Saturday, July 31, 2010
PIMCO’s Bill Gross Confirms Slower Growth Ahead, For Years
"It is month-end, and bond-magnate Bill Gross of PIMCO is out with a new round of predictions. The bond guru’s August Investment Outlook often has quirky ways of explaining things, and he’s using ‘auto-flush toilets’ to describe The New Normal. We’ll skip over the fecal disposal systems… Gross notes that The New Normal is predicated upon de-leveraging, re-regulation and de-globalization… This culminates with slower economic growth and lower inflation in developed economies. There is almost a Warren Buffet antithesis here if you spend time contemplating the future..."
Foreclosures Continue To Dramatically Increase In 2010
"In a very alarming sign for the U.S. economy, foreclosures have continued to dramatically increase in 2010. But there has been a shift. Back in 2007 and 2008, experts tell us that most foreclosures were due to toxic mortgages. People were being suckered into mortgages that they couldn't afford with "teaser rates" or with payments that would dramatically escalate after a few years, and when those mortgages reset, the people who had agreed to them no longer could make the payments. But now RealtyTrac says that unemployment has become the major reason for foreclosures. Millions of Americans have become chronically unemployed during the economic downturn and many of them are losing their homes as a result. But whatever the cause, one thing is certain - foreclosures have continued to skyrocket at a staggering rate..."
More Quantitative Easing Will Threaten the Dollar and Western Economies
"The U.S. economy can, at best, be described as in an "L"-shaped recovery. It is anemic, faced with unyieldingly high unemployment and overburdened with debt, but worst of all, the average consumer that has little to no confidence in the economy or housing for the next couple of years..."
European Banks Lent Their Customer's Gold to the BIS
"The European Banks, including HSBC, Société Générale and BNP Paribas, were desperately in need of dollars because of a repeat of the eurodollar short squeeze which we had previously identified. Their customers were withdrawing dollars previously on deposit at the banks, which were unable to meet the demand because of the deterioration of the dollar assets they held, and because of the fractional reserve nature of their operations.
So the BIS stepped in, supplementing the swap lines the ECB has with the Fed, and swapped its dollar holdings directly for the some of the banks' customer's gold. Let us be clear about this. The gold is on deposit at the banks, in the same way that customer dollars had been on deposit. I do not wish to fuss too much about it, but at the time that the BIS swaps were revealed, a noted blogger pooh-poohed it with the toss off that 'everyone knows that the European commercial banks own quite a lot of gold.' Well, in this case, the ownership is greatly exaggerated. It is on deposit, owned by other people, but utilized as an asset by the bank. There is a difference.
In lending out the gold to BIS, they were relieved of their dollar short squeeze and were able to supply their customer demands. BIS obtained a fee of some sort in the swap, and so it is happy. But it should be noted that BIS had not done gold swaps for over forty years. So why now?
The question remains unanswered though. What is the duration of the swap, and does BIS intend to hold the gold or use it in other interbank operations?
A secondary question would be: why did the banks go directly to the BIS and swap their customer's gold, rather then to the ECB which is perfectly capable of managing swaplines for currency with the BIS and the Fed. Is the Fed running out of dollars? I have an open tab in my mind that the BIS was seeking gold to balance out demands from other banks for gold, not for dollars, and the eurodollar swaps were a convenient way to do it. This story that 'the BIS had lots of dollar lying around and were itching to use them' strikes me as being of the whole cloth.
Yes, the nice high level chart the FT includes shows the spike in gold holdings at the BIS, but does this mean that it is sitting there in their reserves unencumbered, or are they leasing any or all of it out, 'putting it to work' as they say? Central banks are notorious for making little distinction between unencumbered gold assets and real assets in the vault.
But it is nice to see verification in the mighty Financial Times that if you hold your bullion gold in an 'unallocated account' even with a prestigious bank, it may very well not be there when you wish to have it, and the prices will soar as the banks scurry to cover, just as has happened twice of late with their US dollar assets..."
So the BIS stepped in, supplementing the swap lines the ECB has with the Fed, and swapped its dollar holdings directly for the some of the banks' customer's gold. Let us be clear about this. The gold is on deposit at the banks, in the same way that customer dollars had been on deposit. I do not wish to fuss too much about it, but at the time that the BIS swaps were revealed, a noted blogger pooh-poohed it with the toss off that 'everyone knows that the European commercial banks own quite a lot of gold.' Well, in this case, the ownership is greatly exaggerated. It is on deposit, owned by other people, but utilized as an asset by the bank. There is a difference.
In lending out the gold to BIS, they were relieved of their dollar short squeeze and were able to supply their customer demands. BIS obtained a fee of some sort in the swap, and so it is happy. But it should be noted that BIS had not done gold swaps for over forty years. So why now?
The question remains unanswered though. What is the duration of the swap, and does BIS intend to hold the gold or use it in other interbank operations?
A secondary question would be: why did the banks go directly to the BIS and swap their customer's gold, rather then to the ECB which is perfectly capable of managing swaplines for currency with the BIS and the Fed. Is the Fed running out of dollars? I have an open tab in my mind that the BIS was seeking gold to balance out demands from other banks for gold, not for dollars, and the eurodollar swaps were a convenient way to do it. This story that 'the BIS had lots of dollar lying around and were itching to use them' strikes me as being of the whole cloth.
Yes, the nice high level chart the FT includes shows the spike in gold holdings at the BIS, but does this mean that it is sitting there in their reserves unencumbered, or are they leasing any or all of it out, 'putting it to work' as they say? Central banks are notorious for making little distinction between unencumbered gold assets and real assets in the vault.
But it is nice to see verification in the mighty Financial Times that if you hold your bullion gold in an 'unallocated account' even with a prestigious bank, it may very well not be there when you wish to have it, and the prices will soar as the banks scurry to cover, just as has happened twice of late with their US dollar assets..."
Friday, July 30, 2010
A New Spotlight on Japanese-Style Deflation
"In a scholarly paper that was released today James Bullard, President of the Federal Reserve Bank of St. Louis, stated, "The U.S. is closer to a Japanese-style outcome than at any time in recent history". As everyone knows, the Japanese economy has undergone a period of extremely slow growth with periodic recessions combined with price deflation over the past 20 years. Its stock market is still about 70% below the 1989 peak while property values are still depressed despite ultra-low interest rates and massive government spending. While the paper concluded that this was not the most likely outcome, the release caused an immediate intra-day drop in the stock market that was partially reversed later in the session. Bullard’s prescription for avoiding this highly undesirable outcome was to advocate more reliance on additional quantitative easing (QE) rather than extremely low interest rates..."
The Ruling Elite Called
"I just got off the horn with the Ruling Elite. We had an emergency conference call and to tell you the truth, they ain’t happy. You little people are not responding the way you are supposed to. A significant portion of you are not getting more optimistic because they tell you to. Instead of just reading the headline on Bloomberg that durable goods orders skyrocketed in June, you actually read the details that said durable goods orders plunged. It is getting difficult for the ruling elite to keep the masses sedated and dumbed down. These damn bloggers, with their facts and critical thinking, are throwing a wrench into the gears...
...So, we now find ourselves at the edge of the abyss again. The ruling elite have a great plan. It involves more debt, more stimulus, more printing, more accounting fraud, more pain for the masses, and of course more bonuses for Wall Street. If you, the little people, will just follow this 10 step plan, the ruling elite will be just fine:
1.Stocks are undervalued according to the same “experts” who told you they were undervalued in October 2007. Take out a loan and buy mega-banks stocks, commercial real estate developers, and bankrupt car companies.
2.General Motors, in a brilliant strategic coup, has bought “subprime” auto loan company Americredit. What else does a government/union owned car company need? The fact that GMAC has lost $10 billion of taxpayer funds in the last year shouldn’t worry you about your investment in GM. If you can’t sell cars to people with no income, no job and no prospects for repaying the seven year 0% loan, who can you sell a car to. When the government pays Goldman Sachs millions to convince you to buy the stock of GM in its Fall IPO, ask no questions and just buy buy buy.
3.Ignore the fact that Citicorp, Bank of America, and Wells Fargo would be declared insolvent if the FASB had not caved into threats from the Federal Reserve and Treasury. Just buy their stocks. Trust Wall Street.
4.Enough austerity already. You haven’t bought a new HDTV in six months. It’s like you’ve been living in a 3rd world country. If you have any equity left in your house, borrow against it and buy something big and glitzy. Make sure you show it off to your shallowest neighbors. They will go out and buy something bigger and glitzier on credit. Before you know it we have a recovery. Keynesianism 101.
5.Stop frequenting financial blogs like Naked Capitalism, Credit Writedowns, Dollar Collapse, Market Oracle, 321Gold, Jesse’s Cafe Americain, Of Two Minds, Zero Hedge, Mike Shedlock, or Barry Ritholtz. These sites will just shower you with facts, analysis and truth. Watch CNBC, Fox, MSNBC and the other corporate media to get the ruling elite approved view of the world.
6.If you are currently renting or living in your mother’s basement, have no job, no savings and no prospects, Fannie Mae wants to put you in your very own house. Mortgage payments are optional. The 50% of Americans that pay taxes will gladly fund your new abode.
7.If you are approaching the 99th week of unemployment, have no fear. The ruling elite will use the MSM to run hundreds of sob stories about only two years on the dole being immoral and cruel. The White House will present a study from “impartial” economists that proves that extending unemployment benefits to 156 weeks will create or save 3 million jobs.
8.The stress of this recession has been too much. You need to whip out that credit card and book a trip to Disney World or Dollywood. Worry about funding that 401k sometime in the future.
9.Unquestioningly accept the fact that Iran is an imminent threat to your safety and liberty. Support the obliteration of this evil nation based upon information provided by the CIA (WMD slamdunk) and the Israelis.
10.Lastly, call your Congressman and tell them to extend the tax cuts for the rich. As you have probably concluded, the ruling elite are rich. They don’t like paying taxes. That is why they employ thousand of tax lawyers. Since the expiration of the Bush tax cuts will hurt the ruling elite the most, a full court press of disinformation is in order.
The ruling elite expect you to comply without question. Have they ever led you astray before?"
...So, we now find ourselves at the edge of the abyss again. The ruling elite have a great plan. It involves more debt, more stimulus, more printing, more accounting fraud, more pain for the masses, and of course more bonuses for Wall Street. If you, the little people, will just follow this 10 step plan, the ruling elite will be just fine:
1.Stocks are undervalued according to the same “experts” who told you they were undervalued in October 2007. Take out a loan and buy mega-banks stocks, commercial real estate developers, and bankrupt car companies.
2.General Motors, in a brilliant strategic coup, has bought “subprime” auto loan company Americredit. What else does a government/union owned car company need? The fact that GMAC has lost $10 billion of taxpayer funds in the last year shouldn’t worry you about your investment in GM. If you can’t sell cars to people with no income, no job and no prospects for repaying the seven year 0% loan, who can you sell a car to. When the government pays Goldman Sachs millions to convince you to buy the stock of GM in its Fall IPO, ask no questions and just buy buy buy.
3.Ignore the fact that Citicorp, Bank of America, and Wells Fargo would be declared insolvent if the FASB had not caved into threats from the Federal Reserve and Treasury. Just buy their stocks. Trust Wall Street.
4.Enough austerity already. You haven’t bought a new HDTV in six months. It’s like you’ve been living in a 3rd world country. If you have any equity left in your house, borrow against it and buy something big and glitzy. Make sure you show it off to your shallowest neighbors. They will go out and buy something bigger and glitzier on credit. Before you know it we have a recovery. Keynesianism 101.
5.Stop frequenting financial blogs like Naked Capitalism, Credit Writedowns, Dollar Collapse, Market Oracle, 321Gold, Jesse’s Cafe Americain, Of Two Minds, Zero Hedge, Mike Shedlock, or Barry Ritholtz. These sites will just shower you with facts, analysis and truth. Watch CNBC, Fox, MSNBC and the other corporate media to get the ruling elite approved view of the world.
6.If you are currently renting or living in your mother’s basement, have no job, no savings and no prospects, Fannie Mae wants to put you in your very own house. Mortgage payments are optional. The 50% of Americans that pay taxes will gladly fund your new abode.
7.If you are approaching the 99th week of unemployment, have no fear. The ruling elite will use the MSM to run hundreds of sob stories about only two years on the dole being immoral and cruel. The White House will present a study from “impartial” economists that proves that extending unemployment benefits to 156 weeks will create or save 3 million jobs.
8.The stress of this recession has been too much. You need to whip out that credit card and book a trip to Disney World or Dollywood. Worry about funding that 401k sometime in the future.
9.Unquestioningly accept the fact that Iran is an imminent threat to your safety and liberty. Support the obliteration of this evil nation based upon information provided by the CIA (WMD slamdunk) and the Israelis.
10.Lastly, call your Congressman and tell them to extend the tax cuts for the rich. As you have probably concluded, the ruling elite are rich. They don’t like paying taxes. That is why they employ thousand of tax lawyers. Since the expiration of the Bush tax cuts will hurt the ruling elite the most, a full court press of disinformation is in order.
The ruling elite expect you to comply without question. Have they ever led you astray before?"
Robert Prechter's Deflationary Bear Market On the Slope of Hope
"According to polls, economists are virtually unanimous in the view that the “Great Recession” is over and a recovery is in progress, even though “full employment will take time,” etc. Yet mortgage writing has just plunged to a new low for the cycle (see Figure 1), and housing starts and permits just had their biggest percentage monthly drop since January 1991, which was at the end of a Primary-degree recession. But the latest “recession” supposedly ended a year ago. How can housing activity make new lows this far into a recovery? The answer is in the subtitle to Conquer the Crash, which includes the word depression. The subtleties in economic performance continue to suggest that it “was” not a “recession.” It is a depression, moving forward, in punctuated fashion, slowly but inexorably..."
Thursday, July 29, 2010
Jim Rogers predicts a new recession in 2012
"Mr Rogers, the respected currency trader and hedge fund pioneer, cautioned that when the downturn takes hold "the world is going to be in worse shape because the world has shot all its bullets."
