We apologize for this being two weeks in arrears; Andy Sutton’s 8/18/11 on Liberty Talk Radio is available Here.
Topics discussed included the banker-crafted debt deal, AIER economic metrics and manufacturing forecast, general market conditions, and caller comments/questions.
Editor’s Note: We continue to see ‘alternative’ news sources pushing the idea that Bernanke is clueless and this is all nothing more than a big accident. It is not; the circumstantial and physical evidence is overwhelming. Hold your alternative news sources’ feet to the fire over these types of innuendos.
For most informed people in the United States, it has become clear that over the past century the private Federal Reserve has been doing nothing other than systematically devaluing and debasing the dollar while destroying the American economy in every way imaginable.
This notion was just made that much more concrete after this year’s central bank meeting in the Teton Mountains of Wyoming.
The stock market continues to be marked with increased volatility, which some analysts believe will be the new norm for months or years to come, and hiring has slowed while the jobless rate, which is now conservatively exceeding 9%, continues to rise.
By all metrics the American economy has not recovered in any way and by most metrics it is continuing to degrade at a dangerous pace.
However, the mainstream media continues to pretend that none of this is true by pointing to small rallies in certain stock sectors and currencies as proof of “investors […] starting to entertain the notion that the economy may yet avoid slipping back into recession” as Reuters reports.
Where they get the support for this notion is beyond me as even Ben Shalom Bernanke, the current chairman of the private Federal Reserve cartel, has yet to present any solutions or even ways to mitigate this economic disaster.
Instead of presenting a single solution, all Bernanke is able to do at this point is give hollow guarantees and weak assurances of an economic recovery.
Take, for instance, Alan Ruskin, the head of G10 currency strategy at Germany’s Deutsche Bank, who was quoted by Reuters as saying, “For all the focus on QE issues, we should not lose sight of (Bernanke’s) most important message that the Fed does not foresee the economy heading into renewed recession, even if there is plenty of fragility.”
Of course, like Bernanke, Ruskin could not give a single concrete answer or solution if pressed to do so. Then again, the mainstream media fails to ever press for answers from these individuals, instead opting to pretend these ambiguous and questionable statements are somehow legitimate.
Recently I published an article going over just a few of the options we have to actually get America back on the road to economic recovery.
Unsurprisingly, not a single of these options has been offered as a solution by the corrupt and highly criminal banking cartels like the Federal Reserve and the International Monetary Fund or their media lapdogs.
Why? Because these organizations have no real interest in economic recovery so long as it means clamping down on rampant speculation, high-frequency trading and stock manipulation, fraudulent savings and loan practices and anything that impinges on the ludicrous profit margins afforded to multinational corporations thanks to “free trade” and globalism.
Like their American counterparts, the overseas banking cartels are making ambiguous demands of politicians. Take, for instance, the new Chief of the International Monetary Fund, Christine Lagarde’s call on legislators to “act now” in order to prevent further economic downturn.
No actual plans of action are ever presented, the only thing it seems these individuals are good far is making demands. Unfortunately, demands will not put us back on the road to recovery, nor do they do anything other than create an atmosphere of fear.
The demands coming from Lagarde and others are confusing to say the least. They want governments to rein in the budget problems and fix their economies, but they do not want them to make too many spending cuts.
Without outlining specific, viable solutions, these statements are all but totally useless. Our economy in the United States, and in turn the entire world’s economy, needs a concrete direction, and one that is not based on austerity measures.
If we continue to just complain and demand others make the changes necessary to return the economy to a positive trajectory, we will continue to stagnate indefinitely.
Editor’s Note: The storm is largely gone from the lower 48 now, which should allow us to post this without being accused of generating hysteria. I saw countless stories of people racing to get generators, cash, food, and other supplies in advance of this storm. Isn’t this something we should already be doing anyway? The event could be a major blizzard, a hurricane, a quake, or something man-made; it is much better to be able to calmly assess these situations from a standpoint of already being prepared rather than race around and participate in the hysteria – manufactured or real.
(Reuters) – Cash is king in a hurricane, but getting it is another question entirely.
Banks across New York City are making provisions so people will be able to get hard currency Sunday and Monday, even if Hurricane Irene knocks power out and floods branches.
