Conflict between Bundesbank and Draghi intensifies

The conflict between ECB President Mario Draghi and Bundesbank President Jens Weidmann over the course of the European Central Bank is more severe than expected, and has become “almost impossible.”

The Italian ECB chief characterizes the Bundesbank president after statements from witnesses internally on a regular basis with the three German words “No to all”.

According to insiders, therefore Draghi is no longer even trying to win the Germans for its programs.

Since July there was a direct contact between the two presidents of the ECB and the Bundesbank outside of the two Council meetings in early September and early October.

Source: Focus Magazine

 

 

Shares fall and gold rises as global worries mount

Shares across the world fell sharply on Friday, pushing a global index to a six-month low, as investors worried about the prospect of a widespread economic slowdown while U.S. monetary stimulus nears its end.

Assets which depend on economic growth, such as shares and oil, have been hit by a raft of weak indicators from Europe at a time when other big economies, including China, Japan and Brazil face their own hardships.

Meanwhile, the U.S. Federal Reserve is set to wind down later this month the asset purchase programme which has boosted markets over the past two years. Many observers doubt the recent stimulus measures unveiled by the European Central Bank will make up for it.

Brent crude futures tumbled to their lowest since 2010 while gold, seen as a safe asset at times of uncertainty, was headed for its best week in nearly four months.

“There has been a barrage of negative thoughts on growth and growth assets,” Stewart Richardson, a partner of macro hedge fund, RMG Wealth Management, said.

“I believe we’re entering a bear market. We’ve been trying to be short equities and we’ve been focusing our shorts in Europe and small caps,” he said, referring to bets that shares in those markets will keep falling.

The MSCI All-Country World index .MIWD00000PUS fell 0.6 percent to its lowest level since April 18 at 404.50 points, taking its loss since the start of the week to 1.6 percent.

The index, which is eyeing its third consecutive weekly fall, has retreated by nearly 7 percent since testing an all-time high last month.

A string of dismal data from Germany and other large euro zone economies in recent weeks has fed anxieties about a possible recession in the region while the jury is still out on the European Central Bank’s proposed policy response.

The ECB’s covered bond buying programme, a key part of the bank’s latest package, has yet to kick in and some investors remain doubtful it will be sufficient to shore up growth and inflation in the currency bloc while the Fed reins in its own stimulus.

Adding to jitters about monetary policy expectations, St. Louis Federal Reserve Bank President James Bullard said he was concerned by a disconnect between the market’s view of the Fed’s rate-increase path and the central bank’s own view.

Financial markets have constantly expected much slower tightening by the Fed than U.S. central bank policymakers’ own projections.

The concerns on global growth hit oil prices hard. European benchmark Brent crude oil fell 1.1 percent at $89.08, having hit its lowest level since December 2010 at $88.11.

Gold, steady at $1,223.20, retained gains from a four-day rally and was headed for its best week in nearly four months.

Wall Street stocks had slumped 2 percent on Thursday, with the S&P 500 index .SPX hitting a two-month closing low. The CBOE volatility index .VIX, a measure of investor anxiety, rose to highs not seen since early February.

“If U.S. stocks jumped back today, then the market could go back to the same habit of assuming everything will be alright. But if they fall big for two days in a row, markets will be clearly entering a whole new phase,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. – Reuters

 

Will China enter the heart of global finance?

The issue of whether the Chinese should be part of the International Monetary Fund’s Special Drawing Right, the composite reserve currency used in official financing, is highly technocratic, but the political questions at stake go to the core of world money and power – and will be discussed, in the background, at the annual meetings of the IMF and World Bank in Washington this week.

China is bidding to enter the heart of global finance by establishing its currency, the renminbi, as part of an ubiquitous monetary unit used in official transactions around the world.

The decision on a new SDR structure, to be made in the next 15 months, will influence how China and its currency can play a bigger part in driving world trade, investment and capital flows. The renminbi could eventually challenge the dollar and its pivotal position in world money — which is why the U.S. government and Federal Reserve are examining this with intense interest.

