Monthly Archives: June 2014

2030: The Year Retirement Ends (TIME Magazine)

The real debt-and-deficit crisis facing our country isn’t national—it’s personal. A look at the coming retirement apocalypse and what we have to do to avoid it

The retirement scenario everyone wants to avoid arrives in 2030. That’s when the largest demographic group in U.S. history, the baby boomers, will have nearly depleted the Social Security trust fund. It’s also when older Generation X-ers will begin moving out of work and into their golden years.

But these won’t be the years of leisure that recent generations have known. Consider a typical 2030 retiree–an educated Gen X woman, around 65, who has worked all her life at small and midsize companies. Those firms have created most of the new jobs in the economy for the past 50 years, but only 15% of them offer formal retirement plans. Our retiree has put away savings here and there, but she’s also part of the middle class, which took the biggest wealth hit during the financial crisis of 2008. That–along with the fact that average real wages have been virtually flat for three decades, even as living costs have risen–means she has minimal savings, even less than the $42,000 that today’s average retiree leaves work with.

More than half her retirement income comes from Social Security. When you factor in health care spending, she’ll be living on only about 41% of the average national wage. Despite her best efforts to work and save, our Gen X retiree will have trouble maintaining her standard of living. She won’t be alone: the Center for Retirement Research at Boston College estimates that 50% of American retirees will be in the same boat.

In all likelihood, then, she won’t actually be retired. Like many of her peers, our Gen X-er finds herself needing a part-time job; she shares her home and many living expenses with her son, a millennial who isn’t doing so well himself. More members of his generation live with Mom and Dad than any generation before, according to the Pew Research Center, in part because they came of age in the post-financial-crisis era, when wages were stagnant and unemployment high. (If you enter the workplace during such cycles, your income never catches up.) As he struggles to pay down student loans and save enough money to move out, there’s very little left over–which means he’s on course for an even less secure retirement than his mother.

Boomers scrambling to get by on a minimal income. Gen X-ers who can’t afford to stop working. Millennials staring at a bleak financial future. This is the retirement apocalypse coming at us fast–unless we do something about it now. As with other big, slow-moving crises (climate change, health care, the quality of education), it’s difficult to create a sense of urgency over retirement security. But in the past few years, the financial meltdown and its aftermath have thrown the problem into sharper relief. Now, in a retirement landscape that has witnessed few big innovations since the Reagan Administration and the rise of the 401(k) account, we’re suddenly seeing a range of new ideas.

Controversially, many of the new approaches call for a greater role for government after three decades of pushing responsibility for retirement onto individuals. They include everything from President Obama’s MyRA plan, which would let some individuals save in a fund administered by the U.S. Treasury, to a spate of state-run programs. The most intriguing–and hotly debated–approach is taking shape in California, where state senator Kevin de León has pushed through a bill that aims to guarantee every Californian working in the private sector a living wage in retirement, a plan some experts say could become a new model for the nation.

Advocates say the government role will help recruit more people to save and can keep costs low with efficiencies of scale derived from all those participants–much as some big public-employee plans do. But the reforms are being challenged by everyone from small-government conservatives, alarmed by a growing public role, to financial-services companies, which fear that government-run plans will put money into simple index funds rather than the managed funds that generate more lucrative fees for the industry.

Regardless of the eventual solution, few dispute that we’re on a dire course at present. Experts estimate that half of Americans are at risk of becoming economically insecure in retirement. Our system is in desperate need of a fix. “We’re facing a tsunami,” says Senator Tom Harkin, a Democrat from Iowa who has proposed his own program. “And we’ve got to deal with it–now.”

GROUND ZERO

If there’s one place in America that best captures the complex mix of economic, social and demographic trends that play into the looming retirement crisis, it’s California. Like many other national stories, this one bubbled up early in the Golden State. Long before Detroit went bust, the state was in the news for its public-pension troubles, including massive bankruptcies in Stockton, Vallejo and San Bernardino. California is also emblematic of all the worrisome trends: it has more retirees, young people without benefits, poor people, immigrants and small and midsize businesses than most states. In other words, it checks all the boxes of groups most at risk of an insecure retirement.

Yet the Golden State is also coming up with some of the most forward-thinking ideas. De León’s approach, called the California Secure Choice Retirement Savings Program (CSC), was signed into law in 2012 by Governor Jerry Brown. It aims to combine the best of old-style defined-benefit plans (traditional pensions that guarantee workers a set level of yearly income in retirement) with the flexibility and mobility of a 401(k). CSC will cover workers in California who don’t currently have access to formal retirement savings via their work. “I’m a big fan,” says Monique Morrissey, an economist with the liberal Economic Policy Institute who recently testified before Congress on retirement security. “It’s probably the farthest along of all the retirement-reform ideas in terms of practical implementation.”