Speaking in an interview with business television channel CNBC, the septuagenarian investor said that "since the beginning of time" there has been a recession every four-to-six years, and that's mean another one is due around 2012.
Is a double-dip recession heading our way? However, he said that due to the extraordinary measures already adopted by central banks and governments around the world, the arsenal of available tools to combat the next recession is somewhat lacking.
With reference to Ben Bernanke, chairman of the US Federal Reserve, he said: "Is Mr Bernanke going to print more money than he already has? No, the world would run out of trees."
Speaking in an interview with business television channel CNBC, the septuagenarian investor said that "since the beginning of time" there has been a recession every four-to-six years, and that's mean another one is due around 2012.
Is a double-dip recession heading our way? However, he said that due to the extraordinary measures already adopted by central banks and governments around the world, the arsenal of available tools to combat the next recession is somewhat lacking.
With reference to Ben Bernanke, chairman of the US Federal Reserve, he said: "Is Mr Bernanke going to print more money than he already has? No, the world would run out of trees."
SEC Closes Books: Time to Exit Stocks & Bonds
"One thing for certain, when the Security and Exchange Commission closes its books to the public it is not a strong "Buy" signal from the markets. Yet, that is exactly what happened over the past week:
"So much for transparency.
Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission
no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act."
"So much for transparency.
Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission
no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act."
Obama-Dodd-Frank FinReg Monstrosity Delays Derivatives Curbs until 2022!
"...Plenty of Time for More Financial Catastrophes Before 2022
At the time of the reconciliation hearings, the remaining Volcker rule provisions were apparently supposed to take effect after seven years, allegedly to give the swaps-jobbers time to unwind their positions. But after the C-SPAN televised reconciliation proceedings were over, dark forces loyal to Wall Street revisited the conference report and introduced even longer delays in implementing even the meager restraints on credit derivatives. This crime appears to have occurred on June 28-29. On the Bloomberg Business Week website we read a report dated June 29:
Goldman Sachs Group and Citigroup Inc. are among U.S. banks that may have as long as a dozen years to cut stakes in in-house hedge funds and private- equity units under a regulatory revamp agreed to last week. Rules curbing banks’ investments in their own funds would take effect 15 months to two years after a law is passed, according to the bill. Banks would have two years to comply, with the potential for three one-year extensions after that. They could seek another five years for ‘illiquid’ funds such as private equity or real estate, said Lawrence Kaplan, an attorney at Paul, Hastings, Janofsky & Walker LLP in Washington. Giving banks until 2022 to fully implement the so-called Volcker rule is an accommodation for Wall Street in what President Barack Obama called the toughest financial reforms since the 1930s…. Partly as a result of last-minute changes to the wording of the bill, analysts, lawyers and congressional staffers say it’s unclear whether the extension period for illiquid funds would run concurrently with the other transition periods. That could mandate full compliance in less than 12 years.
The London Guardian also detailed the ingenious dilatory tricks for stalling, dodging, and postponing which the Wall Street lobbyists had built into the bill:
Language in the act …allows for a six-month study and a further nine months of rule-making. The measure is supposed to become effective 12 months after the final rule is laid, then banks have two years to conform. But if they need to, they can apply for a three-year extension. On top of that, a five-year moratorium is available for ‘illiquid’ funds that are hard to unwind..."
At the time of the reconciliation hearings, the remaining Volcker rule provisions were apparently supposed to take effect after seven years, allegedly to give the swaps-jobbers time to unwind their positions. But after the C-SPAN televised reconciliation proceedings were over, dark forces loyal to Wall Street revisited the conference report and introduced even longer delays in implementing even the meager restraints on credit derivatives. This crime appears to have occurred on June 28-29. On the Bloomberg Business Week website we read a report dated June 29:
Goldman Sachs Group and Citigroup Inc. are among U.S. banks that may have as long as a dozen years to cut stakes in in-house hedge funds and private- equity units under a regulatory revamp agreed to last week. Rules curbing banks’ investments in their own funds would take effect 15 months to two years after a law is passed, according to the bill. Banks would have two years to comply, with the potential for three one-year extensions after that. They could seek another five years for ‘illiquid’ funds such as private equity or real estate, said Lawrence Kaplan, an attorney at Paul, Hastings, Janofsky & Walker LLP in Washington. Giving banks until 2022 to fully implement the so-called Volcker rule is an accommodation for Wall Street in what President Barack Obama called the toughest financial reforms since the 1930s…. Partly as a result of last-minute changes to the wording of the bill, analysts, lawyers and congressional staffers say it’s unclear whether the extension period for illiquid funds would run concurrently with the other transition periods. That could mandate full compliance in less than 12 years.
The London Guardian also detailed the ingenious dilatory tricks for stalling, dodging, and postponing which the Wall Street lobbyists had built into the bill:
Language in the act …allows for a six-month study and a further nine months of rule-making. The measure is supposed to become effective 12 months after the final rule is laid, then banks have two years to conform. But if they need to, they can apply for a three-year extension. On top of that, a five-year moratorium is available for ‘illiquid’ funds that are hard to unwind..."
Durable Goods Orders "Unexpectedly" Sink; How did Economists Blow the Call?
"I cannot help but laugh at economists who refuse to see the economy is slowing dramatically, and somehow think manufacturing is going to lead the way to recovery.
Check out this headline on Bloomberg prior to the durable goods report: Orders for Durable Goods in U.S. Probably Rebounded in June
July 28 (Bloomberg) -- Orders for durable goods probably increased in June for the sixth time in the past seven months, showing business spending is supporting the U.S. recovery, economists said before a report today.
In the Bloomberg survey, the median and average forecasts were for an increase of +1%. The high forecast was a preposterous 4%.
Excluding transportation, the median forecast was +.4% and average +.2%.
Individual Forecasts 1.5 Percent or Greater
Barclays Capital +1.5%
BNP Paribas +4.0%
Citi +1.6%
Desjardins Group +2.0%
High Frequency Economics +2.0%
J.P. Morgan Chase +1.7%
Janney Montgomery Scott +3.2%
Landesbank Berlin +2.8%
Nomura Securities Intl. +3.0%
PineBridge Investments +2.5%
Raymond James +2.0%
RBC Capital Markets +2.3%
Ried, Thunberg & Co. +1.5%
Thomson Reuters/IFR +2.9%
Wrightson Associates +1.5%
Individual Forecasts Below Zero Percent
4CAST Ltd. -.5%
IHS Global Insight -0.8%
MF Global -1.0%
Morgan Keegan & Co. -0.5%
The Actual Report
Inquiring minds are reading the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders June 2010
New Orders
New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease..."
Check out this headline on Bloomberg prior to the durable goods report: Orders for Durable Goods in U.S. Probably Rebounded in June
July 28 (Bloomberg) -- Orders for durable goods probably increased in June for the sixth time in the past seven months, showing business spending is supporting the U.S. recovery, economists said before a report today.
In the Bloomberg survey, the median and average forecasts were for an increase of +1%. The high forecast was a preposterous 4%.
Excluding transportation, the median forecast was +.4% and average +.2%.
Individual Forecasts 1.5 Percent or Greater
Barclays Capital +1.5%
BNP Paribas +4.0%
Citi +1.6%
Desjardins Group +2.0%
High Frequency Economics +2.0%
J.P. Morgan Chase +1.7%
Janney Montgomery Scott +3.2%
Landesbank Berlin +2.8%
Nomura Securities Intl. +3.0%
PineBridge Investments +2.5%
Raymond James +2.0%
RBC Capital Markets +2.3%
Ried, Thunberg & Co. +1.5%
Thomson Reuters/IFR +2.9%
Wrightson Associates +1.5%
Individual Forecasts Below Zero Percent
4CAST Ltd. -.5%
IHS Global Insight -0.8%
MF Global -1.0%
Morgan Keegan & Co. -0.5%
The Actual Report
Inquiring minds are reading the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders June 2010
New Orders
New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease..."
Wednesday, July 28, 2010
U.S. Economy Heading For Double Dip Recession
"At long last, a good portion of mainstream economists now concede that a 'double dip' recession is in the cards for the United States. To head off the pain, sixteen top economists addressed an open letter to the President urging him to "stimulate" the economy with a massive new round of government spending. We feel this is a recipe for driving a recession into a depression. However, there can be few doubts that such a move is being considered in the highest policy circles. Flush from victories in financial regulation and healthcare, the Administration may feel the conditions are ripe to push through another bold initiative.
If so, the United States may find itself in a very diminishing bloc of nations who fail to appreciate the magnitude of the global debt crisis. Its policies will become increasingly at odds with the drift of other world powers. Given American dependence on economic support from abroad, the risks of such isolation are significant..."
If so, the United States may find itself in a very diminishing bloc of nations who fail to appreciate the magnitude of the global debt crisis. Its policies will become increasingly at odds with the drift of other world powers. Given American dependence on economic support from abroad, the risks of such isolation are significant..."
Economic Warnings From Niall Ferguson and Nassim Taleb
"Two widely respected economic commentators, Harvard's Niall Ferguson and Nassim "black swan" Taleb, have offered highly pessimistic assessments of what lies ahead for the American economy.
Information like this is widely ignored by investors in weeks when they have decided that nothing can stop them: they will get rich by investing in the American stock market, no matter what. On July 21, Ben Bernanke told the Senate Banking committee that "the economic outlook looks unusually uncertain." Stocks fell sharply as soon as he gave his testimony. But the Dow Jones Industrial Average recovered at the opening bell the next day, and then rose by almost 400 points over the next three business days. There was no news that countered Bernanke's assessment. Investors simply shrugged it off..."
Information like this is widely ignored by investors in weeks when they have decided that nothing can stop them: they will get rich by investing in the American stock market, no matter what. On July 21, Ben Bernanke told the Senate Banking committee that "the economic outlook looks unusually uncertain." Stocks fell sharply as soon as he gave his testimony. But the Dow Jones Industrial Average recovered at the opening bell the next day, and then rose by almost 400 points over the next three business days. There was no news that countered Bernanke's assessment. Investors simply shrugged it off..."
Tuesday, July 27, 2010
Why Do U.S. Asset Managers Fear Government Gold Confiscation?
"Mr Levine of HSBC in a recent gold conference pointed out that some top U.S. Asset Managers were fearful of the possibility of government confiscation of gold. He explained, that on being told that the bank's U.S. vaults had sufficient space available for their gold he was told that they did not want their gold stored in the U.S.A. but preferably in Europe because they feared that at some stage the U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country's strategy in dealing with the nation's economic problems.
Who are these Asset Managers?
For a start, they are highly qualified capable men who understand the ins and outs of investment management. Such knowledge usually encompasses monetary matters of the sort that would include gold. As such we would suggest their opinions have value.
Why did Roosevelt confiscate U.S. citizens Gold in 1933?
The U.S. was fighting to come out of the Depression and U.S. banks were struggling in a not to dissimilar way that they are today.
The Federal Reserve was fully aware that U.S. money supply was closely related to the gold they held. Money supply had to expand.
Hitler had gained power in Germany. The potential for war now existed.
The value of gold as a reserve asset that provided liquidity, when all else failed was fully understood.
The ability to raise money supply by devaluing the Dollar in terms of gold, was an opportunity that had to be taken.
But where was Roosevelt going to get the gold needed to both enlarge the money supply sufficiently and to provide internationally acceptable money in the event of war? One of the recognized tactics of war always includes forging your enemy's money and undermining the home economy. Gold is difficult to forge.
So every advantage was there to confiscate gold and if needs be, to devalue the $ so instantly enlarge the money supply..."
Who are these Asset Managers?
For a start, they are highly qualified capable men who understand the ins and outs of investment management. Such knowledge usually encompasses monetary matters of the sort that would include gold. As such we would suggest their opinions have value.
Why did Roosevelt confiscate U.S. citizens Gold in 1933?
The U.S. was fighting to come out of the Depression and U.S. banks were struggling in a not to dissimilar way that they are today.
The Federal Reserve was fully aware that U.S. money supply was closely related to the gold they held. Money supply had to expand.
Hitler had gained power in Germany. The potential for war now existed.
The value of gold as a reserve asset that provided liquidity, when all else failed was fully understood.
The ability to raise money supply by devaluing the Dollar in terms of gold, was an opportunity that had to be taken.
But where was Roosevelt going to get the gold needed to both enlarge the money supply sufficiently and to provide internationally acceptable money in the event of war? One of the recognized tactics of war always includes forging your enemy's money and undermining the home economy. Gold is difficult to forge.
So every advantage was there to confiscate gold and if needs be, to devalue the $ so instantly enlarge the money supply..."
Confirmed: U.S. Fiscal Woe Is Worse Than Greece
"...In a Financial Times op-ed dated July 25, Laurence Kotlikoff, economics professor at Boston University, contends due to the “labeling problem”--governments can describe receipts and payments in any way they like--we are essentially “in a fiscal wonderland of measurement without meaning.”
Kotlikoff believes a better benchmark of fiscal fitness is the fiscal gap, or the present value difference between all future expenditures and receipts. His calculations reveal Greece future expenditure at 11.5% of the value of future GDP, after incorporating the new austerity measures.
The US figure, based on the CBO projections--12.2%--is worse than that of Greece, but not by too much.
However, Kotlikoff says the U.S. is in much worse shape than the 12.2% figure suggests, because the CBO’s projections assume “a 7.2% of GDP belt-tightening by 2020,” with "highly speculative” assumptions, such as a substantial rise in tax receipts and wage growth.
A separate analysis by the New York Times also put the U.S. debt--measured by medium term deficit as a percentage of GDP--higher than that of Greece..."
Kotlikoff believes a better benchmark of fiscal fitness is the fiscal gap, or the present value difference between all future expenditures and receipts. His calculations reveal Greece future expenditure at 11.5% of the value of future GDP, after incorporating the new austerity measures.
The US figure, based on the CBO projections--12.2%--is worse than that of Greece, but not by too much.