One of the enduring lessons from the hurricanes of 2005 is that cash is crucial in a storm zone for basic staples, yet often difficult to come by. After Katrina, for example, ATMs across New Orleans simply did not work.
With that in mind, people scrambled to ATMs on Friday and Saturday morning across New York and New Jersey, often withdrawing hundreds of dollars to prepare.
JPMorgan Chase & Co kept its Chase branches open late Friday night and opened some early on Saturday, though like most every other business in the city they closed early ahead of the 12 p.m. EDT shutdown of regional mass transit.
The bank has extra “cash packs” ready to supply branches Monday morning and may deploy mobile ATMs, which are wireless and run on battery power, in hard-hit areas like the Financial District of lower Manhattan.
Bank of America Corp said Saturday it may do much the same thing, but on a larger scale.
The bank has commercial trucks with generators and built-in ATMs, both smaller cash-only units and full feature machines that allow deposits. It also has mobile branches — effectively trailer homes — with teller windows and offices.
Across the board, other major New York banks also said they took extra precautions.
“Capital One Bank topped off all of our ATMs prior to the closure of our branches in the Northeast. In addition, we have made appropriate preparations to reload cash if ATMs begin to run low of cash,” Capital One spokesman Steve Schooff said in a statement.
A spokeswoman for Toronto Dominion’s TD Bank unit said it had been monitoring cash flows and refilling ATMs as necessary.
(Reuters) – Consumer confidence has fallen further after weeks of intensified economic concerns and broad stock market declines, and Conference Board data due later this month could be even weaker than current projections suggest, Consumer Edge Research said on Monday.
Readings from high, middle and low-income consumers all deteriorated sharply, due mainly to dramatic declines in outlook, the independent equity research firm said.
The firm’s Consumer Economic Index is now at 45.4, down 10 percentage points from July and down 1.5 points from the 46.9 level it reported on August 10. Two days after that report, the Thomson Reuters/University of Michigan’s preliminary August reading showed that U.S. consumer sentiment had fallen to its lowest point since May 1980.
The 45.4 reading is the lowest since Consumer Edge Research began its index in March 2010.
Consumer Edge Research forecast that the Conference Board’s full-month Consumer Confidence Index would deteriorate 8 to 10 percentage points from an unadjusted 59.5 in July when its report is issued on August 30.
As of Friday, consensus was calling for a 2.5 percentage point decline, “so we believe there is downside risk to current expectations,” Consumer Edge Research said.
While low-income and middle-income consumers felt the most impact from July to August, high-income earners have deteriorated the most since the peak seen in February, Consumer Edge Research said.
Compared with July, the confidence level for low-income consumers, those with incomes under $40,000, declined 10 percentage points; middle-income consumers with incomes from $40,000 to $100,000 had an 11 percentage-point drop; and high-income consumers, those making more than $100,000, had a 7 percentage points drop.
Business owners are also feeling more stressed. The roughly 5 percent of consumers who own businesses with at least one employee had an index of 63, the lowest point since the firm began calculating the index for that particular group in February.
Consumer Edge noted that it has less conviction in its Conference Board forecast and now feels its own index more accurately reflects “true underlying consumer sentiment.”
In February, economists noted that a change in Conference Board’s survey data provider prompted revisions back to November 2010. Since that change, the link between that index and Consumer Edge Research’s index has deteriorated, the firm noted.
Consumer Edge Research surveys at least 2,500 U.S. consumers online, generally during the first 18 to 23 days of the month.
(Reuters) – The loss of market confidence in economic leadership in key countries like the United States and Europe coupled with a fragile economic recovery have pushed markets into a new danger zone, something that policymakers have to take seriously, the head of the World Bank said on Sunday.
Speaking at the Asia Society dinner in Sydney, Robert Zoellick also said the global economy was going through a multi-speed recovery, with developing countries now the source of growth and opportunity.
“What’s happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries,” he said.
“I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don’t say those words lightly … so that policymakers recognize and take it seriously for what it is.”
Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the euro zone have tended to be done “a day late,” leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.
“That (worry) has accumulated and so we’re moving from drama to trauma for a lot of the euro zone countries,” he said.
On the United States, Zoellick said it wasn’t fears the world’s biggest economy faced an imminent problem, but “frankly that markets are used to the United States playing a key role in the economic system and leadership.”
