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China Stocks Fail To Close Green Ahead Of National Holiday Despite Constant Intervention, US Futures Rebound

Zerohedge - Wed, 09/02/2015 - 07:51

Since today was the last day of trading for Chinese stocks this week ahead of the 4-day extended September 3 military parade holiday to mark the 70th anniversary of the allied victory over Japan, and since Chinese stocks opened to yet another early -4.7% rout coupled with the PBOC's biggest Yuan strengthening since 2010 as we observed earlier, there was only one thing that was certain: massive intervention by the Chinese "National Team" to get stocks as close to green as possible.

CHINEXT INDEX FALLS 4.8%, HEADING FOR LOWEST CLOSE SINCE FEB. today's 2pm ramp will be a hulk smash special ahead of the parade

— zerohedge (@zerohedge) September 2, 2015

Sure enough they tried, and tried so hard the "hulk's" green color almost came through in the last hour of trading ...

Large banks most loved again as Shanghai shares erase losses before start of patriotic holidays.

— Richard Frost (@frostyhk) September 2, 2015

.... yet, despite the symbolic importance of having a green close at least one day this week ahead of China's victory over a World War II foe, Beijing was unable to defeat the market even once in the latest week...

This takes places as China has thrown the proverbial kitchen sink at the market and achieved nothing. As a reminder, the FT reported yesterday in their most recent desperation scramble, four Chinese regulatory agencies issued a joint statement “encouraging” listed companies to hand out more dividends, buy back their own shares and carry out more mergers and corporate restructurings to boost slumping share prices. The statement from the finance ministry and the regulators in charge of securities, banking and state-owned assets was issued after Beijing’s decision to end its large-scale but unsuccessful programme of direct stock purchases.

State-owned funds and financial institutions have spent more than $200bn since early July trying to prop up the market but benchmark indices have still fallen 40 per cent from their peak of early June. The government has decided to abandon these share purchases and concentrate instead on boosting the slowing real economy, “improving the quality of the equity market” and arresting people deemed to be manipulating the market. In their statement, the four agencies pledged to step up the restructuring and mergers of listed state enterprises to make them more attractive to investors.

The statement also said the agencies would “actively encourage” listed companies to issue more cash dividends, a practice that is relatively rare among companies listed on mainland Chinese stock exchanges. The agencies will facilitate share buybacks by listed companies through regulatory measures that, analysts said, could include tax breaks. Buybacks would take place when share prices fall below net asset value.

And since everything China has tried so far, even arrests and threats, has failed, this bodes very poorly for Chinese stocks come next week because while the FT previously bombastically reported that the "National Team" will no longer intervene over the weekend, only to do just that for 3 consecutive days, at least it had a patriotic alibi. After Sunday, all bets are off.

On the whole, Asian equity markets traded mostly higher for a bulk of the session before falling back into negative territory before the close, with the Shanghai Comp. (-0.2%) paring as much as 4.7% of losses as investors readjusted positions ahead of the long weekend, while brokerages also announced additional funds to back China Securities Finance Corp and support China's stock markets. Nikkei 225 (-0.4%) outperformed for most of the session amid short covering and JPY weakness before seeing some weakness as European particpants came to their desk, while ASX 200 (-0.86%) was weighed on by the energy sector after WTI posted its largest intraday decline in 7 months. JGBs traded mildly lower following the strength in Japanese equities, while losses were stemmed as the BoJ entered the market to purchase JPY 1.2trl of government.

Over to Europe, where cautious sentiment dominated the price action, with stocks in Europe again trading on the back foot (Euro Stoxx: -0.3%) as market participants were left somewhat uninspired by the lack of firm actions by Chinese officials to prevent the flight of capital. Energy names underperformed on the sector breakdown, whereas the more defensive sectors, such as healthcare traded in the green. Despite the ongoing downside in global equities, analysts at Morgan Stanley issued a buy alert on stocks for the first time since early 2009. Such calls typically lead to a V-shaped recovery that delivers a 23% gain in stock prices over the following 12 months.

Looking at US stocks, don't even bother - just focus on the USDJPY, which has once again become a beacon for all E-mini algos (note last night's Japan open surge), and spare yourself the need for 3-4 extra monitors. It is all in the hands of the BOJ's direct and indirect interventions today, with the 120 "tractor beam" level shining through brightly (also keep in mind that after going long of stocks in confused terms on Monday, Gartman warned CNBC that he now expects a bear market - trade accordingly).

Bunds have been supported since the get-go, with peripheral bond yield spreads trading wider and Portuguese bonds underperforming as the debt agency announced that it is mandating for its 2022 bond. Of note, analysts at BNP Paribas noted that the downside by Bunds may struggle to extend from here, citing the risk that the ECB may see cause to signal more easing ahead at its press conference tomorrow.

In FX, commodity sensitive currencies remained remain the underperformer in global FX markets with WTI and Brent crude prices under pressure in early trade, while AUD/USD briefly fell below 0.7000 overnight for the first time since 2009 on the back of the lower than expected GDP reading. Elsewhere, choppy price action was observed by EUR and GBP related crosses with USD-index (+0.2%) spending the European morning in the green in a paring of some of yesterday's losses .

In commodities, we saw a continuation of WTI and Brent crude future prices under pressure in European trade, lower by around USD 1.00, following a devastating for oil bulls API inventory build of 7.6MM barrels following a 7.3MM drawdown the week before, as suddenly US refiner demand is as volatile as Chinese stocks. Participants will be looking ahead to today's DoE crude oil inventories update (Exp. 900k) after yesterday's APIs saw a substantial build of 7600K (Prey. drawdown of 7300K).