Details of the plan, which will launch in early 2016, are now being hashed out in consultation with a variety of industry and academic experts. It’s likely that CSC will use behavioral nudges to get as many eligible people as possible to participate–for instance, by making enrollment automatic unless a worker opts out, rather than requiring a sign-up to opt in.

Participants in CSC would sock away at least 3% of their income, most likely in a conservative index fund, in which money is invested in all the stocks listed in a specified index. For instance, in an S&P 500 fund, the pooled money is invested in all 500 stocks in that index. Index funds are considered a simple way to ensure that investors see the same return as the overall stock market–and they’re cheaper too, since index funds don’t employ stock-picking wizards and charge the related fees.

The possibility of more workers putting savings into such low-cost funds may help explain why CSC is getting resistance from the Securities Industry and Financial Markets Association (SIFMA), a trade group for securities firms and asset managers. But a version of this plan has already been enacted for nonprofit workers in Massachusetts, and plans similar to CSC are being discussed by governors and legislatures in states including New York, Illinois, Oregon, Washington, Connecticut, Maryland, Minnesota and Arizona. If successful, CSC and plans like it would put the government deeper in the business of guaranteeing retirement security. They would also underscore the fact that a 100% private, do-it-yourself system isn’t working–at least for many Americans.

De León, the force behind CSC, was raised by his Mexican mother, who died of cancer at 54, and his aunt. Both women worked as maids in various affluent California homes. De León says he became focused on retirement security last year when his aunt, who is 74, fell ill and couldn’t work.

“She was still cleaning homes in La Jolla when she had a stroke. She had no IRA, no 401(k), nothing. She had been working essentially freelance,” says de León. “I became her 401(k). I had to give her money because her Social Security didn’t suffice for her basic expenses, like housing, food, medication, a bus pass.”

De León’s district, in downtown Los Angeles, is home to many people in a similar fix. A melting pot that includes the city’s Chinatown, Koreatown, Little Armenia and other ethnic enclaves, it’s full of small entrepreneurs, immigrants and freelancers who work not at big blue chips but in the less secure firms and “gig economy” that’s increasingly becoming the norm in America.

STILL WORKING

Paula Dromi is one of those workers. A 75-year-old social worker, Dromi lives in a small three-bedroom bungalow near de León’s office in downtown L.A. with one of her two grown sons (who moved back to save money after a period of unemployment) as well as a friend. Both housemates help Dromi pay major living expenses. Her Social Security plus the money she makes working as a part-time freelance therapist amounts to about $1,700 a month. But her home insurance, property taxes and mortgage alone are nearly $1,500. Both she and her journalist husband (who died in 2000) saved for retirement, but years of co-payments on medical bills for his brain illness depleted both his $35,000 IRA and their $30,000 in savings.

Dromi was left with her $60,000 IRA–lower than it might have been because she changed jobs often and, like many other women, took time off to raise children–and her home, which is valued at $442,000. She could always sell the house. But if she did, she says, she’d have to move out of L.A. because of its lack of cheaper housing. Instead she has pieced together a multigenerational home and a freelance work life that she hopes she can maintain indefinitely. “I’ll be working another 20 years, assuming I can,” says Dromi.

In a way, Dromi is lucky. She has a home that she can share and is healthy enough to work, at least for the time being. But the fact that an educated professional who saved and had health insurance can end up scraping to get by in retirement underscores how fragile the system is.

That fragility is in large part due to the massive shifts in the American retirement system since 1980. That’s when the 401(k) plan was invented, by a benefits consultant working on a cash-bonus scheme for bankers, who had the idea to take advantage of an obscure provision in the tax code passed two years earlier, allowing for deferred compensation of individuals to be matched by their company.

The result was the 401(k), a savings account that lets employees contribute pretax income from their paycheck (sometimes with employers matching some or all of the amount) but, unlike the traditional pension, does not promise a specific regular payment upon retirement. Holders of 401(k)s amass a hopefully growing fund from which they can draw money when they retire.

This system is largely based on accident and anomaly–401(k)s were never meant to replace traditional pensions as a primary retirement vehicle, but they have. We’ve ended up with a bifurcated system that has the upper third of society doing better and everyone else doing worse. Statistics show that people retiring now who have been invested in 401(k)s rather than traditional defined-benefit pensions are less well off than those who came before them. That’s because 401(k)s typically work best for people who work for big companies, with salaries that allow them to put away double-digit percentages of their income, and who have either the sophistication to choose their own asset allocations well or a benefits department that offers up smart options and auto-enrolls them in the plan.

The problem is, most Americans don’t fall within that group. Only 64% of private-sector workers have any kind of formal retirement plan, and fewer than half sign up for one. What’s more, the number of people with access to plans is declining; part-time and freelance workers usually don’t qualify. With the situation becoming increasingly dire, there is a drumbeat to reform the 401(k) system. Options include making enrollment mandatory, providing state-sponsored IRAs (or even national ones like Obama’s MyRA, which is based on the highly successful, low-fee Thrift Savings Plan offered to federal workers) and cutting red tape and costs so that more small businesses could offer employees 401(k) plans.

