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As its era of global dominance ends, the United States needs to take the lead in realigning the global power architecture.
Five basic verities regarding the emerging redistribution of global political power and the violent political awakening in the Middle East are signaling the coming of a new global realignment.
The first of these verities is that the United States is still the world’s politically, economically, and militarily most powerful entity but, given complex geopolitical shifts in regional balances, it is no longer the globally imperial power. But neither is any other major power.
The second verity is that Russia is experiencing the latest convulsive phase of its imperial devolution. A painful process, Russia is not fatally precluded – if it acts wisely – from becoming eventually a leading European nation-state. However, currently it is pointlessly alienating some of its former subjects in the Islamic southwest of its once extensive empire, as well as Ukraine, Belarus, and Georgia, not to mention the Baltic States.
The third verity is that China is rising steadily, if more slowly as of late, as America’s eventual coequal and likely rival; but for the time being it is careful not to pose an outright challenge to America. Militarily, it seems to be seeking a breakthrough in a new generation of weapons while patiently enhancing its still very limited naval power.
The fourth verity is that Europe is not now and is not likely to become a global power. But it can play a constructive role in taking the lead in regard to transnational threats to global wellbeing and even human survival. Additionally, Europe is politically and culturally aligned with and supportive of core U.S. interests in the Middle East, and European steadfastness within NATO is essential to an eventually constructive resolution of the Russia-Ukraine crisis.
The fifth verity is that the currently violent political awakening among post-colonial Muslims is, in part, a belated reaction to their occasionally brutal suppression mostly by European powers. It fuses a delayed but deeply felt sense of injustice with a religious motivation that is unifying large numbers of Muslims against the outside world; but at the same time, because of historic sectarian schisms within Islam that have nothing to do with the West, the recent welling up of historical grievances is also divisive within Islam.
Taken together as a unified framework, these five verities tell us that the United States must take the lead in realigning the global power architecture in such a way that the violence erupting within and occasionally projected beyond the Muslim world—and in the future possibly from other parts of what used to be called the Third World—can be contained without destroying the global order. We can sketch this new architecture by elaborating briefly each of the five foregoing verities.
First, America can only be effective in dealing with the current Middle Eastern violence if it forges a coalition that involves, in varying degrees, also Russia and China. To enable such a coalition to take shape, Russia must first be discouraged from its reliance on the unilateral use of force against its own neighbors—notably Ukraine, Georgia, the Baltic States—and China should be disabused of the idea that selfish passivity in the face of the rising regional crisis in the Middle East will prove to be politically and economically rewarding to its ambitions in the global arena. These shortsighted policy impulses need to be channeled into a more farsighted vision.
Second, Russia is becoming for the first time in its history a truly national state, a development that is as momentous as it is generally overlooked. The Czarist Empire, with its multinational but largely politically passive population, came to an end with World War I and the Bolshevik creation of an allegedly voluntary union of national republics (the USSR), with power resting effectively in Russian hands, took its place. The collapse of the Soviet Union at the end of 1991 led to the sudden emergence of a predominantly Russian state as its successor, and to the transformation of the former Soviet Union’s non-Russian “republics” into formally independent states. These states are now consolidating their independence, and both the West and China—in different areas and different ways—are exploiting that new reality to Russia’s disadvantage. In the meantime, Russia’s own future depends on its ability to become a major and influential nation-state that is part of a unifying Europe. Not to do so could have dramatically negative consequences for Russia’s ability to withstand growing territorial-demographic pressure from China, which is increasingly inclined as its power grows to recall the “unequal” treaties Moscow imposed on Beijing in times past.
Third, China’s dramatic economic success requires enduring patience and the country’s awareness that political haste will make for social waste. The best political prospect for China in the near future is to become America’s principal partner in containing global chaos of the sort that is spreading outward (including to the northeast) from the Middle East. If it is not contained, it will contaminate Russia’s southern and eastern territories as well as the western portions of China. Closer relations between China and the new republics in Central Asia, the post-British Muslim states in Southwest Asia (notably Pakistan) and especially with Iran (given its strategic assets and economic significance), are the natural targets of Chinese regional geopolitical outreach. But they should also be targets of global Sino-American accommodation.
Fourth, tolerable stability will not return to the Middle East as long as local armed military formations can calculate that they can be simultaneously the beneficiaries of a territorial realignment while selectively abetting extreme violence. Their ability to act in a savage manner can only be contained by increasingly effective—but also selective—pressure derived from a base of U.S.-Russian-Chinese cooperation that, in turn, enhances the prospects for the responsible use of force by the region’s more established states (namely, Iran, Turkey, Israel, and Egypt). The latter should also be the recipients of more selective European support. Under normal circumstances, Saudi Arabia would be a significant player on that list, but the current inclination of the Saudi government still to foster Wahhabi fanaticism, even while engaged in ambitious domestic modernization efforts, raises grave doubts regarding Saudi Arabia’s ability to play a regionally significant constructive role.
Fifth, special attention should be focused on the non-Western world’s newly politically aroused masses. Long-repressed political memories are fueling in large part the sudden and very explosive awakening energized by Islamic extremists in the Middle East, but what is happening in the Middle East today may be just the beginning of a wider phenomenon to come out of Africa, Asia, and even among the pre-colonial peoples of the Western Hemisphere in the years ahead.
Periodic massacres of their not-so-distant ancestors by colonists and associated wealth-seekers largely from western Europe (countries that today are, still tentatively at least, most open to multiethnic cohabitation) resulted within the past two or so centuries in the slaughter of colonized peoples on a scale comparable to Nazi World War II crimes: literally involving hundreds of thousands and even millions of victims. Political self-assertion enhanced by delayed outrage and grief is a powerful force that is now surfacing, thirsting for revenge, not just in the Muslim Middle East but also very likely beyond.
Much of the data cannot be precisely established, but taken collectively, they are shocking. Let just a few examples suffice. In the 16th century, due largely to disease brought by Spanish explorers, the population of the native Aztec Empire in present-day Mexico declined from 25 million to approximately one million. Similarly, in North America, an estimated 90 percent of the native population died within the first five years of contact with European settlers, due primarily to diseases. In the 19th century, various wars and forced resettlements killed an additional 100,000. In India from 1857-1867, the British are suspected of killing up to one million civilians in reprisals stemming from the Indian Rebellion of 1857. The British East India Company’s use of Indian agriculture to grow opium then essentially forced on China resulted in the premature deaths of millions, not including the directly inflicted Chinese casualties of the First and Second Opium Wars. In the Congo, which was the personal holding of Belgian King Leopold II, 10-15 million people were killed between 1890 and 1910. In Vietnam, recent estimates suggest that between one and three million civilians were killed from 1955 to 1975.
As to the Muslim world in Russia’s Caucasus, from 1864 and 1867, 90 percent of the local Circassian population was forcibly relocated and between 300,000 and 1.5 million either starved to death or were killed. Between 1916 and 1918, tens of thousands of Muslims were killed when 300,000 Turkic Muslims were forced by Russian authorities through the mountains of Central Asia and into China. In Indonesia, between 1835 and 1840, the Dutch occupiers killed an estimated 300,000 civilians. In Algeria, following a 15-year civil war from 1830-1845, French brutality, famine, and disease killed 1.5 million Algerians, nearly half the population. In neighboring Libya, the Italians forced Cyrenaicans into concentration camps, where an estimated 80,000 to 500,000 died between 1927 and 1934.
More recently, in Afghanistan between 1979 and 1989 the Soviet Union is estimated to have killed around one million civilians; two decades later, the United States has killed 26,000 civilians during its 15-year war in Afghanistan. In Iraq, 165,000 civilians have been killed by the United States and its allies in the past 13 years. (The disparity between the reported number of deaths inflicted by European colonizers compared with the United States and its allies in Iraq and Afghanistan may be due in part to the technological advances that have resulted in the more productive use of force and in part as well to a shift in the world’s normative climate.) Just as shocking as the scale of these atrocities is how quickly the West forgot about them.
In today’s postcolonial world, a new historical narrative is emerging. A profound resentment against the West and its colonial legacy in Muslim countries and beyond is being used to justify their sense of deprivation and denial of self-dignity. A stark example of the experience and attitudes of colonial peoples is well summarized by the Senegalese poet David Diop in “Vultures”:
In those days,When civilization kicked us in the faceThe vultures built in the shadow of their talonsThe blood stained monument of tutelage…
Given all this, a long and painful road toward an initially limited regional accommodation is the only viable option for the United States, Russia, China, and the pertinent Middle Eastern entities. For the United States, that will require patient persistence in forging cooperative relationships with some new partners (particularly Russia and China) as well as joint efforts with more established and historically rooted Muslim states (Turkey, Iran, Egypt, and Saudi Arabia if it can detach its foreign policy from Wahhabi extremism) in shaping a wider framework of regional stability. Our European allies, previously dominant in the region, can still be helpful in that regard.
A comprehensive U.S. pullout from the Muslim world favored by domestic isolationists, could give rise to new wars (for example, Israel vs. Iran, Saudi Arabia vs. Iran, a major Egyptian intervention in Libya) and would generate an even deeper crisis of confidence in America’s globally stabilizing role. In different but dramatically unpredictable ways, Russia and China could be the geopolitical beneficiaries of such a development even as global order itself becomes the more immediate geopolitical casualty. Last but not least, in such circumstances a divided and fearful Europe would see its current member states searching for patrons and competing with one another in alternative but separate arrangements among the more powerful trio.
Aconstructive U.S. policy must be patiently guided by a long-range vision. It must seek outcomes that promote the gradual realization in Russia (probably post-Putin) that its only place as an influential world power is ultimately within Europe. China’s increasing role in the Middle East should reflect the reciprocal American and Chinese realization that a growing U.S.-PRC partnership in coping with the Middle Eastern crisis is an historically significant test of their ability to shape and enhance together wider global stability.
The alternative to a constructive vision, and especially the quest for a one-sided militarily and ideologically imposed outcome, can only result in prolonged and self-destructive futility. For America, that could entail enduring conflict, fatigue, and conceivably even a demoralizing withdrawal to its pre-20th century isolationism. For Russia, it could mean major defeat, increasing the likelihood of subordination in some fashion to Chinese predominance. For China, it could portend war not only with the United States but also, perhaps separately, with either Japan or India or with both. And, in any case, a prolonged phase of sustained ethnic, quasi-religious wars pursued through the Middle East with self-righteous fanaticism would generate escalating bloodshed within and outside the region, and growing cruelty everywhere.
The fact is that there has never been a truly “dominant” global power until the emergence of America on the world scene. Imperial Great Britain came close to becoming one, but World War I and later World War II not only bankrupted it but also prompted the emergence of rival regional powers. The decisive new global reality was the appearance on the world scene of America as simultaneously the richest and militarily the most powerful player. During the latter part of the 20thcentury no other power even came close.
That era is now ending. While no state is likely in the near future to match America’s economic-financial superiority, new weapons systems could suddenly endow some countries with the means to commit suicide in a joint tit-for-tat embrace with the United States, or even to prevail. Without going into speculative detail, the sudden acquisition by some state of the capacity to render America militarily inferior would spell the end of America’s global role. The result would most probably be global chaos. And that is why it behooves the United States to fashion a policy in which at least one of the two potentially threatening states becomes a partner in the quest for regional and then wider global stability, and thus in containing the least predictable but potentially the most likely rival to overreach. Currently, the more likely to overreach is Russia, but in the longer run it could be China.
Since the next twenty years may well be the last phase of the more traditional and familiar political alignments with which we have grown comfortable, the response needs to be shaped now. During the rest of this century, humanity will also have to be increasingly preoccupied with survival as such on account of a confluence of environmental challenges. Those challenges can only be addressed responsibly and effectively in a setting of increased international accommodation. And that accommodation has to be based on a strategic vision that recognizes the urgent need for a new geopolitical framework.
*The author acknowledges the helpful contribution of his research assistant Paul Wasserman, and the scholarship on the subject of colonial brutality by Adam Hochschild, Richard Pierce, William Polk, and the Watson Institute at Brown University, among others.
Zbigniew Brzezinski is a counselor at the Center for Strategic and International Studies and was the National Security Advisor to President Jimmy Carter from 1977-81. He is the author, most recently, of Strategic Vision: America and the Crisis of Global Power.

