMF, the EU and European Central Bank, even if Greece sticks to its agreed reform program to 2030, it may need more support after 2014.
However, Papademos repeated that Greece would do everything necessary to remain in the euro zone, saying the consequences of an exit would be "devastating".
"More than 70 percent of the Greek people support the country's continuing participation in the euro area," he told the Italian business newspaper. "They realize, despite the sacrifices made, that the long-term benefits from remaining in the euro zone outweigh the short-term costs."
Speaking in parliament on Friday, Papademos warned lawmakers that the government would need to identify almost 12 billion euros of fresh budget cuts for 2013 and 2014 immediately after the upcoming election, expected on May 6.
"What's important is to implement the policies included in the (bailout) program in an effectively and timely manner," he said. "If this doesn't happen, nobody can expect its anticipated results to materialize."
(Reporting by Stephen Jewkes and Harry Papachristou in Athens; Editing by Mark Heinrich)



end

Here is a great summary as to what is going on in Greece courtesy of Wolf Richter

(www.testosteronepit.com)


Greece: Now They’re Not Even Trying Anymore

testosteronepit's picture




Wolf Richter   www.testosteronepit.com
Italian Prime Minister Mario Monti, while visiting Japan,summarized it eloquently when he said, "The financial aspect of the crisis is over." The ECB, despite any apparently fake German reservations, has jumped with both feet on the money printing bandwagon where it happily joins the Fed, the Bank of Japan, and other central banks around the world. The endless flow of money has started in the Eurozone, and Greek politicians, it turns out, have figured this out.
Among them, Prime Minister Lucas Papademos who didn't wait long to put the need for a third bailout package on the table. And the difficult reforms are falling off the table one by one. The new priority is the general election on May 6—the flood of euros having been secured for the time being. Politicians are jostling for position to grab whatever votes they can. They're no longer paying attention to their legislative work, the tough reforms that party leaders and the government had promised the bailout Troika. Some of which would have to be completed before the elections. Promises made solely to obtain the second bailout package.
And they’re altering what little reform legislation does move forward, such as liberalizing the taxi industry, to curry favors with their supporters—to the utter frustration of their unelected technocrat Prime Minister who implored his ministers to focus on their jobs and stop the political quibbling. Apparently with little impact.
“It is the prime minister’s decision that this government should continue working right up to the last day,” spokesperson Pantelis Kapsis said lamely but admitted that much of the work would be left to the next government. So, the interim government only accomplished part of its job: the bond swap, a default that blew up over €100 billion in Greek bonds held by private sector investors. “We owed it to our children and grandchildren to rid them of the burden of this debt,” mused Evangelos Venizelos, at the time Finance Minister, after having whacked private sector investors with a 72% loss, while the drumbeat of Greece’s economic horror show continues. For that unrelenting debacle and its consequences, read.... “A harder Default To Come.”
The interim government also accomplished another part of its job: it opened the Troika money spigot and got the bailout billions flowing again. But many of the reforms that it promised to implement would remain up in the air.
With one exception. Under pressure from the bailout Troika, Parliament is moving on a bill that would set in motion thecreation of an escrow account for a big portion of the bailout billions, a condition imposed by the Troika who no longer trust Greece on anything. They want to make sure the money doesn’t evaporate. It will be used to repay Greece’s foreign creditors—their backdoor bailout being the purpose of the whole scheme. The Greek people, however, will see little of it.
And Papademos, who was supposed to oversee the implemention the reforms, and who has been shunted aside, darkened his outlook for the next government.
Further wage cuts might be necessary, he said on Friday. And “joblessness will probably increase and the recession will probably continue,” through “most of 2013”—a downward revision from his assessment of only a few weeks ago when he pegged the end of the recession at mid-2013. With the bailout billions, the government would likely have enough money to fund pensions till 2015, he said, but that would be it. And his government was working on a proposal to cut another €12 billion from the budget, as promised to the Troika, he said, but the nearly impossible job of implementing those cuts: “The next government and the next parliament will decide.”
The writing is on the wall. Little will get done before the election. And after the new government takes over, it’s back to square one. More promises, more strikes, more disappointments, and the extortion racket to get more bailout billions will start all over again.
Meanwhile, across the border, deficit-plagued and inflation-infested Turkey floated a plan to get its people to turn in their huge stash of physical gold in exchange for paper “certificates,” a first step in what may become a process of gold confiscation. And this, just as the world's major central bankers met in Washington. For that load of ironies, doublespeak, and red flags, read.... Gold Confiscation, Inflation, And Suddenly Virtuous Central Bankers.

end

Spain is to deliver its austere budget yesterday:

(courtesy Louise Armistead/UKTelegraph)

The pain in Spain may not be enough

What will eurozone leaders do to Luis de Guindos this time? Last time Spain's finance minister met with fellow finance ministers, a photographer snapped him being throttled by Jean Claude Juncker, the head of the eurogroup. 