China is unlikely to mount an open campaign to enter the SDR, grouping the main reserve currencies, the dollar, the euro (linking countries in European monetary union led by Germany and France), the Japanese yen and British pound, and is valued at around $1.5.

Beijing would prefer the question of recalculating the composition of the SDR, which comes up for review in 2015, to follow market developments, reflecting a big increase in demand for renminbi financing from private banks, central banks, traders, corporations and asset managers.

Many hurdles remain. These include the renminbi’s lack of formal convertibility for transactions that shift capital inside and outside the country, where Beijing is reluctant to abolish all controls. In addition, China still has to release more statistics to the Fund about its monetary reserves and other matters. However, Chinese measures over the past three years to liberalize and internationalize its currency, and a big increase in financial market interest in China, are pointing toward a broadening of the SDR’s composition from January 2016.

An additional factor is China’s own action to galvanize emerging market economies toward reforming word monetary arrangements. This includes the five-nation Brics group’s decision to set up the New Development Bank in Shanghai, potentially challenging the IMF and the World Bank.

China believes it is close to earning the status of a reserve money, the first time that an emerging market currency would attain this position. Chinese entry into the “magic circle” has been advanced by the British government’s September decision to issue renminbi-denominated bonds, the first big government to take such a step, and allow the proceeds to be held as reserves by the Bank of England.

The main conditions for the renminbi to pass the SDR test are that it should be widely used in trade and be “freely usable” in international payments and asset management. Although a long way behind the dollar, the renminbi has made impressive strides recently and is challenging the euro in several key fields.

Next year’s planned review will touch, too, on the opportunity for the SDR to play a greater role on financial markets, for example in denominating bond issues. The SDR has lost ground as a financial vehicle in the past two decades, reflecting the surging importance of international private sector capital markets. But with the addition of the renminbi, it may be about to make a comeback.

Source: USA Today

Will ECB test case in European Court of Justice be EU’s downfall?

The European Central Bank, or ECB’s mandate is to keep the euro stable and keep inflation low. But critics claim it has since strayed into policy making.

Germany’s Constitutional Court referred a decision on the question to the Luxembourg court which also has jurisdiction over the ECB.

On 14 January 2014, Germany’s Federal Constitutional Court made news when it determined that OMT or Outright Monetary Transactions is prima facie incompatible with the Treaty on the Functioning of the European Union (TFEU), the legal basis for the European Union.

However, before delivering its final judgment, the German Court chose – for the first time – to seek the opinion of the European Court of Justice (the ECJ). The eventual resolution of the questions raised will have wide-ranging implications for the economics and politics of the euro.

The European Court of Justice announced at the end of September that hearings in the case against the European Central Bank’s (ECB) bond-buying scheme known as Outright Monetary Transactions will begin in mid-October.

In highlighting the tensions between the TFEU and the OMT, the German Court is basically concerned that the OMT is a fiscal union by the backdoor.

The ECJ could validate the current design of the OMT, thereby locating the fiscal union in the central bank.

In such a case, the nature of the euro area will be fundamentally altered and the ECB will become a political institution.

Alternatively, if the ECJ were to determine that the German Court’s concerns need to be addressed by changes to the OMT – by imposing serious limits on purchases of sovereign bonds and requiring the ECB to claim seniority to private creditors – the OMT will be rendered ineffective.

With judgment due in mid-2015, the ruling will have serious implications for Germany and the rest of Europe.

An anti-euro party has meanwhile been making strides in the German political scene, limiting the government’s room for maneuver.

ECB President Mario Draghi has never actually had to step in to intervene in bond markets, but his promises to do so have convinced investors that eurozone countries would not be allowed to default.

Jens Weidmann, president of the German Bundesbank is a vocal critic of the plan to use the German taxpayer’s money to fund slow countries. His criticism has met with clear approval from voters too.

The Alternative for Germany (AfD), is a party founded in February 2013 by economics professor Bernd Lucke. It has made significant gains in elections across Germany. Founded as an anti-euro party, the party came very close to winning a seat in the Bundestag in the September 2013 general elections, a remarkable feat for a party founded just six months before.

