A Seignior Will Arise To Provide Seigniorage

(This article was updated on December 17, 2010) 

I … Introduction
Moneyness is seigniorage. Moneyness is the credit, tradeability and value of a currency or an investment.

II … Financial deregulation, carry trade loans, modern-day central bank policies, and Leader’s Framework Agreements have provided moneyness.

Seigniorage came through the repeal of the Glass Steagal Act led by President Clinton and 92 US Senators, who provided for banking securitization and financial deregulation.  The firewall that existed since 1932 and separated investment from personal banking was dismantled and banks developed and marketed lucrative and risky investments such as CDOs and subprime, Alt-A, and Option Arms lending.    

The Bank of Japan ZIRP and associated yen based carry trade lending together with US Federal Reserve Announcements have provided moneyness to real estate financial, futures, stock, bond and currency marketplaces with rating agencies and low levels of credit default swaps and interest rate establishing currencies and investments as money good.

The expectation and actual announcement of the US Federal Reserve Chairman’s FOMC Policy Agreement such as the Quantative Easing TARP Facility, Dollar Swaps, Purchases of Commercial Paper provided moneyness to marketplaces world wide.

Foreign trade loans, that is carry trade loans, by Austrian Banks, EWO, stimulated real estate on business loans in developing Europe, that is eastern European nations, ESR, such as Poland, PLND, Hungary, and Romania.

The Leaders Announcement of an EFSF Monetary Authority, and the provision of seigniorage aid to Greece, and Announcement of Bank Stress Tests, provided moneyness to the Euro, FXE, and it recovered in value from 119 in June of 2010, to 142 in November of 2101.     

III … The world passed from the age of leveraging and asset value appreciation  …  and into the age of deleveraging, and debt deflation on November 4, 2010, when the bond traders seized control of both the Interest Rate on The US 30 Year Government Bond, $TYX, and the Interest rate on the 10 Year US Government Note, $TNX, that were formerly under the control of the US Federal Reserve.

Anticipation of QE2 provided moneyness to bonds; however, on the other hand announcement of QE2, destroyed the moneyness of bonds, as the 30-10 US Sovereign Debt Yield Curve flattened.  

The flattening of the 30 10 US Sovereign Debt Yield Curve yield curve, $TYX:$TNX, came as investors fled the longer out bonds more than they did the shorter duration bonds, as Ben Bernanke’s QE2 monetized debt, and as President Obama’s projected deficit spending developed the risk of a failed US Treasury auction.   

November 4, 2010 was a pivot point, that is an inflection point where … the world passed from the age of leveraging, characterised by credit expansion, currency expansion, and increasing consumer discretionary spending, economic growth and inflation in investment value with moneyness  …. and into the age of deleveraging, characterised by credit contraction, currency contraction, decreasing consumer discretionary spending, economic contraction, and deflation in investment value with the destruction of moneyness

The world wide investment bubble, and moneyness was pricked by Mrs Merkel calling for a haircut on debt and a call for a sovereign debt default mechanism.

IV … In the near future a global sovereign will arise to govern and a global seignior arise to provide seigniorage.

God related through the prophet Daniel that mankind is to be subjected to four kingdoms, before the global sovereign arises to govern the world.

God ordained that a king arise from the Eurozone, that is out of Euro Germany. Perhaps it will one of two have recently received the much coveted Charlemagne’s Prize and who have called for global governance, these being Mrs. Merkel and Jean-Claude Trichet.

Ambrose Evans Pritchard commented, on May 2, 2010, in the Telegraph, documenting the power of Germany in words reminiscent of Margaret Thatcher: “If the aim of Helmut Kohl and Francois Mitterrand at Maastricht was to tie down a ‘European Germany’ with the silken chords of EMU,, they failed. Monetary union has delivered a ‘German Europe’ after all. And he continues, We now know the answer to Henry Kissinger’s question: “Who do I call if I want to call Europe?” Only one person matters,The Chancellor of Germany.”

