Wednesday, June 17, 2009

Smuggled US Bonds in Italy - An Update

The Smuggled Bonds

I am getting a considerable amount of traffic to my post on the smuggled bonds in Italy, and you may wish to read the original and the comments at the end if you have not already done so (post here).

Since my post the US has finally confirmed that the bonds are fake:

WASHINGTON, June 19 (Reuters) - A purported $134 billion in U.S. government bearer bond certificates seized by police near the Italian-Swiss border are fake, the U.S. Treasury said on Friday.

"Based on the photograph we've seen online, they are clearly fake. And not even good fakes," said Stephen Meyerhardt, a spokesman for the Treasury's Bureau of the Public Debt.

However, the actual details on this story remain very patchy and contradictory which is still giving me pause for thought. Who are the two individuals, why did the confirmation that they were fake take so long, what were the forgers trying to achieve with such apparently useless bonds? Just to add fuel to the conspiracy fires, it transpires that the two individuals with the bonds have been released from custody without charge! The reason given is that they did not try to pass off the bonds as genuine.....

This seems very odd.

Another concern is that the original reason for my belief that the bonds were forged was an article detailing a bond forgery operation in the Philippines, which appeared to match the bonds that were found. This from the FT:

Whether the men are really Japanese, as their passports declare, is not entirely clear, but Italian and US secret services working together soon concluded that the bills and accompanying bank documents were most probably counterfeit, the latest handiwork of the Italian Mafia.

Few details have been revealed beyond a June 4 statement by the Italian finance police announcing the seizure of 249 US Treasury bills, each of $500m, and 10 "Kennedy" bonds, used as inter-government payments, of $1bn each. The men were apparently tailed by the Italian authorities.

Yesterday the mystery deepened as an Italian blog quoted Colonel Rodolfo Mecarelli of the Como provincial finance police as saying the two men had been released. The colonel and police headquarters in Rome both declined to respond to questions from the Financial Times.

In the story above, it is apparent that the 'authorities' were tailing the men, but the original story proposed that they were stopped in a random check. This is a very different story to how the men were intercepted to that which was previously released. Of course, it is possible that this is just more details being released, but the original stories appeared to be quite clear.

The article above goes on to detail another related scam, involving $1 billion in bonds in relation to the Venezuelan central bank. The scale and nature of the fraud detailed looks very different from the case in question. This is rather odd:

Italian officials, while pointing out that hauls of counterfeit money and Treasury bills were not unusual, were stunned by the amount involved. Investigators are looking into the origin and destination of the fakes.

Last month Italian prosecutors revealed they had cracked a $1bn bond scam run by the Sicilian Mafia, with the alleged aid of corrupt officials in Venezuela's central bank. Twenty people were arrested in four countries.

The fake bonds were to have been used as collateral to open credit lines with banks, Reuters news agency reported. The Venezuelan central bank denied the accusations.By FT staff in Rome, Tokyo, New York and Washington

Not only are they not connecting the bonds in this case to the Philippines forgeries, they are proposing the mafia are responsible. This seems highly unlikely. I really can not believe that the mafia are that idiotic. According to one unnamed US official, the bonds included a picture of the space shuttle, even though they are dated from a time long before the space shuttle. And the mafia were involved in such stupidity???

In the last two years, Italian authorities have seized some $800 million of U.S. bonds in the Como area in northern Italy.

Meyerhardt said U.S. government investigators believe that the seized bond forgeries were made using commercial photo enhancement software to alter the image of a $100 bill to increase the amount into millions or billions and add what appear to be interest coupons.

Another U.S. official said the seized bonds were purported to be issued during the Kennedy administration in the early 1960s, but the certificates showed a picture of a space shuttle on it -- a spacecraft that first flew in 1981. Some of the bonds were purportedly issued in a $500 billion denomination that never existed.

This really does not sound like a mafia operation....

Had the news simply confirmed the identity of the individuals, and linked them to the Philippines forgery operation, I would have quietly accepted the story as a simple piece of idiocy. However, the muddying of the waters does give me some concern. I am not inclined to conspiracy theory but, as one commentator pointed out, governments do indulge in skulduggery. I am still not convinced that there is something amiss here, but there is also nagging sense that all is not as it appears. I can not quite convince myself either way. The FT Alphaville article on the latest news also appears to share this sense of unease.

Altogether, this is a very, very odd story. I do feel like I am sounding a little bit like a deranged conspiracy theorist, so please feel free to comment on whether the latest news makes sense to you.

However, I do not want to just focus on the bond story, and thought I would also add some commentary on other news that is current. As such, some other points follow:

Protectionism

The first story that has struck me, is the 'Buy China' rules being implemented in conjunction with China's stimulus measures. As you would expect, the rules are not quite as crude as the 'Buy China' quote suggests. The Chinese government are doing implementing this policy indirectly by asking that any imports used in the stimulus must first have a government permission. In other words, there is an administrative barrier to trade that will no doubt work in conjunction with nationalist sentiment.

