Governments Desperately Trying To Keep The Illusion Going As Crashing Stock & Bond Markets Set To Shock The World!

Today the man who has become legendary for his predictions on QE, historic moves in currencies, and major global events warned King World News that governments are now desperately trying to keep the illusion going as crashing stock & bond markets are set to shock the world!

Egon von Greyerz:  “Eric, I don’t think the general public has any understanding of what is happening in the world today and the incredible risks we are seeing.  Since 2008, world debt is up over 40 percent and so now the world has unsustainable debt levels of over $200 trillion….

Governments have tried to keep the illusion going by moving rates to zero or even negative in many countries.  But even with all the money printing and stimulus, the world economy has still not reacted to it and has stopped growing.  In fact, economies are actually starting to contract in many countries.

China contributed 85 percent of global growth in 2012.  But China is beginning to struggle and their contribution to global growth this year is only expected to be 24 percent.  Of course that will have major repercussions for the entire world because China has been a huge buyer of both commodities and machinery.  That buying spree is now declining dramatically.

The only thing left in the various governments' tool kits is fiscal stimulus.  But with countries mismanaging their economies and running major deficits, it will be impossible to increase the deficits because it will cause the debt to skyrocket.  Who will repay the additional printed money and debt?

Demographics is also a major problem for industrialized nations.  Take Germany, where 20 percent of the population is already over 65 years old.  That figure will grow to 30 percent by the year 2040.  In Japan, today 25 percent of the population is over 65 but that figure will grow to a staggering 40 percent by the year 2060.

Japanese Economy Won't Survive 400 Percent Debt/GDP Ratio

So there won’t be enough young people working in Japan to keep the economy going in order to pay the pensions for the elderly, much less to pay off the massive debts of Japan.  Look at Japan:  They have 250 percent Debt/GDP ratio today.  By 2035 they will have a Debt/GDP ratio of 400 percent.  Obviously that is totally unsustainable.  This is why the Japanese economy will not survive.

And at the same time that world economic problems are becoming insurmountable, geopolitical risk is increasing dramatically.  ISIS is likely to take all of Iraq in the next few months and then they will threaten Saudi Arabia.  Saudi Arabia is also likely to be attacked from Yemen.  If ISIS foments a civil war in Saudi Arabia, both the United States and Israel will get involved.

The other danger zone, besides Ukraine, is the South China Sea.  China is expanding their territory and they consider that it belongs to them.  But of course the Pentagon has said that they consider China to be a major threat to peace because of this expansion.  China has responded to that by saying that war is inevitable if the U.S. does not stop asking Beijing to halt construction of artificial islands.

So, Eric, the risks are increasing everywhere and the situation could become uncontrollable at any time, both economically and geopolitically.  Problems could erupt at any moment that would shock an unprepared world that would lead to stock and bond markets crashing together along with the dollar.  This will mean skyrocketing gold prices.  In that environment people may see gold soar a few hundred dollars in just a single day.

Exchange Controls To Trap Citizens And Their Money

At the same time governments are doing more and more to control people.  Cash withdrawals are being reduced and more draconian banking measures are being put in place.  This trend will only accelerate with governments seeking even more control over their people.

I could also see exchange controls being introduced in the not-too-distant future.  That will make it impossible to take any money out of the country.  That’s why it is so important to keep physical gold outside of the banking system and preferably outside of your country of residence as insurance against the unprecedented risks that the world is now facing.  

Unfortunately, when disaster strikes, very few people will be prepared.”

Bank of England deputy governor Paul Tucker warned banks they could collapse 'before Christmas'

Bank of England officials were so concerned about the potential for a financial crisis late last year they took the extra­ordinary step of warning the entire banking system could collapse “before Christmas”.

By Harry Wilson

Paul Tucker, the deputy governor of the Bank of England, told an October meeting of the chief executives of Britain’s largest banks that there was a serious chance none of their businesses would survive to the end of the year.

“Gentlemen, you could all be out of business by Christmas,” Mr Tucker said in a stark warning to the bank chiefs, according to three sources present at the meeting.

