Thursday, July 28, 2011

The long-term implications of a US downgrade

"David Boucher, of The Economic Word, asks a very good question via email, about the implications of the US losing its triple-A rating:

I was wondering if the state-level impact of a debt downgrade would be different, more severe.
From my understanding, Illinois and California have the two lowest ratings of the US states; if the US were to be downgraded and so would a couple of trouble states, would it have an impact on the ability of the Federal Government to lend a hand to those in trouble? And as a result create a Euro-ish type of debt crisis within the US?

There’s certainly a general understanding, in the markets, that California is too big to fail: if push came to shove, the federal government would bail it out rather than let it default. But David raises a good point: is the moral-hazard trade going to get weakened if the US loses its inviolability?

The way that credit ratings work, any municipalities which currently have triple-A ratings would almost certainly lose those ratings were the US sovereign to be downgraded. As far as I know, there’s no precedent for a sub-sovereign entity to have a higher rating than the sovereign, except in extreme cases where the sovereign is actually in default..."


ECRI expects ‘double dip scare’

"Below is a video of Lakshman Achuthan, co-founder and chief operations officer of the Economic Cycle Research Institute (ECRI), talking about the economic outlook for the US. I profiled Achuthan’s views on a broad US slowdown when I wrote in May about why a global slowdown will hit by summer. Now that we are in Summer, both economic and earnings growth estimates are being cut. The question is “what should we expect going forward?” Achuthan answers this in speaking with Matt Miller, Deirdre Bolton and Lizzie O’Leary on Bloomberg Television’s "InsideTrack". He also also discusses corporate earnings.
Note that last year we had a slowdown which analyst Albert Edwards could foresee as far back as April. Throughout the summer, many people were using at the change in the ECRI’s leading indicators as a potential sign of a double dip. Achuthan repeatedly assured us there was no a double sip sign, telling Barron’s in June:
“While the plunge in WLI growth to a one-year low assures a significant slowing in U.S. economic growth in the coming months, the recent weakness has not lasted long enough to signal a new recession threat.”
When I wrote a note on recessions and recoveries in September, I mentioned that Achuthan thought we had even odds of a double dip. Eventually, the double dip threat faded. Achuthan was saying no double dip recession by October of last year even as the Fed started QE3 to deal with the slowdown..."


Quiet Now, Chaos Soon

"The only topic anyone is discussing is the debt ceiling.

But despite the lack of clarity, and confusion, markets aren't doing anything much. They're very quiet everywhere.

It seems like a good chance that things will stay like that until the Boehner plan is voted on in the House at around 6 PM tonight, and right now it's not clear if it's going to pass..."


Here's Who's Freaked Out By Spain And Italy Today

"Banks have the most to lose if the PIIGS (Greece, Italy, etc.) go belly up.

And considering that Italy's taking a beating today, this possibility is becoming increasingly more likely. Bloomberg is even suggesting that Italy might soon be forced to accept a new ECB bailout -- if the ECB can afford it.

If it can't, we could have a total European meltdown on our hands.
So with this in mind, we analyzed the largest European banks by assets and compared their market cap, common equity, and total exposure to PIIGS debt (thank you for the bank statistics, EBA!). Then we calculated exposure to PIIGS debt (sovereign and private) as a percentage of the banks' common equity. (Notice that HSBC, ING, and even Societe Generale are all absent from this list.)

The worst 20 cutoff for our test ended up being exposure equal to about 175% of common equity, but it really gets out of control once you get to the PIIGS banks (#1-9).

Hello, contagion!..."


Europe's €200 billion reverse wealth tax explained

"Last week, the European heads of government added €109 billion to the existing €110 billion rescue plan for Greece. As Europe’s financial sector would have otherwise taken a huge hit, this column address the question: How did the financial sector manage to negotiate such a gigantic wealth transfer from the Eurozone taxpayer and the IMF to the richest 5% of people in the world?

When the deal was announced, German Chancellor Merkel highlighted the private-sector involvement. She stressed that this was the result of German intransigence. According to the spin, private creditors have to accept a 21% write-down on their claims. This amounts to a €37 billion private-sector contribution. They also provide €12.8 billion in new loans for debt buyback. This buyback, however, should not count as a private-sector contribution as it amounts to an exchange of one debt for another.
The private creditors’ contribution is therefore extremely modest compared to the €109 billion in new public commitments. Especially given that private creditors had the most to lose. Given that the market discount was already 50% for Greek debt, giving up 21% could be viewed as a gain. This has to be qualified as a very bad negotiation outcome for the Eurozone taxpayer.

A closer look shows the deal is much worse for taxpayers

The new plan foresees so-called credit enhancement for the new debt, which means that the new Greek debt is mostly guaranteed by the European Financial Stability Facility (EFSF) – and thus by the taxpayers. Now, in the financial world, a guarantee is worth hard cash – it’s like getting automobile insurance for free.
This is no small concession given that a successful turnaround for Greece is highly uncertain. The economy still is burdened with an excessive debt of around 132% of GDP; large structural policy reforms have not yet begun and may well fail. Most creditors can foresee this and are happy to accept the public guarantees for their debt before the next and much bigger haircut comes.
We can therefore expect that they take up the debt exchange offer "voluntarily", since it is effectively a gift to sovereign creditors and not a bailout contribution.

What about Egalité? Tax for wealth, or on wealth?

More surprising is Sarkozy's spin on these events. He interpreted the new deal as an important step towards Europe's economic governance. But before taking too much pride, Sarkozy should remember that a €200 billion subsidy to sovereign creditors is a gigantic wealth transfer from the taxpayer to essentially the richest 5% of the world. In the US, the 5% richest households control roughly 70% of all financial wealth, and this percentage is not much different in the rest of the world. Ultimate ownership of bank capital and sovereign debt is so concentrated among high-wealth individuals that we should characterise the bailout subsidy as an "impôt pour la fortune" (“a tax for wealth”) – a wealth tax supporting the rich..."


Who Is In Worse Shape – the United States or Europe?

"If economic performance is in part a beauty pageant, as John Maynard Keynes suggested, both the U.S. and Europe seem to be competing hard this summer for last place. If anything, based on the latest flow of news coverage, Europe might seem to be experiencing something of a resurgence – last week the eurozone agreed on a big deal involving mutual support and limiting the fallout from Greece’s debt problems. In contrast, the U.S. this week seems to be completely mired in a political stalemate that becomes more complex and confused at every turn.