 

 

by Jean Claude Juncker, the head of the eurogroup.

Riot police block the main door of the stock exchange after protesters burn trash at the entrance during a general strike in Barcelona

 

Thursday's demonstrations rattled the markets and pushed Spain's shares down and borrowing costs up Photo: AP
That was because he and Spain's prime minister Mariano Rajoy had demanded Brussels relax the austerity targets for their struggling nation. Just a few weeks on, de Guindos is heading to Friday's meeting in Copenhagen amid fears that Spain needs a Greek-style bail-out.
Rajoy succeeded in getting Spain's budget targets for 2012 relaxed from 4.4pc of GDP to 5.3pc. His officials told Brussels that their target of 5.8pc would be "suicidal"; Rajoy said it was a "sovereign decision, made by Spain".
Rajoy's victory served as a warning flare to markets, but it delighted Spaniards. But on Thursday it counted for nothing: as the new regime prepared to unveil its first Budget on Friday, Spain was brought to it knees by protests. The demonstrations rattled the markets and pushed Spain's shares down and borrowing costs up.
Citigroup's Willem Buiter said he expected Spain to "be pushed into a troika programme of some kind during 2012", either because it gets shut out of the bond markets or its banks fail.
European finance ministers are gathering again to resolve the advancing debt crisis, but, despite international demands for action, the draft document is pointing to another dangerously damp squib.
Spain is the big worry: it's raced to the head of market fears - as well as the political agenda - with alarming speed.
International leaders and traders are now watching in horror. The tightrope Rajoy is trying to walk between austerity and human costs is the fault line dividing the whole of Europe.
On one side there's the German-led plan to forcibly reduce debt by axing public spending, raising taxes and executing structural reforms; on the other is a demand for more support of the sinner states to avoid depression and anarchy.
But with hopes fading that massive support will be agreed in Copenhagan, the world is watching Rajoy instead. Can he turn around Spain's economy alone?
Friday's Budget is a vital test. Earlier this week, Rajoy promised a "very, very austere budget". He was backed by Cristobal Montoro, the Budget minister, who said the Budget was "tough".
Over the 100 days they've been in power the pair have proved their mettle, pushing through a raft of radical reforms from axing severance pay to overhauling contract laws, and announcing sweeping cuts to the public sector. After Friday, Spain is expected to attempt €35bn of cuts, on top of the €8.9bn already budgeted, as well as €6bn of tax rises.
But, in a country whose regions hold considerable power, passing reforms are very different to implementing them. On Sunday, Rajoy's PP party failed to win control in the crucial Andalusia elections, leading to warnings that his austerity measures would struggle in the regions.
Spain's banks are more critical still. Rajoy has overseen some consolidation and has demanded the banks come up with a €50bn recapitalisation programme by the end of March. A European Commission assessment this week suggested it would be woefully inadequate, even if it were successful.
On top of the current debts, the banks - which lent billions of euros during the property boom - stand to suffer more as Spain's housing market continues to fall.
Citgroup's Buiter said: "New property and real estate-related losses are likely to come their way as a result of further property price declines. The Spanish banks are unlikely to be able to absorb these losses. If these institutions are deemed too important to fail, these losses could migrate to the public sector, which could have severe problems carrying them."
Experts have called for the bail-out fund, the European Finacial Stability Fund, to be used to help recapitalise the banks, if not the country.
So far, the answer from Brussels is no. But faced with losing its fourth biggest economy, the eurozone may be forced to reconsider.
The only other alternative put forward in Brussels on Thursday was an April Fool's statement from the European Council. The Pope would "pray for divine intervention to save the euro", it said. "This is now seen as the most credible strategy."

end


This is a great commentary on the two schools on inflation:

Keynesian vs Austrian:


