Tag Archives: derivatives

Barnaby: “Waiting For Swan Dude To Mutter The Word ‘Surplus'”

11 Aug

Senator Joyce writes for the Canberra Times (emphasis added):

Debt is now a long-term problem

In the mall outside the City Hall gathered the Socialist Action Alliance; speeches, placards, all fairly predictable, about 80 of them.

The zealot loud hailer core were looking a little tired, and a bit passe, but the students were revelling in experimenting with another illicit substance, communism.

Across from them was the Ban the Burka group. There were fewer of them, all in blue, special King Gee Ban the Burka shirts with a motif on them that looked like they wished to ban Pac Man.

Then there was just a cacophony of noise which, from where I was standing, while waiting for my wife and daughter to return from a shop, sounded something along the lines of “Bigot stoning Moslem ban”. The amalgam of the two mantras had led to a perfectly reasonable request.

Into the midst of this came another undergraduate dressed all in black with a cape and a black-winged motorbike helmet. “Bat Thief” was emblazoned across his chest.

He cut quite a dashing figure. Beside him stood plain clothes Boy Wonder with a placard on a stick offering “free hugs”. They were obviously a duo – it was outside City Hall after all.

Bat Thief stood beside me, observed the scene and muttered “racism”.

Which group he was referring to and exactly what he was going to do next shall remain a mystery.

Anyway it appeared to be either too much or too inconsequential for Bat Thief.

He and his coterie of skateboard super heroes exited behind the Ban Pac Man crowd.

The constabulary was also there and had managed to apprehend three felons; the charge, riding a push bike in the mall, mitigated by their combined ages being less than that of the youngest protester.

This was the day that Standard & Poor’s downgraded the US Government. The mall appeared oblivious to the fact that the world had changed. A fire that was lit by debt and had never gone out had come raging back over the horizon and could financially take all before it.

Australia has been distracted from the main issue. I have more faith in Bat Thief and the Free Hugs boy wonder than I do in Wayne and Julia to get us through this one.

If you put your face too close to the painting you can’t see the picture, and to see this picture you have to go back to 2008.

I remember reading some very prescient articles that formulated my belief that debt had gone from a transient problem to a long-term structural problem.

William White, from the Bank of International Settlements, started to raise serious concerns about interbank liquidity. Dr Paul Woolley and Eric Janszen argued that people had been borrowing money to gamble on derivatives. A very dangerous thing.

I remember when studying for my CPA, it was one of the first lessons taught, learning that Toyota once decided they could make more money trading options than selling cars and almost went broke. Unfortunately we had whole nations trying to do it.

It always amazed me that if a humble accountant from St George was reading this then why wasn’t the Treasurer? At the time he seemed too busy fighting a war on inflation, in an attempt to embarrass the previous government, rather than tackle the problems facing the world.

Now, the problem then was debt and the problem now is debt.

Southern Europe doesn’t want to pay their taxes but they want the social protections of a benevolent government. The problem for the Germans is that they are sick of bailing them out. They may no longer have a choice because the problem is becoming too big for anyone.

America’s debt is at a level that is beyond the human mind to actually fathom; it has become a form of mathematical metaphysics worthy of Donne or Dryden.

Here in Australia we are led by an apparently fiscally conservative government that has increased public debt by 150 per cent since 2007.

Only those other noted fiscal conservative governments in Iceland and Ireland have grown their debt at a faster rate.

Our Treasurer’s promise to deliver a surplus is as much of a show as Bat Thief’s cape and skateboard trick. I am waiting for Swan dude to mutter the word “surplus” and then disappear down the street with the Labor party on their skateboards.

Flash Crash “Had Something To Do With Some Derivatives” Says Goldman Trader

10 Aug

Rio Tinto "flash crash" - 8 August 2011

You probably missed the following little news item, lost in all the screaming red headlines of recent days.

It has important implications for our understanding of what our so-called Clean Energy Future will really look like, under the government’s carbon pricing scheme scam.

Because as we have previously seen from the details buried in the government’s official website, their “carbon pricing mechanism” is nothing whatsoever to do with “saving the planet”.

Instead, it is all about preparing the way for international banking’s latest casino – carbon dioxide futures and derivatives trading.

A mega-casino with trading via the bankers favourite new toy, HFT (High-Frequency Trading) – advanced computerised platforms directly linked into the stock exchanges and able to execute fully-automated trades in under 10 milliseconds.

From Dow Jones Newswires via The Australian (emphasis added):

Rio Tinto trades under investigation after share crash

Some trades in the Australian listing of Rio Tinto are under investigation after the company’s stock lost nearly 98 per cent in four minutes and briefly dropped to its lowest level since the 1970s, the Australian Securities Exchange said today.

A series of trades between 11:24 and 11:26 AEST are being investigated, the ASX said.

Exchange data shows a series of equity options combinations were traded at $1.43 to $1.91 between 11:24 and 11:26 AEST against a typical price of around $71.00 per share.

A total of $489,981 in shares were shown changing hands at the subdued prices, giving an average price of $1.81 per share.

However, a trader at Goldman Sachs said the stock had not actually reached that level.

“It had something to do with some derivatives and I’m sure it will be unwound later in the day,” said the trader, who didn’t want to be named.

… automated trading programs have been known to cause rapid and short-term fluctuations in the prices of securities or so-called “flash crashes”, which have become an increasingly-noticed feature of financial markets.

Hmmmmm.

“It had something to do with some derivatives…”.

Regular readers may recall my analysis of the government’s newly-announced “carbon pricing” scheme on the day after Carbon Sunday – Our Bankers’ Casino Royale – “Carbon Permits” Really Means “A Licence To Print”.

They may also recall my follow up article only a few days later – I Was Right – Our Banks Begin Preparing Carbon Derivatives Market.

To briefly summarise, this is what we found buried in the government’s new website, regarding derivatives:

The “creation of equitable interests”, and “taking security over them”, simply means this.  The carbon permits can be used as the basis for bankers to create other, new financial “securities”.

Carbon derivatives, in other words.

Derivatives (or “securities”) are the toxic, wholly-artificial financial “products” that were at the heart of the GFC.  The same bankster-designed “widgets” that the world’s most famous investor, Warren Buffet, spoke of as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

You can stop reading this piece right now if you like.

Because from that Table 6 alone, you now have conclusive proof that this is nothing whatsoever to do with the climate.

We also identified that setting up the basis for a carbon futures market is part and parcel of the “mechanism”:

Furthermore, the “advance auctions of flexible price permits in the fixed price period” proves beyond all shadow of doubt, that I was right.

That this “carbon pricing mechanism” is the bankers’ CPRS by another name. From Day 1.

Why does it prove it?

The advance auctions of flexible price permits “in the fixed price period” means this.

From Day 1, the government is effectively allowing the setting up of a futures trading market, for Australian CO2 permits.

Futures trading of nothing. Before the nothing is even created.

Now, one could try to argue that the government’s documentation quoted above and in more detail in my analyses, does not actually use the specific word “derivatives”, or “futures”.

And so, one could try to argue that I have no concrete proof.  That I have simply inferred that “creation of equitable interests” and “taking security over them” means “derivatives”, but if the government has not used those exact words, then I might just be making it all up.

