Currency Wars: A Race to the Bottom

currency-wars-devaluation

Currency Wars: A Race to the Bottom

“Printing dollars at home means higher inflation in China, higher food prices in Egypt and stock bubbles in Brazil. Printing money means that U.S. debt is devalued so foreign creditors get paid back in cheaper dollars. The devaluation means higher unemployment in developing economies as their exports become more expensive for Americans. The resulting inflation also means higher prices for inputs needed in developing economies like copper, corn, oil and wheat. Foreign countries have begun to fight back against U.S.-caused inflation through subsidies, tariffs and capital controls; the currency war is expanding fast.”Jim Rickards, Currency Wars

Many consider deliberate currency devaluation to be a tool that can help jump start a nation’s economy. The aim of such a practice is to increase exports while encouraging domestic purchases by making goods outside of the country relatively more expensive.

However, like any good prisoner’s dilemma, this might be the case if only one country acted in isolation. The reality is that many major countries engage in the same policy, and the end result – as the infographic details – is a race to the bottom.

So far the “winner” in the race is Japan.
The BoJ has been rolling with the Abenomics plan for almost two years now and the results are in…

yen

The BoJ’s balance sheet has since exploded in size and they also have the highest public sector debt in the world.

japan public debt.png

Original infographic from: Saxo Markets UK

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Big banks start charging clients for Euro deposits

Rethinking a GOLD allocation !?

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Several global banks have begun charging large customers to deposit their money in euros, a rare move that could have costly implications for investors and companies that do business on the Continent.

The actions are driven by policies from the European Central Bank, which in June became the largest central bank to impose a negative interest rate on deposits–meaning banks are paying to park their money with the ECB. The effort is designed to encourage banks to instead use that money to lend. When the ECB dropped those rates further in September, some banks started pushing those costs–or costs related to the rate cuts–onto customers.

Now, instead of paying customers interest on their euro accounts as they have done traditionally, some banks have started charging them. Bank of New York Mellon Corp. recently started charging 0.2% on euro deposits, the bank said Friday, and Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. have also started charging clients, according to people familiar with the matter.

Meanwhile, Credit Suisse Group AG has told customers it will pass along negative interest rates on all currencies in which they apply, people familiar with the matter said, and has started charging on euro deposits.

The reversal is the most sweeping of its kind that many bankers and their clients say they can recall. The clients most immediately affected are investment firms, such as hedge funds and mutual-fund companies. Multinational corporations with sizable operations in Europe could also face additional costs, according to people familiar with the matter.

HSBC Holdings PLC will soon start charging customers with more than roughly 10 million euros in deposits, according to a person familiar with the matter. The move is intended to discourage a flood of deposits from institutional investors fleeing competitors that have already started levying charges on euro deposits, the person said. An HSBC spokesman said Friday the bank was “monitoring the situation.”

Continues on link below;

Full story can be found here on Market Watch

Christine Lagarde – The Most Dangerous Woman in the World – IMF Advocates Taking Pensions & Extending Maturities of Gov’t Debt to Prevent Redemption

image The new IMF proposal led with Christine Lagarde: Debt cuts for over-indebted states are to be performed more effectively in future by defaulting on retirement accounts held in life insurance, mutual funds and other types of pension schemes, or arbitrarily extending debt perpetually so you cannot redeem.

The new IMF paper describes in great detail exactly how to now allow the private sector, which has invested in government bonds, to be expropriated to pay for the national debts of the socialist governments.

The IMF working paper from December 2013 states boldly:

“The distinction between external debt and domestic debt can be quite important. Domestic debt issued in domestic currency typically offers a far wider range of partial default options than does foreign currency–denominated external debt. Financial repression has already been mentioned; governments can stuff debt into local pension funds and insurance companies, forcing them through regulation to accept far lower rates of return than they might otherwise demand.”

Already in October 2013, the International Monetary Fund (IMF), suggested the Euro Crisis should be handled by raising taxes.

The IMF lobbied for a property tax in Europe that should be imposed where there are no such taxes.

The IMF has advocated for a general “debt tax” in the amount of 10 percent for each household in the Eurozone, which also has only modest savings.

The money people have saved, the IMF maintains should be used for debt service by sheer force.

To reduce the enormous national debt, they maintain that government has the right to directly usurp the savings of citizens. Whether saving money, securities or real estate, about ten percent could be expropriated. This is the IMF view.

Because the government debt of the euro countries has increased a total of well over 90 percent of gross domestic product, they suggest that the people should sacrifice their savings for the benefit of the state.

Socialism is no longer to help the poor against the rich, but to help the government against the people. The definition has changed.

