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“All is Quiet on the Eastern Front?” – Andy Sutton

Published on: 01/13/2012

Categories: Current Events, Economics, Financial Markets, My Two Cents

Tags: andy sutton, debt, debt to gdp ratio, Economics, eurozone debt crisis, what is debt to gdp?, who caused the debt crisis, why did the great depression happen?

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2011 had been touted as the year that everything would change. Massive paradigm shifts would rock our world and many a prophecy was made regarding financial crises, currency crises, wars, rumors of wars, and there was even one fellow who said the world itself would end, although he later retracted his predictions, but not before his followers had spent their life savings putting up billboards. Such hysteria is certainly the hallmark of times such as these, but we have to keep in mind that just because some of the predicted events didn’t happen yet, we’re a long, long way from being out of the woods. There is an old saying that if you do what you’ve always done; you’re going to get what you’ve always gotten. If we continue to sow the seeds of false fixes and faulty economics, we’re going to continue to reap financial and economic crisis. It really is that simple.

One needs to look no further than Europe and its ongoing (no it isn’t over) debt crisis. The factoids have been around for a while now. Italy’s need to borrow roughly 300 billion Euros just to service its debt in 2012. The absolute failure of Greece’s austerity programs. And to top it off, the installation of shady leaders in both of these countries whose intentions should be questioned from the outset of their tenure simply because they are clearly establishment technocrats. Many of you have soundly criticized me for being ‘extremist’ because I suggested several times last year that what we’re actually seeing are economic coup d’ etats. What else can it be called when an organization enables a country to get into trouble with debt, then offers its own solution (more debt), then installs one of its operators as the country’s leader to make sure the solution is carried out? How would you feel if you had credit card debt that exceeded your yearly income and your friendly bank rep called you and said they’d bail you out by giving you even more credit, then sent a rep to live with you and control your budget when you balked or didn’t make enough spending cuts? Sometimes complicated things make sense when put in simple terms and that is exactly what is going on here.

Austerity is a cruel joke, and the national riots, strikes, and other discord that have resulted from attempts at austerity must be given our attention because it is all coming here. There is no point defined in time when a debt crisis will blossom. Many will argue that America is immune from a Euro-style debt crisis because we have a federal reserve that is willing to buy every single bond if it needs to. They will tell you we are immune because our currency is the ‘gold’ standard (sarcasm mine) of all the world currencies, and it is backed by the full faith and credit of the USGovt. If you’re still able to read this with a straight face, then you know what all this means. It is a paper promise based on an even shakier perception of ‘trust’ in an institution that deserves none. While it is true that we may not get the social anxiety and discord because of austerity, we will certainly get it because of the total loss of confidence in a currency that really died more than 40 years ago. In the worst case, we’ll get both.

As we move into 2012, the European mess has been tabled for the past month so as not to interfere with the traditions of overconsumption and debt accumulation that normally accompany Thanksgiving through the New Year. I find it sadly ironic that the same Bible that speaks of the birth of Christ also speaks of the consequences of debt and the accumulation thereof. Yet each Christmas we spend well beyond our means not to shower gifts upon Christ as was done in the Bible, but on ourselves and then spend the better part of several months trying to pay it all off. Some never do. This might seem irrelevant, but when you think about it, this is precisely what we’ve been doing on a national scale for decades now. Borrow and spend to fund the current ‘party’, and then push payments well into the future. As Europe is just beginning to find out, the ‘buy now, pay later’ paradigm has become a dog that won’t hunt anymore.