However, Kotlikoff says the U.S. is in much worse shape than the 12.2% figure suggests, because the CBO’s projections assume “a 7.2% of GDP belt-tightening by 2020,” with "highly speculative” assumptions, such as a substantial rise in tax receipts and wage growth.
A separate analysis by the New York Times also put the U.S. debt--measured by medium term deficit as a percentage of GDP--higher than that of Greece..."
Unemployment is Worse Than We Know, Economic Recovery Challenge Harder Than We Think
"...Unemployment is worse than we know. The Daily Finance site reports that the firm TechnoMetrica which monitors the stats is finding the real figures shocking. “.
“The June poll turned up 27.8% of households with at least one member who's unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department's jobless numbers.”
The site adds, “For years, many economists have pointed to evidence that the government data undercounts the unemployed. Economist Helen Ginsburg, co-founder of advocacy group National Jobs For All Coalition, and John Williams of the newsletter Shadow Government Statistics have been questioning these numbers for years.
In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled "The Unemployment Myth," that the government had "cooked the books" by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low.”
Those books are apparently still being cooked. The Administration now admits there will no movement in the rate until 2012.
What may be more serious is the erosion of the middle class that well underway, Business insider cites these statistics:
• 83 percent of all U.S. stocks are in the hands of 1 percent of the people. • 61 percent of Americans "always or usually" live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007. • 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans. • 36 percent of Americans say that they don't contribute anything to retirement savings. • A staggering 43 percent of Americans have less than $10,000 saved up for retirement. • 24 percent of American workers say that they have postponed their planned retirement age in the past year. • Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008. • Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975
While the middle class is shrinking, their wealth is being transferred to the rich. Senator Bernie Sanders has been livid in denouncing this:
“The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last 15 years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record..."
“The June poll turned up 27.8% of households with at least one member who's unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department's jobless numbers.”
The site adds, “For years, many economists have pointed to evidence that the government data undercounts the unemployed. Economist Helen Ginsburg, co-founder of advocacy group National Jobs For All Coalition, and John Williams of the newsletter Shadow Government Statistics have been questioning these numbers for years.
In fact, Austan Goolsbee, who is now part of the White House Council of Economic Advisers, wrote in a 2003 New York Times piece titled "The Unemployment Myth," that the government had "cooked the books" by not correctly counting all the people it should, thereby keeping the unemployment rate artificially low.”
Those books are apparently still being cooked. The Administration now admits there will no movement in the rate until 2012.
What may be more serious is the erosion of the middle class that well underway, Business insider cites these statistics:
• 83 percent of all U.S. stocks are in the hands of 1 percent of the people. • 61 percent of Americans "always or usually" live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007. • 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans. • 36 percent of Americans say that they don't contribute anything to retirement savings. • A staggering 43 percent of Americans have less than $10,000 saved up for retirement. • 24 percent of American workers say that they have postponed their planned retirement age in the past year. • Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008. • Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975
While the middle class is shrinking, their wealth is being transferred to the rich. Senator Bernie Sanders has been livid in denouncing this:
“The 400 richest families in America, who saw their wealth increase by some $400 billion during the Bush years, have now accumulated $1.27 trillion in wealth. Four hundred families! During the last 15 years, while these enormously rich people became much richer their effective tax rates were slashed almost in half. While the highest paid 400 Americans had an average income of $345 million in 2007, as a result of Bush tax policy they now pay an effective tax rate of 16.6 percent, the lowest on record..."
Monday, July 26, 2010
Applying A Basel III Tier 1 Stress Test Threshold Implies E2.6 Trillion Of Assets In 39 Banks Impaired By Equity Undercapitalization
"With the assumptions and conditions for the stress test pulled straight out of CEBS' collective bottom, it is no surprise that a mere 7 banks for a total $246 billion in affected assets end up being defined as undercapitalized. But what happens when instead of using a 6% Tier 1 capital threshold, a Basel III 8% Tier 1 is used? Something log scale worse. As Austrian Der Standart journalist Lukas Sustala points out, and as demonstrated on his chart below, the failure rate goes up exponentially: instead of 7 banks failing, 39 of Europe's biggest banks would be undercapitalized, and the impaired assets would amount to a whopping E2.6 trillion, requiring at least E30 billion in incremental equity capital, on top of the hundreds of billions already infused by European governments. In Lukas' words: "The stress tests were a farce (taking no account of counterparty risk or a sovereign default), but at least they provide some good data points (I currently look into all the sovereign holdings of the individual banks, so there is more to come). 39 banks fail the 8% criteria."
at http://www.zerohedge.com/article/applying-basel-iii-tier-1-stress-test-threshold-implies-e26-trillion-assets-39-banks-impaire?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/applying-basel-iii-tier-1-stress-test-threshold-implies-e26-trillion-assets-39-banks-impaire?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Ever Wondered How You Know You Are In A Depression? David Rosenberg Explains
"...YOU KNOW YOU ARE IN A DEPRESSION WHEN ...
Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.
The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.
The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.
You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!
Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.
You also know it's a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion..."
at http://www.zerohedge.com/article/ever-wondered-how-you-know-you-are-depression-david-rosenberg-explains?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.
The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.
The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.
You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!
Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.
You also know it's a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion..."
at http://www.zerohedge.com/article/ever-wondered-how-you-know-you-are-depression-david-rosenberg-explains?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
103 U.S. Banks Have Collapsed So Far In 2010 - Do You Know If Your Bank Will Survive?
"Have you ever noticed how almost all U.S. bank closings are now announced over the weekend? It is almost as if someone wants to keep the increasing number of bank closures out of the news cycle as much as possible. The Obama administration continues to use phrases like "green shoots" and "economic recovery", but the truth is that the U.S. banking system is in the middle of a meltdown. On Friday, federal regulators shut down 7 more banks. That means that the total number of U.S. bank failures has reached 103 for 2010 so far. Last year (which was a really bad year for bank closings), we did not break 100 until October. Of course federal officials promise that "the worst is almost over", but can we really trust anything that they tell us at this point?
When it comes to the health of the U.S. banking system, the statistical trends certainly do not look promising.
At the end of 2008, there were 252 U.S. banks on the FDIC's problem list.
At the end of 2009, there were 702 U.S. banks on the FDIC's problem list.
About halfway through 2010, FDIC Chairman Sheila Bair said that 775 banks (approximately 10% of all U.S. banks) were on the problem list.
Does anyone else notice a trend developing?
It is time for everyone in the financial world to admit that the U.S. banking system is dying.
Do you know if your bank if on the problem list?
You might want to go check..."
When it comes to the health of the U.S. banking system, the statistical trends certainly do not look promising.
At the end of 2008, there were 252 U.S. banks on the FDIC's problem list.
At the end of 2009, there were 702 U.S. banks on the FDIC's problem list.
About halfway through 2010, FDIC Chairman Sheila Bair said that 775 banks (approximately 10% of all U.S. banks) were on the problem list.
Does anyone else notice a trend developing?
It is time for everyone in the financial world to admit that the U.S. banking system is dying.
Do you know if your bank if on the problem list?
You might want to go check..."
Obama Preparing to Attack Iran
"Webster G. Tarpley writes: After about two and a half years during which the danger of war between the United States and Iran was at a relatively low level, this threat is now rapidly increasing. A pattern of political and diplomatic events, military deployments, and media chatter now indicates that Anglo-American ruling circles, acting through the troubled Obama administration, are currently gearing up for a campaign of bombing against Iran, combined with special forces incursions designed to stir up rebellions among the non-Persian nationalities of the Islamic Republic. Naturally, the probability of a new fake Gulf of Tonkin incident or false flag terror attack staged by the Anglo-American war party and attributed to Iran or its proxies is also growing rapidly..."
Sunday, July 25, 2010
Will The Record Plunge In Shadow Liabilities Impair Current Account "Shadow" Deficit Funding And Guarantee A Double Dip?
"Some parts of the “internal” shadow banking sub-system specialized in certain steps of the shadow credit intermediation process. These included primarily undiversified European banks, whose involvement in shadow credit intermediation was limited to loan warehousing, ABS warehousing and ABS intermediation, but not origination, structuring, syndication and trading.
The European banks’ involvement in shadow banking was dominated by German Landesbanks (and their off-balance sheet shadow banks—securities arbitrage conduits and SIVs), although banks from all major European economies and Japan were active investors. The prominence of European banks as high-grade structured credit investors goes to the incentives that their capital charge regime (Basel II) introduced for holding AAA ABS, and especially AAA ABS CDOs. As major investors of term structured credits “manufactured” in the U.S., European banks, and their shadow bank offshoots were an important part of the “funding infrastructure” that financed the U.S. current account deficit.
Similar to [Financial Holding Companies'] credit intermediation process, the maturity and credit transformation performed through European banks’ ABS intermediation activities were not adequately backstopped: First, while European banks had access to the ECB for funding, they only had access to euro funding, and not dollar funding. However, given that ABS intermediation involved mainly U.S. dollar-denominated assets, a euro-based lender of last resort was only a part of a solution of funding problems, as borrowed euro funds had to be swapped into dollars, which in turn needed willing counterparties and a liquid FX swap market at all times. As the crisis has shown, however, FX swap markets can become illiquid and dysfunctional in times of systemic stress. Second, similar to other shadow banks, the liabilities of European banks' shadow banking activities were not insured explicitly, only implicitly: some liabilities issued by European shadow banks— namely, German Landesbanks-affiliated SIVs and securities arbitrage conduits—benefited from the implicit guarantee of German federal states' insurance.
Of course, none of this should come as a surprise to anyone who has followed the Goldman Abacus scandal in depth: the primary dumb money recepticle of all toxic ABS and CDO exposure was long ago decided to be the German banks, which due to a regulatory arbitrage deriving from Basel II exemptions, and for other various reasons, discussed in the Fed paper, and on which we as well will touch upon in the future, were eager to gobble up any and every piece of structured debt biohazard to be kept on their "shadow" SIVs. After all they are off balance sheet - why worry? Speaking of, we wonder if Europe tested the tens of trillions in underwater assets held by Landesbanks on off-balance sheet vehicles - actually that is rhetorical.
But the issue here is much more nuanced. In essence, the Landesbanks, due to their very explosive holdings, are the German equivalent of our own bankrupt multi-trillion shadow bank extraordinaire: the GSEs - Fannie and Freddie, which served as the very basis for the creation of the entire US shadow banking system which at last count was $15 trillion - around $3 trillion larger than the non-shadow system (it is also likely hundreds of trillions globally, although nobody will stick out their neck with a near or even rough estimate). Just like our own GSEs warehouse around $7 trillion in "shadow" loans - implicitly guaranteed, but not "really" debt - just ask Larry Summers and Ben Bernanke, with an implicit but not explicit guarantee from the government, so the Landesbanks are in precisely the same position. Yet some could argue that the Landesbanks potentially have a far greater impact on the US economy due to their marginal impact as provider of current account deficit funding, than the GSEs, whose recent function has been merely to house hundreds of billions in securitized delinquent mortgage loans, and thus keep mortgage rates low, preventing an all out collapse of the US economy.
All of this must be kept in mind when considering that according to the most recent Z.1, the collapse in the US shadow economy in the quarter ended March 31, was unprecedented. The decline in shadow banking liabilities (defined as the total shares outstanding in money market mutual funds, the total liabilities of GSEs, total pool securities in the GSE mortgage pool, the total liabilities of ABS issuers, the total amount of securities loaned by funding corporations, the total liabilities of Repo markets, and total outstanding Open Market Paper: all of these can be found in the Z.1) between December 2009 and March 2010 amounted to $1.33 trillion! This was nowhere near even remotely offset by the $250 billion increase in liabilities of Commercial Banks. The full detail of the collapse in the shadow banking system is presented in the charts below.
The real question one should be asking, instead of the asinine debate over whether the Landesbanks are solvent or not (for the immediate answer, look no further than our own GSEs), is just how much of an impact on US current account funding will the massive deleveraging that is occurring in Germany have? And furthermore, if indeed German bank exposure via the shadow banking system is comparable, if not much larger, at least on the margin, to that of China and Japan, whose role in deficit funding via the non-shadow economy is well understood and extensively discussed, then what will the consequences of the continuing collapse in shadow banking liabilities be for America in the coming quarters and years? Because while the Fed may pretend to reliquify the market one day at a time using money that is stored at bank vaults, and never makes it into broad circulation aside from being used to purchase Treasuries, barrels of crude, and occasionally 3x+ beta stocks, the unwind that is occurring in the shadow system is, paradoxically contrary to its name, all too real, and orders of magnitude greater than the reverse reliquification process. Case in point: from its peak of $20.9 trillion in liabilities in Q1 2008, shadow banking has lost $3.8 trillion in liabilities in just the past two years. Indeed, over the same time period, liabilities of commercial banks have increased by $2 trillion. Which means that the Fed has been responsible for plugging the hole: curiously enough, the amount of securities purchased as part of the non-Treasury portion of QE amounts to roughly $1.7ish trillion. Merely a coincidence? In other words, with commercial banks unwilling to ramp up lending activity, and the shadow system vomiting risk each quarter, with a stunning $1.3 trillion flowing out in Q1 alone, should Q2 demonstrate a continued collapse in shadow banking lending, then the Fed will have no option but to get involved yet again, even if that means to merely plug the differential between the shadow and non-shadow system, as the inability to keep this necessary equality balanced would result in a collapse in the US current account funding, which in turn would kill the economy, absent yet another fiscal stimulus. In other words, the Fed's monetary stimuli do to the shadow economy what Obama's fiscal stimuli do to the plain vanilla backstopped deposit lending. And the scary conclusion is both reflation attempts are not only failing, but doing so at an accelerating pace.
Should the Q2 Flow of Funds report confirm another $1.3 trillion (or near) decline in shadow liabilities, it is pretty much game over, for both the US economy, and, when one factors the Fed's only logical response, for the US dollar."
at http://www.zerohedge.com/article/will-record-plunge-shadow-banking-liabilities-impair-shadow-funding-us-current-account-defic?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
The European banks’ involvement in shadow banking was dominated by German Landesbanks (and their off-balance sheet shadow banks—securities arbitrage conduits and SIVs), although banks from all major European economies and Japan were active investors. The prominence of European banks as high-grade structured credit investors goes to the incentives that their capital charge regime (Basel II) introduced for holding AAA ABS, and especially AAA ABS CDOs. As major investors of term structured credits “manufactured” in the U.S., European banks, and their shadow bank offshoots were an important part of the “funding infrastructure” that financed the U.S. current account deficit.
