Interest rate risk hurts — hurts like a 9 per cent market value loss

"The mortgage market — lurching from one risk to another, right?
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too. Because before the financial crisis, rate shifts were really the things keeping investors up at night.
Here’s Fitch’s macro credit team with a worked example in their latest report:

To take a practical example of the potential risks to MBS investors from higher interest rates, an unhedged Fannie Mae MBS (collateralized by 30-year fixed rate conventional mortgage loans) with a 3.5% pass-through rate incurred an approximately 9% price loss over the course of a few months, as Treasury yields increased 130 basis points (bp) between mid-October 2010 and mid-February 2011. By comparison, traditional, high-quality prime mortgages originated between 2000 and 2004 are expected to experience roughly 0.25% in cumulative credit losses, realized over the remaining life of the mortgage pools (e.g. up to 30-year term). Indeed, this 9% market value loss is nearly twice the cumulative expected credit loss of 5.0% for traditional prime mortgages originated between 2005 and 2008, the worst credit performance on record. Further exacerbating the risks to MBS investors in a rising rate environment is the potential for slowing prepayment rates, with many borrowers either unable (because of negative equity and/or tighter underwriting standards) or unwilling (because of escalating mortgage rates) to refinance..."

at  http://ftalphaville.ft.com/blog/2011/04/14/546576/interest-rate-risk-hurts-hurts-like-a-9-per-cent-market-value-loss/

Could ETFs Become the Next Toxic Assets?

"Weird ice cream flavors have in recent years spread like mad and now include such inviting types as raw horseflesh or sardines and brandy. Is something similar happening in the world of ETFs, or Exchange Traded Funds?

Mario Draghi, chairman of the Financial Stability Board, hinted as much last week. On Monday, the FSB delivered a more detailed report on the matter, noting that these once “plain vanilla” investment products have taken a “disquieting” turn and have tacked on “new elements of complexity and opacity.”

The new flavors of ETFs pose new challenges regarding counterparty and collateral risks and could even cause liquidity problems for large asset managers and banks, the FSB said. That’s rather a mouthful compared to the original idea of ETFs, which, as the FSB notes, was to add some flexibility and cost-efficiency on top of the diversification benefits that standard mutual funds already offered.

To be sure, ETFs have been under a constant barrage of criticism from John Bogle, the legendary founder of Vanguard and the investor of index funds..."

at http://blogs.wsj.com/economics/2011/04/14/could-etfs-become-the-next-toxic-assets/?mod=WSJBlog

Strauss-Kahn: The Real Problem With Europe Is It Will Have Weak Growth For As Many As 10 Years

"IMF managing director Dominique Strauss-Kahn spoke to Bloomberg Television today about the situation in Europe, pointing out the difficulty in the region's banking system, the lack of a comprehensive approach to dealing with the problem, and the underlying low growth problem facing Europe.
From his comments:

"The problem is, [European growth] is stable at the low level. The real problem is…a rather long period of low growth in Europe. Even in Germany where growth is at the higher level, but not that high. So the real problem that the Europeans are facing is..a sluggish recovery and low growth for maybe five, six, seven, maybe 10 years..."

at http://www.businessinsider.com/strauss-kahn-european-growth-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1JWZcD6LV

The Liquidation of Government Debt

"Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of “financial repression.” Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks. In the heavily regulated financial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historical standards). For the advanced economies in our sample, real interest rates were negative roughly half of the time during 1945–80. For the United States and the United Kingdom our estimates of the annual liquidation of debt via negative real interest rates amounted on average to 3 to 4 percent of GDP a year. For Australia and Italy, which recorded higher inflation rates, the liquidation effect was larger (around 5 percent per annum). We describe some of the regulatory measures and policy actions that characterized the heyday of the financial repression era..."