Today's highlights will see market participants will get to digest the release of the latest US ADP employment change report and factory orders data.

Market Wrap

  • S&P 500 futures up 0.4% at 1925
  • Stoxx 600 gained as much as 0.8% in early trading
  • Brent Futures down 1.7% at $48.7/bbl, WTI Futures down 2.2% at $44.4/bbl ahead of U.S. data forecast to show stockpiles
  • Euro down 0.3% at $1.1280
  • V2X down 0.4% at 34.1
  • German 10Yr yield down 2bps at 0.77%
  • LME 3m Copper down 0.1% at $5065.5/MT
  • Gold spot unch at $1139/oz
  • Shanghai Composite Index down 0.2%
  • Royal Dutch Shell down 1.5%; Total down 1.5%, Statoil down 1.2%, Repsol down 1.2%, BP down 1.2%
  • “Markets are just nervous and we need to bear in mind that many macro indicators will be published before the end of the week so uncertainty will remain,” Saxo Bank trader Andrea Tueni says by phone

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Cautious sentiment dominated the price action, with stocks in Europe again trading on the back foot
  • Commodity sensitive currencies remained remain the underperformer in global FX markets with WTI and Brent crude prices under pressure in early trade
  • Today's highlights will see market participants will get to digest the release of the latest US ADP employment change report and factory orders data
  • Treasuries little changed as U.S. stock-index futures and European stocks gain despite losses in Asia; ADP Employment due today, est. +200k jobs added in August; payrolls Friday, est. +218k, unemployment rate 5.2%.
  • China-focused hedge funds probably had their worst month in almost 16 years in August, with firms including Orchid Asia Group Management and APS Asset Management Pte suffering losses from the nation’s stock market collapse
  • China’s central bank will have to step back from supporting the yuan by early December and allow the currency to decline given the current strain on forex, according to Rabobank Group
  • Even as U.S. policy makers ponder whether to raise rates this month, central bank forex reserves -- one recent source of liquidity in financial markets -- is drying up and the loss of it partly explains August’s trading volatility
  • Australia’s economy expanded last quarter at half the pace forecast -- only propped up by government and household spending -- as a slowdown in key trading partner China weighed on exports
  • No IG deals have priced for last 10 sessions, no HY since August 19. BofAML Corporate Master Index +1bp to +170; reached +172 last week, widest since Sept 2012; YTD low 129. High Yield Master II OAS +8bp to +578; reached +614 last week, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian and European stocks decline, U.S.equity-index futures rise. Crude oil falls, gold and copper little changed

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Aug. 28 (prior 0.2%)
  • 8:15am: ADP Employment Change, Aug., est. 200k (prior 185k)
  • 8:30am: Non-farm Productivity, 2Q F, est. 2.8% (prior 1.3%)
    • Unit Labor Costs, 2Q F, est. -1.2% (prior 0.5%)
  • 9:45am: ISM New York, Aug. (prior 68.8)
  • 10:00am: Factory Orders, July, est. 0.9% (prior 1.8%)
    • Factory Orders Ex-Transportation, July (prior 0.5%)
  • 2:00pm: Fed releases Beige Book

DB's Jim Reid completes the overnight recap

It’s straight to Asia this morning where hot on the heels of more turmoil on Wall Street yesterday, as well this side of the pond, Asian equity markets have staged something of a recovery leading into the midday break. Led by China once again, the Shanghai Comp (+0.31%) has reversed earlier losses of more than 4% at the open while the Shenzhen (+0.67%) has staged a similar rebound in the last trading day for Chinese equity markets this week before bourses close for the rest of the week for public holidays. The Nikkei (+1.20%) is up also while the Hang Seng (+0.03%), Kospi (+0.19%) and ASX (-0.41%) have staged material rebounds too. Elsewhere, S&P 500 futures are pointing to a near 1% rebound while in the FX space the AUD is largely unchanged despite a softer than expected Q2 print out of Australia (+0.2% qoq vs. +0.4% expected).

Looking back at the price action yesterday, with sentiment weak in the Asia session following the soft Chinese PMI data (albeit broadly in-line with consensus), the declines in equity markets in Asia saw Europe take a fresh tumble with the Stoxx 600 (-2.73%) and DAX (-2.38%) both down sharply before the US saw the S&P 500 (-2.96%) kick start the new month very much on the back foot. A softer than expected US ISM manufacturing reading (51.1 vs. 52.5 expected) added to the damper tone across markets yesterday, while there was attention paid to the weak new orders (two-year low) and export (three-year low) components in particular which contributed in helping to nudge down September Fed liftoff expectations to 32% from the 42% this time yesterday.

On that note there was more Fedspeak for us to digest yesterday, this time from Boston Fed President Rosengren. A non-voter this year and seen as somewhat dovish in views, the Fed official didn’t offer a whole lot of new information relative to what we’ve already heard after arguing that doubts over inflation justify only a modest pace of rate hikes. Specifically, Rosengren said that ‘given current and forecast conditions, not only is the pace likely to be gradual, but the federal funds rate in the longer run may be lower than in previous tightening cycles’. Taking the attention away from timing, for which there were no real clues to take away, Rosengren also highlighted that ‘recent reports on wages and salaries still show few signs that the tightening labour markets are translating to increases in wages and salaries consistent with reaching 2% inflation’. The official did make some acknowledgement to the recent turbulence in markets, saying that ‘we are exposed to international factors, so if there is a global slowdown, we won’t be perfectly insulated’.