A German Solution

The biggest story so far of 2012 is the negative yields on German debt. Monday’s 3.9 billion Euro auction sported an average yield of -0.0122% .We had a similar situation here in the US in the fall of 2010 when negative yields were achieved on 3-month treasury bills for a short period of time. Obviously, these are not novice investors that are making the decision to pay a government for the privilege of lending it money. These are financial institutions: banks, brokerages, and hedge funds that are conducting these types of transactions. They’re willing to take zero interest, and in fact, pay a small premium for the ability to park their money somewhere they feel is ‘safe’. What is interesting is the fact that anyone considers Germany to be safe. Germany is essentially the Daddy Warbucks of Europe, spreading around the hard work and savings of the German people to the rest of Europe, which can easily be described as the biggest welfare state in the history of mankind. Any sane person would at this point be questioning the continued willingness (forget for a second the ability) of Germany to continue in its role as the piggy bank that never runs dry

So scared are professional investors that they’re willing to pay someone else for the privilege of lending money to them. I’ve heard several analysts comment that these negative yield auctions are merely a social engineering tool that is being used to condition the rest of us to accept near-zero interest rates ad infinitum. This may well be accurate, but just in case it isn’t, we need to consider the naiveté of even pro investors in terms of selecting ‘riskless’ assets. While it is true that in absolute terms there is no such thing – as we’re now learning the hard way, there are certainly better means of lowering your beta than just piling money into a country that is filling its role on borrowed time. Yet the same people who dove into subzero rate auctions in Europe are the same ones who dove into our subzero auctions just over a year ago. Such folly underscores the need for the re-emergence of hard currencies; meaning those backed by gold and/or silver. Resource-backed currencies such as that of Canada aren’t bad, but their value is still at the whim of policymakers, not nailed down to underlying wealth and the ability to consistently balance payments in the long run.

The willingness and even zeal of investors to accept negative rates is a ringing endorsement of the need for a new gold standard. I am quite sure that it would end up being perverted over time as all prior ‘standards’ have, but in a time of extreme crisis such as where are currently situated, having a bit of financial bedrock certainly wouldn’t be a bad thing. It certainly beats the quicksand we find ourselves trying to navigate today.

The Second Biggest Story of 2012

Buried under the headlines of Presidential politics and ‘who said what about whom today’ is the fact that the current administration has formally requested that Congress increase the debt ceiling by another $1.2 Trillion. I say the following only to point out the acceleration of the debt cycle in the past several years, not to pin the blame on any politician; they’re all responsible. In early 2009, the national debt was roughly $10.6 trillion. The most recent request to take the limit to over $16 Trillion will last the government less than another year if Congressional Budget Office projections prove to be accurate. Our actual debt just passed 100% of GDP. Exhausting this new increase will push it well past the breaking point of the Eurozone. Does anyone really think there will be no consequences for this flagrantly irresponsible fiscal behavior?

While there is no way to pin a date on when the current Keynesian debt paradigm will end, what we can be 100% sure of is that it will end. Will it be at 100.3% debt/GDP or will it be 200.3%? We don’t know for sure, but at some point, the weight of the mistakes of the past will be too much for the future to bear and it will all come crashing down. The system is too big to fail, yet at the same time it is already too big to save. The actions of policymakers to date give little reason for optimism as much of the emphasis is on kicking the can down the road and pushing the inevitable far enough into the future so that it will be someone else’s problem. What is particularly disturbing is that most of the election year rhetoric focuses on attacks rather than on solutions; so much that you can almost hear the fiddles playing as Rome burns.

Greece’s Clock is STILL Ticking

by TwoCentsEditor

Published on: 01/10/2012

Categories: Economics, Financial Markets

Tags: andy sutton, banking cartel, debt, Federal Reserve, greek debt, money, Ron Paul, who owns greece's debt

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Editor’s Note: Not again! Weren’t we told a month ago that this problem was fixed? Guess it had to be kept quiet over the shopping season so that spending would be healthy..

Lucas Papademos, Greece’s new technocrat prime minister, faces a race against time to secure a second financing package from the country’s international creditors if Greece is to avoid a disorderly default in March.

The country must redeem a €14.4bn bond on March 20. Almost all analysts agree it will be unable to do so unless its official creditors approve a second €130bn bail-out package and unless a deal is agreed to cut the country’s debt by imposing a 50 per cent haircut on €206bn of privately held bonds.