The revelation of Mr Tucker’s remarkable warning shows the depth of fear among senior officials over the havoc the collapse of the eurozone would wreak on the British financial system.

Mr Tucker is one of the front-runners to replace Sir Mervyn King as Governor of the Bank of England.

Minutes published by the Bank’s Financial Policy Committee in September and December made clear the depth of its concerns, but the explicit warning given to the chief executives shows that officials feared a crisis even greater than that in the wake of the collapse of Lehman Brothers in September 2008. The meeting led directly to the creation of working groups at banks to gauge the potential for a full-scale collapse of the financial system.

One executive present said his institution had been so concerned by Mr Tucker’s warning that it had re-evaluated its entire risk positions.

However, another executive present said he had been disappointed with the Bank of England’s response and said that, despite the dire warning, it actually did “very little” to help deal with the situation.

Last month, Mr Tucker denied he had any knowledge of Barclays’ attempt to manipulate Libor after the bank released a memo of a conversation between him and former chief executive Bob Diamond.

Reinventing the European Dream

On July 1, Nicosia took the rotating presidency of the EU. Gas, relations with Turkey, Middle East policy: Europe should take this opportunity to set a new major Mediterranean project, argues the American political scientist Anne-Marie Slaughter.

The euro crisis and Queen Elizabeth’s recent Jubilee seem to have nothing in common. In fact, together they impart an important lesson: the power of a positive narrative – and the impossibility of winning without one.

Commenting on the Jubilee’s river pageant and horse parade, historian Simon Schama talked to the BBC about “little boats and big ideas.” The biggest idea was that Britain’s monarchy serves to connect the country’s past to its future in ways that transcend the pettiness and ugliness of quotidian politics.

The heritage of kings and queens stretching back across more than a millennium – the enduring symbolism of crowns and coaches, and the literal embodiment of the English and now the British state – binds Britons together in a common journey.

Hope and purpose

Cynics might call this the old bread-and-circuses routine. But the point is to fix eyes and hearts on a narrative of hope and purpose – to uplift, rather than distract, the public. Are Greeks, Spaniards, Portuguese, and other Europeans really supposed to embrace an austerity program imposed on them because prevailing wisdom in Germany and other northern countries considers them profligate and lazy? Those are fighting words, creating resentment and division just when unity and burden-sharing are most needed.

Greece, in particular, now needs a way to connect its past with its future, but no monarch is forthcoming. And, as the cradle of the world’s first democracy, Greece needs other symbols of national renewal than scepters and robes. It is through Homer that virtually all Western readers first encounter the Mediterranean world: its islands and shores and peoples knit together by diplomacy, trade, marriage, oil, wine, and long ships. Greece could once again be a pillar of such a world, using its current crisis to craft a new future.

Politics intervenes

That vision is more plausible than one might think. Natural-gas fields in the Eastern Mediterranean are estimated to hold up to 122 trillion cubic feet, enough to supply the entire world for a year. More gas and large oil fields lie off the Greek coast in the Aegean and Ionian Seas, enough to transform the finances of Greece and the entire region. Israel and Cyprus are planning joint exploration; Israel and Greece are discussing a pipeline; Turkey and Lebanon are prospecting; and Egypt is planning to license exploration.

But politics, as always, intervenes. All countries involved have maritime disputes and political disagreements. The Turks are working with Northern Cyprus, whose independence only they recognise, and regularly make threatening noises about Israel’s drilling with the Greek Cypriot government of the Republic of Cyprus. The Greek Cypriots regularly hold the EU hostage over any dealings with Turkey, as has Greece. The Turks will not let Cypriot ships into their harbours and have not been on speaking terms with the Israelis since nine Turkish citizens were killed on a ship that sought to breach Israel’s blockade of Gaza. Lebanon and Israel do not have diplomatic relations.

In short, the riches, jobs, and development that would flow to all countries in the region from responsible energy exploitation may well be blocked by the insistence of each on getting what it regards as its fair share and denying access to its enemies.

