Governments Control Everything But This Will End In Chaos

With continued volatility in global markets, today one of the top economists in the world sent King World News an incredibly powerful piece warning governments control everything but this will end in chaos.  Below is the fantastic piece from Michael Pento.

By Michael Pento of Pento Portfolio Strategies
– U.S. Manufacturing Renaissance Turns Into the Dark Ages

The October ISM Manufacturing Index, which has been the official barometer of the U.S. manufacturing sector since 1915, came in with a reading of just 50.1. This was a level barely above contraction.

Of the 18 industries surveyed in the Regional Manufacturing Survey, 9 reported contraction in October: Apparel, leather & allied products; primary metals; petroleum & coal products; plastics & rubber products; electrical equipment, appliances & components; machinery; transportation equipment; wood products; and computer & electronic products.

Energy Struggles

And of those nine, the energy market in particular continues to struggle the most. One respondent in the survey noted that the effects of the weak energy market are now beginning to bleed into other areas of the economy.

In addition to this, new orders for U.S. factory goods fell for a second straight month in September (down 1.0 %), confirming the manufacturing sector in the United States has hit a downturn. In fact, U.S. factory orders have fallen y/y for 11 of last 14 months; and contracted 6.9% from September 2014.

Furthermore, demand for durable goods fell 1.2% in September. While demand for nondurable goods (goods not expected to last more than three years) fell 0.8%. This placed downward pressure on GDP in the third quarter leading to a disappointing 1.5% GDP read.

During the month of September a majority of U.S. states reported jobs losses, as the slowing manufacturing sector weighed on hiring nationwide. The Labor Department recently announced that 27 states actually lost jobs in the month of September. This data belies the rosy headline 271k Non-Farm Payroll report issued for October: the Labor Department releases individual state data a month in arrears.

Turning Back To The Dark Ages 

All this bad news begs the question: Has the former manufacturing renaissance in the United States officially turned back into the dark ages?

Despite huge kudo’s to U.S. ingenuity for inventing fracking and horizontal drilling technologies, the viability of these innovations depends upon an unsustainable bubble in oil prices. Fracking is just one example of the misallocation of capital resulting from faulty price signals derived from central banks’ manipulation of interest rates.

And this failure isn’t limited to our Federal Reserve. The strategies of central banks all over the world are failing.

Problems In Europe And Japan

The European Central Bank (ECB) to date is in the process of printing the equivalent of $67 billion of QE per month, which will amount to a total of $1.2 trillion (or 1.1 trillion euros) by the time Mario Draghi’s QE program is slated to end in September of 2016.

Considering all that money printing, GDP in the Eurozone was only a pathetic 1.2% larger than it was one year ago.

Once the star of the Eurozone economy, German GDP disappointed with growth of 0.4% for the second quarter instead of the 0.5% analysts had been expecting. The French figure came in completely flat, and Italy, the Eurozone’s third biggest economy, disappointed with growth of just 0.2%.

Italy’s unemployment rate managed to fall in September, even as its economy lost 36,000 jobs during the month. This was because more discouraged workers left the workforce. As growth rates languish and economies lose jobs, central banks are getting more and more desperate to create inflation, which they like to masquerade as growth.

But the sad truth is even with over a trillion Euros of new money printed, governments are not achieving the inflation rates or the GDP growth they are seeking.

And then we have Japan, which is entering into its 3rd recession since the Abenomics regime took control in December 2012. The BOJ has been in the habit of printing 80 trillion yen each year! Nevertheless, its debt to GDP is approaching 250%, and annual deficits are 8% of GDP. The BOJ is buying 90% of all the bonds issued, and now owns half of all Japanese ETF’s. Yet despite a train wreck of an economy and horrific debt and deficits the 10 year note—in a perfect example of a central bank distorting economic reality–is yielding just 0.3%.

Our Fed has printed $3.5 trillion since 2008 in a futile attempt to get the economy growing at what Keynesians term as escape velocity. However, we have only averaged 2% growth since 2010. And growth in 2015 appears to be even less, as the all-important manufacturing sector is now clearly in a recession, and is now dragging down the rest of the economy.

Governments Control Everything But This Will End In Chaos

Today, there are no free markets left anywhere in the world. Governments control the fixed income, equity and real estate sectors; and therefore control the entire economy. And what was once touted as the U.S. manufacturing renaissance has morphed into another example of how government’s abrogation of free markets will ultimately result in economic chaos and entropy.

