Collateral Transformation: The Latest, Greatest Financial Weapon Of Mass Destruction

 by zerohedge.com

Back in 2002 Warren Buffet famously proclaimed that derivatives were ‘financial weapons of mass destruction’ (FWMDs). Time has proven this view to be correct. As The Amphora Report's John Butler notes, it is difficult to imagine that the US housing and general global credit bubble of 2004-07 could have formed without the widespread use of collateralized debt obligations (CDOs) and various other products of early 21st century financial engineering. But to paraphrase those who oppose gun control, "FWMDs don’t cause crises, people do." But then who, exactly, does? And why? And can so-called 'liquidity regulation' prevent the next crisis? To answer these questions, John takes a closer look at proposed liquidity regulation as a response to the growing use of 'collateral transformation' (a topic often discussed here): the latest, greatest FWMD in the arsenal.

Submitted by John Butler of The Amphora Report,

Back in 2006, as the debate was raging whether or not the US had a mortgage credit and housing bubble, I had an ongoing, related exchange with the Chief US Economist of a large US investment bank. It had to do with what is now commonly referred to as the ‘shadow banking system’.
While the debate was somewhat arcane in its specifics, it boiled down to whether the additional financial market liquidity created through the use of securities repo and other forms of collateralized lending were destabilizing the financial system.

Bill Gross To Ben Bernanke: "It's Your Policies That Are Now Part Of The Problem Rather Than The Solution"

by  Tyler Durden 

On practically every day of the past four years, we have said that it was the Fed's own policies that are causing the ever-deeper systemic weakness in the US (and now global with all central banks going "all in") economy, which in turn forces the Fed to intervene even more aggressively in an attempt to counteract, in turn generating ever more economic weakness, leading to even more intervention, which is why every incremental episode of QE is larger and longer, and why the economic baseline is ever lower in the most perverse feedback loop of the New Normal. Now, it is once again Bill Gross to catch up to Zero Hedge and conclude just this in his latest monthly letter: "It’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%. Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution. Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system. Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution." Which is why there simply is no way out as long as Bernanke stays in.

From Bill Gross of PIMCO

Wounded Heart

Gold And The Fiat End-Game

 by soundmoneycampaign.com



The Fiat End Game: Preparing For A Way Forward, is a our latest micro-documentary focused on solutions to our current economic problems. Our current fiat currency standard is terminal, nations around the world are dropping the U.S. dollar as a medium of exchange, central banks are buying gold, and Americans are seeing price inflation during an economic downturn. In order to avoid a systemic financial crisis here in the U.S., we need to focus on solutions. Please watch this important video and join us in a new financial awakening happening right now all across America.

The Recovery That Never Happened...

by Bill Bonner

Gold seemed to be stabilizing at the end of last week. Commodities remained weak. Steel has fallen 31% this year. Brent crude is off 17% since early February. And copper is down 15%.
Copper is the metal you need to make almost anything – houses, cars, electronics. When it goes down, it generally means the world economy is getting soft.
At the start of last week, the conventional analysis of the gold sell-off was that the central banks' efforts to revive global growth were working. The feds had the situation under control. So who needed gold?
By the end of the week, it appeared that gold – and commodities – had sold off for the opposite reason: because central banks' money printing wasn't working and the world was slipping further into a period of slow growth and barely contained depression. From Business Insider:

Recent U.S. economic data has been disappointing, especially in the realm of housing, which is what the US bull case is all about.
In Germany, dubbed the strong arm of Europe, economic sentiment just fell.

Where's the Growth?

And growth has begun to slow in China –

The Monarchs Of Money

by Tyler Durden 


The world's central banks have printed unimaginable amounts of money in recent years - "these guys are really more powerful than the government." Neil Macdonald explores what this means for the global economy and for your financial well-being - "can you imagine if the American public knew there was this 'club' that met secretly in Switzerland and made decisions that dramatically affected their lives, but we're not going to tell you about it because it's too complicated." This brief documentary should open a few eyes to the reality behind the world's most powerful (and real) cabal.

