‘Don’t kick Russia out of SWIFT’

European Central Bank policymaker Ewald Nowotny has warned against kicking Russian banks out of the SWIFT payments transfer system as part of tighter sanctions on Moscow, the Austria Press Agency quoted him as saying on Thursday.

Such a move “we would see as very problematic because it could perhaps undermine confidence in this system,” the governor of Austria’s central bank told reporters in Brussels after meeting European Commissioner Pierre Moscovici.

Russia has drafted a law to regulate a local equivalent to SWIFT in response to concerns that the Belgian-based system, the world’s biggest for electronic payments, could be a focus of Western sanctions against Moscow over the Ukraine crisis.

In 2012, SWIFT cut off Iranian banks that were the subject of EU sanctions over Iran’s nuclear program — a step that shut down a major avenue through which Iran did business with the rest of the world.

APA quoted Nowotny as saying Austria would not be immediately affected should Russian banks be excluded from SWIFT, but that Russia could retaliate, “and this could of course affect all companies that do business in Russia.”

He reiterated that Austrian banks had no plans to leave Russia because they had proven themselves to be an element of stability in the latest economic crisis. Raiffeisen Bank International and Bank Austria are active there.

Source: Reuters

The Swiss gold referendum: What it really means

In a few days the Swiss people will go to the polls to decide whether the Swiss central bank is to be required to hold 20% of its reserves in the form of gold

Polls show that the gold requirement is favored by the less well off and opposed by wealthy Swiss invested in stocks. These poll results provide new insight into the real reason for Quantitative Easing by the Federal Reserve and European Central Bank.

First, let’s examine the reasons for these class-based poll results. The view in Switzerland is that a gold backed Swiss franc would be more valuable, and a more valuable franc would increase the purchasing power of wage earners, thus reducing their living costs. For the wealthy stock owners, a stronger franc would reduce Swiss exports, and less exports would reduce stock prices and the wealth of the wealthy.

The vote is clearly a vote about income shares between the rich and the poor. The Swiss establishment opposes the gold-backed franc, as does Washington.

A few years ago the Swiss government, after experiencing a strong rise in the exchange value of the Swiss franc as a result of dollar and euro inflows seeking safety in the Swiss franc, decided to expand the Swiss money supply in line with the foreign currency inflows in order to stop the rise of the franc. The liquidity supplied by the central bank creating new francs has stopped the rise of the franc and supports exports and stock prices. As a vote in favor of a gold backed franc is not in the interest of the elite, it is unclear that the vote will be honest.

What does this tell us about the Federal Reserve’s policy of Quantitative Easing, which is an euphemism for printing an enormous amount of new dollars?

The official reason for QE is the Keynesian Phillips Curve claim that economic growth requires mild inflation of 2-3%. This false theory was put to death by the supply-side policy of the Reagan administration, but the misrepresentation of the Reagan administration’s policy by the Establishment has kept the bogus Phillips curve theory alive.

The claim based in disproven Phillips Curve theory that the Fed’s policy is directed at helping the overall economy is another example of the deception practiced by US authorities. The real purpose of QE is to drive up the wealth and income of the one percent by providing the liquidity that flows into financial asset prices such as stocks and bonds.

Since the 2008 US recession, skeptics of the Fed’s explanation of QE as support for the US economy have stressed instead that the purpose of US economic policy has been to support the federal deficit at low interest rate costs and to support the balance sheets of the troubled banks by pushing up the prices of debt-related derivatives on the banks balance sheets.

These have been important purposes, but it now appears that the main purpose has been to make the rich richer. This is why we have a stock market whose high values are not based in fundamentals but, instead, are based on the outpouring of liquidity by the Federal Reserve. As the economic policy of the US is entirely in the hands of the rich, it is not surprising that the rich use it to enrich themselves at the expense of everyone else. The Fed’s monetary policy that enriches the rich by driving up the prices of stocks and bonds also has robbed retirees of hundreds of billions of dollars, perhaps trillions, in lost interest income on their savings.