Jim Rogers: It's Going To Get Really "Bad After The Next Election"

By Terry Weiss, Money Morning

In a riveting interview on CNBC, legendary investor Jim Rogers warned Americans to prepare for "Financial Armageddon," saying he fully expects the economy to implode after the U.S. election.
 Rogers, who for years has been an outspoken critic of the Feds policies of "Quantitative Easing," says the world is "drowning in too much debt." He put the blame squarely on U.S. and European governments for abusing their "license to print money." In the U.S. alone, the national debt has surged to nearly $16 trillion, that's more than $50,000 for every American man, woman and child.
 "[They] need to stop spending money they don't have," Rogers said. "The solution to too much debt is not more debt... What would make me very excited is if a few people [in the government] went bankrupt..." Rogers added.

 Rogers also charged Obama and German Chancellor Angela Merkel with promoting dangerous policies that create the illusion the economy is stable... but are really only intended to buy time before their upcoming elections.

And according to these experts - who have presented their findings to the United Nations, the UK Parliament and a long list of world governments - the catastrophe may happen well before Americans hit the polls in November.

 "What this pattern represents is a dangerous countdown clock that's quickly approaching zero," said Keith Fitz-Gerald, the Chief Investment Strategist for the Money Map Press, who predicted the 2008 oil shock, the credit default swap crisis that helped bring about the recession, and the Greek and European fiscal catastrophe that is still wreaking havoc until this day.

 "The resulting chaos is going to crush Americans."

Another member of this team, Chris Martenson, a global economic trend forecaster, former VP of a Fortune 300, and an internationally recognized expert on the dangers of exponential growth in the economy, explained their findings further:

 "We found an identical pattern in our debt, total credit market, and money supply that guarantees they're going to fail," Martenson said. "This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible."

 "And what's really disturbing about these findings is that the pattern isn't limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well."
 According to Martenson, these systems could all implode at the same time.
"Food, water, energy, money. Everything."

Dr. Kent Moors, one of the world's leading energy analysts, who advices 16 world governments on energy matters and who currently serves on two State Department task forces on energy, also voiced concerns over what he and his colleagues uncovered.

 "Most frightening of all is how this exact same pattern keeps appearing in virtually every system critical to our society and way of life," Dr. Moors stated.

"It's a pattern that's hard to see unless you understand the way a catastrophe like this gains traction," Dr. Moors says. "At first, it's almost impossible to perceive. Everything looks fine, just like in every pyramid scheme. Yet the insidious growth of the virus keeps doubling in size, over and over again - in shorter and shorter periods of time - until it hits unsustainable levels. And it collapses the system."
 Martenson points to the U.S. total credit market debt as an example of this unnerving pattern.

"For 30 years - from the 1940s through the 1970s - our total credit market debt was moderate and entirely reasonable," he says. "But then in seven years, from 1970 to 1977, it quickly doubled. And then it doubled again in seven more years. Then five years to double a third time. And then it doubled two more times after that.

"Where we were sitting at a total credit market debt that was 158% larger than our GDP in the early 1940s... By 2011 that figure was 357%."

Dr. Moors warns this type of unsustainable road to collapse can be seen today in our energy, food and water production. All are tightly connected and contributing to the economic disaster that lies directly ahead.

According to polls, the average American is sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming - yet only 15% feel prepared for such a deeply troubling event.

Fitz-Gerald says people should take immediate steps to protect themselves from what is happening.
"If our research is right," says Fitz-Gerald, "Americans will have to make some tough choices on how they'll go about surviving when basic necessities become nearly unaffordable and the economy becomes dangerously unstable."

"People need to begin to make preparations with their investments, retirement savings, and personal finances before it's too late," says Fitz-Gerald.

Nigel Farage - They Will Collapse The System & Enslave People

Today MEP (Member European Parliament) Nigel Farage spoke with King World News about what he described as the possibility of, “a really dramatic banking collapse.”  Farage also warned that central planners want to enslave and imprison people inside of a ‘New Order,’ and he described the situation as “horrifying.”

Farage also discussed gold, but first, here is what he had to say about the ongoing financial crisis:  “Governments don’t have the courage to tell the people that we cannot afford to go on living the way that we are.  We’ve really failed very badly in having honest politics, so we have this gross and very grave debt problem.”

“Now everyone has decided, the Bank of England, the Fed, and the European Central Bank, who are utterly brilliant people that have led us to the mess we are in, they’ve all decided that the solution is quantitative easing.  The solution is to go on printing and creating false money in an attempt to buy our way out of the (ongoing) crisis.

My take on that, my historical perspective is that all we are really doing is actually compounding the problem....

