Sleight-of-Hand Won’t Save Global Financial System

"With continued volatility in many of the key global markets, 40 year veteran, Robert Fitzwilson wrote this exclusive piece for King World News.  Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States.  Here are Fitzwilson’s observations:  “The world’s fiat money system is based upon a sleight-of-hand, the most significant magic trick ever invented.  The sleight-of-hand begins with the creation of debt, frequently issued by a sovereign entity such as a king or a nation.  The debt often starts out being backed by some real asset, such as land in the French Revolution or gold in the case of the U.S. during the early stages of our Federal Reserve System.”


at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/4/24_Sleight-of-Hand_Wont_Save_Global_Financial_System.html

The G-20 Is Failing

"The leaders of the G-20 countries have played a crucial role in rescuing the world from the brink of economic and financial disaster. They agreed to an impressive agenda in Washington in November 2008, and at their April 2009 London summit committed themselves to an integrated strategy to rescue the world economy from the brink of depression, to reform international financial regulation, and to transform the governance of the world's most important global financial institutions.
But now the G-20's accomplishments are in danger of unraveling, because these countries have failed to implement their agreements on reform of the International Monetary Fund (IMF). These reforms would enhance the role of the emerging market and developing countries, and help to cement the commitment of those countries to the global system. A failure now would produce multiple black eyes for the G-20 and represent a setback for the still-precarious world economy.
The challenge for the G-20 is to live up to its subsequent pledge in Seoul in November 2010 to implement a two-step reform of the IMF's governance. The first step would double IMF quota subscriptions, which are the core financial resources the IMF uses to lend to other members. Although this step would not significantly increase the overall financial resources of the IMF due to offsetting reductions elsewhere, it would modestly redistribute voting power away from the advanced countries and toward fast-growing emerging market and developing countries.
In addition, the Seoul agreement included the adoption of an amendment to the IMF charter that would redistribute seats on the IMF's executive board away from Europe. The G-20 leaders promised that this combined first step would be implemented by mid-October of this year, when the IMF's annual meeting will be held in Tokyo.
The second step agreed to in Seoul called for a revision of the formula used to adjust IMF quota shares by January 2013. This revision would be followed by a substantial increase in IMF quota subscriptions and overall financial resources by January 2014. This also promises to further increase the IMF voting power of emerging and developing countries, which was a key to winning their agreement to the overall reform package. Many of those same countries are now being called by the Europeans and by IMF Managing Director Christine Lagarde to temporarily lend to the IMF to protect Europe and the rest of the world from an escalation of the European sovereign debt crisis. One would think they would be more inclined to heed those calls if prospects for the reforms' implementation were better.
Unfortunately, and potentially tragically, the G-20 countries have dropped the ball on implementing the IMF governance reforms. Although October is still months away, it now looks like the Seoul commitments will not be met on the original timetable. None of the elements of the first step in the Seoul agreement can be implemented unless they all receive the necessary approvals. The crucial element is the amendment of the IMF charter: It requires acceptance by 60 percent of member countries (113 of 187) that also hold 85 percent of total IMF votes, which are weighted according to IMF quotas.
As of April 5, only 66 members with 46 percent of the votes had accepted the amendment. Crucially for the credibility of the G-20, only nine of the 19 core members of the G-20 have acted positively. The 10 missing G-20 countries have 36 percent of the votes in the IMF, 3 percent short of the remaining 40 percent needed to pass the amendment.
The United States, which has the largest IMF quota, is one of the major culprits behind the delay. Implementing the first step in the Seoul agreement requires formal approval by the United States because it holds 16.7 percent of the votes. But the Obama administration has declined to submit the necessary legislation to Congress, apparently fearing that doing so would ignite a fiscal battle that it does not want in an election year..."

at http://www.piie.com/publications/opeds/oped.cfm?ResearchID=2089&utm_source=feedburner&utm_medium=%24%7Bfeed%7D&utm_campaign=Feed%3A+%24%7Bupdate%7D+%28%24%7BPIIE+Update%7D%29

John Mauldin - Europe is Destroying Their Currency

"With renewed fears of Europe becoming a systemic risk to the global banking system, today King World News interviewed John Mauldin, President of Millennium Wave Securities. Mauldin spoke candidly with KWN about the crisis, how much has been printed and what to expect going forward: “$7 or $8 trillion (in printing) is probably where we are, but whatever the number is, it’s significant. Will Europe have to print a great deal more? The answer is absolutely. What’s that number? We don’t know. We don’t know for two reasons.”

John Mauldin continues:

“We don’t know how truly bad the banking system is. If they clog the banking system up, the wheels really do come off. As a culture we are in the negative, very unpleasant situation of having to bail out a bank that we really don’t like, and we really don’t want to do that. But if we don’t, the wheels come off.

European banks are at least two and a half to three and a half times worse than US banks. Think about the US, as bad as it was in 2008, Europe is still that bad and in many cases worse. When they stop printing money, when they stop doing their version of TARP’s, which are called LTRO’s, it’s a disaster. It looks like Greece..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/4/13_John_Mauldin_-_Europe_is_Destroying_Their_Currency.html

Gold to reach a new all-time high this year says Commerzbank

at http://ausbullion.blogspot.com/2012/04/gold-to-reach-new-all-time-high-this.html

Financial black swans driven by ultrafast machine ecology

"ABSTRACT

Society’s drive toward ever faster socio-technical systems, means that there is an urgent need to understand the threat from ‘black swan’ extreme events that might emerge4-19. On 6 May 2010, it took just five minutes for a spontaneous mix of human and machine interactions in the global trading cyberspace to generate an unprecedented system-wide Flash Crash4. However, little is known about what lies ahead in the crucial sub-second regime where humans become unable to respond or intervene sufficiently quickly20,21. Here we analyze a set of 18,520 ultrafast black swan events that we have uncovered in stock-price movements between 2006 and 2011. We provide empirical evidence for, and an accompanying theory of, an abrupt system-wide transition from a mixed human-machine phase to a new all-machine phase characterized by frequent black swan events with ultrafast durations (<650ms for crashes, <950ms for spikes). Our theory quantifies the systemic fluctuations in these two distinct phases in terms of the diversity of the system’s internal ecology and the amount of global information being processed. Our finding that the ten most susceptible entities are major international banks, hints at a hidden relationship between these ultrafast ‘fractures’ and the slow ‘breaking’ of the global financial system post-2006. More generally, our work provides tools to help predict and mitigate the systemic risk developing in any complex socio-technical system that attempts to operate at, or beyond, the limits of human response times..."

at http://arxiv.org/ftp/arxiv/papers/1202/1202.1448.pdf

BRICS prepares world banking revolution

"RICS member-states are preparing a world banking revolution. They are planning to nominate an alternative candidate for the post of the Chairman of the World Bank for the first time in history. BRICS also demands redistribution of quotas in the International Monetary Fund in the near future and intends to study India’s initiative on creating a South-South Bank.
Representatives of Brazil, Russia, India, China and South Africa proposed a reform of the world financial system at their meeting in Mexico City which took place during the conference of G20 finance ministers and heads of central banks.
BRICS financiers are annoyed with the private rule that the head of the World Bank is always a representative of the US. They believe that candidates should be assessed based on their merits and not citizenship. BRICS member-states are convinced that it is essential to create competition for the US candidate, either from a BRICS country or from Europe. It has been decided to prepare a declaration on a coordinated position on this subject in the next two weeks. Candidates for the post of the head of the World Bank should be determined by the 23rd of March.
On the 29th of March BRICS leaders are expected to launch the mechanism of coordinating opinions on India’s proposal to create a South-South Bank. It is to become a support institution for countries with developing markets. BRICS member-states will be playing the main role in it, according to the quotas of votes..."

at  http://www.voltairenet.org/BRICS-prepares-world-banking

Interest rates: Libor – a benchmark to fix

"An investigation into how key financial reference points are set has put some banks in the spotlight.

Every day, employees at the world’s leading banks are asked an inelegantly worded question used to calculate the benchmark rates that help determine the price of mortgages, the cost of corporate lending and the interest added to credit card bills.
Their answers are now at the heart of a sprawling regulatory investigation into possible manipulation of the London interbank offered rate, one of the most important reference points of the global financial system.

At least 10 enforcement agencies in the US, Canada, Europe and Japan are examining whether bankers and brokers colluded to rig Libor – the index interest rate used for $350tn worth of financial products – and other widely watched rates to boost profits from their in-house trading positions.

For 18 months, officials have been scrutinising whether some banks, through electronic bids processed in London, submitted artificially low Libor numbers to mask their own mounting financial difficulties as a worldwide credit crisis deepened in late 2007 and 2008..."

at http://www.ft.com/cms/s/0/6e5d1d0e-694e-11e1-9618-00144feabdc0.html#ixzz1oudXXFY2