As I recently explained, QE is not over. The Fed is rolling over its interest and principal payments on its $4.5 trillion bond inventory into new bond purchases, and the banks now infused with $2.6 trillion in cash from the Fed are purchasing the bonds in place of the Fed’s QE purchases.

According to the latest news reports, Mario Draghi, the head of the European Central Bank will print all the money necessary to support financial asset prices. Draghi, like the Federal Reserve, masks his policy of enriching the rich in Phillips curve terms of driving up inflation in order to support economic growth. Of course, the real purpose is to drive up stock prices.

Like the Fed, the ECB pretends that the money it prints flows into the economy. But given the poor condition of the banks and potential borrowers loan volume is low. Instead the money created by central banks flows into paper financial asset prices. Thus, the monetary policy of the Western world is directed toward supporting the wealth of the rich and worsening the inequality in the distribution of income and wealth.

The rich are far from finished with their pillage. In exchange for campaign donations, state governors are turning over state pension funds to the management of high-fee, high-risk private pension fund managers who do a better job of maximizing their fee income than protecting the nest eggs of retirees.

Throughout the Western world economic policy is run for the sole benefit of the one percent and at the cost of everyone else. The greed and stupidity of the rich are creating ideal conditions for violent revolution. Karl Marx might yet triumph.

The ECB holding Europe hostage

The European Central Bank – ECB – invented yet another tool to hold Europe hostage vis-à-vis Russia

The ECB has just launched – effective 4 November 2014 – a new watchdog to control and regulate the European banking system. It is called the Single Supervisory Mechanism – SSM. It is supposed to monitor and reign in European banks that do not ‘behave’ in terms of overstretching their investment and risk lending as compared to their capital base.

In fact, the SSM is one pillar of the three pillar ‘security’ system put in place by the ECB and the European Commission – EC.

The Single Resolution Mechanism – SRM – is ECB’s strong arm to save or liquidate ‘troubled’ banks. In other words, it will administer ‘bail-ins’ to ‘too-big-to-fail’ banks in distress; meaning – over-indebted banks will rescue themselves from depositors’ money, or from shareholders. This practice was tested in Cyprus in 2013. As reported by Reuters on 30 July 2013 – According to Cyprus’s central bank, “47.5 percent of deposits exceeding 100,000 euros in Bank of Cyprus would be converted into equity to recapitalize the troubled lender as part of an international financial bailout for the island”.

This confiscating or stealing of depositors’ funds, also called the ‘haircut’ in the denigrating jargon of the Occident, is better known as a ‘bail-in’ – since it avoids the taxpayer, those who have been bearing the brunt in previous US and European ‘bail-outs’.

This atrocious predatory and outright criminal imposition by the infamous troika (ECB, EC, IMF), with no legal backing whatsoever, went largely without protests in the rest of Europe, it was shortly thereafter accepted by the EC as the new ‘norm’.

In one of his last proud statements before handing his job as European Commissioner to Jean-Claude Juncker, Manuel Barroso exclaimed – “The European Union intends to break the vicious link between sovereigns and their banks. In the future bankers’ losses should no longer become the people’s debt, putting into doubt the financial stability of whole countries.”

There it is. The ratification of the new ‘bail-in’ rule. It is surprising that there is no run of the European banks, as many of them are less stable than they were in 2008, at the onset of the man-made ‘crisis’. Bail-ins might be imminent.

The third pillar will be the Single Resolution Fund – SRF – a stabilization and rescue mechanism for banks facing bankruptcy. It is planned to become effective on 1 January 2016 – if – and that is a big IF – the necessary funding will be put in place by the member countries.

Pillars one and two are compulsory for the Eurozone countries and banks, some 6000 – which is a lot to supervise. The ECB has quickly declared that it – i.e. SSM – will directly monitor the 150 most important ones. The others will continue to be controlled by national mechanisms, whatever these are. They will be given strict regulations to follow by SSM with sanctions or fines if the rules are not followed – to make sure they will not stray.