UBS, Deutsche Bank, Santander and BNY Mellon have partnered up to create a new digital currency to facilitate intra-bank settlements, the FT reports. The cryptocurrency will use blockchain technology underpinning the Bitcoin.
The banks are working with London-based blockchain startup Clearmatics, and the official launch is expected in 2018, according to the media.
“Today trading between banks and institutions is difficult, time-consuming and costly, which is why we all have big back offices. This is about streamlining it and making it more efficient,” Julio Faura, head of R&D and innovation at Santander told the FT.
All four banks are members of the 50-strong R3 consortium of financial institutions exploring ways of blockchain usage in the financial system.
“You need a form of digital cash on the distributed ledger in order to get maximum benefit from these technologies. What that allows us to do is to take away the time these processes take, such as waiting for payment to arrive. That frees up capital trapped during the process,” said Hyder Jaffrey, head of financial technology innovation at UBS.
According to a report by a consulting firm Oliver Wyman, the world spends up to $80 billion every year to clear and settle trades.
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With 85% of Wall Street telling Citi they expect a "dovish hike signal" from Yellen tomorrow, which means a polite request for another BTFD opportunity, even if as BofA says "expectations for a dovish Fed are coinciding with macro strength in the US (most obviously in housing & consumer spending) as well as highest level of wage inflation since Jan’10"...
... here is a quick reminder of where we currently stand from BofA's Michael Hartnett, from a brief note titled The Liquidity Supernova & the "Keynesian Put."
* * *
Risk assets are now supported by the new ”Keynesian Put”, the expectation that fiscal measures will be deployed to combat any renewed weakness in the economy/markets (independently of any larger political projects). But asset prices remain primarily supported by excess monetary abundance across the world:
  1. There have been 667 interest rate cuts by global central banks since Lehman;
  2. G7 central bank governors Yellen, Kuroda, Draghi, Carney & Poloz have been in their current posts for a collective 17 years, yet only one (Yellen in Dec’15) has actually hiked interest rates during this time;
  3. Central banks own $25tn of financial assets (a sum larger than GDP of US + Japan, and up $12tn since Lehman);
  4. There are currently $12.3tn of negative yielding global bonds (28% of total);
  5. There is currently $8tn of negative yielding sovereign debt (54% of total).
Do not expect any unwind of this $25 trillion in risk asset support to be unwound any time soon, or perhaps ever, or else...
The Crab Nebula supernova