In January 2014, the Bundesbank joined the IMF project focusing on a “wealth tax”. In its monthly report they had announced:

“In the exceptional situation of an imminent state bankruptcy a one-time capital levy could but cheaper cut than the then still relevant options”

if higher taxes or drastic limitations of government spending did not meet, or could not be implemented.

In the latest June 2014 working paper of the IMF, they have set forth yet another scheme – extending maturity;

So you bought a 2 year note?
Well, the IMF possible solution would be to simply extend the maturity.
Your 2 year note now become 20 year bond.
They do not default, you just can never redeem.

Possible remedy. The preliminary ideas in this paper would introduce greater flexibility into the 2002 framework by providing the Fund with a broader range of potential policy responses in the context of sovereign debt distress, while addressing the concerns that motivated the 2002 framework.

Specifically, in circumstances where a member has lost market access and debt is considered sustainable, but not with high probability, the Fund would be able to provide exceptional access on the basis of a debt operation that involves an extension of maturities (normally without any reduction of principal or interest).

Such a “reprofiling” operation, coupled with the implementation of a credible adjustment program, would be designed to improve the prospect of securing sustainability and regaining market access, without having to meet the criterion of restoring debt sustainability with high probability.

Now the June 2014 report has a new, far-reaching proposal.
This shows how lawyers think in technical definitions of words. There is no actual default if they extend the maturity.

You could buy 30-day paper in the middle of a crisis and suddenly find under the IMF that 30 day note is converted to 30 year bond at the same rate!?

More from Martin Armstrong post here

Austria starts the Default Once Again?

INTERVIEW MIT JUSTIZMINISTER WOLFGANG BRANDSTETTER

Austria has just cancelled the sovereign guarantee of one of its states -Kärnten- on the outstanding Hypo Alpe Aria Bank debt.

The “Minister of Justice” Wolfgang Brandstetter said to the Press: “One could have never believed in the sovereign guarantee…Every bigger investor should have known that a 25 bn € guarantee taken by an annual state budget of 2 bn € can never work …”

Source: Posted by Martin Armstrong

Banking Union Time Bomb: Eurocrats Authorize Bailouts AND Bail-Ins

The confiscation of depositor funds
The real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins”

The Unsettled Question of Deposit Insurance;
But at least, you may say, it’s only the uninsured deposits that are at risk (those over €100,000—about $137,000). Right?

Not necessarily.
According to ABC News, “Thursday’s result is a compromise that differs from the original banking union idea put forward in 2012. The original proposals had a third pillar, Europe-wide deposit insurance. But that idea has stalled.”

Two pillars are now in place” – two but not the third.
And two are not enough to protect the public.

As observed in The Economist in June 2013, without Europe-wide deposit insurance, the banking union is a failure…

WEB OF DEBT BLOG

As things stand, the banks are the permanent government of the country, whichever party is in power.

 – Lord Skidelsky, House of Lords, UK Parliament, 31 March 2011)

On March 20, 2014, European Union officials reached an historic agreement to create a single agency to handle failing banks. Media attention has focused on the agreement involving the single resolution mechanism (SRM), a uniform system for closing failed banks. But the real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins” – the confiscation of depositor funds. The deal involves multiple concessions to different countries and may be illegal under the rules of the EU Parliament; but it is being rushed through to lock taxpayer and depositor liability into place before the dire state of Eurozone banks is exposed.

View original post 1,601 more words

Front Page Warning: 72 hours to withdraw cash funds

Link: Up to 10,000 people could find their funds frozen !!!

Irish banks lock 10,000 out of their accounts (time for a bail-in?) with another 15,000 current accounts are to be “terminated”

News Link to full article.

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Is your money safe at the bank? An economist says ‘no’ and withdraws his

Link: Why This Harvard Economist Is Pulling All His Money From Bank Of America ?
image What about in Europe ?
FT Link: Bundesbank proposes taking money from bank accounts as a contribution towards paying Euro Zone debt!

The IMF said the tax rates needed to bring down public debt in eurozone countries to pre-crisis levels would be hefty; it reckoned a rate of about 10 per cent on households with positive net wealth.

Last year, Cypriot deposit holders were forced to take losses on their bank accounts to help pay for the country’s €10bn international bailout. But those deposits were used to limit the price tag for its rescue as opposed to paying down the country’s sovereign debt load.

