Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers

"The major story of the day is the leveraged EFSF is dead without a popular referendum and a new German constitution says Germany's top judge.

Please consider German turmoil over EU bail-outs as top judge calls for referendum

Germany's top judge has issued a blunt warning that no further fiscal powers may be surrendered to Europe without a new constitution and a popular referendum, vastly complicating plans to boost the EU's rescue machinery to €2 trillion (£1.7 trillion).

Andreas Vosskuhle, head of the constitutional court, said politicians do not have the legal authority to sign away the birthright of the German people without their explicit consent.

"The sovereignty of the German state is inviolate and anchored in perpetuity by basic law. It may not be abandoned by the legislature (even with its powers to amend the constitution)," he said.

"There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit – which might be politically legitimate and desirable – then Germany must give itself a new constitution. A referendum would be necessary. This cannot be done without the people," he told newspaper Frankfurter Allgemeine.

The extraordinary interview comes just days before the Bundestag votes on a bill to revamp the EU's €440bn bail-out fund (EFSF), enabling it to purchase EMU bonds pre-emptively and recapitalise banks..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/germanys-top-judge-throws-major-monkey.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

A Global Agenda for Seven Billion

"Late next month, a child will be born – the 7th billion citizen of planet Earth. We will never know the circumstances into which he or she was born. We do know that the baby will enter a world of vast and unpredictable change – environmental, economic, geopolitical, technological, and demographic.

The world’s population has tripled since the United Nations was created in 1945. And our numbers keep growing, with corresponding pressures on land, energy, food, and water. The global economy is generating pressures as well: rising joblessness, widening social inequalities, and the emergence of new economic powers.

These trends link the fate and future of today’s seven billion people as never before. No nation alone can solve the great global challenges of the twenty-first century. International cooperation is a universal need..."

at http://www.project-syndicate.org/commentary/kimoon19/English

The Trillion Dollar War of Choice, and the Constraints on Macro Policy

"Or at least $805.6 billion as of the end of September, not including debt service and additional reset costs; around $940 billion including interest payments.

As the US economy faces the prospects of stagnant growth or recession, it is of interest to see why the scope for fiscal policy is so circumscribed -- that is why is the debt level so high given that in the last year of the Clinton Administration, we were paying down debt? Figure 1 depicts part of the answer (other parts, here).

Figure 1: Cumulative direct costs, in current dollars by fiscal year, in the Iraq theater of operations ("Operation Iraqi Freedom"). Does not include resulting debt service. Source: Amy Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11," RL33110, Congressional Research Service, March 29, 2011, Table 3. Data for FY2011 is for continuing resolution, for 2012 is Administration FY2012 request.

To understand the magnitude of the cumulative nominal costs as of September 2011, it is useful to normalize by nominal GDP. As of 2011Q2, GDP was $15 trillion SAAR. Hence, cumulative expenditures (not including the resulting incremental interest rate payments) was equivalent to 5.4% of one year’s economic output. Including the interest burden, the (publicly held) debt to GDP ratio would be 6.3 percentage points lower than what it currently is (65.0%)..."

at http://www.blogger.com/blogger.g?blogID=8908604580043680511#editor/target=post;postID=4095793302370146562

Paul Krugman: Euro Zone Death Trip

"The end of the road for the euro?:

Euro Zone Death Trip, by Paul Krugman, Commentary, NY Times: Is it possible to be both terrified and bored? That’s how I feel about the negotiations now under way over how to respond to Europe’s economic crisis...

On one side, Europe’s situation is really, really scary: with countries that account for a third of the euro area’s economy now under speculative attack, the single currency’s very existence is being threatened — and a euro collapse could inflict vast damage on the world.

On the other side, European policy makers seem set to deliver more of the same. They’ll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don’t seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail..."

at http://economistsview.typepad.com/economistsview/2011/09/paul-krugman-euro-zone-death-trip.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

WHAT THE LOSS OF CONFIDENCE COULD MEAN FOR U.S. MARKETS

"After digesting various rumors about the potential response to the EZ crisis, I made an off the cuff comment that we’re to the point where investors have more confidence in blogs such as Zero Hedge than central banks and government leaders. What ensued was a lively and interesting bunch of comments regarding this observation. Among them:

One commented, “..20 years of central banks and governments lying to people, regulators becoming facilitators, and NO accountability.” Another: “The real question is whether this is reversible…As it is now, bias and intellectual lethargy just exacerbate the divisiveness and economic myth-making.”