But rhetoric masks the reality on both sides of the Atlantic. The eurozone still faces an immediate crisis – the can was kicked down the road last week, but not far. The United States, on the other hand, is in much better shape over the next decade than you might think listening to politicians of any stripe. The American problems loom in the decades that follow 2021 – the good news is that there is still plenty of time to sort these out; the bad news is that almost no one is currently talking about the real issues..."


Italy Bonds Smacked in Selloff, Yields Now Approach Spain; Vote of "No Confidence" on Debt Plan

"Investors wasted not time in a vote of no confidence on the latest debt package supposed to save Europe. 10-year Spanish government bonds are back above 6% and yields on Italian government bonds are close behind.

Bloomberg reports Italian Bonds Decline After Borrowing Costs Rise at Nation’s Debt Sale
Italian bonds fell for a second day, increasing the yield spread over German bunds, after the nation’s borrowing costs rose at a sale of 10-year debt and Standard & Poor’s said Greece risks further defaults.

Italy’s 10-year yield surged to the most in more than a week amid speculation a probe into a former aide of Finance Minister Giulio Tremonti may force him to step down. German yields fell to near a five-month low versus their U.S. counterparts as American lawmakers pushed conflicting plans to raise the nation’s debt ceiling. Bunds rose for fifth day, the longest streak since April..."

Overnight Repo Surges By Over 100% In One Day

"There are some who may read the following article from Bloomberg titled "Banks Find Few Signs of Default Distress in Repo, Credit Markets" and be left with the impression that banks find few signs of default distress in repo, credit markets. These same people would then be very surprised by the chart below which shows that the overnight repo rate has more than doubled from 0.055% to 0.115%, or the highest in months, overnight. "Big deal, this is just a small jump" others may say. To those others we will retort that in a market as massively levered as the ON repo, which is a primary source of risk free financial institution funding in conjunction with the Reserve market (via the Fed's IOER rate), a relationship we have discussed extensively before. This simply means that the O/N GC-IOER spread is probably the most levered synthetic "instrument" in the known universe. Apply 100x leverage to the spread and the 0.06% change effectively wipes out capital buffer for an entity that was picking up pennies in front this particular steamroller, and has a firmwide leverage of 16x or a Tier 1 buffer of under 6%. Luckily, that same entity will quietly approach the Fed and using one of a plethora of secret and not so secret rescue mechanism, the Fed will merely transfer more electronic ones and zeroes backed up by future tax receipt claims to said entity's debit account and all shall be well, with nobody but the Chairsatan and the occasional Wall Street CEO knowing just how close we came to yet another systemic implosion..."


Guest Post: The Coming Global Instability, Part I

"Submitted by Charles Hugh Smith from Of Two Minds

The Coming Global Instability, Part I

The root causes of global financial instability cannot be wished away or "solved" with modest policy tweaks: they are systemic.

Systemic financial instability is spreading rapidly around the globe. Nobody knows the precise timing, of course, but if we consider the systemic causal forces at work, it seems the future is now: the next few months could see unstable markets gyrate wildly and unpredictably as the latent instability breaks out and plays out into the 2012-2013 timeframe.

This is an excerpt from my new book An Unconventional Guide to Investing in Troubled Times which has just been issued in Kindle ebook format; a print edition will follow in September. (You can read the ebook now on any computer, smart phone, iPad, etc.--see below.)

Here are a few of the structural causal factors behind the coming global financial instability:

1) What was once considered “impossible” has been normalized to the point that truly unprecedented imbalances are now accepted as "normal." But the normalcy is illusory.

For example, it is now considered “normal” that the Federal government borrows $1.6 trillion every year to prop up the Status Quo, fully 11% of America’s Gross Domestic Product (GDP) and 40% of all Federal expenditures. This stands in stark contrast to the traditional view that deficits in excess of 3% of GDP a year are inherently destabilizing. Now we borrow roughly four times that much (including the off-budget “supplemental appropriations” that run into the hundreds of billions of dollars every year) and the political and financial Elites evince a complacent faith that these extremes are benign and sustainable..."


Giant Banks Lobby to Raise the Debt Ceiling and Slash Public Benefits ... So They Can Keep Sucking at the Public Teet

"Economist Dean Banker notes:
Wall Street will suffer more than anyone from a default and it will not let it happen. The public should know this, certainly Wall Street does.
No wonder the fatcats running the giant banks which received tens of trillions in bailouts, loans and guarantees from the American public are screaming loudly that the debt ceiling must be raised.

Robert Reich points out:
Why has Standard & Poor's decided now's the time to crack down on the federal budget -- when it gave free passes to Wall Street's risky securities and George W. Bush's giant tax cuts for the wealthy, thereby contributing to the very crisis its now demanding be addressed?
Could it have anything to do with the fact that the Street pays Standard & Poor's bills?
Remember, the big 3 government-sponsored rating agencies routinely took bribes as their normal business model, committed massive fraud which greatly contributed to the financial crisis, covered up improper ratings after the fact, and otherwise sold their soul (in their own words). And see this and this.

Some complain about the poor sucking on the government teet.

But the fact that Wall Street controls the rating agencies, and the rating agencies are now creating an artificial emergency sounds like the powers-that-be - the giant banks which run this country - are trying to protect their government teet of perpetual bailouts from the public coffers.

And of course, they are the ones calling for slashing of spending which helps the public. Even though - as conservative writer Michael Rivero points out:
Social Security is not "unfunded" nor is it an "entitlement." That is YOUR money in that trust fund. You worked for it, and it was taken out of all your paychecks your entire working life.
The Social Security Trust fund invested your money by loaning it to the US Government, which is the largest single holder of US Government debt. But the US Government is already in default in fact, as the actual tax revenues have not even come close to the projections on which the budgets were drawn up.
So the US Government has looked at all the entities they owe money to and decided that stiffing the American people is the least likely to cause them harm. They will pay the bankers and they will pay foreign nations and they will continue to bail out Wall Street for the mortgage-backed securities fraud by embezzling your retirement money you gave them in trust. The US Government is robbing you to save the private central bank! [i.e. the big banks. See this and this.]

The debt crisis might be real ... I've been warning about it for years (and see this and this).

The potential downgrade to America's credit is real ... I've been warning about that for years, as well.

But the way that the rating agencies and Wall Street are approaching the debt ceiling debate is a scam. See this, this and this..."


Marc Faber : hyperinflation is an inflation that gets out of hand

"Marc Faber : Well, actually, it hasn’t happened yet. But you understand, hyperinflation is an inflation that gets out of hand after a period of relative calm. I mean, in Germany, prices started to increase in, stay in the hyperinflation in 1918 after the war, 1919. And they only really exploded on the upside in ’22, ’23. And the same happened in Argentina, in Latin America. So I’m still wondering where they can happen. And I happen to think that the likelihood has actually increased for the following reason. You know, if you go back to, say, January 1st, 2011, we were all celebrated New Year and a week earlier, we had Christmas. Who would have thought that the Middle East was in the process of blowing up?..."