It made even larger gains in 2014, winning 7.1 percent of the vote in European Parliament elections in May and between 9.7 and 12.2 percent in three regional elections in August and September.

Along with many Germans Weidmann thus believes the ECB is overstepping its jurisdictional boundaries, since EU treaties bar the bank from financing member states.

Worse, were OMT ever actually used, it essentially would be spending German money to bail out what many Germans considered profligate Southern Europeans.

In early 2013, a group of economics and constitutional law professors from German universities collected around 35 000 signatures and brought OMT before the German Constitutional Court.

In February 2014, the court delivered an unexpected verdict, ruling 6-2 that the central bank had in fact overstepped its boundaries, though it also referred the matter to the European Court of Justice. Recognizing the profound importance of this issue, the court acknowledged that a more restrictive interpretation of OMT by the European Court of Justice could make it legal.

The German judgment suggested that alterations to OMT would satisfy the Constitutional Court that the mechanism was lawful.

One alteration would limit the ECB to senior debt, a change that would protect it against the default of the sovereign in question. The second alteration would make bond buying no longer “unlimited”.

Center parties across Europe have seen Euroskeptics emerge to their right, gnawing into their traditional voter platforms with popular anti-immigration and pro-sovereignty issues on the political menu.

The anti-ECB sentiment in Germany has swelled noticably during 2014, as German conservatives have greeted each new policy with utmost displeasure.

The German media has called negative interest rates “penalty rates,” clearly not liking the fact that they redistribute billions of euros from German savers to Southern European spenders.

German Finance Minister Wolfgang Schauble spoke in the Bundestag of his horror with Draghi’s program to buy asset-backed securities.

Judging from the German hostility to “quantitative easing-lite” measures, the ECB’s attempts to rope Germany into American style money printing economic policy could prove to be a disaster.

Financial markets love quantitative easing, a broad-based program of buying sovereign bonds in order to inject a large quantity of money into the market, slurping up taxpayers’ money in peripheral economies.

Any declaration that OMT is illegal would severely inhibit Draghi’s room for undertaking full quantitative easing and thus joining the American banking team.

If the European Court of Justice rules that OMT is legal, a sizable inhibitor to quantitative easing will have been removed, and the possibility of a fully fledged bond-buying campaign will enthuse the German voter to turn against Merkel and her pro-American policies.

The contrast between Germany, which has low unemployment and modest economic growth, and France, which has high unemployment will continue to grow. Pro-Atlanticist politicians like Nicolas Sarkozy in France will furthermore try to exploit the growing division.

Finland, Turkey get Russian VVER1200 NPP

These latest design VVER1200 NPP’s have 60 year life span, with 20% reduction in build cost and time, and 10% reduction in operating cost. Turkey ordered 4 of these NPPs. Same process as SA: State deal subsequently approved by parliament. Russia to finance, built, own, operate and transfer option after 15 years. Russia buys back … Continue reading “Finland, Turkey get Russian VVER1200 NPP”

These latest design VVER1200 NPP’s have 60 year life span, with 20% reduction in build cost and time, and 10% reduction in operating cost.

Turkey ordered 4 of these NPPs. Same process as SA: State deal subsequently approved by parliament. Russia to finance, built, own, operate and transfer option after 15 years. Russia buys back spent fuel for processing.

In Finland one Russian VVER 1200 NPP will be build near Tornio – Outokumpu has 12% share in the planned NPP.

During 2014 Outokumpu said its investment in Fennovoima VVER1200 NPP, to be paid over the next decade, would be around 210 million euros, compared with its earlier estimate of around 150 to 200 million euros. (Nearly 3 billion Rand for the 12% share.)

The company’s stainless steel plants in Tornio, including 540 000t/y of FeCr-production, are the single largest consumer of electricity in Finland.

“We want to ensure a stable, predictable and low-carbon energy source at production cost to our operations in Finland,” Chief Executive Mika Seitovirta said in a statement on Wednesday. (19 February 2014)

Eight VVER1200 NPP’s are planned for South-Africa, near Jeffreys Bay, Gansbaai and Koeberg in Cape Town. Currently transmission losses from Mpumalanga to coastal cities in the Cape run at around 12%.