But the efforts have been piecemeal and ineffectual. Some critics blame the financial-industry lobby. In a letter to the California treasurer late last year arguing against the CSC plan, SIFMA contended that such programs would “directly compete for business with a wide range of California financial-services firms” and that state money should be put not into creating universal retirement plans but into educating individuals “about the benefits of early and regular savings for retirement.”

De León responds that it’s asking a lot of many workers to navigate the complex investment choices in many private plans. Indeed, over time, passive index funds typically beat all but a handful of actively managed funds, and many individual workers don’t have access to the highest-performing vehicles.

SYSTEM REBOOT

That’s why many retirement scholars would like to see the entire system changed, starting with 401(k) plans themselves. Harkin’s bill, the USA Retirement Funds Act, aims to make it more difficult for people to borrow from 401(k)s. This “leakage,” when savers tap their retirement funds prematurely, is a big reason people come up short in retirement. Harkin’s proposal would also shift the standard payout from a lump sum to a steady income stream in retirement.

Some experts would also like to see the government force more workers to save. For those who have access to 401(k)s, “Congress should make automatic enrollment mandatory, and plans should invest people in low- or no-fee index funds,” says Alicia Munnell, director of Boston College’s Center for Retirement Research. She and others also suggest establishing third-party administrators that would run the programs for groups of companies–bringing together more workers, creating better economies of scale, lowering fees and raising returns.

Governments are, of course, a possible candidate to run such programs–that’s essentially what de León is proposing to do for workers who are currently not covered by any other plan. Critics say government has a poor track record when it comes to protecting retiree savings, citing public-employee pensions in cities like Stockton, Calif. De León counters that unlike public-pension plans that promised 8% returns a year and cushy retirements, the CSC model has more modest aspirations–around 3% returns and a “livable yearly wage in retirement.”

Unfortunately, truly fixing American retirement will likely take more than even mandatory 401(k) plans and diminished expectations. Social Security reform is a subject that must be debated soon, in a real way, if we want to avoid having a generation of elderly poor. The fact that fewer than 10% of America’s elderly are currently poor largely reflects the contribution of Social Security to their income. Without it, says Pew’s Paul Taylor, author of the book The Next America, about half of people over 65 would be poor.

Beyond that, it’s probably inevitable that we’ll all be working longer. Munnell of the Center for Retirement Research points out that delaying the start of Social Security benefits from age 62 to 70 could increase monthly payouts by 76%. “Most of us are healthier and have less physically demanding jobs than our parents and grandparents,” Munnell says. “Stretching out our work lives is a sensible option.”

Changing our households to return to a once common multifamily structure, as Paula Dromi and her son have done, may be another. Taylor is hopeful that such forced communal living may actually help spark the tough political debate needed to reform entitlements and enhance retirement security while continuing to invest in our economy for the sake of the young. The portion of the population most worried about retirement are the 20- and 30-somethings who see an uncertain future as they struggle to pay off student loans and establish themselves in the work world, and perhaps lean on their parents for support. “There’s a growing sense, for all the generations, that no one has been spared and everyone is suffering to some extent,” says Taylor. “There’s also a sense that we’re all in this together–and maybe that has the potential to change this zero-sum debate.” If we’re lucky, that may help us find the way to a system in which people of all generations can retire with security and dignity.

(originally reported by TIME – http://time.com/2899504/2030-the-year-retirement-ends/)

 

Russia Declares War on Dollar. Putin financial advisor calls for Anti-Dollar coalition of countries.

Putin’s aide proposes anti-dollar alliance to force US to end Ukraine’s civil war

 

Sergey Glazyev, the economic aide of Vladimir Putin, published an article outlining a plan for “undermining the economic strength of the US” in order to force Washington to stop the civil war in Ukraine. Glazyev believes that the only way of making the US give up its plans on starting a new cold war is to crash the dollar system.

In his article, published by Argumenty Nedeli, Putin’s economic aide and the mastermind behind the Eurasian Economic Union, argues that Washington is trying to provoke a Russian military intervention in Ukraine, using the junta in Kiev as bait. If fulfilled, the plan will give Washington a number of important benefits. Firstly, it will allow the US to introduce new sanctions against Russia, writing off Moscow’s portfolio of US Treasury bills. More important is that a new wave of sanctions will create a situation in which Russian companies won’t be able to service their debts to European banks.

According to Glazyev, the so-called “third phase” of sanctions against Russia will be a tremendous cost for the European Union. The total estimated losses will be higher than 1 trillion euros. Such losses will severely hurt the European economy, making the US the sole “safe haven” in the world. Harsh sanctions against Russia will also displace Gazprom from the European energy market, leaving it wide open for the much more expensive LNG from the US.

