The True All-In Cost To Mine Gold

"For gold equity investors, understanding these costs are important because it gives insight into how much the industry spends to produce each ounce of gold versus a specific company. This allows investors to compare a specific company to the industry as a whole and benchmark its performance.
If it costs more to mine a commodity than the market is willing to pay for it, eventually producers will stop producing the commodity and close up shop. This does not mean that the price of gold cannot fall below the cost of production; it means that it would be unsustainable for it to stay there for long periods of time. Thus providing a long-term floor for the price of the commodity. 

Publicly traded gold companies offer investors a quick non-GAAP formula to give investors a glimpse at their costs per ounce called "cash costs." This measure may vary slightly from company to company (it is non-GAAP after all) but it is generally their "mining costs" (cost to operate their mines, process the ore, pay miners, etc.) divided by the amount of gold equivalent ounces 
produced.
But unfortunately this measure is misleading, and selectively reports some costs and ignores other, which ends up not giving investors a true picture into the cost it takes to produce an ounce of gold.
Some miners have begun to offer a new measure of costs called the "all-in sustaining cash costs''

Calculating the True Mining Cost of Gold - Our Methodology

To calculate the true costs to mine each ounce of gold, we use the total costs reported for the quarter (revenues minus net income before taxes) and then we add taxes to come up with total costs. Finally, we remove gains/losses on derivatives and gains/losses on extraordinary investments, since these really have nothing to do with running and sustaining the company.

Then we calculate the number of gold-equivalent ounces produced by converting all by-product metals (such as silver, copper, zinc, etc) into gold by dividing the gold price by the price of the by-product. For example, if gold is trading at $1650 and silver $30, then every 55 ounces of silver would convert into one gold-equivalent ounce. We like using the average LBMA cost for the reporting quarter or year. Finally, when doing year-over-year comparisons, we use the same conversion ratio even if the price of the byproduct was different in the different quarter. The reason we do this is because this allows an even comparison when determining the cost of production - we do not want one quarter's jump in copper prices to affect a year-over-year comparison in gold prices.

What are the Industry's Gold Costs?

We have compiled all the numbers for gold companies we analyze for 2011 and 2012.  The companies included (with links to their associated detailed calculation pages) are:Barrick Gold (ABX), Goldcorp (GG), Yamana Gold (AUY), Newmont Mining(NEM), Agnico-Eagle (AEM), Eldorado Gold (EGO), Gold Fields (GFI), Allied Nevada Gold (ANV), Randgold (GOLD), Alamos Gold (AGI), Kinross Gold(KGC), and Iamgold (IAG).

The first thing gold investors should note is that the true all-in costs to produce an ounce of gold (excluding write-downs) was $1287 for 2012, which is around a 10% increase in costs over 2011. The true gold cost of $1287 is much higher than the reported "cash costs" (under $1000 for most miners) and gives gold miners very limited profit at current gold prices ($1400 per ounce as of the publishing of this article). This gives investors a much better picture that aligns with gold miner share prices and earnings, which have both been dropping - when considering margin pressures this makes sense.

Gold mining investors should be very cautious about which miners to invest their money in. It will be a very ugly environment for gold miners until the gold price recovers, and some face significant liquidity pressures and we expect mine closures if gold stays below $1400 for very long. Look for miners that have low cost structures and have a lot of cash on their balance sheets, which can help them weather this storm. Avoid miners that have high production cost structures, low cash, and high debt these are the types of companies that will struggle to survive.

 GOLD may fall to the $1200's due to aggressive short-term trading, but it is not sustainably produced at these levels. Analysts calling for gold to fall below $1000 per ounce on a longer-term basis simply do not understand the industry and its cost structure. At those levels only a small percentage of gold mining is profitable and many mines would be shuttered and projects cut".

Source Hebba Investments, Seeking Alpha June 17, 2013

           

BBC reports G8 leaders agree tax evasion measures

Leaders of the G8 major economies have agreed new measures to clamp down on money launderers, illegal tax evaders and corporate tax avoiders.

LOUGH ERNE DECLARATION 

Private enterprise drives growth, reduces poverty, and creates jobs and 

prosperity for people around the world. Governments have a special 

responsibility to make proper rules and promote good governance. Fair taxes, 

increased transparency and open trade are vital drivers of this. We will make a 

real difference by doing the following:

1. Tax authorities across the world should automatically share information 

to fight the scourge of tax evasion.

2. Countries should change rules that let companies shift their profits across 

borders to avoid taxes, and multinationals should report to tax authorities 

what tax they pay where.

3. Companies should know who really owns them and tax collectors and 

law enforcers should be able to obtain this information easily. 

4. Developing countries should have the information and capacity to collect 

the taxes owed them – and other countries have a duty to help them.

5. Extractive companies should report payments to all governments - and 

governments should publish income from such companies.

6. Minerals should be sourced legitimately, not plundered from conflict 

zones. 

7. Land transactions should be transparent, respecting the property rights of 

local communities. 

8. Governments should roll back protectionism and agree new trade deals 

that boost jobs and growth worldwide.

9. Governments should cut wasteful bureaucracy at borders and make it 

easier and quicker to move goods between developing countries.

10.Governments should publish information on laws, budgets, spending, 

national statistics, elections and government contracts in a way that is 

easy to read and re-use, so that citizens can hold them to account.

18 June 2013

New York Times Reports Initial talks for a trade treaty between the U.S. and EU

 ''European Union leaders and President Obama announced on Monday the start of negotiations for a far-reaching trans-Atlantic trade deal.
Mr. Obama said that the first round of talks would begin next month in Washington between the United States and the 27-nation Europe Union. “The U.S.-E.U. relationship is the largest in the world — it makes up almost half of global G.D.P.,” Mr. Obama said, referring to gross domestic product. “This potentially groundbreaking partnership would deepen those ties.”
A trade pact between the United States and the European Union has long been an ambition of policy makers. According to the European Commission, the executive arm of the bloc, such a deal would allow European companies to sell an additional 187 billion euros, $250 billion, worth of goods and services a year to the United States''.

WSJ reports today China's Central Bank reluctance to add liquidity

''In a sign that China's central bank isn't going to relax the pressure soon, the People's Bank of China refrained from adding cash to the financial system Tuesday. It normally conducts so-called open market operations on Tuesdays and Thursdays by adjusting short-term loans to commercial lenders, which controls the supply of credit''.
''An interbank benchmark for funding costs called the seven-day repo rate was at 6.82% Tuesday, close to the 6.89% rate at Monday's close and a record 6.90% on Friday. It had averaged around 3.30% this year before the liquidity crunch began at the end of last month''.

''Analysts also say the cool response from the central bank may mean it regards the current funding squeeze more as a brief episode affecting only certain parts of the economy. Complicating the picture, data Tuesday showed property prices continued to rise in May, which may hobble policy makers' appetite to ease credit as they attempt to clamp down on the stubbornly high real-estate prices that risk a bubble.

"The authorities have plenty of firepower to address the liquidity problem and provide liquidity to the interbank market," said Fitch Ratings senior director Charlene Chu. She says that because the central bank isn't pumping cash into the system, that suggests it is tolerant of the situation so far''.

Mexico will end state oil monopoly this year

''Mexican President Enrique Peña Nieto said he’s confident Congress will end the state oil monopoly this year, opening the way for companies such as Exxon Mobil Corp. and Royal Dutch Shell Plc (RDSA) to tap the nation’s reserves.
In the model envisioned by Peña Nieto, state-owned Petroleos Mexicanos would develop some fields, while others are tapped by foreign and private companies. He declined to discuss more details of the proposal, or whether it would require a change in the constitution.

Seven decades after his party seized fields from the predecessors to Exxon and Shell, Pena Nieto is preparing for the return of international oil companies to arrest eight years of decline in crude output. An opening would probably be broad, from offshore drilling to shale fields similar to those that have revived the U.S. petroleum industry, Pena Nieto said.
It’s obvious that Pemex doesn’t have the financial capacity to be in every single front of energy generation,” the 46-year-old president said in an interview in London yesterday, before traveling to Northern Ireland for meetings with Group of Eight leaders. “Shale is one of the areas where there’s room for private companies, but not the only one.”

Investors became more skeptical about the depth of the energy reform after it wasn’t included in the schedule for special congressional sessions in July and August, leaving it for the final four months of the year along with a crowded agenda that includes the tax overhaul and next year’s budget''
 Source; Bloomberg

Michael Roberts: Helicopter money and the Chicago Plan

''The world economy crawls along and mainstream economists remain worried that a typical sustained economic recovery i.e led by rising business investment generating more jobs and a reduction in unemployment boosting consumption, is absent.   The answer of the Austerians is that the economy and the people must wait until the overhang of debt in the major capitalist economies is removed and, primarily, this means a reduction in public sector debt and deficit levels and real wage cuts.  The answer of the Keynesians is the opposite: instead we need to keep interest rates low by central bank monetary measures and also expand government spending and borrowing to stimulate investment; or fill the gaps in private sector investment and consumption (aggregate demand) with public investment and consumption.  Don’t worry about debt levels, but spend now and, with growth, the debt will look after itself.

Although central banks have lowered short-term interest rates nearly to zero, so that we have negative real interest rates (after inflation) and central banks have pumped trillions of dollars into the banking system, the banks,  still overloaded with debts and weakened balance sheets, are unable or unwilling to lend.  And anyway, the large corporations are flush with cash and don’t need to borrow.  Yet they are still unwilling to invest at sufficient levels to restore booming economies.
This debate continues because nothing seems to work: austerity or traditional Keynesian monetary easing.  Although central banks have lowered short-term interest rates nearly to zero, so that we have negative real interest rates (after inflation) and central banks have pumped trillions of dollars into the banking system, the banks,  still overloaded with debts and weakened balance sheets, are unable or unwilling to lend. 

So now some Keynesians are calling for more unconventional measures, closer to the policies advocated by the proponents of modern monetary theory (MMT).  They say, let’s bypass the banking system altogether and get central banks and governments to lend money directly to households and small businesses – in a way, just get a helicopter and drop the cash across the country.  ‘Helicopter money’ is the analogy first hinted at by Ben Bernanke, the current chief of the Federal Reserve
These proposals are also linked to what used to be called the Chicago Plan, namely the proposal of a group of economists at the University of Chicago in the 1930s who responded to the Depression by arguing for severing the link between the supply of credit to the private sector and creation of money.   The other leading economist of the time (apart from Keynes), Irving Fisher supported the idea, as did Milton Friedman
The Chicago Plan proposes changing the nature of money and money creation in the economy from a nominally private-sector affair, in which commercial banks serve as the engines of money growth, to an exclusively public sector one. 

  Only governments would have the power to expand reserves and thus lending.  Well what’s wrong with that, you might say?  Well, the banks would still be privately owned, but now on the brink of going bust or having to turn into outright speculative investment operations like hedge funds to make a profit.  So, in some way, there would be even more instability in the banking system than before, not less.   **The Chicago Plan would only work if the banks were brought into public ownership and made part of an overall funding and investment plan.  But if that happened, there would be no need for a Chicago Plan**.

Then there is inflation.  Creating money out of thin air means that money supply can move out of line with growth in the real economy, namely commodity production in the capitalist sector.  Unless production in the capitalist sector expands, more money will start chasing less goods.  Price inflation will ensue and so will financial asset speculation.   Real incomes for the average worker will be hit by rising prices, instead of falling employment.  Keynesians like Turner deny this.  For them, government spending financed by central bank monetisation, or helicopter money, will boost ‘aggregate demand’ , i.e investment and consumption and so economic growth will return to match the expansion in the money supply.
But will it?  Once again, we are back at the heart of the flaw in the Keynesian model. 
 For Keynesians, you can create extra spending through money creation.  This leads to increased employment and then to increased income and growth and thus to more profits.  But the reality of the capitalist system is the other way round.  Only if profitability is sufficient will investment increase and lead to more jobs and then incomes and consumption.  The demand for money will rise accordingly.  Artificial money creation by fiat from the government does not get round this – as the experience of ‘quantitative easing’ has already shown**.
Adair Turner reckons that monetisation of Japan’s public debt with some increased inflation would have avoided Japan’s lost decade.  Well, the evidence is against that as my recent posts have argued. 
**The outcome of debt monetisation or a Chicago plan to bypass the banking system will not be a sustained economic recovery, but either a new bout of financial asset speculation or rising prices in the shops, or both.  It is not the banking system that has to be bypassed but the capitalist system of production for profit that has to replaced by planned investment under common ownership.  Indeed, if the banking system is circumvented, the capitalist system of production will be thrown into greater confusion**''.

** Remarks of Michael Roberts

Mexican Peso best carry-trade currency for Japanese investors

''Investors who borrowed funds in Japan and then bought the peso to take advantage of Mexican interest rates that are about 40 times higher have lost 11 percent in the past month as the Latin American currency sank. That’s a reversal from the 20 percent return in the first four months of 2013, the biggest in emerging markets and the most among currencies tracked by Bloomberg after the Icelandic krona''.

''Three weeks after Fed Chairman Ben S. Bernanke spurred a global rout by saying policy makers could reduce quantitative easing and the Central bank of Japan decision to leave its lending program unchanged signaled it was reluctant to add more stimulus,the peso has retreated 12 percent against the yen in the past month''.

''At $1.4 billion, sales of peso Mexican bonds sold to individual investors in Japan, known as uridashi, this year have already doubled the total in 2012'', according to data compiled by Bloomberg. Holdings by Japanese mutual funds, known as toshins, of Mexican assets rose to a record high 364.4 billion yen ($3.86 billion) in May from 93.5 billion yen last August, according to Nomura Holdings Inc.“In terms of May, Mexico was still a very popular investment decision for Japan in toshin or uridashi market,” “That will not change so much in the near future.”

Source: Bloomberg, Nomura Holdings Inc.

IMF Ease Off Spending Cuts to Boost U.S. Recovery. End of political gridlock would accelerate it.

According to IMF latest survey on the U.S. economy:

-U.S. GDP growth is expected to slow to 1.9%

-the recovery depends on a more balanced and gradual fiscal adjustment.

-the tapering of the accomodative monetary policy requires careful
communication and timing.

''The main policy challenge is to support the recovery, while addressing the vulnerabilities that threaten growth, public finances, and financial stability in the medium term.
• Repeal the sequester and adopt a more balanced and gradual pace of fiscal consolidation. The spending cuts not only reduce growth in the short term, but the arbitrary reductions in education, science, and infrastructure spending could also reduce medium-term potential growth.

• Raise the debt ceiling to avoid a severe shock to the United States and the global economy.

• Adopt a comprehensive  set of measures to restore long-run fiscal sustainability.
Spending on major health care programs and Social Security is expected to increase by 2 percentage points of GDP over the next decade. Interest outlays are also projected to increase by 2 percentage points of GDP over the same period, as interest rates gradually return to normal levels. These factors would again widen the budget deficit and increase public debt. The IMF suggests that New revenues could be raised through a reduction in tax exemptions and deductions,as well as through the introduction of a carbon tax and a value added tax''. Measures
that have been rejected by the Republican Party.
 ''Spending measures would need to curb the growth in public health care and pension outlays''.
 Curbing spending in health care and pension outlays is not in the Agenda of Mr Obama and 
the Democratic Party.
 These measures have been the origin of the political gridlock for the past months, is there 
any reason to believe that things will change?,and that the IMF will dictate the political agenda
of the U.S.?

''The IMF also stressed the crucial importance of monetary policy. “Unusual times demand unusual policies and unusual care in managing risks,” said Lagarde.

Given the still-large output gap, there is no need to rush to exit from monetary accommodation. But the IMF underscored the need to plan and manage a gradual and orderly normalization of monetary policy conditions, while monitoring financial stability risks''.

The initial idea of my Blog and its change. (will continue..)

  I started this Blog, as an experience of filtering news from the Web from traditional  news
companies online.
I've started to go to the Reports of Institutions, like the IMF, the World Bank the OECD, and official reports from some countries. Since the beginning I searched for economic debates, about new explanations
or reinterpretations of theoretical approaches of the solutions for the Depression of the 1930's by
economists  like John Maynard Keynes, Milton Friedman,and Hayek , e.g like Adair Turner,who is
one of the living economists, among others of the theorethical authors of the present accomadative monetary policies for economies in special circumstances.

  I will also bring to this blog debates of the relationship between debt and growth for countries
 or of urbanization as a means to fight poverty in developing countries,or
the new approach to the net Financial Assets of countries done by Helen Rey.

So things have changed from what I initially thought, and  I'am very glad that things have changed for
the better. Yes, I follow the international markets and the global macroeconomics developments,we
are in a very interdependent world. But I'am not a momentum market player,nor a program trader
even less a day trader. As Jim Rogers says I'am not  smart enough, maybe you can find in CNBC,
Bloomberg,CNN,etc the answers for the price movements of shares in a particular day an hour or a week. And maybe you like to be in front of your computer all day long, and listening to a Bloomberg
or CNBC show, and follow the market by the minute, and expecting Breaking news.

  As you will realise afterwards, my country has had all kind of experiences, in terms of testing all kind
of economic models,and political regimes,hyperinflation plus two terrorist groups the Sendero Luminoso The Shining Path and the MRTA(Movimiento Revolucionario Tupac Amaru). Who generated
a bloodshed between 1980 and 1992, and  traumatized  our country. We had them all!!!!

  I do know when stocks are cheap,imagine I live in small country with an open economy, where the
mining industry is very important, now even more, +60% of our exports are metals. And the mining
industry has always been and will be a cyclical industry. We are in a particular long term trend of
strong prices because of the Urbanization of China. But if China has a hard landing, it is very clear   for me that precious metals will go lower,and the prices of copper, lead and Zinc also.
 Peru has experienced all kind of economic models,free market, Cepal infant protected industry model, from 1968-75 there was a  military coup d'etat lead by Juan Velasco Alvarado and a leftist,nationalist, and extremely protectionist Goverment ensued.

China's turbulent interbank market

China’s spiking rates create winners and worriers

By John Foley

 

JUNE 14, 2013

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

"China’s biggest banks have thumbed their noses at the government. The Ministry of Finance sold just two-thirds of the 15 billion yuan ($2.5 billion) of bills it offered on June 14, according to Bloomberg. The failed auction is not a vote of no confidence, or a sign that interest rates are too low, but a reflection of reality: banks can get better returns lending to each other.

Tight liquidity has pushed up rates in China’s turbulent interbank market, creating winners, losers and worriers. The winners are banks with money to spare. The likes of China Construction Bank and Agricultural Bank of China can make a profit through interbank lending or bond repurchases. Together, those two activities made for a $31 trillion market in 2012. Rates for short-term transactions have almost doubled in recent days.

The losers are those who have to pay up or go without. For now, that includes the Ministry of Finance itself. The 3.8 percent yield on the 273-day bills it hoped to sell is unappealing when banks can charge each other almost 7 percent for overnight loans.  Many smaller local banks are strapped for funds and have no choice but to borrow.

Why have interbank rates risen so high? One reason is that there’s less money flowing in from exports – the central bank soaked up just $10 billion of foreign exchange in May, a quarter of the amount in April . As the end of the quarter nears, banks also scramble to dress up their balance sheets. Many have issued short-term wealth management products that mature close to key dates. Banks need liquidity to repay those products: it’s no coincidence that the 21-day bond repo rate began to spike in early June.

This is a short-term spike, not a systemic freeze. Nevertheless, the failed auction is a reminder that, even in a closed, state-controlled system, the unexpected can happen. That’s a worry for central bankers, who would have to step in if a bank got into trouble. It should also concern regulators, whose job it is to know where the counterparty risks sit in China’s increasingly complex financial system. As bank-to-bank rates rise, so must their disquiet".

Economic Debate: Helicopter Money as a Policy Option. Part 1

Introduction by Reichlin

Since the crisis central banks have implemented a variety of non-standard monetary policies aiming at stabilising nominal demand in the presence of major disruptions in financial markets. These policies had different intermediate objectives: market making, controlling long term interest rates or asset prices, support of credit via subsidies. They had a role in stabilising financial markets after the collapse of Lehman Brothers and the banking crisis which followed. Their effects on the real economy, however, are uncertain.¹

Notwithstanding this uncertainty the Bank of Japan has recently engaged in bold action, announcing that it will double the monetary base and its holding of government bonds in the next two years.

• Some think that quantitative easing will fuel the next financial bubble and that exiting will create financial instability (see Stein 2013).
• Others think that more should be done to sustain the real economy.

Adair Turner has recently put a different option on the table (Turner 2013): “helicopter money” or permanent money creation. This is an idea that was discussed in the thirties in the US as a response to the great recession (see Friedman 1948 and Simon 1936) and more recently by Bernanke in relation to the zero lower bound problem in Japan (Bernanke 2003). As Bernanke has suggested it can be implemented via transfers to households and businesses via a tax cut coupled with incremental purchases of government debt, so that the tax cut is in effect financed by money creation.

Although the idea has been around a long time it is a taboo today. Non-standard monetarypolicies in response to the recent crisis have all led to an increase in the size of central banks’ balance sheets but in the recent experience no central bank, including the Bank of Japan, has purposefully increased the monetary base and committed to keep this additional money in circulation permanently. The idea, however, gets some support from academia.

In his 2012 Jackson Hole speech Michael Woodford suggested a version of flexible inflation targeting whereby the central bank commits future monetary policy to a permanently higher nominal target (such as the path of nominal GDP) and discussed various tools within that framework, including permanent increases in the monetary base via fiscal transfers (Woodford 2012).

In a situation of persistently weak economic conditions it makes sense to consider all options including tools that have stayed long in the closet.
The following is a summary of the questions posed by Reichlin and the answers by Turner and Woodford.

Question one : Adair, can you explain why, in your view, helicopter money is an option for monetary policy that is relevant to today?

‘Helicopter money’ – by which we mean overt money finance of increased fiscal deficits – may in some circumstances be the only certain way to stimulate nominal demand, and may carry with it less risk to future financial stability than the unconventional monetary policies currently being deployed.

The crucial first question is: do we want more nominal demand? The answer should be yes if (i) we are confident that some of the increase will take the form of increased real output or (ii) if some increase in the inflation rate is in itself desirable. These conditions seem likely to apply in some developed economies today, with nominal GDP growth rates very low, depressed by private sector deleveraging in the aftermath of the financial crisis. And if these conditions do not pertain, we should not be trying to stimulate nominal GDP by any means.

So let’s assume that increased nominal GDP growth is desirable. The problem is that other levers may be ineffective or have adverse side effects. Monetary policy, in both its conventional and unconventional forms, may be ‘pushing on a string’. Reducing policy interest rates to the zero bound fails to stimulate credit supply and demand in a ‘balance sheet recession’ in which the private sector is deleveraging. Cutting long-term interest rates by quantitative easing may be equally ineffective. And very low interest rates, sustained for many years, will encourage a search for yield, hence financial innovation and carry trades, which create risks to financial stability.

Fiscal stimulus, in its conventional funded form, financed by bond issues, may be more effective. Fiscal multipliers may be high when central banks are committed to keeping interest rates low for the foreseeable future. But with public debt levels already high and rising, concerns about future debt sustainability may create ‘Ricardian equivalence’ effects with households and companies aware that tax cuts today will have to be offset by tax rises later.

In this specific environment  – ‘helicopter money’ – should be regarded as an available option. Ben Bernanke proposed this for Japan in 2003. If Japan had used it then, it would now have some mix of a higher real GDP level, a higher price level, and lower public debt to GDP.

Question 2: Mike, what in your view are the potential effects of this policy on the economy as compared to traditional quantitative easing and how do you relate it to your framework of targeting the path of nominal GDP?

It is possible for exactly the same equilibrium to be supported by a policy of either sort. On the one hand (traditional quantitative easing), one might increase the monetary base through a purchase of government bonds by the central bank, and commit to maintain the monetary base permanently at the higher level. On the other (‘helicopter money’), one might print new base money to finance a transfer to the public, and commit never to retire the newly issued money. Suppose that in either case, the path of government purchases is the same, and taxes are raised to the extent necessary to finance those purchases and to service the outstanding government debt, after transfers of the central bank’s seignorage income to the Treasury. Assuming the same size of permanent increase in the monetary base, the perfect foresightequilibrium is the same in both cases. Note that the fiscal consequences of the two policies are actually the same. Under the quantitative easing policy, the central bank acquires assets, but it rebates the interest paid on the government bonds back to the Treasury, so that the budgets of all parties are the same as if no government bonds were actually acquired, as is explicitly the case with helicopter money.

The effects could be different if, in practice, the consequences for future policy were not perceived the same way by the public. Under quantitative easing, people might not expect the increase in the monetary base to be permanent – after all, it was not in the case of Japan’s quantitative easing policy in the period 2001-2006, and US and UK policymakers insist that the expansions of those central banks’ balance sheets won’t be permanent, either – and in that case, there is no reason for demand to increase. Perhaps in the case of helicopter money, it would be more likely that the intention to maintain a permanently higher monetary base would be believed. Also, in this case, the fact people get an immediate transfer should lead them to believe that they can afford to spend more, even if they don’t think about or understand the consequences of the change for future conditions, which is not true in the case of quantitative easing.

But while I grant this advantage of Adair’s proposal, I believe that one could achieve a similar effect, with equally little need to rely upon people having sophisticated expectations, through a bond-financed fiscal transfer, combined with a commitment by the central bank to a nominal GDP target path (the one that would involve the same long-run path for base money as the other two policies). The perfect foresight equilibrium would be exactly the same in this case as well; and as in the case of helicopter money, the fact that people get an immediate transfer would make the policy simulative even if many households fail to understand the consequences of the policy for future conditions, or are financially constrained. Yet this alternative would not involve the central bank in making transfers to private parties, and so would preserve the traditional separation between monetary and fiscal policy.

1 For quantitative evidence on the macroeconomic effects for the US see, amomgst others, Khrishnamurthy and Vissing-Jorgensen, 2011. On ECB non-standard policies, see Lenza, Pill and Reichlin, 2010 and Giannone, Lenza, Pill and Reichlin, 2012.

Source: Naked Capitalism, May 2013.

Japan News

Japan highlights role of nuclear power in economic growth strategy

Kyodo -- Jun 14

The Japanese government made clear that nuclear power will continue to play a key role in meeting energy demand as it vowed in its economic growth strategy endorsed Friday to push for the restart of idled reactors.

Once reactors clear a set of new safety requirements that will be introduced soon in the wake of the 2011 Fukushima Daiichi nuclear power plant disaster, the government will "move ahead with" their resumption and "work to win the approval and cooperation" of local governments hosting the facilities, the strategy said.The new regulations are expected to take effect in July, setting the stage for reactors, most of which are now offline, to undergo the Nuclear Regulation Authority's safety assessments.

G-8 leaders set to unite against tax avoidance

Jiji Press -- Jun 16

The leaders of the Group of Eight major countries are expected to unite in tackling tax avoidance by multinational firms at their summit in Lough Erne, a lakeside resort in Northern Ireland, for two days from Monday, sources have said.

The G-8 leaders are seen agreeing to draw up new rules, through the Organization for Economic Cooperation and Development, to rein in tax avoidance although it is expected to take two or three years to come up with specific measures, the sources said.

Source: 

IMF conclusions of the Mission to the United States of America Part I

1. The U.S. recovery has remained tepid over the past year, but underlying fundamentals have been gradually improving. The modest growth rate of 2.2 percent in 2012 reflected legacy effects from the financial crisis, fiscal deficit reduction, a weak external environment, and temporary effects of extreme weather-related events. These headwinds notwithstanding, the nature of the recovery appears to be changing. In particular, house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong, especially for large firms. With the sizeable output gap and well-anchored inflation expectations keeping inflation subdued, the Fed appropriately continued to add monetary policy accommodation over the past year by increasing its asset purchases and linking the path of short-term rates to quantitative measures of economic performance, thus helping to maintain long-term rates at exceptionally low levels.

2. However, growth is expected to slow to 1.9 percent this year owing to an excessively rapid pace of fiscal deficit reduction, before accelerating to 2.7 percent next year. 
    The general government deficit will decline by over 2½ percent, subtracting between 1¼–1¾ percentage points from growth in 2013, the debt ceiling will be raised without any disruption to the U.S. and the global economy, and the Fed will continue asset purchases until the end of this year. The unemployment rate is projected to remain around 7½ percent throughout 2013. Employment growth is projected to pick up late this year and in 2014, fostered by an acceleration of output growth. With labor force participation projected to recover somewhat in 2014 as discouraged workers return to the labor force, the unemployment rate is projected to decrease (on average) to 7.2 percent next year. 
   Given the wide output gap, inflation is expected to remain relatively subdued over this year and the next. As the legacy of the financial crisis wanes further, private domestic demand is expected to continue recovering, but weak growth in a number of trading partners is projected to weigh on export growth.

3. Risks to the outlook appear modestly tilted to the downside.

• A stronger impact of fiscal consolidation, a weaker external environment, and higher structural unemployment are the main downside risks.
While private consumption has so far weathered relatively well both higher tax rates and the spending cuts from the “sequester”, both measures might prove to be a stronger headwind to consumer demand over the next few quarters. A slower pace of recovery may in turn delay the normalization of labor market conditions and reduce long-term growth.
External demand may also be held back by a slower pick-up in global economic activity reflecting lower growth in a number of emerging market economies.

"Markets can stay irrational longer than you can stay solvent" John Maynard Keynes

   When there is too much complacency in the  markets, it is always very wise,to ask yourself , what would it happen, if any unexpected negative event suddenly appears?

    The Black Swan scenario, can appear with the burst of the bubble in the bond market,sooner than
later. If the economy of the US keeps improving there will be a return to more normal interest rates,so
in this process there will be periods of high volatility, and significant corrections in the markets
unless Central banks keep for a longer period of time, their accomodative monetary policies.

  The other dangerous scenario is what is happening in Japan with its Abenomics.
   Before the aggressive monetary stimulus announced by the Central Bank of Japan.
  "This country was paying 21% of government revenue on interest payments to support a 236% debt-to-GDP ratio. With annual spending twice as high as its revenue, the government is running a deficit of $455 billion a year and adding to its $11.2 trillion debt. This is all before the monetary stimulus programs announced recently by its central bank.
   The announcement by the Bank of Japan to buy 7.5 trillion yen (about $75 billion) in bonds per month and double the monetary base during the next two years is exponentially higher than anything the country has tried in the past two decades. If you think U.S. Federal Reserve Chairman Ben Bernanke and the Fed's $85 billion monthly purchases is extreme, consider that Japan's economy is a third the size of the United States' and that its growth has stalled in the past decade.

So the bank wants to increase inflation to 2% from its current negative rate of 1% deflation. If they are even partially successful, interest rates on the government bonds could jump. If inflation increases to 1% and the rate on the 10-year bond increased to just 1.5%, the government would need to pay out 65% of revenues just to service the interest.

Kyle Bass of Hayman Advisors recently told Barron's that a debt crisis that will rival Argentina's 2001 collapse is "the most obvious scenario of my adult life. The question is when."

Why should investors care about a country that represents less than 10% of global growth? To put Japan's importance in perspective, Greece's economy is less than one-twentieth of Japan's -- and brought the market to its knees last year.

Like the 10-year Treasury note, Japan's government bond has been used by the market to evaluate risk for more than 30 years. A collapse in this market could send shock waves across markets worldwide". (1)

  While in the short term Japan's stock market has rallied up to 80% in yen terms in six months,
anticipating the election of Prime Minister Shinzo Abe,this rally has had a major correction last week
but even counting with it,the Nikkei index is still up 44%, while the exchange US$ dollar/yen was
in the range of 80-83 since July to November 2012 and now it is at 94.
 How long will this rally last, it is difficult to say but surely it is going to end badly,given their 
236%debt/GDP ratio, the magnitude of this stymulus, and the level of present interest rates.


The third event that could affect global markets, is a hard landing of the chinese economy,which 
would affect sharply the growth rate of the global economy.

(1)Street Authority.
     The next country to collapse isn't in Europe

      Joseph Houge

Private foreigners sold US$ 30 billion long-term treasury bonds in April

''Private foreign investors sold a net $30.8 billion in long-term Treasury bond and notes, the largest selloff on record, the U.S. Treasury said Friday in its monthly report on cross-border capital flows.

They weren't alone. Foreign official holders of long-term U.S. debt sold out of $23.7 billion, the highest outflow since November 2008 at the height of the financial crisis.

Foreign official investors also exited from of short-term dollar debt, selling a net $30.1 billion in Treasury bills and other liabilities.

U.S. latest data has shown a steady recovery of the economy,making  intense discussions among Federal's Reserve officials of earlier tapering off its  buying of treasury debt and mortgaged-backed securities''.

Source WSJ

Slower growth for oil by train shipping

"The spread between Bakken crude at the pipeline hub of Clearbrook, Minnesota and benchmark Light Louisiana Sweet fell from nearly $30 in early March to a then-record low of around $13 in May. Analysts estimate it costs $12 a barrel for the rail journey, about three times more than via pipelines.

This week the spread has dropped to just $6 a barrel after an outage at a Canada sands production unit.

As price spreads for moving sweet North Dakota or Canadian crude to premium markets on the GulfCoast slump to their lowest since early 2011, companies are shifting more oil back through pipelines rather than using costlier railcars.

The number of railcars loaded with crude or refined fuel per week in the United States has dropped by about 5 percent since reaching a record 14,500 tank cars during May, according to Reuters calculations based on data from the Association of American Railroads released on Thursday.

At 13,664 cars through June 8, the latest week's loadings are still up 28 percent from a year ago, equivalent to about 1.4 million bpd. With crude oil estimated to make up about half of all such shipments, that's about a tenth of U.S. production. Weekly AAR data do not distinguish between crude and refined fuels.

Still, the annual growth rate is much slower than the 50 percent surge since the start of the year. In the first quarter alone, crude oil shipments jumped by 166 percent to the equivalent of 760,000 bpd, AAR said last month. Since early 2011, traffic has been growing mostly steadily every week".

It is too soon to tell that it is the beginning of a bust. Time will tell.

When interest rates are low,Real State becomes a safe haven.

''The London, Hong Kong, Sydney and New York real estate markets are hot, fuelled by low interest rates and demand by foreign investors looking for safe places to park their cash — or quick returns from flipping properties in markets where prices seem to only be going up''.

New York and London were the top contenders in the Association of Foreign Investors in Real State’s (AFIRE) 2013 survey, with the United States and United Kingdom providing the best opportunities for capital appreciation. What’s more, the US, UK and Australian markets were ranked as having the most stable and secure real estate investments, with China ranked as one of the top emerging markets''.

“Global property is a safe haven” amid political and economic uncertainty, said Gráinne Gilmore, head of residential research at London-based Knight Frank. “You can touch and see your assets.”

''But as foreign investors pile in, owning has become an expensive proposition for local residents, even as some local governments — worried about overheated housing markets — take measures to cool prices. That presents a host of questions for people who simply want to live in the city where they work, from how long the price run-up will last to whether they should buy, rent or sell to the highest bidder.

In these four cities, among others, the inventory of homes for sale has failed to keep up with demand. Local residents bid for what they can find but, especially at the high end of the market, they find themselves competing with all-cash offers from foreign investors who are more concerned about their portfolio than about living someplace''.
  The problem comes when Central Bankers keep pumping money
to their economies, for a very long period of time. This policy always produces distortions in the prices of asset classes, where money is allocated unevenly, not all asset prices rise at the same time.

Source: BBC