The real controversy surrounding the Russian-SA NPP agreement, refers to SA’s intention to again enrich uranium at Pelindaba near Pretoria for local NPP fuel production. South-Africa and Namibia, governed as a former province of South-Africa, have large uranium reserves. Uranium enrichment and nuclear fuel production, although legal under the NPT, can supply a country with a break-out capability to produce bombs.

NECSA was also to produce the TRISO fuel for Eskom’s Pebble Bed Modular Reactor at Pelindaba.

During June 2014, the Indonesian government approached the South-African government for PBMR technology. After conducting a levelized evaluation of various NPP’s, Indonesia’s nuclear authority came to the conclusion that Eskom’s PBMR is the safest and lowest cost option for Indonesia.

The Eskom PBMR direct-cycle helium turbo-generator (from Mitsubishi) runs at 45% efficiency as compared to 34% of conventional NPPs. The Eskom PBMR was of 160MW capacity per module, and could also be build inland , for exmple in Middelburg, as unlike conventional NPPs, it does not require (sea) water cooling

During 2009 Eskom refused to become the anchor client for 60 of its own PBMR plants totaling 9 600MW. Thus during same year the construction of the first direct cycle (no water-steam circuit) PBMR in Cape Town by Murrey & Roberts and SNC Lavalin was halted. The R300m reactor pressure vessel had already been manufactured in Spain near the port of Santander. Currently this PBMR reactor vessel is lying at Saldanha Bay. The other major contracts with Mitsubishi and SGL Carbon were also cancelled.

During 2013 the then Minister of State-Owned-Enterprises and Eskom, Mr Melusi Gigaba was in Middelburg and answered a question about the possibility of the state reviving local technology and industry, in chosing PBMR instead of conventional NPP. The minister answered that only four PBMR engineers were still in state employment, and that their contracts were to expire during 2013. The minister then proceeded to announce that heads would roll if Medupi power station did not start-up end-2013.

Mr O’ Flaharty, then CFO of Eskom, is now CEO of Arcelor Mittal South-Africa. Mr Brian Dames left the employment of Eskom after a two decade career. Mr Gigaba, second on the ANC’s NEC-list and once mooted as South-Africa’s crown prince, is
now minister of Home Affairs.

During February 2014, the veteran financial reporter at Business Day, David Gleason passed away. Gleason predicted that Russia would win the South-African nuclear build contract, and that as a result prized Russian assets in South-Africa would then experience a change in ownership.

Norilsk Nickel has put up for sale its 50% share in the rich and highly profitable Nkomati Nickel mine not far from Middelburg, Mpumalanga. First option to refuse belongs to South-African ARM. It remains to be seen who will soon own this valuable asset.

Nuclear trumps shale and gas

The signing in Vienna – at the margins of the 58th session of the International Atomic Energy Agency General Conference – of a strategic nuclear partnership between Russia and South Africa, has met with criticism from the mining sector.

The agreement lays the foundation for a large-scale nuclear power plant procurement and development programme of South Africa based on the construction of new nuclear power plants with Russian VVER reactors with a total installed capacity of up to 9,6 GW or 8 units.

These will be the first based on the Russian technology to be built on the African continent.

The signed agreement provides for comprehensive collaboration in other areas of nuclear power, including the construction of a Russian-technology based multipurpose research reactor, assistance in the development of South African nuclear infrastructure, and education of South African nuclear specialists.

The creation of new highly-skilled workplaces will also allow South African companies to further participate in Rosatom’s projects in third countries.

South Africa’s industry will become dependent on sources other than shale and coal, critics say. While industry and certain role players obsess about shale and gas, Mozambique’s gas resources will also need expensive infrastructure.

The questionable benefits that shale gas might offer, will be short-lived, unlike nuclear.

This agreement would naturally limit South Africa’s importation of energy from Namibia or Mozambique.

Also, this will probably mean an end to preferential electricity contracts that offer power at a rate far below the level other industrial users pay, to companies like BHP Billiton.