Co-opting European countries in a new arms race and military operations against Russia will increase American political influence in Europe and will help the US force the European Union to accept the American version of the Transatlantic Trade and Investment Partnership, a trade agreement that will basically transform the EU into a big economic colony of the US. Glazyev believes that igniting a new war in Europe will only bring benefits for America and only problems for the European Union. Washington has repeatedly used global and regional wars for the benefit of  the American economy and now the White House is trying to use the civil war in Ukraine as a pretext to repeat the old trick.

Glazyev’s set of countermeasures specifically targets the core strength of the US war machine, i.e. the Fed’s printing press. Putin’s advisor proposes the creation of a “broad anti-dollar alliance” of countries willing and able to drop the dollar from their international trade. Members of the alliance would also refrain from keeping the currency reserves in dollar-denominated instruments. Glazyev advocates treating positions in dollar-denominated instruments like holdings of junk securities and believes that regulators should require full collateralization of such holdings. An anti-dollar coalition would be the first step for the creation of an anti-war coalition that can help stop the US’ aggression.

Unsurprisingly, Sergey Glazyev believes that the main role in the creation of such a political coalition is to be played by the European business community because America’s attempts to ignite a war in Europe and a cold war against Russia are threatening the interests of big European business. Judging by the recent efforts to stop the sanctions against Russia, made by the German, French, Italian and Austrian business leaders, Putin’s aide is right in his assessment. Somewhat surprisingly for Washington, the war for Ukraine may soon become the war for Europe’s independence from the US and a war against the dollar.

(originally reported by The Voice of Russia –  http://voiceofrussia.com/2014_06_18/Putins-aide-proposes-anti-dollar-alliance-to-force-US-to-end-Ukraines-civil-war-8030/

___

Putin Advisor Proposes “Anti-Dollar Alliance” To Halt US Aggression Abroad

It has been a while since both Ukraine, and the ongoing Russian response to western sanctions (which set off the great Eurasian axis in motion, pushing China and Russia close together, and accelerating the “Holy Grail” gas deal between the two countries) have made headlines. It is still not clear just why the western media dropped Ukraine coverage like a hot potato, especially since the civil war in Ukraine’s Donbas continues to rage and claim dozens of casualties on both sides. Perhaps the audience has simply gotten tired of hearing about mixed chess/checkers game between Putin vs Obama, and instead has reverted to reading the propaganda surrounding just as deadly events in the third war of Iraq in as many decades.

However, “out of sight” may be just what Russia’s political elite wants. In fact, as VoR’s  Valentin Mândr??escu reports, while the great US spin and distraction machine is focused elsewhere, Russia is already preparing for the next steps. Which brings us to Putin advisor Sergey Glazyev, the same person who in early March was the first to suggest Russia dump US bonds and abandon the dollar in retaliation to US sanctions, a strategy which worked because even as the Kremlin has retained control over Crimea, western sanctions have magically halted (and not only that, but as the Russian central bank just reported, the country’s 2014 current account surplus may be as high as $35 billion, up from $33 billion in 2013, and a far cry from some fabricated “$200+ billion” in Russian capital outflows which Mario Draghi was warning about recently). Glazyev was also the person instrumental in pushing the Kremlin to approach China and force the nat gas deal with Beijing which took place not necessarily at the most beneficial terms for Russia.

It is this same Glazyev who published an article in Russian Argumenty Nedeli, in which he outlined a plan for “undermining the economic strength of the US” in order to force Washington to stop the civil war in Ukraine. Glazyev believes that the only way of making the US give up its plans on starting a new cold war is to crash the dollar system.

As summarized by VoR, in his article, published by Argumenty Nedeli, Putin’s economic aide and the mastermind behind the Eurasian Economic Union, argues that Washington is trying to provoke a Russian military intervention in Ukraine, using the junta in Kiev as bait. If fulfilled, the plan will give Washington a number of important benefits. Firstly, it will allow the US to introduce new sanctions against Russia, writing off Moscow’s portfolio of US Treasury bills. More important is that a new wave of sanctions will create a situation in which Russian companies won’t be able to service their debts to European banks.

According to Glazyev, the so-called “third phase” of sanctions against Russia will be a tremendous cost for the European Union. The total estimated losses will be higher than 1 trillion euros. Such losses will severely hurt the European economy, making the US the sole “safe haven” in the world. Harsh sanctions against Russia will also displace Gazprom from the European energy market, leaving it wide open for the much more expensive LNG from the US.