As one article makes clear, this appears to be (at least in part) a tit-for-tat response to the 'Buy US' policy in the US, and that this kind of trade discrimination is, in any case, not something new:

China's World Trade Organization commitments require it to treat foreign and domestic goods equally in commercial trade. But Beijing has not signed a WTO treaty that extends such requirements to government procurement, which might limit options for challenging Beijing's "Buy China" order.

Beijing has imposed similar requirements on government projects such as China's giant Three Gorges Dam to favor domestic suppliers of equipment and services.

Ambrose Evans-Pritchard in the Telegraph calls this a 'suicidal' policy, and suggests that it hints that the Chinese recovery is not as strong as has been suggested. If China were to pursue such a policy, in an attempt to protect domestic jobs, it will provide ammunition for those who have been pushing for restrictions on trade with China.

It is hard to disagree with Ambrose Evans-Pritchard, but lurking beneath this may be a reason why China has taken such a bold and inflammatory move. It might just be a signal of the confidence in China that, with their massive holdings of US debt, they hold the whip hand. It could simply be a sign that China now sees the US as impotent, and that China's position allows them to dictate the terms of trade. This is not to say that suicide thesis is wrong, as it is quite possible that China has made a miscalculation, but rather that the possibility of Chinese confidence should not be ignored. We are not privy to the meetings behind closed doors between the governments of both countries, and can only guess at how the shift in relative economic power has actually played out.

What is certain from this latest move is that a significant impetus towards wider protectionism has now taken place. How it plays out may be very significant to the outcome of the economic crisis, but this will rest in the hands of political decisions, rather than any underlying economic drivers.

Instability

A short while ago, I was discussing how there may be wild swings in sentiment, due to investors being unable to decide on a place of safety for their investments. Below is an article on treasuries over the last few days:

TOKYO, June 17 (Reuters) - U.S. Treasuries fell on Wednesday as investors took profits from a four-day rise and avoided adding positions ahead of a Federal Reserve policy meeting next week.

The benchmark 10-year yield had fallen near 3.65 percent on Tuesday, after climbing as high as 4 percent last week, helped by weaker data on manufacturing and industrial output which in part caused a two-day stock slide this week.

Still, price falls were limited as investors continued to unwind trades made on economic recovery hopes and sold stocks and commodities, and shifted some funds back into safe-haven debt.

Prospects of further Fed purchases later in the day after the central bank bought $6.45 billion of Treasury debt on Tuesday also provided some support to the debt market.

But investors were unsure about the direction for Treasuries once profit-taking runs its course, as views remain that the economy has seen the worst of the recession and before hearing the Fed's stance on bond buying at its two-day meeting next week after a spike in long-term yields this month.

I have highlighted this story, as it illustrates the nature of markets at present. They are, quite literally, in a funk of uncertainty. Nobody is entirely sure of the economic data or the economic situation.

Likewise, the roller-coaster ride of the £GB continues, with this story from Bloomberg:

June 17 (Bloomberg) -- The pound dropped by the most in almost two weeks against the euro as stocks retreated and minutes showed Bank of England policy makers voted unanimously to continue their asset-purchasing program.

The British currency also slid versus the dollar after a government report showed claims for U.K. jobless benefits rose in May. The minutes of the central bank’s June 4 meeting showed policy makers decided it was too early to know if the measures designed to lower borrowing costs were working. The FTSE 100 Index fell to its lowest level since May 5, losing 1.2 percent.

“Stocks have been pummeled today as we shift toward a more risk-averse mentality and that’s conspiring to hit sterling,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “The pound never does well in this sort of environment.”

The pound weakened 0.8 percent to 85.01 pence per euro by 5:05 p.m. in London, after earlier sliding as much as 1.2 percent, its steepest intraday decline since June 4. It depreciated 0.7 percent to $1.6296.

Claims for jobless benefits rose 39,300 to 1.54 million last month, the Office for National Statistics said today. A broader measure of U.K. unemployment climbed 232,000 to 2.26 million in the three months through April, the statistics office said. The Confederation of British Industry expects the jobless total to peak in the second quarter of 2010 at 3.03 million.

If you review the day to day news that pours from Bloomberg and Reuters, it is apparent that the wild swings seem to gyrate as positive indicators are followed closely by negative indicators. As each 'green shoots' story emerges, another closely follows pointing in the opposite direction. What then appears to follow is a wild swing in sentiment. However, the underlying trajectory of the OECD economies continues in a downwards direction.....making a mockery of each swing to illusory safety.

Fiscal Responsibility?


Perhaps the Bank of England has recognised that it can only prop up the bond market for so long. In a recent speech, the governor has made an explicit call for fiscal responsibility from the government.