Greece has already received about €73bn from the first bail-out package of €110bn, financed by the European Union and the International Monetary Fund. That package was approved in May 2010 to help the country stave off default.

Government officials hope the terms of the bond exchange, known as private sector involvement, or PSI, will be finalised well in advance of the EU summit on January 30. By the same deadline, the government hopes to have reached an agreement on “conditionality” – the set of economic policies and structural reforms required by the EU, IMF and European Central Bank.

Only when these requirements have been met will the so-called troika of lenders agree to disburse a large amount of funds, estimated at €89bn, in the first quarter of this year. That will include money towards implementing PSI, since private creditors will most likely receive €30bn in cash or equivalent upfront, while Greek banks will also be recapitalised by some €30bn.

According to a government official, the ECB will also have to receive guarantees from the EU financial bail-out fund, the European Financial Stability Facility, to cover the few weeks that Greece will be in “selective default” after implementing PSI, if the bank is to continue providing liquidity to Greek lenders.

If everything goes well, the bond swap offer will be available to private bondholders in the first two weeks of February and the settlement will take another week, meaning PSI should be implemented by the end of that month, government officials say. If the participation rate among bondholders is insufficient, Greece and its EU partners say they will then decide what to do with the holdouts.

Part of the challenge facing Mr Papademos, the former ECB vice-president who took charge of a temporary coalition in mid-November, is to rally the disparate interests in his government, which includes the socialist Pasok party, the conservative New Democracy party and the smaller nationalist LAOS party.

He recently urged union leaders and employers to consent to some sacrifices to make the economy more competitive and to address the concerns of the country’s lenders.

But his coalition government, made up of 48 members, mostly former Pasok ministers and just three of his own choice, has been criticised for being less productive than some had hoped.

“Time is money. More than six weeks have passed since this government was formed, but it has little to show for it,” says one senior official at a large Greek bank who requested anonymity. “I have respect for Papademos but I am a bit disappointed because I expected more.”

The interim government has secured the sixth instalment of €8bn from the first bail-out package, passed the 2012 budget and taken some significant decisions, such as approving a rise in electricity charges. But it has yet to pass important structural reforms and has not reached an agreement with private creditors, although both the Greek side and the Institute of International Finance, representing the leading banks, are optimistic that a deal is close.

An aide close to Mr Papademos admitted that time could have been used more efficiently, but said: “Deliberations between the political parties participating in the government lead to solutions, but take more time.”

He added that the government was determined to resolve all “pending issues” before the troika arrived in Athens in mid-January. An omnibus bill to be tabled in parliament this week should introduce further reforms required under the terms of the bail-out, including lifting barriers to entry for closed professions.

But some analysts, such as Takis Michas, a researcher at private think-tank Forum for Greece, point out that Greece’s problem has often been that bills are passed, but not implemented.

According to Mr Michas, political parties in government have fewer incentives to implement structural reforms when they know that elections will be held soon. This could be particularly true for the New Democracy party, he said, which leads in the polls by a wide margin over Pasok. Most observers expect an election in March or April.

Christos Staikouras, a spokesman on the economy for New Democracy, told the Financial Times: “We are committed to the implementation of structural reforms and privatisations along with other policy initiatives to restart the economy, but we also want to modify other [fiscal] policies which have not worked.”

UK Banks Write Off Record Amount of Corporate Debt

by TwoCentsEditor

Published on: 11/15/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton & associates, debt, eurozone debt, uk bank debt, what does debt do to an economy, why is there so much debt

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In the three months to June, “write-offs of loans to non-financial corporations” almost tripled to £2.94bn, according to the Bank of England.

The only time the level of losses had ever come close was in the fourth quarter of 2009, as Britain was emerging from recession, when write-offs were £2.5bn.

