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Successfully consolidation and reform

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These states have consolidated their budgets sustainable. Apart from Greece, Spain and Germany, almost all OECD countries have built up high levels of government debt. According to the Stability and Growth Pact, the debt ratio should not exceed 60 percent of gross domestic product.

Germany is approaching straight at the 80-percent mark. How is it possible to consolidate such a huge state budget deficit? Since the Second World War had already, many OECD countries sort their budgets newly constructed and reduce debt. The results are quite different. Some countries have been successful others failed in every aspect. What is the difference so the different ways? On the other hand, what is this that unites the successful consolidation strategies?

There are two approaches: increase revenue or reduce spending. Both are not without risks. First, this strategy could be pursued to higher revenues. These are successful examples, despite the enormous political potential seduction. In the same time, globalization. There is a noticeable competition between tax systems. Finally, the tax rates important location factors and high taxes are brake pads for growth. In a crisis, the state must stabilize expectations through fiscal stimulus. Here, however, is not seen it in a long-term consolidation is not only short-term, but also dynamic and medium-to long-term effects. Between 1980 and 2005, many countries have saved powerfully from the debt crisis.

Five states succeeded in the consolidation period. The cuts were made mainly in the overall management, in the economic area (primarily in subsidies, less in investments). The social sector has been tackled only moderately. Against the background of demographic change in Germany, probably not be possible without cuts and restructuring, reached in the social budgets sustainable consolidation.

This means that the cuts should /and this is a great opportunity/ to be accompanied by reforms that lead to changes in incentives and the dynamics in the economy. To miss this opportunity would be a sin of omission to the younger generation!

The Best Currencies to Invest in for 2013

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Currency markets in the first half of 2013 have been roiled by central bankers’ delusional efforts to prop up their lackluster economies.

That means the best currencies to invest in for 2013 – or, the remainder of the year – will be in Asia and Canada – countries where the governments have refused to engage in debasing their currencies in a “race to the bottom.”

Fact is, the strength of any currency is strongly related to decisions made by governments and central banks.

So knowing the best currencies to invest in this year can help protect against our government’s spendthrift policies.
This Year’s Best & Worst Currencies

Very few currencies have made investors money against the greenback so far in 2013.

When the Fed recently hinted that it might start “tapering” back its $85 billion monthly quantitative easing policy later this year, the U.S. Dollar index spiked 3.1%.

That prompted steep losses across emerging market equities and bonds, leading in turn to a fall in regional currencies.

Also, interest rates remain depressed as most governments in developed economies are running their monetary printing presses at full speed.

The Argentine peso was the big winner in the first half with a total return of +9.15% against the dollar, according to CME Group.

Other winners included the Chinese renminbi (yuan), which returned +3.74%, the Icelandic krona +6.13% and the Mexican peso +1.17%.

Not surprisingly, the currency taking the biggest tumble was the Japanese yen, which plunged -12.44% against the dollar.

Other currency laggards include the South African rand, down by -13.16%, the Columbian peso -6.49%, and the British pound -6.19%.

Here’s how to invest in currencies for the remainder of the year.

Canadian Dollar: Despite a drop of -5.13% in the first half, the Loonie is a commodity-driven currency benefiting from the continued jobs expansion in the US.

Even though the central bank cut lending rates in a bid to support growth, inflation remains in check and the domestic oil sector remains vibrant.

Further rate reductions are unlikely, which should continue to bolster the currency.

Here’s one way to play this “best currency”:

EU Weighs Curbs on Banks’ Use of Client Assets as Collateral

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Banks and brokers face a clampdown on using assets they hold for clients as collateral for their own trades as part of European Union moves to bolster market stability and rein in shadow banking.

The European Commission is weighing whether firms should have to obtain formal consent from their clients before being allowed to reuse assets to back other trades, according to a document obtained by Bloomberg News. The consent would be enshrined in a “contractual agreement” between the parties.

The handing over of collateral is an integral part of repurchase agreements, or repos — one of the activities under review by global regulators as part of their efforts to regulate shadow banking. The reuse of clients’ assets poses a potential threat to financial stability should one of a chain of firms that handled the securities go bankrupt, according to the document prepared by commission officials and dated May 15. Uncertainty about who holds an asset can fuel panic in times of market stress, according to the paper.

