Rudd’s essay shows a stronger appreciation of the causes of this crisis, and the fragility of the economy in its wake, than I’ve yet seen from any other official source (with the sole exception of the Bank of International Settlements, where Bill White’s influence appears to remain, even though he is no longer its Economic Adviser–check this story on Bill and his forlorn attempts to raise the alarm during the Bubble).
Its one weakness is continued reliance upon neoclassical economic models to predict the future course of the economy after this crisis–when those same models ignore the role of private debt (which caused the bubble in the first place) and deleveraging (which will in fact drive the future course of the economy).
We can expect Rudd and Swann to continue with a large scale fiscal stimulus, in the hope that this will end the crisis. The next stage will come when this stimulus fails to achieve the level of growth predicted by neoclassical economic models, and as a result unemployment exceeds forecasts, public debt continues to run up, and deficit reduction strategies get pushed back in time.
So though Rudd is aware of the problem of deleveraging, he hasn’t yet taken developed policies that directly tackle it. But awareness of the problem is a necessary first step in addressing it, and Rudd has taken that first step.
http://www.debtdeflation.com/blogs/2009/07/27/rudds-essay-is-on-the-money/
31 July 2009
GFC Cures – Placebo Effects ~ Satyajit Das
GFC Cures – Placebo Effects
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Satyajit Das | Jul 29, 2009
Mixed Metaphors…
Botanical commentators are finding ‘green shoots’. The astronomically minded have seen ‘glimmers’. The meteorologically minded have spoken about the storms ‘abating’. Strong rallies in equity and debt markets have confirmed the recovery for the ‘true believers’. The Global Financial Crisis ("GFC") crisis is over!
It is useful to remember Winston Churchill’s observation after the British expeditionary force’s escape from Dunkirk: "[Britain] must be very careful not to assign to this deliverance the attributes of a victory". There may be confusion between ‘stabilisation’ and ‘recovery’.
The ‘green shoots’ theory is based on a slowdown in the rate of decline in key economic indicators, improvements in the financial system, unprecedented government support for the banking system, near-zero interest rates and large fiscal stimulus packages. The recovery of emerging markets and a renewed belief in Decoupling (Release 2.0) also underpin hopes of a swift return to growth.
Receiving the Messengers…
The puzzling thing is that real economy indicators continue to be poor. GDP forecasts for 2009 have steadily deteriorated with world growth expected to be negative 2.00 to 3.00% with especially poor prospects for Japan and the Euro Zone. Industrial output, employment, consumption, investment and global trade continue to be weak. Even China expected to grow between 6% and 8% in 2009 experienced a fall in exports of over 20% over the last year.
The ‘wealth effects’ of the GFC on economic activity are unclear. In the U.S. alone $30 trillion of value has been destroyed. Pension funds have lost anywhere between 20% and 50% of their value. Combined with declines in housing prices and reduced dividends and investment income, the sharp decline in wealth may not be yet to fully flow through into consumption.
The financial system has stabilised but not returned to the ‘rude good health’ that current executive compensation demands within banks would suggest.
Good results for Goldman Sachs and J.P.Morgan are offset by less impressive performances by Bank of America, CitiGroup and Morgan Stanley. The problems at CIT also highlight the problems for the financial system and the threat to availability of credit to small and medium sized businesses.
Profitability is patchy and reliant on risky trading income and large underwriting revenues from capital raisings by financial institutions and companies who are de-leveraging aggressively. Asset quality remains vulnerable to more bad debts from the normal recessionary credit cycle that is working through the economy.
Bank risk levels have increased to and in some cases beyond pre-crisis levels. Goldman Sach Q2 earnings showed an increase in risk levels as measured by Value-at-Risk ("VAR"). The increase in risk is probably understated as it takes into account diversification benefits that may be overstated under conditions of market stress. It is probably also understated because of assumption of trading liquidity that may be optimistic given recent experience. The higher levels of risk taking reflect increasing comfort in central bank support of financial institution’s liquidity and their ability and willingness to intervene to limit price risks
Capital remains scarce and bank balance sheets are at best not growing and at worst shrinking. Some estimates suggest that the bank capital shortfall could be in range of $1 to $2 trillion, equivalent to a credit contraction of around 20-30% from previous levels. Proposed bank regulations, primarily the increased levels of capital and lower permitted leverage, will also affect the ability of the financial system to extend credit.
The link between debt and economic growth is well established. The global economy probably needs around $4 to $5 of debt to create $1 of GDP growth. IMF researchers Tamin Bayoumi and Ola Melander, in a study of the economic impacts of an adverse shock to bank capital ((2008) "Credit Matters:Empirical Evidence on U.S. Macro-Financial Linkages" IMF Working Paper 08/169) found that in the U.S. a 1% point fall in Tier 1 risk-weighted capital ratios reduces real GDP by 1.5%. This means that global bank capital shortage may restrain credit creation thereby reducing economic activity and sustainable growth levels.
The impact of fiscal stimulus packages has been variable. In some jurisdictions, the payments have been saved or applied towards debt reduction rather than consumption. Targeted measures, such as the ‘cash for clunkers’ deals (cleverly packaged as ‘green’ environmental initiatives) have boosted immediate demand for cars but the long-term demand effects are unclear.
The multiplier effect of the fiscal initiatives is likely to be low. Major infrastructure initiatives will take time to implement. Few projects are ‘shovel ready’. The rate of return on government spending programs, some of which are politically motivated, is unclear. Government spending increasing capacity is likely to create problems in a world where many industries are operating with surplus capacity. Government bailout packages for various industries, such as the auto and housing industries, however well intentioned, are delaying much needed capacity adjustments and risk prolonging the problems.
The phoenix-like recovery in emerging markets is primarily driven by panicked government spending and loose monetary policies increasing available credit. Estimates suggest that around 6% of China’s growth of around 8% is attributable to government spending and increased bank lending.
The extraordinary increase in lending in China is fuelling unsustainable growth. In the first half of 2009, new loans totalled over $1 trillion. This compares to total loans for the full 2008 year of around $600 billion. Current lending is running at around three times 2008 levels and at a staggering 25% of China’s GDP. The combination of government spending and bank loans has resulted in sharp increases in fixed asset investments (over 30% up on 2008). Government incentives, in the form of rebates for purchases of high value durables such as cars and white goods, have also increased consumption (up 15% on 2008). Even Chinese government officials have admitted that the recovery is "unbalanced".
The increase in industrial production in the absence of real end demand for products could result in a rapid build up in inventory. The availability of credit is also fuelling rampant speculation in stocks, property and commodities. Estimates suggest that around 20-30% of new bank lending is finding it way into the stock market, in part driving up values.
The price rise in emerging market shares, debt and currencies also reflects a blind belief that anywhere must be safer and more promising than the U.S., Japan or Europe. This misses the point that these markets have a strong trading and export orientation or are external capital dependent. While some have bright long-term futures, they will need to make difficult and slow adjustments to their growth models to return to trend growth.
The recovery in emerging markets has, in turn, underpinned the recovery in commodity prices and economies dependent on natural resources. A significant part of this is inventory restocking but there is a speculative element. Availability of abundant and low cost bank finance combined with a deep seated fear of the long term prospects of U.S. Treasury bonds and the dollar has encouraged speculative stockpiling of certain commodities artificially boosting demand.
In reality, the global economy has, in all probability, entered a period of stability after a fairly big decline. Market sentiment seems to be shaped less by facts than the Doors’ song: "I've been down for so long, it feels like up to me."
Government Largesse…
A key risk remains the ability of governments to finance their burgeoning government deficits. A wretched combination of declining tax revenues, increased government spending to cushion the economy from recession and bailout packages for banks and other ‘worthies’ means that many countries face large and continuing budget deficits.
Even countries with relatively healthy ‘balance sheets’ such as Australia do not anticipate balancing their books for many years. If the problems of an aging population and unfunded liabilities such as public sector pensions, healthcare and social security arrangements are included, then the budgetary position looks considerably worse.
In 2009, total sovereign debt issues are expected to total over $5 trillion of which the U.S. alone will need to finance around $3 trillion. The increases in sovereign debt issuance are astonishing – U.S. around 300%, U.K. over 400%, Euro Zone around 50%. Government debt-to-GDP ratios for many developed countries are projected to reach and remain at levels in excess of 100%.
Overall government deficits in major economies through the recession are estimated to total around $10 trillion (around 27% of GDP of these economies). The work of economists Kenneth Rogoff and Carmen Reinhart on previous recessions suggests that the deficit estimates are conservative and the amount that will need to be financed will be between $15 trillion (40% of GDP) and $33 trillion (86% of GDP).
As a comparison, the total amount of global investment assets under management, according to one estimate is around $120 trillion. This provides some idea of the funding task ahead.
To date, sovereign debt issuance programs have been successful. There have been some auction problems (in Germany, U.K. and U.S.) but these have been manageable.
Long-term interest rates have risen sharply reflecting supply pressures. The U.S. 30 year rate has increased by around 1.50% p.a. since the start of 2009. Maturities have also shortened increasing the re-financing challenges ahead. Participation of central banks in the U.S. and the U.K. bonds, under their quantitative easing mandates, has helped keep interest rate rises down creating a somewhat artificial market.
A key issue over the coming months is the continued demand for increased sovereign debt issues. China, Japan and Europe historically have been major buyers of U.S. Treasury bonds. As their own fiscal position changes and their current account surplus shrinks, the ability of these investors to absorb the increased supply is unclear. China’s foreign exchange reserves are growing more slowly than before. China has continued to purchase U.S. Treasury bonds but some purchases represents a switch from U.S. Agency paper. As the U.S. has increased its issuance program, China’s purchases are now a smaller portion of the total.
In the best case the government debt issuance programs is accommodated but squeezes out other borrowers. In the worst case, governments find themselves unable to finance their deficits setting off a new stage of the GFC.
The markets ability to avoid consideration of these issues reflects Mark Twain’s observation that: "Ignorance more frequently begets confidence than does knowledge".
Withdrawal Method…
Given the size of the intervention, a key question is the timing of withdrawal of government support for the economy. Like the eponymous technique of contraception, it will need to be carefully timed.
The current apparent health of the financial system owes everything to wide-ranging government support. The ability of the banks to raise equity and debt is substantially underwritten by the "too-big-to-fail" doctrine. Profitability is supported by low and, in some cases, zero cost of deposits and a sharply upward sloping yield curve that creates significant earnings from borrowing short and lending long. Withdrawal of support may expose deep-seated and unresolved problems in the financial system.
Substantial quantities of structured securities are now held by central banks either as collateral for funding arrangements or through other innovative market support mechanisms. This has substantially increased the size of central bank balance sheets in the U.S., U.K and Europe.
It is not clear how and when these ‘temporary’ positions will be unwound. Attempts to create structures for repackaging these securities, such as the frequently touted but still to be implemented Public Private Investment Partnership ("PPIP") program, have enjoyed limited success. Untimely attempts by governments to liquidate these portfolios may be disruptive to fragile markets.
These securities may have to be held to maturity (sometimes over 10 years in the case of some Asset Backed Securities ("ABS")) and allowed to self liquidate from the underlying cash flows. The bloated central bank balance sheets may restrict policy flexibility significantly.
Government spending has been substituted for private consumption and investment. The deficits will ultimately necessitate a combination of increased taxation and reduced spending to correct this position.
Assume a country has government equal to 100% of its GDP. Assuming an interest rate of 5% p.a. and a GDP growth rate of 4% p.a., a 1% budget surplus is required to maintain debt at current levels. If the gap between interest rates and growth is greater, then the size of the required surplus is commensurately larger. In effect, it is unlikely that the present expansionary fiscal position can be sustained over a long period. The fiscal position of major economies may restrain growth.
Central bankers have tried to sooth markets about the timing and method of withdrawing life support. The cast consists of the same individuals who failed to identify or take actions to prevent the problems arising in the first place. The risk of policy errors cannot be discounted. Untimely or misjudged withdrawal of support may easily result in recovery interruptus.
Fundamental Truths…
Belief in the recovery story and sharp financial market rallies fail to recognise that little has actually changed since the GFC began. Fundamental failures have not been fully addressed. Writing in 1937 in Prosperity and Depression, Gotfried Haberler observed that: "The length and severity of depressions depend partly on the magnitude of the 'real' maladjustments, which developed during the preceding boom and partly on the aggravating monetary and credit conditions."
The required reduction in debt levels has not been completed. Increases in government debt have substantially offset reductions in private sector debt.
Instead of dealing with the problem of leverage, the debt has also merely been rolled forward through a variety of clever warehousing structures and the manipulation of accounting rules.
In a system that has excessive leverage, there are only two adjustment mechanisms. The value of assets supporting the debt and income available to service the borrowing can be increased, usually by inflation. The value of the debt can be reduced through writing it down to the real value of the assets.
Governments and central banks have gambled on inflation despite its social and economic costs. In reality, inflationary pressures in the global economy are not apparent. The rebound in energy and food costs has prevented deflation. The absence of demand, excess capacity, reduced credit creation and low velocity of money circulation may mean that it is dis-inflation or deflation that is the problem going forward.
There is now faith-based reliance on Governments’ ability to rescue the economy. Intervention has helped stabilise economic activity and the financial system but it improbable that government actions alone can prevent the necessary adjustment in debt levels and growth rates.
Government’s share of most developed economies is around 25-40% of GDP. It role in liberal democracies is limited by the fact that is fundamentally an intermediary, not dissimilar to a bank. It derives its resources through taxation from certain sectors of the economy and redirects it to other sectors. This means that its ability to control an economy has limits in the absence of nationalisation of all productive activity.
In the short run, governments can borrow or print money to augment its resources. Like all debt it borrows from tomorrow to pay for today. Quantitative easing (the now respectable name for ‘printing money’) also has limits unless governments are willing to risk hyper-inflation and the social dissolution of the Weimar Republic or Zimbabwe. While governments can influence an economy, they cannot completely reverse inevitable adjustments dictated by market forces.
Governments may also be impeding necessary adjustments. Rising government investment is increasing capacity in a world with stagnant demand and over-capacity in many sectors.
China’s current growth is being driven by government investment that is increasing capacity, which in the absence of sufficient domestic demand may be directed to exports increasing the global supply glut. Politically and socially motivated bailouts of national champions and strategic industries mean the necessary reductions in capacity through bankruptcy and corporate failure have not been allowed to happen.
There are even signs that the financial sector is rediscovering old habits. The government and taxpayer paid for return to profitability of major financial institutions and the return of remuneration levels to pre-crisis levels raises fundamental questions about whether any change has occurred. After the strong Q2 2009 earning report for the firm, David Viniar, Goldman Sach's chief financial officer told Bloomberg News that "Our model really never changed, we’ve said very consistently that our business model remained the same." Despite the egregious excesses, governments seem collectively to lack the will to reform the financial system to avoid the problems of the past.
In 2007, when the U.S. housing bubble collapsed, the satirical magazine The Onion demanded that the American people be given another bubble to speculate in. Their wish now appears to have granted.
Actions to stabilise the global economy seem only to have created ‘new’ bubbles – in government debt and emerging markets. Government actions seem to be primarily designed to ensuring continuation of the ponzi game. The only lesson learned is that no ponzi game can ever be allowed to stop.
As one anonymous saying states: "Never in the history of the world has there been a situation so bad that the government can't make it worse."
Global Questions
There is broad agreement that a key component of the GFC was the problem of global capital imbalances. A central feature was debt funded consumption by the U.S. that allowed 5% of the global population to constitute 25% of its GDP, 15% of consumption and 48% of global current account deficit. Japan, China, Germany and the other savers funded the consumption. At its peak, the U.S. was absorbing about 85% of total global capital flows to fund its government and private debt.
Any lasting solution to the GFC requires this imbalance to be dealt with. The glib solution requires the U.S. to save more and consume less and the savers to save less and consume more. The problems in implementing the solution are considerable.
Timothy Geithner’s recent discussion with Chinese officials, to assure his hosts of the safety of their investments in dollars and U.S. Treasury Bonds, reveals the dilemma. On the one hand, America needs the Chinese to continue and increase their purchase of U.S. Government debt to finance its fiscal stimulus and bailouts. On the other hand, America needs China to cut the size of its current account surplus, boost government spending, encourage personal consumption and reduce savings. All this should also occur ideally without any major decline in the value of the dollar or U.S. Treasury bonds or the need for China to liberalise it currency and open its capital account allowing internationalisation of the Renminbi!
A cursory look at the respective economies highlights the magnitude of the task. Consumption’s contribution to GDP in the U.S. is 71% while in China it is 37%. Given that the GDP of China is around $4-5 trillion versus $15 trillion for the U.S. and average income in China is around 10-15% of U.S. earnings, the difficulty of using Chinese consumption to drive the global economy becomes apparent.
Additionally, over the last 25 years, Chinese consumption has declined from around 50% to it current levels of 37%. During that same period, Chinese savings have risen and exports have been the engine for growth. Given that a significant portion of exports is driven ultimately by American buyer, lower U.S. growth and declining consumption creates significant challenges for China.