Dear reader, if there is any lingering doubt in your mind that the Green-Labor government is setting up a scheme purposefully-designed to serve as the basis for carbon derivatives and futures trading, then doubt no longer.

Here is the government’s Clean Energy Future Regulatory Impact Statement (RIS): 03-Clean-Energy-Future-RIS

And here is a snippet of what it says on page 75 (emphasis added):

10.3 Advance auctioning of future vintages

In consultations undertaken on this issue for previous proposals, most stakeholders supported the auction of future year vintages as future vintages may be an alternative to the spot market and any associated derivative markets for liable entities seeking to manage future emissions obligations.

Advance auctions of future vintages are not required for carbon futures prices to emerge. For example, derivative markets have developed in the European Union Emissions Trading Scheme without advance auctions.

Assessment

The preferred position is that there will be advanced auctions of future vintage permits.

So there you have it.

The government’s scheme is all about putting in place the necessary laws to allow banksters the legal right to create trillions of new carbon “securities” – that is, new carbon derivatives, and futures “products”.

The kind of “products” that lead to “flash crashes” which can wipe out 98% of the sharemarket value of one of the world’s biggest mining companies in less than 4 minutes.

Brilliant, isn’t it?

And do not doubt for a moment, dear reader, just how many carbon dioxide derivatives the bankers can (and will) create.

To give you just a tiny hint of the scale, take a look at the following graph of our Aussie banks’ total Off-Balance Sheet derivatives based on Foreign Exchange and Interest Rate bets (euphemistically called “hedges”, of course), current to end March 2011:

Click to enlarge

That’s $16.83 Trillion in Off-Balance Sheet derivatives “Business” (red line), versus only $2.68 Trillion in On-Balance Sheet “Assets” (blue line) – 2/3rds of which “assets” are actually loans.

According to David Bloom, global head of HSBC Foreign Exchange, our banks are racing towards “a bigger Armageddon” in foreign exchange markets … and they are racing towards it sitting atop that monster red line mountain of derivatives bets.

Try to imagine if you will, just how many derivatives that international (and local) bankers will create on top of the underlying “value” of Australia’s $23 starting price carbon “permits”, from the moment that the Brown-Gillard economic planking platform is rammed through Parliament.

And then, think carefully about the words of that Goldman trader just a couple of days ago, when one of the world’s largest miners almost vapourised off the sharemarket in 4 minutes flat.

“It had something to do with some derivatives”.

Carbon Permits Do Not Even Exist

2 Aug

Are the government’s carbon dioxide permits really just “bits of paper” for banksters and assorted financial parasites to shuffle around for fees and commissions?

Are the government’s carbon dioxide permits really just “bits of paper” for banksters to reference as the basis for creating new derivatives products for their long-sought carbon derivatives casino?

No.

As I have said all along, the carbon permits will not even be printed on physical paper.

They will be electronic bookkeeping entries.

Electronic digits.  In a computer.

It is yet another similarity with the completely farcical EU system, where over 3 million of these “permits” – which only exist as numbers in a “Registry” computer – were stolen between November 2010 and January 2011.

From our government’s exposure draft Clean Energy Bill 2011, Part 4, Division 2 (emphasis added):

Division 2—Issue of carbon units

94 Issue of carbon units

The Regulator may, on behalf of the Commonwealth, issue units, to be known as carbon units.

95 Identification number

A carbon unit is to be identified by a unique number, to be known as the identification number of the unit.

98 How carbon units are to be issued

(1) The Regulator is to issue a carbon unit to a person by making an entry for the unit in a Registry account kept by the person.

(2) An entry for a carbon unit in a Registry account is to consist of the identification number of the unit.

(3) The Regulator must not issue a carbon unit to a person unless the person has a Registry account.

Too easy.

Left click, left click on the mouse button.

Tap tap, tap tap on the keyboard.

Voila!

A new “carbon permit” has been created.

With a government-decreed purchasing power, of AUD $23 (in 2012).

In other words, exactly the same way that “money” is created under modern banking.

Wheeeeeeeeeeeeeeeeeee!

This bankster-designed evolution of the old medieval-era hoax called “alchemy” – formerly known as “turning lead into gold” –  is really easy.

You just have to be the one making the rules.

Which is why I say this.

Again.

There is only one way that common humanity can ever truly be free.

And stay free.

By taking unto ourselves – each and every one of us – those powers long held exclusively by a tiny minority of malevolent modern-day central banking “alchemists”, who create “money” out of thin air.

See my essay – The People’s NWO: Every Man His Own Central Banker.

“There are a thousand hacking at the branches of evil to one who is striking at the root” – Henry David Thoreau

Most Important Video On The Internet

23 Jul

Please watch the following brilliant video, that some wise and alert Aussie soul has had professionally created.

Sums up perfectly the truth, the whole truth, and nothing but the truth, behind our government’s push for a carbon tax / ETS … aided and abetted since 2004 by The Goldman-churian Candidate, Malcolm Turnbull.

I apologise that I am unable to embed it here, so you will have to watch it after the jump – http://kzoo.co/VyQHed

Enjoy … and SHARE.

Green Left Weekly: “More Proof Of The Fakery Of Gillard’s Scheme”

16 Jul

Thank you, Green Left Weekly.

Again.

For confirming that I was right.

That the Green-Labor-Independent government’s carbon “X” scheme … IS … A … SCAM.

From Green Left Weekly yesterday (emphasis added):

There’s been so much political spin around the Gillard government’s carbon tax announcement. Of course, there’s the predictable hysterical hollering from the Tony Abbott, Barnaby Joyce and the climate change denier’s camp, but there is also tons of bullshit from the Gillard Labor government.

However, a couple of developments have provided a much-needed reality check.

On July 12, ABC News said: “Coal mining giant Peabody Energy has teamed with steelmaker ArcelorMittal to launch a $4.7 billion bid for Australian miner Macarthur Coal.”

This was the biggest-ever bid for a coal mining company in Australia and the bid was well above market expectations.

Peabody’s bid made nonsense of the opposition’s shrill warning’s that Gillard’s carbon tax, which will morph into a carbon pollution trading scheme by 2015, spelled the end of Australia’s massive and growing coal industry.

Gillard’s spin merchants were quick to crow about the Peabody bid. But all it really proved was that Gillard’s carbon tax is not a genuine or serious atttempt to address the climate change emergency.

The coal mining boom will continue. The government’s modelling for its “carbon tax” impact says coal production will rise by 109% to 150% by 2050. It expects gas-fired energy to rise by more than 200% by 2050.

There will be no serious investment — public or private — into the needed radical transition to a 100% renewable energy-based economy.

And if more proof of the fakery of Gillard Labor’s scheme, there was this other telling news report.

Peter Martin wrote in the July 14 Sydney Morning Herald: “If Australia’s economists had the vote, Julia Gillard’s carbon tax would win a landslide.

“A survey of 145 delegates attending the Australian Conference of Economists in Canberra finds 59 per cent think the tax is ‘good economic policy’.”

These economists were overwhelmingly economic rationaliststrue believers in the corporate profits-first orthodoxy that has dominated that profession since the 1970s.