He said efforts to cut U.S. government spending have so far been focused on discretionary spending as opposed to the entitlement program such as social security. “Until they make an effort on those programs, there is going to be continued skepticism about dealing with long-term spending.”
Zoellick said while market confidence has been hit, the real issue was whether this will spread to business and consumer confidence, something that was still unclear.
“What is different from the world of the past is now emerging markets are sources of growth and opportunity. About half of global growth is represented by the developing world … so this is a very rapid change in a relatively short span of time in historical terms,” he added.
On China, Zoellick said the appreciation of the yuan would be constructive, especially in helping tackle the country’s inflationary pressure.
On Australia, he said the country was in a much better position than other developed countries because it undertook structural reforms. On the fiscal side, he noted Australia’s debt was only 7 percent of gross domestic product and taking advantage of its position in the Asia Pacific..
Editor’s Note: This is disgusting. Anyone who has dealings with this outfit shoudl cease those dealings at once, hopefully forcing this brazen bank into insolvency and eventually out of existence. Of course they’d want a bailout first..
Bank of New York Mellon Corp. on Thursday took the extraordinary step of telling large clients it will charge them to hold cash.
Bank of New York Mellon is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets. Liz Rappaport has details.
The unusual move means some U.S. depositors will have to pay to keep big chunks of money in a bank, marking a stark new phase of the long-running global financial crisis.
The shift is also emblematic of the strains plaguing the U.S. economy. Fearful corporations and investors have been socking away cash in their bank accounts rather than put it into even the safest investments.
The giant bank, which specializes in handling funds for financial institutions and corporations, will begin assessing a fee next week on customers that have been flooding the bank with dollars, Bank of New York told clients in a note reviewed by The Wall Street Journal.
The decision won’t affect individual savers, who already are stuck with near zero interest rates as the Federal Reserve keeps rates low to support a soft economy. But it is a glaring sign that corporate executives, bank leaders and money-market fund managers are fleeing from risk and hoarding cash as the recovery threatens to peter out.
A Bank of New York Mellon spokesman said, “the vast majority of clients will not be affected by the proposed fee.”
The Dow Jones Industrial Average plunged 512.76 points Thursday. The one-month Treasury bill traded at a negative yield for the first time since June—signaling that investors are so worried that they are prepared to pay the government to take their money.
The letter said Bank of New York finds its deposits “suddenly and substantially increasing” as investors are in a mass “de-risk” mode. The bank said the decision was driven by the fact that it cannot invest much of the new deposits because clients have the ability to move the funds out at any moment.
The ultra-low interest rates set by the Federal Reserve in an effort to stimulate the anemic recovery have also neutered banks’ ability to reap profits from investing their deposits.
In times of crisis, the Markets Hub roundtable discusses where investors can look to for the last few safe havens and whether the answer lies in gold, emerging technology, treasuries or healthcare. (Photo: AP Photo.)
“I’m not surprised BONY is charging,” said Sheila Bair, who left as chairman of the Federal Deposit Insurance Corp. last month and is now at the Pew Charitable Trusts. “The deposits are transient and given continued economic weakness, there is not a lot it can do with them.”
While other banks haven’t followed Bank of New York in charging depositors, some analysts speculated that rivals might follow suit.
Some corporate executives, meanwhile, took a dim view of the new fee.
“If it’s true, I think it’s atrocious,” Gary Cox, chief financial officer of Champions Life Insurance Co. in Richardson, Texas, told CFO Journal, a news service of The Wall Street Journal. Champions, which has $150 million in assets, has bank accounts with three local Texas firms and J.P. Morgan Chase.
Such a move, he said, “would encourage us to find another bank.”
A spokesman for J.P. Morgan Chase said it has not imposed similar fees.
Over the past two weeks, money-market funds, corporate treasurers and investment houses have pulled money out of securities that mature in more than one day in favor of stashing their cash in bank accounts at Bank of New York and other banks with custodial operations. The accounts don’t earn interest, but have a big attraction: They are insured by the Federal Deposit Insurance Corp.
The fastest-growing asset on bank balance sheets this year is cash. Since the beginning of the year, U.S. bank holdings of cash are up 83%, or $890 billion, to $1.98 trillion. Consumer loans, by contrast, have grown 0.2%, or $1.7 billion. Commercial and industrial loans are up 3.8%, or $46.1 billion.