Co-opting European countries in a new arms race and military operations against Russia will increase American political influence in Europe and will help the US force the European Union to accept the American version of the Transatlantic Trade and Investment Partnership, a trade agreement that will basically transform the EU into a big economic colony of the US. Glazyev believes that igniting a new war in Europe will only bring benefits for America and only problems for the European Union. Washington has repeatedly used global and regional wars for the benefit of  the American economy and now the White House is trying to use the civil war in Ukraine as a pretext to repeat the old trick.

Glazyev’s set of countermeasures specifically targets the core strength of the US war machine, i.e. the Fed’s printing press. Putin’s advisor proposes the creation of a “broad anti-dollar alliance” of countries willing and able to drop the dollar from their international trade. Members of the alliance would also refrain from keeping the currency reserves in dollar-denominated instruments. Glazyev advocates treating positions in dollar-denominated instruments like holdings of junk securities and believes that regulators should require full collateralization of such holdings. An anti-dollar coalition would be the first step for the creation of an anti-war coalition that can help stop the US’ aggression.

Unsurprisingly, Sergey Glazyev believes that the main role in the creation of such a political coalition is to be played by the European business community because America’s attempts to ignite a war in Europe and a cold war against Russia are threatening the interests of big European business. Judging by the recent efforts to stop the sanctions against Russia, made by the German, French, Italian and Austrian business leaders, Putin’s aide is right in his assessment. Somewhat surprisingly for Washington, the war for Ukraine may soon become the war for Europe’s independence from the US and a war against the dollar.

(originally reported by zerohedge.com – http://www.zerohedge.com/news/2014-06-18/putin-advisor-proposes-anti-dollar-alliance-halt-us-foreign-aggression)

U.S.Debt hits new all-time Record!

What would you say f I told you that Americans are nearly 60 TRILLION dollars in debt? Well, it is true. When you total up all forms of debt including government debt, business debt, mortgage debt and consumer debt, we are 59.4 trillion dollars in debt.

That is an amount of money so large that it is difficult to describe it with words. For example, if you were alive when Jesus Christ was born and you had spent 80 million dollars every single day since then, you still would not have spent 59.4 trillion dollars by now. And most of this debt has been accumulated in recent decades. If you go back 40 years ago, total debt in America was sitting at about 2.2 trillion dollars. Somehow over the past four decades we have allowed the total amount of debt in the United States to get approximately 27 times larger. This is utter insanity, and anyone that thinks this is sustainable is completely deluded. We are living in the greatest debt bubble of all time, and there is no way that this is going to end well. Just check out the chart…

When the last recession hit, total debt in America actually started going down for a short period of time.

But then the Federal Reserve and our politicians in Washington worked feverishly to reinflate the bubble and they assured everyone that everything was going to be just fine. So Americans once again resorted to their free spending ways, and now total debt in the United States is rising at almost the same trajectory as before and has hit a new all-time record high.

We see a similar thing when we look at a chart for consumer debt in America…

For a while after the recession it was trendy to cut up your credit cards and get out of debt.

But that fad wore off rather quickly, didn’t it?

It is almost as if 2008 never happened. We are making the same mistakes with debt that we did before.

As I noted recently, total consumer credit in the US has risen by 22 percent over the past three years alone, and at this point 56 percent of all Americans have a subprime credit rating.

And have you noticed that a lot of people are not afraid to extend themselves in order to buy shiny new vehicles these days?

During the first quarter of this year, the size of the average vehicle loan soared to a new all-time record high of $27,612.

Five years ago, that number was just $24,174.

And as I noted in one recent article, the size of the average monthly car payment in this country is now up to $474.

That is practically a mortgage payment.

Speaking of mortgage payments, even though home sales have been falling and the rate of homeownership in the United States is the lowest that it has been in 19 years, a very large percentage of those who own homes are still overextended.

In fact, one recent survey discovered that a whopping 52 percent of Americans cannot even afford the house that they are living in right now.

At the same time, an increasing number of Americans are acting as if the last financial crisis never happened and are treating their homes like piggy banks.  Home equity loans are soaring again, and when the next great crisis strikes a lot of those people are going to end up getting into a lot of financial trouble.

There has been much written about what is wrong with the housing industry, but the truth is that home prices are still way too high and young adults cannot afford to purchase homes because they are already loaded down by huge amounts of debt even before they get to the point where they are ready to buy.

In fact, a newly released survey found that 47 percent of millennials are spending at least half of their paychecks on paying off debt…

Four in 10 millennials say they are “overwhelmed” by their debt — nearly double the number of baby boomers who feel that way, according to a Wells Fargo survey of more than 1,600 millennials between 22 and 33 years old, and 1,500 baby boomers between 49 and 59 years old.

To try to get out from underneath it, 47% said they spend at least half of their monthly paychecks on paying off their debts.

When I read that I was absolutely astounded.

Of course the biggest debt that many young adults are facing is student loan debt. According to the Federal Reserve, there is now more than 1.2 trillion dollars of student loan debt in this country, and about 124 billion dollars of that total is more than 90 days delinquent.