at http://www.piie.com/publications/wp/wp11-10.pdf

30 Year Auction Prices At 4.531%, Bid To Cover Dips

"The Treasury just priced the last of its three auctions (for a total of $66 billion) in the current week, in the form of a $13 billion in 30 Year Bond reopening. The auction came in strong compared to a when issued trading 3 bps wide, although the Bid To Cover did see a dip from last month's record 3.02, with $2.83 in bids tendered for every dollar allotted. More importantly, the dramatic drop in Indirect takedown seen yesterday in the 10 Year reopening, was not repeated with 47.2% of the auction granted to foreign investors. This was the second highest Indirect take down in almost two years, with just December 2010's 49.5% higher. Primary Dealers took a respite with 42% of orders allotted to the banks (which will flip a bulk of this bond back to the Fed shortly) , and Direct taking the rest or 10.8%. With this auction, and following $19.19 billion in maturities when all of this week's action settles over the weekend, will bring total debt subject to the ceiling to just $27.2 billion away from breaching the constitutional maximum. Prepare for that to be big news on Monday when the Mainstream Media finds the batteries for its calculator..."

at http://www.zerohedge.com/article/30-year-auction-prices-4569-bid-cover-dips?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 Federal Reserve Sent Billions In Bailout Aid To Millionaires and Billionaires In The Cayman Islands

"In a new article for Rolling Stone (which is a must read), Matt Taibbi exposes some of the folks that the Federal Reserve has been sending money to....

The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."..."

at  http://theeconomiccollapseblog.com/archives/corrupted-5-shocking-examples-of-government-corruption-that-will-blow-your-mind

Rising economic nationalism

"I read a very good piece on the psychology of economic nationalism by SocGen 's Dylan Grice earlier today. Because of some relevant thoughts from a reader regarding austerity, I wanted to pass on my thoughts on what he wrote in the context of the present economic situation.
This is going to be more a 'political economy' post than an economics or financial one. I take an extremely negative view on economic nationalism; and it would probably take too long to explain why here. But I will lay out the arguments as neutrally as I can so you can see what is happening.
Here's what Grice wrote that I found insightful (hat tip Scott):

Many smaller eurozone countries have seen extreme political parties now either on the fringes of – or set to enter – coalition governments (e.g. the Netherlands, Austria and Finland). But the trend is growing. A recent article in 'The Economist' reported that a Catalonian politician, Xavier Garcia Albiol who is running for mayor in Badalona, just north of Barcelona, is gaining local support and national notoriety for his hard-line stance. He told the newspaper, "Wen people stop me in the street, 80% of the time it is to do with immigration or crime."

Let's see how this plays out in the laboratory. Grice writes:

['In-group bias' researcher Henri Tajfel's] most famous experiment demonstrates how easy it is to create real divisions within groups where none previously existed and how those divisions can soon lead to discriminating behavior. Bristol schoolboys from the same year in the same school were given sheets of paper with dots on them and asked to guess how many dots were on each sheet. The boys were told the test was intended to assess their visual abilities and that they’d be split into groups according to performance. In fact, the schoolboys were split randomly.
Tajfel then asked each schoolboy to independently allocate rewards to other schoolboys. But the other schoolboys were to remain anonymous, and the allocator was told only which group the other schoolboy belonged to. Famously, Tajifel discovered that the vast majority of subjects allocated significantly more reward to their in-group, at the expense of the out-group. His theory that discrimination against outsiders was to do with hardwired systematic processing errors rather than a few rogue personality types was vindicated.

When times are tough, people start looking for someone to blame. This is a universal truth. And usually it is not the In-group which gets the blame but out-groups like minorities, immigrants and foreigners. The case against immigration in the U.S. during the Great Depression is instructive:

When the United States last experienced an economic downturn greater than the present day depression, immigrants were often seen as a problem more than a solution because of high unemployment. As a result, Herbert Hoover authorised the Mexican Repatriation Program, which was the removal - by force if necessary - of both American Citizens of Mexican descent and Mexican immigrants from American soil..."

at http://www.creditwritedowns.com/2011/04/rising-economic-nationalism.html#ixzz1JQxAdiUE

Now the IMF is warning about ETFs

"International regulator conspiracy? Unfortunate coincidence for the ETF industry? Or are regulators finally on to something via the power of group think?
We ask because hot on the heels of the Financial Stability Board’s warning about exchange traded funds on Tuesday comes “Annex 1.7″ of the IMF’s latest Global Financial Stability report, entitled ETF Mechanics and Risks.
Here goes the summary (our emphasis):

