The World Passes Through Peak Credit As International Treasury Bonds, International Corporate Bonds And Junk Bonds Top Out ….. A United States Of Europe Is On The Way As Monti Makes Call For A Strong Eurozone Bank

Financial market report for the week ending Friday August 31, 2012; this is twenty first week of entry into the Second Great Depression.

1) … The age of deflation will be characterized by a see saw destruction of fiat wealth.
This week silver, gold, agricultural commodities, oil, natural gas, and unleaded gas, traded up, while world stocks, base metals, timber, and currencies traded lower, at a time when total bonds have likely peaked out..

China, CAF, YAO, HAO, TAO, CHII, CHIQ, CHIM, CHIX, India, INXX, INP, SCIF, Russia, RSX, RSXJ, Brazil, EWZ, BRXX, Indonesia, IDX, Australia Small Caps, KROO, Canada Small Caps, CNDA, Japan, EWJ, led country stocks lower this week as Andy Sharp and Toru Fujioka of Bloomberg report   Japan’s consumer prices slid at a faster pace in July and industrial production unexpectedly slumped, raising the danger that the world’s third-largest economy has slipped back into a contraction.  The benchmark price gauge, which excludes fresh food, fell 0.3% in July from a year before, putting the central bank’s 1% inflation goal further from reach… Industrial output fell 1.2%. A private measure of manufacturing for August was the lowest since the aftermath of the record March 2011 earthquake.

Japanese Banks NMR, SMFG, MTU, MFG, Brazil Banks, BSBR, ITUB, India Bank IBN, and South Korea Banks, WF, SHG, Shipping, SEA, Small Cap Gold Miners, GDXJ, Energy Service, IEZ, OIH, Iron Ore Miners, BHP, VALE, RIO, Rare Earth Miners, REMX, Uranium Miners, URA, Coal Miners, KOL, Copper Miners, COPX, Aluminum Miners, ALUM, Metal Manufacturers, XME, and Steel Producers, SLX, led World Stocks, ACWI, lower this week.

The S&P, SPY, traded lower as Bespoke Investment Group reports Breath remains weak.

Transports, IYT, fell 2.2%, and Industrials, IYJ, 0.8%.

Reuters reports Iron ore hits lowest in nearly 3 yrs; miners’ shares tumble. Iron ore prices fell to their lowest levels since 2009 on Thursday, dragging down shares in miners including top producers of the steelmaking ingredient, Rio Tinto and BHP Billiton , as a slowdown in top consumer China threatened to further sap demand. Benchmark iron ore with 62 percent iron content slid nearly 2 percent to $88.70 per tonne on Thursday, according to data provider Steel Index, the lowest since October 2009, although recorded spot prices fell as low as $59 in early 2009. The iron ore price has dropped by a third, or almost $50 per tonne, since July, as Chinese steel producers shun cargoes and the appetite of the world’s largest consumer cools. Prices could fall up to 30 percent more, with no sign consumption will rebound anytime soon, analysts and traders said. “It’s possible for prices to fall to as low as $65 to $70 in the spot market, before a recovery back to the $80 to $90 range,” said Fairfax I.S. analyst John Meyer, adding that the price slide could continue for the next one to two months. Iron ore is a leading economic indicator as it highlights demand in key industrial sectors such as construction and carmaking. Many traders are currently trying to liquidate their iron ore cargoes with little success, a further sign that a rebound is not on the cards in the short term. “Not only is a recovery in the near term unlikely, there is also no sign that the fall will stop,” a UK-based iron ore trader said. “Looking at the cost curve these prices make no sense but there are no signs at all of an improvement in demand. The further traders wait the more they lose and waiting for a recovery is a big risk to take.” A second trader said he was getting “no interest whatsoever” for an iron ore cargo he was offering. The iron ore market will remain under pressure until the steel sector recovers and this will not be a quick process, analysts said. “With sluggish manufacturing activity in Europe and a construction market that’s struggling to pick up in China, demand for steel has dropped sharply with no quick fix in sight,” said Metal Bulletin research steel analyst Kashaan Kamal. Chinese steelmakers said the sector, nourished by a decade of breakneck growth, needs to brace itself for weak demand and razor-thin margins over the next 3-5 years that will force inefficient mills to shut.”The speed in the fall of the iron ore price is alarming. I don’t think many people expected it to be sub $100 and to see it go below $90 is eye-opening to say the least,” analyst Asa Bridle at Seymour Pierce said

Bespoke Investment Blog writes BRICs continue to underperform.  The BRIC trade was one of the hottest trends of the mid-2000s, but it has been especially weak over the past few years.  Today, the BRIC (Brazil, Russia, India, China) ETF broke below its 50-day moving average, so we have charted the year-to-date performance of the four countries that make up the ETF in the second chart below.
As shown, India is the only market that is outperforming the S&P 500 in 2012.  India’s Sensex is up 13.17% vs. the S&P 500’s gain of 12.13%.  Both Brazil (Bovespa) and Russia (RTSI) are barely in the green for the year, while China’s Shanghai Composite is down 6.65%.

This week silver, SLV, gold, GLD,  and and agricultural commodities, RJA, DBA, natural gas, UNG, oil, USO, Natural Gas, UNG, and Unleaded Gas, UGA, took commodiites, DBC, higher, while base metals, DBB, and timber, CUT, traded lower. Soybeans rose 1.65% as Sameer C. Mohindru of WSJ reports A Taiwan importers’ association bought soybeans Tuesday, in what might seem a routine tender. But it wasn’t.  Instead of buying one cargo of around 60,000 metric tons, as usual, the Taiwan’s Breakfast Soybean Procurement Association bought three, including one not due for shipping until next July. It was the second time in less than a week that a Taiwanese buyer had taken above-average or far-forward amounts. With prices already in uncharted territory and an even tighter market in the future seeming all but inevitable, soybean importers elsewhere having been locking in supplies, too.  Prices for wheat and corn are also soaring… But the time bomb ticking under the global soybean trade is potentially more explosive. Corn and wheat can be substituted for one another for many uses, but soymeal substitutes are limited, and even costlier.”

The US Dollar, USD, UUP, Swedish Krona, FXS, and the Australian Dollar, led Major World Currencies, DBV, and Emerging Market Currencies, CEW, lower this week, while the Euro, FXE, traded higher.

Bonds, BND, traded up this week, but below their July 2012 high, as the Interest Rate 10-Year US Government Note, ^TNX, traded lower this week.  Junk Bonds, JNK, Senior Bank Loans, BKLN, Emerging Market Bonds, EMB, International Corporate Bonds, PICB, rose to new highs, while International Treasury Bonds, BWX, and US Government Bonds, ZROZ, EDV, TLT, have likely peaked out. WSJ reports Summer’s over: Spain and Italy CDS surge. M2 (narrow) “money” supply dropped $25.7bn to $10.044 TN.  Bloomberg: reports China’s corporate bonds are set for their first monthly loss this year as more than half of issuers reported profit growth slowed.  Company debt in the world’s second-biggest economy has lost 0.8% in August, paring gains for the year to 3.6% compared with 6.4% in 2011.

Bloomberg reports Japan cuts economic assessment as BNP says contraction looms.  And Nasdaq reports Argentine banks lost $92 million in foreign currency deposits week of 8/17.

2) …  The age of deflation will see a rise of regional governance: a One Euro Government, that is a European Super State, is forming.  
Euro Intelligence in its for fee newsletter relates ECB seeks right to close down a bank. This is the ultimate test of any resolution powers. Frankfurter Allgemeine writes that the ECB is seeking the power to close down banks, as part of the new resolution regime. Quoting from Asmussen’s speech, the ECB wants all the powers to make a resolution regime feasible. Without it, the ECB is not prepared to take on this new role. The article says it was the first time the ECB has publically described its role in the new bank supervisory architecture. The article mentioned that its position was supported by the German government but not by the Bundesbank. And Germany and France set up a working group to make joint proposals. It happened before, was subsequently abandoned, and is now resurrected. Germany and France are setting up an inter governmental working group. This particular group will make proposals for the banking union, for the strengthening of fiscal coordination and economic growth. The announcement was made yesterday by Wolfgang Schauble and Pierre Moscovici at a meeting in Berlin. Der Spiegel quotes Moscovici as saying that the proposal of the joint working group should be ready by October. The working group will also coordinate the Franco-German position on Greece.

Euro Intelligence further reports Draghi says unconventional policies are needed in times of crisis; says measures are justified because monetary policy signals do not arrive even across the eurozone; says ECB was not a political institution, but an institution of the European Union; also made a strong case for centralised bank resolution powers; Draghi cancels trip to Jackson Hole to work on the plan; there are continued disagreements, most notably over conditionality; some central banks say that it is not enforceable; other disagreements concern the transparency of the operation; Merkel and Monti disagree at their meeting over whether the ESM should get a banking licence; Merkel says it is not possible under current law, while Monti says the law can be changed; ahead of the trip, Monti warned Merkel against standing in the way of a solution, as the influx of peripheral deposits would drive up German money supply and inflation.