“Complex” chains of collateral can make it difficult for investors to “identify who owns what, where risk is concentrated and who is exposed to whom,” according to the document. “This has consequences for transparency and financial stability.”

Under the plans being weighed by the commission, banks and brokers holding securities for clients wouldn’t be allowed to reuse the assets for trading on their own account — speculation on the markets aimed solely at boosting their own revenues, according to the document.
Repo Trades

The EU market for repo trades, contracts in which one investor agrees to sell a security and then buy it back at a future date at a fixed price, is worth more than 5.6 billion euros ($7.2 billion) according to the most recent survey published by the International Capital Market Association.

Repos are a major source of short-term finance for banks, allowing them to use securities as collateral for short-term loans from investors such as other banks or money-market mutual funds.

The Financial Stability Board has estimated that the global shadow-banking system was worth $67 trillion in 2011, with EU-based activities accounting for about $31 trillion.

Shadow banking is a term used by regulators to define activities that fall outside the scope of most banking and market regulation, and which they believe could be a source of systemic risk. The FSB has identified repos, securities lending agreements and securitization as examples of shadow banking activities.

Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services chief, declined to immediately comment on the document.

The Euro Will Prevail

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For those who love to condemn the euro, please be rationale for a moment. In Euroland there has been much government inflicted economic suffering. In the Union of the Dollar, the USA, there has been nothing but stimulation and banksters getting free passes. As horrible as it is, Euroland has kicked off the confiscation of depositors funds called bail-ins. In Euroland the gold held in reserve is valued at market prices. In the USA the gold reserve is valued at a phony $42 and change. Gold will be worn as a neckless around the neck of the Euro.

The USA is a monetary union of individual states that are in as much financial difficulty, some more, as any member of the European Union. Mainstream media’s greatest success is to condemn Euroland while applauding the dollar and hiding the financial condition of the majority of states. That is total nonsense. When it is all done and finished Euroland took measures that no state of the USA will ever take

Now we have a proposal which when adopted would be a Euroland Blockbuster. A direct kick in the slats of Shadow Banking, something that will never occur in the USA. Euroland would unravel the collateral chains of Shadow Banking there, if you can call it that, a knee capping. The USA has emasculated new bank regulations, making a fool of Volcker’s name of part of it. The USA entertains all the flim flam of the Bankster and Brokesters. Since Banksters and Brokesters own Washington there is little hope of any change.

This is, in the final analysis, more evidence that the Euro in whatever form it ends up, two or one, will take ascendancy over the dollar, certainly if these proposal become solid action.

The new currency arrangements will not be made by Washington but rather by Euroland and the BRICS.

Physical gold will be emancipated from fraudulent no gold paper casino.

What Is ‘Stable Value’ In Currency Terms?

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The reason that we use gold, in a gold standard system, instead of, say, orange juice, is because we are trying to accomplish a goal, and gold is the best way to do so. Our goal is to create a currency of stable value.

“Why do you use titanium to build a nuclear submarine?” one could ask. “Why not copper? Or ‘pork bellies’? Isn’t it completely arbitrary? A mere superstition?” These people always think they are very sophisticated.

I can then imagine a prim Russian submarine engineer patiently explaining, to the imbecile he is faced with, that the submarine isn’t going to work if you make it out of bacon.

Today I want to talk more about this notion of “stable value.” I talked about this before, but it is an important point. We all understand instinctively what it means. We all use money every day. However, it is a little more difficult when you try to explain this in words.

People often confuse “stable value” with “stable purchasing power.” This has been going on for centuries. David Ricardo said in 1817:

It has been my endeavor carefully to distinguish between a low value of money and a high value of corn, or any other commodity with which money may be compared. These have been generally considered as meaning the same thing; but it is evident that when corn rises from five to ten shillings a bushel, it may be owing either to a fall in the value of money or to a rise in the value of corn …

The effects resulting from a high price of corn when produced by the rise in the value of corn, and when caused by a fall in the value of money, are totally different.

Here’s a similar passage from Ludwig Von Mises, dating from 1949:

Changes in the purchasing power of money, i.e., in the exchange ratio between money and vendible goods and commodities, can originate either from the side of money or from the side of the vendible goods and commodities. The change in the data which provokes them can occur either in the demand for and supply of money or in the demand for and supply of the other goods and services.