Exchange-traded funds (ETFs) have become increasingly popular over the past few years. They give investors increased access to emerging market assets while also offering flexibility and leverage to specialized investors. Traditionally, ETFs have physically held underlying assets, but a new breed of ETFs have emerged in Europe that use synthetic replication techniques and derivatives to reduce costs and thereby boost returns. A small percentage of these funds also use leverage to cater to the hedging needs and speculative positions of their nonretail client base.
While these enhancements have reduced costs, they add a layer of complexity and increase counterparty and liquidity risks. The disproportionately large size of some ETFs compared with the market capitalization of the underlying reference indices poses a risk of disruptions in some markets from heavy ETF trading. This annex surveys the growth and mechanics of ETFs and highlights some of the key risks pertaining to synthetic replication and the use of leverage and derivatives in ETFs..."

 at http://ftalphaville.ft.com/blog/2011/04/13/545351/now-the-imf-is-warning-about-etfs/

Bullish Sentiment Stampede

"I have mentioned several times recently that bullish sentiment is extreme. Eğer bir şey, "aşırı" olarak belirtildiği gibi görünüyor gibi bir olarak understatement bir Stampede içine Boğa Torna Sentiment:? If anything, "extreme" seems like an understatement as noted in Bullish Sentiment: Turning into a Stampede?

bir "boğa uzlaşma" da yatırımcılar ve finans profesyonellerinin geniş bir yelpazede arasında kristalize olduğu son Elliott Dalga Kuramcısı raporları: The latest Elliott Wave Theorist reports that a "bullish consensus" has also crystallized among a wide range of investors and financial professionals:

·         "Bireysel yatırımcılar (AAII anket) en altı yıl içinde boğa "Individual investors (AAII poll)—most bullish in six years

·         Bülten danışmanları (II anket 20 haftalık ortalama) en yedi yıl içinde boğa Newsletter advisors (II poll 20-week average)—most bullish in seven years

·         Vadeli tüccarlar (ticaret-futures.com poll)-en fazla dört yıl içinde boğa Futures traders (trade-futures.com poll)—most bullish in four years

·         Yatırım fonu yöneticileri (% nakit) en boğa hiç Mutual fund managers (% cash)—most bullish ever

·         Hedge fon yöneticileri (BoAML anket) en boğa hiç Hedge fund managers (BoAML survey)—most bullish ever

·         Ekonomistler (haber-org anketler)-oybirliğiyle boğa Economists (news-org polls)—unanimously bullish

·         Üst küresel stratejistler (üç yıl öncesinde ulusal paneller)-oybirliğiyle boğa Top global strategists (three national year-ahead panels)—unanimously bullish

·         Hatta ekonomi üzerindeki en 'ayılar' enflasyon nedeniyle stokları boğa vardır! " Even most 'bears' on the economy are bullish on stocks because of inflation!"

yatırımcı psikolojisinin Patterns yeni değildir. Patterns of investor psychology are not new. Aslında, kendilerini tekrarlayın. In fact, they repeat themselves. Dow Teorisi Bugün Richard Russell dan 1960 yılında bu teklif düşünün: Consider this quote in 1960 from Richard Russell of Dow Theory Today:

"Ayı piyasası mitingleri sırasında Psikoloji oldukça tutarlı bir model takip etmek gibi görünüyor. 'Ikincil reaksiyonlar [yukarı] ayı piyasalarında sırasında,' [Robert] Rhea yazdı, 'çok boğa olmak tüccarlar ve piyasa uzmanları için oldukça tek tip bir deneyimdir." " "Psychology during bear market rallies seems to follow a fairly consistent pattern. 'During secondary reactions [upward] in bear markets,' wrote [Robert] Rhea, 'it is a fairly uniform experience for traders and market experts to become very bullish.'"