How about Japan ?
Link: Japan plans to use funds from dormant bank accounts
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IMF: Lowering sovereign debt levels through a one-off tax on private wealth

The Coming Global Wealth Tax !?
Indebted governments may soon consider a big one-time levy on capital assets!
Q: How much capital do you keep in private & business bank accounts for a possible 10% confiscation, & what defensive actions are being taken ?

imageAs applied to the euro zone, the IMF claims that a 10% levy on households’ positive net worth would bring public debt levels back to pre-financial crisis levels. Such a tax sounds crazy, but recall what happened in euro-zone country Cyprus this year (2013): Holders of bank accounts larger than 100,000 euros had to incur losses of up to 100% on their savings above that threshold, in order to “bail-in” the bankrupt Mediterranean state. Japanese households, sitting on one of the world’s largest pools of savings, have particular reason to worry about their assets: At 240% of GDP, their country’s public debt ratio is more than twice that of Cyprus when it defaulted.

From New York to London, Paris and beyond, powerful economic players are deciding that with an ever-deteriorating global fiscal outlook, conventional levels and methods of taxation will no longer suffice. That makes weapons of mass wealth destruction—such as the IMF’s one-off capital levy, Cyprus’s bank deposit confiscation, or outright sovereign defaults—likelier by the day.

Link to full WSJ Opinion, The Wall Street Journal by Romain Hatchuel; managing partner of Square Advisors, LLC, a New York-based asset management firm.

Mersch Says Bank Bail-In Provisions Should Start in 2015

Mersch Says Bank Bail-In Provisions Should Start in 2015 – NASDAQ.com.

The Bank Recovery and Resolution Directive, a single set of rules for resolution agreed by European leaders in June,
requires that investors suffer losses equivalent to 8% of a bank’s total liabilities before national  authorities can step in.

FRANKFURT–The new bank resolution bail-in provisions should start in 2015,  three years earlier than currently proposed, an executive board member of the  European Central Bank said Thursday.

To ensure that Europe is able to restructure and wind down troubled banks  effectively, it needs all the tools of resolution at its disposal from the  start, ECB Executive Board Member Yves Mersch said at a conference in  Frankfurt.

While the ECB-based bank supervisor and a common European resolution  authority are slated to be in effect by 2015, the rules dictating how much shareholders, bondholders and then uninsured depositors must contribute if a bank needs to be resolved are currently only applicable from 2018.

“I favor bringing forward the entry into force of bail-in,” Mr. Mersch  said, according to a copy of his speech provided by the ECB. “We should push for  a start date of 2015 for bail-in so that we have the full resolution toolbox available from the outset.”

Now Eurogroup Working Group’s leader Thomas Wieser has revealed that the the eurozone should introduce bank bail-in rules from 2016.

According to a report in German publication Der Spiegel, Wieser called on authorities in the European Union to bring forward the 2018 deadline for the bail-in policy, in order to strengthen the continent’s banking system.

Bail-In Rules for Eurozone Banks Should Start In 2016

From Banking Techonology
Recovery and resolution plans have been on the minds (and to-do lists) of ops and tech departments at the world’s biggest banks ever since they were mandated by the G20 in 2011.
Recovery & Resolution: the operational effects of bail-in

IMF Proposing a NEW 10% SUPER-TAX BAIL-IN taken from ALL Accounts!

The Independent – The economic nightmare may not be over for Europe

35-Mario-Draghi-EPA

The October 2013 IMF report: Fiscal Monitor : Taxing Times,
Further details on the topic from page 23, in the chapter called:

Taxing Our Way Out Of – Or Into? – Trouble

The sharp deterioration of the public finances in many countries has   revived interest in a capital levy, a one-off tax on private wealth, as   an exceptional measure to restore debt sustainability. (1) The appeal   is that such a tax, if it is implemented before avoidance is possible,   and there is a belief that it will never be repeated, does not distort   behavior (and may be seen by some as fair).

There have been illustrious supporters, including Pigou, Ricardo,   Schumpeter, and, until he changed his mind, Keynes. The conditions for   success are strong, but also need to be weighed against the risks of the   alternatives, which include repudiating public debt or inflating it   away (these, in turn, are a particular form of wealth tax on bondholders   that also falls on non-residents).

There is a surprisingly large amount of experience to draw on, as   such levies were widely adopted in Europe after World War I and in   Germany and Japan after World War II. Reviewed in Eichengreen (1990),   this experience suggests that more notable than any loss of credibility   was a simple failure to achieve debt reduction, largely because the   delay in introduction gave space for extensive avoidance and capital   flight, in turn spurring inflation.

The tax rates needed to bring down public debt to pre-crisis levels,   moreover, are sizable: reducing debt ratios to end-2007 levels would   require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth . (2)

(1) As for instance in Bach (2012).   (2) IMF staff calculation using the Eurosystems Household Finance and   Consumption Survey (Household Finance and Consumption Network, 2013);   unweighted average.

It should probably be obvious that there is one key sentence here, one   which explains why the IMF is seriously considering the capital levy   (supertax) option, even if it’s presented as hypothetical:

The appeal is that such a tax, if it is implemented before avoidance is possible, and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). !?