Bank of New York said that customers that have deposited more than $50 million into their accounts since the end of July will face an annual fee of at least 0.13% of the excess deposits. The fee would rise if the one-month Treasury yield dips below zero, according to the letter sent to customers.
Getty ImagesBank of New York Mellon is preparing to charge some large depositors to hold their cash.
The bank had $162.5 billion in deposits as of March 31.
Holding cash comes at a cost to banks. Bank of New York and others pay fees of about 0.10% to the FDIC to insure their deposits, said people familiar with the matter.
Given the size of recent deposits and the flows in and out of money-market funds, the charges could run into the millions of dollars.
Huge deposit flows pose another problem for banks: They force banks to hold increasing amounts of capital, which they are loath to do because doing so depresses profits—which are already under pressure with a slow economy and rising regulatory demands.
One place banks have turned to put their cash is the Federal Reserve. Since late 2008 it has been paying 0.25% interest on funds banks hold with in reserve with the Fed.
However, banks and economists have speculated that one of the Fed’s options is to reduce or even eliminate that interest payment, hoping to push banks to invest their deposits in the private sector.
The Fed has worried that removing the payment would hurt vulnerable parts of the financial system—namely money-market funds, which would struggle to make profits in a world where interest rates are almost zero.
But with the economy weakening, the Fed is considering all sorts of ways to promote spending, investment and growth.
While financial institutions haven’t rushed to impose commissions, other countries have used negative interest rates to stem a torrent of incoming funds. In 2009, Sweden cut its benchmark interest rate below zero, and in the late 1970s Switzerland’s central bank imposed negative interest rates to slow capital inflows that were driving up the value of the Swiss franc.
In one of the biggest banks in the centre of Athens a clerk is explaining how his savers have been thronging to pull out their cash.
Wary of giving his name, he glances around the marble-floored, wood-panelled foyer before pulling out a slim A4-sized folder. It is about the size of a small safety-deposit box – and those, ever since the financial crisis hit Greece 18 months ago, have become the most sought-after financial products in the country. Worried about whether the banks will stay in business, Greeks have been taking their life savings out of accounts and sticking them in metal slits in basement vaults.
The boxes are so popular that the bank has doubled the rent on them in the past year – and still every day between five and 10 customers request one. This bank ran out of spares months ago. The clerk leans over: “I’ve been working in a bank for 31 years, and I’ve never seen a panic like this.”
Official figures back him up. In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a “silent bank run”. This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece, one that runs all the way from the humble rainy-day saver to the really big money.
‘Clueless’ government
“Every time the markets move, I get phone calls,” says an Athens-based fund manager. “They’re from investors asking: ‘How can I get my money out of the country?’ ”
One senior investment banker is more blunt: “People are scared that the government doesn’t know what the fuck it’s doing.” He tells a story about an acquaintance who took out €30,000, wrapped it in a bag and stashed it in his garage. “The bag had previously had some food inside,” he says. “So it attracted rats, who ate the notes.”
Bags of money in garages, frightened savers fleeing banks and even the country: these aren’t the sort of stories you associate with a comparatively-prosperous European country, but with a developing one facing a life-or-death economic crash. The fact that they are now emerging from Greece not only indicates the scale of financial distress, it suggests something else: Greece today looks like parts of Latin America in the worst moments of its financial crisis.
In an echo of the days of Jim Callaghan, the International Monetary Fund is back inEurope, doing what it is more accustomed to doing in Buenos Aires or Brasilia: making emergency loans and telling the government how to run its economy. What is more, the scale of the changes an overborrowed Athens is now making are so vast and so rapid that they will leave Greece looking like a different country.
The government itself describes its plan to slash public spending and jack up taxes as one of the most ambitious deficit-reduction programmes in the world. But what often goes missing from this discussion of a fiscal crash-landing is the impact on the lives of citizens who have precious little time to adjust. When salaries of civil servants are slashed by up to 30% within a few months, as happened last year, and over 20% of public-sector workers face unemployment within the next four years – plus whole swathes of national assets are to be privatised before Christmas, with more job losses doubtless to follow – then you are talking about a wholesale transformation of a workforce.
Greece is already one of the poorest and most unequal societies in Europe, reckons Christos Papatheodorou at the Democritus University of Thrace. Among the few countries that look worse are Romania, Bulgaria and Latvia. So what will Greek society look like after the government’s austerity measures take effect? He pauses, then says: “It will probably look like a developing country.”