Wednesday, July 27, 2011

The Federal Government Races to the Cliff

"In the 1955 movie Rebel Without a Cause, James Dean and a teenage rival race two cars to the edge of a cliff in a game of chicken. Both intend to jump out at the last moment. But the other guy miscalculates, and goes over the cliff with the car.

This is the game that is being played out in Washington this month over the debt ceiling. The chance is at least 1/4 that the result will be similarly disastrous.

It is amazing that the financial markets continue to view the standoff with equanimity. Interest rates on US treasury bonds remain very low, 3% at the ten-year maturity. Evidently it is still considered a sign of sophistication to say “This is just politics as usual. They will come to an agreement in the end.” Probably they will. But maybe not. (I’d put a ½ probability on an agreement that raises the debt limit, but just muddles through in terms of the genuine long term fiscal problem. That leaves at most a ¼ probability of a genuine long-term solution of the sort that President Obama apparently proposed last week - described as worth $4 trillion over ten years.)

My advice to investors is to shift immediately out of US treasuries and into high-rated corporate bonds. If the worst happens, you will probably save yourself from a big capital loss within the next month. If not, there is no harm done.

The game is not symmetric. The Republicans are the ones who are miscalculating. Evidently they are confident of prevailing: they rejected the President’s offer, even though he was willing to cut entitlement programs..."



"Here’s a brief round-up of some macro headlines (via Warren Mosler):
MBA Mortgage applications decreased last week: The Market Composite Index decreased 5.0%, The Refinance Index decreased 5.5%, and the Purchase Index decreased 3.8%. The refinance share decreased to 69.6% from 70.1, and the ARM share increased to 6.1% from 5.8%. The average 30-year rate increased to 4.57% from 4.54% and the average 15-year rate increased to 3.67% from 3.66%.
Durable Good Orders decreased 2.1% in June to a seasonally adjusted $191.98 billion, led by a 8.5% decrease in transportation equipment. Orders excluding volatile transportation equipment increased 0.1% after a 0.7% gain.
Federal Reserve Bank of Chicago Manufacturing Index was down 0.1% in June to 84.0 from May as higher steel and machinery production partially countered a decline among auto makers.
The fact that the domestic economy is losing traction is disconcerting. It’s like being a sick patient whose immune system is completely broken and we’re depending on the uncle no one can rely on (emerging markets) to take care of you…."



"Has anyone else noticed that the level of stress in this country appears to be extremely high right now? Today, it seems like our federal government, our state governments and most American families live in a constant state of crisis. Everywhere you look there are major problems. Right now everyone is stressed out because of the "debt ceiling deadline". Earlier this year everyone was freaked out about the possibility of a "government shutdown". If by some miracle Barack Obama and the Republicans are able to reach a deal in the next few days that will not help the national stress level for long. Another gut-wrenching "national crisis" will almost certainly come along very quickly. Meanwhile, average American families are feeling more stress than ever. There are millions of ordinary Americans that either cannot find jobs or are working as hard as they can and yet cannot seem to pay their mortgages and provide the basics for their families. We are a nation that is really stressed out right now, and as things continue to unravel the level of stress is only going to increase..."


Jefferson County Alabama Hires Bankruptcy Firm; Record Municipal Bankruptcy Coming; Death Spiral Swaps and JPMorgan Fraud Revisited

"At long last, and in what will be the largest municipal bankruptcy in history, Jefferson County Alabama is poised to file bankruptcy, but only after county officials attempted to stick it to taxpayers one last time.

Please consider Alabama’s Jefferson County Hires Bankruptcy Lawyer Kenneth Klee and Firm
Jefferson County, Alabama, which may vote in two days to file a record U.S. municipal bankruptcy, hired attorneys who represented Orange County, California, when it sought protection from creditors in 1994..."

Vote of No Confidence: Deutsche Bank Dumps 70% of Spain, Portugal, Ireland, Greece, Italy Debt

"Courtesy of Google Translation, El Pais reports Deutsche Bank reduces its exposure to 70% Spanish debt and other peripherals
The German bank Deutsche Bank has reduced by 70% exposure to debt issued by countries of the periphery of the euro as Spain, Portugal, Ireland, Greece and Italy in the first six months of the year to 3.669 million euros, according reported by the entity. In particular, Germany's biggest bank by assets reported June 30 that its net exposure to the Spanish sovereign debt was 1,070 million euros, 53% less than at the end of 2010, while 87.5% cut their Italian debt exposure, which stood at 996 million..."

"Unexpected" Decline in Durable Goods Orders; Highest Level of Inventories Ever; Capital Goods Orders Plunge 4.1 Percent

"In the wake of a clearly slowing global economy why a drop in durable goods orders would be unexpected is a mystery.

Nonetheless, that is what Bloomberg reports in Orders for U.S. Durable Goods Fell in June

Orders for U.S. durable goods unexpectedly dropped in June, raising the risk that a slowdown in business investment will weigh on the world’s largest economy in the second half of the year.

Manufacturers face a slowdown in consumer spending just as they are poised to rebound from the parts shortages caused by Japan’s earthquake, indicating production may keep cooling. Companies are also cutting back on hiring, which may further temper household demand.

Orders excluding volatile transportation equipment, like commercial aircraft, increased 0.1 percent after a 0.7 percent gain, the Commerce Department said. Demand for transportation gear dropped 8.5 percent, countering industry data..."

S&P Downgrades Greece To CC From CCC, Expects Recovery Of 30-50% By Principal Bondholders

"Long-Term Sovereign Rating On Greece Cut To 'CC' On Likely Default; Outlook Negative


Following review of the July 21 statement by the European Council (EC), Standard & Poor's has concluded that the proposed restructuring, in the form of an exchange into discount or par bonds or a rollover into 30-year par bonds, of Greek government debt would amount to a selective default under our rating criteria.

In anticipation of the debt exchange, we have lowered the long-term rating on Greece to 'CC' and we have affirmed the 'C' short-term rating.

The outlook on the ratings is negative.

We view the proposed restructuring as one that would amount to a "distressed exchange" under our criteria because, based on public statements by European policymakers, the debt exchange or rollover is likely to result in losses for commercial creditors, and the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default. Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full.

While no exact date has been announced to initiate Greece's debt restructuring, we understand that it will commence in September 2011 at the earliest.

Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders..."