YOUR POCKET GUIDE TO BE A FOREX GENIUS - SPLITTING PENNIES


A year-old technology firm wants to simplify currency markets by streamlining the way trading data is stored using blockchain-based technology.
Cobalt DL, a London-based firm created last year by former Traiana Inc. Chief Executive Officer Andy Coyne, announced Wednesday that it began beta testing on a distributed ledger network, which the firm hopes can cut post-trade costs and provide a singular database for foreign-exchange transactions. Set to launch in 2017, the network will create a single record for each trade.
“The execution in the FX markets over the last 10 years has really accelerated,” Coyne said. “If you’re not simplifying, if you’re not taking the opportunity to recreate the whole shared trade system, I think you’re missing an opportunity.”
The platform, according to a statement, is expected to save “billions of dollars” for market participants by avoiding things like charges for ticketing, staffing and licensing. Currently, many are burdened by having to maintain multiple systems and layers to maintain records, Coyne said.
The network will use blockchain concepts like encryption and digital signatures to create the unified system. Blockchain, the software that powers bitcoin, is a type of distributed database that’s being touted as a way to upend the financial industry.
Cobalt already has eight “leading institutional FX participants” signed on to use the system. The firm declined to specify the firms. The announcement comes 18 months after Coyne left Traiana, which was owned by ICAP Plc, an independent brokerage firm that provides a similar system.