“It means that at some point in the future, it may be three years, it may be five years, but at some point in time we are going to get (massive) inflation.  If you devalue money, if you increase the money supply, that is what happens (massive inflation).  We know history has told us this again and again.

It isn’t the euro that scares me anymore.  What scares me is the sheer level of indebtedness, and the fact that so many of our banks in the Western world are just in such serious trouble that we could face a situation where even if governments wanted to bail them out, the problem may become bigger than them.

So I do not discount, at some point, a really dramatic banking collapse.”

Farage had this to say about discussions in Europe where they are looking to cap the interest rates on the debt of both Italy and Spain:  “On a financial level it’s comical because it’s the same money that swirls around the system, which we know in the end doesn’t work.

But the sinister aspect of it is that the intention of men like (Italian Prime Minister) Mario Monti, and my old friend Mr. van Rompuy, is they actually want to enslave and imprison the peoples of these countries inside their ‘New European Order.’ 

And it’s horrifying because ultimately what it means is that people are going to reject and rebel against this.  They will rebel against it with violence, and they will rebel against it with political extremism.” 

Farage had this to say regarding gold: “Short-term, over the next few weeks, I have no idea what the gold price will do.  We are at a period here of incredibly high risk.  We face huge problems with the West’s indebtedness and a very fragile banking system.

I can only repeat that any sensible investor will have a decent percentage of their portfolio invested in gold.  And if things really do go as badly as I think they could, then the gold price could well shock people in terms of how high it goes.”

Expect Shortages Of Gold As Soon As Next Month

Today John Embry stunned King World News when he warned, “We are moving toward a fundamental shortage of gold, and I believe it may start as soon as next month.” Embry also cautioned, “The problem now is that the global economy is contracting at a time when the debt levels are catastrophically high.”

Embry, who is Chief Investment Strategist of the $10 billion strong Sprott Asset Management, also discussed Europe, but first, here is what Embry had to say about the drought and inflation: “I am very concerned about this drought that is happening, particularly in the United States. You look at a weather map in the Midwestern United States, the temperatures are just staggeringly hot and there’s no moisture.”

“Already the corn crop has been reduced dramatically. Aside from the fact that it will have a big impact down the road in the economy, because food prices will move up sharply, on a basic level this is the difference between starvation and survival for people in certain parts of the world.

There are already food shortages in some of those areas, and now we are going to see the prices rising on top of that....

“This is a potential catastrophe and I’m very worried about it.”

Embry had this warning regarding Europe: “If you look at the news coming out of Europe, it’s almost like can it get much worse? And it gets worse. The Spanish stock market has been down 12% in a few days. That’s the equivalent of 1,500 points in the Dow.

The Spanish market is now at levels last seen in 2003. Their interest rates just surged to news highs over 7.50% on the 10-Year. I also see six Spanish regions are asking for bailouts, and where’s the money going to come from? The Spanish government hasn’t got any money. The European nations are trying to recapitalize Spain, but they don’t really have any money. So in the end it’s going to have to be created out of thin air.

I really appreciated the fact that an insider came out from the IMF, that resigned, and wrote this scathing public letter about all of the failures of the IMF. It’s all true. I mean to me the IMF has been a massive failure and they are part of this troika that’s attempting to deal with the Greek situation, which to me looks hopeless.

I see the Greek Prime Minister just said they are in a massive depression. The idea that they can take much more austerity to meet the terms which allows them to access more funds is a non-starter. In the meantime we are now being told the world is prepared for a Greek departure. I don’t believe that’s true. I think it would be incredibly traumatic if that were to happen.

The problem now is that the global economy is contracting at a time when the debt levels are catastrophically high. The only thing propping up the system, at this point, is the fact that there is still this move into the bonds of the perceived ‘safe’ countries.

There have been a number of times in history where investors have gone nuts and participated in ridiculous manias like the South Sea Bubble, the Dutch Tulip Mania, and Japanese real estate in the 80s. I think when the bond bubble is looked at in the fullness of time, sovereign debt trading at the levels it is right now as its proliferating everywhere, will be seen as ones of those bubbles.”

Embry also added: “Right now you are very hard-pressed to put your finger on any place in the world where the economy is improving. China is really weakening. They are essentially decelerating. The only way they can ramp things up in China is to jam more paper loans into the system, but I think the problem is that will have a very inflationary impact.

There’s no easy out on this thing and what was seen as the engine of the world is now sputtering.”

When asked about gold, Embry responded, “We are moving toward a fundamental shortage of gold, and I believe it may start as soon as next month. I think the bottom is being put in right now. You see once again with the stock market trading lower, they just turn the algorithms on and grind the price down.