The news follows on the heels of the G8 conference, in which exit strategies from stimuli were a subject of debate:

June 15 (Bloomberg) -- Group of Eight finance ministers began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.

Officials meeting in Lecce, Italy, over the weekend said it’s prudent to consider what exit strategies to deploy once global growth is secured and asked the International Monetary Fund to examine how to do so without reigniting the two-year crisis. At the same time, they said it’s premature to rein back more than $2 trillion in stimulus packages.

“Growth should remain the principal focus of policy,” U.S. Treasury Secretary Timothy Geithner said after the meeting ended on June 13. “It is too early to shift toward policy restraint.”

Policy makers trod a fine line in the knowledge that withdrawing stimulus measures too soon could choke the recovery before it starts, and allowing them to last too long might push up borrowing costs. They are also trying to reassure markets after the yield on the 10-year U.S. Treasury note rose last week to the highest since October.

“Markets aren’t looking for specific exit strategies now, but want governments to start thinking about them,” said Bill Witherell, chief global economist at Cumberland Advisors Inc. in Vineland, New Jersey, which oversees $1 billion in assets. “They worry that inflation is going to build up if nothing is done to withdraw the stimulus.”

The interesting point in all of this is that there is an admission implicit in this discussion. There is currently no solid plan of how or when it will be possible to reverse the massive measures taken to support the financial system and 'stimulate' the economy.

As an analogy to this we might think of a corporation going to a bank during troubled times to consider further lending. The bank might ask how long and how severe the downturn might be, and demand firm timescales for when and how the company will turn itself around. If sales are low, where will the new sales come from, if costs exceed revenues, how might the differences be resolved, if there are new competitors stealing market share, how might they regain their share? What new products are in the pipeline, when will they come to market, and what will their impact be on revenue?

Many, many posts ago last year I made a comparison between the US economy and the US automotive manufacturers. The comparison still stands, but now with the story of GM as an indicator of the inevitable ending when basic questions can not be answered. The US economy is in the same place as GM was when the first bailout of GM was issued. The answer at that time given by GM was that company would use the money to tide them over until they worked out a plan for restructuring....in the case of governments, they are not even beholden to any timetable on when they need to even put the plan together. They will get around to it at some point in the future.....

That people like the chief economist at Cumberland Advisors accepts this situation is more than a little baffling. However, I must accept that this is the world view of many who are driving markets. If these people were to have reviewed the situation of GM, they would not be looking at long distant economic performance, but the recent record of failure, and how that failure might be turned to success again. However, in the case of the US economy, they seem to see the equivalent of GM in 1950...and imagine that such long past performance would be an assurance of success for GM now.

Returning to the Bank of England, whilst disagreeing with them on so much, it is at least encouraging that they are pressing for answers from government, albeit whilst adding to problems by continuing to print money to support the financial system.

Anchoring goes Mainstream

In a current Telegraph article, it seems that Tom Stevenson may have picked up on my adaptation of Dan Ariely's anchoring theory.

There are many reasons why those decisions are invariably irrational. These heuristics, or psychological biases, are beginning to be unpicked by the new science of behavioural finance.

One is "anchoring", the tendency of people to measure the value of an asset against some wholly irrelevant number. A study of this asked groups of people to estimate the number of doctors in London but only after they had first provided the last four digits of their phone number. People with the highest phone numbers consistently gave higher estimates of the number of doctors. Completely irrational, of course, but no different from fixating on RBS's share price two years ago when assessing whether it is good value now.

You can find my articles in which I discuss anchoring here and here. Of course, Dan Ariely is well known, and this could be coincidence. However, it would be nice to think that the posts on this blog might seep into the mainstream.

Inflation (again)

For regular readers, it will come as no surprise to find that CPI inflation is above expectations, according to a Telegraph article. As expected, the price of imports is now feeding into the prices of goods on the shelves. Apparently, there are something like £10billion worth of price increases on their way, according to a PWC report (no link for this). I have consistently argued that there will be no deflation for this reason.

In a very odd article, the Telegraph a few days ago came up with an alternative index of inflation, in which they proposed the UK was seeing deflation at -10%. On viewing the figures, it is apparent that the key variables are oil, the price of which again can be partly attributed to the £GB and partly to price rises out of the UK's control, and housing costs, which have been directly influenced by interest rates. The reason for publishing such an article, is completely unclear.....there is not even a source for the figures. Meanwhile a Mail article from April tells a story of soaring prices, according to their own index.

The reality is that, the CPI is the key index for the Bank of England, and the long promised deflation against the index has still not materialised. However, this was one of the great justifications for printing money......I guess that they might (at a push) claim the policy is working, but am not sure that they would want to bring attention to the policy in this context, in case it be subject to serious scrutiny.

Note 1: I am hoping to write an article on a fixed fiat currency system, and will try to put the thoughts that have appeared in different posts into a single post. I am not sure that the idea of a fixed currency could work, but my thoughts on the idea are becoming increasingly positive.

Note 2: I am publishing this in a bit of a rush, so I hope that there are no errors. Please feel free to identify any problems.....

35 comments:

  1. I have just found an article here:

    http://www.hardassetsinvestor.com/features-and-interviews/1/1626-hal-sirkin-commodities-and-the-next-billion-customers.html

    It is the first article that I have seen that has recognised what I have been saying for a long time. Commodity and labour are the key to the current and ongoing crisis. Hopefully we will finally see this basic point picked up by the economists.....

    ReplyDelete
  2. Thanks for the great post. I wish more people realized what a terrible situation the UK and the West is in.

    It just sums up what should be plainly obvious to anyone: that in a world of finite resources and expanding population, in particular an expanding population with an appetite for resources; the limiting factor i.e. commodities will increase in price and the surplus factor i.e. people, will result in a decrease in the price of labor. It always seemed to be the case in the last few years that if any electrical good was broken or faulty then it was discarded often because the labor cost were greater than the cost of a replacement. I can only imagine that this trend will reverse in the future.

    I think that the only realistic solution is diversification away from the traditional commodities; otherwise inflation will just continue to rise at an alarming rate. Renewable energy gives us an opportunity to do this, admittedly with a high short to medium to term outlay but with undoubted long term benefits. Whether we have to political foresight, or skill base to achieve this in a country like the UK, is debatable.

    As the UK is not a commodity rich country it must start investing in an educated and most importantly economically productive educated workforce, so we can develop the skills we need to develop these technologies and maintain our standard of living. Higher education is not a given right, it is an investment of a country in its youth with the intention of regaining that investment further down the line. Why we train people in half of the crazy degrees that we do is beyond me. I think a system where all degrees in the sciences and engineering and subsidized by the government (depending on certain criteria) and no loans to fund the degrees of economically unproductive subjects is the way forward. Otherwise, we can to have no resources, natural or human, and then we really will be in trouble.

    I know the post veers off topic but I just feel there are so many things wrong with the UK and I couldn’t help myself but start talking about them.

    ReplyDelete
  3. Thanks for the great post. I wish more people realized what a terrible situation the UK and the West is in.

    It just sums up what should be plainly obvious to anyone: that in a world of finite resources and expanding population, in particular an expanding population with an appetite for resources; the limiting factor i.e. commodities will increase in price and the surplus factor i.e. people, will result in a decrease in the price of labor. It always seemed to be the case in the last few years that if any electrical good was broken or faulty then it was discarded often because the labor cost were greater than the cost of a replacement.

    I can only imagine that this trend will reverse in the future.
    I think that the only realistic solution is diversification away from the traditional commodities; otherwise inflation will just continue to rise at an alarming rate. Renewable energy gives us an opportunity to do this, admittedly with a high short to medium to term outlay but with undoubted long term benefits. Whether we have to political foresight, or skill base to achieve this in a country like the UK, is debatable.

    As the UK is not a commodity rich country it must start investing in an educated and most importantly economically productive educated workforce, so we can develop the skills we need to develop these technologies and maintain our standard of living. Higher education is not a given right, it is an investment of a country in its youth with the intention of regaining that investment further down the line. Why we train people in half of the crazy degrees that we do is beyond me. I think a system where all degrees in the sciences and engineering and subsidized by the government (depending on certain criteria) and no loans to fund the degrees of economically unproductive subjects is the way forward. Otherwise, we can to have no resources, natural or human, and then we really will be in trouble.

    I know the post veers off topic but I just feel there are so many things wrong with the UK and I couldn’t help myself but start talking about them.

    ReplyDelete
  4. Commodities inflation is a bad joke.

    Naked Capitalism has this interesting stuff on China and commodities:

    http://tinyurl.com/mtg968

    A rerun of the last oil spike.

    ReplyDelete
  5. Cynicus,

    This may be of interest with respect to your forthcoming post on currency systems:

    http://business.timesonline.co.uk/tol/business/economics/article6531299.ece

    T.

    ReplyDelete
  6. Hello,

    Long time reader here (over a year); first post.

    In my mind, the fake bond issue is a red herring. In Hong Kong, there are at least 3 or 4 examples every decade of some or other delusional small group of peeps arrested for thinking they can turn up at a branch of HSBC, BEA or Bank of China carrying a few tens of billions of US$ (or much more,) in bonds - be they bearer or Treasury or whatever - and trying to cash them in over the counter.

    Why they think this will work is anyones guess, but it happens every few years.

    I think that the latest scam uncovered in Italy is merely yet another example of this. Somebody somewhere paid good money and was ripped off - much like the blackened US$ that people buy, which just need to be "washed" in a special liquid to magically reappear.

    With respect to the overall thrust of the thinking of CynicusEconomicus, I can't argue with the core macroeconomic analysis of the global imbalances that are creating the current, shall we say, ripples, across the world. I first gave a speech on this theme to some Round Tablers back in 1987, a couple of months before Black Monday and was roundly lambasted by an incredulous audience. "Are you suggesting that long-established, high street retailers could actually go bust?" they guffawed (I was half the age of most of them).

    I felt somewhat vindicated by the market crash of October 19th, but was amazed by the quick recovery.

    Today, are we facing The Big One? It could well be the case, but I remain cautious. The power of capital is stronger than ever and, IMO, most western societies have been dumbed down significantly through the use of the various media available.

    It wouldn't surprise me if the world economy staggered on for a good few years and then bubbled again and, perhaps, even again before the Emperor is exposed in his splendorous nakedness.


    Great blog, Mark, and don't be distracted by the bonds. But don't underestimate the power of the unholy trinity of governments, banks and property developers (and I'll chuck in the media as a connected and devious fourth estate here,) to keep most people ignorant and their own interests intact for many years to come.

    It's far from impossible that they will get most of the plates spinning again - for a while.


    Blessings all and may you live in interesting times.

    :)

    Woof

    ReplyDelete
  7. Some interesting comment by Edmund Conway in the Torygraph.

    http://www.telegraph.co.uk/finance/economics/5586543/Is-this-the-death-of-the-dollar.html


    :)


    Woof

    ReplyDelete
  8. "ENDNOTE: What strikes me as the purest form of misleading propaganda is the MSM's shrill insistence that "everything will come back": housing valuations, jobs, tax revenues, etc.

    Sadly, this is completely unfounded: None of these things are coming back, not housing, not jobs, and certainly not tax revenues. The structures which supported abundant credit and government-backed mortgages (and thus the housing bubble) are gone. The structures which supported abundant consumer credit and spending (and thus millions of service-sector jobs) are gone. The structures which supported high tax revenues (huge capital gains from stocks and housing, the FIRE economy's transactional fees, rampant irresponsible credit and consumer spending) are also gone.

    Pundits/think-tankers making the case that "everything's going to come back" never address the structural decay/destruction which prohibits everything from returning to 2005. Thus they are nothing but propagandists, paid cons and shills of a crumbling status quo."

    http://www.oftwominds.com/blog.html

    ReplyDelete
  9. The problem with everincreasing labour force in a world with finite resources was already pointed out by Alan Tonelson in 1999 in the book "The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standard". Mr.Tonelson saw it coming and made clear how apparently innocent and well-meant economic policies can bring fierce competition among nations with everincreasing potential for global war. In the world with nuclear weapons not so bright future.

    ReplyDelete
  10. The fact is, we are going to have some very tough decisions to make very soon.

    The West, sooner or later, must come to terms with the fact that wealth is not our god-given right.

    Wealth leads to complacency, which then leads to self-congratulatory over-regulation and social tinkering. Then, when we are no longer competitive, rather than address the real reason for that, states look increasingly to protectionism.

    There's really no point bleating and whining about how unfair the world is. You can deal with social injustice by the simple rule of helping your neighbour and treating them with respect. Government is not required to make a community function properly. (In fact, the opposite is true.)

    In regards to wealth creation and prosperity the simple adage: Earn it or lose it applies. It's really time we addressed 'earning it' again instead of just shouting about what we are "entitled" to. If the money runs out you quickly find that entitlement doesn't pay the rent or put food on the plate.

    ReplyDelete
  11. Steve Tierney

    These are "straw-man" arguments.
    You should name-n-shame who specifically is shouting about entitlements and what they exactly shouted - in quote marks please.
    (Con/Lab/LibDem MPs and their 'entitlements' spring to mind).

    "You can deal with social injustice by the simple rule of helping your neighbour and treating them with respect". I live in a beautiful and affluent part of continental European city, I am kind, tolerant and very helpful to those around me, who seem, in the main, endowed with similar personal qualities and material wealth. Please elaborate on the mechanism that turns these behaviour into widespread social justice. How long should we expect to wait?

    ReplyDelete
  12. Re your previous post on Resouces

    I would encourage you to read up on the topic of peak oil,

    here is a good summary

    http://en.wikipedia.org/wiki/Peak_oil

    ReplyDelete
  13. @Lord Sidcup

    >>These are "straw-man" arguments.<<

    They weren't arguments at all. They were personal observations.

    >>You should name-n-shame who specifically is shouting about entitlements and what they exactly shouted - in quote marks please.<<

    I'm glad that you are here to tell me what I "should" do. Thank you for your observations.

    >>(Con/Lab/LibDem MPs and their 'entitlements' spring to mind).<<

    I'm glad my brief post caused you to reflect on entitlements. It's nice to hear the opinion of others.