The purpose of this post is NOT to debate who/what is largely to blame, as that topic has been exhausted and will be debatable for decades on end. Rather, what are the implications of this loss in confidence? Is it more than just investors being unhappy with central banks & government? Or are there real economic implications to this loss of confidence?..."

at http://pragcap.com/what-the-loss-of-confidence-could-mean-for-u-s-markets

INDUSTRIAL METALS PRICES POINT TO GLOBAL ECONOMIC CONTRACTION

"We’ve seen some incredible moves in the market over the course of the last two months, but last week really took the move to an extreme. As previously discussed, precious metals have plummeted, but industrial metals are also experiencing sharp declines. In a near repeat of 2008, we are seeing highly deflationary price action that is consistent with continuing economic weakness. And make no mistake, there is nothing consistent in this environment with a hyperinflation or even a stagflationary environment. I believe we’re likely to see a return of the disinflationary trend that we experienced in the first half of 2010.

In a recent commentary Moody’s elaborated on the alarming action in industrial metals (via Moody’s):..."

at http://pragcap.com/industrial-metals-prices-point-to-global-economic-contraction

Paul Tudor Jones: There's A Decent Probability The U.S. Will Experience A Sovereign Credit Crisis Similar To Europe's

"Paul Tudor Jones sees the possibility of the U.S. experiencing a sovereign credit crisis similar to what Europe is experiencing.

The founder of Tudor Investment Corp and the Robin Hood Foundation recently gave an interview to the Memphis Daily News about spending his college days working as a newspaper editor, but he also spoke about his view on the state of the economy.

He said:

The economic future is “going to be bleak for some period of time, unfortunately.”

“We are at the beginning of a major deleveraging process when it comes to all types of credit – private, corporate, financial and most importantly governmental."

“We saw the same thing happen in the ‘30s and ‘40s, and it took the country a long time before the economy really began to recover from the credit boom of the 1920s. … Personally, I think there is a decent probability that at some point we will experience a sovereign credit crisis similar to what Europe is experiencing.”

The “macro situation” won’t be fixed for several more years..."

at http://www.businessinsider.com/paul-tudor-jones-us-sovereign-crisis-2011?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1Z5Hoc0wx

BBC Speechless As Trader Tells Truth: "The Collapse Is Coming...And Goldman Rules The World"

"In an interview on BBC News this morning that left the hosts gob-smacked (google it... it is the BBC after all), Alessio Rastani outlines in a mere three-and-a-half-minutes what we all know and most ignore. While the whole interview is worth watching, the money shot for us was "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!". While he dreams of recessions, sees Goldman ruling the world, and urges people to prepare, it is hard to disagree with much (or actually anything) of what he says and obviously interventions and machinations means we will have days like this (in Silver for instance), there is only one endgame here and we hope there is less hopeful euphoria (and more preparedness) as we pull back the curtain further an further.

While we do not know who this trader is, one thing we can be 100% certain of is that he will never appear on CNBC..."

at http://www.zerohedge.com/news/bbc-speechless-trader-tells-truth-collapse-comingand-goldman-rules-world

The Federal Reserve Plans To Identify “Key Bloggers” And Monitor Billions Of Conversations About The Fed On Facebook, Twitter, Forums And Blogs

"The Federal Reserve wants to know what you are saying about it. In fact, the Federal Reserve has announced plans to identify "key bloggers" and to monitor "billions of conversations" about the Fed on Facebook, Twitter, forums and blogs. This is yet another sign that the alternative media is having a dramatic impact. As first reported on Zero Hedge, the Federal Reserve Bank of New York has issued a "Request for Proposal" to suppliers who may be interested in participating in the development of a "Sentiment Analysis And Social Media Monitoring Solution". In other words, the Federal Reserve wants to develop a highly sophisticated system that will gather everything that you and I say about the Federal Reserve on the Internet and that will analyze what our feelings about the Fed are. Obviously, any "positive" feelings about the Fed would not be a problem. What they really want to do is to gather information on everyone that views the Federal Reserve negatively. It is unclear how they plan to use this information once they have it, but considering how many alternative media sources have been shut down lately, this is obviously a very troubling sign.
You can read this "Request for Proposal" right here. Posted below are some of the key quotes from the document (in bold) with some of my own commentary in between the quotes....

"The intent is to establish a fair and equitable partnership with a market leader who will who gather data from various social media outlets and news sources and provide applicable reporting to FRBNY. This Request for Proposal ("RFP") was created in an effort to support FRBNY's Social Media Listening Platforms initiative."