Membership for non-Eurozone countries is voluntary. Remarkably, the UK has not (yet) volunteered for membership.

This is the biggest boost in ECB’s power since its creation some 16 years ago. ECB now sets all banking standards throughout Europe, according to which a bank may fall or rise. This is a clear infringement on the Eurozone countries sovereignty – one of the key principles to be maintained according to the Lisbon Treaty. There is no covenant in ECB’s regulations that would give it this power leverage. It is all self-serving – and the neoliberal leaders of the Eurozone countries go along with it –to the detriment of their constituency.

And let’s not forget, ECB is intimately linked to Wall Street, the FED and the IMF – Mario Draghi, the ECB President, is a former Goldman Sachs executive.

The SSM is a flagrant conflict of interest – and it looks like the financial czars of this western greed economy are getting away with it. For now.

An independent audit of all European banks, especially those 100 or 150 considered “too big to fail” – and including the ECB itself – would indeed be in order. – Independent means – the auditors would report to a special council of Eurozone countries – but independent of the European Commission. The special council would include representation from member countries parliaments, the banking, industry and service sectors, as well as civil society.

Of course – this is unlikely to happen, equally unlikely as an independent audit of the FED. That would mean transferring power to the people, to those whose money is at play, those who are really interested in a well-functioning banking system – not a predatory one as we know it today.

According to The Guardian, a recent stress test carried out by the ECB on some 100 of the largest European banks, 24, or one of five, failed (including 9 Italian and 3 Greek banks), leaving a hole of 25 billion euros in banking capital – which eventually may need to be bailed-in — if there are no bail-outs and the SRF is not yet functional.

Implementation of the SSM will be a point of no return for European banks, including for individual countries sovereign central banks. Until now, they were nominally free to print their own money. For example, Greece could have rescued them-selves by printing its own euros, instead of submitting to the draconian, literally killer conditions, imposed by the troika. But it didn’t, since the ruling elite in Greece was and is part of the scheme. As of now, there is no ECB rule that forbids a local central bank to print its own money – which in the Eurozone is the euro.

Europeans will be at the mercy of the ECB and through it, of Wall Street and the FED – the defunct greedy dollar based monetary system.

And why do the people not react? – Because they are on purpose misinformed, kept in the dark by the media. The new SSM is presented as a system that would protect them from future crises – when the contrary is true.

However, at least equally important and highly suspicious, is the timing of this new delegation of power for the ECB. The abrogation of Eurozone countries and their banks sovereignty is not coincidental. It comes at a time when a new west-east conflict, a new Cold War with Russia is being instigated by Washington and its European vassals.

ECB’s new strong arm, the Single Supervisory Mechanism, with its transboundary powers and disregard for national sovereignty is intent to hold the Euro system and its countries hostage against Russia, or the new Russia-China alliance. The new watchdog watches that none of them will stray – perhaps into the eastern camp of honest trading, into a new realm of economic prosperity and equality, where banking may serve the peoples development, instead of the accumulation of wealth for a few.

Remember, Mr. Xi Jinping, President of China, visited Germany in March 2014, to offer Madame Merkel participation in the New Silk Road – a new trading alliance from Germany, the western most borders, all the way to Shanghai, covering Russia, the former Soviet Republics, north-western and central China. An incredible potential for trade and development that can hardly be ignored. If Germany accepts, the strongest nation of the Eurozone, the rest of Europe will follow – follow a path of more security and independence than the current alliance with threats and sanctions from a warmongering White House will offer.

Washington is aware of this. They will hold no barrels to sow unrest and destabilize Europe to eventually justify a US intervention, more NATO, more CIA surveillance, more profit-yielding armament – and moving ever a step closer to Moscow. The new banking control mechanism is just an additional – but extremely powerful tool in this direction.