What they see as “good economic policy” is good for big business profits and not for our common good or good for the environment.

Unfortunately, some very influential voices in the Australian environment movement have jumped on the Gillard Labor carbon tax bandwagon and regurgitated (or at least endorsed through lack of criticism) the deceitful spin Gillard’s salespeople have been generating.

Precisely.

As has been documented at great length on this blog for months.

Let it be clearly understood.

The Government’s scheme has nothing whatsoever to do with the environment.  Or with “mitigating” so-called “man-made global warming”.

The facts are crystal clear.

From the government’s own website detailing the scheme scam.

From the banking sector’s gleeful announcements of their “new market” and “new products”, within days of the policy detail being released.

And now, even from the hard-core “believers” in MMGW.

The Green-Labor-Independent government’s scheme is nothing more than a global-scale, profit-making, wealth-redistributing, bankster-empowering scam.

Designed by … economists (yes, the very same #JAFA’s who could not even predict the GFC).

Loudly supported bythe economists’ of banks (and other stand-to-benefit Big Business).

For the sole benefit of banks (and other stand-to-benefit Big Business).

If you have any remaining doubts that I am right, then please … take the time to read my several detailed analyses of the Government’s “carbon pricing” scheme scam.

That prove – by simply noting the details buried in the “fine print” of the Government’s own documents – that the entire “mechanism” is designed purely for the benefit of the global financial industry.

The banksters –

Our Bankers’ Casino Royale – “Carbon Permits” Really Means “A Licence To Print”

Government Lies Again – Latest NGER Report Lists Only 299 “Polluters” In Total

I Was Right – Our Banks Begin Preparing Carbon Derivatives Market

Please  … go out now, and start belting your card-carrying green cargo cult member friends, relatives, colleagues, and associates about the side of the head with this news.

From one of their own.

And while you’re at it, ask them to stop and think for a change.

Ask them to stop and think about why Bob Brown and Christine Milne’s Greens Party are really so happy about their great scheme scam.

Which even Green Left Weekly has now denounced as “fakery”.

Bankers’ Chief – Carbon Price Is “Essentially Creating A New Market”

16 Jul

From news.com.au (emphasis added) –

Revealed: The real winners of Gillard’s carbon price plan

Big banks, accountants and lawyers are among the big winners to cash in on the carbon plan, as companies wrestle with reporting requirements arising from the tax.

Banks will be involved in trading carbon permits when emissions trading starts in 2015, and will develop new products to help polluters reduce their carbon exposure.

Australian Bankers’ Association chief executive Steven Munchenberg said the Government’s carbon price was “essentially creating a new market“.

“We would therefore expect to see a range of instruments developed to help companies manage their carbon exposure,” he said.

Indeed.

There you have it.

Straight from the Australian Bankers parasites’ mouthpiece.

The grand Scheme scam to “price carbon” is “essentially” – meaning “in essence” – the creation of a new market.

A bankers’ paradise.

The key thing that bankers’ want – an underlying “market” of carbon permits, on top of which they can then create a whole new carbon “securities” (ie, “derivatives”) casino – is actually built into the Government’s Scheme scam from Day 1 –

Table 6 Compliance

Carbon permits

The domestic unit for compliance with the carbon pricing mechanism will be the ‘carbon permit’.

Each carbon permit will correspond to one tonne of greenhouse gas emissions.

The creation of equitable interests in carbon permits will be permitted, as will taking security over them.

Confirmed.

The carbon permits can be used as the basis for bankers to create other, new financial “securities”.

Carbon derivatives, in other words. Derivatives (or “securities”) are the toxic financial “products” that were at the heart of the GFC.

It’s worth noting that the above article is wrong in one very important detail.

Like all mainstream media, this story incorrectly reports that –

Banks will be involved in trading carbon permits when emissions trading starts in 2015

Au contraire!

As I detailed in “Our Bankers’ Casino Royale – ‘Carbon Permits’ Really Means ‘A Licence To Print'”, banks will be able to benefit from fees and commissions from trading in carbon permits, right from the beginning. Even during the so-called “fixed price period”.

How’s that?

Because … it is only “purchased permits” that are not tradeable in the first 3 years.

Freely allocated permits“, on the other hand, are tradable.

As with the now-notorious European ETS scheme, many of our so-called “500 biggest polluters” – 201 of whom may not even exist – will receive lots of “free permits”.  To “assist” and/or “protect” our “trade-exposed” industries, you see.

And those “freely allocated” permits are tradable:

Scheme architecture

Table 1: Starting price and fixed price period

Permits freely allocated may be either surrendered or traded until the true-up date for the compliance year in which they were issued. They cannot be banked for use in a future compliance year.

What’s more, Brown-Gillard’s grand design also allows “polluters” to sell their “freely allocated” permits back to the Government.

That’s right.

Lucky “polluters” will get lots of free permits, which they can either “surrender” back again to “pay” for their “excess” emissions – which they report themselves(!). Or, trade their free permits (for profit). Or, sell their free permits back to the Government … who will use your money to buy those free permits back again:

Buy‑back of freely allocated permits

The holders of freely allocated permits will be able to sell them to the Government from 1 September of the compliance year in which they were issued until 1 February of the following compliance year.

Moreover, the Government is not only “essentially creating a new market” for banks to profit from fees on the simple trade in the carbon permits themselves.

And create their new galactic-scale carbon “derivatives” market, leveraged on top of the simple trade in permits.

The news gets even better for the bankers.

Because the Government’s scheme scam will also set up an “advance auction” system, during the so-called “fixed price period”, where carbon permits valid for the later “flexible price” system can be purchased in advance.

Which is essentially nothing less than a Futures trading system for the bankers and speculators to exploit:

Auctions of permits

The Government will advance auction future vintage permits. There will be advance auctions of flexible price permits in the fixed price period.

It’s easy to see why the banksters’ are pleased right now.

The Government’s scheme allows them to:

1. Begin creating and trading in carbon “securities” (ie, derivatives of carbon permits) from Day 1.

2. Earn fees and commissions from trade in “freely allocated” permits during the “fixed price” period.

3. Earn fees and commissions from Futures trading in the “advance auctions” of “flexible price” permits during the “fixed price” period.

4. Create other derivatives products on top of the Futures trade in advance auctions of permits.

And all this before the all-singing, all-dancing “free market” scheme kicks in three years later.

Any suggestion that this is somehow not a mechanism designed to allow banksters’ to begin creating the Australian arm of their new global derivatives monster – the true goal of the push for global “emissions trading” – is simply a blatant lie.

There is nothing in the Government’s scheme that prevents the banksters from doing everything they have wanted, from the moment the scheme begins.

In fact, as anyone can easily see from a careful reading of the Government’s own documentation, it is perfectly clear that the scheme is purposefully designed to grant the banksters’ free reign. All hidden behind the curtain of the misleading and deceptive name of “tax” or “fixed price ETS”.

Prior to the announcement of the Government’s “carbon pricing mechanism”, I argued extensively – including with Opposition Climate Action spokesman Greg Hunt MP – that the scheme is simply “the bankers’ CPRS by another name”.