Dealing with these global imbalances has not been a high priority in the various summits, symposiums and talkfests that global leaders have shuttled to and from. The focus has been ‘NATO’ – no action talk only. Half-hearted and unworkable proposals, such as the use of the S.D.R as reserve currency, have emerged.
Bounding Mines….
Reliance on Chinese foreign currency reserves is probably misplaced. Chinese reserves, a large proportion denominated in dollars, may have limited value. They cannot be effectively liquidated or mobilised without massive losses. Increasingly strident Chinese rhetoric about the safety of their dollar assets reflects increasing ‘panic’.
The Middle Kingdom finds itself in a trap from which it probably cannot extricate itself easily. China’s position is like that of an unfortunate who has stepped on a type of anti-personnel mine known as a ‘bounding mine’. The mine does not explode when you step on it. Instead, it trips when you step off it as a small charge propels the body of the mine into the air where the explosive charge bursts and sprays fragmentation at a height of around 3 to 4 feet (1 to 1.3 metres).
China, in building and investing its massive foreign exchange reserves in dollars and U.S. Treasury Bonds, has stepped onto the mine and it cannot step off without serious damage! China’s position is akin to that of a soldier in the Balkan conflict who finds himself in precisely this position in the film No Man’s Land. Initially, he is the centre of attempts, including some by international bodies to free him but ultimately, he is abandoned to his fate.
In reality, China is trying desperately to switch its reserves into real assets – commodity or resource producers where foreign countries will allow. In the meantime, China continues to purchase more dollars and U.S. Treasury bond to preserve the value of existing holdings in a surreal logic. On the other side, the U.S. continues to seek to preserve the status of the dollar as the sole reserve currency (backed no longer by gold but by the 86th Airborne Division) in order to enable itself to finance itself. The intractable nature of this problem is evident in the frequently contradictory statements from various Chinese spokesman regarding the official position on the dollar.
In July 2009, at the G8 Summit in the earthquake damaged town of L'Aquila in Italy, Dai Bingguo, Chinese state councillor, was openly critical of the dominant role of the U.S. dollar as a global reserve currency: "We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system,"
Western leaders expressed concerns about even raising the issue fearing that discussion of long-term currency issues could undermine the recovery in markets and economies. Gordon Brown, Britain's prime minister, spoke on behalf of the West: "We don't want to give the impression that big change is around the corner and the present arrangements will be destabilised."
No sustainable global recovery is likely without addressing the fundamental global imbalances that lie at the heart of the GFC.
Placebo Effects
On 14 June 2009, Wolfgang Münchau writing in the Financial Times ("Optimism is not enough for a global recovery") eloquently summed up developments: "Instead of solving the problems to generate a recovery, the political strategies have consisted of waiting for a recovery to solve the problem. The Europeans are relying on the Americans to generate growth. The Americans are relying on the Chinese, who in turn are waiting for the rest of the world."
The placebo effect is a pervasive phenomenon in medicine. A sham medical intervention may cause the patient to believe that the treatment will change his or her condition sometime causing the actual condition to improve. Conditioning, expectations and motivation all can play a role in placebo effect.
In recent times, investors, markets and governments have all come to believe in the ‘recovery’ sometimes by selective interpretation of facts to support the conclusion that they need. Given reluctance or inability to deal with the real problems, it is not entirely clear whether the GFC cures are real or inert treatments. It is also not clear whether current improvements in market and economic conditions are sustainable or merely a short-term placebo effect.
© 2009 Satyajit Das All Rights reserved.
Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).
http://www.rgemonitor.com/globalmacro-monitor/257383/gfc_cures__placebo_effects
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Satyajit Das | Jul 29, 2009
Mixed Metaphors…
Botanical commentators are finding ‘green shoots’. The astronomically minded have seen ‘glimmers’. The meteorologically minded have spoken about the storms ‘abating’. Strong rallies in equity and debt markets have confirmed the recovery for the ‘true believers’. The Global Financial Crisis ("GFC") crisis is over!
It is useful to remember Winston Churchill’s observation after the British expeditionary force’s escape from Dunkirk: "[Britain] must be very careful not to assign to this deliverance the attributes of a victory". There may be confusion between ‘stabilisation’ and ‘recovery’.
The ‘green shoots’ theory is based on a slowdown in the rate of decline in key economic indicators, improvements in the financial system, unprecedented government support for the banking system, near-zero interest rates and large fiscal stimulus packages. The recovery of emerging markets and a renewed belief in Decoupling (Release 2.0) also underpin hopes of a swift return to growth.
Receiving the Messengers…
The puzzling thing is that real economy indicators continue to be poor. GDP forecasts for 2009 have steadily deteriorated with world growth expected to be negative 2.00 to 3.00% with especially poor prospects for Japan and the Euro Zone. Industrial output, employment, consumption, investment and global trade continue to be weak. Even China expected to grow between 6% and 8% in 2009 experienced a fall in exports of over 20% over the last year.
The ‘wealth effects’ of the GFC on economic activity are unclear. In the U.S. alone $30 trillion of value has been destroyed. Pension funds have lost anywhere between 20% and 50% of their value. Combined with declines in housing prices and reduced dividends and investment income, the sharp decline in wealth may not be yet to fully flow through into consumption.
The financial system has stabilised but not returned to the ‘rude good health’ that current executive compensation demands within banks would suggest.
Good results for Goldman Sachs and J.P.Morgan are offset by less impressive performances by Bank of America, CitiGroup and Morgan Stanley. The problems at CIT also highlight the problems for the financial system and the threat to availability of credit to small and medium sized businesses.
Profitability is patchy and reliant on risky trading income and large underwriting revenues from capital raisings by financial institutions and companies who are de-leveraging aggressively. Asset quality remains vulnerable to more bad debts from the normal recessionary credit cycle that is working through the economy.
Bank risk levels have increased to and in some cases beyond pre-crisis levels. Goldman Sach Q2 earnings showed an increase in risk levels as measured by Value-at-Risk ("VAR"). The increase in risk is probably understated as it takes into account diversification benefits that may be overstated under conditions of market stress. It is probably also understated because of assumption of trading liquidity that may be optimistic given recent experience. The higher levels of risk taking reflect increasing comfort in central bank support of financial institution’s liquidity and their ability and willingness to intervene to limit price risks
Capital remains scarce and bank balance sheets are at best not growing and at worst shrinking. Some estimates suggest that the bank capital shortfall could be in range of $1 to $2 trillion, equivalent to a credit contraction of around 20-30% from previous levels. Proposed bank regulations, primarily the increased levels of capital and lower permitted leverage, will also affect the ability of the financial system to extend credit.
The link between debt and economic growth is well established. The global economy probably needs around $4 to $5 of debt to create $1 of GDP growth. IMF researchers Tamin Bayoumi and Ola Melander, in a study of the economic impacts of an adverse shock to bank capital ((2008) "Credit Matters:Empirical Evidence on U.S. Macro-Financial Linkages" IMF Working Paper 08/169) found that in the U.S. a 1% point fall in Tier 1 risk-weighted capital ratios reduces real GDP by 1.5%. This means that global bank capital shortage may restrain credit creation thereby reducing economic activity and sustainable growth levels.
The impact of fiscal stimulus packages has been variable. In some jurisdictions, the payments have been saved or applied towards debt reduction rather than consumption. Targeted measures, such as the ‘cash for clunkers’ deals (cleverly packaged as ‘green’ environmental initiatives) have boosted immediate demand for cars but the long-term demand effects are unclear.
The multiplier effect of the fiscal initiatives is likely to be low. Major infrastructure initiatives will take time to implement. Few projects are ‘shovel ready’. The rate of return on government spending programs, some of which are politically motivated, is unclear. Government spending increasing capacity is likely to create problems in a world where many industries are operating with surplus capacity. Government bailout packages for various industries, such as the auto and housing industries, however well intentioned, are delaying much needed capacity adjustments and risk prolonging the problems.
The phoenix-like recovery in emerging markets is primarily driven by panicked government spending and loose monetary policies increasing available credit. Estimates suggest that around 6% of China’s growth of around 8% is attributable to government spending and increased bank lending.
The extraordinary increase in lending in China is fuelling unsustainable growth. In the first half of 2009, new loans totalled over $1 trillion. This compares to total loans for the full 2008 year of around $600 billion. Current lending is running at around three times 2008 levels and at a staggering 25% of China’s GDP. The combination of government spending and bank loans has resulted in sharp increases in fixed asset investments (over 30% up on 2008). Government incentives, in the form of rebates for purchases of high value durables such as cars and white goods, have also increased consumption (up 15% on 2008). Even Chinese government officials have admitted that the recovery is "unbalanced".
The increase in industrial production in the absence of real end demand for products could result in a rapid build up in inventory. The availability of credit is also fuelling rampant speculation in stocks, property and commodities. Estimates suggest that around 20-30% of new bank lending is finding it way into the stock market, in part driving up values.
The price rise in emerging market shares, debt and currencies also reflects a blind belief that anywhere must be safer and more promising than the U.S., Japan or Europe. This misses the point that these markets have a strong trading and export orientation or are external capital dependent. While some have bright long-term futures, they will need to make difficult and slow adjustments to their growth models to return to trend growth.
The recovery in emerging markets has, in turn, underpinned the recovery in commodity prices and economies dependent on natural resources. A significant part of this is inventory restocking but there is a speculative element. Availability of abundant and low cost bank finance combined with a deep seated fear of the long term prospects of U.S. Treasury bonds and the dollar has encouraged speculative stockpiling of certain commodities artificially boosting demand.
In reality, the global economy has, in all probability, entered a period of stability after a fairly big decline. Market sentiment seems to be shaped less by facts than the Doors’ song: "I've been down for so long, it feels like up to me."
Government Largesse…
A key risk remains the ability of governments to finance their burgeoning government deficits. A wretched combination of declining tax revenues, increased government spending to cushion the economy from recession and bailout packages for banks and other ‘worthies’ means that many countries face large and continuing budget deficits.
Even countries with relatively healthy ‘balance sheets’ such as Australia do not anticipate balancing their books for many years. If the problems of an aging population and unfunded liabilities such as public sector pensions, healthcare and social security arrangements are included, then the budgetary position looks considerably worse.
In 2009, total sovereign debt issues are expected to total over $5 trillion of which the U.S. alone will need to finance around $3 trillion. The increases in sovereign debt issuance are astonishing – U.S. around 300%, U.K. over 400%, Euro Zone around 50%. Government debt-to-GDP ratios for many developed countries are projected to reach and remain at levels in excess of 100%.
Overall government deficits in major economies through the recession are estimated to total around $10 trillion (around 27% of GDP of these economies). The work of economists Kenneth Rogoff and Carmen Reinhart on previous recessions suggests that the deficit estimates are conservative and the amount that will need to be financed will be between $15 trillion (40% of GDP) and $33 trillion (86% of GDP).
As a comparison, the total amount of global investment assets under management, according to one estimate is around $120 trillion. This provides some idea of the funding task ahead.
To date, sovereign debt issuance programs have been successful. There have been some auction problems (in Germany, U.K. and U.S.) but these have been manageable.
Long-term interest rates have risen sharply reflecting supply pressures. The U.S. 30 year rate has increased by around 1.50% p.a. since the start of 2009. Maturities have also shortened increasing the re-financing challenges ahead. Participation of central banks in the U.S. and the U.K. bonds, under their quantitative easing mandates, has helped keep interest rate rises down creating a somewhat artificial market.
A key issue over the coming months is the continued demand for increased sovereign debt issues. China, Japan and Europe historically have been major buyers of U.S. Treasury bonds. As their own fiscal position changes and their current account surplus shrinks, the ability of these investors to absorb the increased supply is unclear. China’s foreign exchange reserves are growing more slowly than before. China has continued to purchase U.S. Treasury bonds but some purchases represents a switch from U.S. Agency paper. As the U.S. has increased its issuance program, China’s purchases are now a smaller portion of the total.
In the best case the government debt issuance programs is accommodated but squeezes out other borrowers. In the worst case, governments find themselves unable to finance their deficits setting off a new stage of the GFC.
The markets ability to avoid consideration of these issues reflects Mark Twain’s observation that: "Ignorance more frequently begets confidence than does knowledge".
Withdrawal Method…
Given the size of the intervention, a key question is the timing of withdrawal of government support for the economy. Like the eponymous technique of contraception, it will need to be carefully timed.
The current apparent health of the financial system owes everything to wide-ranging government support. The ability of the banks to raise equity and debt is substantially underwritten by the "too-big-to-fail" doctrine. Profitability is supported by low and, in some cases, zero cost of deposits and a sharply upward sloping yield curve that creates significant earnings from borrowing short and lending long. Withdrawal of support may expose deep-seated and unresolved problems in the financial system.
Substantial quantities of structured securities are now held by central banks either as collateral for funding arrangements or through other innovative market support mechanisms. This has substantially increased the size of central bank balance sheets in the U.S., U.K and Europe.
It is not clear how and when these ‘temporary’ positions will be unwound. Attempts to create structures for repackaging these securities, such as the frequently touted but still to be implemented Public Private Investment Partnership ("PPIP") program, have enjoyed limited success. Untimely attempts by governments to liquidate these portfolios may be disruptive to fragile markets.
These securities may have to be held to maturity (sometimes over 10 years in the case of some Asset Backed Securities ("ABS")) and allowed to self liquidate from the underlying cash flows. The bloated central bank balance sheets may restrict policy flexibility significantly.
Government spending has been substituted for private consumption and investment. The deficits will ultimately necessitate a combination of increased taxation and reduced spending to correct this position.
Assume a country has government equal to 100% of its GDP. Assuming an interest rate of 5% p.a. and a GDP growth rate of 4% p.a., a 1% budget surplus is required to maintain debt at current levels. If the gap between interest rates and growth is greater, then the size of the required surplus is commensurately larger. In effect, it is unlikely that the present expansionary fiscal position can be sustained over a long period. The fiscal position of major economies may restrain growth.
Central bankers have tried to sooth markets about the timing and method of withdrawing life support. The cast consists of the same individuals who failed to identify or take actions to prevent the problems arising in the first place. The risk of policy errors cannot be discounted. Untimely or misjudged withdrawal of support may easily result in recovery interruptus.
Fundamental Truths…
Belief in the recovery story and sharp financial market rallies fail to recognise that little has actually changed since the GFC began. Fundamental failures have not been fully addressed. Writing in 1937 in Prosperity and Depression, Gotfried Haberler observed that: "The length and severity of depressions depend partly on the magnitude of the 'real' maladjustments, which developed during the preceding boom and partly on the aggravating monetary and credit conditions."
The required reduction in debt levels has not been completed. Increases in government debt have substantially offset reductions in private sector debt.
Instead of dealing with the problem of leverage, the debt has also merely been rolled forward through a variety of clever warehousing structures and the manipulation of accounting rules.
In a system that has excessive leverage, there are only two adjustment mechanisms. The value of assets supporting the debt and income available to service the borrowing can be increased, usually by inflation. The value of the debt can be reduced through writing it down to the real value of the assets.
Governments and central banks have gambled on inflation despite its social and economic costs. In reality, inflationary pressures in the global economy are not apparent. The rebound in energy and food costs has prevented deflation. The absence of demand, excess capacity, reduced credit creation and low velocity of money circulation may mean that it is dis-inflation or deflation that is the problem going forward.
There is now faith-based reliance on Governments’ ability to rescue the economy. Intervention has helped stabilise economic activity and the financial system but it improbable that government actions alone can prevent the necessary adjustment in debt levels and growth rates.
Government’s share of most developed economies is around 25-40% of GDP. It role in liberal democracies is limited by the fact that is fundamentally an intermediary, not dissimilar to a bank. It derives its resources through taxation from certain sectors of the economy and redirects it to other sectors. This means that its ability to control an economy has limits in the absence of nationalisation of all productive activity.
In the short run, governments can borrow or print money to augment its resources. Like all debt it borrows from tomorrow to pay for today. Quantitative easing (the now respectable name for ‘printing money’) also has limits unless governments are willing to risk hyper-inflation and the social dissolution of the Weimar Republic or Zimbabwe. While governments can influence an economy, they cannot completely reverse inevitable adjustments dictated by market forces.
Governments may also be impeding necessary adjustments. Rising government investment is increasing capacity in a world with stagnant demand and over-capacity in many sectors.
China’s current growth is being driven by government investment that is increasing capacity, which in the absence of sufficient domestic demand may be directed to exports increasing the global supply glut. Politically and socially motivated bailouts of national champions and strategic industries mean the necessary reductions in capacity through bankruptcy and corporate failure have not been allowed to happen.