And Euro Intelligence reports European Commission at odds with Germany over bank reconciliation. Michel Barnier says the September 12 proposal will include central supervision of all 6000 systemically relevant banks; he says Dexia, Northern Rock and Bankia would not have fallen under a large-bank regime; foresees a staged introduction: EFSF-supported banks in January 2013, large banks in July 2013, remaining banks in January 2014; the CDU bitterly opposes these proposals as they threaten the viability of many German savings banks and mutual banks, whose business models depends on regulators looking the other way; Wolfgang Schauble argues that it is too much for the ECB to take on 6000 banks;
Bild reports that Jens Weidmann has considered resignation in protest over bond purchases, but decided against it “for now”. We always suspected that Germany would emerge as the true opponent to any form of meaningful bank regulation. There is now an open dispute between the Commission, which wants to centrally regulation all 6000 eurozone banks, and Germany, which wants to confine this to the 20 or 25 largest banks.

In an interview with Sueddeutsche Zeitung and Les Echos, Michel Barnier made it clear that Brussels wants all 6000 banks to fall under a central regulation. He will make the official proposal September 12. Countries outside the eurozone can participate on a voluntary basis. He said a proposal to confine the centralisation of regulation to the largest banks only, would not have caught banks like Dexia, Bankia or Northern Rock, all of which triggered large state rescues. Tasks without consequences for the financial stability, like consumer protection, can remain at national supervision level. As to the timetable, Barnier says the central regulator should start with the banks subject to an EFSF/ESM programme on January 2013, followed by the large banks in July 2013 and by all banks in 2014. He says this would pave the way for a direct funding of banks through the EFSF/ESM from January onwards.

Suddeutsche writes that the proposals are opposed particularly by the CDU, which defends the position of the savings banks and mutual banks, which are opposed to any intrusion from Brussels into their cosy operations.

In a riposte in the Financial Times, Wolfgang Schauble left no doubt that he opposes the central aspect of the proposal – the control over all banks. He says the system must be effective and that means that a European regulator cannot supervise 6000 banks. He also called for the erection of Chinese Walls inside the ECB to prevent conflicts of interests between monetary policy and prudential supervision. It is also important that the supervisor is accountable to the European Parliament and the Council. He also supports the idea that member states can impose more stringent capital controls beyond the requirements of Basel III. He said it was right not to allow systemically important banks to fail after Lehman Brothers, but it was now time to move on.

EurActive reports “Those who claim only a full federation can be sustainable set the bar too high,” Draghi wrote in an opinion piece published on Wednesday (29 August). “What we need is a gradual and structured effort to complete the EMU [Economic and Monetary Union],” he added in the article, originally published in previous Eur Active article The future of the euro: stability through change. Such ventures into political territory are extremely rare from the ECB, signalling that the eurozone’s sovereign debt crisis is reaching a decisive turn.

In his opinion piece, Draghi writes that a full political union is not a prerequisite, saying that “economic integration and political integration can develop in parallel”. “We do not need a centralisation of all economic policies,” Draghi further develops to assuage sceptics of greater integration. However, “for fiscal policies, we need true oversight over national budgets,” he adds, because “we cannot afford a situation where some regions run permanently large deficits vis-à-vis others.”  “The euro area is not a nation-state,” Draghi concludes, but “the sharing of powers and of accountability can move in parallel.” European heads of states were given a report on closer economic and monetary union, which Draghi co-authored, at the last EU summit in June. The report outlined the process towards deeper EU integration and identified the main building blocks – a banking union, a fiscal union and further steps towards a political union.

Open Europe relates Draghi: A United States of Europe is not the solution to the eurozone crisis. Writing in Die Zeit today, ECB President Mario Draghi argues that the current “solutions offer binary choices: either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes.” Draghi suggests that a new architecture is needed, with Germany remaining the “anchor of a strong currency”, but that a political union is not a prerequisite, adding “economic integration and political integration can develop in parallel”. Draghi suggests a model based on fiscal responsibility, combined with financial regulation and oversight, arguing, “This is not the end, but the renewal of the European social model.” Draghi concludes, “Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high. What we need is a gradual and structured effort to complete EMU. And writing in Handelsblatt Handelsblatt: Stark, former ECB chief economist Jürgen Stark argues that in attempting to combat the eurozone crisis, the ECB has “repeatedly crossed red lines”, and that plans to buy up government bonds amount to “illegaly financing states”, which he warns “will lead to higher inflation”.

