Thursday, April 30, 2015

'Inching Toward Conflict': U.S. Navy To Escort Cargo Ships In Persian Gulf; Iran Refuses To Back Down

From Zero Hedge:

Stocks took a nasty fall on Tuesday when Al Arabiya erroneously reported that Iran had captured a cargo ship with a crew of Americans on board. It also sent oil surging. Things promptly normalized when it was revealed that the "confiscated" ship was merely one with a Marshall Island flag, at which point its fate was quickly forgotten (it may still be held by Iran, or not). But one thing is certain: both Iran and the US are itching for a provocation, whether a direct one or the far more traditional false flag type.

Earlier today, Iran's Navy Commander Rear Admiral Habibollah Sayyari said that presence of the 34th fleet of the Iranian Navy in the Gulf of Aden is in accordance with international law to protect Iranian trade vessels against pirates.

Quoted by Iran's IRNA news agency, Sayyari, who was speaking to reporters on the sidelines of a ceremony to mark the National Teacher's Day, said that the Iranian Navy has maintained a continuous presence in the Gulf of Aden, Bab el-Mandeb Strait and western India since 2008 Sayyari

He added that claims that Iranian warships have been warned and that they have left this region are not correct.
The Navy commander reiterated that the Iranian fleet does not enter territorial waters of other countries and is only present in international waters to ensure security for Iranian trade vessels.
Sayyari said that the 34th fleet of the Iranian Navy has also helped other countries in protecting their ships against pirates. 

A laughable excuse of course, but no less laughable than the one provided by the US navy offered ten days ago when we learned that a US Navi aircraft carrier and a warship are being dispatched to intercept Iranian weapons shipment to Yemeni rebels. 
And, as expected, moments ago there was yet another step up in the Persian Gulf naval escalation when CNN reported that the U.S. Navy will escort U.S.-flagged cargo ships through Strait of Hormuz in wake of Iran seizure this week, a US official says. Specifically, the Navy will henceforth accompany ships on concern that Iran’s Revolutionary Guard may seize them, CNN’s Jim Sciutto says in Twitter post, citing CNN’s Barbara Starr. 

As a reminder the Straits of Hormuz is one of the busiest shipping lanes in the world, one which is transited by 35% of all seaborne traded oil.

This takes place just a day after the Pentagon said that the U.S. would "be able to respond" if necessary to help a Marshall Islands-flagged ship that was diverted, and boarded, a day earlier by Iran -- though it remains unclear how far the U.S. Navy might be willing to go if the tense situation escalates.  
Pentagon spokesman Col. Steve Warren said a U.S. guided-missile destroyer, the USS Farragut, is in the area and "keeping an eye on things," and in close enough proximity to the ship that they "will be able to respond if a response is required." 
When pressed on what kind of incident aboard the ship would elicit a U.S. Navy response, he was vague, saying: "These [U.S. military] assets give commanders options." He said he didn't know "what the possibilities are," and the U.S. government is "in discussions with the Marshall Islands on the way ahead." 
It is unclear what happens if either the accompanied cargo ship, or the US Navy warship leaves international waters, and enters Iran territory, which as the Bab el-Mandeb Strait is virtually assured: a strait which as the US Naval update map below shows has become as busy for US traffic as the 405 Freeway during rush hour.

Britain has informed a United Nations sanctions panel of an active Iranian nuclear procurement network linked to two blacklisted firms, according to a confidential report by the panel seen by Reuters.

The existence of such a network could add to Western concerns over whether Tehran can be trusted to adhere to a nuclear deal due by June 30 in which it would agree to restrict sensitive nuclear work in exchange for sanctions relief.

Talks between six major powers and Tehran are approaching the final stages after they hammered out a preliminary agreement on April 2, with Iran committing to reduce the number of centrifuges it operates and to other long-term nuclear limitations.

"The UK government informed the Panel on 20 April 2015 that it 'is aware of an active Iranian nuclear procurement network which has been associated with Iran's Centrifuge Technology Company (TESA) and Kalay Electric Company (KEC)'," the Panel of Experts said in its annual report. The panel monitors Iran's compliance with the U.N. sanctions regime.

KEC is under U.N. Security Council sanctions while TESA is under U.S. and European Union sanctions due to their suspected links to banned Iranian nuclear activities.

Iran, which is has been under sanctions for years, has a long history of illicit nuclear procurement using front companies and other methods of skirting sanctions.

That has enabled it to develop a substantial atomic program in spite of aggressive international efforts to curtail it, U.N. diplomats say. But analysts and Western intelligence officials say sanctions have slowed the development of Tehran’s nuclear program.

The United States and the International Atomic Energy Agency have repeatedly said that Tehran has so far complied with the terms of a limited agreement struck in November 2013 between Iran and the six powers involving some reductions in its nuclear activities, including enrichment.
The report could add to skepticism in the U.S. Congress over the wisdom of engaging Iran, as senators vote on a bill subjecting the agreement to congressional review. Some Republicans are seeking to inject amendments that would toughen the demands on Iran. 

A spokesman for Republican Dan Coats said the senator "believes recent allegations of Iranian circumvention are further proof that a skeptical Congress must have a voice."

U.S. ally Israel also says Iran cannot be trusted.
The panel noted multiple media reports of Iranian weapons shipments to Syria, Lebanon, Iraq, and Yemen as well as Hezbollah and Hamas militants in violation of a U.N. embargo -- some of them quoting Iranian officials talking openly about arms shipments abroad.

And yet, it said, not a single country reported those arms shipments to the Security Council's Iran sanctions committee in line with standard procedure for suspected breaches.

It is against this backdrop that I read that there is according to some “a relentless war against cash payments”. By all accounts, it is accelerating and there are those who would like to eliminate the use of cash all together. If the velocity of money is falling with cash still circulating who knows what it would to do to a cashless society. Tech “geeks” might love a cashless society but for many it is their means of survival and it would most likely be the end of privacy, as we know it.

Ostensibly, the reason for ending cash is to put a stop to terrorists, jihadists, drug dealers, money launderers, tax evaders and many others. But the reality of it would be that everyone would be forced to make their payments through the financial system and allow governments to track their citizens. Many would most likely not object to it. But it would most likely impact everyone including many in a negative way.

It is difficult to say where the call for a cashless society came as it is an idea that has been around for some time. But the cry has come loud from the Euro zone where interest rates are now negative. When interest rates are below zero it costs money to keep your funds in the bank. Cash already pays nothing so holding cash is preferred to keeping your money in a financial institution that charges you. Out of this, Citibank’s Willem Buiter has suggested that a) abolish currency, b) tax currency, and c) remove the fixed exchange rate between currency and central bank reserves/deposits.

France’s finance minister Michel Sapin blamed the Charlie Hebdo murders on the attacker’s ability to buy weapons with cash. Result France announced capital controls that included €1,000 cap on cash payments a drop from €3,000. Spain restricts cash payments to £2,500 and Italy restricts them to £1,000.

– J.P. Morgan Chase has put restrictions on borrowers from making cash payments on credit cards, mortgages, equity lines, auto loans and prohibiting the storage of cash in safety deposit boxes.
– Banks in the Euro zone that pay negative interest rates are looking at ways to prevent withdrawals of cash. It raises the question so when is a demand deposit account not a demand deposit account. Banks would not have sufficient cash on hand to cover mass withdrawals. Huge withdrawals to avoid negative interest rates would impact negatively their fractional reserves.
– The Swiss National Bank (SNB) is on record as stating that it doesn’t like to see the hoarding of cash to circumvent their negative interest rate policy. Can banks actually refuse to give customers their cash that is legally theirs? It would seem that way.
– A number of banks in Sweden apparently have cashless branches and they refuse to pay out cash. Customers are moving their accounts to banks that will allow them access cash.
– In the US, customers who withdraw $5,000 or more are to be reported. Many banks have also instituted maximum cash withdrawals. Capital controls in the banking system it would seem are becoming normal.
– According to a report HSBC in the UK is interrogating customers on how they earn and spend their money and restricting large cash withdrawals to £5,000.
– The State of Louisiana passed a bill – Bill 195 that would make it easier to track the sales of stolen goods. The bill could have far-reaching consequences in effectively putting every flea market, goodwill, garage sales, Craigslist, and Kijiji out of business. Apparently, the bill requires that second hand goods be paid with credit cards, cheques, money orders, debit cards, or electronic transfer. They no longer can use cash. The bill also required that second hand sellers obtain a considerable amount of information on each buyer. The process seemed to fly in the face that a US dollar is legal tender for all debts.

The use of cash is considered a suspicious activity. Restrictions on the use of cash appears to be becoming more prevalent. In Canada, banks do put restrictions on how much one can withdraw from an ATM. Large withdrawals or deposits come under the auspice of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Despite using terrorists, jihadists, money launderers and others as an excuse for a cashless society the real target could be the cash underground economy that for the most part can’t be monitored or taxed. The size of the Canadian underground economy has been highlighted recently in a report that puts its size at $42.4 billion in 2012 or 2.3% of GDP. A cashless society would be going after everyone to collect taxes from contractors that take cash under the table for renovations to individuals holding Saturday morning garage sales and churches holding rummage sales.

The move to a cashless society is not something that is going to happen overnight. So far, it seems to be being implemented slowly and in stages. Banks, central banks and governments are behind the movement. The technology is already there to move to a cashless society. Eliminating cash allows governments to track everyone both the innocent and the guilty.

The trouble is what impact could the move to a cashless society have on the economy? Already the velocity of money is falling rapidly. In a cashless society, M1 could become a relic of a bygone era. And it could also cause considerable problems as currency to pay for goods and services has been around for centuries and a cashless society might not be fully acceptable by significant portions of the population. The loss of privacy could be only one issue related to a cashless society.

The end of cash could raise more questions than answers. On the surface, it would leave a huge unanswered question as to “what is money worth?” Not much, it seems in a world of negative interest rates and rising bank fees just to place ones money in the bank. Negative interest rates are a distortion of the market as holding cash would be punitive. It could force people into investing in higher risk securities. It could also be good for gold, as gold remains an historical store of value. There is also the law of unintended consequences when one tries to enforce what amounts to what one may call a command economy. 
Given that the recent US GDP numbers were quite low and probably negative once one strips out inventory buildup it would not be surprising that the velocity of money (M1 and M2) has fallen further. None of this is positive and it could be another sign that the global economy could be in more trouble then what is currently evident.

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