Speaking of turbulence, the sharp moves in Oil continue to grab much of the limelight and yesterday we saw WTI (-7.70%) and Brent (-8.48%) snap the biggest three-day rally in 25 years (falling a further 2% this morning) as the China data seemingly put a halt to the surge. Today’s weekly US production numbers from the EIA is set to be a closely watched release while the fallout from the weakness in prices this year is no more evident than in Canada where the economy there officially entered a recession on the back of a second straight quarterly decline in GDP (Q2 -0.5%), although perhaps painting a glimmer of hope that the move might be short-lived with the reading surprising to the upside after expectations of a contraction of 1% last quarter.

The generally weaker tone in markets, exaggerated by the falls in Oil saw US Treasury yields come under decent downward pressure. The benchmark 10y closed 6.6bps lower at 2.153% while there were moves lower too for the 2y (-3.3bps) and 5y (-6.0bps) parts of the curve. It was a much more choppy session for European rates where we eventually saw 10y Bunds close more or less unchanged at 0.795%.

In terms of yesterday’s data flow, along with the softer ISM manufacturing reading, there was a notable decline also for the ISM prices paid component which fell 5pts in August to 39.0, albeit in line with expectations. The generally uneasy tone yesterday was also not helped by a weak IBD/TIPP economic optimism reading (42.0 vs. 47.1 expected), slipping nearly 5pts from last month and to the lowest since October 2013 with the economic outlook component in particular dropping 6pts. Elsewhere, there was a slight upward revision to the final manufacturing PMI reading to 53.0 (+0.1pts) while construction spending for July rose +0.7% mom (vs. +0.6% expected). Finally vehicles sales in August came in a tad ahead of expectations at 13.8m saar (vs. 13.7m expected). Following the ISM manufacturing and construction spending reports, the Atlanta Fed downgraded their Q3 GDPNow forecast to 1.3% from 1.4% on the 29th August.

Closer to home yesterday, there was a modest downward revision to the final Euro area manufacturing PMI to 52.3 (from 52.4), weighed down in particular by a 0.3pt downward revision in France to 48.3, while Germany was revised up a notch to 53.3 (+0.1pts). We also got unemployment data out of Germany which saw no change last month at 6.4%, although there was a reasonable improvement in the Euro area rate to 10.9% from 11.1%, the lowest level since February 2012.

In terms of today’s calendar it’s a quiet morning in the European timezone with just Euro area PPI data due. Over in the US this afternoon the bulk of the attention will be on the August ADP employment change print as a prelude to Friday’s payrolls with market expectations at 200k. Elsewhere we’ll also get Q2 nonfarm productivity and unit labour costs, July factory orders and the ISM NY. The Fed’s Beige Book is also due to be released later this evening.

The Concept Of Money And The Money Illusion

BullionStar - Wed, 09/02/2015 - 06:37

Awareness about the concept of money is making a comeback. Gone are the decades in which the global citizenry was fooled to leave this subject to economists, governments and banks – a setup that has proven to end in disaster. The crisis in 2008 has spawned debate about what money is, where it comes from and where it should come from. These developments inspired me to write a post on the concept of money and the money illusion. (All examples in this post are simplified.) 

The Concept Of Money

Money is a collective human invention

First, let us have a look at the fundamentals of money. How did Money evolve? Thousand and thousands of years ago before any trade occurred homo sapiens use to be self-sufficient; families or small communities grew that their own crops, fished the seas, raised cattle and made their own tools.

When barter emerged the necessity to be self-sufficient ceased to exist. A farmer that grew tomatoes and carrots could exchange some of his production output for bananas or oranges if he wished to do so. There was no necessity for the farmer to grow all crops he wished to consume, when there was an option to trade.

Farmers participating in a barter economy were incentivized to specialize in production, because they could escalate their wealth (gain more goods) by producing fewer crops on a greater scale. Through trade increased productivity (efficiency of production) could be converted into wealth, as the more efficient commodities were produced, the higher the exchange value of the labor put in to produce them. Consequently, barter economized production among its participants.

By exchanging, human beings discovered ‘the division of labor’, the specialization of efforts and talents for mutual gain… Exchange is to cultural evolution as sex is to biological evolution.    

From Matt Ridley.

Direct exchange (barter) was a severely limited form of trade because it relied on the mutual coincidence of demand. An orange farmer in demand for potatoes had to find a potato farmer in demand for oranges in order to trade. If he could find a potato farmer in demand for oranges and agree on the exchange rate (price) a transaction occurred. But, often there was no mutual coincidence of demand. When all potato farmers were not in demand for oranges the orange farmer could not exchange his product for potatoes. In this case there was no trade, no one could escalate his or her wealth.

This is how money came into existence: the orange farmer decided to exchange his product for a highly marketable commodity. A bag of salt, for example, could be preserved longer than oranges and was divisible in small parts. He could offer it to a potato farmer, who in turn could store the salt for future trade or consumption. If no potato farmer was in demand for oranges, surely one was to accept salt in exchange. Eventually, the orange farmer succeeded via salt to indirectly exchange his product for potatoes. The medium used for indirect exchange is referred to as money.

In the early stages of indirect exchange there were several forms of money. When economies developed the best marketable commodity surfaced as the sole medium of exchange. A single type of money has the advantage that the value of all goods and services in an economy can be measured in one unit, all prices are denominated in one currency - whereas in barter the exchange rate of every commodity is denominated in an array of other commodities. One set of prices makes trade more efficient, transparent and liquid. Often precious metals, like gold or silver, were used as money as precious metals are scarce (great amounts of value can be transported in small weights), indestructible (gold doesn’t tarnish or corrode) and divisible (gold can be split or merged).

Money is supposed to serve three main purposes: 1) a medium of exchange,
2) a store of value, 3) a unit of account.

