Tag Archives: speculation

Carbon Derivatives 101

19 Nov

Do not fear, dear reader. You are not about to be subjected to a boring, #JAFA-style lecture.

101 is just my shorthand for “1-on-1”.

Today we are going to compare notes. On the topic of carbon derivatives.

Whose notes?

The SMC University in Switzerland’s recent Working Paper titled, “Carbon Derivatives and their Application within an Australian context”.

And, excerpts from my numerous articles predicting and forewarning that the Green-Labor government’s Clean Energy Future legislation is nothing more, and nothing less, than a banker-designed carbon derivatives scam.

Let’s begin, shall we?

SMC Working Paper (page 8):

Risks involved with carbon markets and carbon-based derivatives are those that are typical to standard derivatives, including price, counterparty, credit, operational, spread, currency and liquidity. Again like any derivative, the value of a carbon derivative is based upon the value of the underlying commodity.

Compare Ticking Time Bomb Hidden In The Carbon Tax (Nov 2011):

[A “security interest in” a carbon unit is, quite simply, a derivative or “security” that is based on the underlying “value” of the carbon “unit”]

And compare Our Bankers’ Casino Royale – “Carbon Permits” Really Means “A Licence To Print” (July 2011):

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”.

SMC University Working Paper (page 9):

Questions therefore arise as to how an odourless and colourless emission can be considered a commodity. For example, “…the commodity traded as ‘carbon’ does not actually exist outside of the numbers flashed up on trading screens or the registries held by administrators (Gilbertson & Reyes, 2009, pg. 12).”

Compare Our Bankers’ Casino Royale – “Carbon Permits” Really Means “A Licence To Print” (July 2011):

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

And compare Carbon Permits Do Not Even Exist (Aug 2011):

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):

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.

SMC Working Paper (page 9):

With stark disparities in existence, how can countries come to accept as true fact the admissions made by another? Further, if countries have such different approaches, how can companies across nations be asked to trade an underlying commodity that has different measuring techniques!!! As highlighted by one paper, “…this makes putting a price on carbon largely an arbitrary exercise and uncertain as predicting a price of even the most mundane commodity is at best guesswork… (Gilbertson & Reyes, 2009, pg. 13).

Therefore, due to a lack of transparency and lack of a generally accepted approach on quantification and pricing, the primary concern with carbon trading is the ability of carbon derivatives markets to be manipulated.”

Compare Government’s RIS Admits Carbon Emissions “Audits” A Propaganda Exercise (Aug 2011):

… the question still remains – how are they going to measure the “emissions”?

Answer: They are not going to measure them.

They are not even going to audit any but a very few of the very largest “emitters” either.

It is all a hoax.

Just as under the present National Greenhouse and Energy Reporting (NGER) department “system” – one that only came up with 299 companies reporting emissions in their latest Report – the companies “caught” in the system will be asked to “estimate” their own emissions…

Let us take a look at the Government’s Clean Energy Future Regulatory Impact Statement.

It is yet another telling indictment of the total fraud that this carbon pricing scheme scam actually is (emphasis added):

“Under the proposed reporting requirements liable entities will report on their own emissions. As they will also have to acquire (buy) permits to cover these emissions, they will have an incentive to underreport their emissions… It is to be expected that most (intentional) misreporting would result in an underestimation of emissions and less permits being surrendered to Government. This would have implications for the accuracy of national emissions estimates…”

SMC Working Paper (page 9-10):

…one might argue that due to carbon-based derivatives being founded upon carbon emissions and ownership is via computerised notations, it would be difficult to manipulate such a market. In other words, like more typical commodity markets, influence the price of the deliverable up the supply curve.

Whilst that is a feasible argument, it needs to be also remembered that financial-based derivatives, such as treasury notes and bonds, are also based upon computerised systems where such price manipulation still occurs. This was recently noted in 2006, where the U.S. Treasury “…observed instances in which firms appeared to gain a significant degree of control over highly sought after Treasury issues and seemed to use that market power to their advantage (Forbes, 2006).” Hence, if markets can come undone so traumatically after pricing investments which contain apparently measurable levels of risk, difficulties will easily arise in how markets can price a commodity that can hardly be seen!!!

