Sunday, July 31, 2011

Japanese worry about their US savings tower

Japan increasingly alarmed U.S. may miss debt deadline: sources

TOKYO (Reuters) - Japan is increasingly alarmed that the United States may miss the August 2 deadline for raising its debt ceiling and Tokyo fears markets may be too optimistic about prospects of a lasting solution to the crisis, sources familiar with Japan's international and monetary affairs said.
Officials still hope Washington can manage to strike a last-minute deal and even if that proves impossible, will give priority to interest payments to international holders of U.S. Treasury debt to limit the immediate market impact, the sources said.
But Tokyo's concern is that if the crisis drags on without clear and sustainable resolution, markets may be thrown into turmoil, just like it happened when Lehman Brothers collapsed in September 2008.
"There is nothing really concrete that supports the still predominant view that the U.S. will somehow clinch a deal in time and avoid default," said one of the sources.
"If there is a default, the impact on global markets will be huge."
Another source confirmed this view. "Nobody thought Washington would let Lehman collapse. But look what happened," the official, who declined to be named because of the sensitivity of the matter, said Sunday.
Comment: Accumulating such a mountain of foreign debt by Japan has been a crazy affair from the start and if the money should vanish it almost may seem as well deserved.

Saturday, July 30, 2011

Who'll get paid when Uncle Sam runs out of funds?

Who will Uncle Sam pay if there’s no debt deal?
Yahoo! News
Come Aug. 3, just who will get paid?
Read and get ready
Comment: A look at the list teaches less about who'll get paid than a much somber story: there is no way the government will ever be able to save on the basis of choise. Any item is political poison. Mortal choices would have to be made: leave your soldiers in the dirt or leave your elderly without medical care, pay your bondholders or give help to the poor, and on and on.

Preparing for default - if not now, then later

NEW YORK | Sat Jul 30, 2011 5:12pm EDT
NEW YORK (Reuters) - The debt negotiations are getting down to the wire. Republican and Democratic lawmakers are scrambling to broker a deal to raise the country's $14.3 trillion debt ceiling before Tuesday, when the Treasury will no longer be able to borrow funds to meet all of its obligations. It all means the United States could face the possibility of defaulting on its debt and losing its prized triple-A credit rating. What does that mean for consumers?
Here are some answers we compiled from Reuters Money experts ...
Full text
Comment: If it won't happen now - it surely will later, so getting ready matters anyway.

Friday, July 29, 2011

Bondage is the future

Jim Rogers says what is to come: "We are all going to continue to get deeper and deeper into debt. ... The overall situation is getting more and more serious. America is now the largest debtor nation in the history of the world. This cannot go on forever. ... You think the problems are bad now? You wait until we don't have any more credit. You wait until the currency is collapsing. You wait until interest rates are going through the roof and inflation is going through the roof. It's not going to be a pretty picture. There will be social unrest. It's going to be a mess. But the sooner we deal with it the better."
See more
Comment: This is not a prophecy, what Jimmy says is simply the result of the analysis of a clear mind. Few share this gift, by the way.

Feeding the vigilants first

U.S. Contingency Plan Gives Bondholders Priority

The U.S. Treasury will give priority to making interest payments to holders of government bonds when due if lawmakers fail to reach an agreement to raise the debt ceiling, according to an administration official.
The official requested anonymity because no announcement has been made. The Treasury has said about $90 billion in debt matures on Aug. 4 and more than $30 billion in interest comes due Aug. 15. Overall, more than $500 billion matures in August.
Full text
Comment: At a time when the vigilants behave more like sheep than watchdogs, any chicken feed will do to keep them calm in the face of any mega disaster that may be coming.