Germany was one of six signatory nations to the Treaties of Rome which established the Eurozone on March 25, 1957.  Historian Juan Carlos Ocana writes: These Treaties being the European Economic Community, EEC, Treaty, and the European Atomic Energy Community Treaty. The EEC affirmed in its preamble that signatory States were “determined to lay the foundations of an ever closer union among the peoples of Europe.”  In this way, the member States specifically affirmed the political objective of a progressive political integration. The EEC was colloquially known as “Common Market”. The member countries agreed to dismantle all tariff barriers over a 12-year transitional period.”  The signatories of the historic agreement were Christian Pineau on behalf of France, Joseph Luns from the Netherlands, Pauh Henri Spaak from Belgium, Joseph Bech from Luxemburg, Antonio Segni from Italy, and Konrad Adenauer from the Federal Republic of Germany. The Treaties were ratified by National Parliaments over the following months and came into force on 1st January 1958.

It’s very reasonable to believe that out of the soon coming implosion of European Banking, that Jean-Claude Trichet could rise to rule in Europe as he frequently stated a need for strong economic governance.  France 24 International News in article Trichet Calls For United EU At The IMF reported on September 4, 2010: European Central Bank chief Jean-Claude Trichet called for Europe to hold a united position on reform in the International Monetary Fund. “I would urge the Europeans to have a united position,” Trichet said when asked about the possibility of cutting the number of EU seats at the IMF. Speaking at a press conference at the Forum Ambrosetti, a political and economic gathering in northern Italy, Trichet said a common EU position on IMF reform is “very important for global governance”.

And in address Global Governance Today, made before the Council on Foreign Relations, CFR, on April 26, 2010, Mr. Trichet called for a new financial state-of-being saying: “For the good and appropriate functioning of global finance it is extremely important that we, in this new ownership of global governance, have — particularly on both sides of the Atlantic — the implementation of the same rules in the same fashion.”    

Forbes reports on December 4, 2010 ECB’s Trichet To Receive 2011 Charlemagne Prize. Wikipedia relates that the Charlemagne Prize (German: Karlspreis; full name originally Internationaler Karlspreis der Stadt Aachen, International Charlemagne Prize of the City of Aachen, since 1988 Internationaler Karlspreis zu Aachen, International Charlemagne Prize of Aachen) is one of the most prestigious European prizes. It has been awarded once a year since 1950 by the German city of Aachen to people who contributed to the ideals upon which it has been founded. It commemorates Charlemagne, ruler of the Frankish Empire and founder of what became the Holy Roman Empire, who resided and is buried at Aachen. Traditionally the award is given to the recipient on the Ascension holiday in a ceremony in the town hall of Aachen.

Germany is destined to rise to power as God ordained five kingdoms prior to the rise of the beast system of Revelation 13:1-4; these are found in Daniel 2:30-33
1) First, Babylonian, Head of Gold and 2)  Second, Medo-Persian, Chest and Arms of Silver and 3) Third, Greek, Belly and Thighs of Bronze …  Daniel 2:30-32
4) Fourth, Roman, Legs of Iron and 5) Fifth, Revived Roman Empire-European Union, Feet of Iron And Clay … Daniel 2:33.

The economic power of Germany has given seigniorage to the Euro, FXE, as a currency. And the euro yen carry trade, that is the EUR/JPY, has been the defacto drive for the Morgan Stanley Cyclical Index, $CYC, of 30 leading economic growth companies such as Freeport McMoRan Copper and Gold, FCX,

The fifth kingdom is rising; its rule will be global.

Daniel Taylor writes in Old Thinker News that global governance has been the agenda of the Council on Foreign Relations …. Global Governance will come through the global sovereign.

Where as under the previous four kingdoms, there has been some level of autonomy, the fifth kingdom will be authoritarian. Democracy will be replaced with autocracy.

In the age of global governance Leader’s Framework agreements provide seigniorage. An example being the seigniorage aide announced for Greece in May 2010 by the European Leaders, and the fiscal agreement announced for Ireland in November 2010.

And in the age of global governance Leader’s Framework agreements provide political leadership to pass legislation as well as to issue mandates. A case being the President Obama Tax Cut Framework Agreement, where Obama handed the Heart And Soul of the Democratic Party To The Republicans, and another case being the Dodd Frank Framework Agreement establishing a Financial Regulator in the person of the Secretary of the Treasury.

Philip Aldrick of the Telegraph reports that Mr Strauss-Kahn criticised Europe’s disjointed response to the eurozone sovereign debt banking crisis after Germany and other states resisted his calls for bolder action on Tuesday December 7, 2010 warning that “piecemeal” fixes would not work and a “comprehensive” solution is needed.