Similar to [Financial Holding Companies'] credit intermediation process, the maturity and credit transformation performed through European banks’ ABS intermediation activities were not adequately backstopped: First, while European banks had access to the ECB for funding, they only had access to euro funding, and not dollar funding. However, given that ABS intermediation involved mainly U.S. dollar-denominated assets, a euro-based lender of last resort was only a part of a solution of funding problems, as borrowed euro funds had to be swapped into dollars, which in turn needed willing counterparties and a liquid FX swap market at all times. As the crisis has shown, however, FX swap markets can become illiquid and dysfunctional in times of systemic stress. Second, similar to other shadow banks, the liabilities of European banks' shadow banking activities were not insured explicitly, only implicitly: some liabilities issued by European shadow banks— namely, German Landesbanks-affiliated SIVs and securities arbitrage conduits—benefited from the implicit guarantee of German federal states' insurance.
Of course, none of this should come as a surprise to anyone who has followed the Goldman Abacus scandal in depth: the primary dumb money recepticle of all toxic ABS and CDO exposure was long ago decided to be the German banks, which due to a regulatory arbitrage deriving from Basel II exemptions, and for other various reasons, discussed in the Fed paper, and on which we as well will touch upon in the future, were eager to gobble up any and every piece of structured debt biohazard to be kept on their "shadow" SIVs. After all they are off balance sheet - why worry? Speaking of, we wonder if Europe tested the tens of trillions in underwater assets held by Landesbanks on off-balance sheet vehicles - actually that is rhetorical.
But the issue here is much more nuanced. In essence, the Landesbanks, due to their very explosive holdings, are the German equivalent of our own bankrupt multi-trillion shadow bank extraordinaire: the GSEs - Fannie and Freddie, which served as the very basis for the creation of the entire US shadow banking system which at last count was $15 trillion - around $3 trillion larger than the non-shadow system (it is also likely hundreds of trillions globally, although nobody will stick out their neck with a near or even rough estimate). Just like our own GSEs warehouse around $7 trillion in "shadow" loans - implicitly guaranteed, but not "really" debt - just ask Larry Summers and Ben Bernanke, with an implicit but not explicit guarantee from the government, so the Landesbanks are in precisely the same position. Yet some could argue that the Landesbanks potentially have a far greater impact on the US economy due to their marginal impact as provider of current account deficit funding, than the GSEs, whose recent function has been merely to house hundreds of billions in securitized delinquent mortgage loans, and thus keep mortgage rates low, preventing an all out collapse of the US economy.
All of this must be kept in mind when considering that according to the most recent Z.1, the collapse in the US shadow economy in the quarter ended March 31, was unprecedented. The decline in shadow banking liabilities (defined as the total shares outstanding in money market mutual funds, the total liabilities of GSEs, total pool securities in the GSE mortgage pool, the total liabilities of ABS issuers, the total amount of securities loaned by funding corporations, the total liabilities of Repo markets, and total outstanding Open Market Paper: all of these can be found in the Z.1) between December 2009 and March 2010 amounted to $1.33 trillion! This was nowhere near even remotely offset by the $250 billion increase in liabilities of Commercial Banks. The full detail of the collapse in the shadow banking system is presented in the charts below.
The real question one should be asking, instead of the asinine debate over whether the Landesbanks are solvent or not (for the immediate answer, look no further than our own GSEs), is just how much of an impact on US current account funding will the massive deleveraging that is occurring in Germany have? And furthermore, if indeed German bank exposure via the shadow banking system is comparable, if not much larger, at least on the margin, to that of China and Japan, whose role in deficit funding via the non-shadow economy is well understood and extensively discussed, then what will the consequences of the continuing collapse in shadow banking liabilities be for America in the coming quarters and years? Because while the Fed may pretend to reliquify the market one day at a time using money that is stored at bank vaults, and never makes it into broad circulation aside from being used to purchase Treasuries, barrels of crude, and occasionally 3x+ beta stocks, the unwind that is occurring in the shadow system is, paradoxically contrary to its name, all too real, and orders of magnitude greater than the reverse reliquification process. Case in point: from its peak of $20.9 trillion in liabilities in Q1 2008, shadow banking has lost $3.8 trillion in liabilities in just the past two years. Indeed, over the same time period, liabilities of commercial banks have increased by $2 trillion. Which means that the Fed has been responsible for plugging the hole: curiously enough, the amount of securities purchased as part of the non-Treasury portion of QE amounts to roughly $1.7ish trillion. Merely a coincidence? In other words, with commercial banks unwilling to ramp up lending activity, and the shadow system vomiting risk each quarter, with a stunning $1.3 trillion flowing out in Q1 alone, should Q2 demonstrate a continued collapse in shadow banking lending, then the Fed will have no option but to get involved yet again, even if that means to merely plug the differential between the shadow and non-shadow system, as the inability to keep this necessary equality balanced would result in a collapse in the US current account funding, which in turn would kill the economy, absent yet another fiscal stimulus. In other words, the Fed's monetary stimuli do to the shadow economy what Obama's fiscal stimuli do to the plain vanilla backstopped deposit lending. And the scary conclusion is both reflation attempts are not only failing, but doing so at an accelerating pace.
Should the Q2 Flow of Funds report confirm another $1.3 trillion (or near) decline in shadow liabilities, it is pretty much game over, for both the US economy, and, when one factors the Fed's only logical response, for the US dollar."
at http://www.zerohedge.com/article/will-record-plunge-shadow-banking-liabilities-impair-shadow-funding-us-current-account-defic?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate
"Why are Banks Hiding High End Residential Real Estate? Real Estate Channel
•Without the FTB tax credit, the housing market is receiving artificial demand and price support from the FHA loan guarantees and banks sitting on mortgages of homes once valued at $300,000
•Banks in areas that were severely damaged by the downturn in domestic real estate (Cook County, Illinois, Miami-Dade County, Florida, Orange County, California) have significant inventories of homes worth more than $300,000 that they will not put on the market, even after foreclosures lasting more than 2 years..."
at http://www.zerohedge.com/article/anecdotal-evidence-banks-are-hiding-depressed-high-end-real-estate?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
•Without the FTB tax credit, the housing market is receiving artificial demand and price support from the FHA loan guarantees and banks sitting on mortgages of homes once valued at $300,000
•Banks in areas that were severely damaged by the downturn in domestic real estate (Cook County, Illinois, Miami-Dade County, Florida, Orange County, California) have significant inventories of homes worth more than $300,000 that they will not put on the market, even after foreclosures lasting more than 2 years..."
at http://www.zerohedge.com/article/anecdotal-evidence-banks-are-hiding-depressed-high-end-real-estate?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
A new contagion of fear about sovereign debt!
"Last week, a Chinese rating agency downgraded U.S. debt from triple A and number one globally, to “double A with a negative outlook” and only thirteenth worldwide. The downgrade renewed fears that the sovereign debt crisis that began in Greece will soon reach America. That is the concern, but the U.S. is distinguished from Greece in that its debt is denominated in its own currency, over which it has sovereign control. The government can simply print the money it needs, or borrow it from a central bank that prints it. We should not let deficit hawks and short sellers dissuade the government from pursuing that obvious expedient.
We did not hear much about “sovereign debt” until early this year, when Greece hit the skids. Investment adviser Martin Weiss wrote in a February 24 newsletter:
“On October 8, Greece’s benchmark 10-year bond was stable and rising. Then, suddenly and without warning, global investors dumped their Greek bonds with unprecedented fury, driving its market value into a death spiral.
“Likewise, Portugal’s 10-year government bond reached a peak on December 1, 2009, less than three months ago. It has also started to plunge virtually nonstop.
“The reason: A new contagion of fear about sovereign debt! Indeed, both governments are so deep in debt, investors worry that default is not only possible — it is now likely!”
We did not hear much about “sovereign debt” until early this year, when Greece hit the skids. Investment adviser Martin Weiss wrote in a February 24 newsletter:
“On October 8, Greece’s benchmark 10-year bond was stable and rising. Then, suddenly and without warning, global investors dumped their Greek bonds with unprecedented fury, driving its market value into a death spiral.
“Likewise, Portugal’s 10-year government bond reached a peak on December 1, 2009, less than three months ago. It has also started to plunge virtually nonstop.
“The reason: A new contagion of fear about sovereign debt! Indeed, both governments are so deep in debt, investors worry that default is not only possible — it is now likely!”
U.S. Jobless Claims and Housing Market Data Point to Worsening Economy
"Reports issued Thursday on initial claims for unemployment benefits and sales of previously owned homes confirm that the US economy is slowing dramatically.
The Labor Department reported that initial jobless claims for the week ended July 17 rose by 37,000 to 464,000. The number was far higher than the consensus forecast of economists. It underscored the bleak prospects for any significant reduction in the unemployment rate, now officially at 9.5 percent.
The four-week moving average of initial claims also rose, hitting 454,750, up 1,250 from the previous week. In a healthy economy with substantial hiring, initial jobless claims usually fall below 400,000.
Also on Thursday, the National Association of Realtors reported that existing home sales fell 5.1 percent in June to an annual rate of 5.37 million units. It was the second consecutive monthly drop. Home sales in the US are down 26 percent from their peak in September 2005..."
The Labor Department reported that initial jobless claims for the week ended July 17 rose by 37,000 to 464,000. The number was far higher than the consensus forecast of economists. It underscored the bleak prospects for any significant reduction in the unemployment rate, now officially at 9.5 percent.
The four-week moving average of initial claims also rose, hitting 454,750, up 1,250 from the previous week. In a healthy economy with substantial hiring, initial jobless claims usually fall below 400,000.
Also on Thursday, the National Association of Realtors reported that existing home sales fell 5.1 percent in June to an annual rate of 5.37 million units. It was the second consecutive monthly drop. Home sales in the US are down 26 percent from their peak in September 2005..."
Saturday, July 24, 2010
Part 5B. What Happens If Things Go Really Badly? More Things Can Go Badly: Credit Default Swaps, Interest Swaps and Options, Foreign Exchange
"...In our Really Bad scenario, there isn’t enough collateral to cover the gross market values. If collateral was required on all positions of all traders and the market values reached 3x their 2008 values, gross market value would be about $100 trillion dollars. That would exceed all sovereign debt, all corporate debt and all outstanding equities. However, even in a dysfunctional market, there is a lot of netting.
There might not be enough collateral even if netting. In recent years, the ratio of “gross credit exposure” to “gross market value” has been about 14-22% (BIS data). Let’s say that there is a need for a maximum of $20 trillion of collateral given the net positions. While there is probably enough collateral worldwide to cover $20 trillion, it would undoubtedly move market prices for acceptable assets. It would also be difficult to buy or borrow that much in a short time period.
It’s not just collateral. During a crisis, huge amounts of money would be changing hands. Many interest rate and FX contracts would have their scheduled payments.
An estimate of OTC losses.
While this is not a market value estimate like Part 5A, in the Really Bad scenario, defaulted sovereigns, banks, and other counterparties might find themselves unable to make a substantial part of their payments, or provide collateral. The IMF has discussed “the systemic risk associated with cascading counterparty failures” in Making Over-the-Counter Derivatives Safer.
Despite some large efforts by academics, governments, and others to estimate stress case losses, there are a myriad of modeling issues and choices. For the Really Bad scenario, I use a similar assumption to the losses on sovereign bonds. 45% of the counterparties have problems providing collateral or making their derivative payments as due. Losses to their counterparties are 50-69% of what is owed. That results in another $4.5 to $9.0 trillion of losses on interest rates and FX, and $0.5 to 1.0 trillion on CDS. So far, we’re at $12.5 to 20.5 trillion of losses in the Really Bad scenario..."
There might not be enough collateral even if netting. In recent years, the ratio of “gross credit exposure” to “gross market value” has been about 14-22% (BIS data). Let’s say that there is a need for a maximum of $20 trillion of collateral given the net positions. While there is probably enough collateral worldwide to cover $20 trillion, it would undoubtedly move market prices for acceptable assets. It would also be difficult to buy or borrow that much in a short time period.
It’s not just collateral. During a crisis, huge amounts of money would be changing hands. Many interest rate and FX contracts would have their scheduled payments.
An estimate of OTC losses.
While this is not a market value estimate like Part 5A, in the Really Bad scenario, defaulted sovereigns, banks, and other counterparties might find themselves unable to make a substantial part of their payments, or provide collateral. The IMF has discussed “the systemic risk associated with cascading counterparty failures” in Making Over-the-Counter Derivatives Safer.
Despite some large efforts by academics, governments, and others to estimate stress case losses, there are a myriad of modeling issues and choices. For the Really Bad scenario, I use a similar assumption to the losses on sovereign bonds. 45% of the counterparties have problems providing collateral or making their derivative payments as due. Losses to their counterparties are 50-69% of what is owed. That results in another $4.5 to $9.0 trillion of losses on interest rates and FX, and $0.5 to 1.0 trillion on CDS. So far, we’re at $12.5 to 20.5 trillion of losses in the Really Bad scenario..."
European Bank Stress Test Politicians Desperate to hide the Truth of Insolvent Banking System
"...The long waited stress test of the 91 of Europe's largest Banks resulted in just 7 of the smaller regional banks failing the test including one from Germany and Greece, and five in Spain, that require capital injections of just Euros 3.5 billion, which is a drop in the ocean when compared against PIGS sovereign debt of Euros 1.2 trillion, but off course the so called stress test FAILED to test for sovereign debt default.
The banks were tested in their ability to primarily withstand economic contraction of a mere 0.4% which is less than 1/10th that of the recession of 2008-2009, which would have and did wipe out ALL of Europe's banks demanding capital injections and unprecedented tax payer support.