Thursday, July 28, 2011

Silence of the lambs

Advisers Tell Investors Not To Sell as Debt Deadline Nears

As nerve-racking as he finds the debt-ceiling negotiations, Chris Rainbolt, 36, hasn’t shifted his portfolio in anticipation of a possible U.S. government default.
“It’s kind of like you’re standing on a cliff, and as long as you don’t fall off the cliff you’re fine,” said Rainbolt, who lives in Dallas and works in real estate. “If you do fall off the cliff, it doesn’t matter what you do.”
Rainbolt is among investors whose financial advisers are telling them not to sell their stocks or bonds as time runs out for Congress to pass a deal to raise the U.S. debt ceiling. Treasury Secretary Timothy F. Geithner has said the U.S. will exhaust options for paying all of its bills on Aug. 2.
Full text
Comment: It wouldn't be the first time in history when the advent of a great calamitous event has been expected with utmost tranquility.

All is quiet before the storm

Banks Bracing for U.S. Downgrade Don’t See Panic in Credit, Repo Markets

U.S. banks searching for hints of credit-market distress ahead of next week’s deadline to raise the debt ceiling are finding few signs of panic so far.
Read more
Comment: Remember the "freeze"?

Wednesday, July 27, 2011

Reality check

"The US has lost its AAA status. Anybody who knows what’s going on knows that the US is now the largest debtor nation in the history of the world. It’s only Moody’s and S&P that haven’t figured out what’s going on. The world, the investment world, the financial world knows that America is not AAA anymore. Who cares what Moody’s said? Moody’s has gotten everything wrong in the past 10 years, why do you pay attention to them? "
Jim Rogers

This is it

"I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing."
Thomas Jefferson

Economics in bankruptcy or under chapter 11?

Krugman, Thoma, Summers ask: Is economics broken?

A "great divide" between academic, government and business economists is preventing the field from tackling real-world problems, Mark Thoma writes. Reuters has invited leading economists to respond to Thoma's piece. Commentary
Comment: This is typical. The editors of Reuters ask some of the main suspects of the killing for clearing the case. 

Sorry, it's too late by now

Now let's tackle this

US debt in terms of 100 dollar notes

History of a debacle

The Economist's collection of articles and multimedia on the euro crisis
Comment: Will there be more to come? Yes, surely, but in quite different form. The euro authorities have lifted the stakes so high that they can't back down anymore. Let's save the euro - and should the world perish, is the new motto.

Gold performance under inflation and deflation

New research from Oxford Economics, new issue of Gold Investment Digest and updated investment statistics
25 July 2011
Oxford Economics: Impact of inflation and deflation on the case for gold
Two crises, unprecedented central bank intervention and deep and prolonged recessions, followed by a brittle recovery have left the global economy facing a complex inflation/deflation paradox. For many developing economies, high inflation is an ongoing reality, while the threat of protracted low growth, low inflation or even deflation looms over developed markets, fuelling uncertainty for investors and savers.
The World Gold Council has therefore commissioned Oxford Economics to conduct this independent, proprietary research using their respected Global Model, to explore the performance of gold and other assets in various economic situations and examine gold’s role within in an efficient investment portfolio in divergent economic scenarios.
This independent analysis confirms that gold is an important portfolio building block and shows that gold’s share of an optimal medium-risk investor’s portfolio is around 5% and upwards, depending on the future inflation scenario.

Download the report The impact of inflation and deflation on the case for gold

View the video The impact of inflation and deflation on the case for gold

The Oxford Economics study makes a valuable contribution towards the World Gold Council’s own body of investment research, supporting the findings from recent reports on market risk on Gold as a Tail Risk Hedge and investment risk, in the recent study Gold: a commodity like no other.

Tuesday, July 26, 2011

The euro as a "safe haven"



Downgrading now "base case"

U.S. Rating Downgrade is Now ‘Base Case’: ISI

The odds of the U.S. failing to reach a budget deal by Aug. 2 are about 40 percent, and a reduction of the nation’s credit rating “now seems the base case,” according to Andrew Laperriere, a managing director at International Strategy & Investment in Washington.
Full text
Comment: We're entering a new era, let's call it tentatively the "post-dollar world". As to geopolitics, the end of dollar supremacy automatically means the end of the American empire. Was it the largest? It surely was one of the shortest. This is not a time for jubilation. The decline of the US is not only a sad affair but a tragic one. What will come after the collapse of the US? China? Hardly! A deep bust in the US would mean the end of the China boom.