The sudden increase in loan losses was at odds with what was then a period of relatively benign economic conditions.

However, it coincided with a regulatory crackdown on “forbearance” – whereby banks vary the terms of a loan to allow struggling borrowers to limp on and avoid booking losses.

The Bank, the Financial Services Authority and the International Monetary Fund all raised concerns about the misuse of forbearance at that time, with a particular focus on commercial property.

In June, the Bank’s Financial Policy Committee said: “If provisioning is inadequate, banks’ reported profits and levels of capital may provide a misleading picture of their financial health.”

The Bank has repeatedly warned about the scale of bad commercial property loans on the banks’ books.

The sharp rise in corporate write-offs in the second quarter, the most recent data available, lifted total UK loan losses – including credit cards and mortgages – to their second highest level on record.

For the three months to June, total sterling write-offs were £5.1bn, up from £3.2bn in the first quarter.

The largest quarterly hit came in the final three months of 2009, totalling £5.8bn. Write-downs on personal loans edged up to £2.1bn, but remained far off the peak in the same period the previous year of £3.5bn.

The write-offs are contributing to a decline in household debt. Total household debt has dropped by £8bn to £1.45 trillion in the past year, roughly in line with the amount of personal debt lenders have cancelled.

The rate of mortgage losses may be about to rise. Last week, Lloyds Banking Group revealed a four-fold increase in mortgage loan impairments for the nine months to September of £416m and that £38bn of loans are to borrowers who are in negative equity.

Taking write-offs cleanses bank balance sheets but reduces the amount of capital against which they can lend.

Once the capital is replaced, however, it can be used to support growing businesses rather than tied up in companies that can only service the debt.

Moody’s Cuts US Economic Outlook

by TwoCentsEditor

Published on: 08/16/2011

Categories: Current Events, Economics

Tags: debt, economic crash, economy, financial crash, moody's, s&p, stocks

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Editor’s Note: They still don’t get it. Three years ago these people cheered on the accumulation of trillions in additional debt to ‘stimulate’ the economy.Now, when is very obvious that failed, they cut the outlook BECAUSE of the debt they themselves encouraged. You can’t make this stuff up.

Moody’s Analytics said its near-term outlook for the U.S. economy has fallen significantly in the past month wake of the debate over the U.S. debt ceiling and the downgrade of the nation’s credit ratings by Standard & Poor’s .

Moody’s Analytics, a sister company to credit-ratings company Moody’s Investors Service, now expects real gross domestic product to increase at an annualized rate of about 2% in the second half of this year and just over 3% next year, compared with its estimate a month ago for growth of 3.5% for the second half of this year and through 2012.

The firm attributes most of the expected decline to a loss of business, investor and consumer confidence, noting the economy’s improving fundamentals such as the strengthening of business’s balance sheets and consumers’ strides in cutting household debt.

The credit-rating company also said it thinks the odds of a renewed recession over the next 12 months — now at 1 in 3 — will increase if stock prices continue to fall. Moody’s maintains that the odds of a renewed recession rise with each 100-point drop in the Dow Jones Industrial Average. While Moody’s expects the economic recovery will continue, prospects for economic growth and job creation have “diminished substantially.”

Though the U.S. economic recovery looked healthy at the beginning of the year, a series of events have hurt business, consumer and investor confidence, Moody’s said. These include surging prices for food and gasoline, natural disasters in Japan, Europe’s debt crisis and, most recently, the U.S. debt woes.

The economy needs to grow 2.5% to 3% a year to create jobs fast enough to keep the unemployment rate stable, Moody’s said. However, Moody’s said it doesn’t think this will happen soon.

S&P Downgrades USGovt Credit Rating

by TwoCentsEditor

Published on: 08/05/2011

Categories: Current Events, Economics

Tags: alex jones, bonds, credit rating, debt, dollar, downgrade, gold, money, obama

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Standard & Poor’s announced Friday night that it has downgraded the United States credit rating for the first time, dealing a huge symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating one-notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bi-partisan agreement reached this week to find $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would have no luck achieving more savings later on.