Those words are as true today as they were 50 years ago..."

at http://globaleconomicanalysis.blogspot.com/

Treasury Sells $21 Billion in Ten Year Bonds As Indirect Interest Drops

"The Treasury just sold $21 billion in a 10 Year reopening (9 year 10 months), at a high yield of 3.494%, just below last month's 3.499%. Overall the auction turned out weak pricing outside of the when issued, confirming that the butterfly-ES correlation (which is primarily driven by the 10 Year) is working. And just as the market dipped into the auction the natural response would be a pick up following the placement. The internals were weak: Primary Dealers were forced to take down more than half (51.7%) of the auction (with every intention to flip to the Fed in a week or so), the highest Primary Dealer takedown since February 2010. In return, Indirect Bidder interest slumped to 42.4%, the weakest showing since October of last year, and the balance, or 5.9% was filled by Directs. The low Bid To Cover completed the weak picture, coming at 3.13, the lowest since December, but in line with a one year average. More importantly, with this $21 billion and yesterday's $32 billion, US debt is now $53 billion higher than the unsettled total disclosed yesterday of $14.268, or $14.321. This is far above the debt limit. It also means that the debt actually subject to the limit is now $14.269 billion, or $25 billion below the ceiling. And keep in mind there is another $13 billion in 30 Years to be auctioned off tomorrow (granted offset by $19.2) billion in maturities. Will the Treasury last through July without a debt ceiling increase at a rate of issuing $125 billion in net debt per month? Not a chance in hell..."

at http://www.zerohedge.com/article/treasury-sells-21-billion-ten-year-bonds-indirect-interest-drops?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

JOHN TAYLOR: PREPARE FOR THE COMING RECESSION

"The world’s largest FX hedge fund manager doesn’t mince words in this CNBC interview. Taylor says the economy will be back into recession by the end of 2011. He believes the recovery has been entirely artificial and once the Fed lifts the veil from QE2, government spending slows and high oil prices hit the consumer, the weak economy will be exposed again. From an investment perspective Taylor views the world as follows:

• Turkey is attractive
• Europe is weaker than the USA
• The Euro is justified at $1.45
• Asian economies remain very strong.
• Commodities should continue to correlate with Asian growth.
• US stocks are “fully priced”.
• He would be US bullish on stocks after a 20% decline..."

at http://pragcap.com/john-taylor-prepare-for-the-coming-recession

Stiglitz: Of the 1%, By the 1%, and for the 1% and the Downward Spiral Into the Abyss

" As we can see, the 'crisis' of the US budget impasse was averted, and the theater came to an end. Sürdürülebilir bütçe oluşturma Şimdi gerçek çalışma başlayabilir. Now the real work of creating a sustainable budget can begin.

Pigmen orta sınıf ve yoksul kendi saldırılarda amansız olacak. The pigmen are going to be unrelenting in their attacks on the middle class and the poor. Saldırılar üç kat şunlardır: The attacks are threefold:

1. 1. ilk etapta kriz nedeniyle mali ve siyasi reform direniyor. resisting financial and political reform which caused the crisis in the first place. kriz ve sonrasında üç yıl önemli bir oyuncu bile suçlanıyor, prim sistemi yeniden yayıldığını ve politikacıların gündemine teşvik etmek bankacılar ve varlıklı elit para birçok milyonlarca alıyor. Three years after the crisis and no major player has even been indicted, the bonus system is flourishing again, and politicians are taking many millions in funds from the bankers and wealthy elite to promote their agendas.

2. 2. ve kurbanları suçlamak zorlayıcı onları kurtarılması en büyük acı çekmek ve harcama yeniden tahsislere aracılığıyla mali sınıfa kurtarılması ve sübvansiyonlar devam ediyor. blaming the victims, and compelling them to take the greatest pain of the bailouts, and continuing bailouts and subsidies to the financial class through spending reallocations. Kurtarılması ve harcama askeri sanayi kompleksi, hükümet kamu görev boğmakta olan. The bailouts and spending on the military industrial complex are crowding out the public functions of government. Sosyal Güvenlik Trust hırsızlık haklı çıkarmaya çalışan insanlar bile vardır. There are even people trying to justify the theft of the Social Security Trust. Bak, para gitti, biz onları taşıdık ve bankalara onlara verilmiş! Look, the funds are gone, we've taken them and given them to the banks! Bu yüzden süt dökmüş üzerinde ağlayarak hayır kullanımı, o kadar emmek ve müzik hareket ve keser ele alalım. So no use crying over spilt milk, suck it up, and let's move on and take your cuts.