Now that the scheme details have been announced, almost every passing day reveals new confirmations that I was right.

The strongest argument for my position comes from the Government’s own official documents.

But it is certainly nice to see the head of the Australian Bankers Association come out within days, and tacitly confirm the truth as well.

I rest my case?

I Was Right – Our Banks Begin Preparing Carbon Derivatives Market

14 Jul

It did not take long. Just 3 days.

From Business Spectator (emphasis added):

Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review.

Australian financial firms that have experience in European carbon markets, such as Macquarie Group Ltd, Westpac Banking Corp Ltd and ANZ Banking Group Ltd are particularly keen to establish their presence in the Australian market.

The initial three-year fixed carbon tax period from 2012 will serve as time to prepare for the release of ETS permits by 2015, when opportunities will really open up for banks to capitalise on the carbon market.

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

I was right.

On Carbon Sunday, I dissected the Government’s newly-announced “carbon pricing mechanism” (see “Our Bankers’ Casino Royale – ‘Carbon Permits’ Really Means ‘A Licence To Print'” ).

Here’s a couple of quotes from that article. The first is in reference to the “initial fixed price period” that the Government would have you believe is “like a tax”:

I was right.

The carbon permits will have no expiry date.

They are an artificial construct – “an electronic entry” – that is deemed by government decree to be a new “financial product”.

Moreover, note carefully the sentence I have bold underlined.

The creation of equitable interests, and taking security over them, simply means this.  The carbon permits can be used as the basis for bankers to create other, new financial “securities”.

Carbon derivatives, in other words.

Derivatives (or “securities”) are the toxic, wholly-artificial financial “products” that were at the heart of the GFC.  The same bankster-designed “widgets” that the world’s most famous investor, Warren Buffet, spoke of as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

You can stop reading this piece right now if you like.

Because from that Table 6 alone, you now have conclusive proof that this is nothing whatsoever to do with the climate.

It is all – and only – about global bankster profits. At the direct expense of the common people of planet earth.

Note well. The banks do not have to wait until the “flexible price period” commences after 3 years, to begin creating their “securities” (ie, derivatives), based on the notion of the underlying “value” of the “fixed price” carbon permits.

The Government’s scheme allows this from Day 1. Naturally. Because that is what the banksters – and their “leading economist” shills – are all salivating over. A government-decreed excuse, to create a whole new kind of “derivatives” market.  It is the whole point of the scheme.

In specific reference to the “flexible price period” to follow three years later, I wrote this:

Now, why have I bold underlined “borrowing“?

And why have I bold underlined “advance auctions of flexible price permits…”?

Because these are the key words from the “banking and borrowing” section. The words that tell you all you need to know.

That this SCAM is nothing whatsoever to do with the global climate.

And that it is 100% about creating a new, global, CO2 derivatives-trading market for the banksters.

The world’s biggest-ever financial cesspool.

Of toxic, intrinsically-worthless, humanity-raping financial “instruments” called derivatives.

Non-existent, digital “widgets”.

That can be borrowed from the future – ie, before these artificial carbon “widgets” are even issued – and leveraged by scum-of-the-earth banksters.

And then, traded by these parasites at multiples of hundreds and thousands of times more than the underlying, artificially-created “value” of the carbon permit.

Furthermore, the “advance auctions of flexible price permits in the fixed price period” proves beyond all shadow of doubt, that I was right.

That this “carbon pricing mechanism” is the bankers’ CPRS by another name. From Day 1.

Why does it prove it?

The advance auctions of flexible price permits “in the fixed price period” means this.

From Day 1, the government is effectively allowing the setting up of a futures trading market, for Australian CO2 permits.

Futures trading of nothing. Before the nothing is even created.

The banksters’ wet dream.

Australia – you have been monumentally conned.

The Green-Labor-Independent Alliance’s plan to “save the planet”, is a gigantic scam.

It is the bankers’ Casino Royale.

Where “carbon permits” really means, “A Licence to Print”.

Thank you, Australian Financial Review and Business Spectator.

For confirming that I was right.

Oh … just one more thing.

To help give you some idea – a picture in your mind – of how gigantic the new (government-rigged) “market” for the banksters’ carbon derivatives can become, take a look at the following chart, sourced from the RBA’s Statistics data.

It shows the size of our banks’ current holdings of Off-Balance Sheet derivatives bets, on the future of Interest Rates, and Foreign Exchange Rates:

Click to enlarge

Yes, that’s $3.98 Trillion in Foreign Exchange derivatives bets. And a whopping $11.68 Trillion in Interest Rate derivatives bets. Off-Balance Sheet. At March 2011.

Here’s another chart – also sourced from RBA data – showing our banks’ current On-Balance Sheet “Assets” (66% of which are actually loans) – the blue line – compared to their total Off-Balance Sheet “Business” (ie, derivatives) – the red line:

Click to enlarge

Yes, that’s $2.68 Trillion in “Assets” (mostly loans). Compared to … $16.8 Trillion in Off-Balance Sheet derivatives gambling. Mostly on Interest Rates, and Foreign Exchange rates.

Just try to imagine the size of the brand new carbon dioxide “hot air” derivatives market casino that our banksters’ will create, in the form of leveraged bets on the underlying so-called “value” of carbon permits.

It is Armageddon waiting to happen.

Windsor’s Carbon Tax Support Costs His Local Council Extra $300,000

13 Jul

Media release – Senator Barnaby Joyce, 13 July 2011 (emphasis added):

Windsor’s actions responsible for increasing the costs of his local council

Senator Barnaby Joyce, Shadow Minister for Local Government, said today that Tony Windsor’s support of the Green-Labor-Independent government and his support of the carbon tax has led to a $300,000 increase in the electricity costs of his local council, which no doubt will have to be retrieved via increased rates.

The Tamworth’s Regional Council annual electricity bill is $3 million a year. With the carbon tax set to increase electricity prices by another 10%, the carbon tax will increase Tamworth’s electricity costs alone by $300,000.

Last night the Tamworth Regional Council unanimously supported a decision to investigate the full impact on the Council’s costs caused by the carbon tax. No doubt road construction costs will go up, bridge construction costs will go up and the transport fuel costs, from 2014, are going to go up.

The Council has also called on the Federal government to compensate the people of Tamworth for the costs of a carbon tax that they didn’t ask for and haven’t voted for.

Of course if Mr Windsor didn’t support a carbon tax then we wouldn’t have a carbon tax and the rates wouldn’t be going up because of the carbon tax.

So no doubt the people of Tamworth will be thrilled to bits about the actions of their local federal member when they get their next rates notice. Similarly so will the people of Inverell, Gunnedah, Glen Innes, and Walcha.

All this cost for absolutely zero outcome in its affect on the climate. All these costs so we can assist banks to make more commissions on the future trading of permits. No doubt the people of Tamworth will be thrilled to know that some of their rates will be sent overseas to buy carbon permits.

I read today that Mr Windsor is heading off to Spain to study renewable projects there.

(http://www.brisbanetimes.com.au/national/oakeshott-out-to-convince-voters-20110711-1haru.html?skin=text-only)

I hope he gets the time to investigate the Spanish ‘night time’ solar power fraud, where in 2009-10 diesel generators were producing ‘solar’ power at night and claiming the associated subsidised tariff price.

(http://www.theecologist.org/News/news_round_up/465409/spanish_nighttime_solar_energy_fraud_unlikely_in_uk.html)

Solar panel at night now that really is global warming.

This is the kind of show that we are getting ourselves into when we start sending $3.5 billion of taxpayers’ money offshore to buy carbon credits.

More information – Matthew Canavan 0458 709 433

Our Bankers’ Casino Royale – “Carbon Permits” Really Means “A Licence To Print”

11 Jul

I was right.

It is a scam.

A huge scam.

A clever, complicated scam.

But a scam, nonetheless.

In previous articles, I identified the two key details of the Green-Labor Alliance’s proposed “carbon pricing” scheme. The only two details that matter. Because they are the two key details which confirm whether this really is “a tax” / “like a tax”. Or, whether this is just a European ETS-imitating scheme scam:

Will the carbon permits:

(1) have an unlimited expiry date?

(2) be bankable from the commencement of the scheme?

If you’ve not read the previous articles I’ve posted about this – including my online brawl with Opposition Climate Action Onanist Greg Hunt MP about it – then you may wish to recap by reading this, this, and especially, this.

Now, if you just want the quick answers to those 2 key questions, then here’s the 30 second summary. All you need to know. Without bothering to check and understand the detail for yourself.

1. YES, carbon permits will have an unlimited expiry date.

2. NO, carbon permits issued during the “fixed price period” can not be banked. Although there will be unlimited banking after 3 years, when the “flexible price” period begins.

BUT … and (like Gillard’s) it’s a very big but … all “freely allocated” carbon permits can be traded. And – here’s the real biggie, ladies and gentlemen – from Day 1 the Government will allow securitisation of carbon permits (the creation of carbon derivatives, in other words). AND, the Government will set up an “auction” system in advance of the “flexible price period” – an advance-auction system that effectively creates a carbon Futures trading market, allowing banksters (and the lucky 500 “polluters”) to speculate gamble on the future price of the “flexible price” permits, that will replace the “fixed price” permits after 3 years.

I was right.

It is NOT a “tax”.

From Day 1, it operates as an ETS by stealth.

It is the bankers’ CPRS by another name.

And what “carbon permits” really means, is “permitted to profit”.

Or perhaps more accurately … A Licence To Print.

Want to know more? To see the proof with your own eyes … and understand it too?

Ok. Let’s get into the details.

Now that GilBrown’s Grand Design has finally been released, let’s take a look at the Government’s freshly-minted cleanenergyfuture.gov.au website. There we can see exactly what they have to say about those two key details that I identified previously.

Note that the answers are buried in the fine print.  Naturally.  You have to read the Appendices.

In this case, the “devil in the detail” is hidden in Appendix A.

First, let us look for the answer to my point #1 – Will there be unlimited expiry dates for carbon permits?

We find the answer in Appendix A, Table 6  (emphasis added):

Table 6 Compliance

Carbon permits

The domestic unit for compliance with the carbon pricing mechanism will be the ‘carbon permit’.

Each carbon permit will correspond to one tonne of greenhouse gas emissions.

The creation of equitable interests in carbon permits will be permitted, as will taking security over them.

In addition, carbon permits will:

* be personal property;

* be regulated as financial products;

* be transferable (other than those issued under the fixed price or any price ceiling arrangements);

* have a unique identification number and will be marked with the first year in which they can be validly surrendered (‘vintage year’);

* not have an expiry date; and

* be represented by an electronic entry in Australia’s National Registry of Emissions Units.

I was right.

The carbon permits will have no expiry date.

They are an artificial construct – “an electronic entry” – that is deemed by government decree to be a new “financial product”.

And, they are a personal property right (see first asterisk) of the holder of the permit. Exactly as I argued with that onanist shill for the green cargo cult, Greg Hunt MP.

Moreover, note carefully the sentence I have bold underlined.

The “creation of equitable interests”, and “taking security over them”, simply means this.  The carbon permits can be used as the basis for bankers to create other, new financial “securities”.

Carbon derivatives, in other words.

Derivatives (or “securities”) are the toxic, wholly-artificial financial “products” that were at the heart of the GFC.  The same bankster-designed “widgets” that the world’s most famous investor, Warren Buffet, spoke of as “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

You can stop reading this piece right now if you like.

Because from that Table 6 alone, you now have conclusive proof that this is nothing whatsoever to do with the climate.

It is all – and only – about global bankster profits. At the direct expense of the common people of planet earth.

Now, what about my point #2. The key question of whether there will be unlimited banking of permits.

That is covered in Appendix A as well.  But we must take a bit of a journey here, as it’s a little more complicated to get to the bottom of this one.

If you are interested to understand how this scam really works more fully, then do bear with me here (emphasis added):

Scheme architecture

Table 1: Starting price and fixed price period

Fixed price period

The carbon pricing mechanism will commence on 1 July 2012. There will be a three year fixed price period.

The fixed price

The carbon price will start at $23.00 per tonne in 2012‑13 and will be $24.15 in 2013‑14 and $25.40 in 2014‑15.

The prices in the second and third year reflect a 2.5 per cent rise in real terms allowing for 2.5 per cent inflation per year (the midpoint of the Reserve Bank of Australia’s target range).

Blah blah blah. We already knew all that. These details were leaked in advance, in typical Green-Labor fashion.

Let’s get to the nitty gritty. The characteristics of the carbon “permits” themselves, and what you can (and cannot) do with them.

Especially during the initial 3 year, so-called “fixed price period”.  The period in which the government (and Opposition) have been telling you that this scheme scam “is a tax” or “will operate like a tax” (depending on what day it is):

Fixed price permits

Liable entities will be able to purchase permits from the Government at the fixed price, up to the number of their emissions for the compliance year.

Any permits purchased at the fixed price will be automatically surrendered and cannot be traded or banked for future use.

Ok.

So, the lucky 500 “polluters” can not trade, or bank, any permits that are purchased at the fixed price.

Now, that appears to eliminate point #2 of those key points that I identified, doesn’t it? The question of unlimited banking of permits.

But does it really?

Hold your horses, dear reader. There’s more to it than that.

Let us peel back the multiple layers of deception.

Yes, permits that are purchased can not be banked.

But what about permits that are handed out for free?

Permits freely allocated may be either surrendered or traded until the true-up date for the compliance year in which they were issued. They cannot be banked for use in a future compliance year.

Right.

So, just like “purchased” permits, “freely allocated” permits also can not be banked during the “fixed price period”. (However, all permits will have unlimited banking after 3 years, when the “flexible price period” begins – see Appendix A, Table 3)

But note this well.

Freely allocated permits can be traded “until the true-up date for the compliance year in which they were issued”.

In other words, with respect to “freely allocated” permits in particular – which will be handed out to “trade exposed” industries rent-seekers – this IS an emissions trading scheme.

It’s right there.  In black and white.

I was right.

“The Carbon Tax Is Not A “Tax” … It Is The Bankers’ CPRS By Another Name”.

Now, did you notice that other little word back there?

“surrendered”?