There are even signs that the financial sector is rediscovering old habits. The government and taxpayer paid for return to profitability of major financial institutions and the return of remuneration levels to pre-crisis levels raises fundamental questions about whether any change has occurred. After the strong Q2 2009 earning report for the firm, David Viniar, Goldman Sach's chief financial officer told Bloomberg News that "Our model really never changed, we’ve said very consistently that our business model remained the same." Despite the egregious excesses, governments seem collectively to lack the will to reform the financial system to avoid the problems of the past.
In 2007, when the U.S. housing bubble collapsed, the satirical magazine The Onion demanded that the American people be given another bubble to speculate in. Their wish now appears to have granted.
Actions to stabilise the global economy seem only to have created ‘new’ bubbles – in government debt and emerging markets. Government actions seem to be primarily designed to ensuring continuation of the ponzi game. The only lesson learned is that no ponzi game can ever be allowed to stop.
As one anonymous saying states: "Never in the history of the world has there been a situation so bad that the government can't make it worse."
Global Questions
There is broad agreement that a key component of the GFC was the problem of global capital imbalances. A central feature was debt funded consumption by the U.S. that allowed 5% of the global population to constitute 25% of its GDP, 15% of consumption and 48% of global current account deficit. Japan, China, Germany and the other savers funded the consumption. At its peak, the U.S. was absorbing about 85% of total global capital flows to fund its government and private debt.
Any lasting solution to the GFC requires this imbalance to be dealt with. The glib solution requires the U.S. to save more and consume less and the savers to save less and consume more. The problems in implementing the solution are considerable.
Timothy Geithner’s recent discussion with Chinese officials, to assure his hosts of the safety of their investments in dollars and U.S. Treasury Bonds, reveals the dilemma. On the one hand, America needs the Chinese to continue and increase their purchase of U.S. Government debt to finance its fiscal stimulus and bailouts. On the other hand, America needs China to cut the size of its current account surplus, boost government spending, encourage personal consumption and reduce savings. All this should also occur ideally without any major decline in the value of the dollar or U.S. Treasury bonds or the need for China to liberalise it currency and open its capital account allowing internationalisation of the Renminbi!
A cursory look at the respective economies highlights the magnitude of the task. Consumption’s contribution to GDP in the U.S. is 71% while in China it is 37%. Given that the GDP of China is around $4-5 trillion versus $15 trillion for the U.S. and average income in China is around 10-15% of U.S. earnings, the difficulty of using Chinese consumption to drive the global economy becomes apparent.
Additionally, over the last 25 years, Chinese consumption has declined from around 50% to it current levels of 37%. During that same period, Chinese savings have risen and exports have been the engine for growth. Given that a significant portion of exports is driven ultimately by American buyer, lower U.S. growth and declining consumption creates significant challenges for China.
Dealing with these global imbalances has not been a high priority in the various summits, symposiums and talkfests that global leaders have shuttled to and from. The focus has been ‘NATO’ – no action talk only. Half-hearted and unworkable proposals, such as the use of the S.D.R as reserve currency, have emerged.
Bounding Mines….
Reliance on Chinese foreign currency reserves is probably misplaced. Chinese reserves, a large proportion denominated in dollars, may have limited value. They cannot be effectively liquidated or mobilised without massive losses. Increasingly strident Chinese rhetoric about the safety of their dollar assets reflects increasing ‘panic’.
The Middle Kingdom finds itself in a trap from which it probably cannot extricate itself easily. China’s position is like that of an unfortunate who has stepped on a type of anti-personnel mine known as a ‘bounding mine’. The mine does not explode when you step on it. Instead, it trips when you step off it as a small charge propels the body of the mine into the air where the explosive charge bursts and sprays fragmentation at a height of around 3 to 4 feet (1 to 1.3 metres).
China, in building and investing its massive foreign exchange reserves in dollars and U.S. Treasury Bonds, has stepped onto the mine and it cannot step off without serious damage! China’s position is akin to that of a soldier in the Balkan conflict who finds himself in precisely this position in the film No Man’s Land. Initially, he is the centre of attempts, including some by international bodies to free him but ultimately, he is abandoned to his fate.
In reality, China is trying desperately to switch its reserves into real assets – commodity or resource producers where foreign countries will allow. In the meantime, China continues to purchase more dollars and U.S. Treasury bond to preserve the value of existing holdings in a surreal logic. On the other side, the U.S. continues to seek to preserve the status of the dollar as the sole reserve currency (backed no longer by gold but by the 86th Airborne Division) in order to enable itself to finance itself. The intractable nature of this problem is evident in the frequently contradictory statements from various Chinese spokesman regarding the official position on the dollar.
In July 2009, at the G8 Summit in the earthquake damaged town of L'Aquila in Italy, Dai Bingguo, Chinese state councillor, was openly critical of the dominant role of the U.S. dollar as a global reserve currency: "We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system,"
Western leaders expressed concerns about even raising the issue fearing that discussion of long-term currency issues could undermine the recovery in markets and economies. Gordon Brown, Britain's prime minister, spoke on behalf of the West: "We don't want to give the impression that big change is around the corner and the present arrangements will be destabilised."
No sustainable global recovery is likely without addressing the fundamental global imbalances that lie at the heart of the GFC.
Placebo Effects
On 14 June 2009, Wolfgang Münchau writing in the Financial Times ("Optimism is not enough for a global recovery") eloquently summed up developments: "Instead of solving the problems to generate a recovery, the political strategies have consisted of waiting for a recovery to solve the problem. The Europeans are relying on the Americans to generate growth. The Americans are relying on the Chinese, who in turn are waiting for the rest of the world."
The placebo effect is a pervasive phenomenon in medicine. A sham medical intervention may cause the patient to believe that the treatment will change his or her condition sometime causing the actual condition to improve. Conditioning, expectations and motivation all can play a role in placebo effect.
In recent times, investors, markets and governments have all come to believe in the ‘recovery’ sometimes by selective interpretation of facts to support the conclusion that they need. Given reluctance or inability to deal with the real problems, it is not entirely clear whether the GFC cures are real or inert treatments. It is also not clear whether current improvements in market and economic conditions are sustainable or merely a short-term placebo effect.
© 2009 Satyajit Das All Rights reserved.
Satyajit Das is a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall).
http://www.rgemonitor.com/globalmacro-monitor/257383/gfc_cures__placebo_effects
30 July 2009
"Apocalypse Now" for Paper Silver sellers credibility
Its all over the blogsphere.. kudos to Tyler at Zerohedge and Mark Antony at Seeking Alpha and to the forestmeister for the lead...
I'm kicking this meme cause it looks solid and don't ya know, there a bull market in hard cynicism and scepticism and a bear market is fiduciary trust these days..
The whole point of investing in precious metals is that they are physical assets and they have no counter party risks. Paper assets have counter party risks, physical metals have no such counter party risk.
So what's the point of buying precious metal ETFs such as GLD, SLV, CEF,which are supposed to be backed up by physical metals. But you are not in physical control of the metals, and you just have to trust the sponsors of these ETFs.
Counter party risk, any one? DIND DING DING DING!
The London based ETF Securities Silver Fund regularly publish a list of serial numbers of the silver bars they hold in custody:
http://www.etfsecurities.com/msl/bar_list.zip
The iShares Silver Trust (SLV) also publish a weekly updated list of serial numbers of silver bars held in their custody:
https://ebts.jpmorgan.com/ebtsWebMod/ebts_downloads/BONYBARLIST.PDF
Check out page 1698-1722 of the SLV silver bars list. They have got some silver bars from China. The brand is Great Wall. The supposedly unique serial numbers are from No. 1001 - No. 1460. With many duplications.
The ETFS's silver bars list also contains silver bars of the same Great Wall brand. The serial numbers are also the same: No. 1001 - No. 1360.
And now for the forensic accounting...... a medal to Project Mayhem for sterling service disintermediating the disfunctional element in the elite.. rational rightsizing, I call it.
Silver ETFs: Multiple anomalies detected
Project Mayhem Research Inc
July 28th 2009
project.mayhem.research@gmail.com
Recently, we have developed a computer program to conduct data mining
on the inventory of publicly available silver ETFs --namely, iShares
SLV managed by JP Morgan, and the London-based ETF Securities funds.
What we found was unusual.
Abstract:
A data analysis was conducted of the inventory holdings of two
publicly available silver ETFs: iShares SLV and London-based ETF
Securities. Custom software was written to analyze published silver
bar information for anomalies. Multiple anomalies were found. We
detected numerous duplicate bar entries within both lists, which
comprised 11.88% and 0.4619% of the SLV and ETFS bar totals,
respectively. In addition, we found several 'perfect duplicate'
entries within the iShares SLV bar list: that is, the same weight,
manufacturer, and serial number were listed multiple times. These
comprised 0.0025% of the SLV bar totals. More disturbing, however,
was our accidental discovery of the presence of what we have termed
'rough internal duplicates' --bars with near-identical serial
numbers, identical weights, and identical brands. The reason the
latter are more problematic is their very low-statistical
probability, suggesting some level of fraud and or accounting
incompetence is present. We noticed other data anomalies as well,
including large amounts of low serial number clustering, which was
identified by our industry sources as 'unusual'. Furthermore, we
tested for the presence of 'weight duplicates' --which upon
exclusion --reduced the bar inventories by an astonishing 82% and
50% for the SLV and ETFS funds. We suspect the number of 'weight
duplicates' lie well outside the expected Gaussian distribution, but
leave this for the subject of future research. Finally, we found
multiple cross-referenced bars with identical brands and serial
numbers present in both the London and U.S. funds --funds ostensibly
with different custodians. Taken together with evidence of
'revisions' published to the public ETFS data after exposure of the
initial flaws, these data suggest there is a degree of systematic
fraud or gross incompetence in these funds --perhaps both.
Introduction:
Silver has functioned as money in human activities for over 5000
years, well prior to its gradual demonetization in the late 19th
century. One question most intelligent students of world finance
will ask themselves sooner or later, is how precious metals might be
expected to function under a world oligopoly? Due to silver's
historical role as currency, as well as its competition for the
position of government funds and central bank bonds vis-a-vis the US
Treasury complex, one might expect Western governments and megabanks
to be openly hostile towards silver. Indeed, after three failed CFTC
investigations and one 'Gibson's Paradox' paper, this position
appears to be the case. From a systems perspective, we may consider
the first step required to create a functional world oligopoly is
likely to both displace and suppress the monetary metals in favor of
centrally administered paper. This gives us a possible motive for
what we characterize here.
The unique position of silver, and the subject of the present
paper concerns, is that unlike gold --silver is not carried as a
reserve asset on global central bank balance sheets. This presents a
unique problem in terms of 'cartel management' for the global
monetary authorities. The problem could be written, "How do you
manage the price of an item of which you do not possess large
supply?". As silver expert Ted Butler has articulated over the past
decade or more, above ground stores of silver have been rapidly
consumed post-WWII at such a rate that silver is now several times
more rare than gold. The question is not "Why would the price of
silver be suppressed?" --as that should be obvious to any student of
20th century history and decaying empires --but rather how?
The answer is through the settlement process --and ultimately
through perception itself. Indeed, the scam is very old, and we see
it repeated to the present day through the likes of Bernie Madoff,
all the way up to our chief scam artists and criminals at the Federal
Reserve and US Treasury Department. The scam is: "Sell more of
something than you actually have , and hope not everyone asks for
their money at the same time." Recently, new developments have come
to light regarding the details on how the US/UK financial fraud
syndicate manages to accomplish this charade. Many thanks are
deserved to Ted Butler, GATA, Rob Kirby, Bob Chapman, Adrian Douglas,
Mark Anthony, and countless others.
The recently emerging details on how silver prices are kept low
without a large bank inventory are multi-faceted. Besides the
obvious hundreds of $trillions in OTC interest rate swaps which keep
the toxic US Tbond complex afloat (in direct competition to the
monetary metals), there is the process of the commodity exchanges -specifically
of the highly concentrated unhedged silver futures
position by four large banks, of which our sources indicate the top
two include JP Morgan and HSBC. Ted Butler has detailed the math at
length, but suffice to say the concentration of large amounts of
paper futures within the COMEX, minus spreads, in the hands of four
banks goes a long way towards enabling world silver price management
and a functional oligopoly for the elite.
The last piece of the puzzle, which brings us back to our
present topic of the ETFs, is that of the use of ETF shares as
settlement on these very same COMEX futures exchange. The final
piece was provided to us by GATA and Adrian Douglas in an article
published on July 11, 2009 entitled "The Alchemists". Douglas notes
that a year prior to the launch of the silver ETF, the COMEX
published a rule change, on February 18, 2005, which allowed ETF
shares to be used as settlement in lue of physical delivery of a
commodity. Convenient timing. No doubt this impacts silver the
most, as silver has the most concentrated and leveraged short
position of any COMEX tangible. Gold comes a close second. The
outcome of allowing ETF shares to be used as settlement instead of
physical delivery --as well as increasingly scarce global silver
supply considerations --is a byproduct of fifty years of industrial
consumption and systemic fraud. This situation is both worsening and
destabilizing despite increasingly draconian attempts at generalized
'price management' by the authorities, who are now seeking to
consolidate their respective dictatorships in thinly-disguised global
power plays. Needless to say, this will only end in tears.
Regarding our topic at hand of the silver ETF --since the
silver ETF shares are now used as settlement for price discovery on
the futures market, one would think it would be imperative that there
was careful accounting and open information in order to facilitate
proper price discovery? After all, if one can deliver paper promises
to the COMEX, there should be a physical asset backing up the paper,
right? Unfortunately, our research on the matter indicates this is
not the case, and in fact, there is now information to suggest data
anomalies in the holdings of the silver ETFs and possibly even fraud.
Methods:
Project Mayhem Research obtained the latest bar lists from
iShares SLV managed by JP Morgan, and from the London ETFS silver
funds managed by ETF Securities. After obtaining the lists, we
converted both data sets to plaintext (flat-file) using open source
tools on a Linux platform. We then constructed several iterations of
custom Perl software (written in vi of course) which analyzed the
data sets by loading silver bar information into memory, and cross
referenced the information against itself as well as with the
opposite list. Eventually we decided on three forms of indexing -in
other words, the selection of the primary key --the first was to
use a standardized manufacturer name appended to bar serial number,
and the second, to use manufacturer name, bar serial number, and
specific bar weight appended together, and the third, to use the
manufacturer name appended to the four digit bar weight. After
experimenting with various parameters, we conducted data runs to
calculate various statistics on these data sets, mainly to include
analysis of forms we initially termed 'collisions', perhaps better
identified as 'duplicates'. We found numerous duplicates of various
forms. These are characterized as follows:
Definitions:
Internal Duplicate:
A silver bar with identical serial number and
brand, listed two or more times within a single inventory list.
Rough Internal Duplicate: A silver bar with an almost-identical
serial number (AB1024 vs 1024), yet identical brand and weight,
listed two or more times within a single inventory list.
Perfect Internal Duplicate: A silver bar with identical serial
number, weight, and brand listed two or more times within a single
inventory list.
Weight Duplicate: A silver bar with identical brand and weight listed
two or more times on a single inventory list.
Cross Reference Duplicate: A silver bar with identical serial number
and brand listed on two or more separate inventory lists.
Results:
We found a large number of internal duplicates --far more than
we expected. Internal duplicates were much higher on the iShares
silver ETF list than on the ETFS list, although they were present on
both. Internal Duplicates comprise an astonishing 11.77% of the
iShares SLV list and 0.4619% of the ETFS list. A common objection
that may be raised is that perhaps many of these manufacturers
duplicate their serial numbers --but the bars can be told apart by
their weights. We have taken this possibility into consideration.
Our subsequent data run for perfect internal duplicates indicates
this claim regarding bar weight may have some merit, at least on
paper, as these forms of duplication comprised a substantially
smaller fraction of the lists: 0.000242% and 0.00% respectively.
Furthermore, the published weight of 281,863,452 ounces for the
iShares SLV ETF is roughly consistent with our estimation --one
which includes internal duplicates yet excludes perfect duplicates
from the published inventory list, which according to our
calculations yields 281,670,356 ounces --a figure relatively close,
within three significant figures, yet not identical the published
iShares figure.
Unfortunately we believe even these mildly positive facts are
completely dispelled by our trials with what we have termed 'rough
internal duplicates' and 'weight duplicates', among other disturbing
ancillary information including statistical clustering. A 'rough
internal duplicate' characterizes inventory bars with identical
manufacturers and weight, and 'almost-the-same' serial numbers.
'Almost the same does' not mean sequential, but rather means simply
the removal of alphanumeric prefixes or suffixes from the serial
number. Our search algorithm returns twice as many hits on the
iShares list when 'rough duplicates' are enabled. The presence of
even a few rough internal duplicates is highly disturbing, as the
mere presence of rough duplicates indicates possible bar 'cloning'
--where prefixes or suffixes are added to legitimate bar serial
numbers in order to pad the list. Since the weight of these 1000oz
bars is recorded to four significant figures, even a few numbers of
bars with "almost-the-same" serial numbers (yet perfectly identical
weights and manufacturers), gives us serious reservations regarding
the veracity of these inventory lists --due to the statistical
unlikelihood of four significant figures being identical within the
same manufacturer yet having an 'almost-the-same' serial number.