But this action is all just building a massive base in gold. I think the big issue going forward is this growing shortage of available physical gold. I strongly believe one of the reasons for the shortage is a lot of it is headed East. The last four or five months of the year gold should challenge and easily take out its all-time high.

For what it’s worth, there is an enormous amount of interference in the gold and silver share market. I think that will end as soon as gold and silver break their highs. When that happens, I think it’s going to unleash a rally in these stocks that is absolutely going to stun people. People will be shocked that don’t understand the full extent of the manipulation and how cheap these stocks have become as a result of it.”

Turk - Frightening Situation, The World Is On A Knife’s Edge

With continued volatility in global markets, today King World News interviewed James Turk out of Europe. Turk told KWN, “The world is on a knife’s edge.”  He also stated, “Monetary history shows that currencies under political control are always destroyed -- always.  And the dire result is economic chaos.”  Here is what Turk had to say about what he termed the, “frightening situation”:  “Europe had its big meeting last week, and one conclusion is clear, Eric, Europe still has to learn that bailouts are not a solution.  When a government or a bank, or any borrower for that matter, has too much debt -- more debt than they can handle -- adding more debt just worsens the problem.  This ultimately has the effect of making the inevitable bust that much more difficult when it eventually arrives.”

“There are other serious problems here as well.  For example, there are several countries in Europe, of which Germany is the largest, that want to pursue a monetary policy in which the euro maintains its purchasing power.  They want to make sure the currency is not debased by inflation or other bad monetary steps, such as the ECB purchasing debt/bonds of countries, to enable those countries to fund their operating expenses.

In other words, this group of countries wants the euro to be managed like the deutsche mark was managed, which, after all, is what the rules of the eurozone provide.  But these rules are being broken left and right, with the result being that the euro is just like all of the other fiat currencies around the world -- completely at the mercy of politicians, and that is a frightening situation....

“Monetary history shows that currencies under political control are always destroyed -- always.  And the dire result is economic chaos, which is then followed by political chaos and the opportunity for a demagogue to rise to power by promising order.  Given its history, is it any wonder that thinking Europeans do not want to go down that path?

But it is clear that the central planners are now in charge in Europe, Eric. It is a dangerous road for Europe to take.  I keep going back to one of my favorite Margaret Thatcher quotes:  ‘The problem with socialism is that you eventually run out of other people's money.’  Europe ran out of money long ago.  Sadly, this reality is still being ignored in Europe, and for that matter, in every socialist country, which today is just about everywhere in the world.”

Turk also added: “The precious metal markets feel just like the summer of 2010.  In fact, this weekend I spent some time going through the KWN archives and listening to my interviews from that time period (2010).  It was eery, because just about everything I was saying back then also applies to our present situation, particularly sentiment being at rock bottom.

We had big rallies in both gold and silver starting in the summer of 2010.  These are the rallies that took gold over $1900 and silver to $50.  Last week's big move should mean that massive rallies are starting again, and because the banking and economic situation is so much worse today, on this new rally, gold and silver are going to break their old highs.

The world is on a knife’s edge, Eric.  The geopolitical situation is worrying.  Economic activity around the world is rapidly deteriorating, and this is having the effect of putting more and more people out of work.  It is noteworthy that the eurozone jobless rate, in May, hit a record-high of 11.1%.  If we then factor bank runs into this toxic brew, the opportunity for the fear event I have been worrying about seems all the more likely.

As that fear event begins to manifest itself, physical gold and silver will be your best safe-haven.  It is extremely important that KWN readers, around the world, position themselves into the metals ahead of the coming chaos.”

Cybercriminals Build Massive Banking Fraud System in the Cloud

By Antone Gonsalves, CSO

Cybercriminals have built a cloud-based fraud system that targeted wealthy people and commercial accounts in bilking primarily European banks of possibly billions of dollars, security vendors say.

The international ring targeted accounts with an average of $300,000 to $600,000, and attempted to transfer as much as $130,000 to bogus business accounts, Intel-owned McAfee said Tuesday. While McAfee did not know how much money was actually stolen, the vendor estimates that it ranged from $75 million to $2.5 billion.

The ring targeted banks in Europe and then expanded to Latin America and more recently the United States, where it had just gotten started, Dave Marcus, director of advanced research and threat intelligence at McAfee Labs, said. McAfee, which investigated the ring's operation over the last six months with Guardian Analytics, is working with law enforcement agencies to shut down the fraudsters.