What happens when “freely allocated” permits are “surrendered”?

Is that just a case of handing back something that you got for free?

Or … is there another profit-making opportunity for our lucky “polluters” there too?

That is, a profit-making opportunity over-and-above the profit-making opportunity they have been granted, to simply jack up their prices and use the “cost” of permits as an excuse – whether they actually paid for all their “permits” or not. Just like the lucky “polluters” have done in the European scheme scam (from Green-Left Weekly May 1, 2011):

The first phase of the ETS ran from 2005 to 2007. It made no dent in emissions. But power companies made about 19 billion euros by charging customers for the “cost” of permits they were given for free. Manufacturers made about 14 billion euros in windfall profits with the same trick.

So, let’s take a look shall we, and see if there might be yet another profit-making opportunity for our hand-picked lucky 500 “polluters”, on all those “freely allocated” carbon permits (emphasis added):

Buy‑back of freely allocated permits

The holders of freely allocated permits will be able to sell them to the Government from 1 September of the compliance year in which they were issued until 1 February of the following compliance year.

Got that?

You get some-thing for nothing.

You increase your costs to customers, using the government-decreed “price” of that “some-thing” as your excuse – a windfall profit.

And then, you either trade that free “some-thing” to someone else, or, you sell it back to the government – for another windfall profit.

Brilliant!

Now that’s what I would call “transitional assistance” too, if I were one of those lucky 500 “big polluters”.

Money for nothing.

How much will you get paid for selling back your free permits … you lucky big “polluter” you?

The price paid by the Government will be equal to the price of the fixed price permits for that year, discounted to 15 June of the compliance year by the latest available Reserve Bank of Australia index of the BBB corporate bond rate, so that the buy‑back price reflects the present market value of the permit.

From 15 June onwards, the price paid will be equal to the fixed‑price permits for that vintage.

What does that mean?

It’s very simple.

Those lucky “polluters” receiving “freely allocated” permits (to profit), can either:

(a) trade them (as we saw earlier), OR

(b) sell them back (ie, “surrender” them) to the Government.

If they can’t pull a big enough profit from trading their free permits … the fall-back plan is to resell them to the Government.

Now, who do you think is going to benefit the most from all the transactions of these carbon permits?

Who is going to make money for nothing via fees and commissions, each time a “freely allocated” permit is traded, or bought from/sold back to the government?

Banksters.

The same despicable scum, the parasites who created the GFC, and have been driving the global push for CO2 emissions trading from Day 1.

Our government’s scheme scam will achieve exactly the same result as the benchmark European ETS.

Huge profits for a few.

Raped wallets for the many.

And absolutely bugger-all impact on global CO2 “emissions reduction” –

Want more?

There IS more.

Is there anything interesting to note about the subsequent “Flexible Price Architecture” (ETS)?

That wonderful “market-based” scheme scam that comes after the so-called “fixed price period” (in which trading of freely allocated permits can happen anyway, meaning it is an ETS from Day 1)?

The final destination of the scheme scam that Gillard spoke of in these words just days ago – “I have always been determined to create an emissions trading scheme … for our nation’s future”.

Is there anything about the detail of the “flexible price architecture” that might give us further evidence – if any were needed – that this really is the bankers’ CPRS by another name?

Indeed there is.

Take a look at Appendix A, Table 3 (emphasis added):

Table 3: Flexible price architecture

Price ceiling

A price ceiling will apply for the first three years of the flexible price period.

The price ceiling will be set in regulations by 31 May 2014 at $20 above the expected international price for 2015‑16 and will rise by 5 per cent in real terms each year.

If the world is on a 450 parts per million carbon dioxide equivalent (CO2-e) trajectory or higher, this will be reflected in international prices and the price ceiling will automatically be $20 above this price. The level of the international price will be examined closer to the point of transition to a flexible price period to ensure that the price ceiling reflects a $20 margin above its expected level.

In other words, our Green-Labor Alliance would (if still in power) not only allow, but indeed, “ensure”, that the CO2 price in Australia could be traded at a $20 per tonne premium to the international price.

Economic planking indeed.

And, a Paradise Now bonus for banksters.

Because this detail tells us that this is a scam whereby the government will “ensure” that there is “flexibility” for the banksters’ – market manipulators extraordinaire – to use the many dodgy means at their disposal to push the Australian CO2 trading price up, by as much as $20 more than the international market price.

In other words, if the international market price for CO2 permits (again) fell to near-zero – let’s say, $0.10 – then our Green-Labor Alliance would still happily allow our nation to suffer under a $20.10 price for CO2 permits, and the flow-on effects of that to the prices on everything.

Insanity.

But there’s more:

Price floor

A price floor will apply for the first three years of the flexible price period.

The price floor will start at $15 and rise at 4 per cent in real terms each year.

Also highly significant.

And insane.

If still in power, our Green-Labor Alliance would force the so-called “free market” price to be at least $15 per tonne. And, they would force that price to rise at a rate of 4% per annum.

Ummmmm … hello?!

That’s NOT a “free market” mechanism.

That is quite simply, a Communist-style command-economy.  Wearing a very thin veil of “free market” respectability (if you’re idiot enough to believe it, that is).

But here’s the part I really love, dear reader.

The part that – once again – confirms that this is a bankers’ CPRS by another name.

Banking and borrowing

Unlimited banking of permits will be allowed in the flexible price period.

There will be limited borrowing of permits such that, in any particular compliance year, a liable entity can surrender permits from the following vintage year to discharge up to 5 per cent of their liability.

Auctions of permits

Permits will be allocated by auctioning, taking into account transitional assistance provisions for key sectors.

The policies, procedures and rules for auctioning will be set out in a legislative instrument.

The Government will advance auction future vintage permits. There will be advance auctions of flexible price permits in the fixed price period.

Note that bit about “transitional assistance provisions” for “key sectors”. That’s Orwellian doublespeak for “freely allocated permits” for “big ‘polluters’ with the best lobbyists”.

If you are a “polluter” in need of “transitional assistance” – meaning, everyone – then you will get lots and lots of freely-allocated permits. To help you “transition” (wink wink, nudge nudge).

Now, why have I bold underlined “borrowing“?

And why have I bold underlined “advance auctions of flexible price permits…”?

Because these are the key words from the “banking and borrowing” section. The words that tell you all you need to know.

That this SCAM is nothing whatsoever to do with the global climate.

And that it is 100% about creating a new, global, CO2 derivatives-trading market for the banksters.

The world’s biggest-ever financial cesspool.

Of toxic, intrinsically-worthless, humanity-raping financial “instruments” called derivatives.

Non-existent, digital “widgets”.

That can be borrowed from the future – ie, before these artificial carbon “widgets” are even issued – and leveraged by scum-of-the-earth banksters.

And then, traded by these parasites at multiples of hundreds and thousands of times more than the underlying, artificially-created “value” of the carbon permit.

Furthermore, the “advance auctions of flexible price permits in the fixed price period” proves beyond all shadow of doubt, that I was right.

That this “carbon pricing mechanism” is the bankers’ CPRS by another name. From Day 1.

Why does it prove it?

The advance auctions of flexible price permits “in the fixed price period” means this.

