Gold Falls, Stocks Record Highs as Japan Goes ‘Weimar’

Submitted by Mark O’Byrne –Founding Partner of  GoldCore2014-08-12_1821

Stocks globally surged, while gold fell sharply today despite renewed irrational exuberance on hopes that the Bank of Japan’s vastly increasing money printing will fill some of the gaps left by the apparent end of Federal Reserve bond buying.

The BOJ decided to increase the pace at which it expands base money to a whopping 80 trillion yen ($726 billion) per year. Previously, the BOJ targeted an annual increase of 60 to 70 trillion yen.

The BOJ sailed into deeper uncharted monetary territory with the announcement that they would triple annual purchases of exchange-traded funds (ETFs) and Japanese real-estate investment trusts (REITS) to 3 trillion yen and 90 billion yen respectively.

The Nikkei surged 5% in minutes to a seven year high after the Bank of Japan decision, while gold fell.

These unprecedented monetary events remind us of the old English mapmakers who used to write on uncharted territories on their maps – “Here be Dragons”.

The BOJ claimed the surprise action was due to concerns that a decline in oil prices would weigh on consumer prices and delay a shift in sentiment away from deflation.

BOJ Governor Haruhiko Kuroda portrayed the decision as a preemptive strike to the ‘lost decade’ economy, rather than an admission that his plan to reflate the long moribund economy has so far failed.

The prime reason for the extraordinary monetary policies is likely that the Japanese economy remains very weak and risks tipping over into a depression. Bankruptcies more than doubled to 214 in the first nine months of 2014 compared with the same period a year ago.
Japan has introduced quantitative easing to stimulate the economy and to spur inflation. But it may backfire and lead to stagflation and in a worst case scenario a German ‘Weimar’ style hyperinflation.

The yen’s real effective exchange rate has dropped to its lowest level since 1982. With Japan easing likely to deepen, the yen may fall to an unprecedented level. Though the fall of the yen may promote exports – energy, food and raw material costs will rise, especially imports.

There has been much cheer leading of the Fed’s announcement that QE is over this week. We have doubts whether this will be the case and believe that a new round of QE and deepening currency wars is inevitable.

The Fed is very unlikely to start actually withdrawing its stimulus, so its balance sheet will remain elevated and a source of risk. The Fed’s 6 years of QE saw its balance sheet soar to $4.5 trillion.  As one monetary expert insider and expert put it to me in an email overnight:

“Just think, the Fed’s balance sheet was $140 billion, comprised of short term T Bills, in 1980 and that was thought to be runaway expansionism.”
Most analysts are ignoring the fact that the Fed has leveraged itself to nearly 80 to 1 and is effectively insolvent. A mere 1.25% drop in the value of its assets will wipe out its capital base.
A few other inconvenient truths being ignored by markets and market participants for now are the fact that:
*The U.S. Total Debt to GDP ratio today is 340% and rising
*The U.S. National Debt continues to rise and will surpass $18 trillion in the coming weeks
*U.S. Unfunded Liabilities are estimated to be between $100 trillion and $200 trillion

One of the dire consequences that many of us warned would result from global currency debasement was the creation of new and large asset bubbles. This is coming to pass.

The other dire consequences that many of us saw flowing from QE and global currency debasement  – a sharp fall in the value of fiat currencies and hyperinflation – have not come to pass.

However, history shows that stagflation and hyperinflation can be slow in developing but then can occur very rapidly.

Once the inflation genie is out of the bottle – it is nigh impossible to contain as was seen throughout the western world in the stagflation of the 1970s and has been in inflationary events throughout history.

Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years

Submitted by Mark O’Byrne –Founding Partner of  GoldCore2014-08-12_1821

As expected, the Fed announced yesterday it would end its six year money printing and bond buying programme.

Given the fragile nature of the U.S. economy, Eurozone economy and indeed the global economy, Fed critics continue to believe that this may be a short term hiatus prior to a resumption of QE, if asset prices start to fall or economic growth falters.

Former Federal Reserve Chairman Alan Greenspan admitted yesterday to the Council on Foreign Relations (CFR), that QE and the Fed’s bond buying program, which aimed to lower unemployment and spur stronger economic growth, fell short of its goals.

It has been a busy week for the man once known as “Maestro”. The end of last week saw him engage in public discussions with the likes of Marc Faber and Peter Schiff at the New Orleans Investment Conference.

Ominously, Greenspan warned at the New Orleans Investment Conference that the Fed’s balance sheet is a “pile of tinder” and gold is a “good place to put money these days” as it will rise “measurably” in the next 5 years.

He told the CFR that the bond buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.

“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” Greenspan said. Boosting asset prices, which aids the already wealthy, however, has been “a terrific success.”

When asked about QE, Greenspan made the unusually frank admission that “the Fed’s balance sheet is a pile of tinder, but it hasn’t been lit … inflation will eventually have to rise.”

Greenspan, who headed the Federal Reserve from 1987 to 2006 surprised guests in New Orleans when he stated bluntly, “I never said the central bank was Independent!” in response to criticism that the Fed was financing social programmes.

This stunning admission, if true, begs the obvious question: to what extent are the current policies of the Fed and other central banks the result of careful reasoning by independent monetary experts and to what extent are they being dictated by politicians desperate for public popularity and reelection or worse still by unelected powerful banks and bankers?

Greenspan said that currency debasement had failed to foster economic growth and unemployment had not been alleviated. However, at least asset prices had been boosted which he described as a “terrific success.”

So Wall Street reaped tremendous benefits from QE while main street flounders and taxpayers, both living and yet to be born, have the privilege of footing the  USD 4,000,000,000,000 bill – that is $4 trillion. He also indicated that ending QE would “unleash significant volatility in markets.”
In what may be the saving grace of his legacy, he continues to expound the virtues of gold.

In New Orleans, he was asked why central banks still own gold. His answer was encouraging if a little vague, “Gold has always been accepted without reference to any other guarantee.” When asked where the price of gold was headed in the next five years he said “measurably” “higher.”

Question: “Where will the price of gold be in 5 years?”
Greenspan: “Higher.”
Question: “How much?”
Greenspan: “Measurably.”

He told the CFR that “gold is a good place to put money these days given it’s value as a currency outside of the policies conducted by governments.”

So, the primary policy the Fed has – which is to put a floor under favoured markets and support U.S. bond and asset prices and give the process a complicated sounding title – has failed, according to the ‘Maestro’ who devised said policy.

What happens next? We don’t know but for once we would be inclined to follow Mr. Greenspan’s advice.

As we discussed last year, Mr. Greenspan is not the only person to have chaired a major central bank who views gold as a highly relevant strategic asset.

Mario Draghi, head of the ECB and former governor of the Bank of Italy, has this to say:

“Well you’re also asking this to the former Governor of the Bank of Italy, and the Bank of Italy is the fourth largest owner of gold reserves in the world, which is out of all proportion to the size of the country. But I never thought it wise to sell it, because for central banks this is a reserve of safety, it’s viewed by the country as such.”

“In the case of non-dollar countries it gives you a value-protection against fluctuations against the dollar, so there are several reasons, risk diversification and so on.”

The smart money continues to understand the importance of gold as diversification.

Marc Faber, who also spoke at the New Orleans Investment conference, summed up our view perfectly when he suggested that each individual should be their own central banker, holding the reserve currency that is gold as insurance against government bungling.

The Surprising Reason QE Lives On

Submitted by Bill Bonner – Chairman, Bonner & Partners

QE, we hardly knew ye…

Hang the black crepe. Get out the whiskey. Say goodbye. And try to keep the tears from your eyes.

The Dow rose back above 17,000 points yesterday, near its all-time high. Higher stock prices should settle nerves at the Fed’s FOMC meeting. It should leave the central bankers free to let their emergency bond-buying program die in peace.

The Financial Times announced the end even before it happened. On Monday, its headline read: “RIP QE: The quiet death of a radical US monetary policy.”

But the Fed has to be careful. If it announces that QE is truly dead, it is likely to set off some untoward scenes of wailing and keening in the stock market. Investors will feel a deep sense of loss.

Is the Party Over?

The trouble with death is it is permanent. The dead stay dead. And if investors believe QE will never rise again, they may be disheartened. Or even feel betrayed.

Remember, the central bank was the life of the party. It was central banks that brought the booze… leading to the big run-up in US stock prices over the last five years.

If QE is history, most likely so is the bull market on Wall Street. The party is over. Stock prices are likely to put on their coats and hats and go back whence they came.

The Fed has already given out the word that, although QE may be breathing its last breath, its offspring will live on.

The Fed will not be selling its roughly $4.5 trillion portfolio of bonds… or even allowing it to expire of natural causes.

In the normal course of events, these bonds would mature and then – as all of us will – disappear. But Janet Yellen tells us it will be reinvesting the funds from maturing bonds in new issues. In other words, it will continue to soak up new bonds, helping to keep a lid on yields.

We doubt that will be enough…

An economy that depends on debt needs more and more of it to get the same buzz going. The first time you pump a lot of credit into an economy’s veins you get quite a rush. It’s only later that the shakes begin.

As debt grows, it becomes harder for the economy to grow. Because the resources needed by the future have already been claimed by the past.

Ultra-low interest rates disguise the problem and postpone the reckoning, but they can’t put it off forever. A man who buys a cup of coffee today on his credit card has created an obligation that will eat into some of tomorrow’s income.

If he allows the interest on that debt to compound, he could still be paying for that cup of coffee 10 or 20 years from now.

Debt Is a Drag

This debt drag has been explored in a number of economic studies. According to Van Hoisington and Dr. Lacy Hunt of Hoisington Investment Management:

A country’s growth rate will lose about 25% of its normal-experience growth rate when total debt reaches a “critical” level of 250% to 275% of GDP. Currently, it’s 334% in the US.

If you borrow to invest in a productive undertaking, the stream of income you receive from that undertaking may be enough to pay off the debt and even give you a profit.

But if you borrow – for Obamacare… for war in the Middle East… or for Wall Street bonuses – you’re not in a better position to pay off your debt; you’re in a worse position.

That is the conclusion of a rather dense paper by a quartet of Ph.D.s laboring for banking think tank the International Center for Monetary and Banking Studies.

Their paper – “Deleveraging? What Deleveraging?” – shows us that the world’s debt load is still increasing. It also tells us that “an excessive level of debt poses both acute and chronic risks.”

Nothing surprising about that…

But add in slow growth, and it puts you into a “vicious loop” in which you can’t pay down debt. The authorities try to stimulate growth. They run deficits… and lower interest rates to encourage borrowing… believing that these things will make it possible to “work our way out of debt.”

Instead, we just dig a deeper hole – increasing the risk of default, depression and deflation.

Which is why we wouldn’t be so quick to throw dirt on QE’s face. It might not be entirely dead.

And come the first alarm in the headlines – that the stock market has cracked… or the economy is sinking – we will likely see a resurrection.

The Ebola Story Doesn’t Smell Right

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

The federal government has announced that thousands of additional US soldiers are being sent to Liberia. General Gary Volesky said the troops would “stamp out” ebola.
The official story is that combat troops are being sent to build treatment structures for those infected with ebola.

Why combat troops? Why not send a construction outfit such as an engineer battalion if it has to be military? Why not do what the government usually does and contract with a construction company to build the treatment units? “Additional thousands of troops” results in a very large inexperienced construction crew for 17 treatment units. It doesn’t make sense.

Stories that don’t make sense and that are not explained naturally arouse suspicions, such as: Are US soldiers being used to test ebola vaccines and cures, or more darkly are they being used to bring more ebola back to the US?

I understand why people ask these questions. The fact that they will receive no investigative answer will deepen suspicions.

Uninformed and gullible Americans will respond: “The US government would never use its own soldiers and its own citizens as guinea pigs.” Before making a fool of yourself, take a moment to recall the many experiments the US government has conducted on American soldiers and citizens. For example, search online for “unethical human experimentation in the United States” or “human radiation experiments,” and you will find that federal agencies such as the Department of Defense and Atomic Energy Commission have: exposed US soldiers and prisoners to high levels of radiation; irradiated the testicles of males and tested for birth defects (high rate resulted); irradiated the heads of children; fed radioactive material to mentally disabled children.

The Obama regime’s opposition to quarantine for those arriving from West Africa is also a mystery. The US Army has announced that the Army intends to quarantine every US soldier returning from deployment in Liberia. The Army sensibly says that an abundance of caution is required in order to minimize the risk of transferring the ebola outbreak to the US. http://abcnews.go.com/Health/army-quarantines-general-soldiers-fighting-ebola/story?id=26486775 However, the White House has not endorsed the Army’s decision, and the White House has expressed opposition to the quarantines ordered by the governors of New York and New Jersey.http://www.foxnews.com/politics/2014/10/27/joint-chiefs-call-for-quarantine-troops-returning-from-ebola-zone/

Apparently pressure from the White House and threats of law suits from those subject to quarantine have caused the two states to loosen their quarantines. A nurse returning from treating ebola patients in West Africa has been cleared by New Jersey for discharge after being symptom-free for 24 hours instead of the 21-days it takes for the disease to produce symptoms. The nurse threatened a lawsuit, and the false issue of “discrimination against health care workers” has arisen. How is it discrimination to quarantine those with the greatest exposure to ebola?

Once symptoms appear, an infected person is dangerous to others until the person is quarantined. As the CDC now has been forced to admit, after stupidly denying the obvious fact, the current ebola strain can spread by air. All it takes is a sneeze or a cough or a contaminated surface.http://www.washingtonsblog.com/2014/10/cdc-finally-gets-right-ebola-spreads-aerosols-3-feet.html

In other words, it can spread like flu. Previous denials of this fact helped to create
the suspicion that the new ebola strain is a weaponized biowarfare strain created by
US government labs in West Africa. As University of Illinois law professor Francis Boyle has revealed, Washington placed its biowarfare laboratories in African countries that did not sign the convention banning such experimentation. http://www.paulcraigroberts.org/2014/10/20/us-government-master-criminal-time/

Washington’s deviousness in evading the convention that the US government signed has produced another suspicion: Did the new ebola strain escape, perhaps via some lab mishap that infected lab workers, or was the strain deliberately released in order to test if it works? See:http://www.paulcraigroberts.org/2014/10/26/evidence-us-development-testing-airborne-ebola-robert-wenzel/ and http://www.paulcraigroberts.org/2014/10/20/us-army-withheld-promise-germany-ebola-virus-wouldnt-weaponized/

The only intelligent and responsible policy is to stop all commercial flights to and from ebola areas. Health worker volunteers should be transported by military aircraft and should be required to undergo the necessary quarantine before being transported back to the US.

Why does the White House oppose the only responsible and intelligent policy? Why is Congress silent on the issue?

The resistance to a sane policy fosters the suspicions that the government or some conspiracy group intends to use ebola to declare martial law and herd the population or undesirable parts of it, into the FEMA camps that Halliburton was paid to construct (without the public ever being told the reason for the camps).

It is certainly strange that a government involved in long-term wars in the Middle East, the purpose of which is unclear to the public, and in fomenting conflict with both Russia and China, two countries armed with nuclear weapons, would so recklessly create more suspicions among the public of its motives, intentions, and competence.

Democracy requires that the public trust the government. Yet Washington does everything possible to destroy this trust and to present a picture of dysfunctional government with hidden and undeclared agendas.

Omniscient Federal Reserve Captures The Capital Market, For Now. Gold Beckons.

Submitted by Mark O’Byrne –Founding Partner of  GoldCore2014-08-12_1821

A cursory glance at the various financial news media this morning shows nothing particularly unusual for these unusual times. The ECB have paraded a list for stress tested banks and the market shrugged. However, there is a disturbing thread running through most of the stories to which we have become immune but which would have been considered highly unusual at almost any time in the twentieth century. And that thread is the influence of the Federal Reserve in practically every key market in the world.

The markets have become increasingly captured by Federal Reserve policy, watching what might be and what might change. “Schrodinger’s Cat” is the name given to the idea that the observer (Federal Reserve) of an experiment can by virtue of their very presence affect the subject (Markets) being observed. The Federal Reserve is far, far from a passive influence within the markets, poised to prop up the market should an unthinkable catastrophe threaten, no, now they are THE market.

They control almost every facet of the market directly or in most cases indirectly. They have almost limitless power to monetise debt and force their will on the market for as long they wish or along as enough people believe in them in the absence of alternative. And therein lies the keys: market confidence and acceptable alternative monetary systems.
Reuters report that, among other factors, last week’s slight weakness in gold was caused by fears that the Fed might signal their intention to raise rates at the conclusion of their two-day meeting tomorrow. This, despite the Fed signalling last week that rates may have to remain at their current rate in light of the situation in Europe. Bloomberg reports that the Fed is expected to keep rates stable. The Wall Street Journal doesn’t offer an opinion on the outcome but regards the issue as one of great importance.

What we find odd is how a central bank, whose function is to act as lender of last resort to banks in times of crisis has expanded its mandate to micromanage the economy itself. During the twentieth century such a scenario could never have occurred in the U.S. and Western Europe. It would have been equated with the Marxism and central planning of the Soviet Union.

Robert Fitzwilson defined capitalism succinctly in his interview with KWN on Sunday: “Capital used to be derived solely from hard work, ingenuity and productivity as a surplus after costs. That surplus capital was utilized for reinvestment by the owner or sent through financial intermediaries such as banks to people in need of capital for productive purposes.” He went on to explain how this principle has been undermined: “That centuries-old system has been virtually made irrelevant by the modern ability of the central banks to create and supply unlimited amounts of what serves in our day as capital, fiat currency.”

Now, this new style of capitalism may be viable – we wouldn’t claim to know – but it depends entirely on the honour and integrity of the people managing the system. Marxism was similarly dependent. And if “by their fruits you shall know them” then it is quite clear that the system is being managed by oligarchs on behalf of their cronies. Noam Chomsky muses over how the cures prescribed by the rich for the poor always fail but still seem to have the unforeseen consequence of making the rich even more wealthy. Over the weekend Hillary Clinton echoed the claim made by president Obama that it was the federal government and not businesses who create employment as reported by Zerohedge. Are we in the midst of the transition from free-market economy to a centrally planned one? Is this the dawn of the U.S.S.A.?

In Europe the situation is no different. The experience of peripheral nations like Ireland and Greece show that the so-called troika have taken upon themselves the job of managing national economies (while reneging on their duties such as acting as a lender of last resort). The ECB removed democratically elected scoundrel Berlusconi from office in Italy only to replace him with a former Goldman Sachs banker.

So what does this mean for owners of gold and those considering acquiring it? We cannot begin to speculate. But we would look at the experience of every other centrally planned economy in history and note that it ended in currency collapse, massive wealth destruction and tears. Our usual prescription still applies. We advise clients to own gold in fully segregated and fully allocated accounts in ultra-secure vaults in the safest jurisdictions in the world.

The Meek Shall Inherit the Earth

Submitted by Timothy Knight – The Slope of Hope

These videos are not “news”, but they are quite interesting.

The first one, from early in 2009, shows Congressman Alan Grayson grilling Donald Kohn (of the Federal Reserve, in case it wasn’t screamingly obvious already) about where the $1.2 trillion of taxpayer money was sent (we all know the answer – Goldman Sachs – but it’s fun watching Kohn-head squirm anyway).

The more interesting video is below, in which the same Congressman Grayson queries the most evil-of-evil attorneys Scott Alvarez about whether the Fed manipulates the stock and futures markets (ha! ha ha!). I’m shocked to listen to Alvarez’s voice; I thought he would be a gritty, gruff, rough-and-tumble, go-to-hell kind of personality.

Instead, he sounds like an insecure hairdresser whose employment at a Castro Street styling salon is in question. Do all members of the Fed have these quivering voices, such as, famously, Ben Bernanke’s? In their tiny, blackened souls, do they know deep down they are evil liars, and what’s left of their conscience is tugging at their vocal cords? I’d say the answer is an irrefutable “yes.”

George W. Obama

Submitted by Bill Bonner, Chairman, Bonner & Partners

Among the many things still to be discovered is the effect of QE and ZIRP on the markets and the economy. We can’t wait to find out.

The Fed has bought nearly $4 trillion of bonds over the last five years. You’re bound to get some kind of reaction to that kind of money.

But what?

Higher stocks? More GDP growth? Higher incomes? More inflation?

Washington was hoping for a little more of everything. But all we see are higher stock and bond prices. And if QE helped prices to go up, they should go back down when QE ends this week.

Unless the Fed changes its mind…

If the Fed makes a clean break with QE, it risks getting blamed for a big crack-up in the stock market. On the other hand, if it announces more QE, it risks creating an even bigger bubble… and getting blamed for that.

Our guess is we’ll get a mealymouthed announcement that leaves investors reassured… but uncertain. The Fed won’t allow a bear market in stocks, but investors won’t know how and when it will intervene next.

War in the Streets?
When we left you for the weekend, we were talking about the reaction to the murder in Ottawa of a Canadian soldier who was guarding a war memorial.

There were 598 murders in Canada in 2011 (the most recent year we could find). As far as we know, not one registered the slightest interest in the US. But come a killer with Islam on his mind, and hardly a newspaper or talk show host in the 50 states can avoid comment.

“War in the streets of the West,” was how the Wall Street Journal put it; the newspaper wants a more muscular approach to the Middle East.

Why?

After a quarter of a century… and trillions of dollars spent… and hundreds of thousands of dollars lost… America appears to have more enemies in the Muslim world than ever before. Why would anyone want to continue on this barren path? To find out, we follow the money.

Professor Michael Glennon of Tufts University asks the same question: Why such eagerness for war?

People think that our government policies are determined by elected officials who carry out the nation’s will, as expressed at the ballot box. That is not the way it works.

Instead, it doesn’t really matter much what voters want. They get some traction on the emotional and symbolic issues – gay marriage, minimum wage and so forth.

But these issues don’t really matter much to the elites. What policies do matter are those that they can use to shift wealth from the people who earned it to themselves.

Autopilot
Glennon, a former legal counsel to the Senate Foreign Relations Committee, has come to the same conclusion. He says he was curious as to why President Obama would end up with almost precisely the same foreign policies as President George W. Bush.

It hasn’t been a conscious decision. […] Members of Congress are generalists and need to defer to experts within the national security realm, as elsewhere.They are particularly concerned about being caught out on a limb having made a wrong judgment about national security and tend, therefore, to defer to experts, who tend to exaggerate threats. The courts similarly tend to defer to the expertise of the network that defines national security policy.

The presidency is not a top-down institution, as many people in the public believe, headed by a president who gives orders and causes the bureaucracy to click its heels and salute. National security policy actually bubbles up from within the bureaucracy.

Many of the more controversial policies, from the mining of Nicaragua’s harbors to the NSA surveillance program, originated within the bureaucracy. John Kerry was not exaggerating when he said that some of those programs are “on autopilot.”

These particular bureaucracies don’t set truck widths or determine railroad freight rates. They make nerve-center security decisions that in a democracy can be irreversible, that can close down the marketplace of ideas, and can result in some very dire consequences.

I think the American people are deluded… They believe that when they vote for a president or member of Congress or succeed in bringing a case before the courts, that policy is going to change. Now, there are many counter-examples in which these branches do affect policy, as Bagehot predicted there would be. But the larger picture is still true – policy by and large in the national security realm is made by the concealed institutions.

Calling the Ottawa killing “war” not only belittles the real thing; it misses the point. There is no war on the streets of North America. But there is plenty of fraud and cupidity.

Here is how it works: The US security industry – the Pentagon, its hangers-on, its financiers and its suppliers – stomps around the Middle East, causing death and havoc in the Muslim world.

“Terrorists” naturally want to strike back at what they believe is the source of their sufferings: the US. Sooner or later, one of them is bound to make a go of it.

The typical voter hasn’t got time to analyze and understand the complex motives and confusing storyline behind the event. He sees only the evil deed.

His blood runs hot for protection and retaliation. When the call goes up for more intervention and more security spending, he is behind it all the way.

Regards,

Ebola is the New Weather Excuse

 Submitted by Michael Pento – Pento Portfolio Strategies

The perennially-optimistic crowd on Wall Street never lets the truth get in the way of a good story.  So whenever the stock market doesn’t move their way, they come up with a myriad of excuses to explain the fall.  The members of what my good friend Peter Grandich likes to call, “The Don’t Worry Be Happy Crowd” appear in the mainstream media and try to deflect attention away from the truth.

What these cheerleaders are unwilling to admit is that the Federal Reserve’s myriad of QEs and manipulations of interest rates have been pumping air into the stock market. Therefore, every exit attempt from its manipulations has, and will, begin a painful (yet necessary) deflation of this bubble.

Instead, they fall over themselves to deliver some alternative explanation for the deflation of asset bubbles after the Fed stops pumping in air. The heavily-relied-upon excuse after the first quarter’s negative GDP print and 6% drop in the stock market was the weather.  Likewise, it was no surprise that this October’s vicious market selloff wasn’t blamed on the Fed’s imminent exit from QE.  On the contrary, the view being promulgated was that the market was selling off due to Ebola fears. Continue reading

Why the Financial and Political System Failed and Stability Matters

Submitted by Nomi Prins  –  www.nomiprins.com

The recent spike in global political-financial volatility that was temporarily soothed by European Central Bank (ECB) covered bond buying and Bank of Japan (BOJ) stimulus reveals another crack in the six-year-old throw-money-at-the-banks strategies of politicians and central bankers. The premise of using banks as credit portals to transport public funds from the government to citizens is as inefficient as it is not happening. The power elite may exude belabored moans about slow growth and rising inequality in speeches and press releases, but they continue to find ways to provide liquidity, sustenance and comfort to financial institutions, not to populations.

The very fact – that without excessive artificial stimulation or the promise of it – more hell breaks loose – is one that government heads neither admit, nor appear to discuss. But the truth is that the global financial system has already failed. Big banks have been propped up, and their capital bases rejuvenated, by various means of external intervention, not their own business models.

In late October, the Federal Reserve released its latest 2015 stress test scenarios. They don’t even exceed the parameters of what actually took place during the 2008-2009-crisis period. This makes them, though statistically viable, completely irrelevant in an inevitable full-scale meltdown of greater magnitude. This Sunday, the ECB announced that 25 banks failed their tests, none of which were the biggest banks (that received the most help). These tests are the equivalent of SAT exams for which students provide the questions and answers, and a few get thrown under the bus for cheating to make it all look legit.

Regardless of the outcome of the next set of tests, it’s the very need for them that should be examined. If we had a more controllable, stable, accountable and transparent system (let alone one not in constant litigation and crime-committing mode) neither the pretense of well-thought-out stress tests making a difference in crisis preparation, nor the administering of them, would be necessary as a soothing tool. But we don’t. We have an unreformed (legally and morally) international banking system still laden with risk and losses, whose major players control more assets than ever before, with our help. Continue reading

Tapering, Exiting, or Just Punting?

Submitted by James Howard Kunstler  –  www.kunstler.com

Oh, that sound you hear this morning is the distant roar of European equity markets puking after the latest round of phony bank “stress tests” — another exercise in pretend by financial authorities who understand, at least, the bottomless credulity of the news media and the complete mystification of the general public in monetary matters. I rather expect that roar to grow Niagara-like as US markets catch the urge to upchuck violently. Problem is, unlike Ebola victims, they can’t be quarantined.

The end of the “taper” is upon us like the night of the hunter, conveniently just a week before the US election. If the Federal Reserve is politicized, the indoctrination must have been conducted by the Three Stooges. America’s central bank never did explain the difference between tapering and exiting their purchases of US treasury paper. I guess that’s because it has other interventionary tricks up its sleeves. Three-card Monte with reverse repos… ventures into direct stock purchases… the setting up of new Maiden Lane type companies for scarfing up securities with that piquant dead carp aroma. Who knows what’s next? It’s amazing what you can do with money in a desperate polity with a few dozen lawyers.

Of course, there is the solemn matter as to what happens now to the regularly issued treasury bonds and bills. Do they just sit in an accordian file on Jack Lew’s desk next to his Barack Obama bobblehead. The Russians don’t want them. The Chinese are already stuck with trillions they would like to unload for more gold. Frightened European one-percenters may want to park some cash in American paper to avoid bail-ins and other confiscations already rehearsed over there — but could that amount to more than a paltry few billion a month at the most?

What do the stock markets do without up to $85 billion a month (peak QE) sloshing around looking for dark pools to settle in? Can US companies keep the markets levitated by buying back their own shares like snakes eating their tails? Isn’t that basically over and done? And exactly how do interest rates stay suppressed when only a few French tax refugees want to buy American debt? I don’t think anybody knows the answer to these questions and the scenarios are too abstruse for the people who get paid for supposedly writing learned commentary in the sclerotic remnants of the press.

A few things are for sure, though they are sedulously kept out of the public discussion by interested gate-keepers. One is that the western economies have lost the ability to generate real new wealth of the type that their debt-based monetary systems require for ongoing operations (such as paying interest on old debt). Instead, we’ve entered a liminal era when fake wealth passes for wealth. Jive capital poses as capital. The main reason for this, of course, is the inability of world energy producers to meaningfully increase energy production in a way that does not suck more capital out of the system than the system can regenerate. But that conversation also has been outlawed from the public arena in “Saudi America.”

I suspect the subject will force itself on the national consciousness in the year ahead as one company after another in the shale oil regions craps out on a shortage of available investment capital. That’s the inflection point where fake wealth is unmasked for what it really is: crippled capital formation. The disappointment from that looming event will thunder through our society.

In the meantime, the distractions are many and powerful. Ebola may appear controlled for the moment in the USA, but the host countries in West Africa are virtually falling apart and the demographic movement out of failed economies like Liberia’s would suggest an awful dynamic for the spread of that disease into new regions. ISIS (or whatever we call them) is putting on a diversionary show on the Turkish border, but the real action awaits in Baghdad, perhaps poignantly at Christmas time, when mortar rounds start falling on the US embassy in the Green Zone and the evacuations commence.

Vladimir Putin Is The Leader Of the Moral World

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

Vladimir Putin’s remarks at the 11th meeting of the Valdai International Discussion Club are worth more than a link in my latest column. These are the remarks of a humanitarian political leader, the like of which the world has not seen in my lifetime. Compare Putin to the corrupt war criminal in the White House or to his puppets in office in Germany, UK, France, Japan, Canada, Australia, and you will see the difference between a criminal clique and a leader striving for a humane and livable world in which the interests of all peoples are respected.

In a sane Western society, Putin’s statements would have been reproduced in full and discussions organized with remarks from experts such as Stephen F. Cohen. Choruses of approval would have been heard on television and read in the print media. But, of course, nothing like this is possible in a country whose rulers claim that it is the “exceptional” and “indispensable” country with an extra-legal right to hegemony over the world. As far as Washington and its prostitute media, named “presstitutes” by the trends specialist Gerald Celente, are concerned, no country counts except Washington. “You are with us or against us,” which means “you are our vassals or our enemies.” This means that Washington has declared Russia, China, India, Brazil and other parts of South America, Iran, and South Africa to be enemies.

This is a big chunk of the world for a bankrupt country, hated by its vassal populations and many of its own subjects, that has not won a war since it defeated tiny Japan in 1945 by using nuclear weapons, the only use of such terrible weapons in world history.

As an American, try to image any known American politician, or for that matter any professor at Harvard, Princeton, Yale, or Stanford capable of giving an address to an educated discussion group of the quality of Putin’s remarks. Try to find any American politician capable of responding precisely and directly to questions instead of employing evasion.

No one can read Putin’s remarks without concluding that Putin is the leader of the world.

In my opinion, Putin is such a towering figure that Washington has him marked for assassination. The CIA will use one of the Muslim terrorists that the CIA supports inside Russia. Unlike an American president, who dares not move among the people openly, Putin is not kept remote from the people. Putin is at ease with the Russian people and mingles among them. This makes him an easy target for the CIA to use a Chechnya terrorist, a Jihadist suicide bomber, or the traditional “lone nut” to assassinate Putin.

The immoral, wicked, and declining West is incapable of producing leadership of Putin’s quality. Having defamed Putin, assassinating him will cause little comment in the Western media.

Here are Putin’s remarkable remarks:

Meeting of the Valdai International Discussion Club
24 October 2014, Sochi

Vladimir Putin took part in the final plenary meeting of the Valdai International Discussion Club’s XI session. The meeting’s theme is The World Order: New Rules or a Game without Rules.
This year, 108 experts, historians and political analysts from 25 countries, including 62 foreign participants, took part in the club’s work.

The plenary meeting summed up the club’s work over the previous three days, which concentrated on analysing the factors eroding the current system of institutions and norms of international law.

PRESIDENT OF RUSSIA VLADIMIR PUTIN: Colleagues, ladies and gentlemen, friends, it is a pleasure to welcome you to the XI meeting of the Valdai International Discussion Club.

It was mentioned already that the club has new co-organisers this year. They include Russian non-governmental organisations, expert groups and leading universities. The idea was also raised of broadening the discussions to include not just issues related to Russia itself but also global politics and the economy.

n organisation and content will bolster the club’s influence as a leading discussion and expert forum. At the same time, I hope the ‘Valdai spirit’ will remain – this free and open atmosphere and chance to express all manner of very different and frank opinions.

Let me say in this respect that I will also not let you down and will speak directly and frankly. Some of what I say might seem a bit too harsh, but if we do not speak directly and honestly about what we really think, then there is little point in even meeting in this way. It would be better in that case just to keep to diplomatic get-togethers, where no one says anything of real sense and, recalling the words of one famous diplomat, you realise that diplomats have tongues so as not to speak the truth.

We get together for other reasons. We get together so as to talk frankly with each other. We need to be direct and blunt today not so as to trade barbs, but so as to attempt to get to the bottom of what is actually happening in the world, try to understand why the world is becoming less safe and more unpredictable, and why the risks are increasing everywhere around us.
Today’s discussion took place under the theme: New Rules or a Game without Rules. I think that this formula accurately describes the historic turning point we have reached today and the choice we all face. There is nothing new of course in the idea that the world is changing very fast. I know this is something you have spoken about at the discussions today. It is certainly hard not to notice the dramatic transformations in global politics and the economy, public life, and in industry, information and social technologies.

Let me ask you right now to forgive me if I end up repeating what some of the discussion’s participants have already said. It’s practically impossible to avoid. You have already held detailed discussions, but I will set out my point of view. It will coincide with other participants’ views on some points and differ on others.

As we analyse today’s situation, let us not forget history’s lessons. First of all, changes in the world order – and what we are seeing today are events on this scale – have usually been accompanied by if not global war and conflict, then by chains of intensive local-level conflicts. Second, global politics is above all about economic leadership, issues of war and peace, and the humanitarian dimension, including human rights.

The world is full of contradictions today. We need to be frank in asking each other if we have a reliable safety net in place. Sadly, there is no guarantee and no certainty that the current system of global and regional security is able to protect us from upheavals. This system has become seriously weakened, fragmented and deformed. The international and regional political, economic, and cultural cooperation organisations are also going through difficult times.

Yes, many of the mechanisms we have for ensuring the world order were created quite a long time ago now, including and above all in the period immediately following World War II. Let me stress that the solidity of the system created back then rested not only on the balance of power and the rights of the victor countries, but on the fact that this system’s ‘founding fathers’ had respect for each other, did not try to put the squeeze on others, but attempted to reach agreements.

The main thing is that this system needs to develop, and despite its various shortcomings, needs to at least be capable of keeping the world’s current problems within certain limits and regulating the intensity of the natural competition between countries.

It is my conviction that we could not take this mechanism of checks and balances that we built over the last decades, sometimes with such effort and difficulty, and simply tear it apart without building anything in its place. Otherwise we would be left with no instruments other than brute force.

What we needed to do was to carry out a rational reconstruction and adapt it the new realities in the system of international relations.

But the United States, having declared itself the winner of the Cold War, saw no need for this. Instead of establishing a new balance of power, essential for maintaining order and stability, they took steps that threw the system into sharp and deep imbalance.

The Cold War ended, but it did not end with the signing of a peace treaty with clear and transparent agreements on respecting existing rules or creating new rules and standards. This created the impression that the so-called ‘victors’ in the Cold War had decided to pressure events and reshape the world to suit their own needs and interests. If the existing system of international relations, international law and the checks and balances in place got in the way of these aims, this system was declared worthless, outdated and in need of immediate demolition.

Pardon the analogy, but this is the way nouveaux riches behave when they suddenly end up with a great fortune, in this case, in the shape of world leadership and domination. Instead of managing their wealth wisely, for their own benefit too of course, I think they have committed many follies.

We have entered a period of differing interpretations and deliberate silences in world politics. International law has been forced to retreat over and over by the onslaught of legal nihilism. Objectivity and justice have been sacrificed on the altar of political expediency. Arbitrary interpretations and biased assessments have replaced legal norms. At the same time, total control of the global mass media has made it possible when desired to portray white as black and black as white.

In a situation where you had domination by one country and its allies, or its satellites rather, the search for global solutions often turned into an attempt to impose their own universal recipes. This group’s ambitions grew so big that they started presenting the policies they put together in their corridors of power as the view of the entire international community. But this is not the case.

The very notion of ‘national sovereignty’ became a relative value for most countries. In essence, what was being proposed was the formula: the greater the loyalty towards the world’s sole power centre, the greater this or that ruling regime’s legitimacy.

We will have a free discussion afterwards and I will be happy to answer your questions and would also like to use my right to ask you questions. Let someone try to disprove the arguments that I just set out during the upcoming discussion.

The measures taken against those who refuse to submit are well-known and have been tried and tested many times. They include use of force, economic and propaganda pressure, meddling in domestic affairs, and appeals to a kind of ‘supra-legal’ legitimacy when they need to justify illegal intervention in this or that conflict or toppling inconvenient regimes. Of late, we have increasing evidence too that outright blackmail has been used with regard to a number of leaders. It is not for nothing that ‘big brother’ is spending billions of dollars on keeping the whole world, including its own closest allies, under surveillance.

Let’s ask ourselves, how comfortable are we with this, how safe are we, how happy living in this world, and how fair and rational has it become? Maybe, we have no real reasons to worry, argue and ask awkward questions? Maybe the United States’ exceptional position and the way they are carrying out their leadership really is a blessing for us all, and their meddling in events all around the world is bringing peace, prosperity, progress, growth and democracy, and we should maybe just relax and enjoy it all?

Let me say that this is not the case, absolutely not the case.

A unilateral diktat and imposing one’s own models produces the opposite result. Instead of settling conflicts it leads to their escalation, instead of sovereign and stable states we see the growing spread of chaos, and instead of democracy there is support for a very dubious public ranging from open neo-fascists to Islamic radicals.

Why do they support such people? They do this because they decide to use them as instruments along the way in achieving their goals but then burn their fingers and recoil. I never cease to be amazed by the way that our partners just keep stepping on the same rake, as we say here in Russia, that is to say, make the same mistake over and over.

They once sponsored Islamic extremist movements to fight the Soviet Union. Those groups got their battle experience in Afghanistan and later gave birth to the Taliban and Al-Qaeda. The West if not supported, at least closed its eyes, and, I would say, gave information, political and financial support to international terrorists’ invasion of Russia (we have not forgotten this) and the Central Asian region’s countries. Only after horrific terrorist attacks were committed on US soil itself did the United States wake up to the common threat of terrorism. Let me remind you that we were the first country to support the American people back then, the first to react as friends and partners to the terrible tragedy of September 11.

During my conversations with American and European leaders, I always spoke of the need to fight terrorism together, as a challenge on a global scale. We cannot resign ourselves to and accept this threat, cannot cut it into separate pieces using double standards. Our partners expressed agreement, but a little time passed and we ended up back where we started. First there was the military operation in Iraq, then in Libya, which got pushed to the brink of falling apart. Why was Libya pushed into this situation? Today it is a country in danger of breaking apart and has become a training ground for terrorists.

Only the current Egyptian leadership’s determination and wisdom saved this key Arab country from chaos and having extremists run rampant. In Syria, as in the past, the United States and its allies started directly financing and arming rebels and allowing them to fill their ranks with mercenaries from various countries. Let me ask where do these rebels get their money, arms and military specialists? Where does all this come from? How did the notorious ISIL manage to become such a powerful group, essentially a real armed force?

As for financing sources, today, the money is coming not just from drugs, production of which has increased not just by a few percentage points but many-fold, since the international coalition forces have been present in Afghanistan. You are aware of this. The terrorists are getting money from selling oil too. Oil is produced in territory controlled by the terrorists, who sell it at dumping prices, produce it and transport it. But someone buys this oil, resells it, and makes a profit from it, not thinking about the fact that they are thus financing terrorists who could come sooner or later to their own soil and sow destruction in their own countries.

Where do they get new recruits? In Iraq, after Saddam Hussein was toppled, the state’s institutions, including the army, were left in ruins. We said back then, be very, very careful. You are driving people out into the street, and what will they do there? Don’t forget (rightfully or not) that they were in the leadership of a large regional power, and what are you now turning them into?

What was the result? Tens of thousands of soldiers, officers and former Baath Party activists were turned out into the streets and today have joined the rebels’ ranks. Perhaps this is what explains why the Islamic State group has turned out so effective? In military terms, it is acting very effectively and has some very professional people. Russia warned repeatedly about the dangers of unilateral military actions, intervening in sovereign states’ affairs, and flirting with extremists and radicals. We insisted on having the groups fighting the central Syrian government, above all the Islamic State, included on the lists of terrorist organisations. But did we see any results? We appealed in vain.

We sometimes get the impression that our colleagues and friends are constantly fighting the consequences of their own policies, throw all their effort into addressing the risks they themselves have created, and pay an ever-greater price.

Colleagues, this period of unipolar domination has convincingly demonstrated that having only one power centre does not make global processes more manageable. On the contrary, this kind of unstable construction has shown its inability to fight the real threats such as regional conflicts, terrorism, drug trafficking, religious fanaticism, chauvinism and neo-Nazism. At the same time, it has opened the road wide for inflated national pride, manipulating public opinion and letting the strong bully and suppress the weak.

Essentially, the unipolar world is simply a means of justifying dictatorship over people and countries. The unipolar world turned out too uncomfortable, heavy and unmanageable a burden even for the self-proclaimed leader. Comments along this line were made here just before and I fully agree with this. This is why we see attempts at this new historic stage to recreate a semblance of a quasi-bipolar world as a convenient model for perpetuating American leadership. It does not matter who takes the place of the centre of evil in American propaganda, the USSR’s old place as the main adversary. It could be Iran, as a country seeking to acquire nuclear technology, China, as the world’s biggest economy, or Russia, as a nuclear superpower.

Today, we are seeing new efforts to fragment the world, draw new dividing lines, put together coalitions not built for something but directed against someone, anyone, create the image of an enemy as was the case during the Cold War years, and obtain the right to this leadership, or diktat if you wish. The situation was presented this way during the Cold War. We all understand this and know this. The United States always told its allies: “We have a common enemy, a terrible foe, the centre of evil, and we are defending you, our allies, from this foe, and so we have the right to order you around, force you to sacrifice your political and economic interests and pay your share of the costs for this collective defence, but we will be the ones in charge of it all of course.” In short, we see today attempts in a new and changing world to reproduce the familiar models of global management, and all this so as to guarantee their [the US’] exceptional position and reap political and economic dividends.

But these attempts are increasingly divorced from reality and are in contradiction with the world’s diversity. Steps of this kind inevitably create confrontation and countermeasures and have the opposite effect to the hoped-for goals. We see what happens when politics rashly starts meddling in the economy and the logic of rational decisions gives way to the logic of confrontation that only hurt one’s own economic positions and interests, including national business interests.

Joint economic projects and mutual investment objectively bring countries closer together and help to smooth out current problems in relations between states. But today, the global business community faces unprecedented pressure from Western governments. What business, economic expediency and pragmatism can we speak of when we hear slogans such as “the homeland is in danger”, “the free world is under threat”, and “democracy is in jeopardy”? And so everyone needs to mobilise. That is what a real mobilisation policy looks like.

Sanctions are already undermining the foundations of world trade, the WTO rules and the principle of inviolability of private property. They are dealing a blow to liberal model of globalisation based on markets, freedom and competition, which, let me note, is a model that has primarily benefited precisely the Western countries. And now they risk losing trust as the leaders of globalisation. We have to ask ourselves, why was this necessary? After all, the United States’ prosperity rests in large part on the trust of investors and foreign holders of dollars and US securities. This trust is clearly being undermined and signs of disappointment in the fruits of globalisation are visible now in many countries.

The well-known Cyprus precedent and the politically motivated sanctions have only strengthened the trend towards seeking to bolster economic and financial sovereignty and countries’ or their regional groups’ desire to find ways of protecting themselves from the risks of outside pressure. We already see that more and more countries are looking for ways to become less dependent on the dollar and are setting up alternative financial and payments systems and reserve currencies. I think that our American friends are quite simply cutting the branch they are sitting on. You cannot mix politics and the economy, but this is what is happening now. I have always thought and still think today that politically motivated sanctions were a mistake that will harm everyone, but I am sure that we will come back to this subject later.

We know how these decisions were taken and who was applying the pressure. But let me stress that Russia is not going to get all worked up, get offended or come begging at anyone’s door. Russia is a self-sufficient country. We will work within the foreign economic environment that has taken shape, develop domestic production and technology and act more decisively to carry out transformation. Pressure from outside, as has been the case on past occasions, will only consolidate our society, keep us alert and make us concentrate on our main development goals.

Of course the sanctions are a hindrance. They are trying to hurt us through these sanctions, block our development and push us into political, economic and cultural isolation, force us into backwardness in other words. But let me say yet again that the world is a very different place today. We have no intention of shutting ourselves off from anyone and choosing some kind of closed development road, trying to live in autarky. We are always open to dialogue, including on normalising our economic and political relations. We are counting here on the pragmatic approach and position of business communities in the leading countries.

Some are saying today that Russia is supposedly turning its back on Europe – such words were probably spoken already here too during the discussions – and is looking for new business partners, above all in Asia. Let me say that this is absolutely not the case. Our active policy in the Asian-Pacific region began not just yesterday and not in response to sanctions, but is a policy that we have been following for a good many years now. Like many other countries, including Western countries, we saw that Asia is playing an ever greater role in the world, in the economy and in politics, and there is simply no way we can afford to overlook these developments.

Let me say again that everyone is doing this, and we will do so to, all the more so as a large part of our country is geographically in Asia. Why should we not make use of our competitive advantages in this area? It would be extremely shortsighted not to do so.

Developing economic ties with these countries and carrying out joint integration projects also creates big incentives for our domestic development. Today’s demographic, economic and cultural trends all suggest that dependence on a sole superpower will objectively decrease. This is something that European and American experts have been talking and writing about too.
Perhaps developments in global politics will mirror the developments we are seeing in the global economy, namely, intensive competition for specific niches and frequent change of leaders in specific areas. This is entirely possible.

There is no doubt that humanitarian factors such as education, science, healthcare and culture are playing a greater role in global competition. This also has a big impact on international relations, including because this ‘soft power’ resource will depend to a great extent on real achievements in developing human capital rather than on sophisticated propaganda tricks.
At the same time, the formation of a so-called polycentric world (I would also like to draw attention to this, colleagues) in and of itself does not improve stability; in fact, it is more likely to be the opposite. The goal of reaching global equilibrium is turning into a fairly difficult puzzle, an equation with many unknowns.

So, what is in store for us if we choose not to live by the rules – even if they may be strict and inconvenient – but rather live without any rules at all? And that scenario is entirely possible; we cannot rule it out, given the tensions in the global situation. Many predictions can already be made, taking into account current trends, and unfortunately, they are not optimistic. If we do not create a clear system of mutual commitments and agreements, if we do not build the mechanisms for managing and resolving crisis situations, the symptoms of global anarchy will inevitably grow.
Today, we already see a sharp increase in the likelihood of a whole set of violent conflicts with either direct or indirect participation by the world’s major powers. And the risk factors include not just traditional multinational conflicts, but also the internal instability in separate states, especially when we talk about nations located at the intersections of major states’ geopolitical interests, or on the border of cultural, historical, and economic civilizational continents.

Ukraine, which I’m sure was discussed at length and which we will discuss some more, is one of the example of such sorts of conflicts that affect international power balance, and I think it will certainly not be the last. From here emanates the next real threat of destroying the current system of arms control agreements. And this dangerous process was launched by the United States of America when it unilaterally withdrew from the Anti-Ballistic Missile Treaty in 2002, and then set about and continues today to actively pursue the creation of its global missile defence system.

Colleagues, friends, I want to point out that we did not start this. Once again, we are sliding into the times when, instead of the balance of interests and mutual guarantees, it is fear and the balance of mutual destruction that prevent nations from engaging in direct conflict. In absence of legal and political instruments, arms are once again becoming the focal point of the global agenda; they are used wherever and however, without any UN Security Council sanctions. And if the Security Council refuses to produce such decisions, then it is immediately declared to be an outdated and ineffective instrument.

Many states do not see any other ways of ensuring their sovereignty but to obtain their own bombs. This is extremely dangerous. We insist on continuing talks; we are not only in favour of talks, but insist on continuing talks to reduce nuclear arsenals. The less nuclear weapons we have in the world, the better. And we are ready for the most serious, concrete discussions on nuclear disarmament – but only serious discussions without any double standards.

What do I mean? Today, many types of high-precision weaponry are already close to mass-destruction weapons in terms of their capabilities, and in the event of full renunciation of nuclear weapons or radical reduction of nuclear potential, nations that are leaders in creating and producing high-precision systems will have a clear military advantage. Strategic parity will be disrupted, and this is likely to bring destabilization. The use of a so-called first global pre-emptive strike may become tempting. In short, the risks do not decrease, but intensify.

The next obvious threat is the further escalation of ethnic, religious, and social conflicts. Such conflicts are dangerous not only as such, but also because they create zones of anarchy, lawlessness, and chaos around them, places that are comfortable for terrorists and criminals, where piracy, human trafficking, and drug trafficking flourish.

Incidentally, at the time, our colleagues tried to somehow manage these processes, use regional conflicts and design ‘colour revolutions’ to suit their interests, but the genie escaped the bottle. It looks like the controlled chaos theory fathers themselves do not know what to do with it; there is disarray in their ranks.

We closely follow the discussions by both the ruling elite and the expert community. It is enough to look at the headlines of the Western press over the last year. The same people are called fighters for democracy, and then Islamists; first they write about revolutions and then call them riots and upheavals. The result is obvious: the further expansion of global chaos.

Colleagues, given the global situation, it is time to start agreeing on fundamental things. This is incredibly important and necessary; this is much better than going back to our own corners. The more we all face common problems, the more we find ourselves in the same boat, so to speak. And the logical way out is in cooperation between nations, societies, in finding collective answers to increasing challenges, and in joint risk management. Granted, some of our partners, for some reason, remember this only when it suits their interests.

Practical experience shows that joint answers to challenges are not always a panacea; and we need to understand this. Moreover, in most cases, they are hard to reach; it is not easy to overcome the differences in national interests, the subjectivity of different approaches, particularly when it comes to nations with different cultural and historical traditions. But nevertheless, we have examples when, having common goals and acting based on the same criteria, together we achieved real success.

Let me remind you about solving the problem of chemical weapons in Syria, and the substantive dialogue on the Iranian nuclear programme, as well as our work on North Korean issues, which also has some positive results. Why can’t we use this experience in the future to solve local and global challenges?

What could be the legal, political, and economic basis for a new world order that would allow for stability and security, while encouraging healthy competition, not allowing the formation of new monopolies that hinder development? It is unlikely that someone could provide absolutely exhaustive, ready-made solutions right now. We will need extensive work with participation by a wide range of governments, global businesses, civil society, and such expert platforms as ours.

However, it is obvious that success and real results are only possible if key participants in international affairs can agree on harmonising basic interests, on reasonable self-restraint, and set the example of positive and responsible leadership. We must clearly identify where unilateral actions end and we need to apply multilateral mechanisms, and as part of improving the effectiveness of international law, we must resolve the dilemma between the actions by international community to ensure security and human rights and the principle of national sovereignty and non-interference in the internal affairs of any state.

Those very collisions increasingly lead to arbitrary external interference in complex internal processes, and time and again, they provoke dangerous conflicts between leading global players. The issue of maintaining sovereignty becomes almost paramount in maintaining and strengthening global stability.

Clearly, discussing the criteria for the use of external force is extremely difficult; it is practically impossible to separate it from the interests of particular nations. However, it is far more dangerous when there are no agreements that are clear to everyone, when no clear conditions are set for necessary and legal interference.

I will add that international relations must be based on international law, which itself should rest on moral principles such as justice, equality and truth. Perhaps most important is respect for one’s partners and their interests. This is an obvious formula, but simply following it could radically change the global situation.

I am certain that if there is a will, we can restore the effectiveness of the international and regional institutions system. We do not even need to build anything anew, from the scratch; this is not a “greenfield,” especially since the institutions created after World War II are quite universal and can be given modern substance, adequate to manage the current situation.

This is true of improving the work of the UN, whose central role is irreplaceable, as well as the OSCE, which, over the course of 40 years, has proven to be a necessary mechanism for ensuring security and cooperation in the Euro-Atlantic region. I must say that even now, in trying to resolve the crisis in southeast Ukraine, the OSCE is playing a very positive role.

In light of the fundamental changes in the international environment, the increase in uncontrollability and various threats, we need a new global consensus of responsible forces. It’s not about some local deals or a division of spheres of influence in the spirit of classic diplomacy, or somebody’s complete global domination. I think that we need a new version of interdependence. We should not be afraid of it. On the contrary, this is a good instrument for harmonising positions.

This is particularly relevant given the strengthening and growth of certain regions on the planet, which process objectively requires institutionalisation of such new poles, creating powerful regional organisations and developing rules for their interaction. Cooperation between these centres would seriously add to the stability of global security, policy and economy.  But in order to establish such a dialogue, we need to proceed from the assumption that all regional centres and integration projects forming around them need to have equal rights to development, so that they can complement each other and nobody can force them into conflict or opposition artificially. Such destructive actions would break down ties between states, and the states themselves would be subjected to extreme hardship, or perhaps even total destruction.

I would like to remind you of the last year’s events. We have told our American and European partners that hasty backstage decisions, for example, on Ukraine’s association with the EU, are fraught with serious risks to the economy. We didn’t even say anything about politics; we spoke only about the economy, saying that such steps, made without any prior arrangements, touch on the interests of many other nations, including Russia as Ukraine’s main trade partner, and that a wide discussion of the issues is necessary. Incidentally, in this regard, I will remind you that, for example, the talks on Russia’s accession to the WTO lasted 19 years. This was very difficult work, and a certain consensus was reached.

Why am I bringing this up? Because in implementing Ukraine’s association project, our partners would come to us with their goods and services through the back gate, so to speak, and we did not agree to this, nobody asked us about this. We had discussions on all topics related to Ukraine’s association with the EU, persistent discussions, but I want to stress that this was done in an entirely civilised manner, indicating possible problems, showing the obvious reasoning and arguments. Nobody wanted to listen to us and nobody wanted to talk. They simply told us: this is none of your business, point, end of discussion. Instead of a comprehensive but – I stress – civilised dialogue, it all came down to a government overthrow; they plunged the country into chaos, into economic and social collapse, into a civil war with enormous casualties.

Why? When I ask my colleagues why, they no longer have an answer; nobody says anything. That’s it. Everyone’s at a loss, saying it just turned out that way. Those actions should not have been encouraged – it wouldn’t have worked. After all (I already spoke about this), former Ukrainian President Yanukovych signed everything, agreed with everything. Why do it? What was the point? What is this, a civilised way of solving problems? Apparently, those who constantly throw together new ‘colour revolutions’ consider themselves ‘brilliant artists’ and simply cannot stop.

I am certain that the work of integrated associations, the cooperation of regional structures, should be built on a transparent, clear basis; the Eurasian Economic Union’s formation process is a good example of such transparency. The states that are parties to this project informed their partners of their plans in advance, specifying the parameters of our association, the principles of its work, which fully correspond with the World Trade Organisation rules.

I will add that we would also have welcomed the start of a concrete dialogue between the Eurasian and European Union. Incidentally, they have almost completely refused us this as well, and it is also unclear why – what is so scary about it?

And, of course, with such joint work, we would think that we need to engage in dialogue (I spoke about this many times and heard agreement from many of our western partners, at least in Europe) on the need to create a common space for economic and humanitarian cooperation stretching all the way from the Atlantic to the Pacific Ocean.

Colleagues, Russia made its choice. Our priorities are further improving our democratic and open economy institutions, accelerated internal development, taking into account all the positive modern trends in the world, and consolidating society based on traditional values and patriotism.

We have an integration-oriented, positive, peaceful agenda; we are working actively with our colleagues in the Eurasian Economic Union, the Shanghai Cooperation Organisation, BRICS and other partners. This agenda is aimed at developing ties between governments, not dissociating. We are not planning to cobble together any blocs or get involved in an exchange of blows.

The allegations and statements that Russia is trying to establish some sort of empire, encroaching on the sovereignty of its neighbours, are groundless. Russia does not need any kind of special, exclusive place in the world – I want to emphasise this. While respecting the interests of others, we simply want for our own interests to be taken into account and for our position to be respected.
We are well aware that the world has entered an era of changes and global transformations, when we all need a particular degree of caution, the ability to avoid thoughtless steps. In the years after the Cold War, participants in global politics lost these qualities somewhat. Now, we need to remember them. Otherwise, hopes for a peaceful, stable development will be a dangerous illusion, while today’s turmoil will simply serve as a prelude to the collapse of world order.

Yes, of course, I have already said that building a more stable world order is a difficult task. We are talking about long and hard work. We were able to develop rules for interaction after World War II, and we were able to reach an agreement in Helsinki in the 1970s. Our common duty is to resolve this fundamental challenge at this new stage of development.

Thank you very much for your attention.

VLADIMIR PUTIN (commenting on statements by former Prime Minister of France Dominique de Villepin and former Federal Chancellor of Austria Wolfgang Schuessel): I would like to begin by saying that overall I agree with what both Wolfgang and Dominique have said. I fully support everything they said. However, there are a few things I would like to clarify.

I believe Dominique referred to the Ukrainian crisis as the reason for the deterioration in international relations. Naturally, this crisis is a cause, but this is not the principal cause. The crisis in Ukraine is itself a result of a misbalance in international relations.
I have already said in my address why this is happening, and my colleagues have already mentioned it. I can add to this, if necessary. However, primarily this is the outcome of the misbalance in international relations.

As for the issues mentioned by Wolfgang, we will get back to them: we will talk about the elections, if necessary, and about the supply of energy resources to Ukraine and Europe.
However, I would like to respond to the phrase “Wolfgang is an optimist, while life is harder for pessimists.” I already mentioned the old joke we have about a pessimist and an optimist, but I cannot help telling it again. We have this very old joke about a pessimist and an optimist: a pessimist drinks his cognac and says, “It smells of bedbugs,” while an optimist catches a bedbug, crushes it, then sniffs it and says, “A slight whiff of cognac.”

I would rather be the pessimist who drinks cognac than the optimist who sniffs bedbugs. (Laughter)
Though it does seem that optimists have a better time, our common goal is to live a decent life (without overindulging in alcohol). For this purpose, we need to avoid crises, together handle all challenges and threats and build such relations on the global arena that would help us reach these goals.

Later I will be ready to respond to some of the other things mentioned here. Thank you.
BRITISH JOURNALIST SEUMAS MILNE (retranslated from Russian): I would like to ask a two-in-one question.

First, Mr President, do you believe that the actions of Russia in Ukraine and Crimea over the past months were a reaction to rules being broken and are an example of state management without rules? And the other question is: does Russia see these global violations of rules as a signal for changing its position? It has been said here lately that Russia cannot lead in the existing global situation; however, it is demonstrating the qualities of a leader. How would you respond to this?
VLADIMIR PUTIN: I would like to ask you to reword the second part of your question, please. What exactly is your second question?

SEUMAS MILNE (retranslated from Russian): It has been said here that Russia cannot strive for leading positions in the world considering the outcomes of the Soviet Union’s collapse, however it can influence who the leader will be. Is it possible that Russia would alter its position, change its focus, as you mentioned, regarding the Middle East and the issues connected with Iran’s nuclear program me?

VLADIMIR PUTIN: Russia has never altered its position. We are a country with a traditional focus on cooperation and search for joint solutions. This is first.
Second. We do not have any claims to world leadership. The idea that Russia is seeking some sort of exclusivity is false; I said so in my address. We are not demanding a place under the sun; we are simply proceeding from the premise that all participants in international relations should respect each other’s interests. We are ready to respect the interests of our partners, but we expect the same respect for our interests.

We did not change our attitude to the situation in the Middle East, to the Iranian nuclear programme, to the North Korean conflict, to fighting terrorism and crime in general, as well as drug trafficking. We never changed any of our priorities even under the pressure of unfriendly actions on the part of our western partners, who are lead, very obviously in this case, by the United States. We did not even change the terms of the sanctions.

However, here too everything has its limits. I proceed from the idea that it might be possible that external circumstances can force us to alter some of our positions, but so far there have not been any extreme situations of this kind and we have no intention of changing anything. That is the first point.

The second point has to do with our actions in Crimea. I have spoken about this on numerous occasions, but if necessary, I can repeat it. This is Part 2 of Article 1 of the United Nations’ Charter – the right of nations to self-determination. It has all been written down, and not simply as the right to self-determination, but as the goal of the united nations. Read the article carefully.

I do not understand why people living in Crimea do not have this right, just like the people living in, say, Kosovo. This was also mentioned here. Why is it that in one case white is white, while in another the same is called black? We will never agree with this nonsense. That is one thing.
The other very important thing is something nobody mentions, so I would like to draw attention to it. What happened in Crimea? First, there was this anti-state overthrow in Kiev. Whatever anyone may say, I find this obvious – there was an armed seizure of power.

In many parts of the world, people welcomed this, not realising what this could lead to, while in some regions people were frightened that power was seized by extremists, by nationalists and right-wingers including neo-Nazis. People feared for their future and for their families and reacted accordingly. In Crimea, people held a referendum.

I would like to draw your attention to this. It was not by chance that we in Russia stated that there was a referendum. The decision to hold the referendum was made by the legitimate authority of Crimea – its Parliament, elected a few years ago under Ukrainian law prior to all these grave events. This legitimate body of authority declared a referendum, and then based on its results, they adopted a declaration of independence, just as Kosovo did, and turned to the Russian Federation with a request to accept Crimea into the Russian state.

You know, whatever anyone may say and no matter how hard they try to dig something up, this would be very difficult, considering the language of the United Nations court ruling, which clearly states (as applied to the Kosovo precedent) that the decision on self-determination does not require the approval of the supreme authority of a country.

In this connection I always recall what the sages of the past said. You may remember the wonderful saying: Whatever Jupiter is allowed, the Ox is not.

We cannot agree with such an approach. The ox may not be allowed something, but the bear will not even bother to ask permission. Here we consider it the master of the taiga, and I know for sure that it does not intend to move to any other climatic zones – it will not be comfortable there. However, it will not let anyone have its taiga either. I believe this is clear.

What are the problems of the present-day world order? Let us be frank about it, we are all experts here. We talk and talk, we are like diplomats. What happened in the world? There used to be a bipolar system. The Soviet Union collapsed, the power called the Soviet Union ceased to exist.
All the rules governing international relations after World War II were designed for a bipolar world. True, the Soviet Union was referred to as ‘the Upper Volta with missiles’. Maybe so, and there were loads of missiles. Besides, we had such brilliant politicians like Nikita Khrushchev, who hammered the desk with his shoe at the UN. And the whole world, primarily the United States, and NATO thought: this Nikita is best left alone, he might just go and fire a missile, they have lots of them, we should better show some respect for them.

Now that the Soviet Union is gone, what is the situation and what are the temptations? There is no need to take into account Russia’s views, it is very dependent, it has gone through transformation during the collapse of the Soviet Union, and we can do whatever we like, disregarding all rules and regulations.

This is exactly what is happening. Dominique here mentioned Iraq, Libya, Afghanistan and Yugoslavia before that. Was this really all handled within the framework of international law? Do not tell us those fairy-tales.

This means that some can ignore everything, while we cannot protect the interests of the Russian-speaking and Russian population of Crimea. This will not happen.

I would like everyone to understand this. We need to get rid of this temptation and attempts to arrange the world to one’s liking, and to create a balanced system of interests and relations that has long been prescribed in the world, we only have to show some respect.

As I have already said, we understand that the world has changed, and we are ready to take heed of it and adjust this system accordingly, but we will never allow anyone to completely ignore our interests.

Does Russia aim for any leading role? We don’t need to be a superpower; this would only be an extra load for us. I have already mentioned the taiga: it is immense, illimitable, and just to develop our territories we need plenty of time, energy and resources.

We have no need of getting involved in things, of ordering others around, but we want others to stay out of our affairs as well and to stop pretending they rule the world. That is all. If there is an area where Russia could be a leader – it is in asserting the norms of international law.
QUESTION: The peaceful process between the Palestinians and Israelis has completely collapsed. The United States never let the quartet work properly. At the same time, the growth of illegal Israeli settlements on the occupied territories renders impossible the creation of a Palestinian state. We have recently witnessed a very severe attack on the Gaza Strip. What is Russia’s attitude to this tense situation in the Middle East? And what do you think of the developments in Syria?

One remark for Mr Villepin as well. You spoke of humiliation. What can be more humiliating than the occupation that Palestine has been experiencing all these years?

VLADIMIR PUTIN: Regarding Palestine and the Israeli conflict. It is easy for me to speak about this because, first, I have to say and I believe everyone can see that our relations with Israel have transformed seriously in the past decade. I am referring to the fact that a large number of people from the former Soviet Union live in Israel and we cannot remain indifferent to their fate. At the same time, we have traditional relations with the Arab world, specifically with Palestine. Moreover, the Soviet Union, and Russia is its legal successor, has recognised Palestinian statehood. We are not changing anything here.

Finally, regarding the settlements. We share the views of the main participants in international relations. We consider this a mistake. I have already said this to our Israeli partners. I believe this is an obstacle to normal relations and I strongly expect that the practice itself will be stopped and the entire process of a peaceful settlement will return to its legal course based on agreement.

We proceed from the fact that that Middle East conflict is one of the primary causes of destabilisation not only in the region, but also in the world at large. Humiliation of any people living in the area, or anywhere else in the world is clearly a source of destabilisation and should be done away with. Naturally, this should be done using such means and measures that would be acceptable for all the participants in the process and for all those living in the area.
This is a very complicated process, but Russia is ready to use every means it has for this settlement, including its good relations with the parties to this conflict.

DIRECTOR, KIEV CENTER FOR POLITICAL AND CONFLICT STUDIES MIKHAIL POGREBINSKY: Mr President, I have come from Ukraine. For the first time in 70 years, it is going through very hard times. My question has to do with the possibility of a settlement. In this connection, I would like to go back in history. You mentioned that there was a moment when a trilateral format was under consideration: Russia-Ukraine-Europe. Back then, Europe did not agree to it, after which a series of tragic events took place, including the loss of Crimea, the death of thousands of people and so forth.

Recently, Europe together with Ukraine and Russia agreed that this format is possible after all; moreover, a corresponding resolution was passed. At that moment, there was hope that Russia together with Europe and Ukraine would manage to reach agreement and could become the restorer of peace in Ukraine. What happened next? What happened between Moscow and Brussels, Moscow and Berlin – because now the situation seems completely insane? It is unclear what this might lead to. What do you think happened to Europe?

VLADIMIR PUTIN: You know, what happened can be described as nothing happened. Agreements were reached, but neither side complied with them in full. However, full compliance by both sides might be impossible.

For instance, Ukrainian army units were supposed to leave certain locations where they were stationed prior to the Minsk agreements, while the militia army was supposed to leave certain settlements they were holding prior to these agreements. However, neither is the Ukrainian army withdrawing from the locations they should leave, nor is the militia army withdrawing from the settlements they have to move out of, referring, and I will be frank now – to the fact that their families remain there (I mean the militia) and they fear for their safety. Their families, their wives and children live there. This is a serious humanitarian factor.

We are ready to make every effort to ensure the implementation of the Minsk agreements. I would like to take advantage of your question to stress Russia’s position: we are in favour of complete compliance with the Minsk agreements by both sides.

What is the problem? In my view, the key problem is that we do not see the desire on the part of our partners in Kiev, primarily the authorities, to resolve the issue of relations with the country’s southeast peacefully, through negotiations. We keep seeing the same thing in various forms: suppression by force. It all began with Maidan, when they decided to suppress Yanukovych by force. They succeeded and raised this wave of nationalism and then it all transformed into some nationalistic battalions.

When people in southeast Ukraine did not like it, they tried to elect their own bodies of government and management and they were arrested and taken to prison in Kiev at night. Then, when people saw this happening and took to arms, instead of stopping and finally resorting to peaceful dialogue, they sent troops there, with tanks and aircraft.

Incidentally, the global community keeps silent, as if it does not see any of this, as if there is no such thing as ‘disproportionate use of force’. They suddenly forgot all about it. I remember all the frenzy around when we had a complicated situation in the Caucasus. I would hear one and the same thing every day. No more such words today, no more ‘disproportionate use of force’. And that’s while cluster bombs and even tactical weapons are being used.

You see, under the circumstances, it is very difficult for us in Russia to arrange work with people in southeast Ukraine in a way that would induce them to fully comply with all the agreements. They keep saying that the authorities in Kiev do not fully comply with the agreements either.
However, there is no other way. I would like to stress that we are for the full implementation of the agreements by both parties, and the most important thing I want to say – and I want everyone to hear that – if, God forbid, anyone is again tempted to use force for the final settlement of the situation in southeast Ukraine, this will bring the situation to a complete deadlock.

In my view, there is still a chance to reach agreement. Yes, Wolfgang spoke about this, I understood him. He spoke of the upcoming elections in Ukraine and in the southeast of the country. We know it and we are constantly discussing it. Just this morning I had another discussion with the Chancellor of Germany about it. The Minsk agreements do stipulate that elections in the southeast should be held in coordination with Ukrainian legislation, not under Ukrainian law, but in coordination with it.

This was done on purpose, because nobody in the southeast wants to hold elections in line with Ukrainian law. Why? How can this be done, when there is shooting every day, people get killed on both sides and they have to hold elections under Ukrainian law? The war should finally stop and the troops should be withdrawn. You see? Once this is achieved, we can start considering any kind of rapprochement or cooperation. Until this happens, it is hard to talk about anything else.

They spoke of the date of the elections in the southeast, but few know that there has been an agreement that elections in southeast Ukraine should be held by November 3. Later, the date was amended in the corresponding law, without consulting anyone, without consulting with the southeast. The elections were set for December 7, but nobody talked to them. Therefore, the people in the southeast say, “See, they cheated us again, and it will always be this way.”

You can argue over this any way you like. The most important thing is to immediately stop the war and move the troops away. If Ukraine wants to keep its territorial integrity, and this is something we want as well, they need to understand that there is no sense in holding on to some village or other – this is pointless. The idea is to stop the bloodshed and to start normal dialogue, to build relations based on this dialogue and restore at least some communication, primarily in the economy, and gradually other things will follow. I believe this is what should be achieved first and then we can move on.

PROFESSOR OF POLITICAL SCIENCE, DIRECTOR OF THE CENTER FOR GOVERNANCE AND PUBLIC POLICY AT CARLETON UNIVERSITY (OTTAWA) PIOTR DUTKIEWICZ: Mr President, if I may I would like to go back to the issue of Crimea, because it is of key importance for both the East and the West. I would like to ask you to give us your picture of the events that lead to it, specifically why you made this decision. Was it possible to do things differently? How did you do it? There are important details – how Russia did it inside Crimea. Finally, how do you see the consequences of this decision for Russia, for Ukraine, for Europe and for the normative world order? I am asking this because I believe millions of people would like to hear your personal reconstruction of those events and of the way you made the decision.

VLADIMIR PUTIN: I do not know how many times I spoke about this, but I will do it again.
On February 21, Viktor Yanukovych signed the well-known documents with the opposition. Foreign ministers of three European countries signed their names under this agreement as guarantors of its implementation.

In the evening of February 21, President Obama called me and we discussed these issues and how we would assist in the implementation of these agreements. Russia undertook certain obligations. I heard that my American colleague was also ready to undertake some obligations. This was the evening of the 21st. On the same day, President Yanukovych called me to say he signed the agreement, the situation had stabilized and he was going to a conference in Kharkov. I will not conceal the fact that I expressed my concern: how was it possible to leave the capital in this situation. He replied that he found it possible because there was the document signed with the opposition and guaranteed by foreign ministers of European countries.

I will tell you more, I told him I was not sure everything would be fine, but it was for him to decide. He was the president, he knew the situation, and he knew better what to do. “In any case, I do not think you should withdraw the law enforcement forces from Kiev,” I told him. He said he understood. Then he left and gave orders to withdraw all the law enforcement troops from Kiev. Nice move, of course.

We all know what happened in Kiev. On the following day, despite all our telephone conversations, despite the signatures of the foreign ministers, as soon as Yanukovych left Kiev his administration was taken over by force along with the government building. On the same day, they shot at the cortege of Ukraine’s Prosecutor General, wounding one of his security guards.

Yanukovych called me and said he would like us to meet to talk it over. I agreed. Eventually we agreed to meet in Rostov because it was closer and he did not want to go too far. I was ready to fly to Rostov. However, it turned out he could not go even there. They were beginning to use force against him already, holding him at gunpoint. They were not quite sure where to go.

I will not conceal it; we helped him move to Crimea, where he stayed for a few days. That was when Crimea was still part of Ukraine. However, the situation in Kiev was developing very rapidly and violently, we know what happened, though the broad public may not know – people were killed, they were burned alive there. They came into the office of the Party of Regions, seized the technical workers and killed them, burned them alive in the basement. Under those circumstances, there was no way he could return to Kiev. Everybody forgot about the agreements with the opposition signed by foreign ministers and about our telephone conversations. Yes, I will tell you frankly that he asked us to help him get to Russia, which we did. That was all.

Seeing these developments, people in Crimea almost immediately took to arms and asked us for help in arranging the events they intended to hold. I will be frank; we used our Armed Forces to block Ukrainian units stationed in Crimea, but not to force anyone to take part in the elections. This is impossible, you are all grown people, and you understand it. How could we do it? Lead people to polling stations at gunpoint?

People went to vote as if it were a celebration, everybody knows this, and they all voted, even the Crimean Tatars. There were fewer Crimean Tatars, but the overall vote was high. While the turnout in Crimea in general was about 96 or 94 percent, a smaller number of Crimean Tatars showed up. However 97 percent of them voted ‘yes’. Why? Because those who did not want it did not come to the polling stations, and those who did voted ‘yes’.

I already spoke of the legal side of the matter. The Crimean Parliament met and voted in favour of the referendum. Here again, how could anyone say that several dozen people were dragged to parliament to vote? This never happened and it was impossible: if anyone did not want to vote they would get on a train or plane, or their car and be gone.

They all came and voted for the referendum, and then the people came and voted in favour of joining Russia, that is all. How will this influence international relations? We can see what is happening; however if we refrain from using so-called double standards and accept that all people have equal rights, it would have no influence at all. We have to admit the right of those people to self-determination.

Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern

Submitted by Mark O’Byrne –Founding Partner of  GoldCore2014-08-12_1821

by Ronan Manly, GoldCore Consultant
Contents
– Introduction
– ‘Yes’ Campaign Launch
– Paper Decays, Gold Holds Its Value
– ‘No’ Campaign Launch – Alphabet Soup
– Unsaleable Gold Like an Unusable Fire Extinguisher?
– Swiss Electorate 5.2 Million
– Double Majority Including Cantons
– Referendas by the Dozen
– Sometimes There are Shock Results

Swiss Flag in the Swiss Alps

Introduction
In what was an extraordinary first salvo in the head-to-head gold referendum battle that will take place in Switzerland over the next five weeks, yesterday witnessed the launch of both the “Save our Swiss Gold” (Gold Initiative)” campaign and the opposing “Cross-party Committee against the Gold Initiative” campaign in Switzerland’s political capital, Bern. Switzerland’s potentially historic gold initiative referendum takes place on Sunday 30th November.
First up was the Gold Initiative Action Committee, the initiators of the gold initiative and the advocates of a ‘Yes’ in the referendum, who launched their campaign at a 10:30am press conference in the conference hall of the Federal Palace Media Centre in Bern[1].
Not to be outdone, the cross-party Committee against the Gold Initiative, the advocates of a ‘No’ vote, held their campaign launch press conference at 1:15pm in the same conference hall at the Federal Palace Media Centre in Bern[2].

[1] https://www.news.admin.ch/dienstleistungen/00009/index.html?lang=fr&even…
[2] https://s.bsd.net/economie/main/page/file/e166d3e9070191a779_rom6btyxf.pdf

‘Yes’ Campaign Launch
The press conference of the Gold Initiative ‘Yes’ campaign committee was hosted by Swiss People’s Party (SVP) members, Luzi Stamm, Lukas Reimann and Ulrich Schlüer.

Ulrich Schlüer, a former SVP National Councillor, disputed the recent claim by Swiss Finance Minister Eveline Widmer-Schlumpf that since the gold initiative calls for 20% of the reserves of the Swiss National Bank (SNB) to be kept in gold, that this would mean that the SNB would need to buy SwF 60 billion worth of gold to raise the percentage of gold on the SNB’s balance sheet to 20%.

Schlüer said that this was not true, and that one alternative would be for the SNB to reduce the size of its balance sheet, bringing down the absolute level of foreign exchange reserves, thereby meeting the 20% target this way. Schlüer argued that given that the SNB would have five years in which to meet this 20% floor level, this would not necessarily impact the SwF / Euro target band, and furthermore, it was also the responsibility of the European Central Bank to manage the Euro’s value, not just the SNB.

SVP National Councillor Lukas Reimann (SG) highlighted that the gold initiative’s stipulation of gold holdings as a minimum target of 20% of the SNB’s balance sheet is still a lot lower than other countries, for example, Germany.
Since gold reserve holdings of neighbouring European countries such as France, Italy and Germany are in the range of 65% to 70% of their total foreign reserve assets, the point Reimann makes is very valid. Not to mention the fact that other large gold holding countries such as China and Russia are specifically doing everything in their power right now to continually accumulate gold reserves so as to bring gold as a percentage of their total reserve assets up to and beyond the 20% level.

The Swiss Federal Council and the SNB have frequently used the comparative statistic of gold reserves per head of population to justify their argument that Swiss gold holdings are the highest in the world (per capita), but in a world of absolute central bank gold rankings, this argument is immaterial.

Paper Decays, Gold holds its Value
The Gold Initiative Committee told their press audience that gold is a long-term “safe and stable store of value” in times of economic turbulence. The Committee views gold as an insurance, and as a reserve asset, with gold reserves being the foundation for a stable currency and economy, while securing the independence of Switzerland[1].

Lukas Reimann said that while gold is money and it defies crises, paper money can be reproduced at will and is easily manipulated. SVP National Councillor Luzi Stamm (AG) said that “paper decays, money holds its value.” According to Stamm, the SNB’s talk of “excess gold reserves” in the 1990s was very misleading.

[1] http://www.nzz.ch/schweiz/papier-zerfaellt-gold-haelt-1.18410163

Luzi Stamm lamented that the Swiss gold sales of 2000-2008, when the SNB sold 1,550 tonnes of Switzerland’s gold, were ‘a big mistake’ and that retrospectively, the sales had been conducted “at incredibly low prices” or “cut-price” levels due to Switzerland having “bowed to foreign pressure.”

On the question of why the Gold Initiative Committee wants all Swiss gold to be stored in Switzerland, Luzi Stamm asked “who seriously believes that we could bring back the gold in the event of a serious crisis in Switzerland”. He added that there was absolutely “no compelling reason” to keep Swiss gold abroad.


SVP National Councillor, Lukas Reimann (SG) speaking at the launch of the Gold Initiative Committee’s press conference in Bern, 23 October 2014

On the specific issue of the referendum vote on the 30th November, Lukas Reimann said that he had never experienced such a large discrepancy between the disinterest which is being displayed by the Swiss media on the gold initiative referendum, and the active interest that is being displayed by the Swiss population to the referendum.

Reimann pointed out that the only Swiss political party that has officially backed a ‘Yes’ vote for the gold initiative is the small EDU party (Federal Democratic Union of Switzerland). Even his own party, the SVP, is showing limited support, and when the gold initiative petition came through the Swiss parliament earlier this year, not even half the SVP grouping voted for it.

‘No’ Campaign Launch – Alphabet Soup
Switzerland has an extensive multi-party political system where cooperation and consensus are usually more important than head-to-head party political opposition and point scoring. In the case of the Swiss gold initiative, apart from a core group of the SVP party, all the main political parties have come out against the proposal.

Opposition to the Gold Initiative in Swiss politics is widespread and has evolved into a very well structured alliance of political parties from right across the Swiss political spectrum, even to the extent of a well-funded and well-organised cross-party committee actively campaigning to defeat the initiative.

This cross-party committee consists of an alphabet soup of seven political parties and various other economic groups and unions. The party names can be confusing since they mostly have multiple names and abbreviations depending on whether the French, German or Italian name is being used.

The seven political parties are (in French terms): the PDC, the PEV, the PDB, the PLR, the PS,  Les Verts (The Greens), and the Vert’Libéraux[1]. There are also SVP politicians aligned to this committee.

Notably, there are a top-heavy eight co-presidents on the ‘No’ Gold-Initiative Committee (Gold-Initiative Nein) from all the main political parties, and over 123 politicians listed as  committee members on the campaign’s web site. The head of the ‘No’ campaign is Matthias Leitner, from the FDP, Liberals’ party (PLR in French).

The eight co-presidents of the committee are Karin Keller-Sutter, advisor PLR States, Alex Kuprecht, advisor UDC (SVP) States, National Councillor Dominique de Buman for the PDC, National Councillor Urs Gasche for the PBD, National Councillor Philipp Hadorn for the PSS, State Councillor Konrad Graber for the CVP, National Councillor Kathrin Bertschy for the GLP, and Ursula Gut, State Councillor Zurich PLR. Six of these politicians spoke at the launch of the ‘Gold-Initiative Nein’ campaign in Bern, as well as another politician, Beat Flach of the small GLP party.

[1] https://s.bsd.net/economie/main/page/file/e166d3e9070191a779_rom6btyxf.pdf
This broad coalition of diverse political and economic interests aligning to try to scupper the gold initiative of Stamm, Reimann, Schlüer and their supporters, shows just how seriously the Swiss political establishment and the Swiss National bank are taking the possibility of the Gold Initiative Action Committee actually coming out on top in the 30 November referendum.

Unsaleable Gold Like an Unusable Fire Extinguisher?
The anti-initiative committee claims that the initiative would be catastrophic for the Swiss economy, since it would undermine the independence of the SNB and obstruct its freedom. The ‘Nein’ committee have even formulated a slogan asking “Would you equip a house with a fire extinguisher if it was impossible to use it in case of fire? That would be absurd!”

At their press conference yesterday (23 October), National Councillor Karin Keller-Sutter of the FDP said that the initiative was a fire hazard, and that ‘unsaleable gold’ destroys jobs and undermines federal and cantonal budgets[1].

One of the two Swiss National Bank headquarters, on the Bundesplatz in Bern. The majority of the Swiss gold reserves are said to be stored in gold vaults under the Bank and the Bundesplatz  

National Councillor Urs Gasche of the PBD claimed that a strong Swiss Franc would negatively impact on exports and tourism, and that the SNB had saved jobs and rescued the Swiss economy through its use of the SwF/Euro peg.

Alex Kuprecht, actually representing the SVP, said that the gold initiative would put the SNB in chains and that “the SNB must always be able to use the full width of monetary opportunities and act accordingly in crises”.

Dominique de Buman of the PDC said that gold would be useless if it could not be sold, like a fire extinguisher, which you  could not use in the event of a fire. Philipp Hadorn was concerned that if, in the long term, the SNB balance sheet shrank, then gold could end representing a majority of that balance sheet in terms of assets.

Financial Director of Zurich Canton, Ursula Gut, invoked the gold price fluctuation argument, drawing the conclusion that if the gold price fell, it could mean that the SNB would not distribute profits into the federal and cantonal budgets, thereby leaving the federal state and the cantons to have to increase taxes and borrowing, while degrading the service performance of the federal and cantonal governments.

Another speaker, Beat Flach, a representative of the smaller GLP party, said that foreign gold storage is wise for crisis preparedness, and that gold stored in the ‘Swiss gold trading centre’ would not work in times of crisis.

This is notwithstanding the fact that Switzerland is the largest physical gold trading centre in the world. Furthermore, if the Swiss politicians and the Swiss National Bank are so concerned with maintaining feign storage locations for Swiss gold, then why, when the Swiss National Bank sold 1,550 tonnes of sold between 2000 and 2008, did the vast majority of these gold sales emanate from SNB gold holdings at the Federal Reserve Bank in New York which ultimately settled at the Bank of England in London?
[1] http://www.derbund.ch/schweiz/standard/Gegner-warnen-vor-brandgefaehrlic…
At their press conference, the anti-initiative inter-party committee summed up, saying that “the cross-party committee considers that the gold initiative is nonsense that threatens our country.”

Swiss Electorate 5.2 million
The population of Switzerland is just over 8 million. Anyone 18 or over can register to vote at the Federal level and the size of the electorate is approximately 5.2 million. Swiss citizens living outside Switzerland can vote at the Federal level once that register at a Swiss diplomatic mission and remain registered on their home commune registry in Switzerland.

Double Majority including Cantons
In referendums on federal popular initiatives, such as the vote on the Save our Swiss Gold initiative, the proposal being voted on will not pass into a Constitutional amendment unless it wins a popular majority of the popular vote and a majority of the cantons.

What this means is as follows. There are 20 full cantons and 6 half-cantons i.e. the equivalent of 23 full cantons. If the majority of voters in a full canton vote for a referendum proposal, this creates one canton vote in favour. If the majority of voters in a half-canton vote in favour, this creates one half of a canton vote in favour.

The double majority is explained in Article 142 of the Constitution:

2 Proposals that are submitted to the vote of the People and Cantons are accepted if a majority of those who vote and a majority of the Cantons approve them.

3 The result of a popular vote in a Canton determines the vote of the Canton.

4 The Cantons of Obwalden, Nidwalden, Basel-Stadt, Basel-Landschaft, Appenzell Ausserrhoden and Appenzell Innerrhoden each have half a cantonal vote.

For there to be a majority of the cantons, at least the equivalent of 12 full cantons (out of the equivalent of 23 full cantons) must have voted for the referendum proposal. Otherwise it will not pass, despite the fact that overall a majority of Swiss citizens voted for the proposal. This is another peculiarity of the Swiss federal referendum system which makes estimation of the referendum outcome harder to predict.

The half cantons are Obwalden and Nidwalden, Basel-Stadt and Basel-Landschaft, and Appenzell Ausserrhoden and Appenzell Inner Rhoden. Whereas two of the half-canton ‘pairs’ do have very small populations (and therefore very small electorates), namely, Appenzell Inner Rhoden. Rh 11,473, Appenzell Ausser Rhoden 38,330, Obwalden 25,905,  Nidwalden 30,635. The other half-canton ‘pair’ representing Basel have relatively large populations, Basel-Stadt 114,051 and Basel-Landschaft 187,247. However, some full cantons also have very small electorates, such as Glarus 26,153 and Uri 26,278.

by the Dozen
Voting on referenda in Switzerland takes usually takes place four times per year, with an average of three referenda being scheduled for each of the four days. Polling is held on Sunday mornings but a lot of people vote by post in the run up to polling day.

For the upcoming referenda on 30th November, there are actually two other popular initiative referenda taking place alongside the “”Save our Swiss Gold initiative” referendum, namely “Stop the tax breaks for millionaires (abolition of lump-sum taxation)” and “Stop Overpopulation – to secure the natural foundations of life.”

There has been speculation in the media as to how, if at all, the scheduling together of these three referenda might affect the outcome of the gold initiative, due to the possibility that more people who might be in favour of the gold initiative might also be in favour of saying ‘Yes’ to the other two referenda. Since there are so many variables involved in this speculation, its difficult to draw any conclusions at this stage.

Sometimes There Are Shock Results
In the quite well known 14 February 2014 popular initiative against mass immigration, turnout was 56.57%, with 2.91 million people voting. This was the famous shock result where 50.3% voted in favour of limiting immigration and 49.7% voted against.

The voter statistics for the immigration vote last February were “Total eligible voters: 5,211,426”, “Of which abroad: 137,480”, with “Total votes 2,948,156” and “Turnout 56.57%”.

In Switzerland, a few months after referendums take place, the Federal Administration provides very in-depth data on the voting results, giving details on voting patterns across the German, French and Italian speaking areas and also voting patterns between cities, smaller towns and rural communities.

The overall result in the ‘limiting mass immigration’ referendum which produced the 50.3% ‘Yes’ vote hid a lot of interesting variations between urban and rural centres and also between German Switzerland, French Switzerland and Italian Switzerland. Whereas urban centres only voted 41.5% for the motion, rural communities voted 57.6% in favour, highlighting a more conservative stance in rural areas, as would be expected. More interestingly, Italian Switzerland voted 68% ‘Yes’ against 52% ‘Yes’ from German Switzerland, and 41.5% ‘Yes’ from French Switzerland. This just shows the variability across the urban-rural divide and across the country.

Its also important to note that most federal popular initiatives get rejected by the electorate. Of 118 federal popular initiatives voted on between 1981 and September 2014, only 15 were adopted (12.7%) and 103 were discarded. Other referendums types, namely, mandatory and optional referenda, had a far higher adoption rate over the same period, with 61 of 79 mandatory referendums passing (81%), and 59 of 85 optional referendums passing (69%).

However, in the February 2014 ‘limiting mass immigration’ referendum (referendum #580), the only main party to call for a ‘yes’ vote was the SVP (People’s Party), and the referendum still passed, despite the fact that all other main parties had called for a ‘no’ vote.

Therefore, with both the ‘Yes’ and ‘No’ gold initiative campaigns only now officially beginning, the field is wide open, and the success of each side’s campaigning over the next five weeks will be crucial.  With the only opinion poll so far, earlier this week, showing the Swiss electorate swaying towards a ‘Yes’  vote, Luzi Stamm’s Gold Action Committee appears to have gained the strongest initial momentum.
End of Part 2

by Ronan Manly, GoldCore Consultant
Editor, Stephen Flood, GoldCore CEO