The decision came after a day of furious back-and-forth between the Obama administration and S&P. Government officials fought back hard, arguing that S&P made a flawed analysis of the potential for political agreement and had mathematical errors in its initial analysis, which was submitted to the Treasury earlier in the day. The analysis overstated the U.S. deficit over 10 years by $2 trillion.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesperson said Friday.

The downgrade will push the global financial markets into unchartered territory after a volatile week fueled by concerns over the European debt crisis and the slowdown in the U.S. economy.

Analysts say that, over time, the downgrade is likely to push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up costs for borrowing for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

But the exact impact of the downgrade won’t be known until at least Sunday night, when Asian markets open, and perhaps not fully grasped for months. Analysts say the impact on the markets may be modest because they have been anticipating an S&P downgrade for weeks.

Federal officials are also examining the impact of a downgrade in large but esoteric financial markets where U.S. government bonds serve an extremely important function. They were generally confident that markets would hold up, but were closely monitoring the situation.

S&P’s action is the most tangible vote of disapproval so far by Wall Street on the deal between President Obama and Congress to cut the deficit by at least $2.1 trillion over 10 years. S&P has said that it wanted at least $4 trillion of deficit reduction.

The downgrade is likely to be used as a weapon by both Republicans and Democrats as they argue the other side has not taken deficit reduction seriously.

Other credit rating agencies — Moody’s Investors Service and Fitch Ratings — have decided not to downgrade the United States credit rating. But they’ve warned that, if the economy deteriorates significantly or the government does not take additional steps to tame the debt, they could move to downgrade too.

In April, S&P first said it might downgrade the United States credit rating on concerns that lawmakers would not be able to come to a deal on reducing the debt. In July, as efforts stagnated, S&P said the odds of a downgrade within three months had moved up to 50 percent.

The ultimate deal between Obama and Congress ultimately failed S&P’s benchmark. Obama administration officials have been critical of S&P for making what was essentially a political judgment and for failing to conclude that the country was making a strong first step to reducing its deficit.

Who Prints the Money??

by TwoCentsEditor

Published on: 07/06/2011

Categories: Current Events, Economics, Financial Markets

Tags: banking cartel, cashless society, debt, debt default, federal reserve note, G. Edward Griffin

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Editor’s Note: WHOA! Time out! The media has always told us the federal reserve had the printing presses. Now it is the Treasury? Pardon the sarcasm. Let’s get this straight once and for all. The Treasury prints the federal reserve’s money. The taxpayer pays for this to be done. Then the money is given to the federal reserve who then LENDS it back to the Treasury. Makes perfect sense in a world gone mad.

WASHINGTON — The number of dollar bills rolling off the great government presses here and in Fort Worth fell to a modern low last year. Production of $5 bills also dropped to the lowest level in 30 years. And for the first time in that period, the Treasury Department did not print any $10 bills.

The meaning seems clear. The future is here. Cash is in decline.

You can’t use it for online purchases, nor on many airplanes to buy snacks or duty-free goods. Last year, 36 percent of taxi fares in New York were paid with plastic. At Commerce, a restaurant in the West Village in Manhattan, the bar menus read, “Credit cards only. No cash please. Thank you.”

There is no definitive data on all of this. Cash transactions are notoriously hard to track, in part because people use cash when they do not want to be tracked. But a simple ratio is illuminating. In 1970, at the dawn of plastic payment, the value of United States currency in domestic circulation equaled about 5 percent of the nation’s economic activity. Last year, the value of currency in domestic circulation equaled about 2.5 percent of economic activity.

“This morning I bought a gallon of milk for $2.50 at a Mobil station, and I paid with my credit card,” said Tony Zazula, co-owner of Commerce restaurant, who spoke with a reporter while traveling in upstate New York. “I do carry a little cash, but only for gratuities.”