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Deposit bail-in risks are slowly being realised in Ireland, after it emerged overnight that FBD, one of Ireland's largest insurance companies, have been moving cash out of Irish bank deposits and into bonds.
Revelations regarding deposit bail-in risks came in the wake of warnings of a new property crash centred on the housing market in Ireland. The former deputy governor of the Central Bank warned in an op-ed in a leading international financial publication, Project Syndicate, that Ireland is at risk of another housing market crash.
Insurer FBD has moved over €150 million out of the Irish banking system and into corporate and sovereign bonds over the past year. The move was prompted by low returns offered by bank deposits and the risks that deposit bail-in rules could see deposits confiscated.
FBD chief executive Fiona Muldoon told the Irish Independent that the "extremely low returns offered on term deposits by banks, coupled with fears that new bail-in rules introduced this year by the European Union could expose bank bondholders and depositors to bailing out a failed lender, meant it has shifted investments away from banks."
The new deposit bail-in mechanism is designed to protect banks and is touted as a way to prevent taxpayers being liable for bailing out collapsed lenders. It is believed that it leaves bank bondholders and deposit customers with more than €100,000 on deposit at risk of footing the bill.
There is a belief that bail-ins only relate to “the wealthy” and "rich" depositors as they will be imposed on those with deposits greater than national deposit guarantees. These deposit “guarantees” are generally the ‘big round’, arbitrary number of say €100,000, $250,000 and £75,000. These are not particularly large amounts and could amount to the entire life savings of a pensioner, a family or indeed it could be the entire capital of a small to medium size business enterprise.
An example of this is the UK where the deposit guarantee was arbitrarily, suddenly and with little fanfare quietly reduced from £100,000 to £75,000 just last year in July 2015.
Thus, it is important to note that the arbitrary round number in the various government deposit guarantees can be, and probably will be, reduced to a lower number – say the new round number of €50,000, £50,000 and $50,000 -  depending on the severity of the next banking crash.
In the event of bail-ins, governments and banks are likely to seek to impose deeper haircuts on creditors including depositors in order to bail-out and protect the failing banking system.
FBD's deposits with Irish banks were reduced from €451 million to €305 million in recent months. FBD made a €3.1m loss in the first half of the year.
As reported by the Irish Independent:
"As they mature, and as the bank bail-in rules come into play, it's no longer the case that for corporate investors depositing at a bank is risk free," she added.
"To be honest, the return is abysmal now. We've gone back to a more typical investment portfolio for an insurance company."
"You have to be paid for the risk you take," she added. "You might entertain the bail-in risk if you were being properly paid. But if you've a bank trying to charge you for leaving your money with them, you're not inclined to take any risk at all."
The recent bank stress tests showed that Irish banks are the most vulnerable in the EU in the event of another financial crisis.
Meanwhile, the risk of another property crash centred on the housing market has been warned of by a respected economist. Stefan Gerlach, who left the Central Bank of Ireland earlier this year to become Chief Economist at BSI Bank in Zurich, asked:
"Having endured the collapse of its housing market less than a decade ago, Ireland has lately been experiencing a blistering recovery in prices, which already have risen in Dublin by some 50% from the trough in 2010, is Ireland setting itself up for another devastating crash?”
Among the concerns he expresses in an article titled 'The Return of Ireland’s Housing Bubble' for the global finance think-tank Project Syndicate is that the Central Bank here is coming under undue pressure from the construction industry and politicians to relax the loan to value and loan to income ratios on mortgage lending it introduced last year.
He warns that while housing bubbles are easy to spot, there are a number of conflicts of interest that make it hard to take action as the market gets out of control as reported by Newstalk:
"The obvious question is why nobody stepped in before it was too late. The answer is simple: while the bubbles are inflating, many people benefit. With the construction sector thriving, unemployment falling, and banks lending freely, people are happy – and politicians like it that way."
"Many in Ireland might find that conclusion overly pessimistic. Maybe they are simply hoping that, this time, the luck of the Irish will hold. Perhaps it will, and this time really is different. But there isn’t much evidence of that," he concludes.
The 'Bail-in regime' is one of the greatest financial risks to investors, savers and indeed companies internationally today. Yet it remains the most poorly covered financial risk and is largely ignored by financial advisers, brokers and not surprisingly governments and banks.
The growing financial risk in all western countries has not been properly analysed. In a world already beset with huge deflationary pressures and still insolvent banks, the bail-in regime and confiscating deposits, especially from job creating companies, would be extremely deflationary and would likely contribute to severe recessions.
This is something we warned of when we first conducted our extensive research on the developing global bail-in regimes after the Cyprus bail-ins in 2013. Diversification of deposits remains vital and one important way to protect against a bail-in is owning physical gold. Taking delivery of gold coins and bars and owning bullion in allocated and segregated storage in the safest vaults in the world is a prudent way to protect against the deposit bail-in regime.
Gold and Silver Bullion - News and Commentary
Gold Prices (LBMA AM)
15Aug: USD 1,339.20, GBP 1,037.21 & EUR 1,198.85 per ounce
12Aug: USD 1,336.70, GBP 1,032.60 & EUR 1,199.02 per ounce
11Aug: USD 1,344.55, GBP 1,037.05 & EUR 1,206.06 per ounce
10Aug: USD 1,351.85, GBP 1,035.11 & EUR 1,209.23 per ounce
09Aug: USD 1,332.90, GBP 1,025.80 & EUR 1,201.74 per ounce
08Aug: USD 1,330.00, GBP 1,019.84 & EUR 1,198.86 per ounce
05Aug: USD 1,362.60, GBP 1,036.39 & EUR 1,222.53 per ounce
Silver Prices (LBMA)
15Aug: USD 19.90, GBP 15.40 & EUR 17.81 per ounce
12Aug: USD 19.87, GBP 15.33 & EUR 17.81 per ounce
11Aug: USD 20.21, GBP 15.56 & EUR 18.13 per ounce
10Aug: USD 20.34, GBP 15.55 & EUR 18.19 per ounce
09Aug: USD 19.70, GBP 15.18 & EUR 17.77 per ounce
08Aug: USD 19.66, GBP 15.04 & EUR 17.74 per ounce
05Aug: USD 20.22, GBP 15.36 & EUR 18.14 per ounce