From Day 1, the government is effectively allowing the setting up of a futures trading market, for Australian CO2 permits.

Futures trading of nothing. Before the nothing is even created.

The banksters’ wet dream.

Australia – you have been monumentally conned.

The Green-Labor-Independent Alliance’s plan to “save the planet”, is a gigantic scam.

It is the bankers’ Casino Royale.

Where “carbon permits” really means, “A Licence to Print”.

UPDATE:

Stock broker and licensed securities and derivatives dealer Andy Semple recognises the same point that I did above – that this is not a “free market” mechanism at all, but a Soviet-style command-and-control scheme. He has deconstructed the Government’s carbon trading scam, from a trader’s perspective. A must read –

The Clayton’s Emissions Market – “The Market You Have When You’re Not Having A Market”

RBA Says Our Banks Are Stuffed … In Other Words

29 Jun

Yesterday, RBA Assistant Governor Guy Debelle indulged in some MOPE.

Management Of Perceptions Economics.

Lies, deceit, and propaganda, in other words.

But for those with an ear to hear, and an inclination to check the “authorities'” claims, what he really did – unintentionally – was to give us a heads up.

That our Too Big To Fail banks (TBTF) are going to get bailed out, sooner rather than later.

Go grab a modest quantity of your favourite beverage, and settle in.  You are about to learn – in detail – why we cannot trust a word the banksters say.

Ready?

Now as expected, the mainstream press all lazily parrotted the “everything’s fine, move along, nothing to see here” headline that Mr Debelle wanted. Here’s a good example, from the nations’ “premier” newspaper:

Australian banks safeguarded from Greek debt crisis, says Guy Debelle

Our standards are more rigorous here at Barnaby Is Right.

Let’s critically examine what Mr Debelle actually had to say in his official Address to Conference on Systemic Risk, Basel III, Financial Stability and Regulation (emphasis added):

Today I am going to talk about a few interrelated issues concerning the banking system: collateral, funding and liquidity.

The financial crisis brought into sharp relief the liabilities side of a financial institution’s balance sheet, that is, the funding structure. This had previously been somewhat neglected, but the fates of Northern Rock, Bear and Lehmans were clearly affected by the nature of their funding. While their funding structure played a significant part in the downfall of those institutions, I would argue the ultimate concern was about the quality of their assets. The funding problems were symptomatic of concerns about asset quality.

The solvency of any bank first and foremost is a function of the quality and value of its assets. This is, of course, true of any entity, but it is particularly true for banks because of the implications asset quality has for liquidity and because of the leveraged nature of financial institutions.

The crux of my argument today is this: if I am a creditor of a bank, my due diligence should be spent mostly on assessing the asset side of the bank’s balance sheet in determining whether or not I will get repaid in full.

Exactly.

Now, in the classic British political satire Yes Minister, master of obfuscation and manipulation Sir Humphrey Appleby said that it is always best to “dispose of the difficult bit in the title; it does less harm there than in the text.”

And by beginning his speech with this quite correct and valid talk of asset quality – and then not examining those “assets” in any detail – this is the clever game that Mr Debelle has played here.

No doubt he expected that no one would actually bother to check the banks’ asset quality.  They’d just take it on presumption, and Mr Debelle’s inference, that they’re fine.  And indeed, none in the mainstream press have bothered to check.

So let us do just that, shall we? Let us assess our Australian banks’ all-important “asset quality”.

Just two days ago ( “Our Banks Racing Towards A ‘Bigger Armageddon'” ), we saw that our banks held a combined $2.68 Trillion in On-Balance Sheet “Assets” at March 2011. So $2.68 Trillion is the claimed “value” of their Assets.

Now, about Mr Debelle’s “ultimate concern”.  The all-important “quality” of those Assets.

What exactly are these bank “Assets”?

$1.76 Trillion (65.56%) of these “assets” are actually loans.

That’s right – your loan is considered the bank’s “Asset”. They own you, as their debt slave.

$1.018 Trillion (57.84%) of those loans, are Residential loans.

That’s right – fully 38% of our banks’ Total “Assets” is the notional value of their loans given as mortgages.

Here’s a chart sourced from the RBA’s own data, showing the % breakdown of our banks so-called “Assets”:

Click to enlarge

Now, in light of the recent housing-triggered banking and debt crises in the USA, UK, Ireland, Spain, and many other nations throughout the Western world; and in light of the fact that our property market is widely considered “the most overvalued in the world”; and in light of the fact that our property market has recently suffered its biggest quarterly fall in 12 years; and in light of the fact that arrears on mortgage payments have spiked to a record high, in the same quarter as house prices had a record fall … do you really think that having over 65% of your “Assets” in the form of loans, with 38% in the form of home loans, could be considered as high “asset quality”?

In light of the fact that business failures have risen 25%, with more than 10,000 going under in 2010; and in light of the fact that a leading Australian businessman has said that Eastern Australia is in “deep recession” and NSW and Victorian manufacturing is “stuffed”; and in light of the fact that the only Australian economist to predict the GFC has recently said that we will “almost certainly” be in recession in the second half of 2011 … do you really think that having 24% of your “Assets” in the form of commercial (business) loans, and 4% in the form of personal loans, could be considered as high “asset quality”?

In other words, do you really think that having over 65% of your Total “Assets” in the form of loans to households and businesses, who are all increasingly vulnerable to (eg) cost-of-living pressures, loss of employment, house price falls, and/or a recession, could be considered as having high “asset quality”?

Don’t answer that yet.

There’s more to consider.

Our banks presently hold a staggering $16.83 Trillion in Off-Balance Sheet “Business”.  That’s around 15 times the value of Australia’s entire annual GDP.  And most of that Off-Balance Sheet Business, is in derivatives. The exotic financial instruments at the very heart of the GFC.  These are the instruments of intergalactic-scale gambling that the world’s most famous investor, Warren Buffet, famously called “a mega-catastrophic risk”, “financial weapons of mass destruction”, and a “time bomb”.

(They are also the reason why it is the banking industry that is pushing so hard for a CO2 trading scheme. Because for banks, it means trading in a juicy new mega-market casino, with a whole new type of “derivative” – carbon permits).

Here’s a chart of our banks’ On-Balance Sheet “Assets” (blue line), compared to their Off-Balance Sheet derivatives “Business” (red line):

Click to enlarge

But wait, there’s still more!

Just 6 days ago, we saw the global head of HSBC’s foreign exchange division warn of “a bigger Armageddon out there”, in foreign exchange markets.

And just 5 days ago, we saw a warning given by Fitch Ratings that Australia’s banks are the “most vulnerable” to Europe’s debt crisis, due to their heavy reliance on wholesale funding from abroad.

In other words, whether it be Greece, Portugal, Spain, Italy, Belgium, or any of the other massively indebted EU nations embroiled in a debt crisis, when one (or more) of them finally does go under – an inevitability – our “safe as houses” banks will go under with them:

Now, yesterday Mr Debelle contradicted the HSBC and Fitch Ratings’ warnings. While admitting that Australian banks’ reliance on funding from overseas does represent a foreign exchange risk, he argued that there is nothing to worry about.