Compare Flash Crash “Had Something To Do With Some Derivatives”, Says Goldman Trader (Aug 2011):

… 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

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.

SMC Working Paper (page 10-11):

 It has been claimed that derivatives were a major contributing factor in the most recent Global Financial Crisis in 2008-2009, whilst also a causative in distorting energy and food market prices during 2007-2008…

Of course there has been much debate about the introduction of the Waxman-Markey Bill, much to the enormous potential it has in creating the next global financial crisis. For instance, according to Friends of the Earth, an independent organisation that aims for the establishment of environmentally sustainable solutions, “…the development of secondary markets involving financial speculators and complex financial products based on the financial derivatives model brings with it a risk that carbon trading will develop into a speculative commodity bubble. This in turn would risk another global financial failure similar to that brought on by the subprime crisis (Clifton, 2009, pg. 32).”

Compare Our “Squeeze Pop” Carbon Bank (May 2011):

And derivatives, well, they’re safe-as-houses too.

After all, the mortgage-backed derivatives market that blew up America is only a tiddling little market.

So there’s clearly no cause for concern about yet another bankster-driven scheme, to blow up a global, air-backed derivatives bubble…

And compare Doing God’s Work – Turnbull An Angel of Death Derivatives (May 2011):

To banksters, insurance companies, and superannuation fund managers, the possibility of your living “longer than expected” is considered a “risk“.

Nice.

And now, thanks to the sick, evil genius of global banksters like Goldman Sachs, this “risk” factor of you and your loved ones living longer than expected can be packaged up into a tradeable commodity.

A ‘death derivative’.

A new artificial “commodity” – exactly like “carbon permits” – that can be used to attract “investors” who want to place bets with despicable scumbag banksters like Goldman Sachs, on how long each securitised “pool” of human beings will live for…

Can you imagine just how many elderly (and not so elderly) people will suffer physically in the future, when current record-high electricity prices double?

From The Age, May 22 2011:

One of Australia’s largest home and business electricity suppliers, TRUenergy, has warned that household power bills will double in six years after a carbon price is introduced and uncertainty over its implementation might lead to power shortages.

That would be bad enough for older Australians.  People just like your mum and dad. Your nanna and grandpa.

Imagine the impact on elderly folk in the much-colder Northern Hemisphere, where far more of the world’s total population lives. And where, right now, 44 million (about 1 in 7) Americans already depend on food stamps for survivalAll thanks to the banksters’ GFC.

The effect of our allowing CO2 taxes / emissions trading to be enacted, is now very clear…

Thanks to carbon dioxide derivatives trading, more and more human beings will die earlier and earlier than “investors” in death derivatives have estimated.

Superannuation fund managers, insurance companies, “investors” and speculators will find that they have made the wrong bet on average life expectancies.

Meaning – the banksters will first make a killing on the trade in carbon dioxide derivatives.

And then make another killing on the trade in their new ‘death derivatives’ too.

Compare also, Bankers’ Chief – Carbon Price Is “Essentially Creating A New Market” (July 2011):

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.

And compare most recently, Ticking Time Bomb Hidden In The Carbon Tax (Nov 2011):

Derivatives are a toxic, wholly artificial and unregulated financial product, created and traded en masse by the banks; they are held Off Balance Sheet so that noone really knows anything about their real activities. It was toxic derivatives over mortgages that nearly blew up the world in 2008.

SMC Working Paper (page 11-12):

Today, via the European Climate Exchange (ECX) and cleared through the Intercontinental Exchange (ICE), futures and options contracts are based upon three types of carbon-related units being European Union Allowances (EUAs), Certified Emission Reductions (CERs) and Emission Reduction Units (ERUs).6 Another derivative referred to as the European Carbon Futures (ECFs) contract, again based upon the EUA is traded via the European Energy Exchange (EEX)…

All contracts are standardised in respect to contract terms. Across either exchange, the futures contracts allow the holder the right and obligation to buy or sell 1,000 EUAs at a certain date in the future at a pre-determined price.

