October 13, 2013

Warning of Global Risk, Leaders Urge U.S. to Solve Its Debt Limit Crisis



WASHINGTON — Global leaders at the World Bank and International Monetary Fund’s annual meetings here on Sunday pleaded, warned and cajoled: the United States must raise its debt ceiling and reopen its government or risk “massive disruption the world over,” as Christine Lagarde, the fund’s managing director, put it.
The United States’ fiscal problems unexpectedly overshadowed the meetings’ official agenda, with representatives from dozens of countries — including two of Washington’s most important economic partners, Saudi Arabia and China — publicly expressing their worries about what was happening on Capitol Hill and in the White House.
The leaders came to Washington to talk about the international recovery, Ms. Lagarde said in an interview on NBC’s “Meet the Press.” “Then, they found out that the debt ceiling was the issue,” she added. “They found out that the government had shut down and that there was no remedy in sight.”
“So it really completely transformed the meeting in the last few days,” Ms. Lagarde said.
“One thing we’re certain around the table, it was that if there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over,” she added. “And we would be at risk of tipping yet again into a recession. That was the impression around that big table.”
Many leaders at the meetings said they believed that the impasse would be resolved before Thursday, when the government would be at severe risk of not having enough money to pay all its bills on any given day going forward. But they pressed Treasury Secretary Jacob J. Lew and the Federal Reserve chairman, Ben S. Bernanke, on the issue, predicting that a default by the United States would lead to higher borrowing costs and a slowdown of the global economy.
Those warnings included sharp lines in official documents. “The United States needs to take urgent action to address short-term fiscal uncertainties,” said a communiqué by the fund’s International Monetary and Financial Committee.
A senior Treasury official said that American officials went into the meetings acknowledging how critical it would be to reopen the government and raise the debt limit.

The Fed Could Simply CANCEL $2 Trillion of Government Debt

George Washington's picture


Congressman Alan Grayson and former congressman Ron Paul are two of the fiercest warriors against an out-of-control Federal Reserve.
Paul has campaigned to dissolve the Fed for 35 years, and wrote an entire book called "End the Fed". Grayson has repeatedly slammed the Fed, and absolutely demolished it ...to its face.    Paul and Grayson also co-sponsored a bill to audit the Federal Reserve. (Their desire to rein in the Fed is supported by numerous top economists.)
So when the two of them support a Fed-related solution to the "government shutdown" crisis,  I listen.
Congressman Grayson writes:
A simple solution to the impasse is as follows: Federal Reserve Chairman Ben Bernanke should simply cancel the Treasury debt that it owns. The government can just forgive the government's debt.

This wouldn't solve the debt problem entirely. The Federal Reserve doesn't own all U.S. government debt; it owns only roughly $2 trillion of it. (Well $2,076,927,000,000.00, as of last Wednesday, but who's counting?)
NPR has a helpful graphic showing the various holders of U.S. government debt, including the Fed:
pm-gov_debt_v-624Source: NPR
Congressman Grayson continues:
Yet canceling this debt would give the government substantial room under the debt ceiling to manage its finances. It would end the debt ceiling standoff in Congress, and it would prevent a default.

The debt held on the balance sheet of the Federal Reserve can be canceled without any significant consequence, because it is a bookkeeping artifact corresponding to the money supply. In essence, the government owes this money to itself. If I owe money to myself, I can cancel that debt at will and without consequence, essentially taking it out of my left pocket and putting it in my right pocket.

Last year, the Federal Reserve declared a "profit" of roughly $91 billion, much of which came from interest payments from the U.S. Treasury. The Federal Reserve then quickly remitted nearly all of this profit right back to the U.S. Treasury.

The Federal Reserve does this every year. Reducing or eliminating this unearned "profit" actually will provide a more realistic view of federal finances.
Grayson gives credit to Paul for coming up with the idea:
I am a Democrat, and known as a progressive. But this idea was put forward a few years ago not by me, or by a member of my party, but by Republican Representative Ron Paul.

He thinks, as do I, that the Federal Reserve's dramatic expansion of its balance sheet is simply a way of financing the government by printing money. The Fed isn't really "buying" Treasury bonds, it is just letting the government finance its deficit by adding to the money supply.
Indeed, Paul introduced a bill in 2011 which would have led to the cancellation of $1.6 trillion in federal debt held by the Fed.
Grayson continues:
While canceling the Treasury debt held on the Federal Reserve balance sheet might be considered unorthodox, it is no more unorthodox than the quantitative easing that has added much of this debt to the Fed's balance sheet.
Indeed, quantitative easing - the radical program the Fed has engaged in for years, which doesn't help the economy,  benefits the the super-elite and hurts the little guy, and more than offsets any savings from budget cuts in other areas - is largely performed through buying U.S. debt ... $45 billion each month.
Grayson concludes:
In any event, preventing a financial meltdown, with its attendant risks of interest rate and price spikes as well as staggering employment losses, is certainly central to the Federal Reserve's mandate of ensuring price stability, maximum employment and moderate, long-term interest rates.

Bernanke could alleviate the debt ceiling crisis simply by canceling the debt held on the Fed's balance sheet.
This may sound like a fringe idea. But the Financial Times noted in  an article last year entitled “Will central banks cancel government debt?”:
It is obvious that governments are struggling to find the correct balance between controlling public debt ... and boosting the rate of economic growth. The former objective requires more budgetary tightening, while the latter requires the opposite. Is there any way around this? One radical option now being discussed is to cancel (or, in polite language, “restructure”) part of the government debt that has been acquired by the central banks as a consequence of quantitative easing (QE). After all, the government and the central bank are both firmly within the public sector, so a consolidated public sector balance sheet would net this debt out entirely.

***

Adair Turner, the chairman of the UK Financial Services Agency, and reportedly a candidate to become the next governor of the Bank of England, made a speech last week that said more unorthodox options, including “further integration of different aspects of policy”, might need to be considered in the UK. Two separate journalists (Robert Peston of the BBC and Simon Jenkins of The Guardian) said that Lord Turner’s “private view” is that some part of the Bank’s gilts holdings might be cancelled in order to boost the economy. Lord Turner distanced himself in public from this suggestion on Saturday. However, the notion will now be widely discussed.

***

Similar proposals have however been widely debated by economists in the past. This goes back at least as far as the works of Abba Lerner in the 1940s on “functional finance” and the role of fiat money. More recently, the Modern Monetary Theorists have reawakened Lerner’s ideas.

4
Your rating: None Average: 4 (22 votes)

"Stop Logic" Gold Slam Was So Furious It Shut Down CME Trading Again




What is Stop Logic? Basically, it is a the mother of all stop hunts, which takes out the entire bid stack and continues until such time as there is absolutely no liquidity left in the entire market! From the CME:
Stop Logic detects potential market movements caused by the triggering and trading of Stop orders where the resulting price move would extend beyond an exchange specified threshold.

The triggering of Stop orders can potentially exaggerate price movements in temporarily illiquid markets. When triggered Stop orders attempt to move the market to an executing price beyond a pre-established value, a Stop Logic event occurs. Stop Logic detects these situations and responds by placing the identified market in a Reserved state for a predetermined period of time, usually 5 to 10 seconds, depending on the instrument. During the Reserve period, new orders are accepted and an Indicative Opening Price (IOP) is published, but trades do not occur until the Reserve period expires, thereby providing an opportunity for participants to respond to the demand for liquidity. At the end of the Reserve period, the instrument will re-open and matching will resume.

When a futures contract designated as a lead month contract experiences a STOP Logic event, associated options markets are paused and Mass Quotes canceled.

Stop Logic will not prevent markets from ultimately moving in the direction of the order flow, but allows time for liquidity to enter the market so that new orders can be matched against the triggered stop order(s).
Of course, the liquidity we re-enter at a time when the prevailing price has been reset substantially lower on what is basically a "banging the open" type of event, or in this case market open, when one or more traders attempt to generate the well-known "momentum ignition" event so known to HFT algo manipulators everywhere.
The chart below from Nanex show precisely when and how the trading was stopped for 10 seconds in the aftermath of the furious sell trade.
So what is an investor who believes this was manipulative trading to do? Well, nothing. Recall that the ever helpful Bart Chilton already made it clear that commodity (read precious metal) traders are on their own because, as a result of the furlough, the regulator simply incapable of doing anything.





The Perils of Premature Deindustrialization

Dani Rodrik

11 October 2013
PRINCETON – Most of today’s advanced economies became what they are by traveling the well-worn path of industrialization. A progression of manufacturing industries – textiles, steel, automobiles – emerged from the ashes of the traditional craft and guild systems, transforming agrarian societies into urban ones. Peasants became factory workers, a process that underpinned not only an unprecedented rise in economic productivity, but also a wholesale revolution in social and political organization. The labor movement led to mass politics, and ultimately to political democracy.
Over time, manufacturing ceded its place to services. In Britain, the birthplace of the Industrial Revolution, manufacturing’s share of employment peaked at around 45% before World War I and then fell to just above 30%, where it hovered until the early 1970’s, when it began a precipitous decline. Manufacturing now accounts for slightly less than 10% of the workforce.
All other rich economies have gone through a similar cycle of industrialization followed by deindustrialization. In the United States, manufacturing employed less than 3% of the labor force in the early nineteenth century. After reaching 25-27% in the middle third of the twentieth century, deindustrialization set in, with manufacturing absorbing less than 10% of the labor force in recent years.
In Sweden, employment in manufacturing peaked at 33% in the mid-1960’s, before falling to the low teens. Even in Germany, often regarded as the strongest manufacturing economy in the developed world, manufacturing employment peaked around 1970, at close to 40%, and has been steadily declining ever since. As Harvard University’s Robert Lawrence has argued, deindustrialization is common and predates the recent wave of economic globalization.
Only a few developing countries, typically in East Asia, have been able to emulate this pattern. Thanks to export markets, South Korea industrialized exceptionally rapidly. With manufacturing’s share of employment rising from the low single digits in the 1950’s to a high of 28% in 1989 (it has since fallen by ten percentage points), South Korea underwent in three decades a transformation that took a century or longer in the early industrializers.
But the developing world’s pattern of industrialization has been different. Not only has the process been slow, but deindustrialization has begun to set in much sooner.
Consider Brazil and India, two emerging economies that have done comparatively well in the last decade or so. In Brazil, manufacturing’s share of employment barely budged from 1950 to 1980, rising from 12% to 15%. Since the late 1980’s, Brazil has begun to deindustrialize, a process which recent growth has done little to stop or reverse. India presents an even more striking case: Manufacturing employment there peaked at a meager 13% in 2002, and has since trended down.
It is not clear why developing countries are deindustrializing so early in their growth trajectories. One obvious culprit may be globalization and economic openness, which have made it difficult for countries like Brazil and India to compete with East Asia’s manufacturing superstars. But global competition cannot be the main story. Indeed, what is striking is that even East Asian countries are subject to early-onset deindustrialization.
Consider China. In view of its status as the world’s manufacturing powerhouse, it is surprising to discover that manufacturing’s share of employment is not only low, but seems to have been declining for some time. While Chinese statistics are problematic, it appears that manufacturing employment peaked at around 15% in the mid-1990’s, generally remaining below that level since.
China is a very large country, of course, with much of its workforce still in rural areas. But most migrant workers now find jobs in services rather than in factories. Similarly, it is extremely unlikely that the new crop of manufacturing exporters, such as Vietnam and Cambodia, will ever reach the levels of industrialization attained by the early industrializers, such as Britain and Germany.
An immediate consequence is that developing countries are turning into service economies at substantially lower levels of income. When the US, Britain, Germany, and Sweden began to deindustrialize, their per capita incomes had reached $9,000-11,000 (at 1990 prices). In developing countries, by contrast, manufacturing has begun to shrink while per capita incomes have been a fraction of that level: Brazil’s deindustrialization began at $5,000, China’s at $3,000, and India’s at $2,000.
The economic, social, and political consequences of premature deindustrialization have yet to be analyzed in full. On the economic front, it is clear that early deindustrialization impedes growth and delays convergence with the advanced economies. Manufacturing industries are what I have called“escalator industries”: labor productivity in manufacturing has a tendency to converge to the frontier, even in economies where policies, institutions, and geography conspire to retard progress in other sectors of the economy.
That is why rapid growth historically has always been associated with industrialization (except for a handful of small countries with large natural-resource endowments). Less room for industrialization will almost certainly mean fewer growth miracles in the future.
The social and political consequences are less fathomable, but could be equally momentous. Some of the building blocks of durable democracy have been byproducts of sustained industrialization: an organized labor movement, disciplined political parties, and political competition organized around a right-left axis.
The habits of compromise and moderation have grown out of a history of workplace struggles between labor and capital – struggles that played out largely on the manufacturing shop floor. Given premature deindustrialization, today’s developing countries will have to travel different, as yet unknown, and possibly bumpier paths to democracy and good governance.

THE ROVING EYE

Fear and loathing in House of Saud


By Pepe Escobar

Every sentient being with a functional brain perceives the possibility of ending the 34-year Wall of Mistrust between Washington and Tehran as a win-win situation.

Here are some of the benefits:

  • The price of oil and gas from the Persian Gulf would go down;
  • Washington and Tehran could enter a partnership to fight Salafi-jihadis (they already did, by the way, immediately after 9/11) as well as coordinate their policies in Afghanistan to keep the Taliban in check post-2014;
  • Iran and the US share the same interests in Syria; both want no anarchy and no prospect of Islamic radicals having a shot at

    Advertisement 


    power. An ideal outcome would balance Iranian influence with a power-sharing agreement between the Bashar al-Assad establishment and the sensible non-weaponized opposition (it does exist, but is at present marginalized);
  • With no more regime change rhetoric and no more sanctions, the sky is the limit for more trade, investment and energy options for the West, especially Europe (Iran is the best possible way for Europeans to soften their dependence on Russia's Gazprom);
  • A solution for the nuclear dossier would allow Iran to manage civilian use of nuclear energy as an alternative source for its industry, releasing more oil and gas for export;
  • Geopolitically, with Iran recognized for what it is - the key actor in Southwest Asia - the US could be released from its self-imposed strategic dogma of depending on the Israeli-Saudi axis. And Washington could even start pivoting to Asia for real - not exclusively via military means.

    Ay, there's the rub. Everybody knows why the Israeli right will fight an US-Iran agreement like the plague - as Iran as an "existential threat" is the ideal pretext to change the debate from the real issue; the occupation/apartheid regime imposed on Palestine.

    As for the House of Saud, such an agreement would be nothing short of Apocalypse Now.

    I'm just a moderate killer 
    It starts with Syria. Everybody now knows that shadow master Bandar bin Sultan, aka Bandar Bush, has been fully in charge of the war on Syria since he was appointed Director of National Intelligence by his uncle, Saudi King Abdullah.

    Bandar is taking no prisoners. First he eliminated Qatar - the major financier of the so-called Free Syrian Army (FSA) - from the picture, after having a helping hand in Qatar's emir, Sheikh Hamad, deposing himself to the benefit of his son, Sheikh Tamin, in late June.

    Then, in late July, Bandar spectacularly resurfaced in public during his now famous "secret" trip to Moscow to try to extort/bribe Russian President Vladimir Putin into abandoning Syria.

    Notoriously, the House of Saud's "policy" on Syria is regime change, period. This is non-negotiable in terms of dealing a blow to those "apostates" in Tehran and imprinting Saudi will on Syria, Iraq, in fact the whole, mostly Sunni Levant.

    In late September, the Jaish al-Islam ("Army of Islam") entered the picture. This is a "rebel" combo of up to 50 brigades, from supposedly "moderates" to hardcore Salafis, controlled by Liwa al-Islam, which used to be part of the FSA. The warlord in charge of Jaish al-Islam is Zahran Alloush - whose father, Abdullah, is a hardcore Salafi cleric in Saudi Arabia. And the petrodollars to support him are Saudi - via Bandar Bush and his brother Prince Salman, the Saudi deputy defense minister.

    If this looks like a revamp of the David Petraeus-concocted "Sunni Awakening" in Iraq in 2007 that's because it is; the difference is this Saudi-financed "awakening" is geared not to fight al-Qaeda but towards regime change.

    This (in Arabic) is what Alloush wants; a resurrection of the Umayyad Caliphate (whose capital was Damascus), and to "cleanse" Damascus of Iranians, Shi'ites and Alawites. These are all considered kafir ("unbelievers"); either they submit to Salafist Islam or they must die. Anybody who interprets this stance as "moderate" has got to be a lunatic.

    Incredibly as it may seem, even Ayman al-Zawahiri - as in al-Qaeda central - has issued a proclamation banning the killing of Shi'ites.

    Yet this "moderate" tag is exactly at the core of the present, Bandar Bush-concocted PR campaign; sectarian warlords of the Alloush kind are being "softened", so they are palatable to a maximum range of Gulf sources of funds and, inevitably, gullible Westerners. But the heart of the matter is that Jaish al-Islam, essentially, sports just a slight chromatic difference with the Islamic State of Iraq and al-Sham (ISIS) - the al-Qaeda-linked umbrella which is the prime fighting force in Syria; as in a bunch of weaponized fanatics on varying degrees of (religious) crystal meth addiction.

    Paranoia paradise
    To complicate matters, the House of Saud is in disarray because of the succession battle. Crown Prince Salman is the last son of King Abdul Aziz, the founder of the Saud dynasty, to have a shot at power gradually by age.

    Now all bets are off - with hordes of princes engulfed in the battle for the great prize. And here we find none other than Bandar Bush - who is now, for all practical purposes, the most powerful entity in Saudi Arabia after Khalid Twijri, the chief of King Abdullah's office. The nonagenarian Abdullah is about to meet his Maker. Twijri is not part of the royal family. So Bandar is running against the clock. He needs a "win" in Syria as his ticket to ultimate glory.

    That's when the Russia-US agreement on Syria's chemical weapons intervened. The House of Saud as a whole freaked out - blaming not only the usual suspects, UN Security Council members Russia and China, but also Washington. No wonder the perpetual foreign minister, Prince Saud al-Faisal, snubbed his annual address to the UN General Assembly last week. To say he was not missed is an understatement.

    The House of Saud's nightmare is amplified by paranoia. After all those warnings by King Abdullah for Washington to cut "the head of the snake" (Iran), as immortalized on WikiLeaks cables; after all those supplications for the US to bomb Syria, install a no-fly zone and/or weaponize the "rebels" to kingdom come, this is what the House of Saud gets: Washington and Tehran on their way to reaching a deal at the expense of Riyadh.

    So no wonder fear, loathing and acute paranoia reign supreme. The House of Saud is and will continue to do all it can to bomb the emergence of Lebanon as a gas producer. It will continue to relentlessly fan the flames of sectarianism all across the spectrum, as Toby Matthiesen documented in an excellent book.

    And the Israeli-Saudi axis will keep blossoming. Few in the Middle East know that an Israeli company - with experience in repressing Palestinians - is in charge of the security in Mecca. (See here andhere (in French)). If they knew - with the House of Saud's hypocrisy once more revealed - the Arab street in many a latitude would riot en masse.

    One thing is certain; Bandar Bush, as well as the Saudi-Israeli axis, will pull no punches to derail any rapprochement between Washington and Tehran. As for the Bigger Picture, the real "international community" may always dream that one day Washington elites will finally see the light and figure out that the US-Saudi strategic alliance sealed in 1945 between Franklin D Roosevelt and King Abdul Aziz ibn Saud makes absolutely no sense.

    Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

    He may be reached at pepeasia@yahoo.com.


    (Copyright 2013 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.) 
  • Amar Bhidé

    Amar Bhidé is a professor at Tufts University's Fletcher School of Law and Diplomacy and the author of A Call for Judgment.

    Re-Decentralizing the Fed

    09 October 2013
    BOSTON – Financial circles are buzzing about Janet Yellen’s nomination to succeed Ben Bernanke as Chair of the US Federal Reserve. But they are largely ignoring another, much more fundamental question: How much discretion should the Fed – indeed, any central bank – be given to conduct daring monetary-policy experiments like the vast quantitative easing conducted by Bernanke’s Fed over the last five years?
    There is, of course, a role for bold experimentation. Many of life’s most important decisions are ultimately blind leaps, and accepted solutions often turn out to be wrong. For example, alcohol is now considered an inefficient method for cleaning wounds, because it kills infection-fighting white blood cells. In fact, venturesome trial and frequent error have driven human development.
    But experience has repeatedly demonstrated that, when it comes to government institutions, unchecked audacity is almost never desirable – and, in some cases, can be highly destructive. Mao Zedong’s rash decree in 1958 to eliminate China’s “pestilent” sparrows led to the proliferation of grain-eating locusts, diminishing yields and contributing to a famine that led to more than 20 million deaths.
    America’s system of government imposes particularly strict constraints on officials’ actions, reflecting a deep-rooted skepticism of philosopher-kings. Its political institutions are based on a carefully calibrated system of checks and balances, which, by enhancing accountability, helps to control the misjudgments and self-dealing of those in power. Where beliefs and interests diverge, America’s system favors open debate that accommodates a wide range of views. After all, people are more willing to consent if their dissent has been heard.
    But checks and balances can also impede crucial reforms. Indeed, they are part of the reason why the United States did not establish a permanent central bank until the Federal Reserve Act of 1913 – long after the United Kingdom, France, and Germany – and, even then, authorized it only to prevent financial panic and monetary collapse. The fact that the Federal Reserve System comprises 12 regional reserve-holding banks reflects the fear at its founding that Wall Street financiers would otherwise capture monetary policy.
    How things have changed. Today, enormous power is concentrated in the hands of the 12-member Federal Open Market Committee, which sets interest rates and regulates the money supply behind closed doors – decisions that are not subject to review or challenge. Retirees can sue if their homes are seized for urban renewal, but not if the Fed’s financial suppression deprives them of a return on their savings.
    The Fed’s seemingly unchecked authority, like the National Security Agency’s warrantless surveillance, undermines ordinary Americans’ faith in their government. Tea Partiers and Occupy Wall Streeters alike now scorn the Fed – whose legitimacy is based on abstract theories that assume away winners and losers, rather than on democratic accountability – for serving the interests of major banks.
    A more decentralized monetary authority would align better with America’s democratic traditions and economic reality.
    As it happens, governments directly provide only a thin “base” layer of money; most money is created by banks extending credit. Such a “loan-by-loan” process usually allocates money and credit effectively; however, it can over-lend, stoking inflation and even triggering economic collapse.
    But centralized, one-size-fits-all monetary policies cannot counteract booms or busts reliably, and often have unintended consequences. For example, while raising interest rates may help to curb inflation and possibly even avert a credit bubble, doing so curtails both sound and unsound lending alike.
    A better approach would be to regulate individual banks, branches, and even loans, while limiting the Fed’s interventions to those that serve its original purpose of ensuring an adequate monetary base and acting as lender of last resort during panics, like the 2008 financial crisis.
    A return to monetary decentralization would require radical policy changes, including the implementation of 1930’s-style laws enabling regulators to monitor banks, ensure that deposit insurance is credible and comprehensive, and halt off-balance-sheet financial activities. The Fed and other regulators would have to provide resources and backing to examiners in the field.
    Furthermore, Congress would have to relieve the Fed of unrealistic mandates for ensuring low unemployment and controlling inflation. While the Fed should be responsible for forestalling the monetary instability that can trigger intolerable inflation or mass unemployment, its policies cannot account for the many cross-currents that buffet prices and jobs. In the rapids, it is best to concentrate on keeping the canoe from capsizing, rather than worrying about maintaining a straight course.
    More generally, there is a need for more creative economic thinking. Economists, beginning with Milton Friedman, have long emphasized top-down monetary policies; but they have failed to reach any useful consensus on the most effective strategy. Amid heated debates over whether monetary policy is too tight or too loose, a more grounded approach based on the “do no harm” principle has received little attention.
    Of course, achieving such radical decentralization would take time. In the meantime, congressional review of top-down monetary-policy gambits could be established.
    As it stands, US lawmakers routinely delegate technical issues to experts; but, given the hazards of these experts’ often-unwarranted certitude and insulation from popular opinion, lawmakers wisely retain authority over important decisions. Indeed, the US Constitution gives Congress far-reaching powers, including to declare war and appropriate funds for military campaigns.
    Against this background, major changes in Fed policy – such as the decision to purchase trillions of dollars’ worth of securities or push interest rates to zero – could easily be subjected to legislative approval (except in times of emergency). While such a system would reduce the Fed’s independence, it would put the onus of difficult political decisions where it belongs: on the democratically elected members of Congress.
    Countries with smaller, more homogenous economies and undivided, powerful governments might not benefit from more decentralization and legislative review. And the European Central Bank, for example, faces unique challenges of governance and legitimacy. But, regardless of the circumstances, central banking is too important to be left to technocrats.


    Commodity benchmarks could fall under UK regulatory scrutiny

    Tue, Oct 1 2013

    By Clara Denina


    ROME, Oct 1 (Reuters) - Key commodities benchmarks could be subject to UK market abuse rules, a British financial markets regulator said on Tuesday, with stiff fines or prison sentences possible as punishments for the manipulation of prices.

    Global financial markets have come under increasing scrutiny from regulators following the scandal around the manipulation of interest rates -- namely the London Interbank Offered Rate (Libor).

    "After the Libor scandal, we started to look at various benchmarks," Don Groves, technical specialist at the Financial Conduct Authority, told a gold industry conference in Rome.

    The Financial Services Act 2012 brought Libor under UK regulatory oversight, making it a criminal offence for knowingly making false or misleading statements relating to benchmark-setting.

    "If the HM Treasury decides that other things like gold... should be covered as a benchmark, then we will add those to the list," Groves said.

    Libor is the estimated interest rate set daily by leading London banks at which they would be charged when borrowing from other banks.

    The gold market has its own equivalent -- the Gold Forward Offered Rates (GOFO) -- at which dealers will lend gold on swap against U.S. dollars.

    "I don't want to give you the impression that the UK is picking on bullion  (but) I believe in the medium- long term politicians will want the regulators to focus on consumers' issues," Groves said.

    "So if you think about it, things like natural gas, oil, electricity there are a lot of commodities out there and I think that we are probably eventually going to see something like a benchmark for those particular commodities."

    The London Bullion Market Association said on Sunday it could charge its member banks more or even disband GOFO due to the string of new regulations in the financial markets. (Writing by Susan Thomas, editing by Veronica Brown and)


    © Thomson Reuters 2011.

    October 12, 2013

    Is Music the Key to Success?

    By JOANNE LIPMAN

    CONDOLEEZZA RICE trained to be a concert pianist. Alan Greenspan, former chairman of the Federal Reserve, was a professional clarinet and saxophone player. The hedge fund billionaire Bruce Kovner is a pianist who took classes at Juilliard.

    Multiple studies link music study to academic achievement. But what is it about serious music training that seems to correlate with outsize success in other fields?

    The connection isn’t a coincidence. I know because I asked. I put the question to top-flight professionals in industries from tech to finance to media, all of whom had serious (if often little-known) past lives as musicians. Almost all made a connection between their music training and their professional achievements.

    The phenomenon extends beyond the math-music association. Strikingly, many high achievers told me music opened up the pathways to creative thinking. And their experiences suggest that music training sharpens other qualities: Collaboration. The ability to listen. A way of thinking that weaves together disparate ideas. The power to focus on the present and the future simultaneously.

    Will your school music program turn your kid into a Paul Allen, the billionaire co-founder of Microsoft (guitar)? Or a Woody Allen (clarinet)? Probably not. These are singular achievers. But the way these and other visionaries I spoke to process music is intriguing. As is the way many of them apply music’s lessons of focus and discipline into new ways of thinking and communicating — even problem solving.

    Look carefully and you’ll find musicians at the top of almost any industry. Woody Allen performs weekly with a jazz band. The television broadcaster Paula Zahn (cello) and the NBC chief White House correspondent Chuck Todd (French horn) attended college on music scholarships; NBC’s Andrea Mitchell trained to become a professional violinist. Both Microsoft’s Mr. Allen and the venture capitalist Roger McNamee have rock bands. Larry Page, a co-founder of Google, played saxophone in high school. Steven Spielberg is a clarinetist and son of a pianist. The former World Bank president James D. Wolfensohn has played cello at Carnegie Hall.

    “It’s not a coincidence,” says Mr. Greenspan, who gave up jazz clarinet but still dabbles at the baby grand in his living room. “I can tell you as a statistician, the probability that that is mere chance is extremely small.” The cautious former Fed chief adds, “That’s all that you can judge about the facts. The crucial question is: why does that connection exist?”

    Paul Allen offers an answer. He says music “reinforces your confidence in the ability to create.” Mr. Allen began playing the violin at age 7 and switched to the guitar as a teenager. Even in the early days of Microsoft, he would pick up his guitar at the end of marathon days of programming. The music was the emotional analog to his day job, with each channeling a different type of creative impulse. In both, he says, “something is pushing you to look beyond what currently exists and express yourself in a new way.”

