The Prudent Investor

Is this what you want?

2013-01-28T21:46:00.000+01:00

You are not a machine.
Your natural genetic design does not tolerate 2 to 4 hours of travel per day, 8 to 12 hours of slave labor 5 to 6 days per week.
For whatever monetary compensation.
On 5 to 6 hours of sleep.
In a system built on penalistic principle and a life under judgmental surveillance.
Like it or not your are human.
Stress, harassment, constant financial worries, fear and a sense of inadequacy destroys the health of any human being.
This is a scientific fact.
So why is it that we accept and tolerate a system that in actual reality demands that you erase your needs and in effect commit a slow joyless suicide for someone elses profit?

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Bread and Finance Games - Lyrics Looking for Musical Company

2012-10-02T20:37:00.002+02:00

Twitter user @poorbystandard mailed these lyrics, looking for artists to turn this into a Youtube hit.

Would be great to have an artist perform it on youtube
there are many talented people out there! Feel free to fix bugs!
Acknowledgements and thanks for inspiration: Chris Duane, Trace Mayer, Mike Maloney, Doug Casey, James Rickard, Peter Boehringer, Sven Polleit, Hans J. Bocker, Longwave Group et alia
salute to: Max Keiser, hartgeld.com, Zerohedge, Satoshi Nakamoto, Juliana Richer, Jens Weidmann, the Austrian school and Nikolai Kondratiev

Viva panem et circenses
alternative lyrics best sung to Coldplay - Viva La Vida
by "poor by standard" (poorbystandard@gmail.com) CC-BY license
[Jan - Sept 2012, v1.08]

We used to rule the world
call a mighty empire our own
now in the morning markets open
trading the future until it's broken
We used to be the guide
industrial revolution full of pride
high finance now is all we have
making us the 51st state of the US
One minute we raise a loan
next stop debt trap danger zone
and we discovered that we've all depend
upon leverage of oil and leverage of gold
Bank of England's just printing money
soon it's gonna get really funny
no proper industry to defend us
just high finance here to suspend us
For some reasons we can't explain
lobbyism's our sovereign reign
credit with unbacked quid
it is funny it used to work
Repoed portfolios and derivatives
are banksters' top initiatives
Fiat is not but a failed car brand
it's quite the beginning of the end
Revolutionaries wait
for Exter's pyramid's increasing weight
cartel banksters not shy to rig
precious metals on any uptick
Paper paradigm is collapsing
sheeple savers in for a waxing
compound interest to suck us dry
welfare and peace here to say goodbye
For some reasons we can't explain
lobbyism's our sovereign reign
credit with unbacked quid
it is funny it used to work
Bank of England's just printing money
soon it's gonna get really funny
No proper industry to defend us
just high finance here to suspend us

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The Investor Sentiment Wheel

2012-08-28T21:51:00.001+02:00

Graph courtesy of trustablegold.com. Click to enlarge.

Aka the sucker's cycle.

TOP SECRET: This is the ECB Bazooka

2012-08-26T17:56:00.000+02:00

It's been a long blogging hiatus but actually nothing has changed in Eurozone monetary politics. If you have gotten confused about the monetary instruments the ECB threatens to deploy, this blogger is happy to have received this picture of the EUro-Wunderwaffe in action. Mind you: That's all the ECB has.

We are not one step further in the biggest crisis of this century

GUEST POST: This Incredibly Tiny Silver Market

2012-08-23T19:44:00.001+02:00

Prices above $30/oz of silver as of today are only the first step for the expected explosion in silver prices due to the size of the market. This guest post by Sean, who I met first 2007 in Vancouver, confirms that the fundamental outlook projects a bottleneck for investible silver.

--- by Sean Rakhimov ---

It has been a while since we had this nagging feeling that we’re witnessing something profound taking place before our eyes and the market doesn’t seem to grasp it yet. We are not talking about the smorgasbord of events effecting markets all over the globe that is receiving ample coverage elsewhere in the media. As readers might know, our particular interest is in the silver space, and that is where we see an elephant in the room that hasn’t made headlines yet.

No doubt most readers are aware of the recent developments in countries like Argentina, Bolivia, Peru and others, with respect to what can be broadly classified as “resource nationalism”. Our general views on the subject were detailed a few years ago, here. As discussed by this writer and others, such developments are not new and certainly not limited to silver or even the mining sector. However, in our opinion, it is in the silver space that these events should have the most profound effect.

Why? Because the silver sector is so small and the above mentioned countries collectively make up a big of chunk of it. According to CPM Group’s 2012 Silver Yearbook, the aforementioned countries are projected to produce some 170 Moz silver this year versus the anticipated total global silver production of 788 Moz. While at first glance that only makes up 21.6% of total annual mine supply, which in itself is significant, we submit that it represents an even greater percentage of “investible” silver production.

Let’s take a closer look…

Of the total 788 Moz of annual (projected 2012) world silver production, the part that is accessible without much hassle to you and me, the unsophisticated investor through public markets is largely limited to Mexico, USA, Canada, Australia and Europe. For the purposes of this missive, the rest of world offers few-to-no easy ways to invest in silver. Why not much to look at here? The larger contributors to silver production in the rest of the world are China, Russia, Kazakhstan, Chile, Turkey, Morocco, Indonesia and India.

The bulk of Chinese production is dominated by large base metal producers and/or smelters/refiners. Silvercorp is an exception and is a Canadian company, so we bundle it into North America;
Russia has several companies listed in New York and London as well as RTS – most of them primarily gold and/or base metal miners;
Kazakhstan has few larger publicly traded companies (Kazakhmys in London) – none of which make primary silver plays;
Same for India, Indonesia and Turkey. Morocco may produce a silver play in the near future if efforts of May Gold and Silver (TSX-V: MYA) are successful;
Chile has no primary silver mines with the exception of Kinross’ La Coipa, which once again, makes a poor silver play – the remainder of silver comes from primary copper and gold mines buried in large companies such as Codelco.

The only destination of significance in Europe in terms of contribution to silver production accessible via public markets, is Poland (KGHM is a large silver producer but primarily a copper mine). The rest of European production is scarcely accessible as a bet on silver because the mines that produce silver are either not primary silver mines, or are private, or otherwise not easily investable. The other European silver play that we know of, is Global Minerals (TSX-V: CTG) – a Canadian junior advancing a past-producing silver project in Slovakia – not yet in production, though moving in that direction. There are a few other juniors scattered around Europe with some silver exposure that are not primary silver plays. That about sums it up, given that the whole of Europe is projected to kick-in 56.5 Moz in 2012 – of which, Poland stands for 40.4 Moz followed by Sweden at 9.1 Moz (Boliden, a conglomerate, not a silver company).

Australia has a handful of smaller silver mines (under 3 Moz annual production) to choose from, since the biggies do not make good silver plays (BHP and Xstrata).

Sounds ominous, doesn’t it? You know, there is a reason silver is a p-r-e-c-i-o-u-s metal. That is why Silver Wheaton has a business – it provides a way to unlock the value of silver buried within larger polymetallic mines, which by itself is insignificant to the actual miner, but can be substantial when separated. Silver Wheaton’s $12B market cap is proof of that.

So what is wrong with Argentina, Peru and Bolivia, and why is it a big deal? Here we would like to refer the reader once more to the article we penned on the subject in 2009 where we defined nationalization as “not only outright expropriation of private property but all other forms of "creeping" or indirect nationalization which ultimately leads to increased control of natural resources by governments at the expense of current stakeholders in a non-free market way. These may include any flavor or combination of increased taxation, excessive/retroactive taxation, breach of contracts, delay or revocation of permits and licenses required to exercise legal owner's rights, support or tolerance of other groups/interests' illegal activities to the detriment of property owners, and so on”. It looks as if Argentina, Bolivia and to a lesser extent, Peru, are trying to hit it on all points, based on the actions of central and (in the case of Argentina, some) provincial governments.

Bolivia, of course, was the latest in the news with nationalization of the flagship Malku Khota silver-indium project of South American Silver (TSX: SAC). So much so, that it led to the ultimate resignation of Greg Johnson as its President & CEO – who was largely responsible for putting that company on the map in the first place. The stock is back where it was when Johnson took over as President, back in March, 2010.

Peru has had its share of “misfortunes” in this regard with Bear Creek (TSX-V: BCM) still trying to recover from its fall from grace in public markets – through no fault of its own that we can find. All the rhetoric to the contrary notwithstanding, things seem to be far from “business as usual”. The good news is that Peru (and Chile) has a rather elaborate domestic mining industry with sizeable publicly trading companies contributing a great deal to its economy, which is not the case in Argentina or Bolivia. The assumption here is that the government will be hard-pressed to make a move on foreign investors without at the same time squeezing influential domestic companies.

Argentina has been making waves for some time, which seems to have culminated with its government taking control of 51% of Spanish oil major Repsol’s oil interests in the country. Here’s a direct quote from a news release dated July 2, 2012 by Geoff Burns, President & CEO of Pan American Silver commenting on the legislation proposed by the government of Chubut province of Argentina:

"This is an incredibly unfortunate development for the mining industry in the province of Chubut and in Argentina. Having made significant investments over the last two and a half years in work to prepare the world-class Navidad silver project for development, it is extremely disappointing that the government of Chubut would introduce this legislation without meaningful consultation with the mining industry. Since acquiring Navidad, we established a policy of open and honest communication with all levels of government as to our progress and plans and were surprised that we were not consulted on the economic effects that the proposed legislation would have on Navidad's development. I am convinced that it was the provincial government's intent with the new draft legislation, to define a path for the development of Navidad, not to render the project uneconomic. However, if the draft law is passed as submitted there can be no other choice currently than to stop investing further in the project".

We encourage you to read that entire news release to learn what else they propose to do. Mind you, Navidad was supposed to be this blockbuster mine that would take Pan American to a whole new level (more on that in part II). If memory serves, they paid some $660 MM to buy it. Despite the recent acquisition of Extorre by Yamana Gold, which incidentally went for a much lower price than one figures it would in a more mining friendly jurisdiction, Argentina appears to be determined to exhaust all other options before doing the right thing. After all, it’s barely been 20 years since they opened up the resource sector to foreign investment.

We would be remiss not to mention Guatemala, as it is home to the other blockbuster silver project being advanced by Tahoe Resources (TSX: THO). If you examine its stock chart and check the news from the company, Tahoe appears to have lost about $1 Billion in market capitalization on the account of talk related to nationalization of Guatemalan resources by that government. They back-tracked on that, saying they want a bigger stake “only in new projects” – but the market was spooked and seems to be slow to warm up.

Where to look going forward

Why not look where the “pros” are going? While we were mulling these matters over in the last few months, the event that “drove it home” for us was the unsuccessful bid by Hecla for US Silver. Incidentally, Hecla is our “favorite co to criticize” in the sector. Why? Because coming into this cycle (say 10 years ago), Hecla was the ‘IT’ company in the silver space. They had it all – the 100 year history, the NYSE listing, the name recognition, the size relative to peers, the following (by resource investors and funds), the technical expertise and reputation of a top underground mine operator. And they have successfully squandered that early leader advantage. We are aware of several “due diligence” undertakings by Hecla that ultimately resulted in them shying away from pulling the trigger on an acquisition. The best thing they did in the last 10 years was to acquire the balance of Greens Creek that they didn’t already own. It is about the only thing of note they did in that period. That, and the settlement with the EPA – which didn’t come cheap. That same Hecla, who’s execs all but swore on a stack of bibles to never “cross onto the wrong side of the highway” (referring to highway I-90 which cuts through the Silver Valley separating operations of Hecla from the other big three mines – The Sunshine, Bunker Hill and Galena/Coeur) made a bid for US Silver – which now owns the assets previously owned by Coeur D’Alene Mines in the Silver Valley.

Question becomes, where else they had to go? There aren’t many more places they can go! That brings us full circle to where we started from. As we write this, the news came out on August 21, 2012 that Hecla made a “strategic investment” in Dolly Varden Silver Corp. And it only re-affirms the point we are trying to make: if you want to be a player in the silver space, right now you’re virtually limited to Mexico, USA and Canada. Hecla’s actions suggest that they “get it”. In part II of this piece we will examine who else gets it.

In summary, we don’t suggest that countries presently stepping up resource nationalism are a complete write-off, or the situation could not change in the future. Companies neck-deep with operations in such places will try to make the best of it and rightfully so – they owe it to their shareholders. Even when projects are nationalized, they usually continue to operate – though history suggests that government-run industries eventually work themselves into the ground (no pun intended). At that point, they start to look to private business to right the ship and the cycle starts over. In the meantime, as Jim Dines puts it, the overall trend is “southward” – towards more government control – and capital will flow wherever it is treated best. Jindal Steel exit from a $2.1 Billion iron or project in Bolivia is a manifestation of that.

Sean Rakhimov is the publisher of Vancouver based Silverstrategies

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VIDEO: "The Secret of Oz Raises" Serious Doubts About a Gold Standard

2012-02-05T09:49:00.000+01:00

This is a must see video for all gold bugs as it raises the important question of who would ultimately benefit from a gold standard...and arrives at the answer that a silver standard would would be more benefactorial for the 99%.

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Sustainable

2012-02-01T17:19:00.000+01:00

Click to enlarge

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The EU's Hush-Hush Strategy For the ESM and Fiscal Compact March-Through

2012-01-31T17:09:00.002+01:00

The European Union's (EU) hush-hush strategy to saddle taxpayers with ultimately trillions of Euros of debt seems to have run into some roadblocks as Eurozone finance ministers have not signed, but only "endorsed" the still unavailable European Stability Mechanism Treaty (ESM).
The EU presidency hopes the ESM will be formally signed at the next Eurogroup meeting on February 20, before it has to be ratified by national governments until June 30. Resistance to the ESM appears to grow in Slovakia and Austria, where political chit-chat circles around rumors that Austria's chancellor Werner Faymann has shaken off the short leash Germany's Angela Merkel had been holding so far, holding his posture in front of ueber-mighty Germany and not nodding off every one of Merkel's ideas.
So far the EU succeeds with its mission to establish the ESM, that will lead in combination with the "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union" - shorthand: EU Fiscal Compact - into a EU financial dictatorship. European media carry not one word of criticism and politicians in most countries ignore this diabolic piece of legislation completely.

Only Austria's Piratenpartei (PPÖ), a small party aiming to keep Austria out of the ESM, had warned last week about the pitfalls in the ESM treaty. In a German language release it warned that the latest unofficial ESM version from January 27 now contains voting procedures that contradict any democratic procedure. Overdue debtors will lose their voting rights until full repayment of the debts due and decisions within the ESM can be ratified with more than 85% of the vote.
This contradicts the former fundamental EU principle that major decisions have to be agreed on unanimously.

Rumors Focus on even Lower Majority
There are credible rumors that this qualified majority shall be lowered to 80%, giving countries like Germany even more influence as more debtors will be eliminated from the voting process, increasing the relative voting strength of those not overdue with their payments.
This means that over time in the coming collapse of EU countries more voting rights will move from the small debtors to the bigger creditor countries, giving them ever more leverage to dictate the fate of the Eurozone.
The whole ESM procedure is cloaked in secrecy. The only available document is this poorly done unofficial (computer?) translation in German from January 23. Read my criticism here that only has to be extended by the new enraging fact that the latets ESM treaty version provides for direct influence of the ECB on national budgets of belated countries.

Open publication - More ecb

The ESM shall come into effect by July 1, 2012. Its current design is a far cry from the once envisioned strong fund with €700 billion equity. It is now basically another leveraged special purpose vehicle (SPV) that will start out with €80 billion capital and will leverage itself up to €500 billion in the first step.
This may change much sooner as the EU pushes this potential trillion Euro coffin ever faster into legislation.
In a late night press conference on Monday EU President Herman van Rompuy announced,

we will reassess the adequacy of resources under the EFSF and ESM rescue funds in March. -- And since our next summit is on the 1st of March, this is actually less than 5 weeks from now!

This can only be interpreted that the Eurozone will need more than €500 billion at the proposed inauguration of the ESM in July.
Latest reports by German Spiegel magazine give already a figure of €1.5 Trillion.
This will be far from enough, considering that Greece alone is almost €300 billion in the red. Greece's staggering debts may also be the reason for more delays in the ESM and the EU Fiscal Compact.
Who knows, but it is possible that some Eurozone countries want to see Greece default first and set up the ESM without the bankrupt Hellenic republic.
It also came as a surprise that not only the UK but the Czech Republic too will not sign the EU Fiscal Compact, Rompuy said,

we agreed and endorsed the fiscal compact, a treaty on stability and convergence in the Economic and Monetary Union. The 17 euro leaders will sign it at our next meeting in March, together with the non-euro area leaders of countries willing to join.

The Treaty is all about more responsibility and better surveillance. Every country that signs it commits to bringing in a "debt brake" or "golden rule" into its own legislation, and will do so at constitutional or equivalent level.

New voting rules and an automatic correction mechanism will enforce compliance more effectively. 25 Member States will sign it, that is all except the UK and the Czech Republic. The treaty will enter into force once 12 euro countries have ratified it.

Here lies the next significant pact change. In the earlier version of the EU Fiscal Compact it needed 15 ratifying countries before the fiscal pact comes into effect. It appears the EU Council does not really get applause from a multitude of EU members. Nothing is known about the Czech provisions against the pact so far.

Read here the latest version of the EU pact from January 31.

Open publication - More eu

I know this post is quite lengthy, but as these are all changes that can lead into a technocratic and dictatorial Eurozone, read this comparison from EUinside to evaluate the fiscal pact changes:

The new text makes it clear that the Treaty can be joined by other EU member states but only after they apply for membership and after being approved by the contracting parties. This is a very significant change against the backdrop of the previous texts, because from the outset the initiators' wish, France and Germany, was for as broad as possible support.
The idea was supported by all member states except Britain. However, within the working group many countries started putting up conditions that they would join but only part of the provisions, at a later stage or never.
The text of this new article, as well as the new title of version 3 inclines to thinking that the direction of the pact already is getting clearer. If in Version 2 the title was "International Treaty on a Reinforced Economic Union", in Version 3 the title now is "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union", which is the full name of the Eurozone.

Surveillance

One of the proposals is for strengthening economic and budgetary surveillance of countries, threatened by serious financial instability in the euro area (the countries with bailouts) and the other is for increasing budgetary surveillance in the euro area.
What impresses is that in the third version of the pact several times the Stability and Growth Pact (SGP) is mentioned, which means that the contracting parties take its rules for leading principles as well as the entire EU legislation, which has a priority.
Many new texts are added, some are just made more precise, while others are with insignificant changes in expression, which is why below we will present to you only those changes we consider of great significance.

Golden Rule

Another very important text is expanded, related to the countries with financial difficulties. In the third edition of the document an old German demand is explicitly stipulated for the assistance provided under the European Stability Mechanism (ESM) - adhering to the "golden rules" for debt and deficit would be a condition for receiving rescue from the ESM.
Article 3 represents the fiscal pact in essence, in which the fiscal parameters are outlined, which the participating countries agree to apply and in which there are also some worth the attention changes.

But before that it is important to mention that if in Version 2 the contracting parties increased notably the European Commission's role in its implementation, now in Version 3 there is a withdrawal. In the previous version it was provided, except a participant country to bring to the European Court of Justice a partner country for not sticking to its commitments, the European Commission too to do that on behalf of the other participant countries. In the latest version it is pointed out that a member country can bring such a matter to the European Court of Justice or to invite the Commission to come up with a report on the issue. In that case, if the Commission confirms that there is a breach of rules in its report, then the matter can be raised with the European Court of Justice but by the contracting parties.

One of the main provisions in the treaty, introducing automatic sanctions by a reversed majority, is changed in a direction that allows various interpretations.

In the previous version it was said that the contracting parties from the Eurozone agree to support the proposals or recommendations of the European Commission in case of a violation of one of the criteria for debt or budget deficit in the framework of the excessive debt procedure. These recommendations were envisaged to be rejected by a qualified majority. In the new version it is written that the obligation to adhere to the European Commission recommendations shall not apply "where it is apparent among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the European Union Treaties without taking into account the position of the Contracting Party concerned, is of another view".

Troublesome "Qualified Majority" Formula

The new formulation is much vaguer than the previous one, but especially confusing is the expression "when it is apparent". This puts into question the definition of qualified majority when it will be defined not according to but "by analogy" with the European treaties. This type of majority was introduced with the Lisbon Treaty and means: there is a qualified majority when 55% (when voting on a European Commission proposal, otherwise the percentage is 72) of the member states that represent 65% of EU population support a proposal.

As mentioned in the beginning, the focus of the Treaty is more and more shifting toward the Eurozone only. This is even more evident from the title of Chapter V of the third draft of the Treaty. In Version 2 the title of this chapter was only "Governance", while in Version 3 it is already "Governance of the Euro Area".

There is also a change in the conditions for the Treaty to enter into force. In the previous version it was written: after the ratification of 15 participating countries, while now it is proposed the countries to be 12 but the number is put in brackets which can only mean that it is conditional too. Most importantly, however, is that there is already a specific date for its entering into force - 1 January 2013. So far there was no specific date for enforcement.

MEPs protest new Fiscal Pact Sharply

As with the previous versions now too the representatives of the European Parliament in the working group reacted sharply. According to Elmar Brok (EPP, Germany), Roberto Gualtieri (S&D, Italy), Guy Verhofstadt (ALDE, Belgium) the latest draft is incompatible with the EU treaties and does not defend the "community method" in the decision making process. This is the main criticism of the European Parliament from the onset against the idea for the creation of the Treaty, which is formulated as an intergovernmental agreement. The main fear of the three MEPs is that "the draft does not ensure that every decision to apply the new treaty will be taken within the normal procedures, envisaged in the EU Treaties, in order to ensure democratic control and transparency".

The timing and briefness of Rompuy's and EC Commissary Manuel Barroso press conference on Monday was another indication of the secretive style of the EU's move toward a European superstate under the thumb of EU Commission, ESM, ECB and IMF.
Scheduled for 7 PM it only began after 10 PM with only a handful of red-eyed journalists left. After the initial statements of Rompuy (PDF) and Barroso (PDF) only 2 questions were allowed. This is not what OI would call transparency.
I repeat my warning that the ESM is a devil in disguise that will strip financially hard hit Eurozone members of their voting rights and will lead to a 'one vote per Euro' plutocratic era in the EU.

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Secret Document: Germany Wants To Put Greece Under EU Curatorship

2012-01-28T10:57:00.001+01:00

In what will probably become a blueprint for the road to EU serfdom, Germany's government has written a so far unpublished document that requires Greece to put interest and debt payments ahead of all other needs and demands that Greece put itself under 'temporary' EU curatorship.
This event comes 2 days ahead of the official signing of the authoritative European Stability Mechanism (ESM) Treaty, whose text is not yet available in English. The setup of the ESM finds an analogy in the Federal Reserve Act, that was pushed through under the eyes of a sleepy legislative and I am most afraid that it will lead Europe in the same direction of curator ship of high finance as it has emerged in the USA.
Following the latest moves in the EU where the European Central Bank (ECB) is run by an unelected president and government heads in Greece (Papademos) and Italy (Monti) did not win power in elections but were somehow "nominated" by the EU Commission, itself an unelected body of the EU with far too wide reaching powers.

According to Deutsche Mittelstandsnachrichten, which has obtained the document, but does not give a source, Greece will have to legally commit itself to giving absolute priority to future debt service.
This is nothing else than the next slice of salami in the EU's strategy to abolish national sovereignty EU-wide, proven by the fact that Germany requires Greece to change its constitution to clear the road for unrestricted power of the creditors in the bankrupt Eurozone.

The USE Comes on Silent Soles
Here is the complete text of this document that should serve as a loud wake up call to all those who do not see that the EU wants to morph into a nanny super state that might as well carry the name United States of Europe (USE).
This is the full text about the true intentions of Angela Merkel's government.

Assurance of Compliance in the 2nd GRC Programme

I. Background

According to information from the Troika, Greece has most likely missed key programme objectives again in 2011. In particular, the budget deficit has not decreased compared to the previous year. Therefore Greece will have to significantly improve programme compliance in the future to honour its commitments to lenders. Otherwise the Eurozone will not be able to approve guarantees for GRC II.

II. Proposal for the improvement of compliance

To improve compliance in the 2nd programme, the new MoU will have to contain two innovative institutional elements on which Greece will have to commit itself. They will become further prior actions for the second programme. Only if and when they are implemented, the new programme can commence:

1. Absolute priority to debt service
Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure. This will reassure public and private creditors that the Hellenic Republic will honour its commitments after PSI and will positively influence market access. De facto elimination of the possibility of a default would make the threat of a non-disbursement of a GRC II tranche much more credible. If a future tranche is not disbursed, Greece can not threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement.

2. Transfer of national budgetary sovereignty
Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralised reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritise debt service.
The new surveillance and institutional approach should be formulated in the MoU as follows: “In the case of non-compliance, confirmed by the ECB, IMF and EU COM, a new budget commissioner appointed by the Eurogroup would help implementing reforms. The commissioner will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.” Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment.

As Greece is fighting for survival and needs the next tranche of aid in coming March this document is designed to provoke heavy opposition in Greece. Europeans sleep in a democracy and as I can see no other opposition to the clear trend towards an undemocratic and unelected EU super government in Brussels the old continent is destined to wake up in a dictatorship.

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AAA Rating or Not - Crowd Sourced Wikirating Values Your Input

2012-01-26T14:49:00.002+01:00

Recent downgrades of European government and bank debt have fuelled the discussion on the establishment of a new European rating agency. This will bring no relief, as long as Euro politicians will be eager to exert influence in such a new entity, can be concluded after their accusations that S&P's move on January 13 was politically motivated.
Undisclosed rating processes on a 10-step ladder from AAA to D, salted with '+' and '-' signs, facilitate criticism about an opaque procedure that ultimately costs public borrowers billions in additional future interest rate payments.
Setting up another ratings agency along the same conflict-laden model will be futile as long as this economic down cycle is with us on a global scale. The strongly growing chaos in the Eurozone cannot be upheld by a new entity that follows old guidelines as this has shown the lack of effective transparency, efficiency and neutrality in an outdated system.
World Map Sovereign Debt Ratings by Wikirating

Click to enlarge

After Wikipedia and Wikileaks shone light on science, history and politics, Wikirating may bring open source financial transparency to the web. Attempting to iron out structural problems of traditional rating procedures, Wikirating is open source, fully transparent and retrieves its results from participants input.
Initiated by Austrian mathematics Dorian Credé and and finance whiz Erwan Salembier, ratings are derived from weighted user input. They stress to point out that their model will improve with rising user input who also have a say in improving the formulae used.
Wikirating's methodology can be found online.
The Sovereign Wikirating Index (SWI) is a very simple process and includes economic indicator plus indices on human development, corruption perceptions and political (in)stability. SWI ratings tend to underscore the ratings of Fitch, Moody's and S&P and align more to Chinese Dagong agency. Find a comparison table of the SWI and the other agencies here.
The SWI uses these criteria, using official data sources:

Public debt (in % of GDP) — 50% weight

Account balance (in % of GDP) — 20% weight

GDP growth rate — 10% weight

Inflation rate — 10% weight

Unemployment rate — 10% weight

The resulting value is adjusted by multiplying it with a Scaling factor, which is composed by the

Human Development Index (HDI) (60% weight),

Corruption Perceptions Index (20% weight) and the

Political Instability Index (20% weight).

Based on data and user input since October 2011, sovereign ratings at Wikirating tend to be slightly lower than at the other agencies. This proves the widespread criticism that conventional ratings are downgraded too slow. It is obvious since the onset of the crisis in 2007 with the implosion of subprime market that these ratings were not reliable and that rating methods needs to be drastically improved and controlled.
The exaggerated power and influence of the credit rating industry has strongly motivated the idea of Wikirating. The analyses on credit worthiness of countries and governments issued by the rating industry have been too long over rated, and whereas governments are trying to regulate the rating and assessments activities, Wikirating offers a platform where anyone can contribute for better, open and more transparent credit risk assessment.
A country list shows far fewer AAA ratings and sees most major nations one or two notches below their established ratings. This is well reflected in this graph of rating distribution based on 102 countries.

Only 2 countries retain their AAA rating with Wikirating, Hongkong and Luxembourg.

Find a complete table of rating comparisons with the other agencies here.
I recommend to surf their website that lists more information on such delicate issues like user influence and also provides links to become a member.

Click here to go to the The Prudent Investor homepage for more interesting posts.

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

2012-01-24T11:41:00.001+01:00

RED ALERT TO EVERYBODY INTERESTED IN THE ESM: THERE IS NO CURRENT VERSION OF THE ESM TREATY AVAILABLE!!!
Europe's most important treaty on the European Stability Mechanism (ESM), which will lead the EU into a financial dictatorship, has been pushed through by EU finance ministers late Monday evening.
But the latest version of the ESM cannot be found on English and German EU websites. A link on consilium EU only leads to a 'file not found' message and the German EU website "Europa von A - Z" does not mention the ESM at all. This reminds one of the secrecy around the Federal Reserve Act, that was pushed through in 1912. Is the EU Commission now playing the same fishy game 100 years later?
Media reports from last midnight only said that the ESM treaty was agreed on by EU finance ministers and mentioned January 30 as the date when the treaty will be officially signed.
Significant changes have been made, a few media reported.
The capital of the ESM will now be only €80 billion instead of the €700 billion proposed in the only available draft version from July 2011 (see treaty text below). The finance ministers also agreed to bring the ESM into existence one year earlier by July 2012, putting national governments under immense pressure to ratify the ESM treaty without sufficient public discussion.
German state TV ZDF reported shortly after Monday midnight that the fund shall have a financing volume of €500 billion, but this figure is a moving goal post. IMF head Christine Lagarde proposed a volume of €1 trillion whereas Italian prime minister Mario Monti and Austrian finance minister Maria 'Mizzi' Fekter said later that the ESM should be upped to €750 billion. Such important changes cannot be found in publicly released EU documents anywhere on the web. The ESM will be the successor of the European Financial Stability Fund (EFSF) which lost its AAA rating a few days ago.
It does not exactly reassure Eurozone citizens when European leaders throw around figures between €500 million and €1 Trillion, proving they have no other clue than to fight debt with more debt if the fund is going to be leveraged in the proposed style.
It is all the more troubling that last night's agreement changes have not been communicated by the EU at all. It reminds one of the ACTA act that was signed in a non-public meeting of the Agriculture and Fishing Commission and is designed to destroy the freedom on the internet. As a side note: Anonymous brought down the websites of three Austrian ministries and the Austrian chancellery on Monday evening, protesting that Austria will be one of the first countries to ratify this attack on internet freedom. This was not reported by Austrian state broadcaster ORF.
I have published my objections to the ESM in this post from last December. Nothing has changed since except for the reduction of the proposed capital and the date the treaty shall go into effect. The ESM and its staff will be completely immune and cannot be sued, but can sue itself. This stinks.

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

Here is the draft text from July 2011.

Open publication

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ECB Threatens Ireland with Bomb Terror, Ignores Journalist's Questions

2012-01-23T09:47:00.001+01:00

In a superb example of hubris representatives of the European Central Bank (ECB) simply tried to ignore justified questions from the Irish public in the video below. Irish journalist Vincent Browne had a very simple question, "why are Irish taxpayers required to bail out the holders of unsecured bonds?" At issue is the repayment of a €1.25 billion bond by Anglo-Irish Bank that will be due on January 25.
Watch this 5-minute video to deepen your impression that the ECB is not only a bad bank with almost no reserves, but also a badly managed bank, whose arrogant representatives seem to forget that they do not dictate the Eurozone. Browne's question is truly justified. As the name of unsecured debt says, repayment should only happen if the debtor is in the position to do so. It is this difference that pays higher interest to such bond holders as the risk of default is higher than on guaranteed bonds.
Read on afterwards as the ECB Troika has truly threatened Ireland with bomb terror.

ECB Says "A Bomb Will Go Off in Dublin"

Irish website Nama Wine Lake reported during last weekend that the ECB threatened Ireland over the due bond. I am especially disturbed about the language used. Just imagine an ordinary citizen saying the same words. He would be in the flashlight for terror threats. The ECB Troika was allowed to leave the country without further consequences despite their radical speech that is actually an extortion threat.
From the report:

“He [Minister for Transport and Tourism, Leo Varadkar] said that the Troika told the Government that “we don’t want you to default on these payments, it is your decision ultimately but a bomb will go off; and the bomb will go off in Dublin and not in Frankfurt.”

Minister Varadkar has been accused of being unrestrained in his comments but they have been refreshing in illuminating dealings that other politicians want to remain hidden. The Minister’s comments come a fortnight after the ECB refused to release a letter it had sent to the former Minister for Finance, the late Brian Lenihan on 19th November 2010, a letter which was understood to have warned the Minister not to default on senior bondholders.

If you can make out the difference between a mobster and the ECB, please post it in comments. I do not see any. And this is only the ECB with limited powers. Europe is still on the way into the ESM dictatorship whose proposed statutes already outline a much stronger language without the possibility of regress as this institution will be immune and cannot be sued for any wrongdoing.
Help stopping the ESM in its tracks. European countries are democracies where budget sovereignty must not be transferred to the people who watched the Eurozone go down and had no other solution than to make more debts.

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Germany to Begin Abolishing Cash Transaction in August 2012 Step by Step

2012-01-18T18:17:00.000+01:00

According to a report in German alternative media Kopp online Germany will begin to abolish cash transactions step by step from August 2012, putting the EU directive 2009/110/EC (PDF) into practice. Germany is the next country after Greece, where the ECB recommended such cash payment limits in May 2010 , and Italy, where cash transactions above €1,000 have been limited since December 4, 2011.
While the official reasoning says this is to combat tax fraud, it is actually another step towards total surveillance in the European Union. All forms of electronic payments can be traced completely.
Ironically a study from the German Bundesbank (PDF) from 2009 arrives at the conclusion that cash fulfills all functions of a payment device in the best way.
Germans still conclude 60% of their transactions with cash.

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Paper: Will a Fed Economist Become Slovenia's Prime Minister?

2012-01-16T18:57:00.000+01:00

Egon Zakrajsek, FRB

Is Europe slowly becoming a colony of the Federal Reserve and its bankster friends? Will a Federal Reserve Economist become the next Prime Minister of Slovenia after the Goldman Sachs colonization of the ECB (Draghi), Greece (Papademos) and Italy (Monti)?

Austrian daily "Kurier" had a snippet in its Sunday edition, saying that Slovenian Fed economist Egon Zakrajsek is at issue to become Prime Minister. The paper did not cite a source but reasoned that the stalemate betweeen leftist election winner Zoran Jankovic and conservative Janes Jansa has sprung calls for a "third man."

Facsimile from Austrian daily Kurier.

Translation: After the political stalemate between the left- oriented election winner Jankovic and conservative opposition leader Jansa calls for a 'third man" are getting louder. At issue as new prime minister is Egon Zakrajsek. He belongs to the innermost leading circle of the US central bank Fed.

According to his official bio from the Fed's website, Zakrajsek is an economist on the Board of Governors of the Federal Reserve system since 1999.

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Unseen in Main Stream Media: Ron Paul Warns of International Currency

2012-01-16T18:15:00.001+01:00

As these words from a Ron Paul speech given on January 12, 2012 in South Carolina, have not made it into MSM (mainstream media), here is another chance to catch up on his warnings about an International Monetary Fund (IMF) led intiative to usher in a global currency following a fabricated dollar crisis.
The IMF had first advocated a new global fiat currency in a paper from April 2010 (PDF) where the new currency was titled "Bancor".
UPDATE: The video has been removed recently. Ron Paul's message is transcripted below.

Transcript of Ron Paul's speech:

"Right now we have a financial crisis. They know it as much as we do and they are planning, but they are planning an international answer to this. They are planning through the IMF to come up with a world currency to replace the dollar because the dollar will be replaced. You just can't keep printing them forever. They are gonna have to attempt to restore confidence but they wanna come up with another paper currency controlled and ruled by the United Nations and the IMF. I would suggest very strongly that we need to send a powerful message to those individuals in charge, by showing them that we are not a small minority any longer and we are constantly growing and we are going to have a lot of influence with the future of this country."

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S&P Now Spelling AustriA Correctly With Downgrade to AA+

2012-01-14T14:08:00.027+01:00

A multiple downgrade of sovereign ratings by Standard & Poor's (S&P) has also reached Austria after the country had been put on the watchlist on December 6, 2011.
Austria was downgraded to AA+ from AAA on Friday with the negative outlook remaining.

S&P gave these reasons for the downgrade:

We are lowering the long-term sovereign credit rating on the Republic of Austria to 'AA+' from 'AAA'. At the same time, we are affirming Austria's 'A-1+' short-term sovereign credit rating.
The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union (eurozone), with which Austria is closely integrated.
The outlook on the long-term rating is negative.

FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings Services today lowered the long-term sovereign credit ratings on the Republic of Austria to 'AA+' from 'AAA'. We removed the ratings from CreditWatch, where they were placed with negative implications on Dec. 5, 2011. At the same time, we affirmed the short-term sovereign credit rating on Austria at 'A-1+'. The outlook on the long-term rating is negative. Our transfer and convertibility (T&C) assessment for Austria, as for all eurozone members, is 'AAA', reflecting Standard & Poor's view that the likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt service is extremely low.

This reflects the full and open access to foreign currency that holders of euro currently enjoy and which we expect to remain the case in the foreseeable future. The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems.

In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery".

As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues. Accordingly, in line with our published sovereign criteria, we have adjusted downward the political score we assign to the Austria (see "Sovereign Government Rating Methodology And Assumptions," published on June 30, 2011). This is a reflection of our view that the effectiveness, stability, and predictability of European policymaking and political institutions (with which Austria is closely integrated) have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone.

The ratings on Austria continue to reflect our view of its stable governance and predictable economic policies, which remain hallmarks of Austrian politics. We view Austria's economy as wealthy, diversified, and highly competitive. We expect the pace of fiscal consolidation will increase, which we believe could reduce fiscal deficits and debt faster than outlined in the government's 2011 budget plan, and perhaps even in its budget for 2012.

This is provided the eurozone environment does not deteriorate such that it hampers this goal. Austria, though still a net debtor on its external position, has reported what we consider sound current account surpluses over the last 10 years, gradually improving its debtor position. In our opinion, contingent liabilities are moderate and stem primarily from the banking industry's exposure to Central and Eastern Europe.

In our view, Austrian banks' balance sheets could suffer from negative developments in major trading and outward direct investment partners (such as Italy and Hungary). In this instance, the banks could require additional government support. Furthermore, if economic growth is much weaker than we expect, this could undermine the government's attempts to consolidate its budgets, and could also render structural reforms ineffective. The outlook on the long-term rating on Austria is negative, indicating that we believe that there is at least a one-in-three chance that we could lower the rating further in 2012 or 2013. We may lower the rating if we come to believe that:

The weakening of Austrian banks' balance sheets stemming from negative developments in major trading and outward direct investment partners meant that the Austrian government needed to recapitalize the banks. This could in turn lead to net general government debt rising above 80% of GDP, and could also further increase contingent liabilities; and/or

Economic growth is much weaker than we currently expect. This could undermine the government's attempts to consolidate its budgets, and could also render structural reforms ineffective. This could lead to an increase in net general government debt beyond 80% of GDP.

The ratings could stabilize at the current level if the risks from the banking sector remained contained, and if Austria were to enter into a more-ambitious consolidation phase by implementing structural reforms, without damaging economic growth prospects and competitiveness. In our view, such consolidation measures would likely enable Austria to structurally balance its accounts and decrease its net general government debt.

And here is the distillate from the release concerning 16 of the 17 Eurozone members:

Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone. In our view, these stresses include:

tightening credit conditions,

an increase in risk premiums for a widening group of eurozone issuers,

a simultaneous attempt to delever by governments and households,

weakening economic growth prospects, and

an open and prolonged dispute among European policymakers over the proper approach to address challenges.

Find the complete statement at the end of this post.
Politicians of all colours (with the notable exception the Piratenpartei) and the tabloid press were quick to damn the downgrade as a political attack, verifying the fact that international finance is still a book with seven seals to them. A joint statement from chancellor Werner Faymann and vice chancellor Michael Spindelegger lambasted S&P for its move after both Moody's and Fitch had confirmed their Austrian AAA rating a few weeks earlier.
While I remain most critical of the opaque rating process of the rating agencies I am even more critical of the whining posture of Austria's politicians who act as if this overdue downgrade - that will very likely be repeated in the near future due to the chaos in the Eurozone - is unjustified.
As a reminder: Austrian government debt stands currently at €218 billion or 76% of GDP and races higher because the ruling coalition officially attempts to come up with a €3 billion to €10 billion budget cuts package by end of February while it cannot even agree on €250 million savings on the state level of the republic. I bet everybody a troy ounce of gold that there will be no multi-billion austerity package by the end of February.
Statements by the government and central bank governor Ewald Nowotny, who called the downgrade incomprehensible, are unrealistic in the light of S&P's warning from December 6 and the ensuing non-action by Austria's government.
Unofficial mumblings that markets should not take the downgrade too serious are actually a call to break the law: Bond fund managers are tightly restricted by investment fund laws that oblige them to observe the ratings of the three major rating agencies.
Nevertheless I agree with governor Nowotny that the downgrades were a politically motivated action by S&P which is owned by McGrawHill. I was not able to find out who is the majority owner of this company that has so far failed to downgrade the USA despite its much higher level of debt that already stands at more than 100% of US GDP. The rating agencies also veil their rating process in secrecy and I am still waiting for the math behind a one-step downgrade.
A look at Austria's yield differential to its peer Germany shows that spreads have risen dramatically over the past months. Austria used to pay a spread of 30 to 40 basis points 'liquidity premium' for almost two decades. This has changed dramatically: 10-year government bonds now yield around 3.60% vs. Germany's 1.90%, showing that markets assess Austria by now much worse than Germany.
Markets are, as always, most correct in their evaluation of Austrian debt: Members of parliament and the government waste time haggling about changes in the national hymn while not addressing the key obstacles of the future that are:

a huge pension problem as demographics change (what a surprise for politicians: we all become older),
a growing budget deficit due to a still growing public sector, and
huge problems of several Austrian banks who recolonised Eastern Europe and now face billions in loans in default.

The concernment in the Eurozone about the downgrade 'shock' proves once more that while EU politicians are never shy of trying to cut corners to their advantage they lack creative ideas to save the Eurozone from rapid disintegration.
Here my tongue-in-cheek solution:
McGrawHill is currently valued at billion. It would have been a lot cheaper to buy McGrawHill and gag its subsidiary S&P. These billions would have brought ownership of a flourishing publishing company. Now this money will end up in the coffers of JP Morgan, Goldman Sachs et al who can borrow trillions from the Federal Reserve for next to nothing and buy up higher yielding European government debt.
This is a currency war and the Eurozone is on the way to lose it.

Here is the complete S&aP statement on the rating actions concerning 16 of the 17 Eurozone member countries:

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8.5 Trillion Bullion vs. 750 Trillion Derivatives

2012-01-09T18:01:00.000+01:00

Click graph for complete display.

From: Number Sleuth

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Read Here What Comes Next in the Eurozone Crisis

2011-12-06T16:42:00.000+01:00

Parsing the multitude of ruminations about rating agency Standard & Poor's threat to downgrade all Eurozone members I am left wondering how this announcement comes as a surprise to many market observers while failing to see the bigger picture that was drawn so far in 2011.
Ring-fenced by exploding deficits, rocketing yields, stubbornly rising unemployment especially among the youth and a true inflation closer to 10% than official figures of three percent, the long term negative outlook for the Eurozone has not changed in the past 11 months.
This action was overdue but again serves more to highlight the deficiencies of an opaque rating process than act as a reliable guideline. After all, most of these Eurozone countries have smaller debt/GDP ratios than the USA, which passed the 100% mark this week and rises faster than EU deficits.

After the announcement of future unlimited money printing through dollar swap lines from the major central banks on November 30, that propped up markets and the Euro, the downgrade announcement is the next step in keeping a volatile equilibrium during the demise of Euros and Federal Reserve banknotes against the ultimate currency of all times; gold.
Rating agencies have been most timely to paint the chart with pivot points, smoothing out spiking markets that wait desperately for the impossible: A silver bullet solution to the Eurozone's woes that stem from a decade of easy credit and the lowest interest rates in history, that produced Spanish hairdressers as second home owners/debtors on annual salaries of €12,000.
This is not going to happen. The Euro was initiated as a political goal for deeper EU integration and lacks a Treasury as guarantor like in the US monetary system.

The Coming Crisis Meetings in 2012
Its destruction will begin to follow a shock and awe script as the "no more Euro core" members have yet to come to terms with the unpleasant reality that a slowdown of debt growth will not be enough to get their houses inoder again. Greece may be soon everywhere as Eurozone nations will get squeezed between the need to refinance €800 billion in government issues and the resulting higher interest rates.
Here are some expected headlines from the coming 12 months that will keep EURUSD in a rough balance while both will continue to decline against gold.

Rating agencies will downgrade Eurozone banks after downgrading Eurozone sovereigns
EU in crisis meeting about banks downgrades
Big league banks will issue more recession warnings for both Europe and the USA
EU holds only a limited emergency meeting
Fearful investors demand dramatically higher yields for government bond issues, deepening the coming credit crunch, resulting in cancelled bond auctions
EU announces another crisis meeting about the credit crunch
Merkel and Sarkozy will push for European Stability Mechanism (ESM) as a last saviour of the Eurozone
Merkel and Sarkozy announce the next crisis meeting
EU wants to find way for a fiscal union without triggering referendums in member states
EU announces crisis summit because people voice widesprent dissent
EU will try to fast track a treaty change
EU needs another crisis meeting
EU member states will demand referenda for any treaty changes
EU hosts next crisis meeting
Deadlock in EU weakens Euro further, will result in
More crisis meetings which lead again to
More and renewed calls for a EU Treasury and the ESM by those EU forces envisioning a United States of Europe (that is actually only a UDE)
The EU goes into the next crisis meeting.

Before you now reactivate Solitaire on your screen, please keep in mind that those are only EU headlines. Global geopolitical tensions will keep markets lightfooted while new upheaval in Russia and the Middle East are destined to keep the bloated forex market running on high leverage. As in most cases of collapsing currencies it may well be an exogenous shock that brings the Euro closer to its true intrinsic value.

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The Next Steps in the Eurozone Crisis Will Lead into the ESM Dictatorship

2011-12-02T18:31:00.001+01:00

A downward spiral of short-lived political announcements that have declined from the superficious to the meaningless may fill the headlines of dutiful 24/7 news outlets.
But while attention is wasted on political gobbledygook, leading Eurocrats manage to steer the train wreck aka Eurozone towards greater centralization in Brussels that will ultimately lead to a political ambush in order to push through the true monster in the backyard, the European Stability Mechanism ESM.
Published in English only, depriving 85% of Europeans of their possibility to inform themselves, it is no exaggeration to say that the ESM will lead the Eurozone into a technocrat dictatorship without any democratic oversight at all.

The ESM was signed by the 17 Eurozone finance ministers on July 11, 2011, and has yet to be ratified by national parliaments.
The treaty text mandates unconditional and irrevocable membership while ensuring complete immunity to the institution and its staff. One does not fill a good part of the treaty with such get-out-of-jail cards if there were no future need of such.
Watch this video that has gone viral in German and is playing with English subtitles here to get a first taste of the totalitarian ESM structure.

Make no mistake, when German chancellor Angela Merkel and French president Nicolas Sarkozy envision a more centralized Eurozone, they ultimately mean the ESM that can draw funds from member states within 7 days without giving a reason and without the possibility of legal recourse.
Checking the latest status of the Eurozone crisis talks, Merkel has just slammed hopes that the EU summit on December 8 and 9 will deliver any meaningful results, the Independent informs:

German chancellor Angela Merkel has said there is no easy fix to the European financial crisis, and that a solution will "take years".
Mrs Merkel told her country's parliament that "the German government has made it clear that the European crisis will not be solved in one fell swoop".
She added: "It's a process, and that process will take years."

This should give you enough time in between to read the ESM treaty down below in full. If not, make at least sure to read from page 35 onwards for the spicy details about self-oversight and immunity, which begins on page 37.

Open publication

Merkel announced unspecified future amendments to the ESM treaty on Friday in a press conference with Austrian chancellor Werner Faymann as Eurozone leaders are going the extra mile in order to avoid a referendum on such fundamental issues like the transfer of budget sovereignty to a yet to be created EU Treasury in Brussels.

Bernanke Will Keep the Roulette Wheel Spinning
In the meantime central banking comrade Ben Bernanke from the Federal Reserve stands ready for a dollarization of the rest of the world with basically unlimited dollar swap lines with the world's major central banks.
While European leaders can continue to haggle about concepts that will just add another layer of ESM debt on top of all other debts the Fed will exchange worthless Federal Reserve Notes (FRN) for worthless European collateral, aiding the European Central Bank (ECB) in hiding the true damage to the Eurosystem where the ECB can no longer 'sterilize' monetization as banks prefer to park their assets with the ECB.
And the Fed has unaudited firepower galore. According to former US Congressman Alan Grayson the Fed lent a whopping $26 Trillion or roughly double the annual US GDP to banks in 2008 at the onset of the current permacrisis. Bernanke's helicopters are ready to rain dollars on the Eurozone again.

Banks Were Helped with $26 Trillion Under the Table

VIDEO: Jump to 2:20 minutes where Alan Grayson says, "Ron Paul's ... audit of the Federal Reserve, which has now shown 16 Trillion dollars in money directly lent out from the Federal Reserve to ... various institutions including many foreign institutions. ... about a third of the money went to foreign institutions and on top of that another 10 Trillion dollars in currency swaps between the Federal Reserve and foreign central banks..."

As the Fed's announcement from last Wednesday to keep the monetary spigots wide open and intervene in any and all falling markets should ensure more phantom liquidity for a comatose Eurozone, this dollarization may become a competitor to the Eurozone's own (lack of) ideas and lead to a EU colonization by US investment bank Goldman Sachs.
With the recent installation of former Goldman Sachs employees/consultants as heads of the ECB (Mario Draghi), Greece (Lucas Papademos) and Italy (Mario Monti) the Wall Street dominator is well positioned to influence European politics far and wide. The tentacles reach elsewhere too: It does nut hurt that the current US ambassador to Germany earned 23 years of paychecks at Goldman too.
As the leading primary dealer in Austrian government bonds Goldman reaches deep into the decision-making circles in that Alpine nation too.
But back to the ESM.
Like the Federal Reserve Act in 1913, the ESM treaty found absolutely no media attention when it was signed last July despite its far-reaching implications for more than 300 million Europeans.
Dutch-based website courtfool.info has investigated the matter further and discovered a swift path towards Brussels monetary totalitarianism.
The website arrives at a startling - and frightening - pattern:

On 17 December 2010 the European Council decided there was a need for a permanent stability mechanism to take over the tasks of the Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF). These are two rapidly erected organizations, respectively in May and June 2010, to supply loans to countries with too many debts. However, these organizations lack a legal basis.
Let us already note here that these organizations were explicitly conceived for financial interventions, while the amendment in the treaty that allows the establishment of the ESM, also allows setting up organizations for quite other fields of action.
This amendment arrived on March 25 2011. To avoid having to organize referendums in Europe once more, they used article 48.6 of the Treaty of the European Union, which allows the European Council to decide changes in the articles of the treaty, under condition they don’t constitute an extension of the competences of the EU. The amendment consisted of an innocent looking addition to a paragraph of article 136 (TFEU). In short, this addition stipulated that “the countries using the euro were allowed to establish a stability mechanism to safeguard the stability of the euro zone as a whole”. Expressed this way, it does not deal exclusively with financial stability. Surveillance of vigilant citizens, oppression of protests or the fight against any other destabilizing element in the euro-zone, can, via this amendment, be conferred to new organizations under EU-flag.
In other words, this amendment surely constitutes an extension of the competences of the EU. Thus, it violates Article 48.6 of the Treaty of the European Union. Nevertheless, no Minister and no national Parliament were bothered by this and in Brussels they happily and promptly continued to draw up the ESM treaty.
On 20 June 2011 the national Parliaments authorized that the tasks of the ESM treaty would be executed by the EU and the European Central Bank.
On 11 July 2011 the treaty was signed. Although the signature was made public later that day, directly at the opening of a press conference with dozens of journalists (photo above), the next day there was not a single headline in the newspapers (not nationally, nor internationally) about the signature of this new European Treaty. Could it be caused Juncker announced it in French... before continuing the conference in English?

The facts are on the table now but do not expect Europe's political representatives to know anything about it. According to this Wall Street Journal blog entry, only 35 of Europe's 736 MEPs (Members of the European Parliament) attended a Draghi speech on December 1 where Draghi proposed more centralization via a 'fiscal compact' - meaning an EU finance ministry.

"We have already started preparing the ESM internally."
All current political haggling about the EFSF (European Financial Stability Fund) or Eurobonds - now dubbed 'stability bonds' by Germany - appears to be superfluous shadow boxing when one listens to the EFSF insiders.
EFSF CFO Christophe Frankel told Reuters already mid-November that the EFSF could change its nameplate to EMS without problems:

Frankel said preparation for the new permanent euro zone support scheme, the European Stability Mechanism (ESM), was under way and that technically, the EFSF could already carry out its mission.
"ESM will have the same mission as the EFSF so in practical terms, we are already ready," he said. "We have already started preparing the ESM internally."

This again proves the haughtiness of Brussels nasty procedures: While politicians keep the public busy with smoke and mirrors, the Eurocrats are working behind the curtains to establish totalitarian control over more than 300 million Europeans and loot them in order to save the banks at truly all costs.
One needs not much fantasy how the Eurozone crisis will develop once the ESM is pushed into place: In the end Europe will be relegated to third world status, laden with ESM and probably IMF debt too.
This would be the end of democracy. It must not happen.

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Take the Money and Run

2011-11-14T11:42:00.000+01:00

Irish finance expert Eddie Hobbs appeared on Irish TV on 11/11/11 and paints a compelling picture that the Euro is toast. His advice: Take the money (out of the bank) and run. I would add: Convert your paper savings into gold.
Watch this 6-minute video for a complete overview of the last stage of the Euro currency.

Austrian Central Bank Strikes Exotic Deal with PBoC While Entangled in Alleged Kickback Scandal

2011-11-11T00:16:00.000+01:00

Austria's central bank, Oesterreichische Nationalbank (OeNB) delivers headlines ranging from opaque to criminal these days.
Market observers scratch their heads about a secretive agreement between the OeNB and the People's Bank of China (PBoC) that makes Austria the first non-Asian country permitted to engage in Renminbi investments with its Chinese counterpart as the intermediary. Further media inquiries were stonewalled.

A terse press release, obviously born in close cooperation with the big Chinese partners, said,

Based on the excellent long lasting contacts between the People´s Bank of China (PBC) and the Austrian central bank (OeNB), the Governors of the two central banks, Mr. ZHOU Xiaochuan and Mr. NOWOTNY Ewald, today signed an important agreement in Beijing. This agreement enables the OeNB to invest via the PBC in Renminbi-denominated assets.
This is the first agreement of this kind signed by the PBC with a non-Asian central bank, and can be seen as an important step in the good relationship between the PBC and the OeNB.

Like every Eurozone country Austria will pursue every financial help it can get in vain efforts to fend of the inevitable crash of a system laden with unsustainable debts and a hopeless situation in the pension/welfare system, while corrupt politicians only try to secure their own golden handhakes.
Corruption and white collar crime, already widespread in Austria, has reached the central bank's doors too.
Prosecutors currently follow a money trail between Austria, Switzerland and Panama that originated at the - of all places - money printing company OeBS (Oesterreichische Banknoten und Sicherheitsdruck Gesellschaft), a 100% subsidiary of OeNB.
According to latest reports by state TV ORF authorities have taken the 2 former CEOs of OeBS and 2 lawyers into custody. A spokeswoman of the state prosecutor said there are allegations of money laundering and other issues.
Together with other local media reports it appears that the OeBS employees may have developed a kickback system through a Panama shell, Venkoy, that was known to OeNB governor Ewald Nowotny, according to protocols of supervisory board meetings which he led. OeNB had fired the 2 heads of OeSB by October 28 after finding out about the theft and reported the matter to authorities.
Currently the alleged damage is given with €14 million by Austrian media.
Printing Money for Syria
The story gets still juicier. Lawyer Manfred Ainedter, defending one of the detained, threw up more mud and said in a TV interview that the Panama company may have been routinely used as a bribery vehicle. OeBS provides banknotes for countries like Syria and former Soviet republics. The lawyer said further, "that you have to have people on location to secure contracts", suggesting that corruption greases international trade. His argument, that state-owned OeBS only did what private money printers did, does not really help sustain the false hope that money printing is a solution.
As if that were not enough, the central bank of the country - whose "Creditanstalt 1931" 'event' should be a reminder to the exceptions of the 'not possible' situations - threw more light into the lucrative corners of money printing, saying provisions of 20% for deal helpers were a "usual" part of the game. A manager in the Swiss office of Venkoy stated ominously that money was paid, without going into further details.

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Wikileaks: Merkel Hid Reality of Greek Debt Situation From Her People in 2010

2011-11-09T10:35:00.000+01:00

A newly released cable from the German US embassy from February 2010 proves again that Eurozone leaders were happy to hide the full dimension of the Greek debt crisis and its implications for the German budget deficit as long as possible.
The confidential document published by Wikileaks again highlights the fact that politicians prefer to lie until the last possible moment.
This snippet says it all:

Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece.

Here is the full text of the confidential cable:

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000181
SIPDIS
STATE FOR EEB (NELSON, HASTINGS), EEB/IFD/OMA
(WHITTINGTON), DRL/ILCSR AND EUR/CE (SCHROEDER, HODGES)
LABOR FOR ILAB (BRUMFIELD)
TREASURY FOR SMART, ICN (NORTON), IMB AND OASIA
SIPDIS
E.O. 12958: DECL: 02/12/2020
TAGS: EAID EFIN ECON PREL EUN GM GR PGOVSUBJECT: GERMANY RELIEVED BY EU SUMMIT OUTCOME ON GREECE
Classified By: ECONOMIC COUNSELOR INGRID KOLLIST, REASONS: 1.4 (B) AND
(D)
1. (C) SUMMARY: Chancellor Angela Merkel's government welcomed the decision taken at the EU's February 11 informal summit in Brussels not to provide financial assistance, for the moment, to cash-strapped Greece. German officials believe a bailout is not needed at this time, and that extending a lifeline to Greece would have carried too many risks. One major fear in Germany is that "saving" Greece would lead to other needy Eurozone members expecting the same treatment. Another concern is that extending an explicit guarantee for Greece could weigh on Germany's own good standing in the markets, ultimately raising its borrowing costs. While German government officials do not totally rule out an IMF program for Greece if push came to shove, most consider this eventuality highly unlikely, especially in light of the European Central Bank's strong opposition. In fact, the German government, the ECB and private German economists are downplaying the seriousness of Greece's predicament and its potential impact on stability of the Euro. They agree, however, that the crisis could have longer-term consequences for EU institutions and how they interact with member states that stray off course. END SUMMARY.

NOT IN THE MOOD
---------------
2. (C) Prior to the February 11 EU Summit in Brussels, there
was much hair pulling in Berlin over the wisdom of participating in some sort of Greek rescue. No one savored the idea of explaining to German taxpayers, already concerned about Germany's record deficit, that they would be footing the bill for the irresponsible behavior of another country.
A Finance Ministry official explained to us that many Germans felt disgusted by the situation in Greece: "While Germans have spent the past decade tightening their belts and improving their competitiveness, Greek civil servants still earn 14 months' salary per year." A recent editorial in the German daily Frankfurter Allgemeine Zeitung (FAZ) asked rhetorically whether Germans would need to work until age 69 just to finance early retirement for Greek workers. With important upcoming elections in the state of North Rhine-Westphalia, bailing out Greece would not be a vote
winner.

OFF THE HOOK
------------
3. (C) The German government was, in fact, "relieved" that the European Council meeting on February 11 decided not to put concrete assistance on the table at this time. Wolfgang Merz, Director for European Financial Affairs, German Ministry of Finance, told us that while Germany stands ready to throw a lifeline if the Greek government truly runs aground, Greece currently has access to capital markets and needs no outside assistance. The key to overcoming the crisis will be the Greek government's implementation of the planned austerity measures, said Merz. Bernhard Speyer, Head of Banking, Financial Markets and Regulation at Deutsche Bank (DB) Research, agreed that the EU struck the right balance:
"The decision gave reassurances that Greece would not be abandoned, but kept the pressure on the Greeks by not yet putting cash on the table."
4. (C) Stepping in with assistance at this point carried too many downside risks, according to Merz. Legal questions aside, a German or EU bailout of Greece might have harmed Germany's credit worthiness, thereby raising its own borrowing costs. Merz added that a bailout would certainly have set a bad precedent for other Eurozone countries, such as Spain and Portugal, experiencing similar stresses. (Merz acknowledged, however, that these two countries' problems were less acute -- a sentiment echoed by Speyer.)
5. (C)Still, there is some skepticism that Greece's austerity program will get the country's finances on the right track, even if fully implemented. Merz said an IMF bail out remained on the table, despite the official line that the situation in Greece could be addressed within the EU.

IMF RESCUE? RESOUNDING NO FROM ECB
----------------------------------
6. (C) According to Karlheinz Bischofberger, Deputy Head of the Financial Stability Department at the European Central Bank (ECB), the likelihood that the IMF will be asked to bail out Greece is "zero." Greece does not have a balance of payments crisis, so there is first and foremost no basis for the IMF to step in. Bischofberger added that apart from the damage to the ECB's reputation an IMF intervention would inflict, it was uncertain that the IMF could even succeed in doing the "political dirty work" of forcing Greece to implement a structural adjustment program. DB Research's Speyer concurred, adding that it would undermine the credibility of EU institutions to manage a crisis.

REPORTS OF MY DEATH ARE GREATLY EXAGGERATED
-------------------------------------------
7. (C) Talk of a possible break-up of the Eurozone is "absurd," according to Moritz Kraemer, Managing Director, Standard and Poor's. He noted that Eurozone membership is still seen as highly desirable, and there was absolutely no incentive to exit, despite the allure of devaluation. Any country that tried to leave the Eurozone would get hammered in the credit markets, exacerbating any underlying structural problems. S and P estimates that Greece's rating in the case of an exit would drop to "BB " or lower, i.e. below investment-grade. Even today, Greece's rating of "BBB " is higher than it was in 1997 ("BBB-") before joining the common currency.
8. (C) While the current crisis may have revealed an "Achilles heel" of the Eurozone, it may present opportunities, according to Klaus Masuch, Head of the EU Country Division, Directorat General of Economics, ECB. The crisis is a "healthy warning signal" that Eurozone members must conduct "sound national policies in line with the agreed rules." It also underlines the necessity of better
integration and coordination of member state fiscal policies.
The Euro will come out of this crisis strengthened, he said.
Better and stricter early warning and surveillance systems
will be in place, and the Stability and Growth Pact will ultimately be reinforced. DB Research's Speyer agreed, adding that the crisis could make EU member states proceed more cautiously with enlargement.

A EUROZONE CHAPTER 11
---------------------
9. (C) DB Chief Economist Thomas Mayer told Ambassador Murphy
he was pessimistic Greece would take the difficult steps needed to put its house in order. A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time. In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider." Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order. Unfortunately, there is no serious discussion of this underway, he lamented.

COMMENT
-------
10. (C) Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece. Still, the German government appears prepared to step in as a last resort if needed and is cognizant that German banks (such as Hypo Real Estate and Deutsche Bank) and insurance companies (Allianz) have
significant exposure to Greek sovereign debt. The crisis is
also viewed -- within the German government as well as within the ECB -- as a way to exert greater influence over the public finances of profligate Eurozone members. Some Christian Social Union (CSU) politicians are even using the crisis to promote the candidacy of Bundesbank President Axel Weber as next ECB President, arguing that Weber's selection would send a signal that Eurozone stability is paramount.
One way or another, the consequences of the Greece crisis seem likely to outlive the immediate situation. One strong possibility is that German influence over policy in the common currency area will grow.
11. (U) Embassy Berlin and ConGen Frankfurt co-drafted this
cable.

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The True Intrinsic Value of Euro 'Money'

2011-11-08T09:12:00.001+01:00

Ever wondered about the true intrinsic value of Euro banknotes?
Prudent Investor blog reader Kurt Lindlgruber from Austria sent me this pragmatic approach, pulling up the calorific value of such notes once they have lost their purchasing power as did all fiat currencies in history.
Lindlgruber's calculations contradict French philosopher Voltaire's famous quote that

'Paper money will always return to its intrinsic value. Nothing.'

It is not all that bad. Your soon-to-be worthless Euros will at least keep you warm for a few minutes.
Here is his calculation:
The minimum value of paper money after the Euro crash corresponds with its calorific value.
A €5 banknote weighs 0.6 grams. The calorific value of one kilogram European fiat money (= 1,667 €5 notes) is 5 kilowatt hours (kWh).
You can fare much better with gold:
Based on Monday's Euro gold price of €1,260/oz one ounce will buy you 21 metric tons of wastepaper (current price €60/ton) which has a calorific value of 105,000 kilowatt hours.
The average heat energy consumption of a single family detached house is around 5 kWh. So 21 tons will heat a house for 21,000 hours or 2.4 years.
If you hold on to your Euros instead of gold, 252 €5 notes (=€1,260), they will deliver a calorific value of 0.76 kWh

(252 x 0.6 x 5 / 1000 = 0.76 kWh)

will keep you warm for a mere 9 minutes instead of 2.4 years.

This is the calculation for 'paupers' who hold such small denominations.
If you happen to be a wealthy money bag, drug dealer or tax evader, who all tend to stash the handy €500 notes, you will likely be much worse off despite their higher weight of 1.1 grams per banknote.
Rounding up the Euro gold price to €1,500 (I expect to see this price within a few weeks) your wealth will make you long for a thick blanket much sooner. Here is the calculation based on €500 notes:

3 x 1.1 x 5 / 1000 = 0,016 kWh

that will keep your house inhabitable for only 10.8 seconds.
To sum it up, here are your choices after the Euro crash:
Hold the monetary equivalent of one ounce gold

in €500 notes and you can heat your house 10.8 seconds,
in €5 notes and you can heat your house for 9 minutes,
in 21 tons wastepaper and stay warm for 2.4 years,
but 1 ounce gold based on James Turk's price expectation of €11,000/oz will keep your house heated for 23 years.

I haven't come across a more specious argument pro gold for the coming hard times in Europe.
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Perth Mint Issues a One-Ton Bullion Gold Coin Worth $56 Million

2011-10-29T12:05:00.005+02:00

Caution: It may prove difficult to get change when you go yacht shopping with this coin.
The Australian Perth Mint has produced the biggest 999.9 fine gold bullion coin in the world.
Featuring Queen Elizabeth II (Katie's silhouette would certainly have found more bidders) it weighs one metric ton. The coin is legal tender with a face value of one million Australian dollars.
Its current gold value is €39.6 million (39.55€ million).

The colossal coin measures nearly 80 cms wide and more than 12 cms deep.

This is the heavest superlative among high value legal tender bullion coins. In 2004, the Austrian Mint presented a 1,000 ounce (31.1 kilos) bullion coin. The Royal Canadian Canadian Mint came out with three 100 kilo coins in 2007.

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Moody's Turns Spotlight on "Austria Banks Derivatives"

2011-10-20T16:37:00.000+02:00

Here comes the next market mover. Moody's Investors Service is apparently doing some due diligence work on Austria's banks. Austria and its banks have been overlooked in the daily market game of who gets downgraded next until now. Austria still carries a AAA sovereign rating from all Moody's, S&P and Fitch. Austrian banks have done surprisingly well during EU wide downgrading orgies by the big 3 rating agencies.
This may be about to change, given this indication from my webstats.

SCREENSHOT: Moody's Investors Service starts checks on Austria and its banks with a 'Go ogle' search on "Austrian banks derivatives". Click to enlarge.

Moody's landed at this story from October 2010: Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank
Being behind the curve must be a tradition at Moody's. Here is the 2011 update: It Takes Only a 4% Adverse Move and Austria's Banks Are Out of Business.
Of Austria's top 6 banks, only Erste Group and Raiffeisen Bank International are listed. Both banks saw their share prices drop like all other banks recently. Erste Group 'corrected' its 2011 outlook from a €800 million profit in September to a €800 million net loss only 12 days later, raising eyebrows on the way it had accounted its derivatives until then. Austria's biggest bank, Bank Austria, is a 100% subsidiary of troubled Italian Unicredit.
Click for more background.

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