Open Europe further relates Commission wants to give ECB control over all eurozone banks; Schäuble: It is “common sense” to limit supervisory powers to systemically important banks.  The Commission’s latest proposals for a banking union, which it will present on the 12 September, would see the ECB being given supervisory powers over all 6,000 eurozone banks, stripping national bodies of any real power, claims the FT. The power would lie within a new 23 man supervisory board within the ECB, made up of a representative from each eurozone state and six independent members. The supervisory function would start from January 2014, although, for banks which borrow from the eurozone bailout fund, supervision could start as early as January 2013. Writing in the FT, German Finance Minister Wolfgang Schäuble argues that it is “common sense” to only monitor systemically important banks rather than all 6,000 eurozone lenders. The presence of a “Chinese wall” between supervisory and monetary policy matters “would also make it easier for EU members that do not use the euro to participate in the supervisory system, thereby protecting the coherence of the single market,” he writes.Writing in the Guardian, Commission President José Manuel Barroso argues, “We will need to bridge the gap between eurozone members and EU members that remain outside the monetary union, some of which may want to participate in the new supervisory mechanisms.” Schäuble also called for a cap on bank bonuses to be included in a compromise between MEPs and national governments to implement Basel III under the EU’s Capital Requirements Directive. “Immediate cash bonuses for top bank executives should not exceed their fixed pay,” he argues.  FT CityAM Euractiv Expansión Süddeutsche: Barnier EUobserver Guardian: Barroso WSJ Telegraph Echos Süddeutsche FT Süddeutsche 2 FAZ: Ruhkamp FT: Schäuble FT Reuters

And Open Europe Spain and France renew calls for ECB intervention; Bild: Weidmann has considered resigning.  Following their meeting yesterday Spanish Prime Minister Mariano Rajoy and French President Francois Hollande backed calls for greater ECB intervention in the crisis, with Hollande saying, “When you see such wide gaps in yields, that could be a justification for an intervention in the name of monetary policy.” Meanwhile, Bild reports that, according to unnamed sources, Bundesbank President Jens Weidmann has considered resigning in recent weeks. According to El Mundo, German Chancellor Angela Merkel is urging Spain and Italy to delay potential requests for EFSF bond-buying, as she would like the Bundesbank’s internal tensions to ease first. WSJ CityAM European Voice Le Figaro Economist: Charlemagne Bild MNI Handelsblatt El Economista Corriere della Sera El Mundo

Michael Goldfarb in BBC Radio speaks in audio blog European Federalism, its history, the intellectual theories behind it, and its successes and failures. The eurozone crisis boils along like a tea kettle left screaming on the stove. But once this situation is resolved, the fundamental problem of the euro will remain – it’s a single currency serving 17 countries, with 17 different governments, operating on 17 different electoral timetables, setting 17 different tax policies. Can 17 into 1 ever go?  Some have suggested Europe’s single currency needs an independent central bank, a single fiscal policy, and a single democratically elected government to oversee the economy it serves. There’s a word for this arrangement among states. Former British Prime Minister Margaret Thatcher knew it well – federalism. Federalism was fine for America but she was dead set against it for Europe.

Mike Mish Shedlock in article Don’t expect much from a Merkollande Summit, writes I wrote Merkel pushes convention to draft new EU Treaty; United States of Merkel?,  Do the German people want a centralized authority over budgets led by bureaucrats in Brussels or is is it primarily Merkel? I suggest the latter. Merkel wants as her legacy a United States of Merkel (which I define as a United States of Europe in which she gets primary credit for building). She does not care what it costs Germany as long as it gets her in the history books forever and a day.

Numerous Problems.  The problems should be obvious. Many countries, especially the club-med states, do not want austerity or loss of sovereignty. They want printing. Also note that Holllande wants to continue his tax the rich policies while lowering the retirement age and preventing businesses from firing workers.

Will Hollande’s ideas work in a United States of Merkel? Let’s assume they will work. Indeed that should be Germany’s big fear. Put a bunch of nannycrats together and they are likely to decide anything. And whatever rules they decide will apply to every country in the nannyzone that foolishly signs the treaty. If the treaty is a simple majority rule treaty, Germany would be at risk of being overruled by the club-med states. If  the treaty is by percentages, the club-med states would be at risk of being dominated by what is good for Germany and France (assuming of course Germany and France can agree).