What is unique about the fraud was the amount of automation used, a feat made possible through the use of cloud computing, Marcus said. The combination of remote servers and an intimate knowledge of banking transaction systems made it possible to automate the theft, rather than simply stealing user names and passwords and having someone manually transfer money from a computer.

"The automated nature of these attacks really require that kind of server/cloud functionality," Marcus said. "It can't all take place on the host [computer]. All of the logic and all of the sophistication really does reside on that [cloud] server."

McAfee first discovered the fraudsters operating in Italy, and later followed them to Germany, the Netherlands and other countries in Europe. In March, the ring was found operating in Colombia and one server was later traced to the United States. "It looks like it [the ring] just started making the transition to the U.S.," Marcus said.

The fraud started with an email cleverly disguised to look like it came from the recipient's bank. Clicking on a link in the message downloaded the malware that would later use web-injects to steal the information needed to perform fund transfers. Web-injects are fake pages or form fields launched while a person is on an online banking site.Ã'Â

McAfee, which dubbed the investigation "Operation High Roller" because of the wealthy victims, found 60 servers processing thousands of attempted thefts. Most of the transfers were for less than $10,000, with the highest reaching $130,000.

The fraudsters used common Zeus and SpyEye malware platforms as the base of the malicious code, which was customized for each targeted bank. Once the malware stole the needed information, transfers were performed via the control servers, which were even able to obtain the information needed to bypass smartcard readers often used in Europe for two-factor authentication. "We have not seen this level of sophistication before," Marcus said.

Besides the use of the cloud, the fraudsters had an impressive knowledge of how banking transaction systems worked. McAfee wasn't able to determine how the criminals gained that level of understanding. "You can't make a fraudulent transaction look like a valid transaction, if you don't know what you're doing," Marcus said. "And these guys know what they're doing."

Drop dead euro

How do the Spaniards and the Germans see the future of the eurozone? Will Greece become Europe’s Lehman Brothers? And how viable is the idea of creating a banking union? CrossTalking with Rodney Shakespeare, Stephen Foley and Joost Van Iersel.
 

Nigel Farage - Europe is Collapsing, Buy Gold & Expect QE

On the heels of Fed Chairman Bernanke’s comments, Spain being downgraded and key meetings taking place in Europe, today King World News interviewed MEP (Member European Parliament) Nigel Farage, to get his take on the ongoing crisis.  Farage told KWN that “when I look into the eyes of the leaders of Europe ... what I’m seeing now is madness, absolute, total and utter madness.” 

Farage also discussed the action in the gold market, but first, here is what Farage had to say about the deteriorating situation in Europe:  “Of course, over the last couple of years we’ve had two bailouts of Greece, a bailout of Ireland, Portugal.  We’re now on the verge of needing a bailout in Cyprus, but perhaps more significantly, a bailout in Spain.”
     
“There is all sorts of twisting and turning going on with the Spanish saying, ‘Please save our banks, but don’t put us under the austerity measures that you’ve put the other countries under.’

If one looks globally, we’ve got people like David Cameron, and importantly, President Obama, who are basically saying, ‘The euro project must be saved.  It must be saved at all costs.’ ....

“For that to happen the Eurozone has to turn into a state, and a state that effectively has a Fed.

The Germans are saying, “Hang on guys, we don’t really want to take on the debt for the whole of ‘Club Mediterranean’ countries.”  There’s been a meeting in Berlin today, and Angela Merkel has, for the first time, said that she’s prepared to countenance this becoming a full fiscal and political union, but it has to be constructed on German terms.

So it would appear that despite the fact that the eurozone is a disaster, despite the fact that nobody is prepared to recognize just what a mess our banks are in, despite all of this, our political classes in Europe and America are prepared to continue this project of total failure. 

If we continue with this route, we are heading for money printing on a scale that has never been seen before in the history of mankind.  Clearly, as history teaches us, that will lead to massive inflation, and huge asset depreciation.”

Farage also added:  “All I can tell you is when I look into the eyes of the leaders of Europe, and as a leader of a group in the European Parliament I do get eyeball to eyeball with them, when I look into the eyes of these people, frankly what I’m seeing now is madness, absolute, total and utter madness.

The project, the idea is what must be protected and to hell with the consequences.  I really believe that when we look back in decades or centuries to come, we will see what is happening now in the eurozone as something of huge historical significance.

People will say to themselves in classrooms, in a couple of hundred years time, ‘How could they have been so stupid?’”

Farage also had this to say regarding gold:  “I think we are at that level where people who have waited to add to their gold portfolios should be adding now.  You may well get a situation where if they do pull off some grand deal that gold falls ... but we are now back in the buying zone for gold.