Indirect exchange is not restricted by mutual coincidence of demand; every participant in the economy offers and accepts the same medium of exchange, which enormously eases trade. The boost money has given to global wealth is beyond comprehension, the concept of money has been an indispensable discovery of civilisation.

We must realize the subject of money is always a matter of trust, because money in itself has no use-value for us humans. An orange, car, shoebox, t-shirt or house does have use-value. Money does not have use-value as it’s not the end goal of a participant in the economy, the end goal is goods and services. Therefor, what we use as money is a social contract to be used in trade and to store value, always based on trust.

Commodity money (like precious metals) does have some use-value, which it derives from its industrial applications. The majority of commodity money’s exchange value is based on its monetary applications, the residual is based on its industrial applications (use-value). If a commodity is abandoned from being used as money, the monetary value leaves and what is left is the use-value. The exchange value of money equals the amount of goods and services it can be traded for at any given moment, popularly called its purchasing power.

After commodity money came fiat money. The nature of the latter is fundamentally different. From Wikipedia:

Fiat money is currency which derives its value from government regulation or law. The term derives from the Latin fiat (“let it be done”, “it shall be”).

Fiat money is what nowadays is used all around the globe. Instead of being picked by all participants in a free market as the best marketable commodity, it’s created by central banks and it can exist in paper, coin or digital form. Out of thin air and without limitation it can be brought into existence by printing paper bills or typing in digits into a computer. When fiat money is created it’s exchanged for assets a central bank puts on its balance sheet, after the first exchange the money can start circulating in the economy. A central bank can buy any asset, but usually it will be government bonds. Whereas commodity money has its value anchored in the free market economy, the value of fiat money is simply determined by the board of governors of a central bank. Throughout history central banks have been able to control the value of fiat money for relatively short periods, over longer periods the value of fiat money is wiped out inevitably.

The value of commodity money is anchored to the value of all goods and services in a free market, because it requires capital and labor to produce commodity money. This is how the anchor mechanism works (in our example gold is the sole medium of exchange: a simplified gold standard). Say, gold mines increase production output in order to literally make more money. The amount of gold circulating in the economy starts to grow faster than the amount of goods and services it can be traded for. The value of gold will decline relative to goods and services, as there is an oversupply of gold. In this price inflationary scenario it would be more profitable for economic agents to produce other goods than gold, as gold’s purchasing power is falling. When gold miners shift to alternate businesses and mines are closed the amount of gold in circulation starts to grow slower than the amount of goods and services it can be traded for, as a result the value of gold will increase relative to goods and services. In this price deflationary scenario gold’s purchasing power increases, which eventually incentivizes entrepreneurs to start mining gold again, until there is an oversupply of gold, etcetera. Gold used as money on a gold standard is not exclusively subjected to this mechanism. Simply put, in any economy entrepreneurs will grow potatoes when they are expensive and stop growing them when they are cheap. A free market economy in theory stabilizes the value of gold. In reality, for several reasons, gold’s exchange value is not exactly constant, but over longer periods gold’s purchasing power is impressive and more constant than any fiat currency.

Courtesy Sharelynx.

In the above chart we can see the green line resembling the index price of goods and services in the United Kingdom since the sixteenth century. The blue line resembles the index price of gold. Both are denominated in pounds sterling on a logarithmic scale. When the index price of gold overshoots the index price of goods and services gold’s purchasing power – the red line – will rise and vice versa. If your savings had been in fiat money since 1950, your purchasing power would have declined by 94 % as the index price of goods and services rose from 400 to 7,000. If your savings had been in gold since 1950, your purchasing power would have been fairly constant (actually would have increased). The green line takes off at the same time when the gold standard was abandoned from which point in time the currency was no longer tied to gold and became fiat.

Fractional Reserve Banking And The Money Illusion

Both commodity money and fiat money can be used for fractional reserve banking. The roots of banking go back many centuries to fraudulent practices by blacksmiths. When people used to own gold coins and bring it to a blacksmith for safekeeping they got a receipt that stated a claim on gold in the vault. These receipts began circulating as money substitutes, instead of having to carry gold coins or bars it was more convenient to make payment with lightweight receipts – this is how paper money was born. Blacksmiths noticed few receipts were redeemed for metal. The gold backing those receipts was just lying idle in their vaults or so they thought. Subsequently, they began issuing more receipts than they could back with gold. Covertly lending out money at an attractive interest rate appeared to be profitable. Naturally, the risk was that when customers found out and simultaneously redeemed their receipts, the blacksmiths went bankrupt. More importantly, not all customers holding a receipt got their gold.

Essentially, modern day banking works in a similar fashion although the scheme has been refined. In 1848 a Supreme Court in the United Kingdom ruled:

Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it. … The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.

Guess what. Your money at the bank is not your money. A bank deposit is a loan to the bank, which should justify the fact banks only have a fraction of outstanding liabilities (receipts) in reserve. Let us examine this modern day practice of banking and the creation of what I call illusionary money. In our simplified example there is only book entry money, nowadays digital.

The process begins with the European Central Bank (ECB) that creates 10,000 euros, by the stroke of a keyboard, to buy bonds. The seller of these bonds is Paul who receives the 10,000 euros and deposits these funds at bank A. The ECB’s policy is that commercial banks are required to hold 10 % of all deposits in reserve. Meaning, bank A can lend 90 % of Paul’s money to John who needs money to buy a boat. When John borrows these 9,000 euros and receives the funds in his bank account, something remarkable has taken place. John now has 9,000 euros at his disposal, but Paul still owns 10,000 euros. Miraculously 9,000 euros has been created out of thin air! Before bank A had lend 9,000 euros to John there was only 10,000 euros in existence created by the ECB. After the loan there is 19,000 euros “in existence”, John’s 9,000 euros on top of Paul’s 10,000 euros. Bank A has created 9,000 euros through fractional reserve banking.