The second aspect of these rather disturbing anomalies are the
presence of 'weight duplicates', internal to both lists, where we
disregard the serial number in favor of using the manufacturer name
and four digit bar weight appended together as the primary key to
identify a bar. When using this method, the inventory of both these
funds contract via an astonishing 82% and 50% for the SLV and ETFS
funds, respectively. While obviously inventory can be expected to
contract when disregarding the bar serial number, as a certain number
of weights will overlap by chance, we suspect that the magnitude of
these contractions lie well outside expected standard deviations
(using a normal Gaussian distribution of bar weights centered on or
around 950-1000oz.) We leave this as an open question and as a
subject for future research by statisticians more capable than
ourselves as to whether this is indeed the case. However, we would
be remiss to point out that our finding here --if indeed it lies
outside the expected statistics --this could be easily explained by
bar "cloning" --an explanation consistent with our findings of both
'rough internal duplicates' as well as 'weight duplicates'.
Another strange finding we discovered was evidence of unusual
statistical clustering in the iShares SLV bar list. Many of the
internal duplicates were clustered towards early bar serial numbers
--that is, those close to zero. We have consulted with an industry
source who says this is unusual, as low serial numbers indicate older
bars. We have yet to come up with a suitable explanation for why this
anomaly would be present, and why internal duplicate concentration
would cluster towards zero. We leave this particular item as another
in an escalating series of problems with these funds and as another
subject for future research.
Lastly we note the presence of 'cross-reference duplicates',
where we found bars with identical serial numbers and manufacturers
which occurred on both the iShares and the ETFS lists. This was
despite these lists supposedly having different custodians. We
detected 80 bars, listed in Appendix C, which appear on both lists
yet have identical manufacturer and serial number. We believe this
is unusual and cause for concern, especially since this number of
bars comprises almost 0.5% of the full ETFS bar list. The brands
involved in these anomalies include Krasnoyarsk, MET/Mex,
Novosibirsk, and Nordeutsche.
Conclusions:
During our research into the inventory lists of the iShares SLV
and London-based ETFS physical silver funds, we discovered multiple
anomalies which cannot be easily dismissed. These included the
presence of internal duplicates, rough internal duplicates, weight
duplicates, statistical clustering, and cross-reference duplicates.
Taken together, these anomalies are cause for concern, and we suggest
that more capable teams conduct further research into these issues,
as they effect price discovery within the precious metals market, as
these ETF shares are being used for settlement and possibly price-
suppression on the COMEX.
If these problems are caused by accounting errors, they are
disturbing and perhaps profoundly incompetent, and we suggest both
these funds should have their senior management replaced. We cannot
recommend these shares to anyone to do these glaring anomalies. In
our opinions, the only way for all of these anomalies to occur
together as noted in this paper, is via systemic fraud or gross
accounting error bordering on jaw-dropping incompetence.
Unfortunately, our private considerations are for the former,
especially considering 'revisions' published to the ETFS bar list
after the appearance of Mark Anthony's July 14th 2009 article on
Seeking Alpha regarding possible ETF fraud. The ETF Securities bar
lists were changed after the Anthony's discovery of duplicate bars in
the Great Wall brand. To us, this suggests criminal activity. We
suggest immediate future research by others to investigate these
findings.
APPENDIX A --iShares SLV 'Perfect Internal Duplicates'
***Perfect Internal Duplicate Detected: ASARCO_INC_AMARILLO_146230_997_8
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_1655_951_2
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_1804_1007_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_2283_966_8
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_2318_946_4
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_3491_995_8
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5351_929_0
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5394_978_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5447_964_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5764_962_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_6996_960_7
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_8021_906_5
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_V2029_977_3
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_W10613_956_3
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_W11430_1034_0
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_W11436_1001_8
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_1_1038_6
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_2_1055_5
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_3_1050_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_4_1053_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_4_1064_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_7_1043_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_9_1042_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_10_1063_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_13_1059_8
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_15_1051_2
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_15_1052_3
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_15_1067_1
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_17_1056_0
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_22_1056_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_23_1066_6
***Perfect Internal Duplicate Detected: EMPRESA_MINERA_PERU_544_1050_4
***Perfect Internal Duplicate Detected: EMPRESA_MINERA_PERU_873_1027_4
***Perfect Internal Duplicate Detected: INNER_MONGOLIA_QIANKUN_GOLD_&_SILVER_62_1056_9
***Perfect Internal Duplicate Detected: INNER_MONGOLIA_QIANKUN_GOLD_&_SILVER_607230_987_8
***Perfect Internal Duplicate Detected: KGHM_POLAND_3107_1011_7
***Perfect Internal Duplicate Detected: KGHM_POLAND_3152_1009_8
***Perfect Internal Duplicate Detected: KGHM_POLAND_3188_1025_7
***Perfect Internal Duplicate Detected: KGHM_POLAND_5447_1022_6
***Perfect Internal Duplicate Detected: MET_MEX_PENOLES_MEXICO_36860_1053_2
***Perfect Internal Duplicate Detected: NIPPON_MINING_JAPAN_9383_940_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1118_947_3
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1337_939_1
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1126_952_4
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_13411_959_9
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1423_956_2
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1453_947_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_16311_948_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1641_937_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1643_965_0
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1668_954_4
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1941_952_2
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_19411_947_6
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_20210_951_5
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2033_946_9
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2044_976_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2134_962_7
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_21911_957_7
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2209_974_5
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_22211_970_5
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2653_943_2
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2916_953_4
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2985_956_3
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_39910_948_0
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_5654_952_6
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_M1343_944_0
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_N2311_950_7
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_T0736_959_6
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_T981_975_8
APPENDIX B --ETFS 'Internal Duplicates'
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1204
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1205
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2494
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2495
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2501
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2502
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2491
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2492
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2493
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2531
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2532
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2533
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2534
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2535
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2571
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2572
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2573
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2574
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2575
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2581
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2582
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2583
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2584
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2585
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2591
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2592
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2593
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2594
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2595
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1273
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1275
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1023
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1032
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1234
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1133
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1138
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1142
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1067
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1068
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1070
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1079
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1083
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1085
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1092
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1096
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1298
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1302
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1309
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1317
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1318
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1171
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1183
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1184
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1189
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1195
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1038
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1041
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1047
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1063
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1064
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1065
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1199
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1200
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1203
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1222
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1226
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1230
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1109
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1110
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1119
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1126
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1106
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1108
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1112
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1115
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1122
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1125
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1127
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1111
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4611
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4512
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4540
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4614
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4542
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4610
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4612
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4517
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4524
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4544
APPENDIX C --iShares SLV and ETFS 'Cross-Reference Duplicates'
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2295
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2483
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2484
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2485
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2531
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2532
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2533
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2534
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2535
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2541
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2542
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2551
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2552
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2553
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2554
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2555
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2561
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2562
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2563
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2564
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2565
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2571
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2572
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2573
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2574
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2601
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2602
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2603
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2604
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2605
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2611
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2612
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2613
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2614
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2615
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2621
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2622
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2623
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2624
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2631
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2632
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2633
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2634
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2635
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2651
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2652
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2653
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2654
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2655
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2661
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2662
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2663
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2664
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2665
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2671
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2672
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2673
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2674
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2675
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2681
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2682
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2683
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2684
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2685
Cross Referenced Duplicate Detected: MET_MEX_PENOLES_MEXICO_21866
Cross Referenced Duplicate Detected: MET_MEX_PENOLES_MEXICO_21932
Cross Referenced Duplicate Detected: MET_MEX_PENOLES_MEXICO_21934
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2607
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2608
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2609
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2610
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2611
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_1395
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_354
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_355
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_356
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_357
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_358
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_359
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_360
I'm kicking this meme cause it looks solid and don't ya know, there a bull market in hard cynicism and scepticism and a bear market is fiduciary trust these days..
The whole point of investing in precious metals is that they are physical assets and they have no counter party risks. Paper assets have counter party risks, physical metals have no such counter party risk.
So what's the point of buying precious metal ETFs such as GLD, SLV, CEF,which are supposed to be backed up by physical metals. But you are not in physical control of the metals, and you just have to trust the sponsors of these ETFs.
Counter party risk, any one? DIND DING DING DING!
The London based ETF Securities Silver Fund regularly publish a list of serial numbers of the silver bars they hold in custody:
http://www.etfsecurities.com/msl/bar_list.zip
The iShares Silver Trust (SLV) also publish a weekly updated list of serial numbers of silver bars held in their custody:
https://ebts.jpmorgan.com/ebtsWebMod/ebts_downloads/BONYBARLIST.PDF
Check out page 1698-1722 of the SLV silver bars list. They have got some silver bars from China. The brand is Great Wall. The supposedly unique serial numbers are from No. 1001 - No. 1460. With many duplications.
The ETFS's silver bars list also contains silver bars of the same Great Wall brand. The serial numbers are also the same: No. 1001 - No. 1360.
And now for the forensic accounting...... a medal to Project Mayhem for sterling service disintermediating the disfunctional element in the elite.. rational rightsizing, I call it.
Silver ETFs: Multiple anomalies detected
Project Mayhem Research Inc
July 28th 2009
project.mayhem.research@gmail.com
Recently, we have developed a computer program to conduct data mining
on the inventory of publicly available silver ETFs --namely, iShares
SLV managed by JP Morgan, and the London-based ETF Securities funds.
What we found was unusual.
Abstract:
A data analysis was conducted of the inventory holdings of two
publicly available silver ETFs: iShares SLV and London-based ETF
Securities. Custom software was written to analyze published silver
bar information for anomalies. Multiple anomalies were found. We
detected numerous duplicate bar entries within both lists, which
comprised 11.88% and 0.4619% of the SLV and ETFS bar totals,
respectively. In addition, we found several 'perfect duplicate'
entries within the iShares SLV bar list: that is, the same weight,
manufacturer, and serial number were listed multiple times. These
comprised 0.0025% of the SLV bar totals. More disturbing, however,
was our accidental discovery of the presence of what we have termed
'rough internal duplicates' --bars with near-identical serial
numbers, identical weights, and identical brands. The reason the
latter are more problematic is their very low-statistical
probability, suggesting some level of fraud and or accounting
incompetence is present. We noticed other data anomalies as well,
including large amounts of low serial number clustering, which was
identified by our industry sources as 'unusual'. Furthermore, we
tested for the presence of 'weight duplicates' --which upon
exclusion --reduced the bar inventories by an astonishing 82% and
50% for the SLV and ETFS funds. We suspect the number of 'weight
duplicates' lie well outside the expected Gaussian distribution, but
leave this for the subject of future research. Finally, we found
multiple cross-referenced bars with identical brands and serial
numbers present in both the London and U.S. funds --funds ostensibly
with different custodians. Taken together with evidence of
'revisions' published to the public ETFS data after exposure of the
initial flaws, these data suggest there is a degree of systematic
fraud or gross incompetence in these funds --perhaps both.
Introduction:
Silver has functioned as money in human activities for over 5000
years, well prior to its gradual demonetization in the late 19th
century. One question most intelligent students of world finance
will ask themselves sooner or later, is how precious metals might be
expected to function under a world oligopoly? Due to silver's
historical role as currency, as well as its competition for the
position of government funds and central bank bonds vis-a-vis the US
Treasury complex, one might expect Western governments and megabanks
to be openly hostile towards silver. Indeed, after three failed CFTC
investigations and one 'Gibson's Paradox' paper, this position
appears to be the case. From a systems perspective, we may consider
the first step required to create a functional world oligopoly is
likely to both displace and suppress the monetary metals in favor of
centrally administered paper. This gives us a possible motive for
what we characterize here.
The unique position of silver, and the subject of the present
paper concerns, is that unlike gold --silver is not carried as a
reserve asset on global central bank balance sheets. This presents a
unique problem in terms of 'cartel management' for the global
monetary authorities. The problem could be written, "How do you
manage the price of an item of which you do not possess large
supply?". As silver expert Ted Butler has articulated over the past
decade or more, above ground stores of silver have been rapidly
consumed post-WWII at such a rate that silver is now several times
more rare than gold. The question is not "Why would the price of
silver be suppressed?" --as that should be obvious to any student of
20th century history and decaying empires --but rather how?
The answer is through the settlement process --and ultimately
through perception itself. Indeed, the scam is very old, and we see
it repeated to the present day through the likes of Bernie Madoff,
all the way up to our chief scam artists and criminals at the Federal
Reserve and US Treasury Department. The scam is: "Sell more of
something than you actually have , and hope not everyone asks for
their money at the same time." Recently, new developments have come
to light regarding the details on how the US/UK financial fraud
syndicate manages to accomplish this charade. Many thanks are
deserved to Ted Butler, GATA, Rob Kirby, Bob Chapman, Adrian Douglas,
Mark Anthony, and countless others.
The recently emerging details on how silver prices are kept low
without a large bank inventory are multi-faceted. Besides the
obvious hundreds of $trillions in OTC interest rate swaps which keep
the toxic US Tbond complex afloat (in direct competition to the
monetary metals), there is the process of the commodity exchanges -specifically
of the highly concentrated unhedged silver futures
position by four large banks, of which our sources indicate the top
two include JP Morgan and HSBC. Ted Butler has detailed the math at
length, but suffice to say the concentration of large amounts of
paper futures within the COMEX, minus spreads, in the hands of four
banks goes a long way towards enabling world silver price management
and a functional oligopoly for the elite.
The last piece of the puzzle, which brings us back to our
present topic of the ETFs, is that of the use of ETF shares as
settlement on these very same COMEX futures exchange. The final
piece was provided to us by GATA and Adrian Douglas in an article
published on July 11, 2009 entitled "The Alchemists". Douglas notes
that a year prior to the launch of the silver ETF, the COMEX
published a rule change, on February 18, 2005, which allowed ETF
shares to be used as settlement in lue of physical delivery of a
commodity. Convenient timing. No doubt this impacts silver the
most, as silver has the most concentrated and leveraged short
position of any COMEX tangible. Gold comes a close second. The
outcome of allowing ETF shares to be used as settlement instead of
physical delivery --as well as increasingly scarce global silver
supply considerations --is a byproduct of fifty years of industrial
consumption and systemic fraud. This situation is both worsening and
destabilizing despite increasingly draconian attempts at generalized
'price management' by the authorities, who are now seeking to
consolidate their respective dictatorships in thinly-disguised global
power plays. Needless to say, this will only end in tears.
Regarding our topic at hand of the silver ETF --since the
silver ETF shares are now used as settlement for price discovery on
the futures market, one would think it would be imperative that there
was careful accounting and open information in order to facilitate
proper price discovery? After all, if one can deliver paper promises
to the COMEX, there should be a physical asset backing up the paper,
right? Unfortunately, our research on the matter indicates this is
not the case, and in fact, there is now information to suggest data
anomalies in the holdings of the silver ETFs and possibly even fraud.
Methods:
Project Mayhem Research obtained the latest bar lists from
iShares SLV managed by JP Morgan, and from the London ETFS silver
funds managed by ETF Securities. After obtaining the lists, we
converted both data sets to plaintext (flat-file) using open source
tools on a Linux platform. We then constructed several iterations of
custom Perl software (written in vi of course) which analyzed the
data sets by loading silver bar information into memory, and cross
referenced the information against itself as well as with the
opposite list. Eventually we decided on three forms of indexing -in
other words, the selection of the primary key --the first was to
use a standardized manufacturer name appended to bar serial number,
and the second, to use manufacturer name, bar serial number, and
specific bar weight appended together, and the third, to use the
manufacturer name appended to the four digit bar weight. After
experimenting with various parameters, we conducted data runs to
calculate various statistics on these data sets, mainly to include
analysis of forms we initially termed 'collisions', perhaps better
identified as 'duplicates'. We found numerous duplicates of various
forms. These are characterized as follows:
Definitions:
Internal Duplicate:
A silver bar with identical serial number and
brand, listed two or more times within a single inventory list.
Rough Internal Duplicate: A silver bar with an almost-identical
serial number (AB1024 vs 1024), yet identical brand and weight,
listed two or more times within a single inventory list.
Perfect Internal Duplicate: A silver bar with identical serial
number, weight, and brand listed two or more times within a single
inventory list.
Weight Duplicate: A silver bar with identical brand and weight listed
two or more times on a single inventory list.
Cross Reference Duplicate: A silver bar with identical serial number
and brand listed on two or more separate inventory lists.
Results:
We found a large number of internal duplicates --far more than
we expected. Internal duplicates were much higher on the iShares
silver ETF list than on the ETFS list, although they were present on
both. Internal Duplicates comprise an astonishing 11.77% of the
iShares SLV list and 0.4619% of the ETFS list. A common objection
that may be raised is that perhaps many of these manufacturers
duplicate their serial numbers --but the bars can be told apart by
their weights. We have taken this possibility into consideration.