The R9,5bn lost in embedded derivatives, as reported by Eskom, is the cost of the remaining time on these preferential electricity contracts, some of which still have years to run.

Other energy sources will be hydroelectric power from the future Inga III dam in the Democratic Republic of Congo.

South Africa’s nuclear power ambitions had attracted several proposals.

French group Areva, which built South Africa’s only nuclear plant at Koeberg, had proposed to provide the country with its new generation of EPR reactors.

Government had also solicited an offer from the US-Japanese group Westinghouse.

A difficult question: The rigged gold market

In a radio interview recently Alasdair Macleod was asked a question to which he could not easily give a satisfactory reply: if the gold market is rigged, why does it matter?

I have no problem delivering a comprehensive answer based on a sound aprioristic analysis of how rigging markets distorts the basis of economic calculation and why a properly functioning gold market is central to all other financial prices. The difficulty is in answering the question in terms the listeners understand, bearing in mind I was told to assume they have very little comprehension of finance or economics.

I did not as they say, want to go there. But it behoves those of us who argue the economics of sound money to try to make the answer as intelligible as possible without sounding like a committed capitalist and a conspiracy theorist to boot, so here goes.

Manipulating the price of gold ultimately destabilises the financial system because it is the highest form of money. This is why nearly all central banks retain a holding. The fact we don’t use it as money in our daily business does not invalidate its status. Rather, gold is subject to Gresham’s Law, which famously states bad money drives out the good. We would rather pay for things in government-issue paper currency and hang on to gold for a rainy day.

As money, it is on the other side of all asset prices. In other words stocks, bonds and property prices can be expected to rise measured in gold when the gold price falls and vice-versa. This relationship is often muddled by other factors, the most obvious one being changing levels of confidence in paper currencies against which gold is normally priced. However, with bond yields today at record lows and equities at record highs this relationship is apparent today.

Another way to describe this relationship is in terms of risk. Banks which dominate asset markets become complacent about risk because they are greedy for profit. This leads to banks competing with one another until they end up ignoring risk entirely. It happened very obviously with the American banking crisis six years ago until house prices suddenly collapsed, threatening to take the whole financial system down. In common with all financial bubbles everyone ignored risk. History provides many other examples.

Therefore, gold is unlike other assets because a rising gold price reflects an increasing perception of general financial risk, ensuring downward pressure on other financial asset prices. So while the big banks are making easy money ignoring risks in equity and bond markets, they will not want their party spoiled by warning signs from a rising gold price.

This is a long way from proof that the gold market is manipulated. But the big banks, and we must include central banks which are obviously keen to maintain financial confidence, have the motive and the means. And if they have these they can be expected to take the opportunity.

So why does it matter if the gold price is rigged? A freely-determined gold price is central to ensuring that reality and not financial bubbles guides us in our financial and economic activities. Suppressing the gold price is rather like turning off a fire alarm because you can’t stand the noise.

Source: cobdencentre.org

China Gold Congress in Beijing

The China Gold Congress is currently in full flight in Beijing. The three day Congress is China’s biggest gold industry event of the year, drawing in participants from across the Chinese and international gold sectors including central banks, mining companies, bullion banks and refiners.

The event, co-sponsored by the World Gold Council (WGC) and the China Gold Association, showcases China’s gold industry and acts as a focus point for what is now the world’s largest gold market in terms of demand and product innovation.

Discussions and forums during the event cover everything from reserve asset management for the official or central banking sector, through to investment products and mining supply. One of the key themes this year is the internationalisation of the gold market.

China’s gold market accounts for one third of global demand, and according to the WGC, is expected to grow another 20% cumulatively from now until the end of 2017.

In what is still a very centrally planned economy despite many market related reforms, nearly all reported gold activities in China flow through the Shanghai Gold Exchange (SGE) in one form or another.

Both the China Gold Association and the Shanghai Gold Exchange were established with government backing and their growth and success reflect a very deliberate pro-gold strategy on the part of the Chinese Government.

Even though the China Gold Association is a non-for-profit member association, it still primarily acts as a conduit and coordination group between the government and the gold producers.

The Shanghai Gold Exchange is the government’s second central hub in China’s gold market.