And it doesn’t end there. When John buys a 9,000 euro sailing yacht from Bob, Bob deposits these funds at bank B. For this bank the same rules apply, it’s only required to hold 10 % of the 9,000 euros in reserve, so it lends 8,100 euros to Michael. Another 8,100 euros is created out of thin air, now there is 27,100 euros in existence! Needless to say, Michael’s money will be deposited at a bank and multiplied by 90 % as well, and the new money will multiplied by 90 % as well – you get the picture. Eventually, out of the initial 10,000 euros created by the ECB a fresh 90,000 euros can be created by commercial banks at a required reserve ratio of 10 %.

The degree to which commercial banks can procreate money from central bank money is referred to as the money multiplier (MM), which is the inverse of the reserve requirement ratio (RRR). A smaller RRR will result in a higher MM, and vice versa, as the smaller a bank’s reserves, the more it can lend (create). Money created by a central bank is called base money and money created by commercial banks is called credit (note, on a gold standard, the gold was base money). If banks make loans they create credit and the total money supply in the economy expands, if these loans are repaid (or default) the money supply shrinks. In the next chart we can see how 10,000 units of base money procreate 90,000 units of credit through 50 stages of fractional reserve banking (RRR = 10 %).

Note, the total money supply in the economy nowadays is compounded of less than 10 % base money and more than 90 % credit! For the sake of simplicity I’ve used a reserve requirement ratio of 10 %.

The essence of fractional reserve banking is exactly the same as what the blacksmiths did. When all customers run to a bank to get their money out, the bank has to admit it doesn’t have all the money. Banking thrives on the presumption not all money will be withdrawn from a bank at once. That is, until that happens. Millions of banks have gone bust in the past and many will in the future. The question is not if a bank can go bust, but when, as banks are by definition insolvent in holding a fraction of deposits in reserve. After the bankruptcy of investment bank Lehman Brothers in 2008 an economic depression was triggered and governments globally bailed out banks whose insolvent nature was exposed.

The fact banks are by definition insolvent is “strangely” accepted throughout society. People know banks go belly up when everybody rushes to get their money out, though they’re less aware of alternatives to storing money at the bank. This situation can be explained by the fact people are fooled by how banks operate. In high school and university students are taught banks simply facilitate in lending out money from depositors, striking a profit on the difference in interest rates. While actually banks create money to lend out, whereby a fraction of the initial deposit is held in reserve and the insolvent state is conceived. Most people that work at banks are not even aware about the fine details of credit creation. Henry Ford once said:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

The bait for fractional reserve banking is of course interest. Why do you receive interest on a bank deposit? Basically, because you lend your money to the bank and receive interest for the risk of losing it – the golden rule is: no risk no return. Banks have to offer interest or no one would hand over their money. Then banks charge borrowers a higher interest rate than they pay on deposits and the wheel of credit starts turning round. Until the expansion of credit sends up asset bubbles that eventually pop and the house of cards comes tumbling down. The real problem starts to surface when the money supply shrinks prices and incomes decline. This makes it harder for everyone to repay debt to banks, pushing bank bankruptcies. Deflation is a huge threat for the fractional reserve system.

The most intriguing fact is that credit simply doesn’t exist. Credit is created through an accounting trick. If more than a fraction of all bank customers want to withdraw their “money”, it’s just not there. Credit only exists as book entries and in our minds. If customers have 1,000,000 euros deposited at a bank in total, they think they truly own that money, whereas in reality there is only a fraction of the 1,000,000 euros held by the bank in reserves. Yet every financial decision they make is based upon the amount of money they think they own. The lion share of their money only exists in their minds. This is what I call the money illusion, in which most of us on this planet are submerged. Will we ever awaken from this dream and will the real value of money and credit be exposed?

Related topics at BullionStar:

Gold or Fiat? That is the question…
US Dollar as Reserve Currency – Credibility Inflation
Introducing FreeGold
FRB Bail-ins: You don’t own your money
Back to Basics: Money 101
Back to Basics: Debt 101
The misinterpretation of money

The post The Concept Of Money And The Money Illusion appeared first on Koos Jansen.

Find Out Why a Surging Dollar Creates Opportunities For Retiring Overseas!

Q Wealth Report - Wed, 09/02/2015 - 06:18

Trying to convert currencies in your head can be a colossal head ache. So why is it time to start paying attention to the ever fluctuating currency rates? Find out in this article from our friends over at Live and Invest Overseas. 

Strong Dollar Creates Opportunity For Foreign Property Purchases

If you’re shopping the world map, trying to choose where to live or retire or where to invest in a second home overseas, you don’t want to make your decision based entirely on currency exchange rates. However, right now, you do want to pay attention to them. The U.S. dollar is so strong against currencies in some of the world’s most appealing retirement and vacation home destinations that real estate in these places is trading at a discount too great to ignore.

The dollar has been moving up against some currencies since 2010; Brazil is a notable example here. The dollar began rising notably against other currencies in mid-2014, and it continues moving up today. The most dramatic gains have been over the past year.

These exchange rate movements are resulting in some surprising market twists. Ecuador, for example, has long been a benchmark for real estate values. It has offered top value for money for the past decade and a half. In Cuenca, Ecuador’s most popular city for expat retirees, real estate is selling today for around US$1,200 per square meter. That’s only US$112 per square foot, a bargain for city life anywhere.

However, thanks to the current exchange rate between the Colombian peso and the U.S. dollar, the average cost of property in Medellín, Colombia, another top city choice for expat retirees, with its cosmopolitan lifestyle, pleasant year-round climate, and luxury housing options, is down to US$1,000 per square meter in that city’s most expensive neighborhood, El Poblado. That’s just US$93 per square foot, cheaper than in Cuenca.

Brazil is an even better example. Real estate in Fortaleza’s upscale Aldeota neighborhood is currently trading for US$1,164 per square meter (US$108 per square foot) on average. The average cost in this part of this appealing coastal city was US$2,400 per square meter in 2010. Thanks to the exchange rate, prices have fallen by half for U.S. dollar holders.

Prices are down 30% in Chile in the past five years thanks to the dollar’s strength versus the Chilean peso. And the dollar’s surge against the euro makes property prices in any country where real estate trades in euros 26% more affordable for U.S. dollar holders today than in 2010. Worth highlighting in euro-land is Portugal, Live and Invest Overseas’ 2015 pick for the world’s top retirement haven. Recessed markets coupled with the dollar’s strength means you could own a seaside home of your own in Portugal’s sunny Algarve region for as little as US$150,000.

The dollar is up nicely against the currencies of its two nearest neighbors, as well. The U.S. dollar is 27% stronger versus the Canadian dollar than it was in 2010 and 28% stronger versus the Mexican peso than five years ago, making both these markets more interesting for would-be American retirees. Canada isn’t generally thought of as a top retirement choice, but Ontario, for example, offers appealing lifestyle options, especially for part-year living.

Escape south during Canadian winter, maybe to Mexico, a well-established snowbird option. Today’s surging Greenback makes that kind of dual-retirement haven strategy more reasonable and possible than ever.

I don’t usually recommend following exchange rates as a method for choosing where to live or retire overseas or when to time the purchase of property in another country. However, currency discounts like the ones U.S. dollar holders are enjoying right now in key markets are too big and far-reaching to ignore. Before taking the plunge into a U.S. dollar-based country (such as Ecuador or Panama), make sure one of the currency-discounted countries won’t fit the bill for you. It could save you a lot of money and enable you to buy a level of luxury, a standard of living, and amenities that might otherwise be unaffordable.

Lee Harrison
Editor, Overseas Property Alert


All thanks and credit for researching and writing this article goes to the Editor Lee Harrison and the guys over at

The post Find Out Why a Surging Dollar Creates Opportunities For Retiring Overseas! appeared first on Q Wealth.

“The Great Fall of China”? … … Or Is It?

Q Wealth Report - Wed, 09/02/2015 - 05:35

“The reports of my death have been greatly exaggerated!”

So goes the famous line attributed to Mark Twain.

He is said to have uttered it, after several newspapers released reports of his death.

It was in fact his cousin who had died.

Similarly, the loud hailers and wolf criers of the Western financial press and media, have been quick to write obituaries for the Chinese Stock Markets, in a transparent attempt to draw attention away from the intrinsic problems of their own countries’ markets.

It really is a case of “premature exclamation”!

Many of the reports have been accompanied by eye catching images like the one above.

But what they all have in common, is that they depict a decidedly one-sided slope to the mountain scenes, one that it fails to show the astonishing climb that took place, “out of camera shot”, on the up-slope of the mountain.

Here’s what we mean by that.

In June 2014, the Shanghai Stock Exchange (SSE) Composite stood at just a shade over 2,000 points.

But by June 2015, just one year later, it had soared to over 5,000 points!

Now, just to put that sort of rise, into some sort of perspective and context, consider this.

In January 2014, when the Shanghai Composite stood at 2,000, the Dow Jones Industrial Average, stood at around 16,500.

Now in order to have risen as meteorically as the SSE Composite did, the DJIA would have had to reach around 40,000 points!

As it was, the Dow reached only around 18,000 points, a level that many analysts still regarded as being far too high, and as of today’s trading, it currently sits around 400 BELOW its January 2014 level … at around 16,100, as of the time of this writing.

So yes, no one denies that Chinese markets have undergone a significant correction, of course they have. The Composite has dipped around 40% off its June highs.

But, given the precipitous rise that Chinese Stock Markets underwent on the way up, they were “well overdue a correction”, regardless of any Western trumpeted “concerns about China”.

I’d suggest that the West has significantly more serious internal issues to contend with, than whether of not Chinese industrial success is going to continue to “paper over the cracks” of what have now turned into positive crevasses of “can down the road” problems!

There is just a level of arrogance in the West that has taken on almost biblical proportions!

The West truly has a “rafter in its eye”, as it attempts to surgically remove the “splinter” in China’s!



Taking a wider view, there just seems to be a level of disbelief coming from the Chinese financial authorities, that they have implemented the suggestions of their much more experienced Wall Street advisers, without the promised success.

Hence China has now perhaps decided to try to clamp down on those who have been deliberately publishing manifestly false market information, rather than plough un-tolled trillions more dollars into “artificial life support” of stratospheric stock and share levels.

But underneath the overt share price manipulations that both the US and Chinese “Plunge Protection Teams” have been engaging in, there is a much more covert war of attrition going on …. between the two currencies, the Dollar and the Yuan.

The IMF announced in August, that the China and their Yuan were not going to be invited after all, to “sit at the top table” of the proposed new SDR (Special Drawing Rights) basket of currencies.

That decision was taken as a sleight by the Chinese, and touched Chinese honour and pride.

The IMF’s public announcement came only days after the Chinese announced a series of devaluations of the Yuan (the move which is widely regarded as triggering the declines in the US and Western markets) but China will definitely have known the IMF’s decision well beforehand.