Do-or-Die Political Expediency.  Finally, politicians might want a nannyzone, but citizens of many countries would not, and I strongly suspect that includes Germany. Recall that France and Germany pushed through a treaty in December (still not ratified). Also recall that Hollande ran on a platform of renegotiating the treaty. Germany and France are still bickering. How’s that supposed to work? Does Merkel think an agreement now is likely? I think not. Instead, her proposal is simply a matter of do-or-die political expediency and her one last chance to push for the United States of Merkel.

Don’t Expect Much (Except Bickering) From a Merkollande Summit. While Hollande is skeptical at best, the Netherlands is downright anti-Brussels belligerent. So please tell me again how the Merkolande summit is supposed to work given the Netherlands, Germany, and France still not have ratified the last one, and numerous countries do not want to create a United States of Merkel led by nannycrats with budgetary veto powers.

And Mike Shedlock further writes Brussels Pushes for Another “All Powerful” Banking Committee, Headed by ECB, In Spite of Objections by ECB and Germany. Once nannycrats grab on to an idea, they never relinquish it. Eurobonds are the perfect example.  Many other idea float around despite numerous objections in key places. Some of these ideas involve creation of more commissions and more working groups.

Here is a sampling of commissions and groups that I am aware of. The European Commission is headed by president José Manuel Barroso; The European Council is headed by president Herman Van Rompuy; The Euro Group is headed by president Jean-Claude Juncker; The European parliament president is Martin Schulz; Numerous other committees set policy on trade, energy, and nearly everything else under the sun.

Barroso now wants another new commission, this one under the ECB with the task of being the “all powerful” banking supervisor. As envisioned, Barroso’s plan would would create a 23-member board: a national representative from each eurozone country plus six independent members, including its chair and vice-chair.

No doubt there will be dozens if not hundreds of staff members all intent on expanding their own power.

The Financial Times has more details in Brussels pushes for wide ECB powers.  The European Central Bank would be given sweeping authority over all 6,000 eurozone banks under a plan being drawn up by the European Commission, putting Brussels on a collision course with Germany and the ECB itself, which have urged a more decentralised first step towards “banking union”.

The plan, agreed at a meeting this week between top aides to José Manuel Barroso, commission president, and Michel Barnier, the EU’s senior financial regulator, would strip existing national supervisors of almost all authority to shut down or restructure their countries’ failing banks, giving those powers to Frankfurt.

The German government has resisted centralising all supervisory powers with the ECB, however, arguing that Frankfurt should be left to deal with just the eurozone’s 20-25 largest banks. National supervisors would then be left as independent and co-ordinating agencies for smaller banks.

Some senior ECB officials had taken a similar view in closed-door consultations with Brussels, EU officials said, though Mario Draghi, the ECB chief, is more sympathetic to the commission’s view.

Germany’s objections also stem from a desire to keep national control over smaller, politically connected regional savings banks.

Despite the resistance, Mr Barroso this week decided to adopt the more ambitious proposal advocated by the commission’s internal market directorate, drafters of the plan, which argued a narrower approach would disappoint financial markets.

Splitting responsibility could complicate the next steps in creating a banking union: setting up a eurozone-wide deposit guarantee scheme and bank bailout fund. If only large banks were covered by those schemes, depositors could flee smaller banks for more secure larger ones, officials argued.
To become law, all 27 nations must agree. Barroso hopes for a summit before the end of the year.

In addition to unanimous approval for such as position, I would point out that ceding power to Brussels is a change is so sweeping that Germany would require a national referendum, just as with the eurobonds idea.

Nannycrats do not care about such issues, they just plow ahead, then blame Germany when it will not go along. Speaking of which, I highly suspect Merkel has taken a partial stance out of political expediency. Perhaps she thinks she can avoid a referendum by limiting authority to only the largest banks.

Doug Noland writes Risk #3.  Chairman Bernanke, not surprisingly, made it clear in Jackson Hole that he is prepared to move further into the uncharted waters of “non-traditional” monetary tools.  His review came out on the side of benefits outweighing “manageable” costs, although perhaps to placate the hawks he cautioned, “The hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.”
Before delving into his cost-benefit framework, it is worth mentioning that the word “Bubble” is nowhere to be found in Bernanke’s paper.  I strongly argue that the issue of whether the Fed is once again accommodating a Credit (“government finance”) Bubble is today’s prevailing – potentially catastrophic – policy risk.  The possible role that non-traditional policy tools might be playing in nurturing Bubble dynamics should be the focal point of any cost-benefit analysis related to the Fed’s experimental policymaking endeavor.  Regrettably, it’s completely disregarded – hear no evil, speak no evil, and see no evil. I take exception with those calling Bernanke’s presentation “balanced.”