SGE approved refiners take in production from China’s fragmented gold mining industry and in imports from Hong Kong and other countries.

The gold then flows through the Exchange after which SGE deliveries flow out to the banking sector, the official government sector, and additionally to the jewellery and technology industries.

The development of the Shanghai Futures Exchange also provides an additional venue for hedging and gold price discovery.

In China gold is money and is accepted as such by the general population.

There really does not seem to be a debate about this in Chinese government circles, and another part of the government’s strategy has been to advocate the increased innovative usage of gold by the Chinese banking sector.

This is quite a simple strategy for the government to implement since the four big Chinese commercial banks and many other Chinese banks are state-controlled.

Gold is now used widely in the banking sector in structured products, as gold collateral, and in gold leasing. The presence of the Chinese bullion banks in the market via the Shanghai Gold Exchange (SGE) provides the necessary liquidity that is turning the Exchange into a world player on the global gold market.

For example, the large Chinese banks such as Industrial and Commercial Bank of China (ICBC), Bank of China and Agricultural bank of China all offer gold accumulation plans to the investing public and the WGC estimates that these products currently represent between 100 and 200 tonnes of gold. The large banks are also active in gold trading on a proprietary basis via the SGE.

Earlier this year, ICBC via its purchase of some of Standard Bank of South Africa’s assets had been rumoured to be interested in buying a seat on the London gold fixing panel when Deutsche Bank left the panel, but a buyer of this seat never materialised.

ICBC is not yet a market making member of the London Bullion Market Association (LBMA), which would be a prerequisite to becoming part of the gold fixing panel, but given that the Chinese gold market is beginning to overtake that of London in terms of physical flows and probably price formation, there may not be a need for ICBC to bother being such an active participant in the London market as gold business continues to migrate to the East.

The Chinese government is also responsible for granting gold import licenses to international bullion banks and has supported the establishment of the Shanghai free trade zone where a gold trading platform has been set up for international banks and trading houses.

In fact, in an announcement that coincides with the China Gold Congress today, the Shanghai Gold Exchange just announced that it is launching an internationally tradable yuan denominated physical gold contracts to be traded in the free trade zone for the popular retail 1kg gold bar, the Good Delivery 12.5kg (400 oz) bar popular with central banks, and a smaller 100 gram bar contract.

The US based CME Group that runs the Comex gold futures exchange also appears to have used this week’s China Gold Congress to announce the launch of their competitor product in the form of a 1kg gold contract to be traded in Hong Kong.

With increased regulatory scrutiny on the London gold and silver fixings and what looks like a defensive attempt by the LBMA in London to protect their proprietary gold and silver price discovery auctions via the recently introduced CME/Thomson platform for silver and probably soon to be introduced similar CME platform for gold, it will be interesting to see how the Chinese government’s pro-gold strategy pans out.

We may soon see global gold hub wars between London and New York on the one hand and the increasingly powerful eastern hubs of Singapore, Shanghai and Beijing on the other.

Source: GoldCore

‘Russia key strategic German partner’

Despite the sanctions, Russia is still key strategic partner for German businesses, Michael Harms, Chairman of the German-Russian Chamber of Commerce in Moscow, said Thursday.

“Unfortunately, the paradigm of our cooperation has changed significantly. At the beginning of the year I was working on the framework of a new Germany- Russia Partnership for Modernization, and today we have to speak about the impact of sanctions. Nevertheless, I would like to emphasize that from the perspective of the German business, Russia remains its strategic economic partner,” Harms noted at the news conference presenting the results of the poll on the impact of sanctions.

According to the survey conducted by the German-Russian Chamber of Commerce revealed Tuesday, most German companies operating in Russia believe that economic sanctions against Moscow are not proving effective. Almost 80 percent of the polled enterprises believe that economic sanctions are counterproductive and not conducive for political objectives. One third of the respondents agree that sanctions still need to be introduced. Two thirds, on the contrary, think that the sanctions are not necessary. The respondents said the sanctions will lead to further deterioration of the economic environment. Some 71 percent of enterprises expect economic slowdown by the end of the year.