Eric Sprott: Silver to Outshine Gold as the Investment of this Decade!

by Capital Account



Today news headlines proclaimed "Gold rises" due to Italian Prime Minister Mario Monti's plans to resign, while CNBC cited expectations of future Federal Reserve easing. Regardless of the reason, Gold was barely up, trading just a little above 1,710 dollars an ounce, the lower end of its 30 day trading range. In the summer of 2011, during the US debt ceiling debate and credit downgrade, gold topped 1900 dollars an ounce. However, since then the price has dropped, despite the types of news events that usually drive investors to gold. Plus, according to the World Gold Council, central banks will buy more than 500 tons of gold this year, up from 465 tons in 2011, a new high.

Short Covering Squeeze In Precious Metals and Miners?

by Jeb Handwerger - Gold Stock Trades

A week ago I wrote about a potential rebound after capitulation and panic selling in precious metals and the miners. It now appears Goldman Sachs (GS) is covering its short on gold as it rebounds above $1400.
Meanwhile, many banks have helped confuse and misdirect the investment community out of gold (GLD) and silver (SLV). This was a classic shakeout and bear trap which may start a major short covering rally.
Be ready to see increased short covering combined with record physical demand. These are the two elements to spark a price spike and breakout higher in both gold and silver.
These markets are ready to start moving higher after basing for 2 years and having a major short attack by the big banks too big to fail and the media.

Right when gold and silver were about to gain some momentum after bouncing off key support for most of 2012, simultaneously Goldman Sachs came out with a bearish prognostication on precious metals, old Fed minutes are brought up and Cyprus says they will sell gold.
This resulted in a shakeout below $1535 and a massive bear trap for momentum traders who may have been stopped out. The markets will do whatever it must to confuse, misdirect and obfuscate the long term trend investor.

The US is moving to a gold standard

by Jan Skoyles

Following the news that last week Arizona lawmakers passed a bill that will see precious metals become legal tender we thought this would be the perfect time to bring you a fourth installment of The Real Asset Report. Here we look at the moves several US states are making to move to sound money. Look out for the great infographic below.

 ‘No State Shall make any Thing but Gold and Silver Coin a Tender in Payment of Debts’ 1787 US Constitution: Article I, Section 8.

When President Nixon closed the gold window in 1971, ending Bretton Woods, it signalled the final disregard for the Founding Fathers’ US Constitution.
Whilst many have long campaigned for a return to the gold standard, including Dr Ron Paul, a former Congressman and GOP presidential candidate, moves to use gold and silver as legal tender have hit the big time since the financial crisis.
There are now 20 US states that either have successfully passed bills to allow gold and silver to be used as legal tender, or have been exploring it as an option.

Forget Cyprus, Japan Is The Real Crisis

Forget Cyprus. A much bigger story in the coming weeks and months will be in Japan, where one of the greatest economic experiments in the modern era is about to begin. A country where government debt even dwarfs those of Europe’s crisis-ridden nations, Japan will attempt to inflate its way out of a 23-year deflationary spiral.

The overwhelming consensus among the world’s economists is that quantitative easing (QE) has saved the day in the U.S. and that Japan needs to follow suit, on a larger scale. I beg to differ and suggest this policy will almost certainly lead to a hyperinflationary disaster in Japan. If that’s right, it will have serious ramifications for other countries, dragged down by an acceleration of the so-called currency wars. More broadly though, it is likely to destroy the myth pushed by today’s economists that QE is a cure-all for downtrodden economies. It isn’t and Japan will become the template to prove it.

Monster stimulus on the way
The new Bank of Japan (BoJ) Governor, Haruhiko Kuroda, started work on Thursday and his first day on the job disappointed investors.

A Retort to SocGen’s Latest Gold Report

by David Franklin and David Baker

Société Générale (“SocGen”) recently published a special report entitled “The end of the gold era” that garnered far more attention than we think it deserved. The majority of the report focused on SocGen’s “crash scenario” for gold wherein they suggest that gold could fall well below their 2013 target of US$1,375/oz. It also included a classic criticism that we’ve heard so many times before: that the gold price is in “bubble territory”. We have problems with both suggestions.