    >>I live in a beautiful and affluent part of continental European city, How long should we expect to wait?<<

    Impossible to answer, since I don't know your personal definition of "Just". I suppose you might say that nobody will ever consider everything "just" since we all have different opinions of what that is. But this is only a problem if you are aiming at some finite "perfect position". If "more just than yesterday" is good enough, then each decent, honest helpful action you take improves the world around you. Doesn't it?

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  14. Did anyone see Crude Britannia the other night on BBC4? An excellent documentary on how North Sea oil saved Britain from what appeared to be a terminal economic decline in the 1960s.

    I'm also looking forward to watching another BBC programme China's Capitalist Revolution.

    I liked this piece by George Monbiot a few weeks ago:

    http://www.guardian.co.uk/commentisfree/2009/jun/08/british-empire-colonies-banks-reform

    "...our economic system can no longer extract wealth from other nations. For the past 300 years, the revolutions and reforms experienced by almost all other developed countries have been averted in Britain by foreign remittances...

    ...After decolonisation, our plunder of other nations was sustained by the banks. Now, for the first time in three centuries, they can no longer deliver, and we must at last confront our problems."

    ReplyDelete
  15. I have just read this post, and it is asking similar questions to mine on the issue of the smuggled bonds, and a few more. The whole affair really is very, very fishy:

    http://market-ticker.denninger.net/archives/1142-The-Bond-Saga-It-Gets-More-Odd.html

    I suggest you have a read of this, and comments are welcome. I think that the additional questions are very pertinent....

    ReplyDelete
  16. Reply to Steve Tierney

    Wealth leads to complacency, which then leads to self-congratulatory over-regulation and social tinkering. Then, when we are no longer competitive, rather than address the real reason for that, states look increasingly to protectionism.

    The decline of the US and the UK has happened as they have adopted freer trade, free market policies and outsourcing. The reason the UK and the US have massive trade deficits and domestic industrial collapse is that East Asia countries like Japan, South Korea and China have adopted aggressive state-led protectionist economies. As for protectionism, it had a major role in the making the West rich: all you have to do is read Ha-Joon Chang, Bad Samaritans: Rich Nations, Poor Policies, and the Threat to the Developing World ( London, 2007) or Kicking Away the Ladder: Development Strategy in Historical Perspective (London, 2002).

    You can deal with social injustice by the simple rule of helping your neighbour and treating them with respect. Government is not required to make a community function properly.

    You would recommend a society with no laws about child labour, working hours, or safety conditions in private industry? If not, then government clearly has a major role in making a community function properly.

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  17. Steve Tierney wrote:

    The West, sooner or later, must come to terms with the fact that wealth is not our god-given right.

    ...absolutely right and I would also recommend the Monbiot article and the books he cites. Our wealth has been plundered from exploiting other nations for centuries. NS Oil, financial alchemy and an credit boom were the final death throes. There's nothing left.

    As I mentioned in a previous post my only complaint of CE's blog is a lack of connection to neo-liberalism, rather than jsut the last 15 years.


    Wealth leads to complacency, which then leads to self-congratulatory over-regulation and social tinkering. Then, when we are no longer competitive, rather than address the real reason for that, states look increasingly to protectionism.

    I'm sorry, but I don't understand that first sentence. In what way does wealth lead to over-regulation and how can it be defined as self-congratulatory?

    Which regulation exactly? Health and Safety legislation so people can be safe at work? Union recognition so people can work together to avoid exploitation? Minimum wage legislation so people can be paid a half-decent living wage?

    I fear you are drifting to a conclusion which says if we are to compete with the Chinese we will have to lose all of those rights which make us 'un-competetive'. I'm sure that can't be right so can you clarify?

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  18. Off topic, but very interesting:-

    http://zerohedge.blogspot.com/2009/06/guest-post-china-economic-catastrophe.html

    The real estate market in China looks very shaky right now, this post discusses in depth the problems and its possible consequences if China continues its policy of avoiding short term instability at the cost of future economic troubles (sound like any other large economies you know?)

    ReplyDelete
  19. CE
    It seems to me that were the bonds real, the sensible thing for the US/Japan to do would be exactly what we are seeing now: a declaration that the bonds are fake, the stopry drifts away and its green shoots as usual etc etc.

    Steve Tierney
    Your distinction between observations and arguments is hardly the issue and seems an evasion of a question that remains valid and unanswered: who specifically is shouting about entitlements?

    "You can deal with social injustice by the simple rule of helping your neighbour and treating them with respect".
    I find this unconvincing in the extreme, and would appreciate elaboration of the principles and mechanisms that makes it verifiable.

    best LS

    ReplyDelete
  20. This is all highly odd. Also recommend the comments thread on the marketticket forums for the post CE mentions, for discussion about the event timeline, and what happened in supposedly similar reported cases (men with bonds arrested, not released quietly as here).

    I would normally support Jessiedog in saying that this is just another scam, but the weirdness and coincidence coefficients are just too high this time. Keep digging at this please.