A system like this is not cheap. Apparently the Federal Reserve Bank of New York believes that gathering all of this information is very important. In recent years, criticism of the Federal Reserve has become very intense, and most of this criticism has been coming from the Internet. It has gotten to the point where the Federal Reserve Bank of New York has decided that it had better listen to what is being said and find out who is saying it..."

at http://theeconomiccollapseblog.com/archives/the-federal-reserve-plans-to-identify-key-bloggers-and-monitor-billions-of-conversations-about-the-fed-on-facebook-twitter-forums-and-blogs

What Predicts A Financial Crisis?

"From Chapter 1 of the IMF’s recent World Economic Outlook (Box 1.2), a set of findings by Jörg Decressin and Marco Terrones:

The econometric results confirm that net capital inflows, financial sector reform, and total factor productivity are good predictors of a credit boom. Net capital inflows appear to have an important predictive edge over the other two factors.

The Econometric Results

These results are reported in a table of estimates obtained from logit regressions over a sample up to 2010:..."

at http://www.econbrowser.com/archives/2011/09/what_predicts_a.html#ixzz1YzjyTxWY

Multi-Trillion Euro Bailout Plan Allegedly in the Works; Plan Has Failed Already

"The rumor mills are flying this Saturday regarding a Multi-trillion plan to save the eurozone.

Telegraph: European officials are working on a grand plan to restore confidence in the single currency area that would involve a massive bank recapitalisation, giving the bail-out fund several trillion euros of firepower, and a possible Greek default.

German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone’s sovereign debt crisis is spiralling out of control.

Their aim is to build a “firebreak” around Greece, Portugal and Ireland to prevent the crisis spreading to Italy and Spain, countries considered “too big to bail”.

Mish: If that's the plan it, it has failed already. The crisis has already spread to Spain and Italy. In fact, one look at European bank stocks says it has spread to France and Germany as well.

Telegraph: Sources said the plan would have to be released as a whole, as the elements would not work in isolation.

Mish: Lovely. In a typical bicycle wheel if one spoke gets broken the wheel still works fine. In the proposed wheel, if a spoke breaks, the bicycle crashes..."

at http://globaleconomicanalysis.blogspot.com/2011/09/multi-trillion-dollar-bailout-plan.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Fixing the foreclosure process more than a year out

"Examining the extent of mishandled foreclosures at the largest mortgage servicers and fixing a broken system will take more than a year, according to Acting Comptroller of the Currency John Walsh.

Last fall, servicers were found to be signing foreclosure affidavits en masse and without a legal review of the loan files in a scandal that became known as robo-signing. Federal regulators and state attorneys general found oversight and procedural problems across the entire industry and forced 14 of the largest banks — firms that serviced 68% of the mortgages in the U.S. — to sign consent orders. The actions also included two firms that handled documents in foreclosure cases: Lender Processing Services (LPS: 14.18 +2.31%) and Mortgage Electronic Registration Systems..."

at http://www.housingwire.com/2011/09/23/fixing-the-foreclosure-process-more-than-a-year-out?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+housingwire%2FuOVI+%28HousingWire%29

How the Banks Take Down Politicians (Elizabeth Warren Edition)

"Big banks are very powerful, and they destroy politicians they don’t like. Obviously, they don’t do it directly, but operate through front groups. Some of these organizations are known as “media outlets”, such as the New York Post, which outed one of Eric Schneiderman’s lawyers as a dominatrix to embarrass and intimidate his office.

On a Federal level, the most prominent front group through which bank-friendly and corporate-friendly smears happen is the Politico, a powerful establishment trade publication that caters primarily to media insiders and politicians, but gets nearly all of its substantial advertising revenue from lobbyists seeking legislative favors. As an example, almost every single print issue from 2009-2010 had a full-page back page ad from Goldman Sachs.

Today’s online advertisers in Politico include AT&T, Altria (ie. Phillip Morris), Boeing, Lockheed,
Time Warner, and Verizon, all of whom are putting in money through yet another front group, RATE (Reduce America’s Taxes Equitably).

I’ve been hard on Elizabeth Warren for a lot of reasons, and I still don’t think she should be running for Senate. But if you want to understand how Wall Street exercises its political power, the Massachusetts race will be a great object lesson.

And lo and behold, the six most recent headlines in Politico about Elizabeth Warren are:

Elizabeth Warren’s campaign revises pay from TARP panel
Read more: http://www.politico.com/news/stories/0911/64306.html#ixzz1YqTixyKC
Warren faces surprising headwinds
Warren’s TARP panel under scrutiny
Will Warren have much Mass. appeal?
Passed over, Warren still ‘celebrating’
Warren unable to soothe Hill critics

Let’s look at a couple of the recent articles. You’d never know if you read the piece on the 23rd, “Warren faces surprising headwinds” that Warren had gone from being 20 points behind Scott Brown in Massachusetts polls to 2 points ahead. And what is the substance of article? Get this:

The great irony of this is that female candidates actually have fared much better in the South, the most conservative region in the country, than they have in the Bay State.