It is easy to look down the slope of this trend and predict the end of paper currency. Easy, but probably wrong. Most Americans prefer to use cash at least some of the time, and even those who do not, like Mr. Zazula, grudgingly concede they cannot live without it.

Currency remains the best available technology for paying baby sitters and tipping bellhops. Many small businesses — estimates range from one-third to half — won’t accept plastic. And criminals prefer cash. Whitey Bulger, the Boston gangster who lived in Santa Monica for 15 years, paid his rent in cash, and stashed thousands of dollars in his apartment walls.

Indeed, cash remains so pervasive, and the pace of change so slow, that Ron Shevlin, an analyst with the Boston research firm Aite Group, recently calculated that Americans would still be using paper currency in 200 years.

“Cash works for us,” Mr. Shevlin said. “The downward trend is clear, but change advocates always overestimate how quickly these things will happen.”

Production of paper currency is declining much more quickly than actual currency use because the bills are lasting longer. Thanks to technological advances, the average dollar bill now circulates for 40 months, up from 18 months two decades ago, according to Federal Reserve estimates.

Banks regularly send stacks of old notes to the Fed, which replaces the damaged ones. Until recently, notes were simply stacked facedown and destroyed, as were dog-eared notes, because the Fed’s scanning equipment could not distinguish between creases and tears. Now it can. In 1989, the Fed replaced 46 percent of returned dollar bills. Last year it replaced 21 percent. The rest of the notes were returned to circulation where they may lead longer lives because they are being used less often.

The futurists who have long predicted the end of paper money also underestimated the rise of the $100 bill as one of America’s most popular exports.

For two decades, since the fall of the Soviet Union, demand has exploded for the $100 bill, which is hoarded like gold in unstable places. Last year Treasury printed more $100 bills than dollar bills for the first time. There are now more than seven billion pictures of Benjamin Franklin in circulation — and the Federal Reserve’s best guess is that two-thirds are held by foreigners. American soldiers searching one of Saddam Hussein’s palaces in 2003 found about $650 million in fresh $100 bills.

This is very profitable for the United States. Currency is printed by the Treasury and issued by the Federal Reserve. The central bank pays the Treasury for the cost of production — about 10 cents a note — then exchanges the notes at face value for securities that pay interest. The more money it issues, the more interest it earns. And each year the Fed returns to the Treasury a windfall called a seigniorage payment, which last year exceeded $20 billion.

To meet foreign demand, the Fed has licensed banks to operate currency distribution warehouses in London, Frankfurt, Singapore and other financial centers.

In March, largely because of the boom in $100 notes, the value of all American notes in circulation topped $1 trillion for the first time.

In the United States, research suggests that the spread of electronic payment technologies is steadily reducing the share of payments made in cash. Drivers use E-Z Pass at toll plazas for roads and bridges. Commuters swipe stored-value cards at turnstiles. Christmas stockings are stuffed with gift cards.

Mr. Zazula, the restaurateur, made his decision in 2009, inspired by a flight on American Airlines, which had just introduced a no-cash policy. He said that 85 percent of his customers already paid with credit cards, and taking cash to and from the bank was a nuisance and security risk.

Two years later, Mr. Zazula said he had no regrets.

“You still have some people that are outraged that we won’t accept cash,” he said, “but most of it is a show because they end up having a credit card.”

But Commerce remains a rarity. Experts on payments cannot name another no-cash restaurant. Snap, a cafe in the Georgetown neighborhood of Washington, rejected cash in 2006, then reversed the policy a few years later.

Businesses are not required to take cash. The famous phrase “legal tender for all debts” means that lenders — and only lenders — are required to accept the bills. But most merchants don’t see the point in frustrating customers.

“It’s a rarity for a retailer of any size to go cash only, and it’s a rarity to decline to accept cash at all,” said Brian Dodge of the Retail Industry Leaders Association, a trade group.