A Thousand Pictures Is Worth One Word: Worthless

"Jeff Clark of Casey Research has created a wonderful historical "art" album which addresses the number one question which most people living in the US right now are unable to fathom: how can one's currency go from X to 0. It is impossible. It certainly can not happen to the dollar. Right? Well, as Jeff says: "History has a message for us: No fiat currency has lasted forever. Eventually, they all fail. You might suspect this happened only to third world countries. You’d be wrong. There was no discrimination as to the size or perceived stability of a nation’s economy; if the leaders abused their currency, the country paid the price." We may add one other thing: no country in the history of the world has imploded from hyperdeflation. Not one. At the point where the debt load was insurmountable and not enough cash flow was being generated to sustain it, the authorities would always find a way to step in and be the terminal source of dilutive fiat demand: from ancient Rome, to Weimar, to the collapse of the Soviet Block, to, inevitably, the unwind of the failed (neo) Keynesian model, where we are right about now. Sure, we can all come up with goalseeked theories that validate our perspective but they are all meaningless at the end. Past a given threshold debt money ceases to function as backed by the full "faith and credit" of the backstopper and is nothing but paper. Yes. Even the abstract concept of so-called "reserve" currencies. Quote Clark: "As you scroll through the currencies below, you’ll see some long-ago casualties. What’s shocking, though, is how many have occurred in our lifetime. You might count how many currencies have failed since you’ve been born." There are many more where these came from. Thousands in fact. Which brings us to the title of this post. What are all these images, which is really all they are now - fancy paperweights (no pun intended) from near and far history, worth now? Precisely..."

Marc Faber : the war in Libya is all about containing China

"...I think what will happen eventually if you read the paper in the US it is all about how we contain China , the western world knows including western Europe and the US , one way to control China is to control the oil in the middle east , and if they control the oil in the middle east they can switch on the tap or close the tap to China because China Japan South Korea Hong Kong Tai Wan they get 95 of their oil from the middle east that is not the case for the US , the largest supplier of the oil to the US is Canada and a larger supplier is also Mexico Venezuela West Africa Angola Nigeria , the Chinese are hundred percent dependents on the middle eastern oil , and the US and western powers they will go and destabilize the middle east and then try to control it , but obviously they can only go this far because first of all it will take a lot of money , see now they are engaged in Libya they are engaged in Iraq they are engaged in Afghanistan next station they have to be engaged in Pakistan which is gradually shifting its alliance to China away from the US , now when the US went into World War II debt to GDP was 140 percent and they did not have unfunded liabilities like medicare medicaid , now they have unfunded liabilities and they have debt to GDP 379 percent officially but with unfunded liabilities something like 800 percent they are not in a position to finance the war unless they print money , and so I think the geopolitical picture will eventually lead in my opinion to much higher inflation rates than what we are seeing now , and by the way I think the inflation in the US is already much higher than what it has been published by the media and we know now about the media since Mister Murdoch is the largest media magnate and since he for sure , because I know some people who used to be leading position at Newscorp in Asia he calls them everyday he checks everything that they do he knew about the hacking in Britain for sure , but this is big big business , and big business is dirty but why is it dirty ? because it has been made dirty by the government ..." - in Financial Sense News Hour"


Marc Faber : the US grossly neglected their infrastructure for the last 20 years.

"...So basically, the US economic policy, it’s not just a monetary problem. But the entire economic policies have been to perpetuate an American dream and live beyond means for the last twenty to thirty years. And that’s just not realistic. It was built on borrowing more and more to offset the declining income in real terms -- you know, those inflation adjusted terms. And now, the power of to borrow more is gone...." . - in Financial Sense News Hour"


Monday, July 18, 2011

The Eurozone’s Last Stand

"The eurozone crisis is reaching its climax. Greece is insolvent. Portugal and Ireland have recently seen their bonds downgraded to junk status. Spain could still lose market access as political uncertainty adds to its fiscal and financial woes. Financial pressure on Italy is now mounting.

By 2012, Greek public debt will be above 160% of GDP and rising. Alternatives to a debt restructuring are fast disappearing. A full-blown official bailout of Greece’s public sector (by the International Monetary Fund, the European Central Bank, and the European Financial Stability Facility) would be the mother of all moral-hazard plays: extremely expensive and politically near-impossible, owing to resistance from core eurozone voters – starting with the Germans.

Meanwhile, the current French proposal of a voluntary rollover by banks is flopping, as it would impose prohibitively high interest rates on the Greeks. Likewise, debt buybacks would be a massive waste of official resources, as the residual value of the debt increases as it is bought, benefiting creditors far more than the sovereign debtor.

So the only realistic and sensible solution is an orderly and market-oriented – but coercive – restructuring of the entire Greek public debt. But how can debt relief be achieved for the sovereign without imposing massive losses on Greek banks and foreign banks holding Greek bonds?..."


Andrew Jackson On the Paper Money System and Its Consequences

“The last duty of a central banker is to tell the public the truth.”

Alan Blinder

"When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe, he has prepared himself for the commission of every other crime."

Thomas Paine

As the US Federal Reserve System approaches its 100th Anniversary in a few years, and as central banks and their political allies around the world promote the bailout and enrichment of the biggest banks and wealthiest individuals, to be paid for by the impoverishment and sacrifice of the people, it might be well to remember the lessons of history with regard to a fiat currency controlled by private corporations under the guise of an 'independent monetary authority.'

"The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain.

The corporations which create the paper money can not be relied upon to keep the circulating medium uniform in amount. In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by the influence of those who hope to profit by it to extend their issues of paper beyond the bounds of discretion and the reasonable demands of business; and when these issues have been pushed on from day to day, until public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given, suddenly curtail their issues, and produce an unexpected and ruinous contraction of the circulating medium, which is felt by the whole community..."


Reid Warns Default Would Be "Much Worse Than The Great Depression"

"Senate Majority Leader Harry Reid (D-NV) warned Monday that the consequences of the government failing to make good on its obligation if the debt ceiling isn't raised would be "much worse than the Great Depression."

Reid announced Monday that the chamber will remain in session until a debt ceiling deal is reached..."


Greece 2-Year Debt Hits 35.98%, Ireland Hits 23.31%, Italy 10-Year Debt Tops 6%, New Highs In Spain; Sovereign Debt Charts

"2-Year Government Bonds

Greece 2-Year Government Bonds

Ireland 2-Year Government Bonds


Bank of America Clobbered on $50 Billion Capital Shortfall Related to Mortgage Losses

"Shares of Bank of America corporation are getting clobbered once again, this time on news of a $50 billion capital shortfall related to devastating mortgage losses.