A View on Inflation & Keynesian Talking Points

CrownThomas's picture



As the world spins helplessly into insolvency, central banks are becoming more and more active in helping to "solve" the crisis (although some would argue it's odd to have those who helped create it be counted on to help solve it). As this is taking place, the Keynesians (MMT'ers) and Austrians are renewing their rivalry, and are once again going after each other for their thoughts on the situation (note: it really doesn't matter what the Austrians believe, as the Keynesians are currently in charge of the decision making).
Volumes can and have been written on these two schools of economic thought - what I'd like to focus on is inflation.
Austrians are always sounding the alarm on inflation, and the Keynesians always laugh and point to the monthly CPI figures the BLS publishes. They say that it's in the 2%-3% range, everything is fine. And besides, the velocity of money is down significantly, so the Austrians need to be quiet and take their "crazy" somewhere else.
That's one way to look at it. I would argue that inflation is all around us, we just choose not to look.
Some context: Say you were buying apples at your local store. What if you thought that there were only a dozen apples in the store you were in, with no chance of more apples being delivered. You'd place a higher value on each apple right? Now what if you knew there was a truck load of apples being delivered shortly - you'd place a little less value on each apple, knowing that the supply of apples will be increasing shortly.
This is the same way Austrians view the value of money. They believe that individuals value money based on both quantity, and QUALITY. If the Federal Reserve can just print money and increase the money supply, creating more dollars to chase a similar amount of goods, why would you value each dollar the same as you would before the money supply was increased? And in regards to velocity of money, the velocity of money does notcreate inflation, it is a symptom of inflation. Think about it, if you knew there were more and more dollars chasing the same amount of goods around, you'd begin to draw on your account & borrow to purchase goods now instead of in the future, thus increasing the velocity of money. But the inflation was already there when the money supply increased arbitrarily.
Inflation is all around us. I don't need to get into things like WTI or Brent, you feel the effects of those each time you get gas. What I'd like to point out are things like healthcare, energy as a whole, housing prices, and student loans. Do you not see the inflation in those areas? -- As an aside, I recommend readingthis piece ZH published on student loans.
Here's the case I lay out for those reading to make up their own minds. The Federal Reserve prints money, "buying" treasuries & increasing the money supply, thus devaluing the dollar. The Government then subsidizes all of the aforementioned areas, which means more dollars are available to purchase those goods & services. And this is how the game is played (also, banks net income swells as a result).
A. M2 (Money Supply) skyrockets (Fed printing)

B. An Example of Government Subsidies in Student Loans

C. Here's Your Inflation (that nobody can seem to find)

D. All with a declining velocity of money

E. The USD is losing value at a rapid pace (but who wants the paper tied to something of value, that's crazy) -- Also, you can look at DXY, but you'd only be looking at how the U.S. is doing devaluing their currency vs. the rest of the currencies in the race to the bottom.  


And may I present to you the only reason money is printed - so everyone can consume all those iPads and sweet big screen tv's:

Eventually the game will be up folks, and I strongly recommend you learn to live below your means before you're forced to. Theponzi will fail, and the economy will reset - the only question is when.
In the spirit of the Zero Hedge Mob


end


Lee Adler does a great job dissecting the jobless claims.  He notes that once individuals are removed from the 99 weeks of benefits they head over to the student loan category to receive badly needs funds to operate and spend:

(Lee Adler)