What we have done to our young people is shameful. We have encouraged them to sign up for a lifetime of debt slavery before they even understand what life is all about. The following is an excerpt from my previous article entitled “Is College A Waste Of Time And Money?”…

In America today, approximately two-thirds of all college students graduate with student loan debt, and the average debt level has been steadily rising. In fact, one study found that “70 percent of the class of 2013 is graduating with college-related debt – averaging $35,200 – including federal, state and private loans, as well as debt owed to family and accumulated through credit cards.”

That would be bad enough if most of these students were getting decent jobs that enabled them to service that debt.

But unfortunately, that is often not the case. It has been estimated that about half of all recent college graduates are working jobs that do not even require a college degree.

Considering what you just read, is it a surprise that half of all college graduates in America are still financially dependent on their parents when they are two years out of college?

According to the U.S. Census Bureau, only 36 percent of all Americans under the age of 35 own a home at this point. That is the lowest level that has ever been recorded.

And we are passing on to our young people the largest single debt in all of human history. Weighing in at 17.5 trillion dollars, the US national debt is a colossal behemoth. And almost all of that debt has been accumulated over the past 40 years. In fact, 40 years ago the US national debt was less than half a trillion dollars.

But this is just the beginning. As the Baby Boomer “demographic tsunami” washes through our economy, we are going to be facing a wave of red ink unlike anything we have ever contemplated before.

Meanwhile, the rest of the planet is drowning in debt as well.

As I wrote about the other day, the total amount of debt in the world has risen to a new all-time record high of $223,300,000,000,000.

Our “leaders” keep acting as if these debt levels can keep growing much faster than the overall level of economic growth indefinitely.

But anyone with even a shred of common sense knows that you can’t spend more money that you bring in forever.

At some point, a day of reckoning arrives.

2008 should have been a major wakeup call that resulted in massive changes. But instead, our leaders just patched up the old system and reinflated the old bubbles so that they are now even larger than they were before.

They assure us that they know exactly what they are doing and that everything will be just fine.

Unfortunately, they are dead wrong.

(originally reported by The Economic Collpase – http://theeconomiccollapseblog.com/archives/the-united-states-of-debt-total-debt-in-america-hits-a-new-record-high-of-nearly-60-trillion-dollars)

London Silver Fix daily Price Fix set to end 14 August

New Silver Benchmark Seen Heralding Gold Fix Revamp

Proposals to replace the 117-year-old system of fixing prices for the $5 trillion silver market are poised to add more transparency for the London benchmark used in the $18 trillion gold industry as well.

London Bullion Market Association members will hear firms’ proposals tomorrow for alternatives, including electronic trading, to replace the silver fixing by banks that began in 1897. The daily procedure will end Aug. 14, when Deutsche Bank AG quits the meetings as part of the German company’s exit from commodities, leaving just two banks to set prices. The World Gold Council yesterday called for a meeting next month for the industry to discuss changes to its own valuation process.

Precious metals are getting more attention from regulators after price rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks. The U.K.’s Financial Conduct Authority in May fined Barclays Plc after a trader sought to influence the gold fix in 2012. An LBMA survey last month showed the market wants a new silver system to be an electronic, auction-based process with more direct participants and prices that can be used in trades.

“The process is somewhat antiquated,” Courtney Lynn, the treasurer for Chicago-based Coeur Mining Inc., the biggest U.S.- based primary silver producer, said June 12. “In that sense, it could use some updating. If the silver process ends up working well and the market feels that they can remove a certain level of regulatory risk, I think they’ll opt to move to the silver pricing mechanism” for gold, she said.

Fixing Prices

About $5 trillion of silver and $18 trillion of gold circulated globally last year, according to CPM Group, a New York-based research company. Silver was fixed at $19.94 an ounce in London today, for a 2.3 percent gain this year. Gold climbed 7.3 percent this year to $1,293 an ounce by its afternoon fixing today. Gold for immediate delivery reached a record $1,921.17 in 2011, the year silver touched $49.8044, according to Bloomberg generic pricing.

London Silver Market Fixing Ltd. said in May it would stop administering the benchmark, used by everyone from mining companies to central banks to trade or value metal, once Deutsche Bank ends its participation on Aug. 14. The German lender, HSBC Holdings Plc and Bank of Nova Scotia conduct the silver fixing, which first took place more than a century ago at the office of Sharps & Wilkins with former dealers including Mocatta & Goldsmid, Pixley & Abell, and Samuel Montagu & Co.

Deutsche Bank

Deutsche Bank, Germany’s biggest lender, said in January that it would withdraw from participating in setting gold and silver benchmarks in London, a month after announcing that it would cut about 200 jobs in commodities and exit dedicated energy, agriculture, dry-bulk and base-metals trading. JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. also are retreating from raw materials.