On the basis of 7 banks failing at 0.4% GDP contraction implies that even a mild recession of 2% would in reality see as many as 35 banks fail. Therefore the stress amounts to white wash to try and mask the truth that approximately half of Europe's banks would have FAILED a REAL stress test, requiring at least Euro 120 billion of recapitalisation..."
The banks were tested in their ability to primarily withstand economic contraction of a mere 0.4% which is less than 1/10th that of the recession of 2008-2009, which would have and did wipe out ALL of Europe's banks demanding capital injections and unprecedented tax payer support.
On the basis of 7 banks failing at 0.4% GDP contraction implies that even a mild recession of 2% would in reality see as many as 35 banks fail. Therefore the stress amounts to white wash to try and mask the truth that approximately half of Europe's banks would have FAILED a REAL stress test, requiring at least Euro 120 billion of recapitalisation..."
The Fed (finally) beginning to understand the entrenched and endemic nature of this crisis
"...the latest Fed Beige Book that make it clear that the Fed is (finally) beginning to understand the entrenched and endemic nature of this crisis. While the notes are written in shamanic double-speak, the point is unambiguous - members of the Fed don't expect the economy to get back on track until 2015 or 2016.
"Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process to take no more than five to six years."
The simple reality the Fed is waking up to is that the structural underpinnings of the economy are damaged beyond any quick or easy fix.
That's because until the debt is wrung out of the system, either through default or raging inflation - there's no chance of it actually being paid in anything remotely resembling current dollars - the equivalent of an economic Black Death is going to plague the land.
Each new government initiative, the latest being financial reform, that doesn't decisively address the debt, but rather tightens the dead hands of politicians around GDP, only serves to spread the wasting disease like so many flea-infested rats running through the economy.
And so, each new day will find the carts freshly laden with failed homeowners, businesses, and banks that have succumbed.
Pundits are fond of saying that things are never really "different this time around"... yet there is something truly unusual now going on. See if you can spot the disconnect in the following descriptions of the current economy.
-Record total debt.
-Record government deficits.
-Record trade deficits.
-Massive additional government debt financing required to keep the doors open and avoid reneging on social contracts directly affecting the quality of lives of millions of people around the globe - the U.S., Japan, and Europe especially.
-Near record-low interest rates..."
"Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process to take no more than five to six years."
The simple reality the Fed is waking up to is that the structural underpinnings of the economy are damaged beyond any quick or easy fix.
That's because until the debt is wrung out of the system, either through default or raging inflation - there's no chance of it actually being paid in anything remotely resembling current dollars - the equivalent of an economic Black Death is going to plague the land.
Each new government initiative, the latest being financial reform, that doesn't decisively address the debt, but rather tightens the dead hands of politicians around GDP, only serves to spread the wasting disease like so many flea-infested rats running through the economy.
And so, each new day will find the carts freshly laden with failed homeowners, businesses, and banks that have succumbed.
Pundits are fond of saying that things are never really "different this time around"... yet there is something truly unusual now going on. See if you can spot the disconnect in the following descriptions of the current economy.
-Record total debt.
-Record government deficits.
-Record trade deficits.
-Massive additional government debt financing required to keep the doors open and avoid reneging on social contracts directly affecting the quality of lives of millions of people around the globe - the U.S., Japan, and Europe especially.
-Near record-low interest rates..."
U.S. Economy Never Came Out of Recession, Pray and Hold onto Gold
"...In the first place, the U.S. economy has never been in recovery. It was more or less just a statistical recovery. GDP increased because of the way it is calculated, but the real economy and people on the street experienced no growth. Better employment numbers were the result of temporary government hires and those created by the Bureau of Labor Statistics' (BLS) small business birth-death rate model. "Cash for Clunkers" helped the auto industry temporarily, but now auto sales have plummeted. Stimulus for housing only slowed or paused the decline; now that those programs have expired, housing has plunged further. I could go on! Those bearish fundamentals and others are coming back to the point that the market and its followers are beginning to realize the economy is still declining. A lot of people are calling for a double-dip recession, but I don't even think we came out of the recession. This is just a deeper plunge, and will feel more like going into depression.
There are also the debt issues. So far this is mostly focused on Europe, but the U.S. is a bigger problem. Many of the U.S. states are bigger than Greece, and 40 or more of them are in the same bad shape. I expect that to come to the forefront before long because those states are going to have to have federal bailout assistance..."
There are also the debt issues. So far this is mostly focused on Europe, but the U.S. is a bigger problem. Many of the U.S. states are bigger than Greece, and 40 or more of them are in the same bad shape. I expect that to come to the forefront before long because those states are going to have to have federal bailout assistance..."
Friday, July 23, 2010
Surprise, Surprise, Most Banks Passed
"European stress test results are streaming out and surprise, surprise, looks like most of them are passing. All but one of the 14 German banks passed - nationalized mortgage lender Hypo Real Estate Holding failed - while all four French banks tested passed. Results still trickling through but in Spain Cajasur has failed. That’s not surprising either, this is the church-controlled lender that panicked financial markets when it was seized by the Bank of Spain in May. All Spanish and Italian banks have passed the tests too.
Markets are muted in the immediate wake of the results, with the Dow spiking up briefly before dipping a bit into the red. The euro’s more or less flat. No doubt investors will need some time to digest this volley of continental data points.
“Out of the gate, we saw that all the banks appeared to be passing and we saw positive reaction on the market,” said Mark Turner, head of U.S. sales trading for Instinet. “But I think more people started reading into it, and there was speculation questioning of the legitimacy of the stress tests.”
“There’s just too much uncertainty about the stress test, the validity, the credibility,” Mr. Turner said."
Markets are muted in the immediate wake of the results, with the Dow spiking up briefly before dipping a bit into the red. The euro’s more or less flat. No doubt investors will need some time to digest this volley of continental data points.
“Out of the gate, we saw that all the banks appeared to be passing and we saw positive reaction on the market,” said Mark Turner, head of U.S. sales trading for Instinet. “But I think more people started reading into it, and there was speculation questioning of the legitimacy of the stress tests.”
“There’s just too much uncertainty about the stress test, the validity, the credibility,” Mr. Turner said."
Draft Document Suggests Stress Tests Not That Stressful, Euro Gets Hammered
"Newswires have reportedly gotten hold of the draft document for the stress tests, and it’s not pretty. It appears that the worst may be true with regards to how bonds would be subjected to testing. Draft said that haircuts would only be on bonds held in banks’ trading book and not those held in the banks’ banking book, and that no default assumptions were made. The distinction is quite important, as it allows banks to basically underestimate their exposure to distressed peripheral debt. As we understand it, the trading book is meant to capture positions set up by prop desks that would benefit from market price movement, with positions usually held for a limited amount of time and profits determined by mark to market. The banking book contains assets held for a longer amount of time and profits are usually calculated on an accrual basis if held to maturity. We do not know of any analyst that thinks Greece can avoid a debt restructuring. Does it make sense to assume that they will be paid off at par if held to maturity? By leaving out stress tests on the banking book, then a true picture of bank balance sheets will clearly not be obtained..."
CHINESE WARNING SHOTS ACROSS THE BOW
"...This story is a gem. The Chinese Dagong credit agency made an inaugural splash with a debt downgrade of the USTreasury Bonds. They called the US-based trio of debt rating agencies politically biased, an under-statement. The Dagong agency used its first splash into sovereign debt to establish a bold standard of creditworthiness around the world, giving much greater weight to wealth creating capacity and foreign reserves than Fitch, Standard & Poors, or Moodys. They also pay attention to rapidly escalating debt levels. The Chinese Govt has coordinated their strategy, selling off short-term USTreasury Bills, but hanging onto a large raft of long-term USTreasury Bonds. On a net basis, the Chinese purchases have hit a plateau.
Meanwhile, with distracting commentary, China has doubled its gold holdings. At least the Chinese Govt thas promised not to use their foreign reserves as a weapon. What a relief!! And Wall Street promises no more bond misrepresentation, no insider trading, no more fraud, no more drug money laundering (see Wachovia & Wells Fargo). What a relief!! The USGovt strives for clarity about management of China's $2.5 trillion in FOREX reserves, the world's largest. It contains $868 billion in USTreasurys at last count. The growing fear is that, in anger over trade friction, or in disgust over horrible USDollar management, or from a response to discovered hidden USTBond monetization, or with ambition to displace the US from its catbird seat, China could dump USTreasury Bonds with a vengeance. The credit market analysts justifiably call it the Nuclear Option. The Beijing officials have given veiled warning to reduce the USGovt deficits and to put aside thoughts of another Quantitative Easing. The next QE2.0 comes as sure as night follows day. The message is written on the wall, that the United States has forfeited its sovereignty with rampant debt production rather than industrial production..."
Meanwhile, with distracting commentary, China has doubled its gold holdings. At least the Chinese Govt thas promised not to use their foreign reserves as a weapon. What a relief!! And Wall Street promises no more bond misrepresentation, no insider trading, no more fraud, no more drug money laundering (see Wachovia & Wells Fargo). What a relief!! The USGovt strives for clarity about management of China's $2.5 trillion in FOREX reserves, the world's largest. It contains $868 billion in USTreasurys at last count. The growing fear is that, in anger over trade friction, or in disgust over horrible USDollar management, or from a response to discovered hidden USTBond monetization, or with ambition to displace the US from its catbird seat, China could dump USTreasury Bonds with a vengeance. The credit market analysts justifiably call it the Nuclear Option. The Beijing officials have given veiled warning to reduce the USGovt deficits and to put aside thoughts of another Quantitative Easing. The next QE2.0 comes as sure as night follows day. The message is written on the wall, that the United States has forfeited its sovereignty with rampant debt production rather than industrial production..."
Hungary Could Trigger Next Sovereign Debt and Credit Crisis Event
"Jack Barnes writes: The biggest financial news story out of the Europe this summer is getting very little play in the U.S. mainstream press. However, it has the potential to torpedo the European Union (EU), and has disastrous implications for borrowing costs worldwide..."
Mortgage Debt … Credit Card Debt … Corporate Debt — It’s all Shrinking!
"...The most glaring and obvious example of credit shrinkage is the mortgage market.
Just take something like the Mortgage Bankers Association’s purchase loan application index: It topped out at 529.30 in June 2005. This week, it registered 168.90. That’s a stunning 68 percent decline in this key gauge of mortgage demand.
But it’s not just mortgages …
The Fed tracks demand for consumer credit — auto loans, credit cards, and so on. It shrunk $9.1 billion in May after collapsing $14.9 billion in April. Consumer credit has now declined a whopping 18 out of the past 20 months — by a cumulative $167 billion!...
...Why Aren’t We Seeing Any Credit Growth? I’ll Tell You …
Economists and pundits can’t seem to agree why we aren’t seeing any credit growth.
Some blame stingy banks for tightening lending standards too much. Others claim the recent financial reform bill is making banks too uncertain and cautious.
Still others think monetary policy is to blame.
They want the Fed to cut the interest rate it pays on the excess reserves banks park in its vaults from 0.25 percent to 0 percent. That would supposedly inspire banks to make more loans rather than just store idle money at the Fed.
But there’s a very simple answer few people — especially Washington politicians — want to give. There just isn’t any demand out there!
Consumers are wisely deleveraging after going on the wildest borrowing binge in world history. Businesses aren’t borrowing because they don’t need to add factories and hire workers when end user demand for their products remains weak.
That’s why all the money pumping and all the government stimulus isn’t boosting credit or creating a sustainable economic recovery.
This is precisely what we saw happen in Japan after that country’s twin bubbles in stocks and real estate popped.
The Bank of Japan slashed rates to near 0 percent. The government passed stimulus package after stimulus package. Yet the economy muddled along with weak growth and periodic recessions for several years as it worked off the hangover from the bubble days.
Could we be in store for something similar? I sure think so. And that’s why I’m bearish on stocks and the economy here."
Just take something like the Mortgage Bankers Association’s purchase loan application index: It topped out at 529.30 in June 2005. This week, it registered 168.90. That’s a stunning 68 percent decline in this key gauge of mortgage demand.
But it’s not just mortgages …
The Fed tracks demand for consumer credit — auto loans, credit cards, and so on. It shrunk $9.1 billion in May after collapsing $14.9 billion in April. Consumer credit has now declined a whopping 18 out of the past 20 months — by a cumulative $167 billion!...
...Why Aren’t We Seeing Any Credit Growth? I’ll Tell You …
Economists and pundits can’t seem to agree why we aren’t seeing any credit growth.
Some blame stingy banks for tightening lending standards too much. Others claim the recent financial reform bill is making banks too uncertain and cautious.
Still others think monetary policy is to blame.
They want the Fed to cut the interest rate it pays on the excess reserves banks park in its vaults from 0.25 percent to 0 percent. That would supposedly inspire banks to make more loans rather than just store idle money at the Fed.
But there’s a very simple answer few people — especially Washington politicians — want to give. There just isn’t any demand out there!
Consumers are wisely deleveraging after going on the wildest borrowing binge in world history. Businesses aren’t borrowing because they don’t need to add factories and hire workers when end user demand for their products remains weak.
That’s why all the money pumping and all the government stimulus isn’t boosting credit or creating a sustainable economic recovery.
This is precisely what we saw happen in Japan after that country’s twin bubbles in stocks and real estate popped.
The Bank of Japan slashed rates to near 0 percent. The government passed stimulus package after stimulus package. Yet the economy muddled along with weak growth and periodic recessions for several years as it worked off the hangover from the bubble days.
Could we be in store for something similar? I sure think so. And that’s why I’m bearish on stocks and the economy here."
ARE WE SETTING THE PINS UP FOR AN ALTERNATIVE RESERVE CURRENCY?
"...Are we moving towards the BIS and IMF being fractional reserve banks that will create money & credit - a reserve currency that will satisfy Russia and China with an element of Gold backing? A bank such as the BIS could easily assume this role (if it hasn’t already) as could the IMF with possible banking charter adjustments.
