Police began probing the Hong Kong Mercantile Exchange Ltd. at the request of the Securities and Futures Commission, which said it found “serious” suspected financial irregularities at the shuttered commodities market.
The usual cadre of gold buggeries began running their usual line of garbage that the exchange was forcibly defaulting on delivery contracts and that this would finally lead to the sort of dislocation between paper and physical commodity markets they have been predicting for decades but which never comes to pass.
I called on this last week on the forum and issued a couple of rather stern warnings about the risk of the ban hammer showing up if this sort of nonsense wasn't confined to the "Tinfoil Hat" area. The reason is simple: Exchanges do not have positions; their job is to match orders and monitor markets for compliance. Customers of exchanges have positions and may, in the case of commodities, have physical inventory behind said positions.
Therefore the insinuation that the exchange was massively short metals contracts and "decided" to "default" (since the contracts were to be closed by financial settlement rather than physical delivery), without proof, was almost-certainly pure bilge.
And now we get this:
The exchange stopped trading and handed back its operating license because revenue wasn’t sufficient to support running costs, the SFC said on May 18. Cheung is the largest single shareholder in the exchange, with a 56 percent stake, according to Hong Kong’s Ming Pao newspaper.
There may well be some sort of problem with why the firm had insufficient revenue to support operating costs. Since police are involved it's reasonable to assume that there is suspicion of something unlawful that led to the closure For example, simple embezzlement of the firm's funds could lead to such an event -- although there is no particular reason to believe that this, or any other particular event, has occurred.
When an exchange is closed like this because it goes bankrupt, either because of some sort of improper action or simply due to the owners being bad business people and spending more than they take in via fees the only proper thing to do is to financially settle the open contracts or transfer them to somewhere else. There is a clean argument to be made that settlement in cash is the right course of action since a forced transfer might be to an exchange the members in question would rather not deal with. Cash settlement leaves the members able to immediately roll the contracts to another firm if they wish at their discretion. The costs to the members of that transfer are reasonably small; a commission would of course be charged by the new exchange they select and there may be some slippage if there is a major price move in the interim. An orderly process is thus important so as to minimize any such disruption.
For those who have been making claims for the last week that the exchange had short positions open it could not deliver against, let's see your evidence that documents that the exchange did something that no exchange, operating properly in its role as a place for buyers and sellers to meet, ever does.
If you pour gasoline on a fire and it does not go out, pouring MORE gasoline on the fire will not change this.
If you "QE" and it does not lift the economy, restarting the debt cycle, doing more QE will not change the outcome in the general economy.
Japan’s exports missed estimates in April and the trade deficit swelled, highlighting weakness in global demand that may weigh on efforts to revive the world’s third-biggest economy.
Overseas shipments rose 3.8 percent from a year earlier, the Finance Ministry said in Tokyo today. That was less than the median 5.4 percent estimate of 26 economists surveyed by Bloomberg News. The trade shortfall widened to 879.9 billion yen ($8.6 billion), the most for the month of April since at least 1979, according to the government.
All the Abe games did nothing for exports, but it trashed the trade balance.
If you remember I noted back when the tsunami hit that there would be a shift toward trade deficits. That has happened. It hasn't let up either and now with the currency devaluation it's not going to.
Exports to the US rose by 15% but the Yen/Dollar cross has moved by 20% since last year. Factor that back out and....... oops!
One wonders if Bernanke is paying attention to this. Some of the other Fed Presidents are, and have started making noise about "costs" and "uncertainties" associated with their programs. What's missing thus far is any recognition of what you do if and when you discern that the QE programs haven't worked and won't no matter how far you go with them.
Oh, there is also this little issue of where stock and bond prices will go if and when that recognition occurs.....
The Yen is propelling this rally; the correlation has been ridiculous all year.
The problem now is that Japan's government is going to run into some real trouble with rolling shortly, and there are sharks smelling blood in the water.
While the absolute interest rate move is not large, when you have as much debt outstanding as Japan does it doesn't take much of a move for a self-reinforcing move to get going.
And get going it will.
Exactly where we see the cascade of people saying "uh, value is no longer connected to price, and by the way price is too high" is not possible to know in advance.
That it's coming, and right when people are getting complacent, is a certainty.
Ole 'Abe may get more than he bargained for....
The Yen/Dollar cross went "smartly" through 100 yesterday, and this morning stands at 101.73.
It was at 77 in October.
That's a 32% move in about seven months.
In response the Nikkei has gone screaming higher, but this index is of course "marked in Yen", which means it's not quite what it looks like.
But this sort of game -- intentionally and massively diluting the currency of a nation with the intent of "generating inflation" -- is not "free." The "bad news" side came in the bond market which went lock-limit on yields (and down on price.)
This of course means that anyone who actually was dumb enough to buy JGBs now has a capital loss. An unrealized one, but a loss nonetheless. Unlike the United States nearly all of those bonds are held by Japanese firms and citizens; the nation is utterly dependent on the ability and willingness of those domestic holders to roll over that debt.
The problem is that if Abe's gambit works then interest rates go up and stay up. Since the government is massively in debt it will be unable on a cash basis to pay their bills, as they will not be able to roll the existing debt when it matures and pay the (new) coupon. If they try then they are forced to continue to print even more Yen to fund the interest payments which in turn causes the value of the bonds emitted to go down further -- a monetary equivalent of a flat spin -- and is unrecoverable.
If it fails then the people are unable to pay their bills; the price of everything imported has already gone up a massive 30% in Japan. Need I remind everyone that Japan has zero oil and must import all of it, along with most of their other industrial requirements -- and their nuclear power plants remain shut down?
So many people think this is some sort of "validation" of what Bernanke and now Abe have undertaken. It is not. It is a coffin corner of these folks own design and while Abe is stuck here with the consequences first they're going to come to Bernanke's Fed too, although the worst of it will probably wait until after Ben's time has expired.
Unless, of course, the clock reaches zero in Japan first.
It is one thing to honestly put forward a question for scholarly debate.
It's another to intentionally mislead with a slanted agenda.
What if there was a program that would cost nothing, improve the lives of millions of people from poorer nations, and double world GDP? At least one economist says that increased mobility of people is by far the biggest missed opportunity in development. And an informally aligned group of advocates is doing its best to make the world aware of the "open borders" movement, which suggests that individuals should be able to move between countries at will.
Double the world's GDP?
In a word: How?
The presumption is that the reason that people live in poverty and that nations are mired is not due to their society -- that is, the people themselves. It's due to some externality -- usually blamed on their leaders who are "jackbooted bastards."
Well then, how do you explain the fact that even when our legislators do exactly the opposite of what the people demand two weeks before an election we still send 95%+ of them back to their offices instead of sending them home?
That destroys the argument instantly, but nobody mentions it. Even though the best example of it is right here in the United States following the TARP vote. You need more examples? I give you two words in response: The EU.
The theory they espouse is that border restrictions of almost any kind are wrong, that they are antithetical to the fundamental human right of self-determination. To see their point, imagine an American in rural Mississippi being told she cannot move to New York City to seek a better career. That is exactly what the U.S. and other developed nations are telling the millions of foreigners who are denied access to their rich labor markets.
America's "rich labor market" is paid for by the wages of Americans. That is, we have skin in the game in that we provide these "rich markets" -- along with the rich social benefits that come with it.
I could be convinced to support an "open border" policy with a requirement for stringent and verifiable, public checks against blacklists for people involved in terrorism (among a few other choice activities such as child porn creation and distribution) if and only if the entire welfare state apparatus was disassembled first.
Not "restricted" from those who come here, disassembled.
That includes, by the way, the "free public education" schemes and the tax environment to support it.
Why? Because those who come here for purely economic reasons need to have a full dose of incentive to succeed and the penalty of failure, including literal starvation. If not then you are doing nothing more than leaving a full bowl of food out on the back porch and then being surprised when every feral cat and stray dog within 100 miles calls your rear stoop home.