Our subsequent data run for perfect internal duplicates indicates
this claim regarding bar weight may have some merit, at least on
paper, as these forms of duplication comprised a substantially
smaller fraction of the lists: 0.000242% and 0.00% respectively.
Furthermore, the published weight of 281,863,452 ounces for the
iShares SLV ETF is roughly consistent with our estimation --one
which includes internal duplicates yet excludes perfect duplicates
from the published inventory list, which according to our
calculations yields 281,670,356 ounces --a figure relatively close,
within three significant figures, yet not identical the published
iShares figure.
Unfortunately we believe even these mildly positive facts are
completely dispelled by our trials with what we have termed 'rough
internal duplicates' and 'weight duplicates', among other disturbing
ancillary information including statistical clustering. A 'rough
internal duplicate' characterizes inventory bars with identical
manufacturers and weight, and 'almost-the-same' serial numbers.
'Almost the same does' not mean sequential, but rather means simply
the removal of alphanumeric prefixes or suffixes from the serial
number. Our search algorithm returns twice as many hits on the
iShares list when 'rough duplicates' are enabled. The presence of
even a few rough internal duplicates is highly disturbing, as the
mere presence of rough duplicates indicates possible bar 'cloning'
--where prefixes or suffixes are added to legitimate bar serial
numbers in order to pad the list. Since the weight of these 1000oz
bars is recorded to four significant figures, even a few numbers of
bars with "almost-the-same" serial numbers (yet perfectly identical
weights and manufacturers), gives us serious reservations regarding
the veracity of these inventory lists --due to the statistical
unlikelihood of four significant figures being identical within the
same manufacturer yet having an 'almost-the-same' serial number.
The second aspect of these rather disturbing anomalies are the
presence of 'weight duplicates', internal to both lists, where we
disregard the serial number in favor of using the manufacturer name
and four digit bar weight appended together as the primary key to
identify a bar. When using this method, the inventory of both these
funds contract via an astonishing 82% and 50% for the SLV and ETFS
funds, respectively. While obviously inventory can be expected to
contract when disregarding the bar serial number, as a certain number
of weights will overlap by chance, we suspect that the magnitude of
these contractions lie well outside expected standard deviations
(using a normal Gaussian distribution of bar weights centered on or
around 950-1000oz.) We leave this as an open question and as a
subject for future research by statisticians more capable than
ourselves as to whether this is indeed the case. However, we would
be remiss to point out that our finding here --if indeed it lies
outside the expected statistics --this could be easily explained by
bar "cloning" --an explanation consistent with our findings of both
'rough internal duplicates' as well as 'weight duplicates'.
Another strange finding we discovered was evidence of unusual
statistical clustering in the iShares SLV bar list. Many of the
internal duplicates were clustered towards early bar serial numbers
--that is, those close to zero. We have consulted with an industry
source who says this is unusual, as low serial numbers indicate older
bars. We have yet to come up with a suitable explanation for why this
anomaly would be present, and why internal duplicate concentration
would cluster towards zero. We leave this particular item as another
in an escalating series of problems with these funds and as another
subject for future research.
Lastly we note the presence of 'cross-reference duplicates',
where we found bars with identical serial numbers and manufacturers
which occurred on both the iShares and the ETFS lists. This was
despite these lists supposedly having different custodians. We
detected 80 bars, listed in Appendix C, which appear on both lists
yet have identical manufacturer and serial number. We believe this
is unusual and cause for concern, especially since this number of
bars comprises almost 0.5% of the full ETFS bar list. The brands
involved in these anomalies include Krasnoyarsk, MET/Mex,
Novosibirsk, and Nordeutsche.
Conclusions:
During our research into the inventory lists of the iShares SLV
and London-based ETFS physical silver funds, we discovered multiple
anomalies which cannot be easily dismissed. These included the
presence of internal duplicates, rough internal duplicates, weight
duplicates, statistical clustering, and cross-reference duplicates.
Taken together, these anomalies are cause for concern, and we suggest
that more capable teams conduct further research into these issues,
as they effect price discovery within the precious metals market, as
these ETF shares are being used for settlement and possibly price-
suppression on the COMEX.
If these problems are caused by accounting errors, they are
disturbing and perhaps profoundly incompetent, and we suggest both
these funds should have their senior management replaced. We cannot
recommend these shares to anyone to do these glaring anomalies. In
our opinions, the only way for all of these anomalies to occur
together as noted in this paper, is via systemic fraud or gross
accounting error bordering on jaw-dropping incompetence.
Unfortunately, our private considerations are for the former,
especially considering 'revisions' published to the ETFS bar list
after the appearance of Mark Anthony's July 14th 2009 article on
Seeking Alpha regarding possible ETF fraud. The ETF Securities bar
lists were changed after the Anthony's discovery of duplicate bars in
the Great Wall brand. To us, this suggests criminal activity. We
suggest immediate future research by others to investigate these
findings.
APPENDIX A --iShares SLV 'Perfect Internal Duplicates'
***Perfect Internal Duplicate Detected: ASARCO_INC_AMARILLO_146230_997_8
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_1655_951_2
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_1804_1007_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_2283_966_8
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_2318_946_4
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_3491_995_8
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5351_929_0
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5394_978_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5447_964_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_5764_962_9
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_6996_960_7
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_8021_906_5
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_V2029_977_3
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_W10613_956_3
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_W11430_1034_0
***Perfect Internal Duplicate Detected: BRITANNIA_REFINED_METALS_UK_W11436_1001_8
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_1_1038_6
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_2_1055_5
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_3_1050_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_4_1053_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_4_1064_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_7_1043_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_9_1042_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_10_1063_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_13_1059_8
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_15_1051_2
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_15_1052_3
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_15_1067_1
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_17_1056_0
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_22_1056_7
***Perfect Internal Duplicate Detected: COMINCO_LTD_TADANAC_CANADA_23_1066_6
***Perfect Internal Duplicate Detected: EMPRESA_MINERA_PERU_544_1050_4
***Perfect Internal Duplicate Detected: EMPRESA_MINERA_PERU_873_1027_4
***Perfect Internal Duplicate Detected: INNER_MONGOLIA_QIANKUN_GOLD_&_SILVER_62_1056_9
***Perfect Internal Duplicate Detected: INNER_MONGOLIA_QIANKUN_GOLD_&_SILVER_607230_987_8
***Perfect Internal Duplicate Detected: KGHM_POLAND_3107_1011_7
***Perfect Internal Duplicate Detected: KGHM_POLAND_3152_1009_8
***Perfect Internal Duplicate Detected: KGHM_POLAND_3188_1025_7
***Perfect Internal Duplicate Detected: KGHM_POLAND_5447_1022_6
***Perfect Internal Duplicate Detected: MET_MEX_PENOLES_MEXICO_36860_1053_2
***Perfect Internal Duplicate Detected: NIPPON_MINING_JAPAN_9383_940_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1118_947_3
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1337_939_1
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1126_952_4
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_13411_959_9
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1423_956_2
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1453_947_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_16311_948_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1641_937_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1643_965_0
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1668_954_4
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_1941_952_2
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_19411_947_6
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_20210_951_5
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2033_946_9
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2044_976_8
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2134_962_7
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_21911_957_7
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2209_974_5
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_22211_970_5
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2653_943_2
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2916_953_4
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_2985_956_3
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_39910_948_0
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_5654_952_6
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_M1343_944_0
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_N2311_950_7
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_T0736_959_6
***Perfect Internal Duplicate Detected: RUSSIAN_STATE_REFINERIES_T981_975_8
APPENDIX B --ETFS 'Internal Duplicates'
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1204
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1205
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2494
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2495
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2501
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2502
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2491
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2492
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2493
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2531
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2532
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2533
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2534
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2535
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2571
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2572
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2573
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2574
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2575
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2581
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2582
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2583
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2584
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2585
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2591
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2592
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2593
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2594
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_2595
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1273
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1275
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1023
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1032
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1234
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1133
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1138
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1142
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1067
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1068
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1070
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1079
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1083
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1085
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1092
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1096
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1298
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1302
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1309
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1317
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1318
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1171
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1183
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1184
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1189
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1195
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1038
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1041
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1047
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1063
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1064
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1065
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1199
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1200
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1203
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1222
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1226
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1230
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1109
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1110
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1119
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1126
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1106
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1108
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1112
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1115
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1122
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1125
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1127
***Internal Duplicate Detected: KRASNOYARSK_RUSSIA_1111
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4611
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4512
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4540
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4614
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4542
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4610
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4612
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4517
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4524
***Internal Duplicate Detected: PRIOKSKY_RUSSIA_KP4544
APPENDIX C --iShares SLV and ETFS 'Cross-Reference Duplicates'
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2295
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2483
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2484
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2485
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2531
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2532
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2533
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2534
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2535
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2541
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2542
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2551
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2552
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2553
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2554
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2555
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2561
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2562
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2563
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2564
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2565
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2571
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2572
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2573
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2574
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2601
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2602
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2603
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2604
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2605
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2611
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2612
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2613
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2614
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2615
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2621
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2622
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2623
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2624
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2631
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2632
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2633
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2634
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2635
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2651
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2652
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2653
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2654
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2655
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2661
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2662
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2663
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2664
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2665
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2671
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2672
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2673
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2674
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2675
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2681
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2682
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2683
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2684
Cross Referenced Duplicate Detected: KRASNOYARSK_RUSSIA_2685
Cross Referenced Duplicate Detected: MET_MEX_PENOLES_MEXICO_21866
Cross Referenced Duplicate Detected: MET_MEX_PENOLES_MEXICO_21932
Cross Referenced Duplicate Detected: MET_MEX_PENOLES_MEXICO_21934
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2607
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2608
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2609
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2610
Cross Referenced Duplicate Detected: NORDEUTSCHE_GERMANY_2611
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_1395
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_354
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_355
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_356
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_357
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_358
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_359
Cross Referenced Duplicate Detected: NOVOSIBRISK_REFINERY_RUSSIA_360
The Plain Truth: the dollar is even looking rocky in Philly
Says the philly Church of God...who explain...
TheTrumpet.com is the official website of the Philadelphia Trumpet newsmagazine. Each weekday, theTrumpet.com features reporting and analysis of recent global geopolitical, economic, social and religious events and trends.
The Trumpet uses a single overarching criterion that sets it apart from other news sources and keeps it focused like a laser beam on what truly is important. That criterion is prophetic significance. The Trumpet seeks to show how current events are fulfilling the biblically prophesied description of the prevailing state of affairs just before the Second Coming of Jesus Christ.
End times of a sort, any way you slice it....
http://www.thetrumpet.com/index.php?q=6279.0.116.0
Amid the global economic carnage, one winner has emerged. In a perverse turn of events, the currency of the country that started it all has gone up in value. But the U.S. dollar’s day as king may be nearing an end. Nations are beginning to worry that America’s vast debts and money-creating machines are threatening the greenback.
News out of the Far East suggests that anti-dollar sentiment is flourishing among U.S. enemies and allies alike. Is a dollar revolt brewing?
Deng Xiaoping’s Dream
Mei jin used to be the Chinese term for the U.S. dollar. It means “American gold.” It came from the dollar’s reputation as a stable store of wealth. The belief in “American gold” was so strong that it even withstood the de-linking of gold and the greenback by President Nixon in 1971. The Chinese shunned local currency when owning dollars was an option.
“Comrades, just imagine!”, Deng Xiaoping, the leader of China, said to an audience of powerful policymakers in the late 1970s. “One day we may have a foreign reserve as big as $10 billion!” According to the New York Times, a hushed awe filled the room because the number was so astronomical, seemingly so impossible. “Comrades, just imagine,” Deng continued, “with 10 billion American gold, how much China can do!”
Back then, owning “American gold” was a status symbol in China, even after the dollar could no longer be officially exchanged for real gold. Chinese horded Mei jin as a hedge against inflation—willing to purchase dollars at extravagant exchange rates—if they could find anyone who would sell. Businesses eagerly sought it from tourists. The government wanted “American gold” to back the Chinese currency.
The gigantic demand for Mei jin played a huge role in supporting the value of the dollar and keeping interest rates low in America, despite the fact that the U.S. ran huge trade and budget deficits.
Forty years later, a very different story is emerging.
A New Dirty Word
China is now the world’s largest foreign holder of dollar bonds. It owns approximately $2 trillion worth. China is also America’s most important creditor.
China has all the Mei jin it could have ever hoped for—and a whole lot more. China is overflowing with Mei jin, but like anything else that becomes easily attainable—Weimar reichmarks, Argentine pesos, Turkish lira, colored paper—as scarcity dwindles, value plummets. The implications for America are ominous.
“No one knows for sure when the tide started to turn, or the exact moment when American gold started its slow but seemingly irreversible loss of luster,” Victor Zhikai Gao, a former interpreter for Deng Xiaoping, said. But now, “[m]any Chinese people increasingly fear the rapid erosion of the American dollar.”
Many shops no longer accept dollar-based credit cards, and there are quotas on how many dollars can be converted to renminbi. Those who still keep large amounts of U.S. dollars are those who need it to send their children to U.S. schools, or to travel in other countries that still use U.S. dollars.
For the most part, Chinese multinational corporations still happily accept U.S. dollars as a form of payment—but Mei jin is on its way to becoming a derisive anti-American joke, even a dirty word. China’s appetite for holding dollars is turning into revulsion.
“China’s near-$2,000 billion in reserves, the world’s largest, are often viewed outside the country as a great strength—an insurance policy against economic turbulence. But within China, they are increasingly seen by the public and even some policymakers as something of an albatross—a huge pool of resources … that will plunge in value if the U.S. dollar collapses,” reported the Financial Times (February 23, emphasis mine).
China is stuck in a dollar trap. At least, that is what U.S. policymakers are telling the gullible public. China has lent so much money to America that if it ever tried to sell its U.S. treasuries, it would cause the rest of its treasury holdings to plummet in value. Thus, China would never dare sell. We have them in a Chinese liquidity torture trap—or so the theory goes.
China plays along, allowing U.S. officials to save face. Meanwhile, the U.S. trade deficit alone continues to send tens of billions of dollars to China each month. “We hate you guys,” Luo Ping, a director general at the China Banking Regulatory Commission, complained on a visit to New York in February. “Once you start issuing $1 to $2 trillion … we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.”
There you have it! China has admitted that it is stuck in the dollar trap—case closed. We can all get back to fearlessly sending China more money.
But it’s not China that is caught in a dollar trap—it’s America.
Goodbye to the Dollar
China is already making moves to diversify its holdings away from the dollar. In April it was reported that China had almost doubled its actual gold reserves from 2003 levels to 1,054 tons. Although as a percent of its foreign exchange savings China’s gold stockpile is small, from a global perspective, it is huge. China is now the world’s largest producer and fifth-largest holder of refined gold, on a par with Switzerland. But that is only counting the “officially” reported numbers. True gold holdings may be much higher.
China is also “pushing hard to put the dollar out of its misery as the currency of international trade,” according to the Shanghai Daily. China has negotiated currency swap deals for bilateral trade with Argentina, Malaysia, South Korea, Belarus and Indonesia as a way for these countries to conduct trade without relying on the U.S. dollar. Similar arrangements are in the works with Brazil and Russia.
China also pushed hard (along with the European Union) at the G-20 summit earlier this year for the International Monetary Fund to issue Special Drawing Rights (sdrs), so that countries suffering from the global economic slowdown could have access to credit markets. sdrs are, in effect, a form of global currency outside the control of any single nation that acts as a supplement or alternative to the dollar for global trade.
Does this sound like a nation caught in a trap?
“The notion that the Chinese have accumulated this massive U.S. debt portfolio and are only now wondering what to do about it is so naive it doesn’t warrant consideration,” Adrian Douglas of Market Force Analysis said. Douglas suggests that China has been using its U.S. treasury portfolio as collateral for the massive resource buying binge it has embarked upon lately.
If some day China was “forced” to announce it was selling significant portions of its U.S. treasuries—what Chinese state media have referred to as Beijing’s “nuclear option”—and the U.S. bond market consequently melted down, China could simply default and hand over the worthless U.S. bonds. Meanwhile, China would still have its accumulated stockpiles of strategic resources. Douglas says China is currently importing 70 percent more copper than it consumes, and is busily creating and filling a strategic petroleum reserve.
But China isn’t the only Asian country to show public disdain for the U.S. dollar.
No Thanks
Ii eh, domo. That is essentially what the chief finance spokesman of Japan’s opposition said concerning the U.S. dollar on April 12. Ii eh, domo means “no thanks”—as in, dollar-denominated U.S. treasuries? No thanks. Masaharu Nakagawa told the bbc that he was worried about the future value of the dollar, and that if his party were elected in the upcoming national elections it would refuse to purchase any more U.S. treasuries unless they were denominated in Japanese yen.