First, I think we have to recognize something: that money has a value. For example, the value of the dollar, in terms of euros, is determined exactly in the foreign exchange market. We can see the value of the dollar going up and down there, at least in relative terms, compared to the euro. The dollar is a floating currency; of course it goes up and down in value.

The dollars in our pockets (base money) are exactly the same as the dollars being traded in the forex market (also base money). Otherwise, there would be arbitrage opportunities. For some reason, we are encouraged to think of these as two separate universes, but that is not true at all. So, we should think of these dollars in our pockets as going up and down in value, every day and indeed every minute, even though the price of a Happy Meal doesn’t change that quickly.

The dollar is a floating currency. It is going up and down in value. The euro is also a floating currency. It is also going up and down in value. So, comparing one moving target with another moving target is confusing at best.

I want you to form a concept of the dollar going up and down in value also in “absolute terms.” We measure everything else in absolute terms, as absolute as we can manage. When we say that something is exactly 467 millimeters long, that has an exact meaning – and exact length. The dollar has an absolute value, which is of course going up and down.

Unfortunately, we really don’t have any concrete standard for this notion of “absolute value,” that we can measure with scientific precision. However, we can observe the effects of changes in value, the forms of monetary distortion that correspond to a rise in currency value and a decline in currency value. So, this is not imaginary. The effects of a change in monetary value are very concrete.

Over centuries of experience, people have discovered that gold is the single best approximation of this “standard of absolute value,” the one thing in the world whose value is most stable. Not only is it better than other options, it is so close to the ideal that no great problems arise.

Thus, it is the best thing in the world to use when you want to make a monetary system whose goal is the most stable currency value possible, just as titanium is what you want to use when you make nuclear submarines.

I won’t try to defend that assertion here. But let me ask you this: let’s say your goal is to make the most stable currency possible. But, you can’t use gold, as a reserve asset or even as an indicator or benchmark. How would you do it?

Just think about that for a while. Many people have, over hundreds of years.

I suppose someone will argue that some sort of consumer price index or commodity basket would work. That would mean the “price” (ratio between the currency and the commodity basket) would be exactly the same. The CRB continuous commodity index, to take one example, would have a value of 100 for ten or a hundred years at a stretch. Is that what you want? Would you allow changes in the index components or weightings? How would those changes be decided? What if there is a general rise in the real value of commodities, as has often happened during wartime for example?

How would it work from day to day? Would you have some sort of redeemability system? An automatic currency board type system? Or would the CPI or commodity basket just serve as an indicator for some kind of board of “wise men” such as today’s FOMC? In that case, would they use some sort of interest-rate target system as is in use today? Is there any country that has used such a system (yes: Brazil)? Has such a system ever been tested? What if it doesn’t work the way you think it does?

Send me your best ideas. I want to hear them. It is extremely unlikely that you would come up with anything that wasn’t investigated and dismissed a century ago. If you were such a monetary genius as to devise a system significantly better than a gold standard, for achieving the goal of stable monetary value – something thus far unique in human experience — we would already be personal friends. But give it a try, if you want to.

You will eventually see why a gold standard system is the best way to achieve this goal. We know this because we have centuries of experience. I mentioned before the record of British government bond yields during the gold standard era – a record which is not only the best in all of recorded history, untouchable by today’s central banks, but it is so close to perfection that it is silly to try to improve upon it.

You could make a submarine out of steel. It might work, but it wouldn’t be as good as a titanium one. You could make a submarine out of aluminum, and it still might work, and it still wouldn’t be as good. You could make a submarine out of pure copper – a soft metal – and it would sink. Creativity is fun, for a little while, and then you have to get down to business.

In 1900, after two hundred years of direct experience with the gold standard system, British people were completely satisfied that it accomplished their goal of maintaining a stable currency value. After two hundred years of experience, do you think they could have been mistaken about that?

It was only when their goals changed – when they wanted a currency that was manipulable for various policy goals – that Britain decided to adopt other systems.

Today, we are still fascinated by the idea of manipulable currencies. This is not the first time in history that this has happened. It has been very common. However, the most successful countries have always been those that adopted a policy of stable money, rather than manipulated money. The reason for this is simple: it is a lot easier and more effective to do business that way. Productivity improves. People become wealthier. It’s no more complicated than that.