Compare what I said in Our Bankers’ Casino Royale -“Carbon Permits” Really Means ” A Licence To Print”, the day after the release of the draft legislation (July 2011):

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.

And compare Bankers’ Chief – Carbon Price Is “Essentially Creating A New Market” (July 2011):

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…

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.

SMC Working Paper (page 14):

A number of submissions were made to the Australian Competition and Consumer Commission (ACCC), requesting that the permits within the current scheme be included as financial products. Yet counter submissions took a different route, with requests made by the Australian Bankers Association and Australian Financial Markets Association recommending that permits be regarded as commodities. Such arguments were made on the basis “…that traders are relatively uninterested in permits…”

Compare Ticking Time Bomb Hidden In The Carbon Tax (Nov 2011):

The fees and commissions on the straight trading in carbon permits … is peanuts.

The real monster action is in the unlimited, unregulated derivatives market, that sits on top of the basic carbon trading market. Just imagine an inverted pyramid, with the trade in carbon permits at the bottom, pointy end.

What the banks really want – and what this blogger predicted and forewarned of time and again leading up to the release of the draft legislation – is a mechanism that allows them to create and trade carbon derivatives.

In unlimited, unregulated quantities.

And compare I Was Right – Banks Begin Preparing Carbon Derivatives Market (July 2011):

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.

SMC Working Paper (page 15):

It is therefore interesting to note that the scheme eventually allows freely allocated permits to be traded within the compliance year of issue. Such a statement seems to indicate a profit making opportunity not to dissimilar to the situation within the EU ETS, where power companies generated large profits. In a submission to the House of Commons by Ofgem, the energy and gas regulator in Great Britain stated that between 2008 – 2012, UK power companies could receive windfall profits approximately amounting to £9bn (House of Commons, 2008). Concerns are still being voiced about such astonishing revenues, with the European Commission further indicating that via the accumulation of excess free credits (i.e. freely allocated permits), “…the surplus is estimated to amount to 500 – 800 million allowances with an economic value of around €7bn – €12bn (European Commission, 2011, pg. 2).”

Compare A Disturbance In The Farce (July 2011):

… even the Green-Left Weekly is aware of the disturbance in the farce:

Europe’s biggest polluters have made billions out of the European Emissions Trading System (ETS). But a new briefing by Carbon Trade Watch (CTW) says the scheme will ensure industry will not have to cut its emissions until at least 2017.

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.

The European Commission said the scheme’s problems would be ironed out in the second phase, from 2008 to 2012. It claimed the ETS was working when emissions from the 11,000 polluters covered by the scheme fell by 5% in 2008 and 11.6% in 2009.

But CTW points out the emissions fall was due to the impact of the global recession, which caused a fall of 13.85% in industrial and electricity production in 2009.

In 2010, as the economic crisis eased, emissions shot up again by 3.5%.

The polluters stand to make more money for doing nothing in the ETS’s second phase. By 2012, power companies will make between 23 billion and 71 billion euros from passing on the cost of their free permits.

The third phase of the ETS, which will run from 2013 to 2020, won’t solve the problems. Companies will still be able to use the excess permits given out in the second phase. The World Bank has estimated about 970 million permits will be available.

This means polluters won’t have to cut their own emissions until 2017 — they can just cash in their free permits instead.

SMC Working Paper (page 15-16):

The Way Forward

Within the Australian context, what does this treatment of permits mean for carbon-based derivatives? With permits freely allocated to emitters and with the ability of permits to be price squeezed because they are allocated rather than auctioned, the possibility of carbon-based derivatives to be manipulated increases substantially. Such instances have been witnessed within the EU ETS and are one of the major criticisms levelled against derivatives as a whole (Clifton, 2009; Pirrong, 2009; Wood & Jotzo, 2010; Holly, 2011).

The maturity of the carbon market within Australia is still in its infancy and debate will continue about how the country should undertake its approach to CO2 emissions. At this early stage, it would seem that carbon-based derivatives will mainly be used once the fixed-price period begins

[Compare what I have said countless times – that “our” system enables banksters to begin creating and trading carbon derivatives from Day 1.  Our government has successfully conned the Australian public (and all mainstream commentators) into believing that their scheme is a fixed price “tax” for the first 3 years, and only after three years will trading commence. That is pure deception. While “purchased” permits cannot be traded, “freely allocated” permits can; and far more importantly, banksters are enabled to begin creating derivatives based on the underlying “value” of permits, from Day 1. The SMC Working Paper confirms my warning/prediction, as does the Clean Energy Future legislation itself.]

Globally, even though a mixture of regional policies are currently in existence or are looking to come online, inconsistent methodologies across countries make it difficult for a truly global acceptance of carbon derivatives to take off.

As such, the acceptance and establishment of any true global exchange or global central bank of carbon is some time away. Simply, this retains the odour of trouble, with increased opportunities for manipulation and failure. Whilst volatility and manipulation is in no means isolated to only carbon-based derivatives, “…due to the lack of policy towards the development of an efficient carbon derivatives market and the absence of a standard pricing tool (Leconte & Pagano, 2010, pg. 3),” greater opportunities for manipulation and fraud are present.

Exactly.

Which, as I have long said and demonstrated, is precisely what the true architects of both the Great Global Warming Hoax, and its popularly advocated “solution” (carbon trading), have always wanted.

A new, bigger, rigged, derivatives casino. One that they control. With no regulation, or government oversight.

A galactically-huge speculative financial bubble.

Based on thin air.

Hot, thin air.

Guaranteed to end like this –

Next week, we will take a look at a webinar by the President of the Institute For Agriculture and Trade Policy on Carbon Derivatives: The Next Toxic Asset, where we will see how derivatives have been used by banksters to manipulate markets and drive up the price of other commodities. Especially food … wheat, corn, sugar, soybeans, and more.

And we will again consider the implications of allowing our politicians to allow greed-obsessed banksters to create wholly unregulated derivatives, thus enabling them to manipulate the prices of food (and now, power/energy) worldwide … and ultimately, as a direct result, to make yet another killing on those new ‘Death Derivatives’ they are selling, that we mentioned earlier.

Here’s a teaser –

Click to enlarge | Source: IATP

Click to enlarge | Source: IATP

Click to enlarge | Source: IATP

Click to enlarge |Source: IATP

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Guest Post – The Path Of Easiest Profit

20 Oct

Submitted by reader JMD*.

A lot of hullabaloo is made of the ‘flight to safety’ in ‘investor’ circles, a rising price of the US Treasury bond or rising exchange rate of the US dollar is a ‘flight to safety’. Suddenly ‘risk assets’ become a bit too risky & there is a rush to sell for the ‘safest’ securities. Even a rising gold price is considered a ‘flight to safety’ at times but then when the gold price falls it’s suddenly ‘risk off’. This scenario doesn’t make a lot of sense, either gold is safe or it isn’t & why are ‘investors’ worrying about US dollar devaluation one minute & eagerly bidding for it the next?

The whole concept of ‘safety’ is a false premise, maybe dreamed up by some turkey at the Bank of England decades ago, or some such, to obfuscate the real reason.

What drives the ‘money’ markets is not ‘safety’, or ‘risk on’ or ‘risk off’ but ‘profit‘. A good analogy is water flowing down a hill, it follows the path of least resistance. In the case of the ‘money’ markets, it can be described as the ‘money’ follows the path of easiest ‘profit’.

So what is this ‘profit’ & where is it coming from? The ‘profit’ is rising prices on financial ‘securities’ – bonds, notes & bills – particularly, though not exclusively of the government variety. The ‘profit’ is coming from government, through its central banking arm. As GSI’s Keith Weiner describes, US Treasury bonds (also Japanese, British, Australian, in fact government bonds of most ‘developed’ nations) have been in a ‘bull market’ since at least 1982. By ‘bull market’ is meant rising prices. As an ‘investor’ in government bonds you would have been unlucky not to have made a healthy ‘profit’ from your ‘governments’ at any time in the last 30 years, almost a generation.

Central banks are the ‘purveyors of profit’ in the ‘money’ markets, after all, they issue the currency, they are the market makers. There has been no more consistent ‘profit’ made than in government bonds for the last 30 years. How so? Easy, central banks either lend against or buy outright large amounts of government bonds for their own ‘portfolio’, they bid up the price (denominated in their own obligation) of government bonds. As I alluded to in the paragraph above however, central banks are not restricted to government bonds, they can & do manipulate ‘money’ market spreads by bidding for ‘private securities’. They can, if they wish, hand easy ‘profits’ to ‘investors’ in bank bills, corporate debt & even ‘equities’.

I’ll give you what I think are two good examples of the ‘money’ following the path of easiest ‘profit’, though I’m sure many more can be found.

The first is the recent earthquake & tsunami in Japan. Upon the news, the Yen began to soar against many other currencies, silver fell 6-7% in the space of a few hours, gold was well down, as were share- markets & not just in Japan. It is incongruous that a devastating natural disaster, killing tens of thousands of people & destroying property & livelihoods would have ‘investors’ rabidly bidding up the Yen – natural disasters lead to an increase in productivity? I read how it was Japanese institutions ‘repatriating’ their overseas investments for reconstruction & so on but a more logical explanation was a move to ‘front run’ the ‘big easy’, the Bank of Japan.

The Bank of Japan is notorious for its ‘easy money’ policies. I have no doubt that ‘investors’ speculated on the BoJ ‘easing’ in response to the disaster, that is, they would bid up bond prices & not just government bonds. The ‘investors’ would buy low & sell high.

If you go back to 1995 you will see similar moves in the Yen, right about the time of the devastating Kobe earthquake. Speculating on central bank ‘profit’ has been around for a while.

The second is the very recent announcement by the Fed of ‘Operation Twist’. Upon announcement of the Fed buying, so bidding up, longer term government bonds – gold, silver, oil, share-markets & currencies, in fact you name it, lost their bid against the US dollar & government bonds, particularly the 10 & 30 year. The reason is obvious, ‘investors’ speculating on easy ‘profits’ in the government bond market, as Keith Weiner says “engineered by the Fed”, the ‘investors’ would buy low & sell high.

Having said all this, there is one issue I haven’t addressed & that is as Keith Weiner also says, “the money comes from the capital account of the bond issuer. The speculator carries the bond on the asset side of his balance sheet. The issuer carries it on the liabilities side. No matter whether the issuer marks the liability to market, or not, the loss is taken.” The bureaucrats in Treasury & central banks are neither alchemists or gods, they cannot transmute lead into gold or water into wine. Certainly they can steal the “bread from the mouth of labour” but still, the loss must weaken the credit of the government, there is no way around this. Yet ‘investors’ still rush to bid for government bonds when they think, or know, central banks are handing them easy ‘profits’. This just reinforces my point, ‘investors’ care nothing for safety, the concept is bogus. ‘Profit’ is where it’s at.

It is tempting to speculate that the game will continue until no more ‘profit’ can be given, when the yield curve flattens to a point where it just cannot flatten any further. Can the government issue 30yr bonds with a 0% coupon (no ‘profit’ there) & their credit remain ‘money good’? I guess we’ll find out but I suspect the rising gold price since the Bank of Japan’s overnight rate hit 0% for the second time in 2000, is saying that it won’t.

[This article was originally published by the Gold Standard Institute]

Disclaimer: The views expressed in the above article are the author’s own. They should not be interpreted as reflecting any views held by Senator Barnaby Joyce, The Nationals, or by the barnabyisright.com blog author.

