More financial news

There are some very interesting developments to report.


1.  Zero Hedge reports that a tungsten-filled gold bar has been discovered in New York.  This follows similar shenanigans reported in recent years from the UK and Germany.  With gold at its present price levels, and likely to see its price rise very soon, it's no wonder that crooks are out to make a dishonest dollar from it.  If you're planning to buy gold in any form whatsoever, I suggest investing in a digital scale and a digital micrometer, verifying their accuracy, then testing each and every piece - coin, bar, whatever - to make sure it weighs and measures what it's supposed to (see, for example, the very precise technical specifications available for Krugerrands) and in the correct units.


2.  Chinese banks appear to have relied on collateral for loans that doesn't exist, or has been used as collateral for so many loans that no-one now knows who owns it.  As Zero Hedge comments on that Reuters report:

This means that in an economy in which the creation of liabilities, and pledging of assets took place at a furious pace in the past 5 years, nobody really knows just what the real state of credit creation truly was. What is 100% certain is that as a result of this revelation, the GDP number of the country, which is and always has been a derivative of credit formation and expansion (and heaven forbid contraction), is massively overrepresenting what it is in reality, and that the Chinese economy has been expanding at a far slower pace if defined not only by the creation of liabilities, but by matched assets. Most importantly, it means that every single Renminbi in circulation is impaired as a country-wide liquidation event would see huge losses by every creditor class. It also would mean, naturally, zero residual value left for the equity.

And just like that the Chinese growth "miracle" goes poof... as does its steel first, and soon all other commodities (coughcoppercough) that served as the basis of "secured" liability creation.

. . .

We now know that this has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history, which incidentally is precisely what the central banks are attempting desperately to delay as much as possible by generating excess inflation to "inflate" away the debt, leading to rematching of finite assets and virtually infinite liabilities. Alas, in a world in which credit-money liabilities are in the quadrillions, and in which the real assets are in the tens of trillions, only hyperinflation can seal the deal.

Or, in other words, lose-lose.

More at the link, and at the original Reuters report.


3.  Bloomberg reports that capital flight is destabilizing the Eurozone.

An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system.

A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year.

The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow. That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis.

“Capital flight is leading to the disintegration of the euro zone and divergence between the periphery and the core,” said Alberto Gallo, the London-based head of European credit research at Royal Bank of Scotland Group Plc. “Companies pay 1 to 2 percentage points more to borrow in the periphery. You can’t get growth to resume with such divergence.”

More at the link.

It's hardly surprising that depositors are moving their money out of shaky economies into more stable ones.  What else do the authorities expect?  Do they think their people are blind, deaf and dumb?  The only reason anyone would not already have moved as many assets as possible out of the way of a possible collapse is because they probably don't have enough unencumbered assets to do so!

We're facing the same exodus of assets from unstable to more stable financial institutions and instruments.  Of course, there are dangers inherent in that process, too . . . see, for example, point 1 above!

Peter