Interpreting The Head Scratching Unemployment Claims Data

ilene's picture


Interpreting The Head Scratching Unemployment Claims Data

Courtesy of Lee Adler of the Wall Street Examiner
Actual, not seasonally adjusted, initial unemployment claims totaled 319,349 last week, according to the Department of Labor tabulation of weekly data submitted to it by the 50 state employment departments. This number was virtually unchanged from the prior week total of 319,382. As always, the media reported only the seasonally manipulated numbers showing a decline of 5,000 claims to 359,000. And that left them scratching their heads because of a major revision of 5 years worth of seasonally adjusted crap data. Here's how the DOL put it:
This week's release reflects the annual revision to the weekly unemployment claims seasonal adjustment factors. The seasonal adjustment factors used for the UI Weekly Claims data from 2007 forward, along with the resulting seasonally adjusted values for initial claims and continuing claims, have been revised.
The good news is that the actual data is the actual data. It doesn't change because of some ever changing seasonal hocus pocus factor that results in 5 years worth of data revisions that still do not accurately reflect reality. I analyze only the actual data, which is the data that everyone should be focused on. The government reports it. The mainstream media and the economic punditry ignore it. It's no wonder that their guesstimates have all the accuracy of a coin flip.
Because there are seasonal fluctuations that do vary widely based on underlying economic conditions, in order to determine whether this week's number is good, bad or indifferent,  we need to compare like to like. That's easy. Just compare this week's number to the same week in prior years, comparing both the total, and the weekly change. Total claims during the week ended March 26, 2011 were up by 3,000 to 357,457. Total initial claims this year in the week ended March 24 were down 10.7% from that level. The flat week to week change was this year, represents a not material improvement versus the 2011 data.
In the week ended March 27, 2010, initial claims fell by 449 to 408,204. This week's report was not materially different than that change, and it represents a 21.8% decline from that total. Looking at the big picture, the trend rate of decline in first time claims has consistently been around 10% for the past 18 months. There's no sign of any change in that rate, suggesting that the economy remains in a slow growth path, shedding far fewer jobs than during the 2008-2009 collapse.
Initial Unemployment Claims Chart - Click to enlarge Initial Unemployment Claims Chart - Click to enlarge
Continuing claims are on a similar downward plane, declining for the past 3 months at approximately a 10% rate.
Continuing Claims Chart - Click to enlarge Continuing Claims Chart - Click to enlarge
The problem here is that we have no way to know how much of that is due to people getting jobs and how much is due to people exhausting their benefits and falling through the social safety net. Many of these unfortunates resort to what I call "synthetic unemployment compensation," aka government guaranteed student loans.

Growth of Federal Student Loans - Chart
Growth of Federal Student Loans - Click to enlarge
This chart represents the growth of Federal student loans outstanding. After hovering around $10 billion in 2007, the amounts outstanding grew to around $175 billion at the end of 2010, tracking the growth of continuing unemployment claims. But as continuing claims began to decline in 2010, these loan programs continued to grow,  with another big spike in 2010 when the Federal government temporarily allowed extended unemployment benefits to expire.
Finally late in 2011 and early this year, with continuing claims and extended and emergency Federal unemployment claims in declining trends, Federal student borrowing programs again surged. This is a sign of the hidden unemployment problem among young adults, who turn back to school out of desperate need for funds of any kind. Unfortunately, many of these loans will only be partly repaid in 40 years when the government garnishes the borrowers' social security benefits. For now, for many this funding represents a last desperate means of sustenance.
None of the data tells us how many jobs the economy is adding, but the real time withholding tax data, adjusted for inflation tells us, "Not many,"  in fact, none.
Withholding Tax Chart- Click to Enlarge Withholding Tax Chart- Click to Enlarge
The 4 week moving average of the annual percentage change in withholding tax collections is virtually zero, suggesting that the economy hasn't added any jobs since this time last year. It's probably a good bet that the  March payrolls data to be released a week from Friday will disappoint.
The claims data suggests that the labor market has been a model of consistency. While that may raise suspicion in the "vast government conspiracy" wing of economic chatterers, if the government is fudging, it has been doing so for a long time with multiple data streams. That would involve manipulation across a multitude of government agencies involving scads of data managers, analysts, and other employees. It's likely that somebody would have squealed if the data was being falsified on a large scale over time.
While the media wallows and flails in the clearly unreliable seasonally adjusted nonsense, I think the actual data tells a reasonably clear story that seems consistent with a wide range of data that I track, as well as simple empirical observation of the real world. Things are marginally improved today. We can debate whether the forces driving that improvement are sustainable (they're not), and we also know that a growing parallel universe is developing with increasing numbers of people who have fallen through the cracks. But the relative improvement, however slight, is real, and that's all that matters to buyers of equities. As long as these trends hold their own, the stock market should do so as well.
That does not change the fact that while fewer people are claiming unemployment benefits, many more have fallen off the rolls, and far fewer people have full time jobs today than 4 years ago.  That does not look likely to change any time soon based on the current data.
Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!
Copyright © 2012 The Wall Street Examiner. All Rights Reserved. This article may be reposted with attribution and a prominent link to the source The Wall Street Examiner.



end

You will love this:


Massive $17 Trillion Hole Found In Obamacare

Tyler Durden's picture





Two years ago, when introducing then promptly enacting Obamacare, the president stated that healthcare law reform would not cost a penny over $1 trillion ($900 billion to be precise), and that it would not add ‘one dime’ to the debt. It appears that this estimate may have been slightly optimistic…by a factor of 1700%. Because coincident with the recent Supreme Court debacle, in which a constitutional law president may be about to find that his magnum opus law is, in fact, unconstitutional, someone actually read the whole thing cover to cover, instead of merely relying on the CBO’s, pardon Morgan Stanley and Goldman Sachs’, funding estimates. That someone is Republican Jeff Sessions who after actually running the numbers has uncovered that the true long-term funding gap is a mind-boggling $17 trillion, just a tad more than the original sub $1 trillion forecast. This latest revelation means that total underfunded US welfare liabilities: Medicare, Medicaid and social security now amount to $99 trillion! Add to this total US debt which in 2 months will be $16 trillion, and one can see why Japan, which is about to breach 1 quadrillion in total debt (yen, but who's counting), may want to start looking in the rearview mirror for up and comer competitors. And while Obama may have been taking creative license with a number that is greater than total US GDP, he was most certainly correct when saying that Obamacare would not add a penny to US debt. Because the second the US government comes to market to fund a truetotal debt/GDP ratio of 750%, it is game over, and the Fed will have its hands full selling Treasury puts every waking nanosecond to have any time left for the daily 3pm stock market ramp.
What is it that brought about this discovery of some inverse cash under the rug? The Daily Caller explains.
The hidden shortfall between new spending and new taxes was revealed just after Supreme Court justices grilled the law’s supporters about its compliance with the Constitution’s limits on government activity. If the court doesn’t strike down the law, it will force taxpayers find another $17 trillion to pay for the increased spending.

The $17 trillion in extra promises was revealed by an analysis of the law’s long-term requirements. The additional obligations, when combined with existing Medicare and Medicaid funding shortfalls, leaves taxpayers on the hook for an extra $82 trillion in health care obligations over the next 75 years.
Regular readers are well aware that when it comes to US insolvency, the underfunded American welfare statewhose obligations now amount to $100 trillion!, is the primary cause of this country's ultimate downfall. This latest revelation only makes it that much more certain, and likely, faster.
Currently, the Social Security system is $7 trillion in debt over the next 75 years, according to the Government Accountability Office.

Also, Medicare will eat up $38 trillion in future taxes, and Medicaid will consume another $2o trillion of the taxpayer’s wealth, according to estimates prepared by the actuarial office at the Centers for Medicare and Medicaid Services.

The short-term cost of the Obamacare law is $2.6 trillion, almost triple the $900 billion cost promised by Obama and his Democratic allies, said Sessions.

The extra $17 trillion gap was discovered by applying standard federal estimates and models to the law’s spending obligations, Sessions said.

For example, Session’s examination of the health care law’s “premium support” program shows a funding gap $12 billion wider that predicted.

The same review also showed the law added another $5 trillion in unfunded obligations for the Medicaid program.
Of course, that this "discovery" happened two years after the law was originally proposed and enacted merely once again confirms that other banana republics have nothing on the US, and that America continues to live in a state of sheer chaos when it comes to understanding that every use of funds must ultimately have a source as well.
Jeff Sessions' full presentation.
As a reminder this is what One trillion looks like.
...Now multiply by 17.
end



The USA dollar will now start to suffer as India and China try to skirt the Iranian sanctions:

(courtesy Bloomberg)

India and China Skirt Iran Sanctions With ‘Junk for Oil’

Iran and its leading oil buyers, China and India, are finding ways to skirt U.S. and European Union financial sanctions on the Islamic republic by agreeing to trade oil for local currencies and goods including wheat, soybean meal and consumer products.
India, the second-biggest importer of Iran's oil, has set up a rupee account at a state-owned bank to settle as much as much as 45 percent of its bill, according to Indian officials. China, Iran’s largest oil customer, already settles some of its oil debts through barter, Mahmoud Bahmani, Iran’s central bank governor, said Feb. 28. Iran also has sought to trade oil for wheat from Pakistan and Russia, according to media reports from the two countries.


The trend is growing, sanctions specialists and U.S. officials say, and is denying the Islamic Republic hard currency to prop up the plummeting value of the rial and to fund nuclear and missile programs. Iran already is starved for dollars and euros to support the rial, and barter deals will force it to spend billions of dollars of oil revenue on goods, according to Kenneth Katzman at the Congressional Research Service, a nonpartisan government-research institute in Washington.
“Iran cannot stabilize the value of its currency with such unorthodox payment methods, and that is why its economy is collapsing,” Katzman, an Iran sanctions specialist, said in an interview. “Iran is essentially on a junk-for-oil program.”