Soros leaves inside job

Soros to End Hedge-Fund Career, Return Money

George Soros, the billionaire best known for breaking the Bank of England, is returning money to outside investors in his $25.5 billion firm, ending a career as hedge-fund manager that spanned more than four decades.
Full text 
Comment: End of an era. Who will inherit the insider network? 

The mess is here

Dollar Weakens, Default Risk Rises as U.S. Debates Debt Limit; Stocks Drop

Monday, July 25, 2011

From yellow to red

We have had yellow light for a long time:  plenty of time to get out, plenty of time to reposition. Now the lights are turning red - red for bonds and stocks and even red for gold. Why? The whole machinery of finance is about to come to a halt. If it won’t be this week, it will be next week; if it is not this month, it will be next month.

Saturday, July 23, 2011

100 Basis Points to Armageddon

by Bill Bonner
Daily Reckoning
Is there a fender anywhere in Christendom that the financial authorities have not dented yet?
They are lost without a compass. They are up the river without a paddle. At the automatic teller without a pin number. They have no theory that has not been discredited. They have no experience which does not contradict them.
In 2006, they couldn’t see the crisis coming. In 2008, they couldn’t understand it. In 2009-2011, they couldn’t fix it. Their theory told them they couldn’t spot a bubble; it was obvious to just about everyone else. Even here on the back page, we warned readers. Then, the financial elite mistook the problem for a lack of ready cash. Practically every American household knew what the real problem was: too much debt. And then, while everyone else knows you can’t fix a problem of too much debt by adding more debt, the authorities missed the point entirely. Since they began applying their fixes, the national debt of Italy grew $360 billion. Japan’s national debt rose $1.1 trillion. And the US added more than $2 trillion. They may have successfully ‘kicked the can down the road’; but now it is a bigger can. Last week, they tripped on it again.
In these, the world’s 3 leading debtors alone, the problem is now $3.5 trillion worse. And that is just a piece of it. These figures do not count the trillions’ worth of other monetary and fiscal duct tape the feds have run through. Congressman Ron Paul put the figure for the US alone at $5 trillion and asked Mr. Bernanke about it.
What do you think you got for all that money, he wanted to know? The Fed chief remained true to his delusions. The money wasn’t spent, he protested; it had been ‘invested.’
Full text 
Comment: The deeper root of our present troubles are misleading economic theories due to manifest careerism, particularly at the so-called "elite" institutions which sadly set the standard for the rest. 

Friday, July 22, 2011

Official statement of the Council of the European Union

Brussels, 21 July 2011
We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial
stability of the euro area as a whole and its Member States. We also reaffirm our determination to
reinforce convergence, competitiveness and governance in the euro area. Since the beginning of the
sovereign debt crisis, important measures have been taken to stabilize the euro area, reform the
rules and develop new stabilization tools. The recovery in the euro area is well on track and the euro
is based on sound economic fundamentals. But the challenges at hand have  shown the need for
more far reaching measures.
Today, we agreed on the following measures:
Read more
Comment: The European Union has progressed from crisis to crisis. Up to now, each crisis envolved a setback at first and a launch forward afterwards. The trajectory is like the procession called "one step back, two steps forth". It seems that this rule also holds presently.


PHILADELPHIA | Wed Jul 20, 2011 5:07pm EDT
PHILADELPHIA (Reuters) - The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government's $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday.
Full text
Comment: It's good to be prepared for even if default shouldn't happen this time it surely will happen later.

The making of a politician

Machiavelli Had Man Crush on Pope’s Scion Borgia: Lewis Lapham

During the reign of Pope Alexander VI, the Vatican hosted “bunga bunga” parties each evening when more than 25 young women would be brought to the palace. Unlike other Popes, the lusty Alexander openly acknowledged his many children, the oldest of whom was Cesare Borgia.
(To listen to the podcast, click here.)
In 1493, at the age of 18, Cesare was elevated to the College of Cardinals, but he chafed at the limitations of his scarlet robes. What he wanted was secular power, more like his brother, Juan, the Pope’s favorite son.
After the two brothers dined together one evening, Juan disappeared -- his body was later dredged up from the bottom of the Tiber. Turning in his vestments, Cesare succeeded Juan as commander of the Papal armies, killing with characteristic brutality and efficiency, and so conquering one territory after another.
For Niccolo Machiavelli, here, finally, was a “real man.”The model for “The Prince,” Cesare represented the pure will to power that drives the engines of history. Machiavelli was smitten and had a “man crush” on him.
Read more
Comment: Make the following self-text in order to check if you qualify for a politican: "Would I kill my brother for the sake of power?" - Yes/No.
If you answer "yes" without qualifications, you're qualified; if you answer "no" you are too humane for the job.

Thursday, July 21, 2011

Greece & Co. - the second package

Contents of the new rescue package: more money, longer maturities and lower interest rates along with "voluntary" contributions from the banking sector. Greece is saved, but the rest of the gang is moving closer to bankruptcy. The deadly patient gets another infusion but the blood is sucked from the living. In the end we'll all go down the drain together.

F for failure

Proving that job performance is irrelevant in Washington, Obama today reappointed Bernanke to a new 7-year term as Fed Chairman.
Can't say that this is surprising news, given the signals of late. But still it is remarkable in the context of Bernanke's massive failure as the architect of the U.S. financial collapse. On a day when most are praising the Fed chairman, we will look at his many and massive failures instead.
As you will hear in the collection of videos and stories linked below:
  • B-52 failed to recognize asset bubbles of all types, and even encouraged irresponsible 2/28 mortgages and low teaser rates in 2007 at the start of the sub-prime implosion.
  • Failed to shut off the free-money spigot still gushing from the Greenspan years.
  • Failed to provide a framework for adequate regulatory oversight of Wall Street (yet Obama now wants to give the Fed more oversight and regulatory authority).
  • Failed to understand the nature of the crisis when it first broke in the Spring of 2007 (Bear Stearns sub-prime, hedge fund implosion). The famous meltdown clip from Cramer on Bernanke sums this failure up rather nicely.
  • Failed to understand that housing prices might actually decline in value after such a dramatic rise (seriously, even my mother knew that banks providing new mortgages on massively-inflated housing was not going to turn out well)
  • Failed to negotiate with AIG counterparties; instead choosing to pay all claims at 100 cents on the dollar without asking for any compensation (preferred shares) in return.
  • Failed the American people with his decision to support and reward the failed banks and the bankers for their malfeasance, excessive risk-taking and criminality.
  • Failed to protect taxpayer's interests in deals with AIG, JPM, and Bear Stearns, (with Maiden Lane I, II and III) and the still un-detailed asset guarantees given to Citigroup and Bank of America.
Full text Source
Comment: Remember that the charimanship of the FED is a political job and with all political jobs the old rule says: the more you fail, the better you stand. In order to win, go for war and depression.

Preparing for default

Wall St. Makes Fallback Plans for Debt Crisis

Lawmakers in Washington are racing to reach a deal to save the country from defaulting on its debt, but on Wall Street, financial players are devising doomsday plans in case the clock runs out.
Full text
Comment:  It's worthwhile to partake in the activities to prepare for default even if this time it should prove unnecessary. If default doesn't happen this time, it will do so in the future anyway. No effort lost. 

Road to ruin

U.S. Consumers Relying on Credit for Basic Necessities

Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices.
Full text
Comment: The new American dream that is nothing more than consumerism and imperialism increasingly is becoming a nightmare at home and abroad.

Wednesday, July 20, 2011

The euro - too big to fail

Merkel, Sarkozy Find ‘Common’ Position on Greece Debt Crisis After Talks
German Chancellor Angela Merkel and French President Nicolas Sarkozy reached a “joint position on Greece’s debt situation” after seven hours of talks at the Chancellery in Berlin today, Steffen Seibert, Merkel’s spokesman, said in an e-mailed statement.
The two leaders “listened to” arguments brought forward by Jean-Claude Trichet, president of the European Central Bank, who attended part of the meeting, Seibert said. They exchanged views with European Union President Herman Van Rompuy by telephone, Seibert said.
The joint Franco-German position will be presented to leaders at today’s summit in Brussels by Van Rompuy, Seibert said.
To contact the editor responsible for this story: Rainer Buergin at
Comment: The "new deal" does not come out of the blue but was carefully prepared over the past couple of months. Euro bears beware.

Tuesday, July 19, 2011

Gold at temporary peak

The run on gold is making headlines. This is not a good sign for the rally to go on.
There may well be a major setback for the price gold.
This would surely happen when the summit succeeds at bringing about a convincing solution of the European debt problem.

Bringing down Murdoch

BSkyB License Is Lawmakers’ Next Target

Rupert Murdoch’s News Corp., which already abandoned its 7.8 billion-pound ($12.5 billion) bid for full control of British Sky Broadcasting Group Plc (BSY) because of a phone-hacking scandal, is now being challenged on whether it should be allowed to keep its existing stake.  

Monday, July 18, 2011

A fool and his money

Johnson: Contagion in Three Forms Now Has Grip on Europe

There are three types of contagion in a financial crisis, when the potential collapse of a firm, bank or country threatens to spiral out of control. The European Union today has all three.
The first type is purely psychological -- the panic of herd behavior. The second comes from thinking through the real effects that a collapse would have, as the potential spillovers dawn on people. The third, and most devastating, emerges when smart investors realize that their assumptions -- based on the pronouncements of policy makers -- are all wrong and need to be tossed overboard...
Read more

A look in the mirror

Are you out of bonds?
Have you sold most of your stocks?
Are you loaded up with gold?
Do you have euros and yen for cash?

Well, this is what you did and this is what you have when you follow this blog.

What will be next?
Surely not only more of the same. 

Hacker enter The Sun

Hacker publish death of Murdoch at his Sun

The Wall Street Journal jumps in for its owner

The Wall Stree Journal strikes back

A tabloid's excesses don't tarnish thousands of other journalist

Comment: The WSJ was a great paper until its new owner left his very personal mark. 

See also

Gold transcends 1 600 - more to come?



Free currency

Mike Rozeff writes: "Currency is the blood of human exchange. From currency arise prices, and prices are the air that peaceful exchange breathes, an air that communicates living information. Currency is the division of labor’s partner. Currency is our means to transfer labor and energy through time and space, to bring future goods into commerce today. It is that vital means by which we convey the benefits of our labor to others and they to us.
Mankind needs currency. It is absolutely essential to our welfare in any modern economy.
Do we want freedom and free markets? Then currency must be produced in freedom. Do we want to be controlled and directed by government in totalitarian style? Then currency will be in the hands of government as it is now...."
Read more
Comment: As long as our currency is not free, we are still half-slaves.

Crumbling of the establishment

The Fall of the House of Murdoch

Lew, I think Chalmers Johnson wrote about ten years ago that we would begin to see more of these palace coups as the US and its allies became ever more unstable and insolvent. An early example of this was Clinton's impeachment trial. It was just an exercise in one part of the establishment punishing another part, over something that nearly everyone in the regime had committed at one time or another.
Existing almost totally in an echo chamber, and with the public considered to be irrelevant by the regime, the tottering old empires begin to eat themselves from within.
This also nicely illustrates how much states resemble the mafia. As a member of the establishment — in this case Murdoch — you never know when one group of partisans might get the upper hand on another, or when someone needs to be thrown under the bus — at which point it's simply the latest version of the Night of the Long Knives for you and your loyalists.
Murdoch et al., DSK, Blago — the list goes on and on.

Sunday, July 17, 2011

Wrong again

Euro Falls Before Summit as Debt Concern Mounts

By Masaki KondoThe euro fell against most of its major counterparts on speculation European leaders will fail to come up with sufficient measures to contain the region’s debt crisis at a summit this week.
Full text
Comment: Kids, buddies, chaps, listen, the show is over. No more chips to win. Get back.

A criminal with(out) a cause

The Fall of the House of Murdoch

Virtually all media owners seek power and pelf through their alliances with politicians. Neocon Rupert Murdoch—in Australia, the UK, and the US—has been particularly successful at it. What is most shameful is his constant promotion of state power and murderous wars. Now, with the arrest of Rebekah Brooks, this titanic, intra-power elite struggle will bring down James Murdoch, and perhaps Rupert too, at least as head of the company. BTW, this is not unusual wrongdoing suddenly discovered. It is one part of the establishment destroying another. Tory PM David Cameron, a wholly owned subsidiary of Murdoch, may be done too. Tony Blair was owned by Murdoch, as well, so this is bipartisan. As Bill Anderson notes, the firm is in trouble for eavesdropping, which most people think is fine if Murdoch's crooked pols and cops are doing it.
Comment: Find out by your own what's it all about.

European debt crisis called over

Trichet Says Europe Can Surmount Debt Crisis

By Matthew Brockett
European Central Bank President Jean-Claude Trichet said Europe can surmount its sovereign debt crisis by showing the will and determination to do so.
“Naturally the Europeans can manage the issue,” Trichet said in an interview with the Financial Times Deutschland, according to a transcript released yesterday by the Frankfurt- based ECB. “It is not a question of technique. It is a question of will and determination.”
Trichet said the euro is not in danger and remains “a highly credible currency.” He reiterated that the ECB will not accept as collateral bonds from a nation that defaults.
“If a country defaults, we can no longer accept as normal eligible collateral defaulted bonds issued by the government of that country,” Trichet said. “Because, in the eyes of the Governing Council, this would impair our ability to be an anchor of confidence and stability.”
In the event of a decision leading to a selective default or a default, “the governments would have to take care that the Eurosystem is presented collateral that it could accept,” he said.
Asked if German Chancellor Angela Merkel has acted too slowly during the crisis, Trichet replied: “Not in the least. I would see a discussion of this kind as being completely misplaced in the current situation.”
Full text
Comment: One of the most ridiculous phases of the many ridiculous phases of international finance is about to end, finally, even aburdities have a limit. Let's go on now, serious issues are coming up.

Friday, July 15, 2011

Who's got the gold?

Updated Reserve Asset Statistics
15 July 2011
Official sector gold reserves as at July 2011
The World Gold Council today releases its regular statistical update on gold reserves in the official sector. This monthly release includes (1) World Official Gold Holdings ranking gold holdings by country, (2) a spreadsheet with the latest changes in official sector gold holdings, (3) a spreadsheet tracking sales within the third Central Bank Gold Agreement (CBGA3), and (4) a spreadsheet providing a quarterly time series of gold and foreign exchange reserve holdings by country.

Stress test

Eight Banks Fail EU Stress Test With $3.5B Shortfall

Eight banks failed the European Union stress tests after regulators said today they had a combined capital shortfall of 2.5 billion euros ($3.5 billion), far less than predicted by analysts and investors.
Greece’s EFG Eurobank Ergasias SA (EUROB) and Agricultural Bank of Greece (ATE) SA, Austria’s Oesterreichische Volksbanken AG (VBPS) and Spain’sBanco Pastor SA (PAS), Caja de Ahorros del Mediterraneo (CAM), Banco Grupo Caja3, CatalunyaCaixa and Unnim failed. A further 16 lenders scraped through, the European Banking Authority said. All banks examined in Italy, Germany, France, the U.K. and Ireland passed.
Full text
Comment: Well, so far so good, yet it is not the things foreseen that cause trouble but the "unknown unknowns".

Return of the gold standard

Return of the Gold Standard as world order unravels. As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. Read more  

Comment:  There won't be a new gold standard. Even if such a system could be installed, it would constantly be under threat from the political system. Yet what may emerge in the future could well be a free banking system. Such a system would not need its formal institutionalization but could actually grow out naturally from the coming currency chaos.