Please consider BofA Mortgage Settlements Magnify Capital Strain as $50 Billion Gap Looms
Bank of America Corp. (BAC) may have to build its capital cushion by $50 billion and renege again on Chief Executive Officer Brian T. Moynihan’s pledge to raise the firm’s dividend as mortgage losses drain funds..."

Rosenberg Explains "Why We Should Be Worried"

"While we politely disagree with David Rosenberg on what is the ultimate flight to safety "security" (in our insolvent day and age perhaps the very word at the heart of capital markets needs to be changed), with him believing in bonds, predicated by a fear of an eventual deflationary crunch, while we ignore any instrument that is used a policy tool by the central planners and instead prefer precious metals, we always are impressed by his ability to synthesize reality in a few succinct bullet points (even if according to Eni's Recchi itself is irrelevant after saying that "Italy’s bond yields don’t reflect reality"). That is most certainly the case today when in his latest Breakfast with Dave letter to clients, Rosie summarizes the 7 reasons why "we should be worried."

From Rosie:

• S&P has come out and said that it may downgrade the U.S. government in July, whether or not there is an impasse in the debt ceiling talks. We've never had the experience of having the world's reserve currency at least not attaining AAA status. It may not lead to anything, but it will be something we have not had to confront before as investors. Don't forget that it is not just $9.7 trillion of Treasury bonds that would be affected, but the $7 trillion of Fannie Mae and Freddie Mac debt, and the other $130 billion of AAA-rated state and local government debt plus bank bonds insured by FDIC — plus countries like Israel that rely on the backing of the U.S. government. And what about the $2.7 trillion repo market tied to U.S. Treasuries? A default could trigger a giant margin call for the banking industry. You see, the effects are quite far-reaching..."


Marc Faber : The US Will Default By Inflation

"Marc Faber : "I don't think the US will default in terms of not paying the interest on its debt. They will though default via a falling dollar as Bernake begins printing more money," - in CNBC..."


Saturday, July 16, 2011

S&P puts Fannie, Freddie on ratings watch due to U.S. debt concerns

"The U.S. government's failure to reach a consensus on raising the debt ceiling by Aug. 2 could have a devastating effect on government mortgage firms Fannie Mae and Freddie Mac, Standard & Poor's said in a report Friday.

The New York-based ratings agency placed triple-A bond ratings held by Fannie, Freddie and other government entities on negative 'credit ratings watch' citing the firms' reliance on the U.S. government, which is facing a debt downgrade of its own.

S&P's decision to put the GSEs on negative ratings watch arrived after it placed the country's triple-A sovereign credit rating on watch in response to lawmakers' failure to reach a consensus on raising the debt ceiling.

S&P also put triple-A rated debt issued by 30 financial firms under the Temporary Liquidity Guarantee Program on negative ratings watch along with ratings tied to the Federal Home Loan Banks and U.S.-based clearinghouses.

A central securities depository and the Farm Credit System Banks also were put on credit ratings watch due to concerns over the U.S. debt ceiling and those firms dependence on federal funds.

"The CreditWatch action follows the placement of the sovereign credit rating on the U.S. on CreditWatch with negative implications," S&P said..."


National Debt Ceiling Explained in One Graphic

"Ezra Klein explains thirty years of the debt ceiling in one graph (note the Congressional control appears to be backwards):..."


How much did Fannie and Freddie cause the financial crisis?

"Rortybomb summarizes some of the “not much” case (piling on here); see also Brad DeLong, Paul Krugman, David Min, and others. He wonders what the non-spinners think and I will tell him what I

1. It is not denied that the mortgage agencies were guaranteeing about half of all U.S. mortgages right before the crisis (Yet somehow they had not so much to do with the crisis?) And the crisis was not just about subprime. The mortgage market remains screwed up to this day, with no clear end in sight.

2. There is also the more ambitious claim — not necessarily true but not obviously dismissable either — that leverage would have been much, much lower in American real estate markets without the mortgage agencies. It is hard to judge such counterfactuals, but arguably lenders would have demanded more money down and offered fewer 30-year fixed rate mortgages.

3. Arnold Kling has a good response to the delinquency chart which is circulating.

4. Following the crisis, banks recovered and paid back virtually all of their bridge/bailout. The mortgage agencies remain hundreds of billions in the red. And yet the agencies had not much to do with the crisis?..."


Friday, July 15, 2011

Sovereign Debt Blows Big Holes in Big Banks

"The past few days have been very bad for the world's largest banks. American behemoths Citigroup and Bank of America are down about 7% each. Across the Atlantic, things are far worse. BNP Paribas, Barclays, and Banco Santander are all down 13% or more... and Société Générale is down an astounding 16%.

Some pundits warn of an overreaction and suggest this is a buying opportunity for the beat-up financials. I disagree. Rather, I think the financials should now be considered toxic assets. Caution is justified.

It was only a week ago that markets were preoccupied by a downgrade of Portuguese sovereign debt and renewed concerns that Greece will need about $100 billion by year's end to remain solvent. Now, as eyes are quickly shifting towards the first tremors of financial crisis in Italy, concerns over Greece and Portugal seem rather quaint. With an economy roughly 7 times larger than that of Greece, Italy is simply too big to bail out. Its collapse, like the sinking of a great ship, could create a vortex that drowns Europe's major banks in red ink.

In addition to exposure to sovereign debt from insolvent nations like Greece, Italy, Spain, and Portugal, major US and EU banks are also massively exposed to toxic mortgage debts, the value of which continues to be eroded by crumbling real estate markets across the West. Meanwhile, at the least opportune moment, the banks are being besieged by ill-targeted regulations devised by vindictive politicians. Finally, banks' balance sheets are skewed by ultra-low interest rates and new rules that shield them from pricing their assets to market. Beneath a thin veneer of smoke and mirrors, serious risks remain.

Intractable budget negotiations in Washington and Rome have significantly increased the likelihood of default by the West's two major economic blocs. It could be reasonably inferred that we are entering a new phase of sovereign decline: the US is within weeks of temporary default; Italy is teetering; and the consensus on Greece is shifting toward the 'German fix' of bondholder haircuts. What's worse, there are no long-term solutions readily apparent. The EU is so rigid that it's only option is to break into pieces, while the US is so pliant that its main political parties are allowed to waste precious time scoring political points at the expense of the greater good..."


Silver Dealer Inventory Continues to Spiral to New Lows at the Comex - Pax Goldmana

"The deliverable dealer silver inventory at the Comex dropped to another new low of 27.37 million ounces.