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  21. Lemming,

    Thanks for the Crude Britannia tip-off.

    There's a China travelogue from BBC Newsnight here:

    http://news.bbc.co.uk/1/hi/programmes/newsnight/8104988.stm

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  22. Please stop apologising that you sound like a conspiracy theorist etc. You don't - we need more people like you - yours is the appropriate state of mind - your attitude is definitelvly right to the point.
    If we had more people questioning common (often wrong) 'knowledge' we would not be in this mess.
    I think yours is the best blog on this subject anywhere and I recommand you to all my friends here in LA ranging from Economists to Investors to Script Writer, traders etc.
    Well done - you idea on currencies sounds very interesting and I can't wait to read that theory.
    Regards
    Tomo Stojanovic

    ReplyDelete
  23. @Matt

    re "Our wealth has been plundered from exploiting other nations for centuries"

    I read the Monbiot article to which you refer when he orginally posted it, and my response now is much the same as it was then.

    I agree that people need to have a historical context to this country's economic development, and I concur that a realistic appraisal of the British Empire will help people overcome (what I consider the second foundational myth of the UK society) that "The UK is (and historically always has been) a force for good in the world"

    What I have a problem with is the idea of 'our' wealth. Firstly, the demographic of the UK is significantly different now from the times of Empire to make the word meaningless. Secondly, it fails to distinguish between those who benefitted from the Empire and those who mearly paid for it (in one way or another). As many have pointed out, in many respects imperialism is a form of taxation on the working classes.

    T.

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  24. The BBC picks up the story...

    http://news.bbc.co.uk/1/hi/business/8113642.stm

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  25. US takes China to WTO over exports: http://www.globeinvestor.com/servlet/story/RTGAM.20090623.wchinawto0623/GIStory/

    Iran is now China's principle source of oil: http://www.commodityonline.com/news/Iran-becomes-China%E2%80%99s-biggest-oil-supplier-18917-3-1.html

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  26. @Lord Sidcup

    You (and to a lesser extent Lord Keynes) would clearly like to engage me in the classic left-right argument set and I'm not playing your game for two simple reasons.

    (1) It's not my blog. As such, I stick to commenting about what has been said and occasionally doing a few "off topic" generalisations. Much like everybody else does. I'm not averse to a deep, complicated political debate - but this is not the place to do it.

    (2) There's no point. I'm sure you are understand the points I am making. You would like to nit pick examples I make and then we'd get into an endless round that goes nowhere.

    Since you are clearly coming from left of center we are unlikely to agree. So we may as well agree to disagree and remain amicable.

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  27. Apologies for going off-topic, but I want to check I understand something correctly.

    Apparently, the OECD are predicting that "the UK's fiscal deficit will rise to 14% of national income in 2010". If public sector spend were roughly 42% of GDP, that would mean that £1 of every £3 the government spends would be new, net borrowing.

    If a large part of the deficit is structural, the long-term figure would fall to, say, £1 in every £4.

    So to close the gap we would have to raise tax revenues by a third, or cut public spending by a quarter, or do some combination of the two.

    Is that about right?

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  28. Not on topic, but could I recommend this article?

    http://thearchdruidreport.blogspot.com/2009/06/thermodynamic-economy.html

    "...To many of the economists who tried to make sense of stagflation, it was clear enough that the oil crises had had something to do with it, but this in itself posed its own awkward questions. The economics of commodity prices had been studied exhaustively since the time of Adam Smith, but the behavior of the world economy in the face of rising oil prices violated everything economists thought they knew.

    Only a few economists at the time, and even fewer since then, realized that these perplexities pointed to weaknesses in the most basic assumptions of economics itself..."

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  29. @ Steve Tierney


    (1) It's not my blog. As such, I stick to commenting about what has been said and occasionally doing a few "off topic" generalisations. Much like everybody else does. I'm not averse to a deep, complicated political debate - but this is not the place to do it.

    ...sorry, but that's such a cop out. At what point has CE said he doesn't want his blog to be used for healthy, polite debate - I don't think he's going to run out of room and if his posts provoke lots and lots of posts arguing points bought up in his blog that's surely a good thing?

    These blogs are EXACTLY the place for this kind of debate - for crying out loud, the MSM isn't doing it and nor is traditional politics.

    Taking your point to its logical conclusion one wonders why you both to post at all if you won't repond to challenges to your comments.

    It has the unfortunate consequence of giving the impression they're not sufficiently secure for you to defend them aginst intellectual scrutiny, which I'm sure isn't the case.

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  30. @STEVE TIERNEY

    As far as I remember the mission of this blog is to "describe reality". Your comments above seemed to directly contravene that aim, so can safely be challenged --while remaining On-Topic.

    By all means ignore my questions if they are not to you liking. This is less than impressive, but is of course your right.