The chances are high that this is the roadmap we will find ourselves taking. Like all banking that started as Gold backed you could expect that in this case the little gold backing that starts the process is quickly diminished so a limitless money machine could begin functioning. The gold backing would likely be an initial requirement by Russia and China. The partial gold backing would lend credibility to the acceptance and a possible reserve currency alternative and eventual establishment as the global reserve currency..."
The chances are high that this is the roadmap we will find ourselves taking. Like all banking that started as Gold backed you could expect that in this case the little gold backing that starts the process is quickly diminished so a limitless money machine could begin functioning. The gold backing would likely be an initial requirement by Russia and China. The partial gold backing would lend credibility to the acceptance and a possible reserve currency alternative and eventual establishment as the global reserve currency..."
Gold Market Manipulation, Swaps Signal the Roadmap Ahead, BIS The Super SIV Solution
"...The BIS was very quick to respond to public speculation about the massive gold swap when they immediately clarified that the gold swap was with a commercial bank. Since by its own statements, as I mentioned above, it doesn’t accept deposits from non member banks, this seems confusing on the surface. Does it or doesn’t it accept private deposits? It would be respectful to assume that the BIS is telling the truth and that they did in fact conduct the transaction with a private bank who was transacting the swap on behalf of a central bank or sovereign treasury. This would sort of make everything work. For the BIS to be telling the truth in all their statements, the transaction must be with a member central bank with the involvement of an intermediary commercial bank. But something still isn’t right here.
When you work through the details you quickly arrive at an astounding coincidence. Portugal shows it has 348 tonnes of sovereign gold. The swap was for 346. Portugal is a member bank, though does not sit on the Board, but attends the General Meeting as an observer only. Portugal, as a member of the PIIGS, only days after the unearthing of the swap, was again downgraded by Moody’s, thereby making its lending costs even higher than the already elevated levels being demanded by the financial markets. There is a very strong possibility that the swap is with Portugal. Though who the swap is with is important to those trading debt and credit derivatives it isn’t quite as important to those interested in the gold market.
Ben Davies the CEO of Hinde Capital in London and a player in the gold market suspects (12:40) we may have a modified form of swap emerging. There is the possibility that the commercial bank is in fact a major gold bullion bank. Some of the bullion banks have major short positions on gold that far outstrip the annual physical production of gold. The disconnect between physical and paper gold along with rising gold prices is likely causing serious strains on their balance sheet. As Davies points out the gold may be transacted from a central bank to the BIS through a bullion bank while the gold physically remains with the originating central bank; is classified as ‘unallocated’ at the BIS but in fact remains on the books of the bullion bank. It effectively is double accounted for. The increase in gold would allow gold prices to be pushed lower, which in fact is what has been happening. A careful reading of the BIS financial statements shows more clearly the accounting for such a transaction.
The March 31 2010 Financial Statement of the BIS shows 43.0B SDR’s of gold or 16.6% of total assets. According to note #4 to the BIS Financial Statements: “ Included in ’Gold bars held at central banks” is SDR 8,160.1 million (346 tonnes) (2009: nil) of gold, which the Bank held in connection with gold swap operations, under which the Bank exchanges currencies for physical gold. The Bank has an obligation to return the gold at the end of the contract.” It is very important to appreciate this note is pertaining specifically to BIS ‘assets’ which in the case of banks are what the reader would consider ‘loans’. Under Financial Policy notes #5 to the Financial Statement the BIS is clear that under banking portfolios “all gold financial assets in these portfolios are designated as loans and receivables”. Separately, but very interestingly the BIS additionally states “ the remainder of the Banks equity is held in gold. The Bank’s own gold holdings are designated as available for sale”.
There can be little doubt that the Gold Swap is with a central bank where the physical gold remains. The transaction is considered a deposit at the BIS (liability) but has been lent to a commercial bank (likely a bullion bank) as a loan (asset). The question is only why a bullion bank needs to borrow this quantity of gold, remembering it never gets the physical gold because it remains at the originating central bank. The reader is encouraged to read the Financial Policy notes #4,5, 6, 13, 14, 15, 16, 17 and 19 within the BIS Financial Statement for a clearer understanding along with Notes to the Financial Statements #4 and #11..."
When you work through the details you quickly arrive at an astounding coincidence. Portugal shows it has 348 tonnes of sovereign gold. The swap was for 346. Portugal is a member bank, though does not sit on the Board, but attends the General Meeting as an observer only. Portugal, as a member of the PIIGS, only days after the unearthing of the swap, was again downgraded by Moody’s, thereby making its lending costs even higher than the already elevated levels being demanded by the financial markets. There is a very strong possibility that the swap is with Portugal. Though who the swap is with is important to those trading debt and credit derivatives it isn’t quite as important to those interested in the gold market.
Ben Davies the CEO of Hinde Capital in London and a player in the gold market suspects (12:40) we may have a modified form of swap emerging. There is the possibility that the commercial bank is in fact a major gold bullion bank. Some of the bullion banks have major short positions on gold that far outstrip the annual physical production of gold. The disconnect between physical and paper gold along with rising gold prices is likely causing serious strains on their balance sheet. As Davies points out the gold may be transacted from a central bank to the BIS through a bullion bank while the gold physically remains with the originating central bank; is classified as ‘unallocated’ at the BIS but in fact remains on the books of the bullion bank. It effectively is double accounted for. The increase in gold would allow gold prices to be pushed lower, which in fact is what has been happening. A careful reading of the BIS financial statements shows more clearly the accounting for such a transaction.
The March 31 2010 Financial Statement of the BIS shows 43.0B SDR’s of gold or 16.6% of total assets. According to note #4 to the BIS Financial Statements: “ Included in ’Gold bars held at central banks” is SDR 8,160.1 million (346 tonnes) (2009: nil) of gold, which the Bank held in connection with gold swap operations, under which the Bank exchanges currencies for physical gold. The Bank has an obligation to return the gold at the end of the contract.” It is very important to appreciate this note is pertaining specifically to BIS ‘assets’ which in the case of banks are what the reader would consider ‘loans’. Under Financial Policy notes #5 to the Financial Statement the BIS is clear that under banking portfolios “all gold financial assets in these portfolios are designated as loans and receivables”. Separately, but very interestingly the BIS additionally states “ the remainder of the Banks equity is held in gold. The Bank’s own gold holdings are designated as available for sale”.
There can be little doubt that the Gold Swap is with a central bank where the physical gold remains. The transaction is considered a deposit at the BIS (liability) but has been lent to a commercial bank (likely a bullion bank) as a loan (asset). The question is only why a bullion bank needs to borrow this quantity of gold, remembering it never gets the physical gold because it remains at the originating central bank. The reader is encouraged to read the Financial Policy notes #4,5, 6, 13, 14, 15, 16, 17 and 19 within the BIS Financial Statement for a clearer understanding along with Notes to the Financial Statements #4 and #11..."
Government Moves to Tax, Track All Gold Transactions
"...Essentially, any transaction over $600 will be logged buy the dealer, whether you buy $600 or more worth of gold, or sell it back to the dealer.
Since the transaction will require a social security number (or federal employer identification number) to be logged at the time of sale or purchase, this new legislation gives the government the capability to track every single precious metals purchase (over $600) in the country.
While the legislation implies that taxation of such transactions to generate additional revenue is the goal, precious metals buyers, who generally like to remain anonymous, will most certainly see that the real issue in this instance is not taxation, but the ability to track who owns the gold.
When the US government ran into money problems in the 1930’s, Franklin Roosevelt confiscated all gold held in the hands of the public, and those who refused to give up their gold were either fined or imprisoned. Incidentally, the communists in Russia and eastern Europe did the same thing throughout the 20th century, but those penalties went a bit further than just imprisonment.
With a US dollar currency crisis and a US federal government debt crisis looming, many precious metals investors are concerned that similar government action may be instituted in the future.
Though it has been argued by many that confiscation in the US would not be necessary or feasible, the 1099 legislation certainly makes it easier to identify who has the gold.
Of course, those who purchase prior to January 1, 2012 will be “off the books,” until that time when they attempt to sell their gold to a registered dealer who will be required to log the transaction.
There’s a reason economist Marc Faber advised clients that they should hold their gold outside of the US.
Historically, when the economic or political shit hits the fan, governments have always moved to seize precious metals from the citizenry. The Nazis did it in World War II. The US did it in the 1930’s. The Bolsheviks did it in 1917. Rome did it by removing 90% of the silver from their coinage..."
Since the transaction will require a social security number (or federal employer identification number) to be logged at the time of sale or purchase, this new legislation gives the government the capability to track every single precious metals purchase (over $600) in the country.
While the legislation implies that taxation of such transactions to generate additional revenue is the goal, precious metals buyers, who generally like to remain anonymous, will most certainly see that the real issue in this instance is not taxation, but the ability to track who owns the gold.
When the US government ran into money problems in the 1930’s, Franklin Roosevelt confiscated all gold held in the hands of the public, and those who refused to give up their gold were either fined or imprisoned. Incidentally, the communists in Russia and eastern Europe did the same thing throughout the 20th century, but those penalties went a bit further than just imprisonment.
With a US dollar currency crisis and a US federal government debt crisis looming, many precious metals investors are concerned that similar government action may be instituted in the future.
Though it has been argued by many that confiscation in the US would not be necessary or feasible, the 1099 legislation certainly makes it easier to identify who has the gold.
Of course, those who purchase prior to January 1, 2012 will be “off the books,” until that time when they attempt to sell their gold to a registered dealer who will be required to log the transaction.
There’s a reason economist Marc Faber advised clients that they should hold their gold outside of the US.
Historically, when the economic or political shit hits the fan, governments have always moved to seize precious metals from the citizenry. The Nazis did it in World War II. The US did it in the 1930’s. The Bolsheviks did it in 1917. Rome did it by removing 90% of the silver from their coinage..."
China: The US Is "Insolvent and Faces Bankruptcy"
"...I think China is already diversifying their reserve portfolio, and more stealthily and effectively than one would imagine.
Further, I suspect that through the use of hedging short positions and derivatives such as Credit Default Swaps, China would be able to cover a greater portion of its reserves than the common mind might allow. And if this is in reality one theater in a global struggle for power, sacrificing a pawn or two, and even a bishop, would be a small price to pay to bring down the world's remaining superpower, as indirectly and gracefully as is possible. War is never cheaply waged.
It would most certainly be a nuclear option to outright dump Treasuries outright, and would raise the ire of what is still a formidable military power. But it is the Western mind that is so incapable of seeing the many shades of gray in every situation, the subtle gradations in a range of choices that I believe China not only sees but is already actively pursuing.
China is not the only country that resents the devastating frauds that the US has perpetrated on not only its own people but the rest of the world through its Wall Street banks and ratings agencies...
...The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said. “Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”
A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.
“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said..."
Further, I suspect that through the use of hedging short positions and derivatives such as Credit Default Swaps, China would be able to cover a greater portion of its reserves than the common mind might allow. And if this is in reality one theater in a global struggle for power, sacrificing a pawn or two, and even a bishop, would be a small price to pay to bring down the world's remaining superpower, as indirectly and gracefully as is possible. War is never cheaply waged.
It would most certainly be a nuclear option to outright dump Treasuries outright, and would raise the ire of what is still a formidable military power. But it is the Western mind that is so incapable of seeing the many shades of gray in every situation, the subtle gradations in a range of choices that I believe China not only sees but is already actively pursuing.
China is not the only country that resents the devastating frauds that the US has perpetrated on not only its own people but the rest of the world through its Wall Street banks and ratings agencies...
...The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said. “Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”
A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.
“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said..."
Wednesday, July 21, 2010
America's Unquenchable Defense Spending
"If there's one issue that seems to unite an increasingly divided and fractured capital, it is the ever-expanding federal budget deficit. Everyone seems wants to curb Washington's appetite for spending.
Except one area of the federal budget is seemingly off limits: the $692 billion elephant in the room -- America's defense budget.
The calls from Republicans and Democrats for belt-tightening rarely, if ever, seem to extend to the military. Deficit hawks in the House have even demanded that an amendment to the $37 billion Afghanistan spending bill that would allocate $10 billion to prevent teacher layoffs next school year be paid for with offsetting spending cuts. No such demands have been made about war spending, which since 9/11 tops more than $1 trillion. When it comes to paying for America's wars, Washington's attitude has seemingly been, "Put it on the credit card ... preferably the Chinese one."
Yet, outside the nation's entitlement programs like Social Security, Medicare and Medicaid, the defense budget is by far the biggest chunk of the nation's fiscal pie. Aside from money allocated for the Pentagon there is another more than $300 billion in additional outlays for costs like homeland security, military aid, veteran's benefits and military-related interest on the national debt. That's more than $1 trillion in taxpayer money -- or about $3 out of every $10 in tax revenue...."
Except one area of the federal budget is seemingly off limits: the $692 billion elephant in the room -- America's defense budget.
The calls from Republicans and Democrats for belt-tightening rarely, if ever, seem to extend to the military. Deficit hawks in the House have even demanded that an amendment to the $37 billion Afghanistan spending bill that would allocate $10 billion to prevent teacher layoffs next school year be paid for with offsetting spending cuts. No such demands have been made about war spending, which since 9/11 tops more than $1 trillion. When it comes to paying for America's wars, Washington's attitude has seemingly been, "Put it on the credit card ... preferably the Chinese one."
Yet, outside the nation's entitlement programs like Social Security, Medicare and Medicaid, the defense budget is by far the biggest chunk of the nation's fiscal pie. Aside from money allocated for the Pentagon there is another more than $300 billion in additional outlays for costs like homeland security, military aid, veteran's benefits and military-related interest on the national debt. That's more than $1 trillion in taxpayer money -- or about $3 out of every $10 in tax revenue...."
One Economic Chart That You Should Permanently Burn Into Your Memory
"...Below there is a chart that I want all of you to burn into your memory. It is a chart of total U.S. debt as a percentage of GDP from 1870 until 2009. This chart clearly and succinctly communicates the horror of the debt bubble that we are currently dealing with. When this debt bubble pops, it is going to make the Great Depression look like a Sunday picnic.