That’s an interesting factoid, but notice how the headline “surprising headwinds” suggests she is BEHIND, as in she needs to surmount the headwinds to get ahead. Now I’ll confess to having written sensationsationalistic headlines more than occasionally, but this looks an awful lot like a use of the headlines to undermine Warren (remember many readers will merely look at the headline and not read the story proper.

Or let’s look at the one on “TARP panel under scrutiny.” Notice the Congressional Oversight Panel, which Warren led, ended its work in early 2011. The media never paid much attention to the beefs by the Congresscritter from Bank of America, Patrick McHenry (the one who accused Warren of lying about scheduling in the Consumer Financial Protection Bureau hearings) about the level of disclosure by the COP over how it spent its funds (the COP did provide a high level recap, but McHenry wanted granular detail). Even a casual reader of the story can see McHenry’s fingerprints all over it.
This is of course a classic effort Rovian strategy, to undermine Warren on one of her strong points, her reputation for directness and honesty. Unstated is the idea that she insisted on disclosure from Treasury on the TARP while not cooperating with McHenry’s demands..."

at http://www.nakedcapitalism.com/2011/09/how-the-banks-take-down-politicians-elizabeth-warren-edition.html

Treasuries are going to be one of the great shorts of our time

"Jim Rogers : treasuries , I am waiting to short I have shorted them a couple of times too soon , that's one of the bubbles that exists in the world and of course I wish I owned this bubble all this time but treasuries are going to be one of the great shorts of our time if and when the timing is right , I am not very good at market timing , I am a hopeless trader as I have proven to myself many times ..."

at http://jimrogers1.blogspot.com/2011/09/short-treasuries.html#.Tn4cOtKK71Y.pingfm

Eclipse: Living in the Shadow of China's Economic Dominance

"Arvind Subramanian presented the findings of his latest book published by the Peterson Institute, Eclipse: Living in the Shadow of China's Economic Dominance, on September 23, 2011. Mohamed El-Erian of PIMCO and Martin Wolf of the Financial Times led a discussion with Subramanian and the audience.

In his book, Subramanian adopts a historical perspective in comparing China's future rise with the past hegemonies of Great Britain and the United States. He attempts to quantify and project both economic dominance and currency dominance, arguing that China's future dominance could be more imminent, broader in scope, and much larger in magnitude than is currently imagined.

Subramanian argues that China will achieve dominance in the world economy over the next decade or two to a degree that will rival the position of the United Kingdom in the 19th century and the United States for most of the 20th century. He further predicts that the renminbi could eclipse the dollar as the premier reserve currency by the end of this decade or soon thereafter. The profound effect that all this might have on the United States and the world financial and trading systems is explored at some length. The book concludes with a series of proposals for maintaining an open global system in the face of this historical shift in economic relationships, emphasizing the need to tether China further and more sustainably in the multilateral system.

Arvind Subramanian has been a senior fellow at the Institute since 2007. He is also a senior fellow at the Center for Global Development. He was previously at the International Monetary Fund, most recently as assistant director in the research department, and at the GATT in Geneva. He taught at Harvard University's Kennedy School of Government (1999–2000) and the School for Advanced International Studies at Johns Hopkins University (2008–10). Subramanian has published extensively on a wide range of economic issues and is a steady contributor to the op-ed pages of the Financial Times, Business Standard of India, and other leading newspapers..."

at http://www.piie.com/events/event_detail.cfm?EventID=198&utm_source=feedburner&utm_medium=%24%7Bfeed%7D&utm_campaign=Feed%3A+%24%7Bupdate%7D+%28%24%7BPIIE+Update%7D%29

The Great American Debt Flow

"The public debt of the United States has increased by over $500 billion each year since fiscal year (FY) 2003, and as of September, 2011, the gross debt was about $14.7 trillion, of which closed to $10 trillion was held by the public and about $4.6 trillion was intragovernmental holdings (e.g. Social Security, Medicare, etc. which some believe should not be included part of the national debt). The gross debt is about 98% of the U.S. GDP in 2011, and debt held by the public at 67% of GDP.

Is The U.S. Government Stockpiling Food In Anticipation Of A Major Economic Crisis?