That message has not been lost on workers either: one of the new nouns used by trade union members and others who oppose the cuts is kinezopeisi, or China-isation. The claim is that such large drops in wages will lead to a workforce paid barely more than their counterparts in Shenzhen.
The oddest thing of all is that some of the leading lights in the government appear to see nothing wrong in a wholesale transformation of Greek society, albeit not into one that resembles an enterprise zone in eastern China. Elena Panaritis is widely tipped as one of the up and comers in Greece’s government, and it is not hard to see why: smart, formidably well-trained in economics after a career with the World Bank, funny and fluent in English, she is exactly the sort of person any prime minister would choose to give a keynote address to fretful institutional investors.
And for a Greek politician involved in pushing through some of the most abruptly painful economic measures in the country’s history, she does not seem especially Greek. When I observe how many Apple computers are in her office, she replies: “That’s because I’m not Greek, I’m American.” Her speech is American-accented and peppered with “darn” and “have a nice day”. When asked to describe how Greece needs to change its economy, her answer revolves around changing its institutions and its structures – in other words, making Greece less Greek. Castigating the bureaucracy, she says: “It’s not a kibbutz, it’s a big country!”
This is a line that you hear often enough from those who want Greece to change. By European standards, Greece has an average-sized public sector, but a very leaky tax collection system. What the public sector is, however, is under-resourced and inefficient. On my last day in the country, I wangle my way inside a public pensions office for those working in the tourism industry: there are just two Dell computers in one large room, and lever-arch files dating back 30 years. No one ever paid for the data to be computerised, I am told, and the result is that one day’s work takes three.
Private sector woes
The other big problem is in the private sector, with few industries that are able to pay their way in the world. Jason Manolopolous, who is author of a new book called Greece’s ‘Odious’ Debt, says that for years Greece was buying more from the rest of the world than it was selling. “We were buying BMWs from the Germans and selling them tomatoes.”
For now, those days are well and truly over. In Athens’ upmarket shopping district of Kolonaki, boutiques that used to have waiting lists for designer handbags have shut. One sign says the owners have relocated – to Rome. In one clothes shop, with racks of discounted Calvin Klein and DKNY, the manager, Sav, explains what’s happened: “In this crisis, the middle classes have been hollowed out.” That is just what happened in Buenos Aires during its crash last decade.
The result is that people who thought themselves used to one way of life, and in one social class, are getting used to a sharp downgrade.
In one factory, where a staff of 200 is now down to 30, the manager points to empty floors and idle machines. They’re now all on unemployment benefit, he says. “Mind you, our pay has been cut too, so we’re not that far off.”
Outside the soup kitchen of the Aghia Triada church in Piraeus, near Athens, more of Greece’s new poor are waiting for a handout. Anna and her two daughters have walked in the midday sun to get here and are now queueing up with the long-term homeless.
That is not Anna’s situation though; she lost her job three years ago but has still hung on to her house. That said, she no longer has the income or the benefits to pay bills and the electricity was cut off last month.
Inside, Pater Daniel, the head priest, says that he’s noticed a lot more “well-dressed, clean” people taking free meals from the church. He reels off stories of a 23-year-old man who left last week for Australia, and a 40-year-old woman who lost her job on Friday.
Because the Greek Orthodox church is partly on the state payroll, the clergyman’s salary has fallen by almost 10% to €15,000 a year.
Is he saying that the Orthodox church is also subject to public spending cuts? Pater Daniel laughs, then holds up five fingers: there are five priests in Piraeus, and soon there will only be one. He’s pondering taking a second job.
“There is too much pain, and people are looking for someone to listen and squeeze their hand.” He sighs. “Everyday I leave this church with a headache.”
As the financial world breathed a collective sigh of relief as the Greek Parliament voted to impose further austerity measures on the people of Greece, I wondered aloud to no one in particular how many times we’d have to see this movie before people finally realize that this crisis is a permanent one. There are many analogies that we could use to illustrate what has gone on, but probably the best is a trauma patient coming into the hospital with a severed carotid artery. Instead of performing surgery and repairing the wound, doctors throw the unlucky fellow on a gurney with a piece of gauze taped over the incision. Every so often they check back in, throw another piece of gauze on it and walk out, never fixing the problem. That is precisely what is going on with regards to the Eurozone mess. And America’s too. Lots of tape and gauze with precious little in the way of real solutions has been the norm for quite some time now and there is no reason to think that this will change unless it is out of dire necessity.