To begin, the report’s authors appear to view gold as a commodity, rather than as a currency. This is a common misconception that continues to plague most gold market analysis. Gold doesn’t really work as a commodity because it doesn’t get consumed like one. The vast majority of gold mined throughout history remains in existence today, and the total global gold stockpile grows in small increments every year through additional mine supply. 

Italian Election: Awakening Consciousness?

By John Perkins

Who would have predicted that a comedian-turned-political activist, Beppe Grillo, and the anti-austerity Five Star Movement would win the Italian election? What caused this massive rejection of Prime Minister Mario Monti's austerity policies?

U.S President Obama, German chancellor Merkel, and other European leaders who backed Mario Monti must be puzzling over these questions. The recent Italian elections support a trend I have been describing for several years: a global awakening in consciousness. Voters in Italy resoundingly rejected the two parties that had dominated, both of which advocated austerity and other measures that favor the 1% at the expense of the 99%. The electorate propelled to power the practically unheard of the Five Star Party.

US Debt - Visualized in physical $100 bills

Outlook for 2013

By Alasdair Macleod

I have not faced the prospect of a new year with so much trepidation as when I contemplate what is in store for 2013. Systemic risks abound, which of themselves are not the main story, only milestones on the road to final currency destruction, unless governments somehow regain their senses.
To help understand the perils of 2013 I shall give them their background context first before listing them individually. No such list can be exhaustive or temporally sequenced, but all on it have the same root: the long-term accumulation of a burden of unsupportable debt.
This is a story that started with the end of the First World War, and involves a world which replaced laissez-faire with political motivation in economic and monetary affairs, moving away from wealth-creation into wealth-destruction in the cause of the common good.

The Central Bank Revolution I (Well ‘Nominally’ So)

by Ben Davies

“The Checklist Manifesto – How to get things right”, is a masterful book for its narrative and practical application. Written by Atul Gawande, an acclaimed surgeon based in the US, he takes us on a journey of how the simple checklist helps individuals deal with immensely complex situations, where risks can be calculated and often lives protected – skyscraper construction, medicine and investment banking.

First introduced into the US Air Force to assist pilots, the humble checklist in all its simplicity has helped generations of pilots navigate the complexity of flying modern aeroplanes. Gawande himself has introduced the concept into operating theatres and hospitals around the world with astounding success.

The Coxeyites, the Bankers, and the Political Class

by Jeffrey Tucker

  
In 1894, a scraggly band of misfits made their way from Ohio to Washington, D.C. They had a plan to present to the political class, one that they said would bring an end to the economic depression that had been sparked by the Panic of 1893 and guarantee a future of endless prosperity for all. Their plan was for the politicians and the government to print unlimited amounts of money.
Surely, that would solve everything! After all, most of these people knew exactly what was wrong with their lives. Their once booming farmland had collapsed in price. Their land was now underwater, just like millions of houses since 2008. They would be stupid to pay what they owed, and they didn’t have the money to do so anyway.

Europe: The Last Great Potemkin Village Where "The Rich Get Richer, And Poor Get Poorer"

From Charles Gave of GKResearch
 
On the surface, it would seem that the euro crisis has calmed. Markets have rallied since the summer and, to borrow a phrase from Herbert Hoover, “prosperity is just around the corner.” But outward appearances in Europe are like a Potemkin village. Behind the well-scrubbed facades, Southern Europe is in a death spiral. Anyone convinced that the European monetary union has come through the crisis stronger is a victim of the slickest PR campaign in history.
...
Let’s be very clear here: this is what the euro has wrought. This destruction of the non-German industrial bases has taken place with the active complicity of the European technocrats. They did not even realize that France, the EMU’s second largest economy, for example was becoming hopelessly uncompetitive.

Let's go one step further. According to the official GDP statistics the French economy since the beginning of the euro experiment has done as well as the German economy: