Global debt alarm

Liam Halligan
Market alarm as US fails to control biggest debt in history
US Treasuries last week suffered their biggest two-day sell-off since the collapse of Lehman Brothers in September 2008. The borrowing costs of the government of the world’s largest economy have now risen by a quarter over the past four weeks.
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Comment: Let's remember what I wrote on this blog on November 12: "A mega crash has become inevitable. We're getting closer day by day, minute by minute. Bonds will crash first, taking the stock market and the dollar down with them."

Global bond rout

By Ambrose Evans-Pritchard 8:03PM GMT 08 Dec 2010
The yield on 10-year Treasuries – the benchmark price of money worldwide and the key driver of US mortgages rates – has rocketed to 3.3pc, up 35 basis points since President Barack Obama agreed on Monday to compromise with Senate Republicans on tax cuts.
The Treasury sell-off has ricocheted through the global system, triggering bond sell-offs in Asia, Europe and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3pc.
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Comment: Let's remember what I wrote on this blog on November 12:
- A mega crash has become inevitable. We're getting closer day by day, minute by minute. Bonds will crash first, taking the stock market and the dollar down with them.

Euros create permanent debt-crisis mechanism

European Leaders Create 2013 Debt Mechanism Amid Debate on Immediate Steps


By James G. Neuger and Jonathan Stearns - Dec 17, 2010 8:06 AM GMT-0200 European Union leaders agreed to amend the bloc’s treaties to create a permanent debt-crisis mechanism in 2013 as they struggled to bridge divisions over immediate steps to stabilize bond markets.

A day after the European Central Bank armed itself with more capital to resist the crisis, the EU weighed measures such as using the bloc’s main rescue fund to buy bonds of fiscally distressed countries including Portugal and Spain.
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German business riding high

German business confidence unexpectedly rose to a record in December as stronger domestic demand helped bolster the recovery in Europe’s largest economy.
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Backgrounder: http://whiskeyandgunpowder.com/germanys-stable-economy/

Is it this how it is?

"... What we have in the world today is not capitalism. Rather, it more closely resembles "feudalism" than anything else. The elite are "monopoly men" who use their unbelievable wealth and power to dominate the rest of us. In fact, it was John D. Rockefeller who once said that "competition is sin".
It would be great if we lived in a world where those living in poverty were encouraged to start owning land, to create businesses and to build better lives for themselves.
But instead, things are going the other way. Wealth is becoming more concentrated in the hands of the elite, and the middle class is starting to be wiped out even in prosperous nations such as the United States.
It turns out that the global elite have decided that they don't really need so many expensive American "worker bees" after all and they have been moving thousands of factories and millions of jobs overseas. Meanwhile the American people are so distracted watching Dancing with the Stars, Lady Gaga and their favorite sports teams that they don't even realize what is going on..."
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Comment: Even if it were so, they will not win. If such an "elite" existed it would get wiped out. The same unhampered greed that drives these people towards wealth accumulation, makes them also blind to risk.

Why it would be absurd to leave the eurozone ...

... and why, implicityly, it is absurd to speculate on the demise of the euro:
The Economist explains:
http://www.economist.com/node/17629661

Making fun of Bernanke

is not funny at all:
http://dailybail.com/home/watch-jon-stewart-expose-bernankes-lies-from-60-minutes-the.html

It's not the euro, the problem is debt

Listen what Jim Rogers has to say about Britain:
http://www.youtube.com/watch?v=Imwu1lM02C0

Money for nothing

According to recovery.gov, the President's website designed to track the stimulus plan, the $800 Billion plus porkulous bill passed in February 2009 is responsible for 3,348,813 jobs.  According to a new analysis conducted by the San Fransisco office of the Federal Reserve, the president's projection is off by only 3,348,813 jobs.  That's correct The American Recovery and Reinvestment Act of 2009 created exactly zero permanent jobs.
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Comment: It seems to me that I said that before the San Francisco office of the Federal Reserve even took notice: http://mises.org/daily/4158
or just listen in: http://www.youtube.com/watch?v=9gUGfR4b_ew

Sign of the times that the end of paper wealth has come

A retired Navy doctor put his 52 year-old diving watch up for sale on eBay at a price of $9.95. After a week, it sold for $66,100.
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You're the witness of a criminal act - do you know?

QE2 Is Not Only a Mistake, "It's Criminal," Says Vitaliy Katsenelson

The Treasury market is rebounding Thursday. Yields have fallen from a six-month high, reached Wednesday, but are still up from where they were earlier in the week. Yields on the 10-year are trading at 3.23% today.
This is not what the Federal Reserve had in mind when the central bank announced the plan to purchase $600 billion in Treasury bonds -- a move that was hoped would lower rates and stimulate the U.S. economy.
Of course, there are many critics of the Fed who say the second round of quantitative easing is wrong and even harmful. "The failure of QE2 doesn't worry me. It's the success that worries me," says Vitaliy Katsenelson of Investment Management Associates.
"I think it's criminal," he tells Aaron in the accompanying clip. "They're forcing people that should not be taking risk to take risk." The fear is the Fed is repeating its past mistakes -- helping to build an asset bubble that will eventually burst with grave consequences.
Even if the Fed is successful in keeping down rates, Katsenelson doesn't believe it will have any positive economic effect. On the contrary, he says it will lead to a period of "stagflation" as the Fed simply monetizes the debt, lowering the value of the dollar and failing to create economic growth.
Source: Yahoo Finance

Comment: The basic problem is that modern economists of the Bernanke type suffer from the pretense of knowledge. They are liars without knowing that they are liars. I wished they were criminals and thus we could get them. Yet they are worse: madmen in authority!

silver squeeze

Investors to Silver: 'Let’s Get Physical'

by Frank Holmes
The Daily Reckoning

The scramble for physical gold and silver is intensifying. People increasingly want to own the real thing, and not some paper substitute, all of which comes with counterparty risk. This conclusion is apparent from the fact that the futures prices for gold and silver have moved into “backwardation.”
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Comment: Under Ben Bernanke's chairmanship of the Federal Reserve the rest of what has remained of trust in paper wealth has been lost. The gold and silver run won't stop any time soon. We're still a long time away from the final blow-off.

Paul will get the money thieves

Ron Paul, Author of ‘End the Fed,’ to Lead Panel Overseeing Fed

December 09, 2010, 11:19 AM EST

By Phil Mattingly

Dec. 9 (Bloomberg) -- Representative Ron Paul, Texas Republican and author of “End the Fed,” will take control of the House subcommittee that oversees the Federal Reserve.
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Comment: Hard times ahead for Ben Bernanke and his team of plunderers.

Stop of the money printing press

Government can’t print money properly

• By Zachary Roth – Mon Dec 6, 9:36 am ET

As a metaphor for our troubled economic and financial era -- and the government's stumbling response -- this one's hard to beat. You can't stimulate the economy via the money supply, after all, if you can't print the money correctly.

Because of a problem with the presses, the federal government has shut down production of its flashy new $100 bills, and has quarantined more than 1 billion of them -- more than 10 percent of all existing U.S. cash -- in a vault in Fort Worth, Texas, reports CNBC.
"There is something drastically wrong here," one source told CNBC. "The frustration level is off the charts."
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Comment: More than a metaphor.

The master of panic

Ben Bernanke is scared, he is in panic and he has an unparalled talent to spread his panic. No wonder the US economy is getting close to a standstill.
http://www.youtube.com/watch?v=LxSv2rnBGA8&feature=player_embedded

Its about exitus, not exit

Fed's $600 Billion Credit Easing May Complicate Stimulus Exit, Lacker Says

By Steve Matthews - Dec 6, 2010 4:43 PM GMT-0200

Federal Reserve Bank of Richmond President Jeffrey Lacker said the purchases of $600 billion in U.S. Treasuries risk spurring inflation in a few years and may make it harder for the Fed to eventually withdraw the stimulus.
“Further balance sheet expansion now could require more rapid balance sheet reduction later on, complicating the withdrawal of monetary stimulus when it becomes necessary to maintain price stability,” Lacker said today in a speech in Charlotte, North Carolina. “It is appropriate” to regularly review the purchases, he said.
Policy makers meet next week to review their plan to buy Treasuries through June and expand record stimulus in a bid to reduce 9.8 percent unemployment and keep inflation from dropping.
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Comment: Who says that an exit is planned? The plan to destroy America calls for one stimulus after the next as long as it takes to bring the economy fully down. The game is about exitus, not exit.

China scared

China Is `Scared' of U.S. Monetary Policy, Rogoff, Rickards Say

By Catarina Saraiva and Kathleen Hays - Dec 2, 2010 8:27 PM GMT-020
Policy makers in China, which holds $883.5 billion in U.S. Treasuries, are concerned the nation with the world’s biggest economy is debasing its currency ...
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Comment: With fear comes the urge to run away.

US in decline

Volcker Says Dollar's Role in Danger as U.S. Influence Declines

By Peter S. Green - Dec 1, 2010 11:37 AM GMT-0200

Former Federal Reserve Chairman Paul Volcker, who is chairman of President Barack Obama’s Economic Recovery Advisory Board, said the U.S. dollar is in danger of losing its role as a global benchmark currency.
“The growing question is whether the exceptional role of the dollar can be maintained,” Volcker told a gathering of New York civic leaders at the University Club of New York last night.
The decline of the U.S. economy, political gridlock at home, U.S. involvement in two wars and “festering” geopolitical issues in the Middle East and Asia have undermined the ability of the U.S. to influence global events, Volcker said...
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Comment:  There is no news in Volcker's conclusion yet is worthwhile to pay attention to the reason that he gives for his thesis. 

Unequal trade

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Euro is peanuts - next big bang is China

Wednesday 01 December 2010

Telegraph.co.uk

Hedge fund manager Mark Hart bets on China as the next 'enormous credit bubble' to burst

Mark Hart, an American hedge fund manager who has made millions predicting the crises in US sub-prime market and European debt, has launched a fund to bet on the imminent implosion of China.

... Raw materials: Corriente says China has consumed just 65pc of the cement it has produced in the past five years, after exports. The country is currently outputting more steel than the next seven largest producers combined – it now has 200m tons of excess capacity, more that the EU and Japan's total production so far this year.
Property construction: Corriente reckons there is currently an excess of 3.3bn square meters of floor space in the country – yet 200m square metres of new space is being constructed each year.
Property prices: The average price-to-rent ratio of China's eight key cities is 39.4 times – this figure was 22.8 times in America just before its housing crisis. Corriente argues: "Lacking alternative investment options, Chinese corporates, households and government entities have invested excess liquidity in the property markets, driving home prices to unsustainable levels." The result is that the property is out of reach for the majority of ordinary Chinese.
Banking: As with the credit crisis in the West, the banks' exposure to the infrastructure credit bubbles isn't obvious because the debt is held in Local Investment Companies – shell entities which borrow from Chinese banks and invest in fixed assets.
Mr Hart reckons that "bad loans will equal 98pc of total bank equity if LIC owned, non-cashflow producing assets are recognised as non-performing.
As a final blow, Mr Hart says that the market belief that the Chinese government has "ample resources" to bail out its banks is flawed.
Corriente's analysis of the ratio of China government debt to GDP comes out at 107pc – five times higher than official published numbers. The hedge fund says this number uses "conservative assumptions" and the real figure could be as high as 200pc.
The result is that, rather than being the "key engine for global growth", China is an "enormous tail-risk."
He is so convinced by his arguments that he has warned investors that the fund, called the China Opportunity Master Fund, is prepared to "burn" 20pc of their cash each year until his theories are proved.
Comment: Short China!