In my opinion, there are (at least) three overriding macro themes that are driving this crisis, and will continue to do so. Like most other recent economic and financial dislocations, it will go until it doesn’t. Looking at the macro drivers below, it is easy to see why this is the case: old habits die hard and most importantly, this crisis, along with most others, is insanely profitable for a select few.
The Psycho-Moral Problem
When you really tear away at all the media glitz and veneer applied to the global debt mess, you can find several underlying causes. The first is greed. The second, and this one has been a rather recent development, is laziness. I often wonder if America would be able to undergo another industrial revolution similar to the first one in today’s world. I seriously doubt it. We seem to be good at building shopping malls and restaurants, then borrowing money to patronize these establishments. In the aggregate though, we really haven’t built much in the way of productive capacity in a generation, let alone manned and operated it. Do we even remember how? What is really coming to the forefront is that we are by no means alone in this suspiciously insane endeavor; the people of Europe have been doing a mighty fine job of living beyond their means as well. Europe has had its own ‘great society’ upheaval similar to America’s turn down the wrong path in the 1960′s.
This drive to create a social utopia, or in economic terms, a post-scarcity world, has created exactly that which it was supposed to avoid – long-term scarcity. Why did these attempts occur? Gross misunderstandings of economics? Many think so, but when you read the articles, papers, and other correspondence written by many of the players in these movements it becomes rather clear that they were interested more in power accumulation than anything else. And two continents got wrapped up into it to the point where we have no idea how to live without it. Here in the US, over half of the population receives some type of transfer payment from the government. For the purposes of this article, I am not making the distinction between people who paid into programs like social security and Medicare and those who didn’t. The point is governments have become little more than a very expensive conduit between the ‘working’ class and those who are collecting from them. And, it has been this way so long that people cannot fathom a world that is any different. When they are confronted with drastic change, well, you saw what happened in Athens – and is still going on despite the fact that the media has moved on to more pressing and important matters such as Nancy Grace’s newfound popularity.
The bottom line is that the Eurozone and America both need a massive attitude adjustment. 2008 didn’t even put a dent in the entitlement mentality in either locale. Imagine what it will take to change our way of thinking.
Rating Agency Competitive Downgrades
The final two bullet points likely fall under the broad category of financial and economic cannibalism. For years now, I’ve marveled both publicly and privately about the willingness of the major credit rating agencies to maintain the sterling debt rating of the USGovt despite a growing fiscal morass that is now only first being truly recognized. Let’s make the assumption that the people who run these agencies are not illiterate and actually know what is going on. Unfortunately, this logic has proven to be spot on as is evidenced by the constant beatings applied to Eurozone countries by the majors (S&P / Moody’s).
This strategy of competitive downgrades serves to exacerbate the debt issue at its core, pretty much guaranteeing that none of these countries will ever clear their debts. Of course that is the whole point. The current action dovetails rather well with John Perkins’ assertions in “Confessions of an Economic Hitman.” Keep in mind also that while all these downgrades on PIIGS sovereign debt have taken place, the USGovt has received only ‘stern’ warnings regarding its own fiscal black hole. Clearly Moody’s and S&P are in the business of protecting the status quo. We saw the depths of rating agency fraud beginning in the early part of 2008 when highly rated mortgage tranches suddenly came up lame. We will see this again, this time in USGovt Treasury bonds. The status quo will be protected, even if a company or two takes a dive in the process. Think Lehman Brothers.
Outrage from the Eurozone has intensified, particularly with yesterday’s severe downgrading of Portugal’s debt by Moody’s. The cut came as a newly elected government had just pushed through an ambitious austerity program. In the past year, Portugal has been cut from Aa2 (two steps below the rating of the USGovt) to Ba2, which is below investment grade and otherwise known as ‘junk’. This has all transpired despite the fact that Portugal has at least been trying to get its house in order. Meanwhile, Washington does zilch and maintains a top rating? These strategic hits on countries that are totally at the whim of the IMF and/or regional central banks reek of foul play. Calls for ‘more responsible behavior’ by Eurozone officials should be replaced with investigations into the ratings agencies themselves, given their duplicitous actions (and lack of action in some cases) regarding credit ratings.
