Market Implosion

December 17, 2014

Mario Draghi in announcing he will not cooperate with the Irish banking inquiry does not wish the world to scrutinise the role of the ECB in supporting German and French bondholder banks to the detriment of Irish taxpayers.

Pressure by ECB was put on an incompetent Irish political establishment in 2008 to guarantee its pillar banks based on false information Irish banks faced a liquidity crisis not a solvency crisis.

We did not have a prime minister like Geir Haard of Iceland willing to put Irish banks into receivership in order to prevent national bankruptcy. Instead, we had a compliant and obedient Irish Central Bank, Irish Department of Finance and a subservient government with cheer leaders in a “we love the euro brigade” ready and willing to underwrite all losses of the worst bank in the world, Anglo-Irish Bank(IRBC) and other Irish ‘pillar banks’, with a blanket guarantee.

The blanket guarantee would subsequently lead to the acceptance of an odious €67bn bailout under odious interest coupons from the troika. In one foul swoop the ECB and the Irish government secured German and French bondholders against losses. They couldn’t believe their luck. Irish taxpayers have been paying  through austerity for this.

Government propagandists to this day maintain this idiotic arrangement saved the Irish economy from ruin. Make up your own mind about this!

The lack of regulatory oversight of the Irish Central Bank by the ECB along with lending practices at ICB in the years leading up to 2008 should be a focus for investigation by the Irish Banking Inquiry that begins today.

Crisis Looms

This is President Vladimir Putin’s Press Statement following the G20 summit.

Of interest  are employment rates in Russia at 5% and decision to link oil to a floating exchange rate therefore limiting negative impact of any fall in oil prices in the scenario of a depreciating rouble on international exchanges.

Russian Central Bank capital reserves are strong at 12.5% of which nearly 7% is made up of gold reserves.

On the face of it, Russian Central Bank has stronger capital reserves than the FED. Its economy is not in free fall. Yet, the rouble has fallen 50% in value over the past year. It would appear real market economics are not causing this crisis, but currency speculation is.

Likewise commodity prices should be far stronger than they are. But in a virtual market of currency speculation, commodity prices are manipulated by financial speculators operating from TBTF too big to fail banks. They act in tandem with toxic financial instruments of mass destruction in shadow banking. TBTF banks should be broken up by Dodd Frank to curb speculative excess.

From his speech Putin would appear to be quite dovish looking for a working solution for the Ukraine crisis.

Sanctions against Russia have been miniscule directed against personal wealth of party members rather than the Russian economy. If Russia were to seriously retaliate in energy sanctions against the eurozone, the euro would be severely impacted. It has not done so. Such small sanctions could not cause the currency crisis.

So, what is the cause of the massive speculation against the rouble?

There has been a massive decline in the price of oil which has fallen 40-50% over the past year.

This is unexplained by supplies of shale gas stocks in the US with projections falling for the future based on more expensive extraction methods as current stocks dry up and supply declines.

“U.S. use of imported petroleum and other liquid fuels continues to decline in AEO2014 mainly as a result of increased domestic oil production. Imported petroleum and other liquid fuels as a share of total U.S. use reached 60% in 2005 before dipping below 50% in 2010 and falling further to 40% in 2012. The import share continues to decline to 25% in 2016 and then rises to about 32% in 2040 in the AEO2014 reference case, as domestic production of tight oil begins to decline in 2022 (Figure 12).”

Other volatility in the market place exists.

Speculation has been rife regarding the danger of Japanese currency collapse

Prime Minister Shinzo Abe strategy of Quantitative Easing attempting to drive down the value of the yen in order to improve exports is having a negative effect. It is having a disorderly effect on competing currencies in the region.

ECB Rate Cuts

Last week (Dec 8), the European Central Bank (ECB) said that it would cut its deposit rate — the rate paid by banks to park money with it overnight — to zero and slash its benchmark lending rate to 0.75 percent. The announcement drove the euro currency down further and pushed euro zone bank-to-bank lending rates to new all-time lows on Friday as fund managers blocked new investments in European money market funds, while other investors pulled out of the euro region in panic.”

The euro has tanked in value against the dollar though this can be explained with reference to lack of growth driven by austerity for the poor without austerity for the rich.

As currencies race to the bottom, euro, yen, rouble, consider the following scenario:

There is parallel universe, the shadow banking system, derivatives now estimated to be as high as $2 quadrillion. Much of this is money creation through QE instead of finding its way into the real economy, instead is into currency speculation and eg in commodities, gold, silver, metals and property speculation.

The raising of property prices by vulture funds puts property beyond the reach of the middle class. High prices keep the capital assets of dodgy banks intact. In essence market in property becomes the domain of the rich. A market that depends only on the spending and assets of the rich, is a market that is doomed to fail.

The property market in Ireland is broken because of the above.

Many of the currencies now under speculative attack are leveraged into derivative and shadow banking currency market speculation. Russia in order to protect its currency, is dumping much of its foreign exchange reserves. Such attacks on the rouble are having unforeseen and negative consequences for the stability of the global financial system and the stability of the dollar.

Consider the following. Suppose the rouble crashes. This means Russian exposure to shadow banking trades by way of currency speculation or other financial derivative investments, will not be repaid. Other solvent countries are arriving into this danger zone. Japan is a case in point.

Right now this is unnerving investment markets. It could lead to a collapse of the dominant currency much as speculators in Ireland were left with loans they could not pay back in Ireland’s financial collapse in 2008.

A domino effect through a falling yen or rouble, could send stocks ballooned through QE vulnerable to the pin of the prospect of non repayment of lending on their derivative books.

Its time for the G20 to prepare Plan B.

Currently the great dust cloud of debt is busy consuming currencies such as the yen and the rouble.

In Ireland its effects are felt through vulture funds ravenously feeding on property speculation commercial and private.

It has consumed the real market with young people unable to compete against the large lending resources vulture funds have access to. We see it setting up Irish Water being readied and cocooned for privatisation.

All national resources throughout the world are up for grabs as it attempts to consume all in its wake. Instead of disarming the toxic derivative time bombs, QE has poured gasoline onto the fire of shadow banking and derivative speculation.

However this tidal surge is self-limiting. The more it consumes, the more vulnerable it becomes; the more the real market basis of the local and world economy is consumed and damaged.

When the real market economy is so damaged that it cannot function in supplying further energy to the cloud of debt, the cloud will collapse.

Stocks and shares will fall in value.

Hopefully shadow banking will be reined in through a stronger Dodd Frank, through open financial exchanges licensing financial instruments, through FTT and other measures. But time is running out and the quadrillion shadow banking virtual market is like a runaway train.

Quantitative Easing has failed to rein in shadow banking. Rather shadow banking has monopolised QE for its own destructive use.

Currently QE is destructively set about its own self annihilation. We see this in currency wars and property speculation.

It will not take much of a crisis to bring about its demise.

This is a market implosion Amber Alert warning. 2015 should be an interesting year.

till again. 


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: