12.3.14

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Monetary Smuggling in China Defeats Capital Controls; "Everyone Does It"; Yuan to Replace Dollar as Reserve Currency?

Posted: 12 Mar 2014 08:02 PM PDT

I remain in "negative awe" of China bulls who think the yuan is going to soon replace the US dollar as the world's reserve currency.

As I have pointed out before - China's bond market is nowhere big or liquid enough; China's property bubble is the world's biggest; China's shadow banking system is on the verge of implosion, and Chinese growth is imploding.

Readers know full well that I am not prone to US flag-waving.

That said, the US has the most open, most free capital markets of any major country. In contrast, China has capital controls reminiscent of two-bit South-American countries (amongst numerous other significant problems). 

Monetary Smuggling

Reuters reports How China's Official Bank Card is Used to Smuggle Money.

Growing numbers of Chinese are using the country's state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found.

This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.

In a warren of gritty streets around Macau's ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases - a way of evading China's strict currency-export controls.

On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a "general sale", stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.

The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200 (1,925.62 pounds) (1,925.51 pounds), in cash that individual Chinese can legally move out of the mainland. "Don't worry," said a store clerk when asked about the legality of the transaction. "Everyone does this."
Yuan to Replace US Dollar as Reserve Currency?

With capital controls, political controls, no freedom of press, massive problems in shadow banking, massive problems with housing, entire malls and even cities that are unused, the yuan is nowhere near being able to replace the dollar as the world's reserve currency.

China is a decade away at a bare minimum, and that is if everything goes perfect for China (which it won't). Due to lack of political freedom, lack of a liquid bond market, and lack of essential human and property rights, for the yuan to replace the US dollar as world's reserve currency will take decades.

Given that a major global currency crisis is highly likely long before that (with numerous possibilities as a result), I suspect it will never happen. Rather some other monetary system will be in place.

Bretton Woods is on its last legs. What's next is unknown. It may be gold or crypto-currencies,  but it isn't the Yuan.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com 
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

McCain Heads to Ukraine with Seven Other Senators; Let's Hope They All Stay; Ugly is Beautiful

Posted: 12 Mar 2014 05:26 PM PDT

Here's the question of the day: What can senators John McCain (R-Az), Dick Durbin (D-Ill.), John Barrasso (R-Wyo.), John Hoeven (R-N.D.), Ron Johnson (R-Wis.), Chris Murphy (D-Conn.), Jeff Flake (R-Ariz.) and Sheldon Whitehouse (D-R.I.) do for Ukraine?

The answer of course is simple: Nothing.

So, why is that group of eight senators wasting money going there? The only possible answer is some combination of arrogance, political foolishness, and support for warmongering.

McCain Leads Delegation to Ukraine

The Hill reports McCain to Lead Delegation to Ukraine.
Sen. John McCain (R-Ariz.) and a group of senators are slated to travel to Ukraine on Thursday to show support for the new interim government there.

The meeting comes ahead of a planned referendum in Crimea on Sunday to secede from Ukraine and join Russia — something the U.S. has said would violate the country's constitution.

McCain's office said the group would be meeting with members of the interim government and other stakeholders Thursday through Sunday.

The delegation will be made up of a group of eight senators from both parties. Aside from McCain, those traveling to Ukraine are Sens. Dick Durbin (D-Ill.), John Barrasso (R-Wyo.), John Hoeven (R-N.D.), Ron Johnson (R-Wis.), Chris Murphy (D-Conn.), Jeff Flake (R-Ariz.) and Sheldon Whitehouse (D-R.I.).

In additional waste of money Ukraine Prime Minister Arseniy Yatsenyuk will meet with President Obama and members of Congress on Wednesday. Then Secretary of State John Kerry is set to meet in London with Russian Foreign Minister Sergei Lavrov on Friday.
In Favor of McCain's Action If...

Actually, I am all in favor of sending McCain, Durbin, and the rest to Ukraine, provided they stay there.

I will even do a fundraiser on this blog to pay for it. Should insufficient money come in, I would pay for the tickets myself.

Other Comments

ZeroHedge commented "It is of course possible the McCain simply doesn't know where Ukraine is to begin with ...And just in case McCain isn't senile enough to provoke the start of another world war, moments ago the Senate Foreign Relations Committee did its best to further antagonize Russia when it approved legislation granting aid to Ukraine and authorizing sanctions on Russia in a 14-3 vote."

I am rather certain McCain knew where Ukraine was before this mess started. However, I highly doubt all of the rest of his warmongering consortium did.

As for senility, I propose McCain is not senile. Instead, I propose McCain is a war-mongering fool, supportive of provoking WW III at every opportunity, regardless of cost.

This may sound like a disagreement with ZH but it's not. The spirit of what ZH reported is nearly perfect: We have no business in Ukraine.

Regardless, the useless political grandstanding continues.

G7 Warns Russia Over Crimea Occupation

In another symbolic but useless action G7 Warns Russia Over Crimea Occupation.
The Group of Seven industrialised nations, led by the US, on Wednesday delivered a warning to Russia over its occupation of the Ukrainian region of Crimea, setting the stage for a tense diplomatic stand-off over this weekend's independence referendum in the breakaway-minded province.

In a statement, the G7 leaders said they "joined together to condemn the Russian Federation's clear violation of the sovereignty and territorial integrity of Ukraine, in contravention of Russia's obligations under the UN Charter and its 1997 basing agreement with Ukraine".
How Ugly Can it Get?

Inquiring minds just may be wondering "How ugly can this get?"

That's a good question. I bring it up because Secretary of State John Kerry stated "[This] can get ugly fast if the wrong choices are made, and it can get ugly in multiple directions".

Please consider US Warns of Reprisals if Crimea Poll Goes Ahead.
The stand-off between Russia and the US over Ukraine reached its gravest point on Wednesday as the US and its allies warned Moscow that proceeding with Sunday's Crimean independence referendum would bring reprisals.

Andriy Parubiy, secretary of Ukraine's national security and defence council, said Russia had deployed more than 80,000 troops, up to 270 tanks and 140 combat aircraft near its border, creating the "threat of a full-scale invasion".

The sabre-rattling came as John Kerry, US secretary of state, and Sergei Lavrov, Russian foreign minister, agreed to hold talks in London on Friday in an effort to avert a diplomatic rupture over the Crimean vote.

"[This] can get ugly fast if the wrong choices are made, and it can get ugly in multiple directions," said Mr Kerry.
Ugly is Beautiful

Given that McCain is clearly itching to start WW III, it's safe to point out that for some "ugly is beautiful".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

High Frequency Bitcoin Trading Coming Your Way; Reflections on "The Right Pedigree", Bitcoin is Here to Stay

Posted: 12 Mar 2014 10:56 AM PDT

Wall Street has officially embraced bitcoin. And why not? Wall Street can scalp fractions of bitcoins just as easily as fractions of pennies.

The Wall Street Journal reports Perseus, Atlas Launch Global Bitcoin Trading Platform
High-speed telecommunications provider Perseus Telecom and digital currency trading platform Atlas ATS formally launched Wednesday a globally integrated bitcoin exchange system in New York, Hong Kong and Singapore to facilitate trading in the digital currency by high-frequency trading firms and other large financial institutions.

The two firms' collaboration, first reported last month by The Wall Street Journal, marks a milestone in the evolution of bitcoin out of a retail-oriented, loosely regulated low-tech environment to one that is open to the high-volume and strictly regulated activities of Wall Street.

"Now, institutional investors and banks can see that there are known players with the right pedigree" engaged in bitcoin, said Jock Percy, chief executive officer of Perseus, whose high-bandwidth lines are used to connect securities exchanges around the world with institutional investors' trade execution platforms.
"Right Pedigree"

Sooner or later, where there's money to be scalped, front-run, or otherwise manipulated, Wall Street has the "right pedigree" and is sure to want a part of it.

Expect bitcoin futures, options, and options on bitcoin futures to follow. Bitcoin LIeBOR anyone? Why not?

Wall Street's embrace of bitcoin likely ensures its survival. No one will want to end a party that Wall Street has embraced. Bitcoin is here to stay.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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