It is also probably a reasonable assumption that both major ratings agencies and the raft of second-tier firms knew going in what was going to happen regarding the Eurozone. Much of the fallout follows the tenets of common sense. The endless bailouts are no different than our own broken system. Whether or not these bailouts are covered by the media is of no consequence. They’ve been going on for years and will continue to go on. The point is, shouldn’t the ratings have gone down sooner? There will be those that will argue that cutting ratings in 2008 or sooner would have precipitated the crisis in and of itself. This is probably precisely why the balloon hasn’t gone up yet on America’s bond ratings. However, it would appear that the ratings have been cut strategically to allow financial entities to game the system, hence my earlier comments regarding financial and economic cannibalism.
Similar to the yield curve, there is a ratings curve in the Eurozone, which creates a multitude of opportunities for trading profits. This goes back to the cardinal rule of large firm investing a la Jim Cramer: when there is no volatility, create some. And if you put a few countries into IMF receivership along the way, well that is just a cost of doing business, right?
Hedge Fund Bets
This probably qualifies as a corollary to my earlier point about parties gaming the system, but I think we need to expound on this just a little bit. My entire point here is that once again, the biggies are playing with fire. And they will get burned. Not maybe. Obviously there are no guarantees in life, but I’d say this one ranks up there with the sun coming up. It is going to happen. This is a continuing testimony to the greed involved in our society and financial system and precisely why I lobbied hard and spoke out against any bailouts in 2008. These people needed to go bankrupt. Instead they were allowed to compromise the financial system and with it, the economy. With the wounds barely healed, if they’ve healed at all, these same folks are right back at it again.
True to form, George Soros has had plenty to say about the Eurozone mess. Remember, he is the same fellow that said ‘I’m having a good crisis’ in 2009 while people were losing homes, jobs, and retirement savings. He added that it was the culmination of his life’s work. Oddly enough, the Daily Mail, which originally posted the story, has since pulled the offensive comments. He said recently,
“We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread,” billionaire investor George Soros said during a panel discussion in Vienna on June 26. “The financial system remains extremely vulnerable.”
The fact that the self-appointed master of the currency raid has pointed out the fragility of the financial system foreshadows directly to the near certainty that there will in fact be another crisis. Again to my earlier point, it is insanely profitable for a select few. Hedge funds are firmly betting on the extension of the Greek tragedy to the rest of the Eurozone, and some are even betting on the metastasis of the problem across the Atlantic as well.
The major point to understand here is that there is no way to even quantify the risks associated with getting in on the sovereign debt mess. If you had 192 or so standalone countries, each with its own central bank like we used to have, it would be difficult enough just because of the propensity of banks and other financial actors to invest across borders. The idea of the regional currency and central bank was to curtail the risk inherent to the system, but instead, it has done the exact opposite because now there are so many actors gaming the system simultaneously. The idea of having a bunch of Dick Fulds operating on the razor’s edge with the global financial system on the line is a scary proposition. Sooner or later, someone is going to make a mistake and that is going to be it.
Once again, it will come down to the derivatives taking the paper empire to the woodshed. It isn’t even so much the millstone of the hundreds of billions in Eurozone debt that is spread all over the globe. There are bets on that debt, default swaps, options, and a full array of side bets on the debt itself, then bets on the side bets themselves and so on out to the 4th or 5th degree in many cases. The derivative issue was never even really addressed. It was the 800-pound elephant in 2008 and it is still standing there. Why? Because it is insanely profitable for a select few. Which comes back to my original point: we have a true moral crisis at the root of our economic and financial woes. None of the symptoms can be fixed until we get at the real causes and human nature is a tough nut to crack. See why I’m such a pessimist?
We have released a new complimentary report entitled “If You Have Paper Assets.. There are Three Things you MUST Consider”. It is a 10-page report that identifies some logical approaches you can take with regards to your paper investments if you’re one of the many people that still needs them to generate cash flow and income. Bear in mind this is in no way meant to supplant our firm position that each investor needs to have a sizable portion of their portfolio in physical precious metals, however, but is meant to augment the non-metals portion of your overall strategy. The report is available by clicking here.