3. 3. dürtü vites daha monied çıkarlarını destekleyen mali reform için 'vergi reformu' reform. shifting the impulse to reform from financial reform to 'tax reform' that further supports the monied interests. bir tüketim vergisi, ya da düz bir vergi teşvik gibi ama deniz sığınaklarını ve boşluklar, böylece yükü edenler emek en büyük yüzdesi harcayanların üzerinde en ağır düşer aldatıcı anlamına çeşitli kullanarak birincil gündem olarak zengin için Cut vergiler geçim, temel ihtiyaçları. Cut taxes for the wealthiest as your primary agenda using a variety of deceptive means like promoting a consumption tax, or a flat income tax but with offshore havens and loopholes, so the burden falls most heavily on those who spend the greatest percentage of their labor on subsistence, their basic needs..."

at http://jessescrossroadscafe.blogspot.com/

The Countdown Has Begun for the Eurozone Breakup

"The ECB decided to raise interest rates today, despite the strain it is going to put on the Eurozone. Michael T. Darda açıklayan sendika para için de demek ki bu WSJ ne: Michael T. Darda explains in the WSJ what this could mean for the currency union:

ECB beklendiği gibi politika sıkın başlarsa, kuşatılmış Avrupa çevre ve euro bölgesi kendisi için potansiyel bir tehdit için durum bir "çıkış ışıklar" olabilir. If the ECB starts to tighten policy as expected, it could be a "lights out" situation for the beleaguered European periphery and a potential threat to the euro zone itself.

daha künt açısından, bu hareket Euro dağılmasından için geri sayım başlamış olabilir. In more blunt terms, this move may have begun the countdown to the Eurozone breakup. Bu söndürmeden nasıl başka görmek zordur. It is hard to see how else this can turn out. Almanlar - gerçekten Avrupa'da çekim arama - millet periferde gerekli borçlarının yeniden yapılandırılması konusunda isteksiz ve eşit kurtarılması yeterince sorunu çözmek için büyük sağlamak için isteksizdir. The Germans--the folks who really call the shots in Europe--are reluctant to see the needed debt restructuring in the periphery and are equally reluctant to provide bailouts large enough to fix the problem. Şimdiye kadar Almanlar kağıda bu konularda yol tekme olmuştur. So far the Germans have been kicking the can down the road on these issues. ECB para politikası artık yakında aşağı olabilir tekme yolun bitecek sıkma ile. With ECB monetary policy now tightening they will soon run out of road to kick the can down..."

at http://macromarketmusings.blogspot.com/2011/04/countdown-has-begun-for-eurozone.html

The banking system – still broken

"Here’s a perfectly nuanced view of how quantitative easing — the programme started by the Federal Reserve to avert depression following an almighty banking bubble — impacts asset prices.

First, envision part of the QE process. The Fed purchases a security — a US Treasury, or a slice of MBS — from an investor. That investor then sends the ensuing proceeds to a bank — generating an extra deposit. The bank can then lend that deposit to someone else to buy another security. So the deposit eventually returns to the bank, and it can then lend 90 per cent of it out again. And so on.

In theory, for every dollar the Fed injects into the economy with its asset purchase programme, banks should be able to leverage this 10 times through the bank multiplier. In practice, though, not so much.
Banks balance sheets have traveled sideways — despite $2,000bn worth of QE.
Here’s Dominic Konstam and Alex Li from Deutsche Bank:

The $2 trillion in purchases have literally gone down a black hole. Required reserves haven’t been required to increase and the Fed reserve add has literally simply been hoarded as cash. Excess reserves at the Fed have subsequently soared by the same. In short, QE has been a spectacular disappointment in its impact on bank lending, whether via whole loans or securities. It was as if the banks conducted the very sterilization of QE that many thought perhaps the Fed should do to “contain” inflation expectations.
If asset prices haven’t been increasing because of increased bank loans, then where have all those surging prices — in things like commodities or junk bonds — come from?
Says Deutsche:

Risky security prices have risen since QE but not Treasuries, the main instrument of QE2. Yet banks’ balance sheets have gone sideways. Effectively investors have marked asset prices higher and circumvented the banks. It is as if the first purchase by the Fed from an investor simply triggered a series of deposit for security switches through the investor base with banks never making an additional loan. This is consistent with a greater concern for risky asset post QE2 end, than Treasuries. The danger for investors is that they confuse the result of higher asset prices as reflecting excess liquidity rather than “irrational” exuberance given that actual liquidity (as broadly defined by the banking system) hasn’t gone up at all.