I always felt, and I’ve said for some months on your show, that I thought gold would come back (down), and indeed it has.  I think investors that are scared of what may happen to paper money, you’d have to be very complacent not to be, we are in a buying territory for gold now in my view.”

This is an incredibly important and timely interview with Farage. The KWN interview with Nigel Farage will be available shortly and you can listen to it by CLICKING HERE.

Leaders plotting EU superstate: 'Fiscal union' looms... with the Germans in charge

By James Chapman, Political Editor

European leaders are edging closer to a federal union in response to the financial crisis engulfing the Continent.

In crisis talks yesterday, Britain and the US joined forces to urge Germany to create a central Brussels body that could assume sovereignty over individual countries’ budgets and fiscal policies.
There is growing frustration in London and Washington at Germany’s reluctance to take steps towards a single economic government and put its vast resources behind the struggling countries in the eurozone.

Their fears were aired yesterday in a conference call between finance ministers from the G7 group of leading nations.

Four EU leaders have been asked to draft proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of this month.

Senior Tory MPs are to press David Cameron to hold a referendum on Britain’s future in Europe if the moves go ahead.

They insist the Government must seek a mandate from voters to demand that key powers are repatriated from Brussels to Westminster in exchange for agreeing to treaty changes that would allow eurozone countries to pool sovereignty.

They fear a core eurozone, led by Germany, would be in a powerful position to push whatever policies it wanted affecting the rest of the 27-member EU.

The Prime Minister and Chancellor George Osborne have long argued that a single currency can only work if the eurozone creates an effective fiscal union.

They believe that for any single currency to work, richer areas must pay to support poorer ones.
Britain would stand outside any such arrangement, and Mr Cameron refused to sign a treaty taking more tentative steps towards a fiscal union last year.

But senior Conservatives say such a move would so fundamentally alter the balance of power and daily running of the EU that a referendum would have to be offered to determine whether British voters wanted to remain in Europe’s ‘slow lane’.

Up to ten chairmen of Commons select committees are understood to be preparing to call for a popular vote on Britain’s future place in the EU if a fiscal union goes ahead.

Some believe Britain should leave the EU in such circumstances, while others argue that a demand for a looser relationship with Brussels would be given greater force if endorsed in a referendum.

Conservative MP Bernard Jenkin, chairman of the public administration select committee, said: ‘Clearly the European Union becoming a federation which expressly does not include the UK is a dramatic change in the terms of our relationship with our EU partners.

‘The Government needs to lay its demands on the table so British law and British taxpayers’ money are both protected by a sovereign UK Parliament.

‘Any new arrangements should be subject to a referendum.’

The Coalition has changed the law to ensure that no more powers can be passed from Westminster to Brussels without a referendum. But it is far from clear that one would be triggered if the eurozone countries decide to pool sovereignty.

German Chancellor Angela Merkel confirmed this week that measures to create a closer union for countries in the euro were being considered.

‘The world wants to know how we see the political union in complement to the currency union,’ she said.

‘That requires an answer in the foreseeable future and Germany will be a very constructive partner.’

Berlin does not expect to take final decisions on strengthening economic policy coordination until March 2013, with only a ‘roadmap’ being agreed at the Brussels summit this month.

Global slump alert as world money contracts

Growth of the world money supply has dropped to the lowest level since the financial crisis of 2008-2009, heralding a severe economic slowdown later this year unless authorites rapidly take action.

By Ambrose Evans-Pritchard

The latest data show that the real M1 money supply – cash and overnight deposits – for China, the eurozone, Britain and the US has been contracting since the early Spring. Any further falls risk a full-blown global recession.

Clear signs of trouble are emerging in the US, until now the last bastion of strength. The New York Institute of Supply Management said its ISM business index – a proxy for business demand – flashed a "screeching halt" in May, crashing to 49.9 from 61.2 in April, where anything below 50 denotes contraction. Unemployment is rising again after grim jobs data for April and May, indicating that the economy may have fallen below stall speed.

Central bank governors and finance ministers from the G7 bloc are to hold an emergency teleconference call on Tuesday to grapple with Europe's escalating crisis. There is mounting anger in North America and Asia over the failure of the Europeans to use their vast resources to contain the brushfire in Spain.

The world money data collected by Simon Ward at Henderson Global Investors show that real M1 for the G7 economies and leading E7 emerging powers peaked at 5.1pc in November and has since plunged to 1.6pc in April. The data explain why commodity prices are falling hard, with Brent crude down to a 16-month low of under $97 a barrel.