From Bernanke’s paper Monetary Policy since the Onset of the Crisis.   “Of course, one objective of both traditional and nontraditional policy during recoveries is to promote a return to productive risk-taking; as always, the goal is to strike the appropriate balance. Moreover, a stronger recovery is itself clearly helpful for financial stability. In assessing this risk, it is important to note that the Federal Reserve, both on its own and in collaboration with other members of the Financial Stability Oversight Council, has substantially expanded its monitoring of the financial system and modified its supervisory approach to take a more systemic perspective. We have seen little evidence thus far of unsafe buildups of risk or leverage, but we will continue both our careful oversight and the implementation of financial regulatory reforms aimed at reducing systemic risk.”

He again misjudges and woefully understates risk. The entire monetary policy transfer mechanism has been radically altered, foremost by the transformation of system Credit expansion from primarily bank loan-driven to one dominated by marketable debt and myriad risk intermediation channels. Traditionally, central bank stimulus would entail adding reserves into the banking system to effectively reduce the cost of funds, thereby incentivizing additional bank lending.  Today, Federal Reserve monetary stimulus is transmitted primarily through incentivizing risk-taking and leveraging in the securities, derivatives and other risk asset markets.  We now have about 20 years experience in support of the thesis that there exists a dangerously powerful interplay between activist central banking, marketable debt and financial speculation.  Yet the Fed somehow seems to ensure that its analysis avoids addressing the associated risks of an ever-increasing Federal Reserve role in the pricing and trading dynamics of an ever-expanding quantity of securities, derivatives and market speculation.

Global central bankers, whether Draghi at the ECB, or the Bernanke Fed, the Bank of England, the Swiss National Bank (SNB), or others, now actively pursue the power of “open-ended” monetary and market support/intervention.   No quantification necessary.  This escalation to unconstrained monetary stimulus was the motivation for last week’s “Do Whatever it Takes!”  Drs. Draghi and Bernanke have done nothing less than to signal to the marketplace that they at any point and to any extent deemed necessary will be there to backstop the markets.  Worries – albeit those associated with so-called “exit strategies” or inflation risks – have been completely overshadowed by a resolute determination to avert another global crisis.  It may have been subtle; it’s no doubt radical.  The Draghi and Bernanke “puts” have been significantly bolstered and manifestly communicated.  Sophisticated global speculators operate knowing central bankers are unequivocally determined to quell so-called “tail” risk of illiquid and faltering securities markets.

I’m the first to admit that it’s easy to dismiss the view that, only a month or so ago, rapidly escalating European debt tumult was at the brink of unleashing the forces of global financial and economic crisis.  The path from illiquid Spanish and Italian debt markets and a crisis of confidence in the euro to a more globalized panic was not so difficult to discern:  illiquid markets, de-risking/de-leveraging dynamics, capital flight, systemic banking stability issues, derivative and counterparty concerns, hedge fund problems and a resulting abrupt tightening of global financial conditions.  Draghi surely believed he had no alternative than to go radical – and now Bernanke and others are as well ready to do whatever it takes.

Let’s return to Risk #3.  Global markets have rallied strongly.  Those bearishly positioned have been mauled.  Risk hedges have been unwound.  The speculator community has positioned bullishly around the globe to profit from the latest policy-induced bout of “risk on.”  Those betting on the power of the policymaker market backstop have been rewarded and emboldened.  What if it doesn’t work?  What if policymakers have prodded everyone to one side of the boat – and then it tips?  Is policymaking bolstering stability or, rather, exacerbating instability?  It is now generally accepted that additional monetary stimulus would have little economic impact.  Yet moving toward aggressive “open-ended” market interventions is, understandably, having a major impact on marketplace dynamics.  Is financial stability again being unwittingly subverted?

Monetary policy will not resolve deep structural financial and economic issues in Europe – nor in the U.S., Japan, China or elsewhere around the world, for that matter.  History informs us that it will likely make things worse.  With focus on Jackson Hole, it was easy Friday to miss the widening hole in the Spanish bond market.  Spain’s 10-year yields jumped 27 bps to 6.81%, with yields up 45 bps for the week.  Spain Credit default swap (CDS) prices jumped 21 bps this week (eight-session rise of 62bps) to an almost one-month high 518 bps.  Italian CDS ended the week 12 higher to 467 bps.  Curiously, precious metals gained this week while most industrial metals declined

Draghi clearly has his plan – and his wingman at the Federal Reserve.  There may be no turning back.  At the same time, the European financial, economic and political issues may very well prove insurmountable.