Politicians and regulators have pressed banks to cut back their commodities activities to reduce balance-sheet risk, while earnings were eroded by lower volatility in raw materials and reduced client interest. Market-making and liquidity in the European and U.S. power, industrial metals and bulk commodities areas suffered the most as banks retreated, Paul Hawkins, global head of commodities at Credit Suisse Group AG, said at a briefing in London on May 22.

During fixings, member banks declare how much metal they want to buy or sell for clients as well as their own accounts. Traders relay shifts in supply and demand to clients and take fresh orders as the spot price changes, before the fix is made. Participants can trade the metal and its derivatives on the over-the-counter market and exchanges during the calls.

Companies’ Proposals

Autilla Ltd., Bloomberg LP, CME Group Inc./Thomson Reuters, ETF Securities Ltd., Intercontinental Exchange Inc., the London Metal Exchange and Platts will present proposals for a new silver mechanism at a seminar in London tomorrow, the LBMA said in a statement today. The solution should be agreed by the market and announced in early July, after consultation with regulators, it said. Testing is planned for early August.

A new gold mechanism or changes to the current procedure should be based on executed trades rather than submitted quotes, be tradeable and not just a reference price, while data should be transparent, published and subject to audit, the World Gold Council said in a statement yesterday. It will hold a meeting July 7 in London for the industry to discuss changes.

“The fixing process needs to be reformed,” Natalie Dempster, managing director, central banks and public policy at the council, said yesterday in a phone interview. Still, whatever method is developed for silver won’t necessarily be appropriate for gold, partly because of differing user bases and supply chains for each metal, she said.

Prices Published

While there’s been no notice from fixing banks or regulators that the gold rate should be replaced, the processes for setting gold, silver, platinum and palladium are much the same. Fixing companies, the LBMA and the London Platinum and Palladium Market publish the rates on their websites. Trade and volume data aren’t disclosed.

Societe Generale SA, Bank of Nova Scotia, HSBC and Barclays are the four remaining members of the London gold fix, which takes place twice daily and dates back to 1919. Spokesmen for Societe Generale, Barclays and HSBC declined to comment. Joe Konecny, a spokesman for Bank of Nova Scotia, didn’t reply to voice messages or e-mails sent by Bloomberg.

Fixing Company

Nobody was available to comment when calls were made by Bloomberg to a phone number listed on the London Gold Market Fixing Ltd.’s website. Douglas Beadle, who has been a consultant to the fixing company, didn’t reply to a message left by phone.

The LBMA is “happy to participate in discussions on issues which are designed to ensure the continued efficiency” of the gold and silver markets, Ruth Crowell, chief executive of the organization, said in an e-mailed statement yesterday.

The fixing still works well, even as scrutiny on the way prices are set has increased, according to David Govett, the head of precious metals at Marex Spectron Group in London and a trader for 30 years. With four members still setting the gold rate, the benchmark could continue, he said.

When asked to rate the usefulness of the current silver mechanism on a scale up to 10, an LBMA survey in May of more than 440 participants returned an average of 7.5. Sixty-four percent said they use the fixing daily and 72 percent said the price discovery method is sufficient.

Manipulation Possible

While traders say fixings are efficient and a crucial reference point, economists and academics say the process is susceptible to manipulation and lacks sufficient regulation. Germany’s Bafin is looking at benchmarking processes such as gold and silver price fixing at individual banks, a spokesman for the Bonn-based regulator said in April.

At least nine financial firms, including Deutsche Bank and Barclays, have been fined more than $6 billion for manipulating the London interbank offered rate, or Libor, and related benchmarks. Twelve people are facing prosecution in U.K. investigations. Regulators and prosecutors across three continents are also looking into possible manipulation of the foreign-exchange market in a probe that has seen more than 30 traders fired, suspended or put on leave.

Britain’s FCA has been visiting member banks involved in the gold fixing this year as part of its review of gold benchmarks, a person with knowledge of the matter said in April. The regulator said May 23 it fined Barclays 26 million pounds ($44 million) because one of its traders sought to influence the price-setting process in 2012.

New Benchmark

A new benchmark won’t be developed in the style of the present fix, Brian Lucey, a finance professor at Trinity College Dublin who has been an economist for the Central Bank of Ireland, said by phone June 17.

“When the gold and silver fixes were first set, they were pretty much the only game in town,” Lucey said. “Now we have the data which allows us to get a really good handle on the market. A mechanism that gives more information about more of the market is better for all.”