Recent Market Updates
- Money "Madness" Negative Interest Rates Sees Gold Buying Surge
- Gold Investment Demand Reaches Record In First Half 2016 On “Perfect Storm”
- Peak Gold – Did Gold Production Peak in 2015?
- Financial Times: “Victory For Gold Bulls Is Only Just Beginning”
- Irish Banks Most Vulnerable In Stress Tests – Banking Contagion In EU Cometh
- Gold In Sterling 2.2% Higher After Bank Of England Cuts To 0.25% and Expands QE
- Silver Kangaroo Coins – Sales Surge To Over 10 Million
- Trump, Clinton, "Ugliest" Election Coming - Gold's "Summer Doldrums" Prior To Resumption of Bull Market
- Marc Faber: Invest 25% Of Investment Portfolios In Gold Bullion
- “Could Not Invent A More Bullish Story For Gold Bullion”
- Gold In Bull Market – “Every Reason For It To Continue” – Frisby In Money 
- Is Gold Set To Hit $1,500 Per Ounce?
- Why Italy’s bank crisis could be a ‘ticking time bomb’

http://www.zerohedge.com/news/2016-08-15/deposit-bail-warning-ireland-bail-risk-uk-very-high

The Defense Department over the years has been notorious for its lax accounting practices. The Pentagon has never completed an audit of how they actually spend the trillions of dollars on wars, equipment, personnel, housing, healthcare and procurements.
An increasingly impatient Congress has demanded that the Army achieve “audit readiness” for the first time by Sept. 30, 2017, so that lawmakers can get a better handle on military spending. But Pentagon watchdogs think that may be mission impossible, and for good reason.
A Department of Defense inspector general’s report released last week offered a jaw-dropping insight into just how bad the military’s auditing system is.
The Defense Finance and Accounting Service, the behemoth Indianapolis-based agency that provides finance and accounting services for the Pentagon’s civilian and military members, could not provide adequate documentation for $6.5 trillion worth of year-end adjustments to Army general fund transactions and data.
The DFAS has the sole responsibility for paying all DOD military and personnel, retirees and annuitants, along with Pentagon contractors and vendors. The agency is also in charge of electronic government initiatives, including within the Executive Office of the President, the Department of Energy and the Departing of Veterans Affairs.
There’s nothing in the new IG’s report to suggest that anyone has misplaced or absconded with large sums of money. Rather, the agency has done an incompetent job of providing written authorization for every one of their transactions – so-called “journal vouchers” that provide serial numbers, transaction dates and the amount of the expenditure.
In short, the DFAS has lagged far behind in providing the tracking information essential to performing an accurate audit of Pentagon spending and obligations, according to the IG’s report.
“Army and Defense Finance and Accounting Service Indianapolis personnel did not adequately support $2.8 trillion in third quarter adjustments and $6.5 trillion in year-end adjustments made to Army General Fund data during FY 2015 financial statement compilation,” wrote Lorin T. Venable, the assistant inspector general for financial management and reporting. “We conducted this audit in accordance with generally accepted government auditing standards.”
A further mystery is what happened to thousands of documents that should be on file but aren’t. The IG study found that DFAS “did not document or support why the Defense Departmental Reporting System . . . removed at least 16,513 of 1.3 million records during Q3 FY 2015. As a result, the data used to prepare the FY 2015 AGF third quarter and year-end financial statements were unreliable and lacked an adequate audit trail,” the IG’s report stated.
The long march-Pentagon audit chart
The troubling findings emerged from a wide-ranging audit of the capital funds and financial statements across the military services, including the Navy, the Marine Corps and the Army.
The problem is no secret to investigative reporter Scot Paltrow at Reuters, who exposed outrageous fraud and abuse in a three-part series in 2013 called, “Unaccountable.”
He wrote:
“For two decades, the U.S. military has been unable to submit to an audit, flouting federal law and concealing waste and fraud totaling billions of dollars.
Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense’s accounts.
Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio DFAS…. Using the data they received, Woodford and her fellow accountants there set about preparing monthly reports to square the Navy’s books with the U.S. Treasury’s…. And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from.” 
The IG has cautioned in the past that journal voucher adjustments should comply with applicable regulations, which require adequate documentation for each transaction. The June 26 IG’s report made a number of requests and suggestions that DFAS officials and the Pentagon have agreed to go comply with.
The top suggestion is the most obvious one: that DFAS enforce “the applicable guidance” periodically issued by the Under Secretary of Defense Comptroller “regarding journal voucher category identification codes and metric reporting.”
“Until the Army and DFAS Indianapolis correct these control deficiencies, there is considerable risk that AGF financial statements will be materially misstated and the Army will not achieve audit readiness by the congressionally mandated deadline of September 30, 2017,” the report warned. 