    However:

    "You . . .would clearly like to engage me in the classic left-right argument set and I'm not playing your game"

    Then

    "Since you are clearly coming from left of center we are unlikely to agree. So we may as well agree to disagree and remain amicable."

    Your are not discussing the subjects raised, instead are arguing against a set of beliefs you have imagined and attributed to me: More unreality.

    I have stated many times on this blog that I see the ideological clustering of left and right as increasingly useless and counterproductive.

    The 'strawman' rules the media and blogosphere but he is very unproductive. To extend your metaphor - there are some nits worth picking.

    Rather than obfuscating this debate further with 'left VS. right' labels, I think it more useful to frame n terms of unreality/reality

    I think your comments on this thread show a surprising drift onto the 'wrong' side of that divide.

    ReplyDelete
  31. @Matt

    I'm sorry you feel that I "copped out". CE is indeed very fair and reasonable about his comments section and I expect he'd be relaxed about a big debate. I just personally think it's rude and kinda pointless and if that seems like a cop out, well so be it.

    I don't agree that a blog comments section is the "place to get into big debates". I prefer actual live debates to virtual debates, and where virtual is necessary I prefer discussion boards to blogs. But that's just my own preference.

    As a point of order, there are many people on CE's blog who post general observations about their view of the world, just as I occasionally do. It is easy to pull apart any individual sentence anybody writes with a little clever wordplay. The response is then to do the same in reverse. It's all very smart and amusing but it doesn't achieve a whole lot.

    I've been a political activist since I was a teenager (some time ago). So I've taken part in the "big debates" a great many times. Along the way I've learnt how pointless it can be getting into point-scoring with those on the far side of the political spectrum.

    How can we debate social justice when we cannot even agree the terms of reference? How can we talk about community when we do not see eye-to-eye on what community is?

    For instance, you said "Health and Safety legislation so people can be safe at work?" which is so simplistic as to break your own argument about stating a case. Do you really think that the current level of H&S legislation is necessary? That all the rules are sensible? That ANY amount of rules are worthwhile if they reduce accident levels? If you do then I suspect you've never run a company that is subject to those rules.

    Then you said "Union recognition so people can work together to avoid exploitation?" which presumes that is all unions do and that they always do it reasonably. I wonder if the travellers in London lately would agree with you? Although I would add that unions aren't really government tinkering, they are (supposed to be) independent organisations. As such they are outside the comments I originally made.

    Then you said "Minimum wage legislation so people can be paid a half-decent living wage?" which ignores every economic argument against Minimum Wage while casually projecting it as an unassailable "good". Yet you do this without giving examples of proving your case - precisely what you are accusing me of.

    But please - don't feel the need to respond to any of this. In the end I just have no interest in getting into a left/right "nit picking" exercise with our two resident "lords" or yourself. I mean absolutely no disrespect, but life is too short. You are entitled to your view as I am to mine. I have no interest in "converting" you.

    I suppose it all depends on what you think blogs are. I'm not writing an essay for my degree here. There are no rules which command that I reference my sources. There are no regulations that force me to speak or write in a certain way to please certain readers. If you don't like my comments, ignore them. I wont be offended.

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  32. To add to Steve Tierney's comment above, I find it amusing and sometimes distressing that government commanded redistibution should be termed social "justice".

    How can it be considered justice to take money from someone who's earned it legally and give it away free to someone who hasn't? It is clearly nothing but armed robbery, effectively telling the taxpayer to pay up or end up in jail for not giving his money away which will thereafter be taken anyway.

    I want to clarify that I'm not opposed to all goverment mandated expenditure; law and order, defence forces, even public schools serve valuable functions. But the NHS, unemployment "benefits" (ghastly concept, get paid for being unemployed) as well as the financial sector bailouts are millstones around the UK taxpayers neck. Reminds me of the last days of the Roman Empire.

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  33. @Lord Sidcup

    >>By all means ignore my questions if they are not to you liking. <<

    Thank you. I will.

    >>This is less than impressive, but is of course your right.<<

    I believe I can live with your not being impressed. It'll be hard - but I think I can do it. : )

    I absolutely don't agree with you that classic left and right need to be replaced with "real and unreal". I think its nonsensical gibberish of the worst kind, to be honest. But you have every right to think what you like and say what you want.

    You think I'm drifting to the "wrong" side of some important "line" you've invented. I'm sorry about that. I think politics, particularly the left/right classical politics, remains pertinent and necessary. More so than ever. So I'll post the way I feel and you post the way you feel and we'll have to agree to disagree, won't we? I'm entirely relaxed about that. I hope you are too.

    ReplyDelete
  34. Hi there just a bit more info on the japanese bond fiasco. I cant vouch for the content but seems to back up what you were thinking cynicus!! cheers for the blog im indebted to you for helping me understand the twisted world of economics.
    http://geraldcelentechannel.blogspot.com/2009/06/2-japanese-arrested-are-employees-of.html

    ReplyDelete

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