The vision of a Mediterranean Energy Community thus seems destined to remain a pipedream. Yet July will bring the 60th anniversary of the ratification of the Treaty of Paris, which established the European Coal and Steel Community (ECSC) among France, Germany, Italy, Belgium, the Netherlands, and Luxembourg only six years after the end of World War II. During the previous 70 years, Germany and France had fought each other in three devastating wars, the last two of which ruined Europe’s economies and decimated its population.

'Unthinkable and materially impossible'

These countries’ mutual hatred and suspicion was no less bitter and deep-seated than that afflicting the Eastern Mediterranean. Yet French Foreign Minister Robert Schuman, with the assistance of his counsellor Jean Monnet, announced a plan for the ECSC in 1950, only five years after German troops had left Paris, with the aim of making “war not only unthinkable but materially impossible.” Schuman proposed putting Franco-German coal and steel production under a common High Authority, thereby preventing the two sides from using the raw materials of war against each other, and powering a common industrial economy. The ECSC became the core of today’s European Union.

The EU today is on the ropes, but only a few concrete steps by European leaders might open the door to similarly bold diplomacy that could restore EU and Mediterranean economies and transform the energy politics of Europe and Asia. If the European Parliament and the European Council were to take steps to make direct EU trade with northern Cyprus subject to qualified majority voting rather than consensus (and hence veto by Cyprus), the EU would be able to begin trading with northern Cyprus, and Turkey could begin trading with Cyprus as a whole. These steps could lead in turn to a Turkish, Cypriot, and Greek energy partnership that would provide positive incentives for Turkish-Israeli reconciliation.

The Schuman Plan took two years to crystalize and a decade to implement. But it gave war-torn and desperately poor Europeans a positive vision of a new future, something that Greece and Cyprus, not to mention Middle Eastern and North African countries, desperately need. Europe’s leaders will not surmount this crisis by pounding their citizens with bleak demands for austerity. They must take concrete steps, with Greece as a full and equal partner, to create a vision of real rewards from a rejuvenated EU.

The EU does not have a Queen Elizabeth. What it needs is another Schuman and Monnet.

EU planning for worst-case scenario in case of Greek eurozone exit

By Luke Baker, Reuters

BRUSSELS – European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.

EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen — no one Reuters has spoken to expects Greece to leave the single currency area.

Belgium’s finance minister, Steve Vanackere, said at the end of May that it was a basic function of each eurozone member state to be prepared for problems. These discussions appear to be in that vein.s

But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.

The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.

No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of eurozone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said.

As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.

“Contingency planning is underway for a scenario under which Greece leaves,” one of the sources, who has been involved in the conference calls, said. “Limited cash withdrawals from ATMs and limited movement of capital have been considered and analyzed.”

Another source confirmed the discussions, including that the suspension of Schengen was among the options raised.

“These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality,” the second source said. “It is sensible planning, that is all, planning for the worst-case scenario.”

The first official said it was still being examined whether there was a legal basis for such extreme measures.

“The Bank of Greece is not aware of any such plans,” a central bank spokesman in Athens told Reuters when asked about the sources’ comments.

The vast majority of Greeks — some surveys have indicated 75 to 80% — like the euro and want to retain the currency, something Greek politicians are aware of and which may dissuade them from pushing the country too close to the brink.

However, SYRIZA is expected to win or come a strong second on June 17. Alexis Tsipras, the party’s 37-year-old leader, has said he plans to tear up or heavily renegotiate the 130-billion-euro bailout agreed with the EU and IMF. The EU and IMF have said they are not prepared to renegotiate.

If those differences cannot be resolved, the threat of the country leaving or being forced out of the euro will remain, and hence the need for contingencies to be in place.

Switzerland said last month it was considering introducing capital controls if the euro falls apart.
In a conference call on May 21, the Eurogroup Working Group told eurozone member states that they should each have a plan in place if Greece were to leave the currency.

Belgium’s Vanackere said two days after that call that it was a basic function of each euro zone member state to be prepared for any eventuality.

“All the contingency plans (for Greece) come back to the same thing: to be responsible as a government is to foresee even what you hope to avoid,” he told reporters.

“We must insist on efforts to avoid an exit scenario but that doesn’t mean we are not preparing for eventualities.”

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.
 

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.