China's money data are falling at the fastest pace since records began. The gauge – six-month real M1 – gives advance warning of economic output half a year ahead. "Europe needs to start quantitative easing [QE] immediately and China must ease policy," said Mr Ward.

The Americans may act first. Goldman Sachs expects Federal Reserve chair Ben Bernanke to open the door for QE in testimony on Thursday.

Stock markets rallied in Madrid and Milan led by bank shares on rumours of an EU plan to recapitalise banks directly with funds from the EU bail-out machinery.

Olli Rehn, the EU economics chief, said use of the European Stability Mechanism to bail out lenders was a "serious possibility", adding that it was imperative to "break the link between banks and sovereigns".

However, there is no sign yet that Germany will be willing to drop its veto on such action, viewed by Berlin as the start of debt mutualisation. Chancellor Angela Merkel crushed talk of an instant "banking union" after meeting commission president Jose Barroso, saying their could be no quick fix. She called instead for EU banking supervision as a "mid-term goal".

Her spokesman said any options that "resemble eurobonds" are for the distant future. "It's up to national governments to decide whether they want to avail themselves of aid. That also applies to Spain," he said.

Use of the ESM for bank bail-outs would meet fierce resistance in the German, Dutch and Finnish parliaments. A senior EU official said even Germany's Social Democrats are cooling on eurobonds. "They looked at the polling data and shivered. The German people are not willing to send money into a bottomless pit," he said.

Three Months to Save the Euro: George Soros

By Catherine Boyle / CNBC

Euro-zone governments have around three months to ensure the survival of the single currency, billionaire investor George Soros said in a speech on Saturday.

“We are at an inflection point. After the expiration of the three months’ window, the markets will continue to demand more but the authorities will not be able to meet their demands,” he warned in a speech at the Festival of Economics in Trento, Italy. (Read the text of his speech.) 

The European Union is “like a bubble” – not a financial bubble but a political bubble -- that could pop as a result of the euro -zone crisis, Soros said.

“In the boom phase, the EU was what the psychoanalyst David Tuckett calls a ‘fantastic object’ – unreal but immensely attractive,” he said.

“In retrospect, it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank (ECB)  their rights to create fiat money. They did not realize what that entails – and neither did the European authorities,” he said.

The euro zone needs a European deposit insurance scheme for banks, Soros said, as well as direct financing by the European Stability Mechanism (ESM) for banks, which “must go hand-in-hand with euro-zone-wide supervision and regulation.”

The “blockage” at the moment is coming from the Bundesbank and the German government, he said. German Chancellor Angela Merkel has been cautious about increasing Germany’s support for the rest of the euro zone.

Soros believes Germany will eventually do what it takes to keep the euro zone going because of the large losses German banks would suffer if it broke up and the damage to exports which could be caused by a return to the Deutschmark, which would likely be substantially stronger than the euro.
“A German empire with the periphery as the hinterland,” could be the result of the current predicament, he warned.

The ECB has been instrumental throughout the crisis and its liquidity injection via a long-term refinancing operation helped boost European markets earlier this year, giving policy makers some much-needed breathing space.

Soros said that too much blame had been placed on peripheral euro-zone countries such as heavily indebted Greece and Spain, and that creditors like Germany had to share responsibility.

“The “center” is responsible for designing a flawed system, enacting flawed treaties, pursuing flawed policies and always doing too little too late.

“In the 1980s, Latin America suffered a lost decade -- a similar fate now awaits Europe,” he said. “That is the responsibility that Germany and the other creditor countries need to acknowledge.”
Soros argued that the focus on austerity instead of growth had been a mistake by the European authorities.

“The authorities didn’t understand the nature of the euro crisis; they thought it was a fiscal problem, while it is more of a banking problem and a problem of competitiveness. And they applied the wrong remedy: You cannot reduce the debt burden by shrinking the economy -- only by growing your way out of it,” he said.

“The crisis is still growing because of a failure to understand the dynamics of social change; policy measures that could have worked at one point in time were no longer sufficient by the time they were applied,” he said.

These views are echoed by well-known economists including Paul Krugman. An increasing number of politicians in the euro zone are also arguing for less austerity and more promotion of growth. The debate has come to prominence during both the Greek election campaign and the Irish referendum on the EU fiscal pact for euro-zone-wide austerity measures.

Rockefellers and Rothschilds unite

By Daniel Schäfer in London

Two of the best-known business dynasties in Europe and the US will come together after Lord Jacob Rothschild’s listed investment trust and Rockefeller Financial Services agreed to form a strategic partnership.