The unexpectedly sharp antagonism between Turkey and the west accelerated today, and one day after NATO preemptivelyreminded Turkey that it is still a NATO alliance member and advising Ankara that "Turkey’s NATO membership is not in question",Turkey had some more choice words for its military allies. Cited by Reuters, Turkey foreign minister Mevlut Cavusoglu told Turkish's NTV television on Thursday that the country "may seek other options outside NATO for defense industry cooperation, although its first option is always cooperation with its NATO allies." Translation: if Russia (and/or China) gives us a better "defensive" offer, we just may take it.
The sharply worded retort came on the same day that Turkey said it will resume airstrikes on Islamic State targets in Syria, and asked Russia to carry out joint operations against its “common enemy.”  Ankara halted strikes after the downing of a Russian plane by Turkish forces last year.
In the same interview, Cavusolgu said that Ankara “will again, in an active manner, with its planes take part in operations” against Islamic State targets. Cavusolgu also said that Ankara has called on Moscow to carry out joint operations against the “common enemy” of IS. "Let's fight against the terrorist group together, so that we can clear it out as soon as possible,"Cavusolgu said, adding that otherwise IS will continue to expand and spread into other countries.
To be sure, coming from the nation which directly engaged in oil trade with the Islamic State, this is at least a little ironic, however, what is notable is the significant pivot Turkey has made vis-a-vis military engagements, rotating not toward the US alliance, but toward the Kremlin.
"We will discuss all the details. We have always called on Russia to carry out anti-Daesh [IS] operations together," he said, adding that the proposal is still "on the table." The foreign minister went on to tout the benefits of closer cooperation between Turkey and Russia.
"Many countries are engaged in Syria actively. There could be mistakes," he said. "In order to prevent that, we need to put into practice the solidarity and cooperation [mechanism] between us including sharing of real-time intelligence."
The comments came just days after Turkish President Erdogan visited St. Petersburg for talks with Russian President Vladimir Putin, in the first meeting between the two leaders since the plane was downed.
But perhaps the most notable development was reported today by Turkey's Gunes newspaper, which said that as part of the discussion between Putin and Erdogan on Tuesday, the Turkish president suggested to abandon the US dollar in bilateral trade between Turkey and Russia, and instead to transact directly in lira and rubles. This would "benefit both Russia and Turkey", Erdogan allegedly said in his August 9 meeting in St Petersburg, adding that this would relieve the lira from the USD's upward pressure. The reason Erdogan is concerned about exchange rates is because recently Turkish inflation soared by nearly 8% Y/Y, and the recent devaluation of the TRY against the USD has only poured more oil on the fire.
Needless to say, such a bilateral agreement would further infuriate Turkey's European "friends", permanently halting Turkish accession into the customs union, in accordance with Austria's recent demands, and would in turn lead to a dissolution of the refugee agreement that is still keeping millions in refugees away from Europe in general and Germany, and Merkel's plunging popularity ratings, in particular. Which, incidentally, means that not only Erdogan, but now also Putin, holds key leverage over the career of Europe's most important politician.
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Forex trading is difficult; that is to say, opening a Forex account and trading based on price movements, fundamental factors, or market news - is almost impossible.  For this reason the majority of Forex traders rely on some signal system, algori...

The U.S. government finally heard Madoff whistleblower Harry Markopolos loud and clear.
Markopolos, and his whistle-blower group Associates Against FX Insider Trading, were key players in a $530 million settlement announced Wednesday against State Street Bank and Trust Company for allegedly cheating several government bodies on the pricing of their foreign exchange transactions. Markopolos declined to comment.
In a joint announcement on Wednesday the DOJ, SEC, and DOL said that State StreetSTT, +2.67%   will pay $382.4 million, including $155 million to the Department of Justice, $167.4 million to the SEC and at least $60 million to pension plan clients to settle allegations that it deceived some securities custody clients on when it priced foreign currency exchange transactions. The alleged misconduct took place from 1998 to 2009.
The bank also agreed to pay $147.6 million to settle private class action lawsuits filed by bank customers alleging similar misconduct, the Justice Department said.
Markopolos’ group filed its largest forex case originally in California, on behalf of the California Public Employees’ Retirement System and the California State Teachers’ Retirement System. That suit was settled last November. Additional cases filed via False Claims Act whistleblower statutes in Virginia, Florida, New York State and Washington state have also already settled. Markopolos and his group have already been paid for their whistleblower efforts based on those settlements.
The payouts conclude almost all of the investigations State Street has faced since 2009, when Markopolos filed the California lawsuit. Associates Against FX Insider Trading and Markopolos are not named in the latest State Street settlement announcements, but Markopolos has previously acknowledged his involvement in the case.
State Street safeguards clients’ securities as part of its custody business and offers indirect foreign currency exchange trading when clients buy and sell foreign currencies as needed to settle transactions, such as interest and principal payments from foreign bond issuers.
State Street admitted in its settlement with the DOJ that it generally did not price FX transactions at prevailing interbank market rates, contrary to what it told certain custody clients. State Street admitted that FX transactions were marked-up or marked-down from the prevailing interbank rate.
State Street allegedly misrepresented to custody clients that it provided “best execution” on FX transactions, that it guaranteed the most competitive rates available on FX transactions and that it priced FX transactions based on a variety of factors. Instead prices were largely driven by hidden mark-ups that maximized State Street’s profits.
Markopolos has also filed a whistleblower claim in the SEC case. It may be at least two more years before that payout occurs based on similar cases.
A State Street Bank spokeswoman said that the negotiated settlement agreements are expected to resolve, subject to the courts’ final approval, the pending litigation and regulatory matters in the United States related to its indirect foreign exchange business.
“Each agreement depends upon certification, for settlement purposes, of a class of State Street’s custody customers that executed indirect foreign exchange transactions with State Street between 1998 and 2009, and final approval by the United States District Court for the District of Massachusetts of the settlement agreement between State Street and the class,” she said. “Matters of this nature can drain both time and resources; so where possible and appropriate we feel it is in our and our clients’ best interests to pursue settlements. Our previously established reserve will be sufficient to cover all costs associated with these agreements.”
Since the lawsuits were filed the foreign exchange markets have gone from an opaque, manual quote market to a fully electronic market where real-time quotes and historical information is available to institutional and retail customers. Every major bank that acts as a forex dealer has its own quoting and execution platform and multi-dealer platforms have sprung up that offer competitive quoting on worldwide currencies.
Checking on rates in advance or verifying after the fact was very difficult to do in the past. Calling around for competitive rates opened a customer up to potential front-running of the trade by other dealers.
He and other whistle-blowers filed a similar case against Bank of New York Mellon Corp. BK, -0.25%   in Massachusetts. A lawsuit filed on behalf of the New York City pension funds by New York Attorney General Eric Schneiderman in 2011 against Bank of New York Mellon Corp for allegedly shortchanging the funds in foreign currency exchange transactions is still pending.
The New York City BONY Mellon suit is the last open forex case for the Markopolos group.
The SEC has already fined Bank of New York Mellon $30 million in June for misleading certain of its custodial clients about pricing when executing standing instructions for foreign currency transactions.
Markopolos spent years on Bernie Madoff’s trail and tried to warn regulators about the fraud, but he was largely ignored. It’s a frustrating experience he documented in his book, No One Would Listen: A True Financial Thriller.

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Forex is a Monopoly, controlled by a small 'cartel' of big banks.  That's changing, and changing fast - as a number of non-bank FX participants are replacing the traditional 'big 12.'  As we explain in Splitting Pennies - the fact remain...

A historic event took place moments ago when Mark Johnson, the global head of cash FX at HSBC was arrested at JFK airport for his role in a "conspiracy to rig currency benchmarks", and specifically for frontrunning customer orders. He is the first person charged by the US in the ongoing FX rigging probe.
As Bloomberg reports, a "senior manager at HSBC Holdings Plc was arrested in New York for his role in a conspiracy to rig currency benchmarks, according to two people familiar with the matter, becoming the first person to be charged in the Justice Department’s three-year investigation into foreign-exchange rigging at global banks."
From Johnson's bio:
Johnson is global head of foreign exchange cash trading at HSBC, based in London. Prior to joining HSBC in 2010, he was founding managing partner and chief investment officer at Johnson Stewart Partners. Before that, he was global head of trading at Deutsche Bank.
More details:
Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, was taken into custody at John F. Kennedy International Airport Tuesday and is scheduled to appear before a judge in federal court in Brooklyn Wednesday morning, said the people, who asked not to be named because the case hasn’t been made public. He’s charged with conspiracy to commit wire fraud, the people said.

According to Bloomberg, Johnson’s arrest comes more than a year after five global banks pleaded guilty to charges related to the rigging of currency benchmarks. HSBC, which wasn’t part of those criminal cases, in November 2014 agreed to pay $618 million in penalties to U.S. and British regulators to resolve currency manipulation allegations. HSBC, which still faces investigations by the Justice Department and other authorities for the conduct, has set aside $1.3 billion for possible settlements, according to an August filing.

Rob Sherman, an HSBC spokesman, and Peter Carr, a Justice Department spokesman, declined to comment.
Also on Tuesday, the U.S. Federal Reserve banned former UBS Group AG trader Matthew Gardiner from the banking industry for life for his role rigging currency benchmarks.  Gardiner used electronic chat rooms, with names including The Cartel and The Mafia, to facilitate the rigging of foreign-exchange benchmarks and to disclose confidential customer information to traders at other banks, the Fed said in astatement Tuesday. That matter is separate from the one involving Johnson, the people said.
Recall that DOJ unwillingness to prosecute HSBC was the ultimate catalyst that prompted former AG Eric Holder to admit thatsome banks are "too big to prosecute." Perhaps with this arrest things are slowly starting to change.
Now, if frontrunning clients is officially an arrest-worthy offense, we can't wait for the DOJ to unleash a crackdown on criminal HFT algos whose only purpose in "life" is to do just that.

Don’t assume that all investors are the same, just because their money is always the same color. Every entrepreneur should do the same due diligence on a potential investor that smart investors do on their startups. Check on their track records, values and management style. Taking on an investor is a long-term relationship, like getting married, that has to work at every level.
Let’s just say that every investor is different, without trying to define what is good or bad for you and your startup. Investors are human and subject to human tendencies, whether they are your rich uncle, an angel investor with personal funds or a venture capital investor with institutional money. Here is a summary of some key investor stereotypes that generally need to be avoided:

1. Investment sharks

I’m not talking about the Shark Tank TV show, but some might say the panel fits the definition. While the majority of investors are looking for a win-win deal, there are investors who like to prey on entrepreneurs who have little financial experience, don’t read the term sheet or are simply desperate for a deal. Seek out advisors to help you avoid these investors.

2. Investors who love to litigate

We all know that startups don’t have money to fight in court, so it’s easy for a few unscrupulous investors to jump to the conclusion that intimidation and lawsuit threats can improve their returns and control after the money changes hands. Here is where checking the track record pays off. Don’t assume you will be the exception.

3. Imperial investors

These are investors with such massive egos that they expect to dictate both the terms of the investment as well as all future strategic decisions of your startup. Unless you are preparing to work for Donald Trump someday, I recommend that you skip this investor in favor of a more equal partner.

4. Legal eagle investors

Negotiating terms is normal before the investment, but once the check is cashed, you don’t want to be second-guessed on every action. Be wary if the term sheet is a document longer than your business plan. Violation of abstract clauses may be used as a way to push you out, take over the company or pull the investment.

5. Academic coach investors

Coaching should be expected and appreciated, but you don’t have time for constant tutorials on how to run a business. A good advisor and mentor will tackle questions and then offer key insights. If an investor spends more than a day at your office before the check is written, it may be time to check your patience meter.

6. Pretend investors

These are “wannabe” investors who don’t have the means, or former entrepreneurs who don’t want to leave the arena. They always have one more issues to investigate or another set of questions, but never bring the checkbook. After a rational allocation of your team’s time, ask for a definitive close and be willing to walk away.