Perhaps those devastating devaluations then, were just “a shot across the bows” from the Chinese, to remind the West of just who holds the whip hand in the global economy.

China has a centuries old tradition of closed borders policy, and as they transition to servicing their vast internal population, after having served as the world’s factory for a two decades or more, the West would do well not to provoke China into turning towards its old, more isolationist instincts.

To Your Secure Financial Future, as always


Kris Karlsson

Banking Expert

The Q Wealth Report Team


The post “The Great Fall of China”? … … Or Is It? appeared first on Q Wealth.

Timeless Wisdom from the Indigenous People

John Perkins - Wed, 09/02/2015 - 04:33

By John Perkins

In December and January I will take small groups of people on sacred journeys to Latin America and amazing Indigenous teachers. There are still a few spots available. See below for more information.

The Love Summit 2015 presented by Dream Change was a wonderful and inspiring discussion of how business can change the world with LOVE. The highlight video is very special.

I just returned from the Amazon rain forest where I was joined by 25 people from Indonesia, Australia, Canada, Brazil, Ecuador, and the US. Our international group learned from the Indigenous people there about creating a human presence on this planet that will foster environmentally sustainable, socially just, and emotionally and spiritually fulfilling life-styles, communities, and nations — in essence a world future generations will want to inherit. It was an amazing trip, filled with magic, inspiration, wisdom, and love.

We were in Ecuador where Pope Francis had very recently spoken about the importance of connecting with nature and acknowledging the responsibility we all share for stewarding our species through these times of challenge and opportunity. Right after we returned, a group of powerful Islamic leaders and scholars met in Istanbul and issued a declaration that was very much in line with the Pope’s. The messages from the Christian and Muslim worlds — worlds so often at odds — speak to the same truth. It is a truth that has been reiterated by Amazonian and Indigenous people around the world for generations; it can be summarized as follows:

    “We humans have the honor of inhabiting a Living Earth. It is a fragile space station that has no escape shuttles. We must love and care for this Living Earth.”

During the next five months I will take other groups of people to learn from Indigenous elders, teachers, and shamans in Colombia and Guatemala. The Kogi and the Maya, like the Amazonian people, are committed to helping human beings across the globe fulfill the ancient Prophecy of the Eagle and Condor, to rise to new levels of consciousness.

This Prophecy most likely originated in the Amazon thousands of years ago, but Indigenous people in Colombia and Guatemala and around the world foretell similar events. The prophecy says that deep in the mists of history, human societies decided to take two routes and become two different people: the Eagle people and the Condor people.

The Eagle people, according to the prophecy, are mind-oriented, industrial and related to masculine energy, often identified with science and technology. They have been the explorers, the colonists, and the aggressors in the records of history.

The Condor people are intuitive, creative, feeling, and related more to feminine energy. Indigenous people have usually identified with this path, as they prioritize the heart above the brain, and mysticism over rationalism in their cultures.

The prophecy says that for many years these two paths would not cross at all. Every five hundred years there is an era called (in Quechua, the language of the Andes) a Pachakuti. According to the prophecy, during the Fourth Pachakuti (about 1500), they would come together and the Eagle would be so strong as to practically drive the Condor into extinction – but not quite. And we know that, following Columbus, this is what happened on many continents. However, the Fifth Pachakuti (about 2000) would create a portal for the Eagle and Condor to fly together in one sky, to mate and create a new offspring: higher human consciousness. Some say that this offspring is represented by the quetzal of Central America, the Mayan bird. In any case, this new consciousness, it was foretold, would bring together the heart and mind, art and science, male and female. And we see that the reality of this new progeny is being realized, in workshops, books, and teachings all over the planet.

The Prophecy foretells of a time of powerful reconciliation and alignment between the two paths, the two peoples. We will become one people with a shared purpose, bringing the different aspects and strengths of each together for greater power and passion.

As I look around the world, I see that people are waking up, realizing that we are much more the same than we are different. We have the same need for basic human rights and the same need to give our children a sustainable, just, and spiritually fulfilling future. Is it really so difficult to join our neighbors in Latin America, the Middle East, Africa, Europe, and other areas of the world in restoring the health of our planet, this tiny, fragile spaceship that we all call home?

On this past trip to the Indigenous people of the Amazon, our group felt the reality of this awakening, this prophecy, very strongly. In the December trip to the Kogi of Colombia and the January one to the Maya of Central America we will delve deeper and deeper. The Eagle and Condor will fly together and we will rise together, as one, to a higher level of consciousness and commit to taking actions that will fulfill the Prophecy of the Eagle and Condor.

Upcoming Journeys:
December 4th – 13th, 2015
A Journey to the Land of Transformation: the Mountains, Jungles & Caribbean Coast of Colombia
Shapeshifting Ourselves and the World with John Perkins and Daniel Koupermann

Colombia is known as the “keystone” to Latin America – the birthplace of ancient traditions and harbinger for hope. It is where I learned the lessons of an Economic Hit Man in the 1970s. Today it is leading the way to healing the wounds that cause environmental devastation, economic and social upheaval, and terrorism. Please see the Trip page for a full itinerary and registration details.

For information about making a deposit to reserve your space, please contact Linda Leyerle at

January 15th – 22nd, 2016
A Journey to the Lands of the Maya: Guatemala
Shapeshifting into Higher Consciousness with John Perkins and Daniel Koupermann

The Maya learned the lessons of unsustainable living more than 6 centuries ago and now are determined to teach the world not to repeat that lesson – this time on a global scale. This trip to the sacred sites of Guatemala in January 2016 takes us deep into the inspiration and power of the Mayan Prophecy of 2012 (Please visit the Trip page for dates and Itinerary). Mayan shamans will facilitate magical life-changing fire ceremonies. You will learn how to apply “shapeshifting” approaches, elevate yourself to higher states of consciousness, and transform yourself and the world around you.

For information about making a deposit to reserve your space, please contact Linda Leyerle at

How Shoddy Science Creates Big Government

Daily Bell - Wed, 09/02/2015 - 03:06
Many non-scientists hold a romanticized view of scientific research. We think it is very black and white, with scientists rigorously searching for measurable evidence, and happily conceding when experiments prove a hypothesis wrong. In fact, scientists are as human as everyone else is. They grow attached to their pet theories and overlook or discount observations to the contrary. Moreover, the way in which we fund scientific research prevents researchers from following the data wherever it leads ...

Former CIA Boss and 4-Star General: U.S. Should Arm Al Qaeda

Zerohedge - Wed, 09/02/2015 - 03:04

Former CIA boss and 4-star general David Petraeus – who still (believe it or not) holds a lot of sway in Washington – suggests we should arm Al Qaeda to fight ISIS.

He’s not alone …

As we’ve previously shown, other mainstream American figures support arming Al Qaeda … and ISIS.

The U.S. actually did knowingly support Al Qaeda in Libya. And also in Syria.

And we actually ARE supporting ISIS to some extent.

Truly, America’s foreign policy is insane.

Sheep Led to the Slaughter The Muzzling of Free Speech in America

Daily Bell - Wed, 09/02/2015 - 03:04
"If the freedom of speech be taken away, then dumb and silent we may be led, like sheep to the slaughter."—George Washington The architects of the American police state must think we're idiots. With every passing day, we're being moved further down the road towards a totalitarian society characterized by government censorship, violence, corruption, hypocrisy and intolerance, all packaged for our supposed benefit in the Orwellian doublespeak of national security, tolerance and so-called ...

Researchers want to genetically modify humans in supposed "cure" for obesity

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) Researchers from Harvard and MIT claim to have discovered the mechanism by which a specific gene variant increases the risk of obesity in a study published in the New England Journal of Medicine. Shockingly, the researchers claim that this discovery could pave the path...

How green tea helps prevent and eliminate cancer

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) Researchers at Seoul National University Hospital in South Korea are currently testing green tea's ability to lower colon cancer risk. Nearly 200 patients who had benign growths removed will be given either the equivalent of nine cups of green tea in the form of an extract...

FDA issues warning after Kim Kardashian illegally promotes pregnancy drug feared to cause birth defects

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) When Kim Kardashian, who is five months pregnant, took to Instagram and Facebook to promote a morning sickness drug, she probably never thought her action would lead to a warning letter from the FDA.However, that's exactly what happened, with the FDA warning that...

Planned Parenthood harvested baby parts without patient consent; whistleblower says they just "took what they wanted"

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) An anti-abortion organization that has released a slew of undercover videos showing a seedy side of Planned Parenthood, including officials who were caught allegedly negotiating the for-profit sale of aborted baby body parts, continues to make headlines with new revelations...

CDC caught wildly overestimating disease epidemic fatality numbers to boost vaccine sales

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) Arrogance and egoism run rampant within the ranks of the Centers for Disease Control and Prevention (CDC), where deluded statistical modelers acting on behalf of the pharmaceutical and vaccine industries routinely over hype disease outbreaks like the Ebola scare (and...

Drinking coffee can help protect healthy brain function as you age

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) Coffee often gets a bad reputation because of all of the sugar and additives that are mixed in with it. Companies like Starbucks welcome diabetes by selling espresso drowned in inane amounts of sugar. Their newest Frappuccino line contains 400 percent the daily recommended...

Planned Parenthood says JOURNALISM is 'extremism' and killing babies is 'healthcare'

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) One way the progressive Left in America has managed to change our culture in such dramatic ways, even though they are in the minority among the electorate, is by changing the language and controlling narratives.For example, dissent against any of President Obama's...

Watch Neil Young's new 'Seeding Fear' documentary exposing Monsanto's attacks on family farmers who refuse to submit to totalitarian GMO agriculture

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) Following the release of his latest album The Monsanto Years, Neil Young has released a short film documentary entitled Seeding Fear that tells one man's story of beating Monsanto at its own game. Michael White, a fourth-generation farmer from northeast Alabama, tells...

Another reason to grow your own food: Pre-washed spinach retains 90% of the bacteria that causes food poisoning

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) Do you think that just because a food is pre-washed that it's safe for consumption? Think again.Experts from the University of California, Riverside, want to make it very clear: even though labels on the packages of leafy greens such as spinach might indicate that...

Diet myth busted: Real-life Paleo Diet included carbohydrates for essential brain development

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) The evolutionary claims of Paleo Diet proponents do not hold water, according to a paper published by researchers from the University of Chicago in the Quarterly Review of Biology. Instead, evidence from a wide variety of disciplines suggests that carbohydrates from...

Omega-3 supplements continue to prevent psychological disorders up to 7 years after patients stop taking them

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) The psychiatric benefits of short-term omega-3 supplementation could last for years afterward. This is the suggestion made by a study conducted by researchers from the University of Melbourne and the Medical University of Vienna and published in the journal Nature Communications...

Ibuprofen, aspirin and OTC painkillers can cause deadly heart attacks and strokes, FDA admits

Natural News - Wed, 09/02/2015 - 03:00
(NaturalNews) In July, the FDA announced changes to the labels of nearly every medication in the non-steroidal anti-inflammatory drug (NSAID) class, warning that those drugs could cause fatal strokes and heart attacks even in young people with no known cardiovascular risk factors...


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