“If it’s [in] yen, it’s going to be all right,” Mr. Nakagawa said. “We propose that we would buy [the U.S. bonds], but it’s yen, not dollar.”
Since World War ii, Japan has been a stalwart supporter of U.S. policy and the dollar. Japan is America’s second-largest creditor after China.
Because Japan is a U.S. ally, Washington officials don’t often talk about it being stuck in a dollar trap. But this recent announcement illustrates a clear weakening of U.S.-Tokyo relations.
“We have come to assume that Japan under the Liberal Democratic Party (ldp) will always cleave to America, if only to safeguard U.S. protection against Chinese naval expansion,” wrote Ambrose Evans-Pritchard in the Telegraph. “But crashes have a habit of bringing regime change” (May 17).
Brian Reading, a Japan specialist at Lombard Street Research, says Japan may experience a “seismic shock” as voters revolt. Will Japan soon have new leadership that is less accommodating to Washington? Even America’s strongest allies are questioning the wisdom of lending money to a nation that has so much debt.
According to a recent unconfirmed report, Germany is in the dollar-skeptic camp too. Economic analyst Jim Willie quoted an unnamed source saying that Germany has demanded the “return [of] all their gold bullion held in custodial accounts on U.S. soil” (Hat Trick Letter, April 16). Dubai has recently sent the same request to London (which is also facing a currency crisis). According to Willie, Germany is acting as a “hidden archenemy” toward the U.S. and UK “on all matters pertaining to gold bullion.” He says Germany is also acting as an adviser to the Chinese on currency and gold issues.
When America’s allies, let alone its enemies, publicly question the viability of the dollar, you can be sure that things behind the scenes are even worse.
“We’re going to have a currency crisis, probably this fall or the fall of 2010,” said famed commodities investor Jim Rogers on May 12. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”
The dollar is in big trouble.
If the dollar goes down, America’s standard of living—and other, far more important implications—can’t help but follow. The dangers of debt are about to be brought home to America. Skyrocketing interest rates, plummeting currency, escalating import costs and three-digit oil prices will be just a few of the consequences.
Mei jin has lost its luster. And soon, more than just the Japanese will say “no thanks” to the U.S. dollar. •
TheTrumpet.com is the official website of the Philadelphia Trumpet newsmagazine. Each weekday, theTrumpet.com features reporting and analysis of recent global geopolitical, economic, social and religious events and trends.
The Trumpet uses a single overarching criterion that sets it apart from other news sources and keeps it focused like a laser beam on what truly is important. That criterion is prophetic significance. The Trumpet seeks to show how current events are fulfilling the biblically prophesied description of the prevailing state of affairs just before the Second Coming of Jesus Christ.
End times of a sort, any way you slice it....
http://www.thetrumpet.com/index.php?q=6279.0.116.0
Amid the global economic carnage, one winner has emerged. In a perverse turn of events, the currency of the country that started it all has gone up in value. But the U.S. dollar’s day as king may be nearing an end. Nations are beginning to worry that America’s vast debts and money-creating machines are threatening the greenback.
News out of the Far East suggests that anti-dollar sentiment is flourishing among U.S. enemies and allies alike. Is a dollar revolt brewing?
Deng Xiaoping’s Dream
Mei jin used to be the Chinese term for the U.S. dollar. It means “American gold.” It came from the dollar’s reputation as a stable store of wealth. The belief in “American gold” was so strong that it even withstood the de-linking of gold and the greenback by President Nixon in 1971. The Chinese shunned local currency when owning dollars was an option.
“Comrades, just imagine!”, Deng Xiaoping, the leader of China, said to an audience of powerful policymakers in the late 1970s. “One day we may have a foreign reserve as big as $10 billion!” According to the New York Times, a hushed awe filled the room because the number was so astronomical, seemingly so impossible. “Comrades, just imagine,” Deng continued, “with 10 billion American gold, how much China can do!”
Back then, owning “American gold” was a status symbol in China, even after the dollar could no longer be officially exchanged for real gold. Chinese horded Mei jin as a hedge against inflation—willing to purchase dollars at extravagant exchange rates—if they could find anyone who would sell. Businesses eagerly sought it from tourists. The government wanted “American gold” to back the Chinese currency.
The gigantic demand for Mei jin played a huge role in supporting the value of the dollar and keeping interest rates low in America, despite the fact that the U.S. ran huge trade and budget deficits.
Forty years later, a very different story is emerging.
A New Dirty Word
China is now the world’s largest foreign holder of dollar bonds. It owns approximately $2 trillion worth. China is also America’s most important creditor.
China has all the Mei jin it could have ever hoped for—and a whole lot more. China is overflowing with Mei jin, but like anything else that becomes easily attainable—Weimar reichmarks, Argentine pesos, Turkish lira, colored paper—as scarcity dwindles, value plummets. The implications for America are ominous.
“No one knows for sure when the tide started to turn, or the exact moment when American gold started its slow but seemingly irreversible loss of luster,” Victor Zhikai Gao, a former interpreter for Deng Xiaoping, said. But now, “[m]any Chinese people increasingly fear the rapid erosion of the American dollar.”
Many shops no longer accept dollar-based credit cards, and there are quotas on how many dollars can be converted to renminbi. Those who still keep large amounts of U.S. dollars are those who need it to send their children to U.S. schools, or to travel in other countries that still use U.S. dollars.
For the most part, Chinese multinational corporations still happily accept U.S. dollars as a form of payment—but Mei jin is on its way to becoming a derisive anti-American joke, even a dirty word. China’s appetite for holding dollars is turning into revulsion.
“China’s near-$2,000 billion in reserves, the world’s largest, are often viewed outside the country as a great strength—an insurance policy against economic turbulence. But within China, they are increasingly seen by the public and even some policymakers as something of an albatross—a huge pool of resources … that will plunge in value if the U.S. dollar collapses,” reported the Financial Times (February 23, emphasis mine).
China is stuck in a dollar trap. At least, that is what U.S. policymakers are telling the gullible public. China has lent so much money to America that if it ever tried to sell its U.S. treasuries, it would cause the rest of its treasury holdings to plummet in value. Thus, China would never dare sell. We have them in a Chinese liquidity torture trap—or so the theory goes.
China plays along, allowing U.S. officials to save face. Meanwhile, the U.S. trade deficit alone continues to send tens of billions of dollars to China each month. “We hate you guys,” Luo Ping, a director general at the China Banking Regulatory Commission, complained on a visit to New York in February. “Once you start issuing $1 to $2 trillion … we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.”
There you have it! China has admitted that it is stuck in the dollar trap—case closed. We can all get back to fearlessly sending China more money.
But it’s not China that is caught in a dollar trap—it’s America.
Goodbye to the Dollar
China is already making moves to diversify its holdings away from the dollar. In April it was reported that China had almost doubled its actual gold reserves from 2003 levels to 1,054 tons. Although as a percent of its foreign exchange savings China’s gold stockpile is small, from a global perspective, it is huge. China is now the world’s largest producer and fifth-largest holder of refined gold, on a par with Switzerland. But that is only counting the “officially” reported numbers. True gold holdings may be much higher.
China is also “pushing hard to put the dollar out of its misery as the currency of international trade,” according to the Shanghai Daily. China has negotiated currency swap deals for bilateral trade with Argentina, Malaysia, South Korea, Belarus and Indonesia as a way for these countries to conduct trade without relying on the U.S. dollar. Similar arrangements are in the works with Brazil and Russia.
China also pushed hard (along with the European Union) at the G-20 summit earlier this year for the International Monetary Fund to issue Special Drawing Rights (sdrs), so that countries suffering from the global economic slowdown could have access to credit markets. sdrs are, in effect, a form of global currency outside the control of any single nation that acts as a supplement or alternative to the dollar for global trade.
Does this sound like a nation caught in a trap?
“The notion that the Chinese have accumulated this massive U.S. debt portfolio and are only now wondering what to do about it is so naive it doesn’t warrant consideration,” Adrian Douglas of Market Force Analysis said. Douglas suggests that China has been using its U.S. treasury portfolio as collateral for the massive resource buying binge it has embarked upon lately.
If some day China was “forced” to announce it was selling significant portions of its U.S. treasuries—what Chinese state media have referred to as Beijing’s “nuclear option”—and the U.S. bond market consequently melted down, China could simply default and hand over the worthless U.S. bonds. Meanwhile, China would still have its accumulated stockpiles of strategic resources. Douglas says China is currently importing 70 percent more copper than it consumes, and is busily creating and filling a strategic petroleum reserve.
But China isn’t the only Asian country to show public disdain for the U.S. dollar.
No Thanks
Ii eh, domo. That is essentially what the chief finance spokesman of Japan’s opposition said concerning the U.S. dollar on April 12. Ii eh, domo means “no thanks”—as in, dollar-denominated U.S. treasuries? No thanks. Masaharu Nakagawa told the bbc that he was worried about the future value of the dollar, and that if his party were elected in the upcoming national elections it would refuse to purchase any more U.S. treasuries unless they were denominated in Japanese yen.
“If it’s [in] yen, it’s going to be all right,” Mr. Nakagawa said. “We propose that we would buy [the U.S. bonds], but it’s yen, not dollar.”
Since World War ii, Japan has been a stalwart supporter of U.S. policy and the dollar. Japan is America’s second-largest creditor after China.
Because Japan is a U.S. ally, Washington officials don’t often talk about it being stuck in a dollar trap. But this recent announcement illustrates a clear weakening of U.S.-Tokyo relations.
“We have come to assume that Japan under the Liberal Democratic Party (ldp) will always cleave to America, if only to safeguard U.S. protection against Chinese naval expansion,” wrote Ambrose Evans-Pritchard in the Telegraph. “But crashes have a habit of bringing regime change” (May 17).
Brian Reading, a Japan specialist at Lombard Street Research, says Japan may experience a “seismic shock” as voters revolt. Will Japan soon have new leadership that is less accommodating to Washington? Even America’s strongest allies are questioning the wisdom of lending money to a nation that has so much debt.
According to a recent unconfirmed report, Germany is in the dollar-skeptic camp too. Economic analyst Jim Willie quoted an unnamed source saying that Germany has demanded the “return [of] all their gold bullion held in custodial accounts on U.S. soil” (Hat Trick Letter, April 16). Dubai has recently sent the same request to London (which is also facing a currency crisis). According to Willie, Germany is acting as a “hidden archenemy” toward the U.S. and UK “on all matters pertaining to gold bullion.” He says Germany is also acting as an adviser to the Chinese on currency and gold issues.
When America’s allies, let alone its enemies, publicly question the viability of the dollar, you can be sure that things behind the scenes are even worse.
“We’re going to have a currency crisis, probably this fall or the fall of 2010,” said famed commodities investor Jim Rogers on May 12. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”
The dollar is in big trouble.
If the dollar goes down, America’s standard of living—and other, far more important implications—can’t help but follow. The dangers of debt are about to be brought home to America. Skyrocketing interest rates, plummeting currency, escalating import costs and three-digit oil prices will be just a few of the consequences.
Mei jin has lost its luster. And soon, more than just the Japanese will say “no thanks” to the U.S. dollar. •
Challenging the Afghanistan intervention paradigm
I spent several months in Afghanistan in 1977 ( A lost boy? You bet!) and the logic of repeating the errors of two centuries of great power intervention; most recently by the Soviet Union, escapes me. This guy walked all over the place, he agrees with me.
watch
LEIGH SALES, PRESENTER: Rory Stewart, who as I explained earlier, has crammed about half a dozen lives into his thirty six years. He's served as a British diplomat and was awarded an OBE for his military service in the British army in Iraq. His best-selling book “The Places In Between” documents his 6000-mile journey by foot through Afghanistan, Pakistan, India and Nepal.
In 2004, Mr Stewart started the Turquoise Mountain Foundation in Kabul which creates jobs and skills in Afghanistan's traditional crafts.
And since earlier this year he's been the director of the Carr Centre for Human Rights at Harvard University.
Rory Stewart joins us now live from London.
Professor Stewart I'll ask you a little about your life later but let's start with the recent news out of Afghanistan. The British Government has declared Operation Panther's Claw a success. Could that end up being a bit of a "Mission Accomplished" moment?
RORY STEWART, CARR CENTRE FOR HUMAN RIGHTS POLICY, HARVARD: I think it's very dangerous to talk about success because we have no clear indications of what we're trying to achieve in that country. Sometimes we talk about stability, sometimes we talk about stat-building, sometimes we talk about trying to defeat the Taliban, sometimes we talk about trying to stabilise Pakistan. All that's really happened in the last few weeks is that they have managed to re-take some ground, quite small ground, about the size of a small island, the Isle of Wight off the coast of Britain - and they're going to try to hold it.
And then they're expecting somehow Afghan government institutions to flourish. Honestly I think a lot of this is a waste of time and sadly a waste of lives.
LEIGH SALES: Why do you think that?
RORY STEWART: Because Afghanistan's problems are much more deep-seated. They're not things that are going to be resolved with foreign troops and short-term operations. It will take 20 or 30 years for a country as poor and as traumatised as Afghanistan to reach the kind of levels of a country even like Pakistan and of course Pakistan itself is not stable.
The most that the West should be trying to do in Pakistan is to provide gentle, light support over 20, 30 years but these military operations I cannot really see the purpose of them.
LEIGH SALES: I will talk to you about some of the strategic issues in a moment. But let's set the context first. You've written that Afghanistan's political and strategic significance has been exaggerated. What do you mean?
RORY STEWART: From almost every point of view many other countries are more important than Afghanistan. If you just take Pakistan on its border. Pakistan has a nuclear bomb. Afghanistan hasn't. Pakistan is where Osama bin Laden is. He is not in Afghanistan. Pakistan has the opportunity to destabilise India. So it's 20 times more important than Afghanistan but we're putting 20-times more resources into Afghanistan than Pakistan.
And you could probably make the same point about Iran, and of course in broader strategic terms about many other countries in the world ranging from North Korea to China.
LEIGH SALES: You've spent considerable time in both Iraq and Afghanistan. The so-called surge was success in Iraq yet you're one of the few voice arguing against the surge in Afghanistan. Tell me a little bit about your thinking on that.
RORY STEWART: In Iraq, the surge was largely a success because Iraqi politicians, particularly the big Shia parties, got behind it. And the Sunni tribal groups who were under a lot of pressure decided to broker a deal. So it was an Iraqi-led process. The troop increases was not the key.
In Afghanistan, we simply don't have those kind of political forces. The Afghan Government doesn't have the weight or the mass political support of the Baghdad Government. And there aren't people coming to us in the way the Sunni tribal groups did in Iraq and saying, "We want to lay down our arms. We want a ceasefire and in return we would like uniforms and salaries."
So without that Afghan push, troop increases on their own are not going to achieve anything.
LEIGH SALES: Is there anything that could make the push come from the Afghan side?
RORY STEWART: I think it's very difficult but, yes, of course. Afghans are generally much more canny, much more competent than the international community acknowledges.
And I see again and again in my work in Kabul that when Afghans want to sort something out, they can. But the challenge for the international community is to understand that you can't force that process and there are many people in southern and eastern Afghanistan who are relatively conservative, who are suspicious of foreign troops, who may not like the Taliban but may prefer them to the foreign troops and there needs to be a political accommodation that recognises that.
LEIGH SALES: You've written that the best Afghan policy would be to reduce the number of foreign troops from the current level of about 90,000 to far fewer, perhaps 20,000. In that situation, what would be the objectives of the reduced military mission?
RORY STEWART: I think the objective of the reduced mission would be much more focused on counter-terrorism. In other words, it wouldn't be trying to fight the Taliban, who predominantly are a domestic Afghan force. The Taliban's agenda is really to take over the Government of Afghanistan. Instead it would focus on al Qaida and their international terrorist agenda. And what you would like look at is the special forces and intelligence presence over a very long period, whose job would be to ensure that Osama bin Laden couldn't again re-establish terrorist training camps in Afghanistan.
LEIGH SALES: If there are only a small number of troop, though, couldn't they easily be overpowered by hostile Afghan forces?
RORY STEWART: Again, it depends what you're trying to do. The key here is to distinguish between international terrorists, people who want to attack Australia, the United States, Europe, and many people in Afghanistan fighting our troops who have no international agenda at all whose problem basically is with the Kabul Government that they perceive as corrupt and with foreign troops in their country. So I think if you were able to focus on the counter-terrorism mission, you should be able to maintain that. And it should certainly be possible to defend our basis against the Taliban, who have no conventional option.
LEIGH SALES: We've heard the senior American military commanders make the exact opposite argument to you, which is that rather than reducing troop numbers they need to increase troop numbers. Why do you think that they hold the exact opposite view to you?
RORY STEWART: Because naturally if you're a general you're going to go for a maximalist solution. You want to have as many resource as possible and troops as possible. The job of politicians or the voting public is to check the military and to say, "We have many other priorities and many other responsibilities around the world. We simply cannot afford to put all our eggs in our basket."