An alternative monetary system, detached from the predatory dollar scheme, will be a welcome means to peacefully counter this latest financial aggression.

Peter Koenig is an economist and former World Bank staff. He worked extensively around the world in the fields of environment and water resources. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe.

European Central Bank cuts interest rates to below zero

The European Central Bank
The European Central Bank

The European Central Bank cut interest rates to record lows on Thursday, imposing negative rates on its overnight depositors to cajole banks into lending more and to fight off the risk of Japan-like deflation.

The cut, the first time the ECB has deployed a negative deposit rate which effectively charges banks to deposit overnight, was a response to a slowdown in inflation far below the ECB’s target and to weak euro zone lending.

That is a combination that risks dragging the bloc into an economic quagmire.

The ECB lowered the deposit rate to -0.1 percent, meaning it will effectively charge banks for holding their money overnight. It cut its main refinancing rate to 0.15 percent, and the marginal lending rate – or emergency borrowing rate – to 0.40 percent.

Markets sent the euro EUR= to a four-month low of $1.3575 after the news.

“Further monetary policy measures to enhance the functioning of the monetary policy transmission mechanism will be communicated in a press release to be published at 3.30 p.m. CET today,” the ECB said in a statement.

Investors first turn their attention to ECB President Mario Draghi’s 1230 GMT news conference at which he is widely expected to present other measures to complement the rate move.

“This is a baby rate cut – a tweak to the policy stance,” said RBS economist Richard Barwell, adding that Draghi needed to announce a bundle of measures to avoid disappointing markets.

Economists polled by Reuters had expected the ECB to cut the refinancing rate to 0.10 percent from 0.25 percent and the deposit rate to -0.10 percent from zero, as well as launching a refinancing operation aimed at funding firms.

Reuters reported last month that the ECB was preparing a package of policy options for this week’s meeting, including the rate cuts and targeted measures with a view to boosting lending to small- and mid-sized firms (SMEs).

“I think expectations are very high,” Barwell added. “To exceed them, I think he (Draghi) is going to have to talk up the prospect of asset purchases in the near future.”

Just hours before the ECB policy decision, a Bank of Japan policymaker sounded a warning, saying the euro zone should not take lightly the potential danger of slipping into a Japan-style deflationary period.

In an April 24 speech, Draghi set out three broad scenarios for ECB policy action and included the possibility of a broad-based asset-purchase program in the event of a worsening of the medium-term inflation outlook.

Such a program is unlikely for now, however, even though euro zone annual inflation unexpectedly slowed to 0.5 percent last month, figures published earlier this week showed. The ECB targets inflation of close to but below 2 percent.

Draghi will present updated inflation and growth projections from ECB staff at his news conference. In March, the forecasts showed it would take 2-1/2 years for inflation to get near the ECB’s target. A weaker outlook will support robust ECB action.

QE ON THE SHELF

The ECB is widely expected to accompany the rate cuts with other measures such as offering banks cheap, long-term funding – a so-called LTRO – on condition that they use this financing to further lending to companies.

Euro zone inflation has been stuck in what Draghi has called “the danger zone” below 1 percent since October, mainly because of weaker commodity and food prices, but also because of wage and other adjustments in euro zone crisis countries.

The stronger euro exchange rate exacerbates these dynamics.

At the same time, record low interest rates are still not feeding through evenly to companies across the currency bloc. Companies in Portugal, for example, are paying on average 5.4 percent on loans compared with 2.2 percent in Finland or France.

This particularly affects smaller companies, which rely strongly on bank funding and make up the bulk of the economy.

Another possibility is the for ECB to extend its provision of unlimited access to central bank funding beyond July 2015.

U.S.-style quantitative easing (QE) – money printing to buy assets – is likely to remain someway off, however, as it is the last weapon at the ECB’s disposal and the barriers to using it are high for the hawkish contingent on the Governing Council.

“We expect the big QE-bazooka to remain in the closet,” said ING economist Carsten Brzeski. – Reuters