RIT Capital Partners is to buy a 37 per cent stake in the Rockefeller’s wealth advisory and asset management group for an undisclosed sum, giving Lord Rothschild’s London-listed trust a much sought-after foothold in the US.

The transatlantic union brings together David Rockefeller, 96, and Lord Rothschild, 76 – two family patriarchs whose personal relationship spans five decades.

The Rockefeller group traces its roots back to 1882 when John D. Rockefeller established one of the world’s first family offices dedicated to investing his wealth. It has since developed into a provider of wealth and asset management services to other families, foundations and institutions. It is majority-owned by the 19th century oil magnate’s family and has $34bn of assets under administration.

The partnership with RIT will focus on setting up investment funds, eyeing joint acquisitions of wealth and asset managers and granting each other non-executive directorships.

RIT Capital Partners is minority-owned by Lord Rothschild and its net assets of £1.9bn are spread across global investments from public equities to government bonds and private equity.

The deal stemmed from a meeting two years ago when Mr Rockefeller introduced Lord Rothschild to the US group’s chief executive, Reuben Jeffery.

In a follow-up meeting one year later at Lord Rothschild’s office at Spencer House in London, the financier won Mr Jeffery’s blessing for opening talks to buy a stake in the Rockefeller group.

He then launched long negotiations with Société Générale Private Banking, which has owned the shareholding since 2008.

The French bank’s wealth management arm has had several suitors for the minority stake – estimated to be worth less than £100m – but Lord Rothschild was the only one supported by the Rockefellers.

Lord Rothschild concentrated on RIT Capital Partners three decades ago after he fell out with his cousin Sir Evelyn de Rothschild and disposed of his stake in NM Rothschild, the family’s UK branch.

Sir Evelyn at the time ran NM Rothschild, which rose to fame in 1815 when Nathan Meyer Rothschild made a fortune buying British government bonds in anticipation of Napoleon’s defeat at Waterloo.

Baron David de Rothschild, chairman of the Rothschild Group, is currently bringing the UK-based investment bank under a joint roof with the French family operations.

At the same time Lord Rothschild launched an investment partnership in March with the Franco-Swiss private bank Edmond de Rothschild Group, which is yet another separate branch of the sprawling banking dynasty.

Marc Faber: 100% Chance of Global Recession

By: Lee Brodie

The stock market appears to be at a critical inflection point. That’s the takeaway from widely followed economist Marc Faber, author of the Boom, Gloom & Doom newsletter.

Faber’s bearish market calls have been followed closely since 1987 when he warned his clients to cash out before Black Monday.

And in a live interview on CNBC’s Fast Money Halftime Report, Faber again warned that economies of the world may be on the brink of a serious slowdown.

Faber indicated that while investors remain focused on Greece and Europe – other issues, bigger issues are looming. And they’re more threatening.

“As an observer of markets – whenever everyone focuses on one thing – like Greece and Europe – maybe they miss issues that are far more important – such as a meaningful slowdown in India and China.”

The latest reports from Beijing would support Faber's assertion. The HSBC Flash Purchasing Managers Index, slipped to 48.7 in May from 49.3 in April. That marks the seventh straight month that the index has been below 50, a level which indicates economic activity is contracting.

Faber also cited weakness in the high-end as another key catalyst that’s very negative.

“There are more and more stocks that are breaking down – economic sensitive stocks and companies that cater to the high-end,” he said. "That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”

Earlier in the week Tiffanylowered forecasts citing slower sales. At that time, Fast Money trader Dan Nathan warned that results such as these were foreboding and suggested the high-end was starting to crack.

When taken in concert, Faber says all the economies of the world could take a hit from these negative developments.

“I think we could have a global recession either in Q4 or early 2013." When asked what were the odds, Faber replied, "100%."

However, in the near term Faber also sees potential for a market rally.

Faber said the bullish catalyst would be Greece exiting the EU.

“I think the market would be relieved if finally Greece exited the euro. There would be some clarity. Although it wouldn’t be good for banks and insurance (stocks) in general I think markets are oversold and with an exit – markets would rally.”

It’s worth noting that Faber is talking hypothetically; he does not think Greece exits the EU in the near future.

“What I think will happen is that Germany will show more flexibility and issue more euro bonds.”

Faber pointed to the recent decline in the euro as evidence that the currency markets share his view. “More bonds will challenge the quality of the euro. That’s why the euro has been very weak, lately."

For investors looking to navigate what could be a serious economic storm, Faber said the best thing to do is keep the portfolio in US dollars and own gold, “knowing that sentiment is negative and in the near-term it could trade down to the Dec 29 low of $1522.”