As you can see from the chart below, the total of all debt (government, business and consumer) is now somewhere in the neighborhood of 360 percent of GDP. Never before has the United States faced a debt bubble of this magnitude.... "
As you can see from the chart below, the total of all debt (government, business and consumer) is now somewhere in the neighborhood of 360 percent of GDP. Never before has the United States faced a debt bubble of this magnitude.... "
Housing market stumbles
"The housing market, whose collapse pulled the economy into recession in late 2007, is stalling again.
In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market...."
In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans. The expiration of a federal home-buyers tax credit at the end of April is weighing on the market...."
Japan, Land of the Rising Debt
"Investors are understandably scared of the sovereign debt crisis unfolding in Europe. Amid their angst, however, they are ignoring a more likely, and significantly larger, debt catastrophe that is about to hit the nation with the second-largest economy in the world — Japan. Two decades of stimulative, low-interest-rate fiscal policy have made Japan the most indebted nation in the developed world, and as new Prime Minister Naoto Kan recently said, in his first address to Parliament, that situation is not sustainable. Japan has little choice but to raise interest rates substantially, with dire consequences far beyond its shores..."
The Mysterious 380-Tonne Gold Swap and Genius Gold Bugs
"...And it may happen sooner than you think, and hopefully as soon as I had dared hope, as an article titled “Mysterious BIS gold swaps are likely a bullion bank bailout” by Adrian Douglas of MarketForceAnalysis.com refers to the odd goings-on at the Bank for International Settlement as concerns a mysterious 380 tonnes of gold being involved in a mysterious gold swap with some commercial banks.
I smell corruption, a foul odor not dispelled by Mr. Douglas noting, “While a central bank theoretically and practically could hold 380 tonnes of unencumbered gold, there is no way that a commercial bank is sitting on 380 tonnes of unencumbered gold.” Hmmm!
His next sentence is pure horror film, if delivered in a darkly sinister voice, perhaps with some kind of foreign accent dripping intrigue. So lower the lights and set the spooky mood before saying, “So the gold in the BIS swaps came from” (pause for dramatic effect) “somewhere else.” Yikes!...
...But Mr. Douglas did not say any of that, and says instead that the deal is that “In this way the central bank or banks would get cash and the BIS would get the unallocated gold as collateral and as if by magic the bullion bank or banks would get 380 tonnes of gold to bail them out for a few more weeks as massive physical demand for metal eats their lunch.”
In short, the giant gold-manipulation scheme that the Gold Anti-Trust Action committee spent years exposing, and getting attacked by critics who, it turns out, did not know what they were talking about, is running up against the only thing that could ruin their game; buyers are demanding physical gold instead of pieces of paper that say that they represent ownership of gold!..."
I smell corruption, a foul odor not dispelled by Mr. Douglas noting, “While a central bank theoretically and practically could hold 380 tonnes of unencumbered gold, there is no way that a commercial bank is sitting on 380 tonnes of unencumbered gold.” Hmmm!
His next sentence is pure horror film, if delivered in a darkly sinister voice, perhaps with some kind of foreign accent dripping intrigue. So lower the lights and set the spooky mood before saying, “So the gold in the BIS swaps came from” (pause for dramatic effect) “somewhere else.” Yikes!...
...But Mr. Douglas did not say any of that, and says instead that the deal is that “In this way the central bank or banks would get cash and the BIS would get the unallocated gold as collateral and as if by magic the bullion bank or banks would get 380 tonnes of gold to bail them out for a few more weeks as massive physical demand for metal eats their lunch.”
In short, the giant gold-manipulation scheme that the Gold Anti-Trust Action committee spent years exposing, and getting attacked by critics who, it turns out, did not know what they were talking about, is running up against the only thing that could ruin their game; buyers are demanding physical gold instead of pieces of paper that say that they represent ownership of gold!..."
Monday, July 19, 2010
Part 5A. What Happens If Things Go Really Badly? $15 Trillion of Sovereign Debt in Default
"...In our Really Bad scenario, another $9.7 trillion in sovereign debt goes into default. The total debt in default reaches $15.3 trillion, and almost half of all outstanding sovereign debt is in default. The losses are $10.5 trillion at the low end recovery rate of 31%...
Next up: Part 5B. What Happens If Things Go Really Badly? More Things Can Go Badly: Credit Default Swaps, Interest Swaps and Options, Foreign Exchange..."
Next up: Part 5B. What Happens If Things Go Really Badly? More Things Can Go Badly: Credit Default Swaps, Interest Swaps and Options, Foreign Exchange..."
Credit Crunch 2010
"In a recent article for The Telegraph, Ambrose Evans-Pritchard set out some of the statistics that show that the U.S. economy is in really, really bad shape right now....
The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the "shadow inventory" of unsold properties has risen to 7.8m. "The double dip in housing has begun," he said.
It seems like almost everyone is using the words "double dip" these days.
It is almost as if it was already a foregone conclusion.
But the truth is that this would have just been one long economic decline if the U.S. government (and many of the other governments around the globe) had not pumped so much "stimulus" into their economies over the past several years.
Now that governments around the world are pulling back and are beginning to implement austerity measures, the "sugar rush" of the stimulus money is wearing off and the original economic decline is resuming.
All that the trillions in "stimulus" did was to give the world economy a temporary boost and get us into a whole lot more debt.
In his recent article entitled "The U.S. Is On The Edge Of A Growing Deflationary Sinkhole", Lorimer Wilson did a really good job of detailing how all of this debt has gotten us into a complete and total mess....
Capitalism cannot function unless its constantly compounding debt is serviced and/or paid down. Today, the U.S., the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more [in] what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems.
The amount of outstanding U.S. debt, according to Martin D. Weiss, www.moneyandmarkets.com, has now reached levels that can never be paid off. The United States government and its agencies have, by far,
- the largest pile-up of interest-bearing debts ($15.6 trillion),
- the largest accumulation of unsecured obligations (over $60 trillion),
- the largest yearly deficit ($1.6 trillion), and
- the greatest indebtedness to the rest of the world ($4.8 trillion).
The truth is that the United States is in the early stages of a truly historic financial implosion."
The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the "shadow inventory" of unsold properties has risen to 7.8m. "The double dip in housing has begun," he said.
It seems like almost everyone is using the words "double dip" these days.
It is almost as if it was already a foregone conclusion.
But the truth is that this would have just been one long economic decline if the U.S. government (and many of the other governments around the globe) had not pumped so much "stimulus" into their economies over the past several years.
Now that governments around the world are pulling back and are beginning to implement austerity measures, the "sugar rush" of the stimulus money is wearing off and the original economic decline is resuming.
All that the trillions in "stimulus" did was to give the world economy a temporary boost and get us into a whole lot more debt.
In his recent article entitled "The U.S. Is On The Edge Of A Growing Deflationary Sinkhole", Lorimer Wilson did a really good job of detailing how all of this debt has gotten us into a complete and total mess....
Capitalism cannot function unless its constantly compounding debt is serviced and/or paid down. Today, the U.S., the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more [in] what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems.
The amount of outstanding U.S. debt, according to Martin D. Weiss, www.moneyandmarkets.com, has now reached levels that can never be paid off. The United States government and its agencies have, by far,
- the largest pile-up of interest-bearing debts ($15.6 trillion),
- the largest accumulation of unsecured obligations (over $60 trillion),
- the largest yearly deficit ($1.6 trillion), and
- the greatest indebtedness to the rest of the world ($4.8 trillion).
The truth is that the United States is in the early stages of a truly historic financial implosion."
The $4 Trillion Dollar Question
"...Can the US economy really return to “business as usual” when it has 4 million houses surplus to requirement, when 1 out of 4 mortgages are in negative equity, and when by our calculation, it is burdened with $4 trillion of excess mortgage debt, equivalent to 30% of GDP?..."
Roubini Ponders the "L-Shaped Recession"
"Roubini nailed three reasons for a severe recession but dismisses "L" because the U.S. acted faster than Japan. I do not buy that argument for these reasons:
-U.S consumers are in much worse debt shape than Japan.
-There is global wage arbitrage now that did not exist to a huge degree in the mid to late 1990's. Even white collar jobs are increasingly at risk.
-The savings rate in the US is in far more need of repair than what Japan faced. This will be a huge drag on future spending and slow any recovery attempts.
-Japan faced a huge asset bubble (valuation) problem. The US faces both a valuation problem (what debt on the books is worth) and a rampant overcapacity issue as well.
-Japan had an internet boom to help smooth things out. There is no tech revolution on the horizon that will provide a huge source of jobs."
-U.S consumers are in much worse debt shape than Japan.
-There is global wage arbitrage now that did not exist to a huge degree in the mid to late 1990's. Even white collar jobs are increasingly at risk.
-The savings rate in the US is in far more need of repair than what Japan faced. This will be a huge drag on future spending and slow any recovery attempts.
-Japan faced a huge asset bubble (valuation) problem. The US faces both a valuation problem (what debt on the books is worth) and a rampant overcapacity issue as well.
-Japan had an internet boom to help smooth things out. There is no tech revolution on the horizon that will provide a huge source of jobs."
Debt, Deleverage and Default: What Next?
"The relentless forces of debt, deleverage and default were set in motion by the financial market excesses of the last decade. This is hardly surprising, but the details are sobering...
Now there are a number of signature signs on our radar which suggest that the deleveraging process may just be getting under way, exerting a significant drag on GDP growth. In a sicklier global economy, players are desperately trying to raise debt and to export their way out of trouble. When every government is struggling to increase borrowing, competition amongst them will drive up the cost of capital, with the weakest economies paying the highest price. The deleveraging process is likely to result in painful global economic contraction.
While we cannot say for certain when deleveraging will gain momentum, we do know that deleveraging has followed nearly every major financial crisis in the past half-century. In the past, governments have tried to counter deleveraging by creating rapid growth through fiscal or monetary stimulus; exports via devaluation; or preparation for and participation in war. These alternatives are all extraordinarily challenging particularly when every government is trying to achieve the same result. Engineering an easy escape becomes a competitive sport. Growth is tough to achieve. Nation states face three unpalatable options: outright default; inflation; or severe belt-tightening in which private consumption and public spending are dramatically cut."
Now there are a number of signature signs on our radar which suggest that the deleveraging process may just be getting under way, exerting a significant drag on GDP growth. In a sicklier global economy, players are desperately trying to raise debt and to export their way out of trouble. When every government is struggling to increase borrowing, competition amongst them will drive up the cost of capital, with the weakest economies paying the highest price. The deleveraging process is likely to result in painful global economic contraction.
While we cannot say for certain when deleveraging will gain momentum, we do know that deleveraging has followed nearly every major financial crisis in the past half-century. In the past, governments have tried to counter deleveraging by creating rapid growth through fiscal or monetary stimulus; exports via devaluation; or preparation for and participation in war. These alternatives are all extraordinarily challenging particularly when every government is trying to achieve the same result. Engineering an easy escape becomes a competitive sport. Growth is tough to achieve. Nation states face three unpalatable options: outright default; inflation; or severe belt-tightening in which private consumption and public spending are dramatically cut."
Sunday, July 18, 2010
Tale of the Two-Year Note
"FORGET THE NEAR-3% PLUNGE in stocks Friday or the 10-point collapse in consumer confidence in June. The important number to contemplate is 0.569%, the lowest yield ever attained by the two-year Treasury note.
Even though this is the most actively traded security on the planet, the two-year Treasury gets short shrift outside the inside-baseball world of bondos. That is undeserved, since the two-year note is an augury of future short-term interest rates. And its message is that money-market rates will remain depressed throughout its term.
What is extraordinary is that the two-year Treasury didn't reach its (thus far) nadir in late 2008, when financial Armageddon seemed at hand. It came last week, during the early days of the jolly time called earnings season, when—as in Lake Wobegon, where all children are above average—practically all earnings are "above expectations."
Even though this is the most actively traded security on the planet, the two-year Treasury gets short shrift outside the inside-baseball world of bondos. That is undeserved, since the two-year note is an augury of future short-term interest rates. And its message is that money-market rates will remain depressed throughout its term.
What is extraordinary is that the two-year Treasury didn't reach its (thus far) nadir in late 2008, when financial Armageddon seemed at hand. It came last week, during the early days of the jolly time called earnings season, when—as in Lake Wobegon, where all children are above average—practically all earnings are "above expectations."
BNY ConvergEx: "For Every $1 Of Proceeds From Taxpayers, The Federal Government Issues More Than $1 In New Debt"
"In his Friday commentary piece "Tax and Spend. And Spend", Nicholas Colas of BNY ConvergEx read our mind and posted this concise summary on the comparison between 2009 and 2010 tax withholdings, and the unique dynamics thereof. Whereas we will present a detailed analysis of this comparison shortly as there have been numerous interesting themes to discuss, we present the following piece from Colas as a great backdrop to our soon to be posted results. And for all those claiming the tax picture in the US is improving (we are looking at you Daniel Gross), here is the simple reality of the situation: "Simply put, for every $1 of proceeds from taxpayers, the Federal government issues more than $1 in new debt." Must read for all "improvement-ists", especially since Colas references the holy grail of all financial reporting: our all time favorite necessary and sufficient DTS."
at http://www.zerohedge.com/article/bny-convergex-every-1-proceeds-taxpayers-federal-government-issues-more-1-new-debt?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/bny-convergex-every-1-proceeds-taxpayers-federal-government-issues-more-1-new-debt?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Disaster Plan
"Does your family have an economic disaster plan? If not, why not? By now, most people know that very hard economic times are coming. No, America is not going to turn into a post-apocalyptic war zone where motorcycle gangs ravage the populace next week, but the truth is that it doesn't take a genius to understand that the U.S. economic system (and indeed the entire world economic system) is in the process of dying. For decades we have lived far beyond our means by borrowing insane amounts of money, but the party is ending and now many of us are going to get to experience what it means to live below our means. The golden days of the U.S. economic machine are gone, and now we are moving into a time when we are going to reap the fruit of the incredibly foolish economic policies of the past hundred years. Meanwhile, the two major political parties will continue to play the American people against each other. The Democrats will insist that everything will be great if we just give them control. The Republicans will insist that everything will be great if we just give them control. But the truth is that both political parties have had numerous chances over the past 50 years, and each of them have blown them badly. Both parties have had a hand in piling up the biggest mountain of debt in the history of the world, both parties have been complicit in shipping our jobs and our factories off to China and to dozens of third world nations, both parties have dramatically expanded the size of government and the welfare state when they were in control, and both parties have continually handed more power to the big banks and to the Federal Reserve. We built an entire economy based on paper money and a gigantic spiral of debt and now the wheels are starting to come off and people are starting to panic. We are truly going to pay the price for decades of foolish decisions..."