Moreover, German medium-size businesses warned September 9 that European sanctions against Russia could cost them precious market share to companies in Asia. “China is the distinct beneficiary of Europe’s sanctions policy toward Russia,” The Wall Street Journal reported Rainer Seele, president of the German-Russian Foreign Chamber of Commerce, as saying Tuesday. He explained that sanctions were threatening long-standing economic ties between Germany and Russia.

Will Scotland get their gold if they vote ‘Yes’?

An independent Scotland could lay claim to a part of the United Kingdom’s 310-tonne gold reserves if votes go in favour of the “Yes” campaign this month, with ownership of Britain’s bullion hoard up for negotiation along with other assets.

“The distribution of the UK’s assets in the event of Scottish independence would be subject to negotiation between an independent Scottish Government and the continuing UK government,” a spokesman for the United Kingdom Treasury said on Monday.

The United Kingdom, whose reserves are worth 7.84 billion pounds ($12.6 billion) at today’s prices, is currently the world’s 18th largest official sector gold holder.

A decision to break away from the United Kingdom when Scotland’s voters go to the polls on Sept. 18 would be followed by negotiations with London over a raft of assets, including the pound and North Sea oil.

Supporters of Scottish independence over the weekend took their first opinion poll lead since the referendum campaign began, with a YouGov survey for the Sunday Times newspaper putting the “Yes” to independence campaign on 51 percent against the “No” camp on 49 percent.

Former British Prime Minister Gordon Brown has faced persistent criticism for disposing of almost 400 tonnes of the United Kingdom’s gold via a series of auctions between 1999 and 2002, when prices were at their lowest in around 20 years.

Gold prices surged over the following decade, topping out in September 2011 at $1,920.30 an ounce, nearly five times their end 2002 level.

Brown returned to frontline politics this year to campaign for the preservation of Scotland’s 307-year old union with England.

Source:Reuters

China, Argentina agree on currency swap

Argentina, which defaulted on its debt in July, will receive the first tranche of a multi-billion dollar currency swap operation with China’s central bank before the end of this year, the South American country’s La Nacion newspaper reported on Sunday.

The swap will allow Argentina to bolster its foreign reserves or pay for Chinese imports with the yuan currency at a time weak export revenues and an ailing currency have put the Latin American nation’s foreign reserves under intense pressure.

La Nacion said Argentina would receive yuan worth $1 billion by the end of 2014, the first payment of a loan worth a total $11 billion signed by Argentina’s President Cristina Fernandez and her Chinese counterpart in July.

The daily newspaper said the presidents of the countries’ two central banks had met on the sidelines of a meeting in Switzerland, but did not say how it had obtained the information.

Fernandez’s government has imposed stringent import and capital controls to safeguard the dwindling reserves, now at around eight-year lows, which it needs to pay its debts.

Source: Reuters

Economic expectations collapse as sanctions hit German consumers

It starts out un-alarmingly. The optimism of German consumers weakens somewhat, according to the forward-looking Gfk survey, conducted on a monthly basis for the European Commission. So the overall index fell to 8.6 for September, from 8.9 in August. It was the first decline since January 2013.

The index bottomed in late 2008 below 2, after a breathtaking crash during the financial crisis. In late 2007, it had hovered above 9. Early 2014 was the first time since the prior bubble that the index broke above 8. And August’s level of 8.9 represented an “extremely optimistic economic outlook,” as Gfk calls it. German consumers have been feeling good, and according to the headline index, they’re still feeling good up there somewhere in the rarefied air above 8.

But beneath the surface, there is serious trouble. Gfk reports that the sub-index of economic expectations, “in light of the intensified state of international affairs, completely collapses.”

It plunged 35.5 points to 10.4. The worst monthly plunge since the beginning of the survey in 1980. In a single month, it nearly wiped out all the gains of the boom of the last 12 months. Gfk cites the escalation of the situation in Iraq, Israel, the Eastern Ukraine, and particularly “the faster rotating sanctions spiral with Russia.”