If the Comex runs into troubles with a temporary inability to deliver on contracts and approaches a de facto default, most of the regulators and pundits will say they 'never saw it coming.'

Well, here it is.

Hard to miss an almost 70% drop in deliverable inventory like this in a little over two years.

UBS remarked today that they see a choke on the supply in gold, but not in other metals.

Yes, there is plenty of silver available, but at higher prices. How high, only the market can tell.

At some point, even if it is for a brief period of time, silver bullion may not be available at any price, at least in dollars.

Just another day in the Pax Goldmana. "They create a desert, and call it recovery."..."


The horrifying AAA debt-issuance chart

"This is why I love FT Alphaville in general and Tracy Alloway in particular: she’ll dutifully read 14 pages into something entitled “The Basel Committee on Banking Supervision Joint Forum Report on Asset Securitisation Incentives” before coming across this chart and immediately realizing just how important it is..."


Reinhart, Rogoff: Debt Endangers Growth

"...At what point does indebtedness become a problem? In our study “Growth in a Time of Debt,” we found relatively little association between public liabilities and growth for debtlevels of less than 90 percent of GDP. But burdens above 90 percent are associated with 1 percent lower median growth.

Our results are based on a data set of public debt covering 44 countries for up to 200 years. The annual data set incorporates more than 3,700 observations spanning a wide range of political and historical circumstances, legal structures and monetary regimes.

We aren’t suggesting there is a bright red line at 90 percent; our results don’t imply that 89 percent is a safe debt level, or that 91 percent is necessarily catastrophic. Anyone familiar with doing empirical research understands that vulnerability to crises and anemic growth seldom depends on a single factor such as public debt. However, our study of crises shows that public obligations are often hidden and significantly larger than official figures suggest.

Creative Accounting Devices

In addition, off-balance sheet guarantees and other creative accounting devices make it even harder to assess the true nature of a country’s debt until a crisis forces everything out into the open. (Just think of the giant U.S. mortgage lenders Fannie Mae and Freddie Mac, whose debt was never officially guaranteed before the 2008 meltdown.)

There also is the question of how broad a measure of public debt to use. Our empirical work concentrates on central-government obligations because state and local data are so limited across time and countries, and government guarantees, as noted, are difficult to quantify over time. (Until we developed our data set, no long-dated cross-country information on central government debt existed.) But state and local debt are important because they so frequently trigger federal government bailouts in a crisis. Official figures for state debts don’t include chronic late payments (arrears), which are substantial in Illinois and California, for example.

Public and Private Debt

Indeed, it isn’t unusual for governments to absorb large chunks of troubled private debt in a crisis. Taking this into account, chart 1, attached, shows the extraordinarily high level of overall U.S. debts, public and private.

In addition to ex-ante or ex-post government guarantees and other forms of “hidden debts,” any discussion of public liabilities should take into account the demographic challenges across the industrialized world. Our 90 percent threshold is largely based on earlier periods when old-age pensions and health-care costs hadn’t grown to anything near the size they are today. Surely this makes the burden of debt greater..."



"When I said the chart of the Spanish 10 year yield was the most important chart in the world I was wrong. It turns out that the problems in Europe could be even worse than I thought. The markets are not even stopping at Spain. They appear to be going for Spain AND Italy. Remember, unlike the USA, there really are bond vigilantes in Europe. These nations have very real solvency issues and investors are increasingly concerned.

What’s alarming is that we’ve seen this movie before. Once the bond vigilantes get a bit of confidence they have tended to become increasingly bold. That’s the lesson from Greece, Ireland and Portugal where yields crept around the 5%-6% range before spiking and trending into the double digit range. Thus far, given the inability of the EMU to generate a long-term fix to this problem, there’s very little reason to doubt why that won’t happen in the case of Spain and Italy.

Every day that they leave this battle in the hands of the bond vigilantes is a day they’re losing the battle. Today is no exception. Yields in both Spain and Italy are just shy of their highs. Keep a close eye on these charts (which can be found here and here). They are the most important charts in the world today..."


Italian, Spanish Bond Yields Head North, Greek, Irish Bond at New Record Highs

"It will be interesting to see how long it takes for Italian government debt yields to take out the spike high right before Trichet interfered in the Italian bond market. On the interference, yields tumbled across the board, but Greek and Italian bond yields have already made new highs..."


More BullSweet Stress-Free Tests of European Banks

"Ho Hum. EU officials have announced the results of more Stress-Free bank tests in Europe. 20 banks were expected to fail, only 8 did.

Please consider 8 Banks Fail EU 'Stress Tests'
Eight banks flunked the European Union's "stress tests," with a combined shortfall of €2.5 billion ($3.54 billion) in capital under a simulated worst-case economic scenario, the European Banking Authority said.

The EU regulator said Friday that another 16 banks narrowly passed the tests, which examined the abilities of 90 top lenders across Europe to endure a deteriorating economy and strained financial system.

By awarding a relatively clean bill of health to the vast majority of Europe's banking industry, the tests are likely to be greeted with skepticism. Analysts and investors were bracing for as many as 20 banks to fail and to need to raise tens of billions of euros of new capital..."


If The U.S. Government Loses Its AAA Rating It Could Potentially Unleash Financial Hell Across The United States

"For decades, the U.S. government has had a AAA rating. On the scales used by the big three credit rating agencies, that is the highest credit rating that a government can get. Moody's scale actually uses lettering that is a little different from the other two big agencies ("Aaa" instead of "AAA"), but you get the point. Right now, the U.S. government is closer than ever to losing its AAA rating. The threat of a rating downgrade is going to continue to grow regardless of how the political theater that we are watching unfold in Washington D.C. plays out. The truth is that the federal government has accumulated a debt that is so vast that it will never be paid back. In fact, we are rapidly approaching the point when this debt will no longer be serviceable. If the credit rating of the U.S. government is not slashed right now, it will be soon enough. In fact, the truth is that the U.S. government is such a financial mess that it should have been done long ago. But whenever the United States does lose its AAA rating, we could potentially see financial hell unleashed because it will also mean that there will almost certainly be a wave of credit rating downgrades from coast to coast.

As I have written about previously, government debt becomes more painful the higher that interest rates go. When the big credit agencies downgrade the credit rating of a government, that is a signal to investors that they should ask for higher interest rates on debt issued by that government.

This does not always play out in practice (just look at Japan), but nations such as Greece, Portugal and Ireland sure are going through financial hell right now as they deal with reduced credit ratings and soaring interest rates.

Right now, the U.S. government is able to borrow gigantic quantities of money at ridiculously low interest rates. This is the primary reason why the debt disaster predicted by so many in the past has not arrived yet.