Economic Recovery Is Unsustainable in Its Current Form
"have said it before and I will say it again. If we continue on our current path, our economic recovery is unsustainable. Solving a debt problem with more debt is not a solution. Transferring bad debt from the private sector (banks and corporations) to the public sector (global governments and ultimately taxpayers), without any consequences for the perpetrators only rewards bad behavior. Fiscal constraint and stimulus for growth are necessary to turn this mess around.
I have had my doubts all along whether or not this has been a real recovery or just an illusion of one, artificially produced by government spending but unable to stand on its own. I hope and wish that I am wrong about all this, but unfortunately I doubt that I will be. There are many, many signs that the economy is slowing again now that much of the stimulus has been withdrawn. To add more stimulus would be adding to the future unpayable debt that our children and grandchildren will eventually have to deal with. Some entities must be allowed to fail and go bankrupt to allow others to remain solvent."
I have had my doubts all along whether or not this has been a real recovery or just an illusion of one, artificially produced by government spending but unable to stand on its own. I hope and wish that I am wrong about all this, but unfortunately I doubt that I will be. There are many, many signs that the economy is slowing again now that much of the stimulus has been withdrawn. To add more stimulus would be adding to the future unpayable debt that our children and grandchildren will eventually have to deal with. Some entities must be allowed to fail and go bankrupt to allow others to remain solvent."
University of Michigan Survey of Consumers July 2010
"Today's release of the Reuters/University of Michigan Survey of Consumers for July showed a notable decline in consumer sentiment with a reading of 66.5 remaining just 0.76% above the level seen last year and coming in at the lowest reading since August 2009.
The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) also dropped notably to 60.6, the lowest level since March 2009, and the Current Economic Conditions Index declined to 75.5.
It's important to recognize that while consumer sentiment is still higher than the panic laden trough level seen in late 2008, the current sentiment level is far lower than any level seen during the 2001 tech recession and roughly equivalent to the worst seen during the early 1990s and second dip 1982 recessions."
The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) also dropped notably to 60.6, the lowest level since March 2009, and the Current Economic Conditions Index declined to 75.5.
It's important to recognize that while consumer sentiment is still higher than the panic laden trough level seen in late 2008, the current sentiment level is far lower than any level seen during the 2001 tech recession and roughly equivalent to the worst seen during the early 1990s and second dip 1982 recessions."
The Debt Supercycle
"When I mention The End Game, you'll immediately want to know what is ending. What I think is ending for a significant number of countries in the "developed" world is the Debt Supercycle. The concept of the Debt Supercycle was originally developed by the Bank Credit Analyst. It was Hamilton Bolton, the BCA founder, who used the word supercycle, and he was referring generally to a lot of things, including money velocity, bank liquidity, and interest rates. Tony Boeckh changed the concept to the more simple "Debt Supercycle" back in the early 1970s, as he believed the problem was spiraling private-sector debt. The current editor of the BCA (and Maine fishing buddy) Martin Barnes has greatly expanded on the concept.
Essentially, the Debt Supercycle is the decades-long growth of debt from small and easily-dealt-with levels, to a point where bond markets rebel and the debt has to be restructured or reduced or a program of austerity must be undertaken to bring the debt back to manageable proportions."
Essentially, the Debt Supercycle is the decades-long growth of debt from small and easily-dealt-with levels, to a point where bond markets rebel and the debt has to be restructured or reduced or a program of austerity must be undertaken to bring the debt back to manageable proportions."
Saturday, July 17, 2010
Will The Eurozone Break Up And Devastate The Global Economy?
"One of the most respected financial journalists in the world, Ambrose Evans-Pritchard, is warning that cases currently making their way through the German court system could actually result in the breakup of Europe's monetary union. The cases involve the massive EU bailouts that have been agreed to recently. It is being argued that these bailouts actually violate EU treaty law, and therefore they also violate Germany’s supreme and sovereign Basic Law.
So what would happen if the German courts rule against these bailouts?
Well, it could be catastrophic. Ambrose Evans-Pritchard put it this way in his recent column....
"Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours."
And he is not the only one sounding the alarm. In fact, one major Dutch bank is warning that a full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history and would unleash a deflationary shockwave that would envelop the entire globe including the United States.
That doesn't sound promising, does it?"
So what would happen if the German courts rule against these bailouts?
Well, it could be catastrophic. Ambrose Evans-Pritchard put it this way in his recent column....
"Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours."
And he is not the only one sounding the alarm. In fact, one major Dutch bank is warning that a full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history and would unleash a deflationary shockwave that would envelop the entire globe including the United States.
That doesn't sound promising, does it?"
Double-Dip Days
"The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed.
Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.
At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment. At the global level, the countries that spent too much – the United States, the United Kingdom, Spain, Greece, and elsewhere – now need to deleverage and are spending, consuming, and importing less.
But countries that saved too much – China, emerging Asia, Germany, and Japan – are not spending more to compensate for the fall in spending by deleveraging countries. Thus, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers."
Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.
At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment. At the global level, the countries that spent too much – the United States, the United Kingdom, Spain, Greece, and elsewhere – now need to deleverage and are spending, consuming, and importing less.
But countries that saved too much – China, emerging Asia, Germany, and Japan – are not spending more to compensate for the fall in spending by deleveraging countries. Thus, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers."
Baltic Dry Index is Shouting Warning, But Are Stock Market Investors Listening?
"Jack Barnes writes: Back in May 2008, when global investors still expected economic growth to continue, a thinly followed index began to broadcast a "red-alert" warning to those few who were watching.
The index proceeded to drop by more than 90% in the next six months.
Had you been watching - and heeded its warning - this index would have saved you from the fallout of the biggest financial crisis since the Great Depression.
And here's the thing. This index is updated five days a week and is readily available to anyone who wants to track it.
The index in question is called the "Baltic Dry Index," or BDI, and it once again merits a closer look: After peaking in May, the BDI has fallen for 35 straight days."
The index proceeded to drop by more than 90% in the next six months.
Had you been watching - and heeded its warning - this index would have saved you from the fallout of the biggest financial crisis since the Great Depression.
And here's the thing. This index is updated five days a week and is readily available to anyone who wants to track it.
The index in question is called the "Baltic Dry Index," or BDI, and it once again merits a closer look: After peaking in May, the BDI has fallen for 35 straight days."
Fed Money Printing Won't Matter Much to the Real Economy
"...These guys have already done just about everything they can … pulled every trick out of their hats … and bailed out and backstopped virtually the entire financial system!
While all of that free money helped boost ASSET prices, it hasn’t done a heck of a lot for the “real” economy. Unemployment remains stubbornly high. Housing continues to slump. Investment is anemic and confidence is lacking.
In other words, the Fed is pushing on a string — and more pushing isn’t going to do a darn thing for those of us living in the real world! But since the market is focusing on the Fed again, let me address the question at hand …"
While all of that free money helped boost ASSET prices, it hasn’t done a heck of a lot for the “real” economy. Unemployment remains stubbornly high. Housing continues to slump. Investment is anemic and confidence is lacking.
In other words, the Fed is pushing on a string — and more pushing isn’t going to do a darn thing for those of us living in the real world! But since the market is focusing on the Fed again, let me address the question at hand …"
Fed's volte face sends the dollar tumbling
"Rarely before have a few coded words in the minutes of the US Federal Reserve caused such an upheaval in the global currency system, or such a sudden flight from the dollar.
The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.
Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.
"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."
Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. "The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.
The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.
"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.
"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."
The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus..."
The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.
Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.
"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."
Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. "The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.
The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.
"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.
"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."
The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus..."
Spain calls on ECB for record funding
"They borrowed a total of €126.3bn (£105bn) from the ECB last month, which was a 48pc jump compared with May and the largest amount borrowed according to Bank of Spain records since 1999.
Spain followed Greece into the eurozone debt crisis as concerns over its deficit triggered credit downgrades from ratings agencies and forced the country to agree to tough austerity measures in an attempt to bring the nation's finances back under control..."
Spain followed Greece into the eurozone debt crisis as concerns over its deficit triggered credit downgrades from ratings agencies and forced the country to agree to tough austerity measures in an attempt to bring the nation's finances back under control..."
ShadowStats U.S. CPI Inflation Running at 4.3%, Gold $2,382, Silver $139
"...Despite another recent all-time high in the price of gold in the current cycle, gold and silver prices have yet to approach their historic high prices, adjusted for inflation. Even with the June 28th historic high gold price of $1,261.00 per troy ounce, the earlier all-time high of $850.00 (London afternoon fix, per Kitco.com) of January 21, 1980 has not been breached in terms of inflation-adjusted dollars. Based on inflation through June 2010, the 1980 gold price peak would be $2,382 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $7,689 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars..."
Federal Reserve Printing Masses of Worthless Paper
"...Federal Reserve policy in the 1920s was central to the credit write-offs that sank bank balance sheets later. This story was chronicled by dozens of economists in the 1930s. Their contribution is resurrected in "Masses of Worthless Paper," now posted on the AuContrarian.com website, in the "Articles" section..."
Monday, July 5, 2010
ECB Buys Another €4 Billion In Sovereign Debt; Is Another Failed Fixed Term Deposit Operation Coming Up?
"Last week, the ECB had a failed QE "sterilization" operation, when it was unable to cover the full €55 billion in previously purchased government debt via a Fixed Term Deposit operation, better known as a liquidity reacharound. That particular auction, which occurs every Tuesday, generated only €31.9 billion in bid side interest, or 0.6x BTC. The failure was largely attributed to the massive LTRO maturity the next day. Which is why everyone will be closely following tomorrow's most recent FTD operation. Even more so, since as the ECB just announced, in the prior weak the central bank bought an additional €4 billion in sovereign bonds as part of the Securities Markets Programme which is now at €59 billion. As the chart below shows, this indicates a steady buying interest of €4 billion per week for each of the past 4 weeks. On the other hand, as we have been expecting for a long time, with total bidding interest declining, while the total FTD amount rising each weak, the likelihood of ongoing failed auctions, and continued loss in European liquidity conference keeps going higher."
at http://www.zerohedge.com/article/ecb-buys-another-%E2%82%AC4-billion-sovereign-debt-another-failed-fixed-term-deposit-operation-comin?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/ecb-buys-another-%E2%82%AC4-billion-sovereign-debt-another-failed-fixed-term-deposit-operation-comin?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
The Ticking Time Bomb That Are The Spanish Cajas
"Even with Spain's Cajas, or savings banks, completing the country's most aggressive sector restructuring in history, after nearly 90%, or 39 out of 45 merged or participated in some form of "cold fusion" and benefiting from the financial assistance of the Spanish central bank, there has been precious little written about the actual holdings of this most aggressive lender of mortgage to Spain's 20% unemployed population. Until today: a new report by CreditSights' David Watts indicates that investor worries about the Spanish banking system are very well founded and likely underestimate just how bad the true situation actually is. In "Spanish RMBS: Insider Caja Loan Books", Watts concludes that the Cajas are likely hiding losses on home loans by taking non-performing mortgages out of securitized pools. Absent this unsymmetrical onboarding of risk, the overall deterioration of the broader pool would have become ineligible as collateral in ECB refi operations. In essence, Watts says, "by buying the loans out of the mortgage pool, the cajas would be taking those weaker loans onto their own books." This implies that the 3.7% serious delinquency rate reported by the cajas is in reality far higher, and likely "underestimates their potential losses." And what's worst: as ever more delinquencies mount courtesy of austerity, and the Cajas run out of cash to constantly buy up the weakest performing loans, all of Spain is about to lose ECB collateral access to its hundreds of billions in securitized RMBS, completely locking the country out of any access to liquidity, even that of the ultimate backstop, the European Central Bank. "
Saturday, July 3, 2010
US housing market remains fragile despite low mortgage rates
"After showing signs of a fledgling recovery from the worst downturn in decades, the US housing market appears to be heading back toward the doldrums, as the expiration of a lucrative tax credit for buyers and increased uncertainty about the economy cause home sales to plummet."
Friday, July 2, 2010
The United Nations Declares War On The U.S. Dollar And Publicly Calls For The Establishment Of A New World Currency
"Are you ready for a world currency? If the United Nations has anything to say about it, that is exactly what we are all going to have shoved down our throats. A new United Nations report released on Tuesday essentially declares war on the U.S. dollar and publicly calls on the nations of the world to abandon it as the global reserve currency. This new report entitled "The U.N. World Economic and Social Survey 2010" is one of the most blatant attempts yet that we have seen from a major international organization to move us in the direction of a world currency. For years it was denial after denial after denial that a global currency was being considered. Of course we knew all along by reading their policy papers that the eventual goal of the globalists was indeed to move us over to a global currency. Finally, in just the past year, the International Monetary Fund's special drawing rights (SDRs) were promoted by the G20 as "an international reserve asset" that could be used as a unit of payment for IMF loans. SDRs are currently made up of a basket of various currencies from around the world, but now there are much bigger plans for the SDRs.
According to the new U.N. report, the U.S. dollar should be abandoned in favor of a new world currency based on these SDRs....
"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency."
So why abandon the U.S. dollar? Well, the U.N. report says that we must abandon it because it has not been "stable" enough....
"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency."
According to the new U.N. report, the U.S. dollar should be abandoned in favor of a new world currency based on these SDRs....
"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency."
So why abandon the U.S. dollar? Well, the U.N. report says that we must abandon it because it has not been "stable" enough....
"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency."
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