Since there appears to be no sustainable solution to any of the trouble spots, consumers are showing increased uncertainty about the possible consequences for the German economy, Gfk reports. “Particularly the sanctions against Russia, which have already hit exports noticeably, could become a real danger for the German economy.”

The two sub-indices for income expectations and propensity to spend have been spared so far this type of brutal collapse, though they both fell from their lofty perches. Income expectations hit an all-time record in August. But for September, the index dropped 4.6 points to 50.1. The propensity to spend dropped 1.7 points to 49.3. At these levels, both are still “relatively robust.”

Gfk credits “the continued stable domestic conditions, stable employment levels, good income development, and low inflation” for limiting so far the impact of collapsing economic expectations on income expectations and the propensity to spend.

ECB President Mario Draghi, along with inflation mongers in the new French government, at the Fed, on Wall Street, and elsewhere should take note: inflation, as the report points out repeatedly, is important to Germans. Watch what happens to German consumer attitudes – and spending – if you steal their income and scarce savings one bite at a time.

But dark clouds have already appeared over German consumer spending: Gfk cites the increase in the propensity to save in August as “the first indicator that the consumer will be more careful in the future and that the impulses for the propensity to consume could decline.”

For this still “relatively robust” propensity to spend to continue, “it is necessary from the consumer’s point of view, that the situation in the crisis regions does not escalate further, but that sustainable solutions are found.” Gfk then warns: “If domestic conditions deteriorate significantly in the wake of a possible further escalation, difficult times loom ahead for the economy.”

Given the new economic malaise in Germany [Sanctions Are Eating their Lunch: Russian CEO Begs for Bailout, German Economy Swoons], any decline in consumer spending, which grew at a measly 0.9% last year, could wreak real havoc, not just in Germany, but also in its most critical trading partner France, in Italy, and other struggling economies in the Eurozone. German consumers are infamous for closing their wallets. And if they do it again, after they finally started spending more, they’d quickly prick any remaining hopes for a “recovery” in the Eurozone.

Even the folks at the German Ministry of Finance very belatedly admit that the sanctions spiral caused Germany’s current economic problems.

Source: testosteronepit

Central Banks should hand people cash

A very unusual article appeared in the “Foreign Affairs” publication of the influential and policy-setting Council of Foreign Relations, titled “Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People.”

To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Distinctions between monetary and fiscal policies are a function of what governments ask their central banks to do. In other words, cash transfers would become a tool of monetary policy as soon as the banks began using them.

Critics warn that such helicopter drops of cash could cause inflation.

By depositing the funds directly into millions of individual accounts – spurring spending immediately – central bankers wouldn’t need to print quantities of money equivalent to 20 percent of GDP.

Source: Foreign Affairs

Sasol stimulates growth in the US

Trade and Industry Minister Rob Davies has given an excellent summary of benefits to both the US and Africa in general, and South Africa in particular in The BusinessDay.

The newspaper also reported $14bn worth of company investments into Africa, all emanating from the developed US as a global superpower.

As a proud South African, it gives me great pleasure to remind all that South Africa is the giant at the forefront of stimulating growth in the US. South Africa is re-industrialising the US!

A single former apartheid South African company is doing all of the above by finalising its commitment to invest up to $21bn into the “developed” US. This giant South African petrochemical investment into the US will reindustrialise the US, make the US less dependent on fuel imports, make it less vulnerable to competitive dollar depreciation, and make the politically strong US even stronger.

Thus, when it comes to trade and industry relations between small South Africa and the US superpower, we may be proudly South African and not be too humble: a single South African company invests more into the US economy, strategic industry, fuel independence and associated sovereign power, than a lot of US companies combined do in South Africa.

Thus, the South African investment into the US, via the previously state-owned Sasol (40% of shares are still owned by the Industrial Development Corporation, the Public Investment Corporation and the Government Employees Pension Fund) is gigantic relative to those of the US companies alluded to in the African Growth and Opportunity Act (Agoa) saga.

I thus predict that Agoa will be extended, South Africa included, because South Africa, via Sasol, is actually the Goliath in the industrial redevelopment and 4% economic growth rate of the US, where unemployment is low.

By Jacob Mouw