Local Currency, Gold

The second-largest producer in the Organization of Petroleum Exporting Countries, Iran said last month it will accept payment in any local currency or gold as new sanctions make it harder for trading partners to pay in dollars and euros.
The barter trend, lawyers and trade analysts say, is exposing an unintended consequence of sanctions. Cutting Iran off from the global financial system, they say, is driving trade into informal channels and producing greater opportunities for corruption and the diversion of funds for illicit purposes.
“Payments through the financial system are easier to police, and there is less scope for corruption,” said Nigel Kushner, a London-based attorney who specializes in Iran sanctions and export controls.
While “the upside of denying Iran access to hard currency for furthering its nuclear program outweighs the downside of decreasing transparency and pushing trade underground, we could be left very much in the dark as to who is dealing with Iran,” Kushner said in an interview.

Harder to Police

“When you force trade out of established channels, you have no way to measure it” or to verify that Iran’s trading partners are abiding by global sanctions regimes, said Barbara Slavin, a senior fellow at the Atlantic Council, a Washington research group.
Iran is feeling the impact of tightened sanctions on finance, insurance, shipping and energy. The Society for Worldwide Interbank Financial Telecommunication, known as Swift, expelled Iran’s central bank and more than 20 other Iranian banks this month, making it almost impossible for Iran to complete large international funds transfers.
The biggest winners in the rise of barter deals with Iran are India and China, the world’s fastest-growing major economies, which now are able to meet some of their burgeoning energy demands by trading rupees and yuan or agricultural and consumer goods, analysts said.

Oil for Electronics

Iran is using yuan paid into Chinese bank accounts to buy Chinese-made washing machines, refrigerators, electronic goods, toys, clothes, cosmetics and toiletries, Katzman said.
Rupee payments to Iran from India may total at least $4 billion a year and will be deposited in India’s state-run UCO Bank (UCO), which doesn’t have U.S. operations and is unlikely to be affected by the global sanctions, according to an official with knowledge of the matter who declined to be named because the information is confidential.
Payments in local currencies such as the yuan and rupee, which are not fully convertible, are less beneficial for Iran than hard currencies such as dollars, euros, and Japanese yen.
Trevor Houser, an energy analyst and partner at the Rhodium Group, a New York-based economic research firm, said paying for Iranian oil in rupees is “a pretty good deal for India, and it’s a pretty bad deal for Iran.” It limits the goods the Persian Gulf nation can buy and “deprives Iran of the hard currency they need for effective monetary policy,” he said in a telephone interview.

Not Violations

India’s $2.7 billion in exports to Iran last year amounted to less than a third of the $9.5 billion worth of crude oil that India bought from the Islamic Republic, meaning it may prove difficult to pay for as much as 45 percent of Iran’s oil exports through barter.
Barter deals themselves don’t violate sanctions provided that no laws are broken, such as dealing with sanctioned banks and companies or providing technology for Iran’s nuclear program, according to three Obama administration officials who spoke on condition of anonymity because of the sensitivity of the issue. So long as countries comply with a new U.S. law by reducing Iranian crude imports, there’s no prohibition on paying for that oil with legal goods and services, the officials said.
If India pays for oil with wheat, one U.S. official said, that’s better than paying the Iranians in dollars or euros they might use to buy additional centrifuges to enrich uranium.

Nuclear Issues

Another U.S. official said the administration has no evidence that any country is using barter deals to conceal increased oil imports from Iran or to trade in illicit goods.
Iran earned about $100 billion from crude oil exports in 2011, according to International Monetary Fund projections. U.S. and EU sanctions imposed since November are intended to squeeze the Islamic Republic’s economy, persuading its leaders to abandon any illicit aspects of its nuclear program.
United Nations inspectors issued a report Nov. 8 raising questions about possible military dimensions of Iran’s nuclear program, adding fuel to U.S., EU and Israeli claims that Iran is seeking to develop nuclear weapons. Iran says its program is strictly for civilian energy and medical research.
China and India have maintained commercial ties with their Persian neighbor even as the sanctions have created obstacles. Trade among the nations dates back 2,200 years to the Silk Route, a trade network spanning Central and East Asia.
While neither China nor Iran has made details of existing barter arrangements public, China’s exports to Iran increased to $14.8 billion in 2011, compared with $900 million in 2001, according to Chinese customs data. China imported $21.7 billion in Iranian oil last year, the figures show.