Germany and France are pushing for an EU summit the week ending December 17, 2010, to approve a proposed treaty change that would allow debt-stricken euro zone states to make an orderly default, with private sector bondholders sharing losses on a case-by-case basis. However eurozone finance ministers did not agree on any new action this week to stop the crisis, making investors wary.

I note that Dominique Strauss-Kahn has given “the clarion call” for a comprehensive solution to the European Financial Institution, Sovereign Debt Symbiosis Crisis.

The Strauss-Kahn call for a comprehension solution has gone unanswered as Business Insider relates tht Europe just kicked the can down the road.

After the Leaders Summit of mid December 2010, the European Financials, EUFN, immediately fell 1.0% lower, the European Shares, VGK, fell 0.9%, and the Euro, FXE, fell 0.4% to 131.35. Abigail Moses in Bloomberg article writes Sovereign Swaps Jump As Irish Downgrade Fuels Contagion Concern.

Ireland’s credit rating, which has a “negative outlook” at Moody’s, is now three levels above junk and the same as Russia and Lithuania. Moody’s yesterday placed Greece’s Ba1 rating on review for a possible “multi-notch” downgrade and said Dec. 15 it may lower Spain from Aa1. Belgium’s AA+ credit rating may be hurt by “prolonged political uncertainty,” Standard & Poor’s said December 14, 2010. Credit-default swaps on Belgium increased 6 basis points to 202, Spain rose 6 basis points to 332, Portugal increased 11 to 467, Greece climbed 12 to 965 and Italy was 2 higher at 204, CMA prices show. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 6 basis points to 194. Markit Group Ltd.’s financial index of swaps on the senior debt of 25 European banks and insurers increased 9 basis points to 174.5, JPMorgan prices show.

The banks are unable to recapitalize themselves, the only capital they receive is by selling debt to the ECB. The problem is the sovereign debt of Portugal, Italy, Ireland, Greece and Spain that the banks hold on their books. Marco Shipping quotes a Bloomberg article where Sanford C. Bernstein analysts including Dirk Hoffmann-Becking said: “We expect the eurozone sovereign debt crisis to become worse before it gets better.”  French banks had the most at stake in Greece, with $83.1 billion (Dh305.235 billion) at risk, compared with German bank holdings of $65.4 billion, the data show. British banks had $187.5 billion in exposure to Ireland, while German lenders had $186.4 billion. Banks in Germany, Europe’s biggest economy, had $512.7 billion at risk to Greece, Ireland, Portugal and Spain at the end of the second quarter, according to Basil Switzerland based Bank for International Settlements, BIS.

The convergence carry trade is about to unwind: it is the very definition of systemic risk making for the ultimate black swan event.

Tracy Alloway in FT.com artile The Eurozone ‘Convergence Carry Unwind’  With Spanish bond yields briefly hitting new highs yesterday after the Moody’s announcement, and ahead of the last Spanish bond auction this year (EUR 3BN in 10 and 15 year maturities), we look at the geographical breakdown of debt holdings using portfolio investment data from the IMF. The overall conclusion is similar to the more frequently used BIS data set, namely that Spanish debt is almost exclusively being held by European investors. This once again highlights that much of the European sovereign debt crisis is an issue of distribution of losses within EMU participants, and new rules on how to optimally share credit risk going forward. (My thought is no one, nobody, nada wants to participate in this risk).

In the late 1990s and early 2000s, Euro-zone periphery convergence trades were generally very profitable. Back in the mid-2000s the Eurozone variant of the global carry trade was epitomised by the so called conversion funds. These fixed income funds focussed on economic conversion but more importantlyand also a Seignior, that is a Banker, yield conversion. And, because the initially targeted CEE markets lacked depth, exposure also rose to peripheral markets within the Eurozone. The more aggressive variants of this carry trade included even selling of CDS protection in these markets.

To some extent the Eurozone crisis has therefore followed the path of other carry unwinds in recent years, as for example the Yen. It is no surprise in that context that the European convergence carry unwind was accompanied by the unwind of funding positions in the Swiss Franc, which rallied to record highs while the European sovereign crisis erupted.