If the credit rating of the U.S. government is downgraded, it could finally get investors all over the world to realize that the game is over and that they should be demanding much higher returns on debt issued by the U.S. government. The truth, as U.S. Representative Ron Paul put it recently, is that the U.S. government is already "insolvent" and at some point we are all going to have to face reality..."


Wednesday, July 13, 2011

Central Banks Continue To Have A Huge Appetite For Gold

"Gold (NYSE:GLD) and silver (NYSE:SLV) continue to keep things interesting in the global financial system. Somewhere between debt ceiling threats and Netflix (NASDAQ:NFLX) price increases, gold and silver continue their stance against fiat currencies. Tuesday started rather calmly for precious metals, however, the newly released Fed minutes quickly changed things. Let’s take a look at the new developments concerning central banks and gold..."


Bernanke Pledges More Monetary Stimulus, Dollar Tanks, Gold Soars to Record High

"The ping-pong match between the ECB and Fed to see who can make the worst policy decisions the fastest, switched back in favor of the Fed today with Bernanke's pledge to pour on the monetary stimulus if needed.

Please consider Fed Ready With Stimulus If Needed
Federal Reserve Chairman Ben S. Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.

“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” Bernanke said in prepared testimony before the House Financial Services Committee in Washington today. “The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate.”..."

Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!!

"So, the next domino falls in the Pan-European Sovereign Debt Crisis. As has been the casse for much of the Asset Securitization Crisis and the Pan-European Sovereign Debt Crisis, the ratings agencies have arrived to smoldering pile of ashes littered with charred bones and remnants of the putrid smell of burnt flesh with a fire hose and a megaphone yelling "Get out! We have word there may be a fire here!"

From Bloomberg: Ireland Debt Rating Cut to Junk, Adding Pressure for EU to Contain Crisis:

Ireland joined Portugal and Greece as the third euro-area nation to have its credit rating reduced to below investment grade as European Union finance ministers struggle to contain the region’s sovereign-debt crisis.

Moody’s Investors Service cut Ireland to Ba1 from Baa3, citing the probability that the country, which received a bailout last year, will need additional official financing and for investors to share in losses before it can return to the private market to borrow. The outlook remains “negative,” Moody’s said in a statement late yesterday.

Irish bonds dropped for a sixth day today after the downgrade, which came after European finance ministers failed to present a solution to the contagion that’s threatening to spread to Italy from the so-called peripheral euro-area states. Ireland’s debt agency said the downgrade will make it “more difficult” for Ireland to return to the market next year.

While Ireland “has shown a strong commitment to fiscal consolidation and has, to date, delivered on” the terms of its bailout, “implementation risks remain significant,” Moody’s said in the statement.

Irish 10-year bonds fell, pushing the yield on the debt up 31 basis points to 13.65 percent. The premium over German bunds widened 32 basis points to almost 11 percent. Italian yields were at 5.47 percent after surging above 6 percent earlier this week. The euro, which dropped to a four-month low against the dollar yesterday, rose 0.5 percent to $1.4049 as of 9:06 a.m. in London.

One must wonder what took Moody's so long to come to said conclusion. BoomBustBlog subscribers were well aware of Ireland's "Junk status" situation at least a year and a half ago. Outside of The Anatomy of a Serial European Banking Collapse nearly guaranteed scenario that I present last month, here are my thoughts starting July 2010:..."


Guest Post: Poverty In America, Part I

"Submitted by Charles High Smith from Of Two Minds

Poverty In America, Part I

Poverty is on the rise in America, and buying passivity with cheap bribes has limits when applied to a fraying middle class.

If jobs are not coming back, then we as a nation need a conversation about poverty in America. The Status Quo assumption is that this is just another garden-variety recession, and that employment will bounce back, along with the "animal spirits" that drive borrowing and spending.

As of August 2011, it will be three years since the global financial meltdown. In three years, the Savior State has borrowed and blown $6 trillion maintaining the Status Quo, and the Federal Reserve has printed almost $3 trillion and shoveled that vast sum into "risk assets" to keep housing on life support and the stock market rising. The Fed has also devalued and debased the dollar, stealing wealth from the citizenry and holders of U.S.-denominated debt in the process, to serve two goals: 1) spark inflation and thus avoid deflationary deleveraging of the nation's fast-growing mountain of debt, and 2) to enable servicing that debt with cheaper dollars.

None of these grandiose manipulations has healed the economy or fixed the structural problems which made the meltdown inevitable. The irony here (among many) is that so many people believe the Power Elites controlling the nation have some sort of god-like ability to maintain their grip on the levers of power.

While it's certainly true that the wealth of the Power Elites has increased as a result of the meltdown and Fed/Savior State response, ultimately the Financial and Political Elites' power depends on the passivity and complicity of the citizens. This means the Power Elites must buy off or co-opt the majority of citizens to keep them politically neutered and mallable..."


Tuesday, July 12, 2011

2011 A Year of Unprecedented Losses

"I remain a big fan of tracking insurance losses, especially natural hazard-related, as a way of tracking the tectonic changes (literally) in our world.
An exceptional accumulation of very severe natural catastrophes makes 2011 the highest-ever loss year on record, even after the first half-year. Already, the approx. US$ 265bn in economic losses up to the end of June easily exceeds the total figure for 2005, previously the costliest year to date US$ 220bn for the year as a whole. Most of the losses were caused by the earthquake in Japan on 11 March.
Altogether, the loss amount was more than five times higher than the first-half average for the past ten years. The insured losses, around US$ 60bn, were also nearly five times greater than the average since 2001. First-half losses are generally lower than second-half losses, which are often affected by hurricanes in the North Atlantic and typhoons in the Northwest Pacific. The total number of loss-relevant natural events in the first six months of 2011 was 355, somewhat below the average for the previous ten years 390..."

Nearly two-thirds of Americans sense double-dip recession

"Roughly 63% of middle-class Americans surveyed by a consumer psychology consulting firm believe the U.S. economy slipped into a double-dip recession, up from 50% one year ago.

First Command Financial Services commissioned Sentient Decision Science to survey roughly 1,000 U.S. consumers between the ages of 25 to 70 with annual household incomes of at least $50,000 for the quarterly First Command Financial Behaviors index.

Three-quarters of those consumers who believe a double-dip recession is underway believe it will be more than one year before the economy begins to recover. One in five consumers said it would be take more than three years..."



"Last week we wrote about Silver so this week we decided to provide an update on Gold. In looking at the price action and sentiment indicators we find that Gold is once again ripe for what is becoming an annual seasonal breakout. Gold has broken to a new all-time high in three of the past four years and presently, we are anticipating another breakout.