‘Merchant Mentality’

India exported $2.7 billion worth of goods to Iran in the financial year that ended in March 2011, according to India’s Department of Commerce. Iron and steel articles were the biggest category, accounting for $623 million. That was followed by $454 million in products including inorganic chemicals, precious metal compounds and rare-earth metals, and $419.6 million in cereals.
Seventy Indian business representatives met Iranian companies and officials in Tehran and Tabriz this month to discuss boosting trade, said Anand Seth, spokesman for the Federation of Indian Export Organizations, which organized the tour. The federation, a partnership between private companies and the Indian Commerce Ministry, won’t release the names of the Indian companies for fear of subjecting them to pressures from the U.S., Seth said.
“Barter trade is nothing new for Iran, and the country’s merchant mentality will adapt quickly to the new situation,” Bijan Khajehpour, an Iranian business consultant based in Vienna, said in an interview.
To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


end

Now the Bank of Korea has cut USA dollar reserves.  The USA dollar is heading south:

(courtesy Bloomberg)

Bank of Korea cuts dollar reserves by 3%

Section: By Eunkyung Se
Bloomberg News
Friday, March 30, 2012
SEOUL, South Korea -- South Korea, Asia's fourth-largest economy, pared the share of dollars in its foreign-exchange reserves to the lowest level since the global financial crisis erupted in 2007.
Dollar holdings dropped to 60.5 percent of foreign- exchange reserves at the end of last year from 63.7 percent in 2010, the central bank said in its annual report for 2011 released today.
The drop underscores a shift among reserve managers to diversify assets, with China's yuan and Australia's dollar among the beneficiaries. South Korea's government earlier this year announced plans to invest in Chinese equities as well as bonds as the yuan's international role increases.

"The move to diversify reserves away from U.S. dollars and the euro accelerated last year, largely on weaker fiscal fundamentals and subdued economic conditions in developed markets," Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore, said in an e-mail. "At the same time, it marked a move into gold, and bonds of stable emerging-market economies, particularly those with better longer-term prospects and currency appreciation potential."
The central bank boosted the proportion of equity investments to 5.4 percent last year from 3.8 percent, it said. Holdings of foreign government bonds rose to 36.8 percent from 35.8 percent in 2010, the BOK said.
While the proportion of dollar holdings declined to the lowest since 2007, when the central bank began to disclose details about its asset portfolio, the change doesn't reflect a lack of confidence in the currency, Kang Sung Kyung, a director at the bank's Reserve Management Group, told reporters in Seoul today
Other currencies held by the BOK include the euro, yen, pound, and Canadian and Australian dollars, Kang said. The central bank holds government bonds issued mostly by the U.S., Japan, Canada, Australia, the U.K., Germany, and France, he said.
Foreign-exchange reserves climbed by $4.46 billion to a record $315.8 billion at the end of February as the euro and pound strengthened against the dollar and the central bank made gains by managing assets, according to a central bank statement on March 5.
Choo Heung Sik, the director general of the Reserve Management Group, said in an interview in January that the yuan "has the potential to become a key reserve currency in the long term and thus we are building a channel to invest there."
The BOK said that month it received approval from the People's Bank of China to buy bonds and obtained a license as a Qualified Foreign Institutional Investor, or QFII.
"Central banks need to look for higher returns," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. "Their sterilization programs used to mop up liquidity is creating the pressure for them to look for assets with better returns."


end

The official Bloomberg release:

BOK’s Dollar Holdings Fell to 60.5% of FX Assets in 2011

Mar 29, 2012 11:52 PM CT
SEOUL, South Korea -- South Korea, Asia's fourth-largest economy, pared the share of dollars in its foreign-exchange reserves to the lowest level since the global financial crisis erupted in 2007.
Dollar holdings dropped to 60.5 percent of foreign- exchange reserves at the end of last year from 63.7 percent in 2010, the central bank said in its annual report for 2011 released today.
The drop underscores a shift among reserve managers to diversify assets, with China's yuan and Australia's dollar among the beneficiaries. South Korea's government earlier this year announced plans to invest in Chinese equities as well as bonds as the yuan's international role increases…
http://www.bloomberg.com/news/2012-03-30/bok-s-dollar-holdings-fell-to-6..



I wish you all to have a grand weekend

Harvey

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