So as you saw in Vietnam took what started as a few thousand troops up to 500,000 eventually. And the military in Iraq, in Afghanistan will push again and again for more resource an troops. We need to push back and say, "Ultimately Afghanistan does not justify this kind of troop presence." We need to look at the world in general, we need to husband our resources for other crises occurring in other countries. We simply cannot put this amount into a country like Afghanistan.
LEIGH SALES: Do your views mean that you think the surge in Afghanistan will fail?
RORY STEWART: I certainly believe that, if they think they can create an enduring stability through the current strategy, it will fail. They will not get an enduring stability. Afghanistan is likely - it's very difficult to predict but it's likely in the future to remain a fragile, poor, traumatised country. And the thing that will turn that around will not be foreign troops, it will be the Afghans themselves.
LEIGH SALES: And what will drive them to eventually do that?
RORY STEWART: This is a question partly of political leadership. It's also a question of will, a question of resources. Essentially Afghans need to have a sense of what kind of country they want to live in. Once that's developed it's perfectly plausible for an Afghan force to emerge which could win the support, the attention of its people and which can stabilise the country. And I think the international community Europe, the United States and the other partners on the ground could certainly play a useful part in training or providing logistical or technical support to Afghans to do those things. But I think foreign troops trying to go on the lead will be seen as an occupying power and that's self-defeating.
LEIGH SALES: Afghanistan will hold elections next month for the presidency and provincial council representatives, how do you see that playing out?
RORY STEWART: I would imagine that what will happen in the elections is that President Karzai, the existing President will be re-elected which will mean that the current political structures in Afghanistan, broadly-speaking, will remain unchanged. The kind of cabinet he will bring in will resemble he had before and the kind of things the international community has been complaining about in Afghanistan will persist.
LEIGH SALES: So more of the same?
RORY STEWART: Yes. Which is why I think, again, the international community needs to be more realistic. This is a country where perhaps 40 per cent of people cannot read or write, where in schools about a quarter of the teachers are illiterate. This is not a country which is going to be able to be transformed overnight into a stable, functioning state in the way that NATO and the other allies on the ground seem to imagine.
LEIGH SALES: If, as you say it's not a particularly or its political and strategic significance is overstated, then why should the West have any stake in improving the lot of Afghanis? Why not just leave the whole thing to them?
RORY STEWART: Because I think we have some responsibilities, not an overwhelming responsibility, not a blank-cheque responsibility. But we have invaded this country. We have disrupted things.
So it seems perfectly reasonable that we should continue over a 20, 30 year period to provide international assistance and aid. But it shouldn't be extravagant but proportional to the sort of assistance we provide to other poor countries around the world. We have aid programs in Nepal. We are trying to work in countries even as difficult as Somalia.
So both from a view of our moral obligations to Afghans we should be doing something but also in terms of self-interest. It's very useful to keep intelligence operatives in a country which has in the past provided some support for international terrorism.
But we need to look at this as a long-term management and containment issue, not as a question of electro-shock therapy pumping in the troops to try to sort everything out.
LEIGH SALES: Tonight, the Japanese Opposition Leader said that he would withdraw from Afghanistan next year and public opinion in other countries has slowly over time turned against the war in Afghanistan. How long do you think governments will be able to resist withdrawal when their populations are increasingly opposed to involvement?
RORY STEWART: I think in cases such as Canada or Germany where, of course, the populations are largely against, the governments are going to respond to that. The interesting case of course is Britain.
In Britain more and more of the population are in favour of the war in Afghanistan. At a time when the Government itself seems to be quite sceptical. So it's almost the opposite problem. In Germany, parliamentarians are going all out to maintain a position in Afghanistan when the public is against them. In Britain, it's the Prime Minister and the Government who are limiting the number of troops and the public and the newspapers are pushing to deploy more.
LEIGH SALES: The British Foreign Secretary David Miliband has said it's time to talk with moderate Taliban leadership, what do you think?
RORY STEWART: This is fine. But it's nothing new. From the very beginning people have understood the importance of trying to talk to the Taliban. We haven't done it very effectively but there were efforts as far back as 2002, 2003. Everybody acknowledges that the only way you can solve this kind of insurgency is to try to negotiate with moderate elements. But the real problem is: Why would they want to negotiate with you? What sort of carrot or stick do you really have to bring them to the table? And how do you draw the distinction between moderate and the extreme elements and what sort of concessions are you prepared to make.
Of course in principle, talking is no problem but what seems unlikely is they're unlikely to come up with any real solution.
LEIGH SALES: So there are no obvious carrots or sticks?
RORY STEWART: No, because the Taliban of course when under pressured can quite easily disperse or cross across the border into Pakistan. What they're really aiming for is to take a stake in the Government and negotiators will be reluctant to give them that because that seems to be exactly what we're fighting against. I can't really see how that kind of negotiation can operate. And, for sure, that kind of negotiation would need to be negotiation led by the Afghan Government. Not by foreigners. It's not something Britain, for example, could do.
LEIGH SALES: I explained some of your background, that very long list of adventures and achievements. Don't you feel guilty just sitting back and letting life pass you by like this?
RORY STEWART: That's what it feels like, for sure.
LEIGH SALES: I only really skimmed over what you've done. Did you set out to live a highly adventurous life?
RORY STEWART: I've been very lucky. But I grew up - I was born in Hong Kong, I grew up in Malaysia and my father was a very active outdoors person. He used to take me into the jungle when I was five or six. I became excited by the idea of being outside in the natural landscape. So I resigned from the foreign service and walked from Turkey to Bangladesh over 21 months, which was probably, I think, the best thing I've done in my life and a lot of the things I've done since then have come from those kinds of experiences.
LEIGH SALES: So what made you decide to take the job at Harvard, which some people might perhaps look at as a little more staid compared to some of the other things in your background?
RORY STEWART: I am not quite sure. I think I probably did it to please my mother.
LEIGH SALES: And is she pleased?
RORY STEWART: She's delighted.
LEIGH SALES: Is it true that Brad Pitt has bought the film rights to your life story thus far?
RORY STEWART: Yes, but I think this is a very uncertain world of film. I am hoping that Danny DeVito is going to play me in the movie.
LEIGH SALES: You might have to do a little bit of eating between now and when they start filming then.
RORY STEWART: Yeah. It's him or Judi Dench. I'm not sure which one.
LEIGH SALES: Judi Dench gets all the good British roles so, I'm sure that's what it will be who it ends up as.
Rory Stewart thank you very much for joining us tonight. A very good pleasure to have you on the program.
RORY STEWART: Thank you very much.
http://www.abc.net.au/lateline/content/2008/s2640378.htm
watch
LEIGH SALES, PRESENTER: Rory Stewart, who as I explained earlier, has crammed about half a dozen lives into his thirty six years. He's served as a British diplomat and was awarded an OBE for his military service in the British army in Iraq. His best-selling book “The Places In Between” documents his 6000-mile journey by foot through Afghanistan, Pakistan, India and Nepal.
In 2004, Mr Stewart started the Turquoise Mountain Foundation in Kabul which creates jobs and skills in Afghanistan's traditional crafts.
And since earlier this year he's been the director of the Carr Centre for Human Rights at Harvard University.
Rory Stewart joins us now live from London.
Professor Stewart I'll ask you a little about your life later but let's start with the recent news out of Afghanistan. The British Government has declared Operation Panther's Claw a success. Could that end up being a bit of a "Mission Accomplished" moment?
RORY STEWART, CARR CENTRE FOR HUMAN RIGHTS POLICY, HARVARD: I think it's very dangerous to talk about success because we have no clear indications of what we're trying to achieve in that country. Sometimes we talk about stability, sometimes we talk about stat-building, sometimes we talk about trying to defeat the Taliban, sometimes we talk about trying to stabilise Pakistan. All that's really happened in the last few weeks is that they have managed to re-take some ground, quite small ground, about the size of a small island, the Isle of Wight off the coast of Britain - and they're going to try to hold it.
And then they're expecting somehow Afghan government institutions to flourish. Honestly I think a lot of this is a waste of time and sadly a waste of lives.
LEIGH SALES: Why do you think that?
RORY STEWART: Because Afghanistan's problems are much more deep-seated. They're not things that are going to be resolved with foreign troops and short-term operations. It will take 20 or 30 years for a country as poor and as traumatised as Afghanistan to reach the kind of levels of a country even like Pakistan and of course Pakistan itself is not stable.
The most that the West should be trying to do in Pakistan is to provide gentle, light support over 20, 30 years but these military operations I cannot really see the purpose of them.
LEIGH SALES: I will talk to you about some of the strategic issues in a moment. But let's set the context first. You've written that Afghanistan's political and strategic significance has been exaggerated. What do you mean?
RORY STEWART: From almost every point of view many other countries are more important than Afghanistan. If you just take Pakistan on its border. Pakistan has a nuclear bomb. Afghanistan hasn't. Pakistan is where Osama bin Laden is. He is not in Afghanistan. Pakistan has the opportunity to destabilise India. So it's 20 times more important than Afghanistan but we're putting 20-times more resources into Afghanistan than Pakistan.
And you could probably make the same point about Iran, and of course in broader strategic terms about many other countries in the world ranging from North Korea to China.
LEIGH SALES: You've spent considerable time in both Iraq and Afghanistan. The so-called surge was success in Iraq yet you're one of the few voice arguing against the surge in Afghanistan. Tell me a little bit about your thinking on that.
RORY STEWART: In Iraq, the surge was largely a success because Iraqi politicians, particularly the big Shia parties, got behind it. And the Sunni tribal groups who were under a lot of pressure decided to broker a deal. So it was an Iraqi-led process. The troop increases was not the key.
In Afghanistan, we simply don't have those kind of political forces. The Afghan Government doesn't have the weight or the mass political support of the Baghdad Government. And there aren't people coming to us in the way the Sunni tribal groups did in Iraq and saying, "We want to lay down our arms. We want a ceasefire and in return we would like uniforms and salaries."
So without that Afghan push, troop increases on their own are not going to achieve anything.
LEIGH SALES: Is there anything that could make the push come from the Afghan side?
RORY STEWART: I think it's very difficult but, yes, of course. Afghans are generally much more canny, much more competent than the international community acknowledges.
And I see again and again in my work in Kabul that when Afghans want to sort something out, they can. But the challenge for the international community is to understand that you can't force that process and there are many people in southern and eastern Afghanistan who are relatively conservative, who are suspicious of foreign troops, who may not like the Taliban but may prefer them to the foreign troops and there needs to be a political accommodation that recognises that.
LEIGH SALES: You've written that the best Afghan policy would be to reduce the number of foreign troops from the current level of about 90,000 to far fewer, perhaps 20,000. In that situation, what would be the objectives of the reduced military mission?
RORY STEWART: I think the objective of the reduced mission would be much more focused on counter-terrorism. In other words, it wouldn't be trying to fight the Taliban, who predominantly are a domestic Afghan force. The Taliban's agenda is really to take over the Government of Afghanistan. Instead it would focus on al Qaida and their international terrorist agenda. And what you would like look at is the special forces and intelligence presence over a very long period, whose job would be to ensure that Osama bin Laden couldn't again re-establish terrorist training camps in Afghanistan.
LEIGH SALES: If there are only a small number of troop, though, couldn't they easily be overpowered by hostile Afghan forces?
RORY STEWART: Again, it depends what you're trying to do. The key here is to distinguish between international terrorists, people who want to attack Australia, the United States, Europe, and many people in Afghanistan fighting our troops who have no international agenda at all whose problem basically is with the Kabul Government that they perceive as corrupt and with foreign troops in their country. So I think if you were able to focus on the counter-terrorism mission, you should be able to maintain that. And it should certainly be possible to defend our basis against the Taliban, who have no conventional option.
LEIGH SALES: We've heard the senior American military commanders make the exact opposite argument to you, which is that rather than reducing troop numbers they need to increase troop numbers. Why do you think that they hold the exact opposite view to you?
RORY STEWART: Because naturally if you're a general you're going to go for a maximalist solution. You want to have as many resource as possible and troops as possible. The job of politicians or the voting public is to check the military and to say, "We have many other priorities and many other responsibilities around the world. We simply cannot afford to put all our eggs in our basket."
So as you saw in Vietnam took what started as a few thousand troops up to 500,000 eventually. And the military in Iraq, in Afghanistan will push again and again for more resource an troops. We need to push back and say, "Ultimately Afghanistan does not justify this kind of troop presence." We need to look at the world in general, we need to husband our resources for other crises occurring in other countries. We simply cannot put this amount into a country like Afghanistan.
LEIGH SALES: Do your views mean that you think the surge in Afghanistan will fail?
RORY STEWART: I certainly believe that, if they think they can create an enduring stability through the current strategy, it will fail. They will not get an enduring stability. Afghanistan is likely - it's very difficult to predict but it's likely in the future to remain a fragile, poor, traumatised country. And the thing that will turn that around will not be foreign troops, it will be the Afghans themselves.
LEIGH SALES: And what will drive them to eventually do that?
RORY STEWART: This is a question partly of political leadership. It's also a question of will, a question of resources. Essentially Afghans need to have a sense of what kind of country they want to live in. Once that's developed it's perfectly plausible for an Afghan force to emerge which could win the support, the attention of its people and which can stabilise the country. And I think the international community Europe, the United States and the other partners on the ground could certainly play a useful part in training or providing logistical or technical support to Afghans to do those things. But I think foreign troops trying to go on the lead will be seen as an occupying power and that's self-defeating.
LEIGH SALES: Afghanistan will hold elections next month for the presidency and provincial council representatives, how do you see that playing out?
RORY STEWART: I would imagine that what will happen in the elections is that President Karzai, the existing President will be re-elected which will mean that the current political structures in Afghanistan, broadly-speaking, will remain unchanged. The kind of cabinet he will bring in will resemble he had before and the kind of things the international community has been complaining about in Afghanistan will persist.
LEIGH SALES: So more of the same?
RORY STEWART: Yes. Which is why I think, again, the international community needs to be more realistic. This is a country where perhaps 40 per cent of people cannot read or write, where in schools about a quarter of the teachers are illiterate. This is not a country which is going to be able to be transformed overnight into a stable, functioning state in the way that NATO and the other allies on the ground seem to imagine.
LEIGH SALES: If, as you say it's not a particularly or its political and strategic significance is overstated, then why should the West have any stake in improving the lot of Afghanis? Why not just leave the whole thing to them?
RORY STEWART: Because I think we have some responsibilities, not an overwhelming responsibility, not a blank-cheque responsibility. But we have invaded this country. We have disrupted things.
So it seems perfectly reasonable that we should continue over a 20, 30 year period to provide international assistance and aid. But it shouldn't be extravagant but proportional to the sort of assistance we provide to other poor countries around the world. We have aid programs in Nepal. We are trying to work in countries even as difficult as Somalia.
So both from a view of our moral obligations to Afghans we should be doing something but also in terms of self-interest. It's very useful to keep intelligence operatives in a country which has in the past provided some support for international terrorism.
But we need to look at this as a long-term management and containment issue, not as a question of electro-shock therapy pumping in the troops to try to sort everything out.
LEIGH SALES: Tonight, the Japanese Opposition Leader said that he would withdraw from Afghanistan next year and public opinion in other countries has slowly over time turned against the war in Afghanistan. How long do you think governments will be able to resist withdrawal when their populations are increasingly opposed to involvement?
RORY STEWART: I think in cases such as Canada or Germany where, of course, the populations are largely against, the governments are going to respond to that. The interesting case of course is Britain.
In Britain more and more of the population are in favour of the war in Afghanistan. At a time when the Government itself seems to be quite sceptical. So it's almost the opposite problem. In Germany, parliamentarians are going all out to maintain a position in Afghanistan when the public is against them. In Britain, it's the Prime Minister and the Government who are limiting the number of troops and the public and the newspapers are pushing to deploy more.
LEIGH SALES: The British Foreign Secretary David Miliband has said it's time to talk with moderate Taliban leadership, what do you think?
RORY STEWART: This is fine. But it's nothing new. From the very beginning people have understood the importance of trying to talk to the Taliban. We haven't done it very effectively but there were efforts as far back as 2002, 2003. Everybody acknowledges that the only way you can solve this kind of insurgency is to try to negotiate with moderate elements. But the real problem is: Why would they want to negotiate with you? What sort of carrot or stick do you really have to bring them to the table? And how do you draw the distinction between moderate and the extreme elements and what sort of concessions are you prepared to make.
Of course in principle, talking is no problem but what seems unlikely is they're unlikely to come up with any real solution.
LEIGH SALES: So there are no obvious carrots or sticks?
RORY STEWART: No, because the Taliban of course when under pressured can quite easily disperse or cross across the border into Pakistan. What they're really aiming for is to take a stake in the Government and negotiators will be reluctant to give them that because that seems to be exactly what we're fighting against. I can't really see how that kind of negotiation can operate. And, for sure, that kind of negotiation would need to be negotiation led by the Afghan Government. Not by foreigners. It's not something Britain, for example, could do.