Now think of the QE2, scheduled to end in fewer than two months:

For all the worries about the end of QE2, the focus should be on how we came about the “risk on” trade and elevated asset prices. It was not through revitalized bank lending. There is no banking system that is standing on its own two feet and propelling growth forward. It remains like a herd of deer in the headlights – ready to hand the cash straight back to the Fed when asked for. If risky asset prices were elevated because of the expectation of a kick start from the banks, they are at risk of falling. Treasuries are immune because no one could buy them as the Fed purchased them. There is no call on loans that funded Treasury positions through QE2. Moreover if the banks slowed the pace of deleveraging (deposit destruction) because of the safety of their cash hoard, there is a risk that they may become even more recalcitrant.

Of course, you could argue that this is exactly what the Fed’s been planning.
You sideline a broken banking system and then depend on bond and stock markets for your recovery. But it’s a plan that itself is dependent on those markets keeping up an irrational exuberance without permanent help from the central bank. Either that, it seems, or banks magically start lending…"

at  http://ftalphaville.ft.com/blog/2011/04/12/543596/the-banking-system-still-broken/

Chart of the Day: Fed Ownership of the Yield Curve

"We’ve updated our chart illustrating the Fed ownership of the U.S. yield curve. We’ve also included the percentage of total maturities the Fed owns in each year from the April 2011 data and December 2010 data. Most of POMO buying since December has taken place in the 7-9 year maturities. In December, for example, the Fed owned 13.4 percent of the bonds maturing in 2019 compared to 31.6 percent today.
We’re with the conventional wisdom of no QE3, no massive flight to quality, or a miracle long-term budget agreement. We therefore expect continued upward pressure on interest rates. We recently posted our Flow of Funds analysis showing that the Federal Reserve and foreign flows effectively funded 100 percent of the U.S. budget deficit in Q4 2010. Interest rates need an upward adjustment to attract new non-official buyers, which could also put a short-term lid on commodities, in our opinion. We’re on the same side as the Bond King..."

at http://www.ritholtz.com/blog/2011/04/chart-of-the-day-fed-ownership-of-the-yield-curve/

REINHART: We Have No Choice And Greece, Ireland, And Portugal Will Have To Restructure

"Kenneth Rogoff's partner-in-crime in the book This Time is Different, Carmen Reinhart, has no doubt that the Portugal situation will wind up like situation in Greece and Ireland. During a recent interview, Reinhart, a fellow at the Peterson Institute for International Economics, said that Greece, Ireland, and Portugal would not be able to avoid the restructuring of their debt..."
at http://www.businessinsider.com/carmen-reinhart-eurozone-restructuring-2011-4?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29

Economic Outlook and Downside Risks

"Here is a brief update to a list from last month with my view if the risk to the economy is increasing or decreasing:

1) Higher oil prices and a possible supply shock. Risk increasing...

2) Possible Federal government cutbacks (even shutdown). Risk increasing...

3) U.S. Housing Crisis. Same...

4) The European financial crisis. Same...

5) State and local government cutbacks. Same...

6) Inflation (a two sided coin). Same...

7) Risks from the earthquake in Japan. Risk Diminished..."
at http://www.calculatedriskblog.com/2011/04/economic-outlook-and-downside-risks.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

The Japanese Economy Is In Much Bigger Trouble Than Most People Think

"The truth is that this is a complete and total economic disaster.

The Japanese economy is not going to be the same for many years to come. In fact, many are now warning that this could be one of the triggers that could lead to another major global financial crisis.

One of the big fears is that Japan will need to sell off a large amount of U.S. Treasuries to fund the rebuilding of that nation.