* Please see also JMD’s previous Guest Posts –

Infinite Money

The ‘Moneyness’ Of Debt

Why The RBA Sold Our Gold

Our Government Debt Crisis Is Already Here

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”

Bubble Proof: Chinese Maids Buying Houses

3 May

Unsure about the conflicting arguments in the ‘expert’ commentariat about whether China is in a massive real estate bubble?  Consider real-world anecdotes like those following, related by former Morgan Stanley chief economist and now independent Hong Kong-based economist Andy Xie, who has predicted that an overwhelming “get rich quick” mentality has doomed the Chinese economy.

From a must-read article in BusinessWeek:

“My maid just asked for leave,” a friend in Beijing told me recently. “She’s rushing home to buy property. I suggested she borrow 70 percent, so she could cap the loss.”

It wasn’t the first time I had heard such a story in China. Some friends in Shanghai have told me similar ones. It seems all the housemaids are rushing into the market at the same time.

There are benefits to housekeeping for fund managers. China’s housemaids may be Asia’s answer to the shoeshine boy whose stock tips prompted Joseph Kennedy to sell his shares before the Wall Street Crash of 1929.

Another friend recently vacationed in the southern island- resort city of Sanya in Hainan province and felt compelled to visit a development sales office. Everyone she knew had bought there already. It’s either buy or be unsocial.

“You should buy two,” the sharp sales girl suggested. “In three years, the price will have doubled. You could sell one and get one free.”

How could anyone resist an offer like that?

The evidence in official-corruption cases no longer involves cash stashed in refrigerators or starlet mistresses in Versace clothing. The evidence is now apartments. One mid-level official in Shanghai was caught with 24 of them.

China is in the throes of a vast property mania. First, let me make it perfectly clear that calling China’s real-estate market a “bubble” isn’t denying China’s development success. As optimism is an essential ingredient in a bubble, economic success is a necessary condition. Nor am I saying that prices will drop tomorrow. A bubble evolves and bursts in its own time.

Premier Wen: ‘Latent Risk’ In China’s Banks

5 Mar

From Bloomberg:

Premier Wen Jiabao warned of “latent risk” in China’s banks and pledged to crack down on property speculation as the government faces the consequences of flooding the economy with money to drive growth.

“The domestic economy still faces some prominent problems,” Wen, 67, said in a speech in Beijing to the National People’s Congress, similar to the U.S. State of the Union address. He also cited excess capacity in manufacturing and weak support for rural-income growth.

Wen’s comments reinforce concern that loans made in last year’s record 9.59 trillion yuan ($1.4 trillion) credit boom may go bad. Harvard University Professor Kenneth Rogoff has said growth could slide to 2 percent from Wen’s 8 percent target within a decade as a debt-fueled bubble collapses..

Overheating China Can’t Be Cooled

1 Mar

China’s rapidly overheating real estate bubble cannot be cooled, lending further weight to predictions that the Chinese economy will bust inside ten years:

Even among Western analysts who live and work in China, the major role played by municipal governments in fueling China’s increasingly speculative real estate boom is underappreciated. The actions of those local authorities are at the heart of China’s property bubble, and they explain why the central government’s attempts to cool lending and construction are failing.

The key difference between China’s current real estate bubble and the U.S. bubble that popped in 2007 is this: In the U.S., it was individuals and lenders who made overleveraged, speculative bets via subprime mortgages. In China, explained Northwestern University researcher Victor Shih to NPR, the leveraged debt fueling the speculation comes from local governments, which have borrowed trillions of dollars worth of funds from China’s banking system to develop real estate projects in their jurisdictions.

Rudd Labor, Treasury Secretary Ken Henry, RBA Governor Glenn Stevens, and a lazy, blinkered mainstream media can no longer try to blame Barnaby Joyce’s warnings for scaring off the Sino-cyclical angel on which they have pinned all their hopes for economic prosperity.

After all, there is a growing chorus of leading international economists and financiers all around the world who are warning of a China implosion.  Perhaps our talking-head economic commentators, and the EPIC FAILURES currently in charge of the Australian economy, would like to start ridiculing and smearing all of them too?

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