Gold is entering the third month of a consolidation that has range from $1475 to $1560. This tight consolidation is looking like a bullish flag, which is a continuation pattern. It “continues” the previous trend, which of course was bullish. The flag projects to $1825. We have a near-term Fibonacci projection of $1742. Finally, there is a long-term strong Fibonacci target of roughly $1820..."


Trade Deficit increased sharply in May to $50.2 billion

"The Department of Commerce reports:
[T]otal May exports of $174.9 billion and imports of $225.1 billion resulted in a goods and services deficit of $50.2 billion, up from $43.6 billion in April, revised. May exports were $1.0 billion less than April exports of $175.8 billion. May imports were $5.6 billion more than April imports of $219.4 billion..."

Cardiac Arrest; Italy and Spain Close to the Abyss; EU Commissioner Seeks to Prohibit Agencies from Rating Debt of Countries in Rescue Programs

"In yet another step deeper into the theater of the politically absurd, Euro Intelligence reports EU competition commissioner Michel Barnier wants to prohibit rating debt of countries in EFSF rescue programs.
The degree of confusion and desperation among eurozone policymakers is reaching new heights. EU competition commissioner Michel Barnier wants to prohibit ratings for countries which are part of an EFSF rescue program, Frankfurter Allgemeine Zeitung reports. In a speech in Paris he argued that they enjoyed European solidarity and that they were under the watch of the EU and the IMF.

Barnier asked the Polish EU presidency to put the topic on the agenda of the next finance minister’s meeting. All economists interrogated by the paper thought Barnier’s proposal was absurd.
Cardiac Arrest

The actual lead to that Euro Intelligence report is "Hallo, anybody there? Eurozone about to suffer a cardiac arrest"
In the absence of a policy response, the eurozone’s financial system may implode within a few days..."


The Big Banks Are Waging Warfare Against the People of the World

"Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund.

Hudson says:
  • The European debt crisis is really financial warfare by the banks
  • Indeed, the banks are in warfare against the rest of society
In a separate interview, Hudson says:
  • What's going on in Greece is exactly what's going to happen in America in a couple of weeks.
  • The big banks are forcing their bad debts on government
  • They are also forcing governments to sell off national assets so the banks can install a "neo-feudalism":..."

A Bad Mood Has Descended On World Financial Markets

"Have you noticed that a really bad mood seems to have descended on world financial markets? Fear and pessimism are everywhere. The global economy never truly recovered from the financial crisis of 2008, and right now everyone is keeping their eyes open for the next "Lehman Brothers moment" that will send world financial markets into another tailspin. Investors have been very nervous for quite some time now, but this week things seem to be going to a whole new level. Fears about the spread of the debt crisis in Europe and about the failure of debt ceiling talks in the United States have really hammered global financial markets. On Monday, the Dow Jones Industrial Average dropped 151 points. Italian stocks fared even worse. The stock market in Italy fell more than 3 percent on Monday. The stock markets in Germany and France fell more than 2 percent each. On top of everything else, the fact that protesters have stormed the U.S. embassy in Syria is causing tensions to rise significantly in the Middle East. Everywhere you turn there seems to be more bad news and large numbers of investors are getting closer to hitting the panic button. Hopefully things will cool down soon, because if not we could soon have another full-blown financial crisis on our hands.

Even many of those that have always tried to reassure us suddenly seem to be in a really bad mood.

For example, U.S. Treasury Secretary Timothy Geithner admitted to "Meet the Press" that the U.S. economy is really struggling and that for many Americans "it's going to feel very hard, harder than anything they've experienced in their lifetime now, for a long time to come."

Does Geithner know something that we don't?.."


Uh Oh – Italy Is Coming Apart Like A 20 Dollar Suit

"Did anyone really think that Italy would be able to get through this thing without needing a bailout? Just when you thought that things in Europe could get back to normal for a little while, here comes Italy. On Friday, there was a bit of a "mini-panic" as investors started dumping Italian financial assets. European officials are concerned that the sovereign debt crisis that has ravaged Greece, Ireland and Portugal will now put the Italian economy through the wringer. European Council President Herman Van Rompuy has called an emergency meeting for Monday morning. He is denying that the meeting is about Italy, but everyone knows that Italy is going to be discussed. European Central Bank President Jean-Claude Trichet and European Commission President Jose Manuel Barroso along with a host of other top officials will also be at this meeting. If it does turn out that Italy needs a bailout, it is going to change the entire game in Europe.

What is going on in Italy right now is potentially far more serious than what has been going on in Greece. Italy is the fourth largest economy in the European Union. If Italy requires a bailout, the rest of Europe might not be able to handle it.

An anonymous European Central Bank source told one German newspaper the following on Sunday....

"The existing rescue fund in Europe is not sufficient to provide a credible defensive wall for Italy"

The source also added that the current bailout fund "was never designed for that".

Italy has already implemented austerity measures.

This was not supposed to happen.

But it is happening..."


Thursday, July 7, 2011

Roubini : We Are going to have a Massive Fiscal Drag in 2012

"Nouriel Roubini , Roubini Global Economics chairman & co-founder, explains why there's a need for more fiscal stimulus, and the "perfect storm" of threats that could slam the economy by 2013. "what i've been saying whether or not the fiscal drive is next year, governments are cutting spending, phasing out federal spending and income tax and employment benefits, $200 million next year alone and 1.5% gdp implies even weaker growth. i'm in favor of fiscal services but you need a medium term plan to cut spending and raise taxes and you should have a fiscal drag and maybe even a fiscal stimulus." Roubini said..."


SEC Charges JPM with Regularly Rigging Muni Bond Markets Across the Country For Years

"Such serious charges that are settled with fines and no admission of guilt despite overwhelming evidence of a criminal conspiracy, often initiated by the States, is a merely the cost of doing business when one is occasionally discovered in an ongoing confidence game. This global banking game robs billions from the public on a regular basis across a wide range of financial and commodity markets.

The fines are paid, a highly compensated individual takes the nominal 'punishment' while keeping the proceeds, the politicians and regulators are paid, and the fraud continues on.

Where is the reform? Where is the justice? Where is the deterrence?

Why not ban the institution who failed to control itself and its employees from participation in Federal Reserve banking subsidies and in government financial markets for some reasonable period of time?

Better yet, why are those who speculate in and manipulate the markets for their own gains with one hand, also taking cheap subsidy money from the government to 'improve the economy' and economic confidence with the other? Where is the repair of the public trust betrayed? Is this yet another fallacy of the efficient and perfectly rationale, self-regulating markets?..."