LEIGH SALES: I explained some of your background, that very long list of adventures and achievements. Don't you feel guilty just sitting back and letting life pass you by like this?
RORY STEWART: That's what it feels like, for sure.
LEIGH SALES: I only really skimmed over what you've done. Did you set out to live a highly adventurous life?
RORY STEWART: I've been very lucky. But I grew up - I was born in Hong Kong, I grew up in Malaysia and my father was a very active outdoors person. He used to take me into the jungle when I was five or six. I became excited by the idea of being outside in the natural landscape. So I resigned from the foreign service and walked from Turkey to Bangladesh over 21 months, which was probably, I think, the best thing I've done in my life and a lot of the things I've done since then have come from those kinds of experiences.
LEIGH SALES: So what made you decide to take the job at Harvard, which some people might perhaps look at as a little more staid compared to some of the other things in your background?
RORY STEWART: I am not quite sure. I think I probably did it to please my mother.
LEIGH SALES: And is she pleased?
RORY STEWART: She's delighted.
LEIGH SALES: Is it true that Brad Pitt has bought the film rights to your life story thus far?
RORY STEWART: Yes, but I think this is a very uncertain world of film. I am hoping that Danny DeVito is going to play me in the movie.
LEIGH SALES: You might have to do a little bit of eating between now and when they start filming then.
RORY STEWART: Yeah. It's him or Judi Dench. I'm not sure which one.
LEIGH SALES: Judi Dench gets all the good British roles so, I'm sure that's what it will be who it ends up as.
Rory Stewart thank you very much for joining us tonight. A very good pleasure to have you on the program.
RORY STEWART: Thank you very much.
http://www.abc.net.au/lateline/content/2008/s2640378.htm
"I think the basic lesson, the importance of living within our means, is best for the country."
WASHINGTON (Fortune) -- America met with its lead banker this week and was forced to answer plenty of tough questions about its spending habits. "Attention should be given to the fiscal deficit," China's finance minister, Xie Xuren, warned the U.S.
And while U.S. officials gamely lobbed back the by-now-familiar refrain that China needs to boost its domestic consumption, rather than relying on exports to the U.S. for growth, it was clear which side was playing defense at this latest round of the three-year-old Strategic and Economic Dialogue.
"We've learned some tough lessons as a country," Treasury secretary Tim Geithner said at the conclusion of the talks. "I think the basic lesson, the importance of living within our means, is best for the country."
The economic balance of power "has shifted a great deal because of the United States' relative weakness and China's relative strength," said Minxin Pei, director of Claremont McKenna's Keck Center for International and Strategic Studies. "We shouldn't be badgering our banker at the moment."
Ah, what a difference a homegrown financial crisis makes.
When then-Treasury Secretary Hank Paulson landed in Beijing in December 2006, with a full array of U.S. cabinet officials in tow, America's focus was on giving the Chinese driving lessons about how to maneuver as a "responsible stakeholder" in the global economy. At the time, victorious Democrats had just taken control of Congress and were threatening retaliation against China, which stood accused of stealing American jobs and manipulating its currency to keep its goods artificially cheap.
The Chinese officials bristled at the lectures, with then-Vice Premier Wu Yi accusing "some American friends" of "harboring much misunderstanding about the reality in China." She added, pointedly, "This is not conducive to the sound development of our bilateral relations."
Now, with a Democratic White House in charge and President Obama making clear he wants to work with China on issues like climate change and nuclear nonproliferation, the China-bashing from Democrats on the Hill has softened. Sure, union leaders and their allies sent out calls for tough talk toward China as this week's talks got underway. "If our nation's leaders stand down as China stacks the deck against American business," said Ohio Senator Sherrod Brown, "the downward trade spiral will continue."
Brown and others also recently raised concerns about the prospect of a government-run General Motors building cars in China. But mostly, China no longer serves as the poster child for American job losses on Capitol Hill.
"Despite double-digit unemployment, China is not identified as the enemy, Wall Street is the enemy," says Pei. (One might accuse the Chinese of supplying the cheap credit that helped fuel a housing bubble, but that's a stretch, and a political message that misses the point.)
Today China, holding $801.5 billion in Treasury bonds, is the largest foreign financier of the record government deficits that this Democratic administration says are necessary in the short run to pull the American economy out of a deep recession. The Chinese, it's clear, are concerned about their investment.
From the outset of this week's high-level talks, Chinese officials wanted details on how the Obama administration planned to control inflation -- and bring down the deficit.
"What was most important to the Chinese was to hear about the trajectory," David Loevinger, Treasury senior coordinator for China affairs, told reporters. That job fell to budget director Peter Orszag.
In contrast to the cultural differences that Chinese officials in particular stressed in 2006, this time around the global economic crisis had highlighted the concerns that both countries shared, U.S. officials said.
"The U.S. and China have acted more like each other than many of the other economies," Loevinger said, adding that both countries are now "grappling with the timing of withdrawal of the macro-economic stimulus."
So far, President Obama's economic relations with China have gotten off to a better start than any President's since George H.W. Bush. President Clinton attempted to use trade sanctions to force China to improve human rights -- and then had to reverse himself. President George W. Bush faced early strains because of his plan for U.S. arms sales to Taiwan, followed by the standoff over a downed U.S. spy plane in Chinese territory.
But the role of China in financing ballooning federal deficits no doubt will bring on its own set of political complications between the two countries in the coming years. As President Obama scrambles to find ways to contain government spending, he will have be looking over his shoulder not only at those independent American voters who worry about deficits, but also at his Chinese bankers.
http://money.cnn.com/2009/07/29/news/economy/china_america_lender_respect.fortune/index.htm?section=money_latest
And while U.S. officials gamely lobbed back the by-now-familiar refrain that China needs to boost its domestic consumption, rather than relying on exports to the U.S. for growth, it was clear which side was playing defense at this latest round of the three-year-old Strategic and Economic Dialogue.
"We've learned some tough lessons as a country," Treasury secretary Tim Geithner said at the conclusion of the talks. "I think the basic lesson, the importance of living within our means, is best for the country."
The economic balance of power "has shifted a great deal because of the United States' relative weakness and China's relative strength," said Minxin Pei, director of Claremont McKenna's Keck Center for International and Strategic Studies. "We shouldn't be badgering our banker at the moment."
Ah, what a difference a homegrown financial crisis makes.
When then-Treasury Secretary Hank Paulson landed in Beijing in December 2006, with a full array of U.S. cabinet officials in tow, America's focus was on giving the Chinese driving lessons about how to maneuver as a "responsible stakeholder" in the global economy. At the time, victorious Democrats had just taken control of Congress and were threatening retaliation against China, which stood accused of stealing American jobs and manipulating its currency to keep its goods artificially cheap.
The Chinese officials bristled at the lectures, with then-Vice Premier Wu Yi accusing "some American friends" of "harboring much misunderstanding about the reality in China." She added, pointedly, "This is not conducive to the sound development of our bilateral relations."
Now, with a Democratic White House in charge and President Obama making clear he wants to work with China on issues like climate change and nuclear nonproliferation, the China-bashing from Democrats on the Hill has softened. Sure, union leaders and their allies sent out calls for tough talk toward China as this week's talks got underway. "If our nation's leaders stand down as China stacks the deck against American business," said Ohio Senator Sherrod Brown, "the downward trade spiral will continue."
Brown and others also recently raised concerns about the prospect of a government-run General Motors building cars in China. But mostly, China no longer serves as the poster child for American job losses on Capitol Hill.
"Despite double-digit unemployment, China is not identified as the enemy, Wall Street is the enemy," says Pei. (One might accuse the Chinese of supplying the cheap credit that helped fuel a housing bubble, but that's a stretch, and a political message that misses the point.)
Today China, holding $801.5 billion in Treasury bonds, is the largest foreign financier of the record government deficits that this Democratic administration says are necessary in the short run to pull the American economy out of a deep recession. The Chinese, it's clear, are concerned about their investment.
From the outset of this week's high-level talks, Chinese officials wanted details on how the Obama administration planned to control inflation -- and bring down the deficit.
"What was most important to the Chinese was to hear about the trajectory," David Loevinger, Treasury senior coordinator for China affairs, told reporters. That job fell to budget director Peter Orszag.
In contrast to the cultural differences that Chinese officials in particular stressed in 2006, this time around the global economic crisis had highlighted the concerns that both countries shared, U.S. officials said.
"The U.S. and China have acted more like each other than many of the other economies," Loevinger said, adding that both countries are now "grappling with the timing of withdrawal of the macro-economic stimulus."
So far, President Obama's economic relations with China have gotten off to a better start than any President's since George H.W. Bush. President Clinton attempted to use trade sanctions to force China to improve human rights -- and then had to reverse himself. President George W. Bush faced early strains because of his plan for U.S. arms sales to Taiwan, followed by the standoff over a downed U.S. spy plane in Chinese territory.
But the role of China in financing ballooning federal deficits no doubt will bring on its own set of political complications between the two countries in the coming years. As President Obama scrambles to find ways to contain government spending, he will have be looking over his shoulder not only at those independent American voters who worry about deficits, but also at his Chinese bankers.
http://money.cnn.com/2009/07/29/news/economy/china_america_lender_respect.fortune/index.htm?section=money_latest
The Shadow Banking Pyramid
The current spate of fraud on Wall St., and specifically the front-running and market manipulation scams being committed by Wall St. banks on the floor of the NYSE and other market making venues, is finally getting some coverage This would be good news if it weren't meaningless.
Some background: I first started reporting on the rigged markets scandal in the U.S. and the U.K. five years ago in the pages of The Ecologist magazine in the U.K. I predicted that the unraveling of FannieMae and FreddieMac was all but certain due to explicit accounting fraud. I was one of many pointing out the blindingly obvious, but this information was kept out of view from the main stream America for fear it would frighten the sheep into cutting back on their leveraged speculation and consumption; using their homes like ATM machines. In an economy dictated to by the unholy triangle of GE, CNBC, and Wall St. selling their wares of weapons, propaganda and lottery tickets, delusions (and fiat currencies) must never be questioned.
Talking about crooks on Wall St. has been a staple while co-hosting my radio show in London with Stacy Herbert on ResonanceFM 104.4, "The Truth About Markets." Week after week we forensically describe the workings of Wall St. frauds -- drawing on my experience as a former Wall St. trader and inventor of patented financial engineering technologies used on Wall St. today -- to explain how the scams are done in full view of the SEC and CFTC. ResonanceFM is a musicians cooperative listened to primarily by bong smoking squatters in Shordditch who, by virtue of the fact that mainstream American and British media chose not to cover these crimes left open a niche for us to cover, have become preternaturally knowledgeable about fraudulent Collaterized Debt Obligations, Special Purpose Entity Accounts and High Frequency Trading Arbitrage. Many of these pot heads thank me today because many of them put their meager savings into gold bullion as we have been suggesting since 2002 -- which shot up 40% against the British Pound last year.
In 2006 I started making documentaries for Al Jazeera English. Death of the Dollar, Rigged Markets and Money Geyser explained, respectively, the structural weakness of the dollar, the structural weakness of the New York Stock Exchange, and the structural weakness of the global currency grid and in particular the currency and economy of Iceland. A year later, the Icelandic krona and the economy evaporated in a cloud of currency 'carry trade' ice and dust exactly as we predicted it would.
In 2007 the sup-prime scandal and the controlled demolition of Bear Stearns and Lehman Brothers got under way thanks to the Washington-Wall St. revolving door that gave us the Goldman Sachs-Oval Office axis of insider trading; the S&L crash, the 1987 crash, the Long Term Capital Management (LTCM) crash, the crash of Drexal Burnham, Enron, WorldCom and the dot-com crash. America has become the most corrupt empire in history and since the debts that caused each of these catastrophes was never paid off, but simply put off the balance sheet and traded in what Prime Minister Gordon Brown calls the 'Shadow Banking System' or to be more precise the Shadow Banking Pyramid, Americans can expect to live in the shadow of this debt pyramid in perpetuity.
America's debts are bigger than the entire GDP of the world, so unless the whole world decides to bail out America by gifting America 100 percent of their wages and profits for a year or more America can forget about ever digging out of its debt entombment.
In 2008 I produced and presented a series for BBC World News, The Oracle. For ten weeks I hammered away reporting on the rot that was threatening to take down America; the duplicitous spewings of Hank Paulson, Ben Bernanke, and Tim Geithner, as well as the parasitical machinations of the Fed, so I wasn't surprised when Congress appeased financial terrorists on Wall St. and coughed up 700 billion dollars in ransom at the end of last year to ensure payment of Goldman Sachs' bonus pool for 2008 and 2009.
This is why I do not believe that the main stream media's belated reporting on Wall St. scandals is meaningful. It's too late. Like the New York Times sitting on the Bush wire tap story until after the election of 2004, the story of banking buccaneers and vipers in the New York Times reads more like a requiem than a news story.
The Egyptians had the great pyramids in the Valley of the Kings we have the great pyramids of debt created in the canyons of Wall St. These are now permanent features of the American and British financial landscape that have effectively turned Americans and Brits into debt slaves.
http://www.huffingtonpost.com/max-keiser/the-shadow-banking-pyrami_b_245988.html
Some background: I first started reporting on the rigged markets scandal in the U.S. and the U.K. five years ago in the pages of The Ecologist magazine in the U.K. I predicted that the unraveling of FannieMae and FreddieMac was all but certain due to explicit accounting fraud. I was one of many pointing out the blindingly obvious, but this information was kept out of view from the main stream America for fear it would frighten the sheep into cutting back on their leveraged speculation and consumption; using their homes like ATM machines. In an economy dictated to by the unholy triangle of GE, CNBC, and Wall St. selling their wares of weapons, propaganda and lottery tickets, delusions (and fiat currencies) must never be questioned.
Talking about crooks on Wall St. has been a staple while co-hosting my radio show in London with Stacy Herbert on ResonanceFM 104.4, "The Truth About Markets." Week after week we forensically describe the workings of Wall St. frauds -- drawing on my experience as a former Wall St. trader and inventor of patented financial engineering technologies used on Wall St. today -- to explain how the scams are done in full view of the SEC and CFTC. ResonanceFM is a musicians cooperative listened to primarily by bong smoking squatters in Shordditch who, by virtue of the fact that mainstream American and British media chose not to cover these crimes left open a niche for us to cover, have become preternaturally knowledgeable about fraudulent Collaterized Debt Obligations, Special Purpose Entity Accounts and High Frequency Trading Arbitrage. Many of these pot heads thank me today because many of them put their meager savings into gold bullion as we have been suggesting since 2002 -- which shot up 40% against the British Pound last year.
In 2006 I started making documentaries for Al Jazeera English. Death of the Dollar, Rigged Markets and Money Geyser explained, respectively, the structural weakness of the dollar, the structural weakness of the New York Stock Exchange, and the structural weakness of the global currency grid and in particular the currency and economy of Iceland. A year later, the Icelandic krona and the economy evaporated in a cloud of currency 'carry trade' ice and dust exactly as we predicted it would.
In 2007 the sup-prime scandal and the controlled demolition of Bear Stearns and Lehman Brothers got under way thanks to the Washington-Wall St. revolving door that gave us the Goldman Sachs-Oval Office axis of insider trading; the S&L crash, the 1987 crash, the Long Term Capital Management (LTCM) crash, the crash of Drexal Burnham, Enron, WorldCom and the dot-com crash. America has become the most corrupt empire in history and since the debts that caused each of these catastrophes was never paid off, but simply put off the balance sheet and traded in what Prime Minister Gordon Brown calls the 'Shadow Banking System' or to be more precise the Shadow Banking Pyramid, Americans can expect to live in the shadow of this debt pyramid in perpetuity.
America's debts are bigger than the entire GDP of the world, so unless the whole world decides to bail out America by gifting America 100 percent of their wages and profits for a year or more America can forget about ever digging out of its debt entombment.
In 2008 I produced and presented a series for BBC World News, The Oracle. For ten weeks I hammered away reporting on the rot that was threatening to take down America; the duplicitous spewings of Hank Paulson, Ben Bernanke, and Tim Geithner, as well as the parasitical machinations of the Fed, so I wasn't surprised when Congress appeased financial terrorists on Wall St. and coughed up 700 billion dollars in ransom at the end of last year to ensure payment of Goldman Sachs' bonus pool for 2008 and 2009.
This is why I do not believe that the main stream media's belated reporting on Wall St. scandals is meaningful. It's too late. Like the New York Times sitting on the Bush wire tap story until after the election of 2004, the story of banking buccaneers and vipers in the New York Times reads more like a requiem than a news story.
The Egyptians had the great pyramids in the Valley of the Kings we have the great pyramids of debt created in the canyons of Wall St. These are now permanent features of the American and British financial landscape that have effectively turned Americans and Brits into debt slaves.
http://www.huffingtonpost.com/max-keiser/the-shadow-banking-pyrami_b_245988.html
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