"Is the U.S. government stockpiling huge amounts of food and supplies in anticipation that something bad is about to happen? Is something about to cause a major economic crisis that will require large quantities of emergency food? For a while, I have been hearing things about the government storing food through the grapevine and I have not been sure what to think about those rumors. Well, today I received a phone call that blew me away. I debated for quite a while before I decided whether or not to share this information with you all. Normally I do not like to talk about anything unless I am able to prove it by pointing to an article in the mainstream media. But the source of the information that I am about to share with you is rock solid. I cannot reveal his name, so you will just have to trust me on that. Hopefully the following information will be one more "dot" as we all try to connect the dots about what is really going on out there.

This morning I received a call from a very prominent person in the storable food industry. He has asked me not to reveal his name. I have been dealing with him for an extended period of time and I consider him to be a rock-solid source. When I talked to him today, he had just received a huge order for storable food from a U.S. government source. He told me that the dollar amount of the order was in the "five figures".

When he asked about why so much food was being ordered, the government source told him essentially that "you know what is coming". When pushed further, the government official did not elaborate..."

at http://theeconomiccollapseblog.com/archives/is-the-u-s-government-stockpiling-food-in-anticipation-of-a-major-economic-crisis

Shiller: The Great Debt Scare

"Robert Shiller:

The Great Debt Scare, by Robert J. Shiller, Commentary, Project Syndicate: It might not seem that Europe’s sovereign-debt crisis and growing concern about the United States’ debt position should shake basic economic confidence. But they apparently have. And loss of confidence, by discouraging consumption and investment, can be a self-fulfilling prophecy, causing the economic weakness that is feared. ...

The ... Thomson-Reuters University of Michigan Surveys of Consumers ... has included a remarkable question about the reasonably long-term future, five years hence...:

“Looking ahead, which would you say is more likely – that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?” ...

Those answers plunged into depression territory between July and August, [the period when US political leaders worried everyone that they would be unable to raise the federal government’s debt ceiling and prevent the US from defaulting,] and the index of optimism based on answers to this question is at its lowest level since the oil-crisis-induced “great recession” of the early 1980’s. It stood at 135, its highest-ever level, in 2000, at the very peak of the millennium stock market bubble. By May 2011, it had fallen to 88. By September, just four months later, it was down to 48..."

at  http://economistsview.typepad.com/economistsview/2011/09/shiller-the-great-debt-scare.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

Two Terrible New Headlines For European Banks

"Two headlines this morning signal more trouble ahead for Euro banks.

FIRST: Olivier Bailly, a spokesman for the European Commission, said this morning that there are no plans to speed up re-capitalization for EU banks.

He said, "It has been going on since 2008, it is worthwhile recalling that. The amount for recapitalization of European banks is 420 billion (euros)."

But there won't be a coordinated aid effort, he says, "there is no big European plan to recapitalize the banks." Many, including the IMF's Christine Lagarde, have said that banks need to recapitalize urgently because they have so much exposure to the Greece and the Eurozone debt crisis that if a negative capital event happens (which might in Greece), many banks would almost certainly be in default (like Deutsche CEO Josef Ackermann said).

Turns out yesterday's rumor about imminent recapitalization were false. Recapitalization is up to the individual member states and/or banks.

Also, various analysts estimate that EU banks' capital hole would be north of $300 billion (Lagarde says it's $410 billion) if Greece defaults, but no one can quantify the size of the hole precisely enough for investors to "step up and subscribe to rights issues, etc," according to an investment banker whose job it is to sell bank shares. Bailly's statement provides a little bit of clarity here.
SECOND: The NYTimes reports that Euro banks have stopped lending, perhaps a result of investors' unwillingness to invest when they're uncertain that others will also inject capital

Debt issuance by banks has slowed to a trickle at the same time that short-term interbank lending is drying up. The financing drought raises questions about whether banks will have enough money to refinance their own long-term debt and still meet demand for loans.

The vicious cycle is gaining speed.

The bazooka needed would have to be $1.3 - $2 trillion in size, officials estimate."

at http://www.businessinsider.com/eu-banks-wont-get-capitalized-2011-9?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1YnzgHoNH

China Pushes For More Stable Reserve Currency - Bye Bye USD?

"Helpful non-confrontational, non-trade-war, conciliatory comments from China's finance minister Xie speaking at the IMF meetings.

*CHINA SAYS IMF SHOULD STUDY DEFECTS OF WORLD MONETARY SYSTEM
*CHINA SAYS IMF SHOULD DIVERSIFY GLOBAL RESERVE CURRENCIES
*CHINA SEEKS `STABLE VALUE' IN RESERVE CURRENCY SYSTEM

And in case anyone is still unsure of their commitment to slow growth:

*CHINA WILL SEEK TO MANAGE INFLATION EXPECTATIONS, XIE SAYS..."

at  http://www.zerohedge.com/news/china-pushes-more-stable-reserve-currency-bye-bye-usd