On the winning side, non-Eurozone holders of debt securities mainly issued by core countries were effectively short carry. After years of underperformance, the scepticism has finally played out in 2010.

Indeed. This is the ‘re-risking of the eurozone‘ put on by some canny hedge funds in the 2000s — taking the other side of the so-called convergence trade, for instance, buying CDS on weaker EU states. Lots of those funds — especially in the CDS space — gave up the trade before imbalances between EMU members became apparent in the latter-half of 2009. Those that held out though, would be sitting on hefty profits. Leaving the not-so-canny majority to their messy ‘Convergence Carry Unwind’.

World stocks, VT, peaked out  before the Leaders Summit on December 14, 2010 at 48.10; and traded 0.5% lower immediately after the Leaders Summit at 47.77.

The S&P, SPY, peaked out before the Leaders Summit on December 14, 2010 at 124.67; and traded 0.4% lower immediately after the Leaders Summit at 124.30.

Chart of SPY Daily

Chart of SPY Weekly

International Utilities, IPU, are both interest rate sensitive and Euro Sensitive; they fell 1.0% lower today.

 

A catastrophe is coming out of rising sovereign debt interest rates, as well out of further global competitive currency devaluations at the hands of the currency traders, resulting in a financial market place implosion,  the European Financial Institutions, EUFN, will fall quickly falling in value, taking the entire global financial system down, resulting in Götterdämmerung, an investment flame out, bringing forth a new age.

Out of the chaos, Bible prophecy foretells in Revelation 13:5-10, that a Sovereign, that is a Chancellor, such as Angela Merkel or  Herman van Rompuy or John Redwood  or Tony Blair, will rise to govern.  And  Revelation, 13:11-17,  foretells a Seignior, that is a Banker, such as Wolfgang Schäuble, or Olli Rehn, or Jean-Claude Trichet, or Gordon Brown or Jose Manuel Barroso, will rise to provide credit. 

The Seignior will have fiscal sovereignty to control deficit spending, enforce internal country devaluations, provide a common EU Treasury for both taxation and transfer payments, assure mutual guarantees of the EU debt, and as Timothy Geithner called for, implement unified regulation of banking globally. All seigniorage, both credit and fiscal will come and go through the Seignior, who will make decisions on where money is spent. The Seignior will coordinate all aspects of economic policy, includes taxes, wages.

I foresee national sovereignty passing away throughout the world, as Leaders’ Framework Agreements establish ten regions of global governance as called for by the Club of Rome in 1974; hence people will no longer be citizens of sovereign nation states, rather residents living in a region of global government.

Many write that government debt must be restructured. However this cannot be done, as any new debt issue will not be auctionable … that is, the new government treasuries will not find buyers, due to the risk that the new issue, will itself, at some time be restructured.

Others write that bank debts be converted to equity; but this would simply be sold short by short sellers.

Others suggest mortgages debt be written off; but then there will be a run in mortgage-backed mutual funds; and the write off will preclude the issuance of new debt issue.

Others suggest that toxic and inefficient banks be eliminated; but this is not possible as all banks in Europe are integrated with each other and with governments.

Debt deflation is the operative economic dynamic and principle in the future. Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”

As most are painfully aware banks will need to revive, that is renew their balance sheets soon with new debt issue. No one, nada, absolutely no one, is going to buy bank debt. Investors are short selling European bank debt and buying credit default swaps on the banks.

I see a strong down draft in world stocks, ACWI, and in European Financial Institutions, EUFN, in particular; as well as increasing sovereign debt interest rates such as the Interest Rate on the 30 Year US Government Bond, $TYX, and the Interest Rate on the 10 Year Us Government Note, $TNX, and thus a decrease in Treasury Bonds, such as EDV and BWX.

Of note, the 30 Year US Treasuries, EDV, entered an Elliott Wave 3 Down on September 28, 2010.

There are those who warn of global governance, they might be termed a New Paul Revere as John Fonte of the Hudson Institute wrote in his Book review of  Daniel Hannan’s The New Road to Serfdom, …  but I assure  … it is as I wrote in another article …  A Leader Will Emerge Soon To Rule The World

Keywords: theseignior, theovereign, globalsovereign, globalseignior, seigniorseigniorage