That might not be so bad (after all, cats and dogs are cute) except that the dogs will crap all over your yard. Then both cats and dogs will start breeding like crazy and instead of a few of each you'll have dozens, some of which turn out to be aggressive and menace your children. Never mind that the very pretty birdhouse you erected in the back yard will become a food source and play toy for said cats, and you will no longer have any birds to go along with a yard full of dog-poo "landmines."
Eventually you will consider depredation on the very animals you attracted with your "open border" policy, and with good reason -- they will have destroyed your quality of life.
Every farmer and rancher understands this. He allows the barnyard cats because they eat the mice, but he doesn't feed them -- the mouse and cat population balance one another naturally. If the cats screw too often and produce too many kittens some will have to run off to other places or die. That's the balance of life. If a bunch of coons show up and start trashing things he shoots them, because they are net consumers and offer nothing in return.
The premise that we have some "moral" argument for helping others presumes that they want said help and didn't bring their condition upon themselves. This argument lacks evidence; indeed, the available evidence runs the other way. Poor nations tend to be poor due to corruption, grift, fraud and similar. Haiti was once a fairly prosperous land until they cut all their trees down and started using dynamite to fish, destroying their reefs. That destroyed their fishing industry and left the countryside prone to massive mudslides when the inevitable tropical storm came through which happens a couple of times a year.
Who did that?
Haitians did that. You want to import that sort of short-term thinking en-masse, without limits, here, and then on top of that you wish to entice them with free school, free housing, free food and even better the more they reproduce the more of each of the above they get?
You're kidding, right?
Unfortunately the people advocating this crap, including Libertarians, are not kidding.
You need only look to places like California, that have both an extremely high illegal immigrant population and a trashed budget to see what happens "Open borders" are de-facto policy in most of California and the outcome has been catastrophically bad.
The fact of the matter is that there are somewhere between 12 - 30 million illegal immigrants in the country today. They are grossly over-represented in our prisons and jails, grossly over-represented in gang membership, grossly over-represented in terms of net welfare and other social spending receipt and grossly under-represented in terms of middle-class and above mobility.
The problem isn't their country of origin -- it's them. They come here because they think they have a shot at a better way of life but they don't, to a large degree, become Americans because they don't have to. They don't have to go get a job because we'll give them welfare. They don't have to pay for their own hospital care because we'll treat them under EMTALA if something bad happens. They don't have to worry about how many kids they have because every one they poop out is an instant citizen and paycheck for the next 18 years, so they do exactly that and then collect WIC, Food Stamps, Section 8 housing and Medicaid, while doing the same destructive things they did back home including running guns and drugs while robbing, raping and killing anyone who*****es them off.
Ultimately the problem is one of property rights. We as American Citizens have skin in this game. This is our land and common wealth -- we built it, we pay for it with our taxes and we are responsible for maintaining it. Our social safety net is too damn big but at least we paid for it with our own money, or the promise to deliver it in the future (via debt.)
The immigrants who want to come here want access to not only that "safety net" as their primary means of getting by but also want the stability that it has brought to Americans. But they didn't earn any of it and can't be charged for it ex-post-facto. They are like locusts that descend on the farmer's field to eat the corn -- they put in zero effort to sow the corn, to till the field, to fertilize the crop or to water the ground.
They just want to eat the damn corn, and they will do so until the corn is all gone, then they move on.
There's no problem with mobility of human capital provided you don't leave the food dish out and allow those who are mobile to steal the food that they did not have any part of creating. If said immigrants get nothing they didn't help create themselves then and only then will they come here for reasons of putting in hard work and upward mobility rather than the parasitic behavior they display now.
What you can't do is support both a state "safety net" that is present (or larger) in one place while it is absent (or smaller) in another and at the same time have open borders.
If you do this, and we have been doing this, you don't get migration for economic opportunity, you get locusts who strip the land raw -- people who come to your nation as thieves, not participants.
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