I relate all nations worldwide are starting to lose their sovereign authority and their debt sovereignty as Rainer Buergin of Bloomberg reports Germany, France Reconnect in a Push for Crisis Solutions. Germany and France agreed to drive ahead measures on closer European integration in a renewed show of unity by the region’s two biggest economies to fix the crisis in the euro zone. German Finance Minister Wolfgang Schaeuble, speaking after talks in Berlin today with his French counterpart, Pierre Moscovici, said the two countries will create a working group to advance European Union cooperation on banking union, fiscal union and the strengthening of monetary union.

Regional economic and trading blocs will rise to replace sovereign nation states as leaders announce regional framework agreements to pool sovereignty regionally as capitalism and European socialism is dying on the failure of the world central banks to stimulate global growth and corporate profitability.  Nick Beams writes Fed minutes point to a bankrupt economic order.  The latest FOMC meeting amounted to an acknowledgement that while the financial system continues to operate on a day-to-day basis, in a longer-term, historical sense it has completely broken down.

We are witnessing bible prophecy of Revelation 6:1-2, being fulfilled, as the baton of sovereignty is being passed from sovereign nation states, such as the US, the UK, Spain, Italy, and Greece, to regional sovereign bodies and leaders. The economy of God, that is the administration plan of Christ, Ephesians 1:10, is at work to establish regional economic and political governance, as foretold in Daniel 2:30-33. The Beast Regime of Neoauthoritarianism is rising from the profligate Mediterranean Sea country of Greece, and the failed industrial nation of Italy, as foretold in bible prophecy of Revelation 13:1-4. New centralized monetary authority is coming in the EU, and with it, the diktat money system, which will replace the fiat money system. Diktat will serve as both money and credit.

Angela Merkel is a precursor, that is an antecedent, of one greater, that is the Sovereign, foretold in Revelation 13:1-4, and his partner, the Seignior, Revelation, 13:11-18. Angela Merkel is much like what John the Baptist was to Jesus Christ; one who comes before to herald one more powerful. Germany will rise to be preeminent over vassal peripheral client states in a type of revived Roman Empire. John the Revelator communicates that after Financial Armageddon, that is a global credit and economic collapse, that people will be place such trust in the Beast Regime of regional governance, that it will constitute worship, Revelation 13:3.

The steepening in the 10 30 US Sovereign Debt yield curve, $TNX:$TYX, as seen in the Steepner ETF, STPP, is bouncing up from a multiple bottom, serving a warning signal to investors to get out of bonds, The steepening yield curve in the U.S. Treasury market should have investors worried, PIMCO’s CEO Mohamed El-Erian says in Advisor One article. Wealth can only be preserved by investing in, and taking possession of gold, either in bullion form, or in physical form, in Internet trading vaults, such as Money Is Gold, or Bullion Vault, as the chart of gold, GLD, communicates that an investment demand for gold commenced in August 2012. In the age of devolution, despotism, asset deflation, and spiritual degeneration, gold is the only form of sovereign wealth. The chart of gold mining stocks relative to gold, GDX:GLD, communicates that gold stocks, GDX, GDXJ, GLDX, and Silver Mining Stocks, SIL, SSRI, HL, are liking peaking out.

This week, the most toxic of debt rose, the Fidelity Investments mutual fund FAGIX, which invests in companies in troubled or uncertain financial condition, rose to an all time high of 9.28, as is seen in this ongoing Yahoo Finance chart of FAGIX, BKLN, EMB, JNK, PICB, BWX, and MUB.  One can establish and follow a portfolio of Bonds, BND, including ZROZ, EDV, and TLT, using this Finviz Screener.

All forms of fiat wealth, Bonds, BND, Stocks, ACWI, Commodities, DBC, are depreciating on competitive currency devaluation as Currencies, DBV, and CEW, are trading lower in value, on the failure of the world central banks’ monetary authority to stimulate global growth and trade, as fears of Eurozone sovereign and banking insolvency increase with the passage of time.

The dynamos of growth and credit powering down Neoliberalism. The dynamos of stability, security, and sustainability are powering up Neoauthoritarianism. The former featured wildcat finance, a Doug Noland term,  where bankers waved magic wands of credit providing prosperity. The latter features wildcat governance where tyrants yield clubs of diktat establishing debt servitude.

3) … Poneros behavior and speech will increase in the age of fiat asset deflation and in the age of regional governance; the age of moral degeneration has commenced.
The legacy of LBJ’s grandchildren is proving to be quite poneros. Peter Heudl writes in Crime File News Why All the Killings in Rahmaland? Despite having the nation’s most onerous three-decade old total gun bans, shootings here are as prevalent as typical war zones. 50 ward bosses or Aldermen control Chicago.