(originally reported by Bloomberg – http://www.bloomberg.com/news/2014-06-18/new-silver-benchmark-seen-heralding-gold-fix-revamp-commodities.html)
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The London Silver Market Fixing Limited

Incorporated in England and Wales With Registered Number 3685039; Registered Office: One Silk Street, London EC2Y 8HQ

LONDON, UNITED KINGDOM–(Marketwired – May 14, 2014) – The London Silver Market Fixing Limited (the ‘Company’) announces that it will cease to administer the London Silver Fixing with effect from close of business on 14 August 2014. Until then, Deutsche Bank AG, HSBC Bank USA N.A. and The Bank of Nova Scotia will remain members of the Company and the Company will administer the London Silver Fixing and continue to liaise with the FCA and other stakeholders.

The period to 14 August 2014 will provide an opportunity for market-led adjustment with consultation between clients and market participants.

The London Bullion Market Association has expressed its willingness to assist with discussions among market participants with a view to exploring whether the market wishes to develop an alternative to the London Silver Fixing.

Q&A

1. What will happen after 14 August 2014? Will the Silver Fixing cease to exist?

With effect from the close of business on 14 August 2014, the Company will cease to administer a Silver Fixing, and a daily Silver Fixing Price will no longer be published by the Company.

2. What will happen in the period up to that date?

The Company intends to continue to administer the daily Silver Fixing and publish Silver Fixing Prices throughout that period.

3. Why a three month notice period?

Although members of the Company may resign on seven clear days’ notice, the members have confirmed that they stand ready to continue the Company’s operations until (and including) 14 August 2014.

4. What happens after 14 August 2014 for market participants with contracts referencing the Silver Fix?

The Company is not in a position to comment on such matters, but market participants can speak to their contractual counterparties.

5. What does this mean for the gold, and platinum and palladium fixing companies?

This decision relates only to the London Silver Fixing administered by the Company. The Company is not in a position to comment on other fixings.

(originally reported by Reuters – http://www.reuters.com/article/2014/05/14/idUSnMKWWsY3ca+1e8+MKW20140514

Austria to audit gold reserves at the Bank of England

Austrias gold reserves stored in London are estimated at 150 tonnes.

Austria is planning to send auditors to the Bank of England in order to verify the existence of Austrias gold reserves stored in british vaults.

The Austrian accountability office will sent a delegation to London in order to check on Austrias gold reserves stored in vaults at the Bank of England. This is reported by Austrian magazine Trend. The measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold.

“I acknowledge the request. Any grocery store is obliged to do inventory once a year. It is the only way of getting rid of these unreasonable allegations”, Ewald Nowotny, Governor of the National Bank of Austria tells Trend.

Austria officially owns 280 tonnes of gold of which 17 percent are kept in vaults inside the country. Around 150 tonnes are estimated to be stored in London.

In recent years doubts about the existence and the quality of Germanys monetary gold stored at the New York Fed and the Bank of England were raised by a rising number of sceptics. In January the Bundesbank eventually announced plans to repatriate most of Gemanys gold reserves until 2020.

(originally reported by German site goldreporter.de and Austrian magazine Trend
– http://www.goldreporter.de/austria-to-audit-gold-reserves-at-the-bank-of-england/gold/42400/)

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First Germany, Now Austria Demands An Audit Of Its Offshore Held Gold

First it was Germany, now another AAA-rated European country is starting to get concerned about its hard assets.

Overnight Bloomberg reported that following in Bundesbank’s footsteps, Austria will audit its gold reserves located in the UK, which represent 80% of its total gold holdings. This gold reserve reviews held at Bank of England in London will be first conducted by external auditors, Christian Gutleder, a spokesman for the Austrian central bank, says via telephone.

As a reminder, Austria held 80% of its roughly 280 tons of gold in U.K., according to last annual report.

Gutleder explained that the Central bank has checked its reserves regularly in the past, adding that gold reserves haven’t changed since 2007. Which begs the question: why check them now then?

According to the official explanation that review comes after euro-skeptic Freedom Party demanded more transparency, repatriation of reserves. Perhaps it is time to rename the Euroskeptic party into the “we doubt our gold is where you say it is” skeptics. A better explanation was provided by the Austrian Trend magazine, which said that “the measure is seen as a consequence of growing public pressure. There is a rising disbelief among Austrians about the existence of the gold.”

Joking aside, with Euroskeptics across Europe ascendent, we wonder which central European nation will be the first to uncover that its gold is no longer where it is supposed to be (that most certainly includes the Banque de France).

So first Germany (which at this rate may repatriate its gold held in New York, London and Paris some time in the year 3000, now Austria… Who’s next to confirm that all those doubts about infinite rehypothecation of physical gold with countless beneficiaries of paper receivables will be the next conspiracy theory to become conspiracy fact, after last week’s surprising announcement that Barclays (the first of many) had manipulated paper gold prices on at least one occasions in the past decade.

(originally reported by zerohedge.com – http://www.zerohedge.com/news/2014-05-26/first-germany-now-austria-demands-audit-its-offshore-held-gold)