    Mr. Todd says there is a connection between years of practice and competition and what he calls the “drive for perfection.” The veteran advertising executive Steve Hayden credits his background as a cellist for his most famous work, the Apple “1984” commercial depicting rebellion against a dictator. “I was thinking of Stravinsky when I came up with that idea,” he says. He adds that his cello performance background helps him work collaboratively: “Ensemble playing trains you, quite literally, to play well with others, to know when to solo and when to follow.”

    For many of the high achievers I spoke with, music functions as a “hidden language,” as Mr. Wolfensohn calls it, one that enhances the ability to connect disparate or even contradictory ideas. When he ran the World Bank, Mr. Wolfensohn traveled to more than 100 countries, often taking in local performances (and occasionally joining in on a borrowed cello), which helped him understand “the culture of people, as distinct from their balance sheet.”

    It’s in that context that the much-discussed connection between math and music resonates most. Both are at heart modes of expression. Bruce Kovner, the founder of the hedge fund Caxton Associates and chairman of the board of Juilliard, says he sees similarities between his piano playing and investing strategy; as he says, both “relate to pattern recognition, and some people extend these paradigms across different senses.”

    Mr. Kovner and the concert pianist Robert Taub both describe a sort of synesthesia — they perceive patterns in a three-dimensional way. Mr. Taub, who gained fame for his Beethoven recordings and has since founded a music software company, MuseAmi, says that when he performs, he can “visualize all of the notes and their interrelationships,” a skill that translates intellectually into making “multiple connections in multiple spheres.”

    For others I spoke to, their passion for music is more notable than their talent. Woody Allen told me bluntly, “I’m not an accomplished musician. I get total traction from the fact that I’m in movies.”

    Mr. Allen sees music as a diversion, unconnected to his day job. He likens himself to “a weekend tennis player who comes in once a week to play. I don’t have a particularly good ear at all or a particularly good sense of timing. In comedy, I’ve got a good instinct for rhythm. In music, I don’t, really.”

    Still, he practices the clarinet at least half an hour every day, because wind players will lose their embouchure (mouth position) if they don’t: “If you want to play at all you have to practice. I have to practice every single day to be as bad as I am.” He performs regularly, even touring internationally with his New Orleans jazz band. “I never thought I would be playing in concert halls of the world to 5,000, 6,000 people,” he says. “I will say, quite unexpectedly, it enriched my life tremendously.”

    Music provides balance, explains Mr. Wolfensohn, who began cello lessons as an adult. “You aren’t trying to win any races or be the leader of this or the leader of that. You’re enjoying it because of the satisfaction and joy you get out of music, which is totally unrelated to your professional status.”

    For Roger McNamee, whose Elevation Partners is perhaps best known for its early investment in Facebook, “music and technology have converged,” he says. He became expert on Facebook by using it to promote his band, Moonalice, and now is focusing on video by live-streaming its concerts. He says musicians and top professionals share “the almost desperate need to dive deep.” This capacity to obsess seems to unite top performers in music and other fields.

    Ms. Zahn remembers spending up to four hours a day “holed up in cramped practice rooms trying to master a phrase” on her cello. Mr. Todd, now 41, recounted in detail the solo audition at age 17 when he got the second-highest mark rather than the highest mark — though he still was principal horn in Florida’s All-State Orchestra.

    “I’ve always believed the reason I’ve gotten ahead is by outworking other people,” he says. It’s a skill learned by “playing that solo one more time, working on that one little section one more time,” and it translates into “working on something over and over again, or double-checking or triple-checking.” He adds, “There’s nothing like music to teach you that eventually if you work hard enough, it does get better. You see the results.”

    That’s an observation worth remembering at a time when music as a serious pursuit — and music education — is in decline in this country.

    Consider the qualities these high achievers say music has sharpened: collaboration, creativity, discipline and the capacity to reconcile conflicting ideas. All are qualities notably absent from public life. Music may not make you a genius, or rich, or even a better person. But it helps train you to think differently, to process different points of view — and most important, to take pleasure in listening.

    Joanne Lipman is a co-author, with Melanie Kupchynsky, of the book “Strings Attached: One Tough Teacher and the Gift of Great Expectations.”