7. Investors without a clue

Many wealthy people make poor startup investors. They have long forgotten (or never knew) the challenges faced by a startup business. Many great real-estate people and doctors fall into this category. A synergistic long-term relationship in your business is not likely. Ask them for an introduction to wealthy business friends.

8. Investors for a fee

These are people who rarely invest their own funds, but promise to find the perfect match and live off a percentage of the action and preparation fees. They may be licensed investment brokers or consultants cold-calling real investors. The challenge is performing due diligence on the real investor.
Proactively seek out and build relationships with investors who interest you, rather than passively wait for potential investors to approach you. Finding investors is best done by talking to peers and attending networking events. Cold calling or emailing strangers will likely get you a sampling of all the eight stereotypes defined here.
Finally, you need to learn what investment terms make sense for your startup and craft your own term sheet, rather than rely on one being presented to you. Start with some legal advice from a source you trust. Do your homework and networking, but don’t chase investors like a one-night stand and expect it to lead to a mutually beneficial long-term relationship.

Jim Rogers told me to come here.
We were having dinner a few weeks ago in Singapore, and Jim had just returned that morning from Russia full of optimism for the improving economy.
I had been meaning to come back here anyhow to scout out private equity deals.
But after hearing Jim’s take on Russia having just met with a lot of the country’s business elite, it really lit a fire.
As I’ve written so many times in this letter, I’m really a pathetic tourist. I’ve been to Paris countless times and have never bothered to visit the Eiffel Tower.
When I travel, it’s to either build and maintain relationships, or to put boots on the ground and seek out risks and opportunities first hand.
On my return to Russia, the country has not disappointed.
You’ve probably heard about how the Russian economy has been depressed over the last few years.
Much of this was due to international sanctions imposed after Russia annexed Crimea in 2014 against the wishes of Ukraine, Europe, and pretty much the whole world.
Russia’s credit rating was downgraded, and foreign businesses and investors started pulling their money out en masse.
The capital flight was extreme. Between 2014 and 2015, $210 billion fled Russia, more than 10% of the country’s GDP. That’s an enormous figure.
Then the price of oil collapsed– from $115 in June 2014 to less than $30 just over a year later. Natural gas and other major commodities also fell.
Bear in mind that oil and gas exports are a major component of the Russian economy, so the effects were devastating to both GDP and financial markets.
Russia’s economy didn’t just contract. It shriveled. And the stock market crashed.
On top of everything else, the Russian ruble went into freefall, losing 35% of its value in a matter of months.
This made imports a LOT more expensive, dramatically pushing up the rate of inflation.
Russia has essentially been suffering the worst combination imaginable– consumer price inflation, economic contraction, capital flight, credit downgrades, international sanctions, stock market crash, currency crisis– all simultaneously.
Frankly it’s pretty miraculous this place didn’t descend into Venezuela-style chaos.
But it didn’t. In fact the situation has stabilized and a lot of data shows the economy is turning around. The worst seems to be over.
And yet opportunities still abound.
For example, the Russian stock market is still incredibly cheap.
The average Russian company is selling for just 7.5 times earnings and 20% less than its book value. Plus it pays more than a 4% dividend.
This is like buying a dollar for 80 cents and receiving 3.3 cents on top of that each year.
(US stocks sell for 25 times earnings and 200% MORE than book value, meaning they are historically overvalued and very expensive compared to Russia.)
In addition to stocks, the Russian currency is still far below its historic average.
Aside from making the country dirt cheap for anyone with foreign currency, I discovered something very interesting today:
Some of Russia’s coins are now worth less than their metal values.
I’ll explain– all coins are made of some metal, usually some combination of nickel, copper, etc. And that metal has a certain cost.
A dime coin in the US, for example, has about 1.2 cents worth of metal, mainly copper (91%) and nickel.
So if you melted down a US dime, which has a 10 cent face value, and sold off the metal for 1.2 cents, you’d lose 8.8 cents in the process.
The Russian ruble has become so cheap, however, that some of its coins are basically worthless.
The 1 kopek coin, for example, is the smallest denomination Russian coin that’s worth 1/100th of a ruble.
At current exchange rates that’s $0.00015, or about 0.015 cents! It’s nothing.
And yet each kopek coin is comprised of 1.5 grams worth of copper, nickel, and steel; and the melt value of these metals is worth a hell of a lot more than 0.015 cents.
In fact Russian coin dealers have estimated that the metal value of this coin is worth more than THIRTY FIVE TIMES its face value.
That’s quite a return on investment.
So theoretically $1,000 worth of these coins could be worth more than $35,000 in profit because of the metal value.
Now, I’m not suggesting you book a flight to Russia to scoop up and melt down all the coins you can find.
But it’s worth pointing out that these sorts of anomalies don’t come around too often. And when they do, it’s important to pay attention.
Jim Rogers is one of many legendary investors who has been buying in Russia. Templeton’s Mark Mobius has called Russia the “bargain of the century.”
He may be right. Russia is incredibly cheap.
That’s not to say it can’t get cheaper. Or that it can’t stay cheap for a while.
There has to be a catalyst in order for all the pent-up value to be realized.
But that seems to be happening now. Slowly. Russia is mending fences with Europe. Oil prices have climbed 40% from their lows. Capital is returning. It’s getting better.
18th century British banking mogul Baron Rothschild is often quoted as saying “Buy when there’s blood in the streets [even when that blood is your own].”
That may be too hardcore for most investors.
I prefer to buy when assets are still ultra-cheap, but there are obvious signs that things have turned around.
That time seems to be now.

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