Gold Smuggling Soars In India

India, the world's largest gold consumer, meets almost all of its demand via imports, and purchases from abroad require buyers to sell the rupee to raise greenbacks. Government efforts to curb imports is meant to limit that downward pressure on the currency but has instead driven a surge in illegal imports (smuggling) of the precious metal.

The rupee has fallen more than 10% in the past couple of months and the country has sharply increased the import tax on gold to 8% (from 1% in Dec 2011) and last month India's central bank banned the use of credit to procure gold (requiring dealers to pay in advance for imports). As the WSJ reports, the measures are having an effect. Gold imports declined 11% to 859.7 tons in 2012 from 969 tons in 2011 and the total for June fell about 80% to 30 tons from 162 tons. Read more >>

India raises duty on gold imports as demand surges

India has increased the duty on gold imports for the second time in six months, in an attempt to rein in surging demand for the precious metal. The finance ministry said it had raised the duty to 8% from 6%. Gold is a preferred investment option among Indian consumers and the recent drop in its price has boosted demand.

But gold imports are also one of the biggest contributors to India's current account deficit, which has been rising, prompting concerns among policymakers. A current account deficit, which is the difference between inflow and outflow of foreign currency, occurs when a country's total imports are greater than its exports.

A rising deficit impacts the country's foreign exchange reserves as well as the value of its currency. India's current account deficit hit a record high of 6.7% of its gross domestic product (GDP) in the October to December quarter. The government has been trying to bring down the deficit and improve the country's finances amid threats of a downgrade in its ratings. Read more >>

Will The Chinese Renminbi Replace The U.S. Dollar As The Primary Reserve Currency?

Most Americans have no idea what a tremendous advantage the United States possesses by having the primary reserve currency of the world, and most Americans also have no idea how close the U.S. dollar is to losing that status. For the past 40 years, the vast majority of all global trade (including the buying and selling of oil) has been done in U.S. dollars.

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That is still the case today, but things are starting to shift. All over the globe, international agreements are being made to move away from the U.S. dollar and to use other currencies in global trade. The second largest economy in the world, China, has been particularly aggressive in seeking to change the existing financial order. As you will see below, China has been running all over the planet making agreements with other nations to start conducting an increasing amount of trade in currencies other than the U.S. dollar. And of course the Chinese are heavily promoting their own currency - the renminbi.

So why is this happening? Well, for one thing, the truth is that the United States is not the only superpower in the world anymore. Read more >>

Record Gold Imports by India

Gold imports by India, the biggest bullion consumer, likely reached a record last year driven by investment demand, according to the World Gold Council.

Purchases were about 800 metric tons, compared with 557 tons in 2009, Ajay Mitra, managing director for India and the Middle East at the producer-funded group, said today in a phone interview from Dubai.

Imports at that level “would be the highest for India in its history,” he said. The group hasn’t released final data for last year. Purchases in 2010 may exceed 750 tons, Mitra said Nov. 17. The Bombay Bullion Association said Jan. 3 imports probably totaled 700 tons in 2010. More...

Forget the blithe media hype; economy's in a tailspin headed for depression 2.0

Image by MHorama via Flickr

The crash of the leading indicators

dailykos.com

Before you have a finished product you have a commodity, and before that commodity becomes a finished product it has to be shipped to market. That's why the Baltic Dry Index is a leading indicator.

The index of freight rates on international trade routes fell 38 points, or 2 percent, to 1,902 points today, according to the London-based Baltic Exchange. Today’s drop was the 31st straight decline. That’s the longest since the 34 sessions to Aug. 15, 2001, according to Baltic Exchange prices. Charter rates for all types of ships tracked by the exchange fell.
"We don’t see anything in the next two to three weeks that’s going to turn the market around," Guy Campbell, head of dry bulk at Clarkson Plc, the world’s largest shipbroker, said by phone.

While the Baltic Dry Index hasn't fallen nearly as far as it did in 2008, it is falling faster than it did in 2008. It has collapsed by over 50% since May.

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The leading index that catches even more attention is the ECRI Leading Indicators.

The ECRI weekly leading indicators have dropped to minus 7.7%. There has been no case since its existence when a recession didn't take place if this indicator fell to minus 10%. This doesn't mean that it has to fall that low, a recession is still very likely if it even gets close. Falling below zero and staying in that range for any period of time also signals a recession. In the 2007, the recession began three months after this indicator turned negative.

That was last week's news. Today the ECRI Leading Indicators dropped to negative 8.3%, a 44-week low and slightly below the level it was when the Great Recession started.

Other leading indicators are building permits and housing starts, both of which collapsed last month. Mortgage applications have dropped 40% to their lowest levels since 1997.

Housing starts fell 10 percent to a 593,000 annual rate last month, the lowest level this year, from a revised 659,000 pace in April that was less than previously estimated, Commerce Department figures showed today in Washington. Building permits, a sign of future construction, unexpectedly declined to a one- year low. Single-family home starts suffered the biggest drop since 1991.

The most traditional, historical leading indicator has been the monetary supply. So let's look at the largest monetary measurement still being used - the MZM.

The June employment numbers showed a decline in hourly earnings and average workweek, both considered leading indicators.
Not surprisingly, consumer expectations also fell along with their paychecks.

Just 23 percent now say the economy is getting better, down from 33 percent in May...

Meanwhile the double-dip denials are getting louder and more hysterical. In fact, the economists of the world are nearly universal in denying the possibility of a double-dip at the moment. Even bears such as Roubini and Rogoff say that it won't happen.
I find that strange when so many indicators are rolling over and nearing levels that virtually assure a double-dip. Either these indicators are wrong, or the collective body of economists are about to lose what little credibility they have left.

The Dollar Is Finished

Economic historian Niall Ferguson warns that China's love affair with the dollar is fading faster than anyone realizes.

TechTicker: "The idea they don't have anywhere else to go or would shoot themselves in the foot if there were a steep decline in the dollar or appreciation of their currency
reassures many people in Washington ‘we can relax'," he says. "An appreciation of the renminbi may reduce value of their international reserves but increases the value of every other asset the Chinese own," most notably the commodity assets they have been buying all over the world.

China's "current strategy is to diversify out of dollars and into commodities," Ferguson says. Furthermore, China's recent pact with Brazil to conduct trade in their local currencies is a "sign of the times."

Perhaps most importantly, China's massive stimulus program is helping to generate internal consumption in the People's Republic, meaning local manufacturers are less dependent on exports. Because of the "rapid growth" of Chinese domestic consumption, Ferguson predicts China's international trade surplus could be gone by next year.