If that were to happen, it could result in a "liquidity crisis" similar to what we saw in 2008. Already the rest of the world is really starting to lose confidence in the U.S. dollar and in U.S. Treasuries, and if Japan starts massively dumping U.S. government debt things could get out of control fairly quickly.

In any event, it is undeniable that the Japanese economy has been absolutely devastated by this crisis. In fact, when you combine the tsunami and the nuclear crisis, this could be the biggest economic disaster that any major industrial power has faced since World War 2.

So will the crisis in Japan push the rest of the globe into another major recession?

Only time will tell..."

at http://theeconomiccollapseblog.com/archives/the-japanese-economy-is-in-much-bigger-trouble-than-most-people-think

Gold, Silver And Oil Are All Skyrocketing And That Is Bad News For The U.S. Economy

"Traditionally, there has been an inverse correlation between the price of gold and the value of the U.S. dollar. Usually when the U.S. dollar goes down, the price of gold goes up.

One of the main reasons why gold has been so strong over the past year is because the U.S. dollar has been rapidly losing value.

So why is the U.S. dollar declining?

Most economists point to all of the quantitative easing that the Federal Reserve has been doing.

So exactly what is quantitative easing?

Well, it is basically like playing Monopoly with someone that reaches under the table and pulls out a bunch of extra money when they are almost broke.

The Federal Reserve has been creating huge amounts of money out of thin air and has been pumping it into the financial system. It is essentially cheating, and it is highly inflationary. The rest of the world has not been amused.

But quantitative easing is not the only issue.

The truth is that whenever the U.S. government goes into more debt, more money is created. The U.S. has been running trillion dollar deficits for several years now, and this has created a lot of new money.

This is another reason why it is so important to get the U.S. government debt situation under control. The Obama administration is projecting that the budget deficit for this fiscal year will be about 1.6 trillion dollars. This is highly inflationary and it will continue to destroy the value of the dollar.

In addition, the rest of the world is beginning to have serious doubts about the sustainability of U.S. government debt. They are starting to lose faith in the U.S. dollar and in U.S. Treasuries.

In fact, investors are losing faith in paper currencies all over the globe. The euro is on the verge of a massive crisis. On Tuesday, Moody's downgraded Portuguese government debt for the second time in a month. Portugal needs a bailout, but they are far from alone. A half dozen European nations are experiencing a financial meltdown and the European debt crisis could spiral out of control at any moment.

Because of all of this financial instability, investors have been seeking some place safe to put their money.

For many investors, precious metals and commodities have been the answer..."

at http://theeconomiccollapseblog.com/archives/gold-silver-and-oil-are-all-skyrocketing-and-that-is-bad-news-for-the-u-s-economy

Money Problems That Never Seem To End: 25 Reasons To Be Absolutely Disgusted With The U.S. Economy

"Our entire financial system is coming apart.

The signs are everywhere.

The following are 25 reasons to be absolutely disgusted with the U.S. economy....

#1 There are now 6.4 million fewer jobs in America than there were when the recession began.

#2 In Southern California, the average price of a gallon of gasoline is $1.00 higher than it was at this time last year.

#3 The average price of gasoline in the United States has jumped about 20 cents in just the last two weeks.

#4 Over the past 12 months the average price of gasoline in the United States has gone up by about 30%.

#5 In the 8 days leading up to the "historic" $38.5 billion budget deal, the U.S. national debt increased by $54.1 billion dollars.

#6 The $38.5 billion in budget cuts that the Republicans and the Democrats have agreed to represent approximately one percent of the federal budget.

#7 During the 2010 campaign, the Republicans promised voters they would cut $100 billion from the budget for 2011. Instead, they gave in when the Democrats offered just $38.5 billion.

#8 The Obama administration had been estimating that the federal budget deficit for fiscal 2011 would be approximately 1.6 trillion dollars. Now it will likely be somewhere around 1.55 trillion dollars which will still be an all-time record..."

at http://theeconomiccollapseblog.com/archives/money-problems-that-never-seem-to-end-25-reasons-to-be-absolutely-disgusted-with-the-u-s-economy