The wards are relatively small geographic areas that elect their local strongman.  The problem is that in the high crime wards the elected Alderman are by default deeply entrenched in gangs, crime, drugs and general corruption.  That’s just the Chicago way. The 50-ward system worked a lot better before the massive and sudden migration of disenfranchised and poor Blacks from the South of the 1960s.  Horrible social engineering turned those migrants into a needy, ignorant and dependent population that were easily controlled through generous handouts.

I comment that the ward system, together with the fact that many men could not find and keep manufacturing, construction, distribution, or finance jobs that lasted their life times, led to family breakup, as the father become distant, bitter, and hardened; acting out in mean and crazy speech and behavior to his children, vexing them, so that they grow up as dysfunctional people. Attitudes, virtues, and ethics, that is right relationships with others, are developed by the father; if there is no father present then poneros children is the result. News Weekly writes of The importance of a Father’s love in thier daughter’s healthy development.and Mikiyasu Hakomu & Brian S Ready communicate in PDF document The Father child relationship and development outcome that the father’s presence and role is to instill boundaries and discipline.

God is sending the poneros, pronounced pawn-ay-os, that is the sociopath as part of his end time judgement upon the earth which began in May of 2010, with the announcement of the first Greek Bailout; this is when he opened the seven seals, Revelation 2:1-2. The word poneros, is defined as bad, evil, or wicked, and carries the meaning of diseased, calamitous, morally culpable, derelict, mischievous and malicious.

The sociopath is a human predator of total cunning and capability. He is presented in scripture in 2 Thes 3:2. These individuals have a seared conscience, which for many comes from birth, and which is useless for discerning morally good or morally bad behavior, 1 Tim 4:2.

They act without regard for the rights and feelings of others. They disregard all social mores, norms, and lawful rule, as they set themselves up to be God. They become fiat rule itself. And being totally self serving, they have a win at all cost attitude. They are reprobate chameleons who have multiple personas to best serve the situation at hand. They can switch between charisma and charm and all out aggression in an instant.  2 Tim 3:1-9.

They are secretive and manipulative. Some are organized while other are impulsive and thus easily agitated. Yet nevertheless, they are busybodies in others affairs, continually seeing just how far they can go. 2 Tim 3:11.

The Bible instructs those of faith and reason to offer no resistance to these individuals and to withdraw and turn away from them 2 Thes 3:6, 1 Tim 6:5, Rom 6:17-18.

Virtuous living suggested in 2 Peter 1:1-10, where those of the like precious faith of Jesus Christ, being elect, that is the chosen, selected and appointed of God, add virtue and love to their faith, so as to partake of the divine nature, and receive the exceedingly great and precious promises of God, and to bear spiritual fruit, reflecting the obedience of faith.

Virtuous living develops the four dimensions of personhood. For the Christian, virtues, that is a set of moral excellencies, is practiced the same to all people; there is no moral duality. Virtues when faithed in Christ, confirm one’s identity as elect, and enable one to have organic union with the divine nature; whereas any other spiritual experience or philosophical experience is simply an ongoing experience in the dead state of Adam. Virtuous living glorifies 1) Livelihood, that is gainful occupation, 2) Family role, 3) One another living with other believers 4) Sex life. Marriage, and a wedding band on the finger, places sexual passion in a fireplace where it can be safely and graciously enjoyed.

The degree of one’s moralness, or one’s ethicalness, or one’s fiat ruleness, establishes the clarity,  definition, and distinctiveness of one’s personhood. Morality comes by a good conscience, which in turn comes by prayer, and by the development of purity, and by the practice of holiness as one reflects on and purposes for virtuous living.

Many Germans have by cultural habit developed personal industry, their occupational ruleness gives them an economic advantage and defines a strong, conscientious, and capable worker, yet this does not make them morally superior, or more morally desirable, or morally anything, as it come out of one’s carnal or fiat nature.

And as for the poneros who I have encountered, they continually and habitually have life experience out of their carnal ruleness, a condition where they have no genuine conscience to objectively discern right from wrong, they are only conscious of themselves and their own rules, and act without remorse to exact justice on the offenders of their subjective rules.

4) … Do you know the Lord’s Words?
The Lord’s Words are wonderful words of sound doctrine and spiritual life. Philip P. Bliss, 1874, wrote the song Wonderful Words of Life, now in Public Domain; it is based upon Philippians 2:15-16.

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