Why? Because, quoth he, our banks’ foreign currency exposures are “fully hedged” into Australian dollars (emphasis added):

If a liquidity issue were to arise around this funding, it is of critical importance that the foreign-currency denominated funding is fully hedged into Australian dollars, which indeed it is.

Now, that critical claim is one we should all take with a crate of salt.

Here’s why.

In supposed proof of his claim that our banks’ foreign exchange exposure is “fully hedged” into Australian dollars, Mr Debelle referred (in his speech’s footnote #9) to a paper that appeared in the RBA Bulletin, December 2009.

Doubtless no one in attendance bothered to check that old paper. Certainly, not a single journalist who reported on Mr Debelle’s comments in the mainstream press bothered to check first, and then report the truth.

But I did.

In that old paper, we see that the authors did claim that our banks had their foreign exchange exposure fully hedged.

Well … sort of.

Here is what they actually wrote.  Note carefully the all-important weasel words (my emphasis added):

Summary

The 2009 survey of foreign currency exposure indicates that Australian institutions remain well hedged against the risk of sharp movements in the exchange rate. Australia’s foreign currency debt liabilities are essentially fully hedged into Australian dollars using derivative instruments…

Hardly a categoric affirmation.

And here’s the really crucial point. Mr Debelle’s referencing this paper in support of his claim is a nonsense – and thus, suspicious – simply because the data in that old paper is (obviously) now completely out-of-date!

Mr Debelle must know this.  Because the RBA publishes its own statistical data for our banks’ derivatives exposure – and their most recent data is current to 31 March 2011.

Moreover, the data used in that old paper was sourced via an ABS survey – that is, it relied on the banks honestly reporting their true positions (!?!).  And, the data was only current to 31 March 2009 – more than two years ago.

At that time, the banks’ admitted to holding a notional value of foreign exchange derivatives positions, allegedly for “hedging” purposes, totalling gross $2.802 Trillion:

Table 2: Residents’ Gross Outstanding Foreign Exchange Derivative Positions By counterparty, notional value, A$ billion, as at 31 March 2009(a)
Counterparty Long foreign currency/short AUD positions Short foreign currency/long AUD positions Net positions
(a) Positive values represent derivative positions under which the holder will receive foreign currency in exchange for Australian dollars at a predetermined exchange rate (that is, a long foreign currency/short AUD position). Negative values represent derivative positions under which the holder will receive Australian dollars in exchange for foreign currency at a predetermined exchange rate (that is, a short foreign currency/long AUD position).
Source: ABS
Resident 554 −554 0
Non-resident 991 −703 288
Total 1,545 −1,257 288

As you can see, the breakdown of our banks’ foreign exchange derivatives “positions” at March 2009, was Long foreign currency $1.545 Trillion, and Short foreign currency $1.257 Trillion.  For a net Long position of $288 Billion.

And the counterparty to that $288 Billion Long “position” (ie, gamble) was … “Non-resident”.

Now, a few important points to consider.

Firstly, these 2 year old figures did not represent solid proof of a “fully hedged” foreign exchange position.  And it certainly is not proof of that claim being true now, 27 months later, in June 2011!  Instead, what it represented was a $288 Billion Long foreign currency position, at 31 March 2009. A net $288 Billion bet that foreign currencies would improve in value, compared to the Aussie Dollar.

Secondly, why do you think Mr Debelle would seek to reassure us that our banks’ foreign exchange risk is “fully hedged”, and back his claim by reference (in the footnotes) to a 2 year old, redundant paper – just 4 days after Fitch Ratings warned of the vulnerability of our banks to foreign exchange volatility, and 5 days after the global head of HSBC foreign exchange warned of “a bigger Armageddon out there” in foreign exchange markets?

[Hint: These days it’s euphemistically – and deceitfully – called “spin”, or a “smokescreen”]

Thirdly – and perhaps most importantly – as we saw just 2 days ago, at 31 March 2011 our banks’ gross foreign exchange derivatives position has grown (blown?) from the claimed $2.80 Trillion … to $3.98 Trillion:

Click to enlarge

Let us not even bother going into the huge question marks over this.

Including very basic questions.  Such as, why did the banks report a $2.80 Trillion FX derivatives exposure to the ABS survey … when the RBA’s own statistics report that they had a $3.58 Trillion exposure at that date (see highlight in chart above). Or, the basic question of why did Mr Debelle fail to reference the current, and much larger, foreign exchange derivatives exposure of our banks.

And let us not bother going into the even bigger questions (and dire implications) over our banks’ $11.68 Trillion exposure to Interest Rate derivatives – that’s the going-parabolic blue line on the above chart.

We’ve seen more than enough to know that Mr Debelle’s belated assurances about our banks are a sham.

It is my view that Fitch Ratings’ and HSBC’s warnings are most likely closer to the real truth.

And the reality of our banks’ extreme vulnerability, due to their off-shore funding reliance, their truly staggering derivatives exposure, and perhaps above all, their poor “asset” quality, is the real reason why Mr Debelle gave the speech that he gave yesterday.

Whether he meant to or not, the simple message for the wise and prudent to take away from (the inconsistencies, lies, and deceptions in) his speech is this.

He is essentially saying, “Don’t worry folks … our banks are going to fail … but the RBA can just print money to bail them out”.

Don’t believe that printing money is what Mr Debelle was saying?

Here it is in his own words:

As I discussed earlier, an Australian dollar liquidity issue can be addressed by the Reserve Bank. The Reserve Bank can meet a temporary liquidity shortfall by lending Australian dollars against the stressed bank’s assets denominated in Australian dollars.

Where does the RBA get its dollars from, in order to “lend” support to our soon-to-be-insolvent, imploding banks?

It creates them. Out of thin air.

Click click on the mouse button. Tap tap on the keyboard.

Just like all “independent” central banks.

And then lends those dollars, at interest.

As we have seen previously ( “Our Banking System Operates With Zero Reserves” ), thanks to the way our banking system is designed, printing more money is the only thing that the RBA can do in response to a bank insolvency crisis.

And as we also saw previously, that is exactly what they did do, in the GFC.

Welcome to the Grand Opening of our Zimbabwe Experience, dear reader.

Brought to you by your friendly “independent” RBA banksters, and their Big Four cronies.

A final thought.

It is particularly interesting that Mr Debelle was effectively reassuring everyone that the RBA is able to provide “liquidity support” (ie, money) for our banks in the event of their running into trouble with their wholesale funding from abroad.

What he did not mention, is that our government – that is, we the taxpayers – has provided both explicit and implicit support for the banks through the Government Guarantee Scheme For Large Deposits And Wholesale Funding.

(Indeed, when Moody’s recently downgraded the credit rating of our Big Four banks, they made it quite clear that if these taxpayer guarantees were not there, our banks’ credit ratings would be slashed by at least another two ‘notches’)

So, if Mr Debelle is arguing/reassuring that the RBA is able to provide liquidity support for our banking system, then why is the Australian taxpayer on the hook to backstop the banks?

And why did Mr Debelle not mention this very important fact in his speech?

SNAFU.

As with anything involving the “unholy alliance of politicians and bankers versus ordinary people”, everything about this stinks to high heaven.

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