Even the financial industry, which has promoted the spread of electronic payments, has moved away from grand predictions.

“There’s always going to be some people, for good or nefarious reasons, who want to use cash,” said Doug Johnson, vice president for risk management policy at the American Bankers Association. “I’m glad I had it yesterday,” Mr. Johnson said. “I blew out a fan belt on my car, and it’s nice to be able to give the tow driver a twenty.”

Bill Gross Confirms Our Work

by TwoCentsEditor

Published on: 06/13/2011

Categories: Centsible Investor Info., Current Events, Economics, Financial Markets

Tags: bill gross, bonds, debt, greek default. greece, kotlikoff, piigs, pimco

Comments: No Comments

Editor’s Note: Our research and analysis over the past several years has pointed to the fact that the USA is in much worse shape than Greece. We were ignored. Now Bill Gross agrees. Let’s see what happens to this notion now that it has a more popular champion

When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries, Pimco’s Bill Gross told CNBC Monday.

Getty Images

Much of the public focus is on the nation’s public debt, which is $14.3 trillion. But that doesn’t include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.

The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.

Taken together, Gross puts the total at “nearly $100 trillion,” that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.

“To think that we can reduce that within the space of a year or two is not a realistic assumption,” Gross said in a live interview. “That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly.”

Gross spoke following a report that US banks were likely to scale back on their use of Treasurys as collateral against derivatives and other transactions. Bank heads say that move is likely to happen in August as Congress dithers over whether to raise the nation’s debt ceiling, according to a report in the Financial Times.

The move reflects increasing concern from the financial community over whether the US is capable of a political solution to its burgeoning debt and deficit problems.

“We’ve always wondered who will buy Treasurys” after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. “It’s certainly not Pimco and it’s probably not the bond funds of the world.”

Pimco, based in Newport Beach, Calif., manages more than $1.2 trillion in assets and runs the largest bond fund in the world.

Gross confirmed a report Friday that Pimco has marginally increased its Treasurys allotment—from 4 percent to 5 percent—but still has little interest in US debt and its low yields that are in place despite an ugly national balance sheet.

“Why wouldn’t an investor buy Canada with a better balance sheet or Australia with a better balance sheet with interest rates at 1 or 2 or 3 percent higher?” he said. “It simply doesn’t make any sense.”

Should the debt problem in Greece explode into a full-blown crisis—an International Monetary Fund bailout has prevented a full-scale meltdown so far—Gross predicted that German debt, not that of the US, would be the safe-haven of choice for global investors.

Prepare for QE3 – Analyst

by TwoCentsEditor

Published on: 06/01/2011

Categories: Current Events, Economics, Financial Markets

Tags: ben bernanke, bonds, debt, Federal Reserve, fiat money, printing money, quantitative easing

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Editor’s Note: The ‘monetary injection trade’? So investors are being reduced to guessing what the Fed may or may not do. This guy pretty much sums it up. They print and markets go up; they stop and markets dive. What a great recovery!

Investors should prepare themselves for a third round of quantitative easing, Simon Maughn, co-head of European equities at MF Global, told CNBC Wednesday.

“The bond market is going in one direction which is up-falling yields which is telling you quite clearly the direction of economic travel is downwards. Downgrades. QE3 (a third round of quantitative easing) is coming,” said Maughn. “The bond markets are all smarter than us, and that’s exactly what the bond markets are telling me.”

“What’s interesting in the bond markets over the last couple of sessions is, you’ve seen human traders trying to step in and call this turn in the market the same way that equities have done … and they have just been mowed down by the quant funds which are all about leverage, all about momentum and are betting on bond prices going up,” added Maughn.

Once again, the United States will step up as the marginal buyer of bonds, said Maughn.

“One more big injection of cash into the bond market should take you through at least the summer season into the beginning of the fourth quarter.”

“That cash injection will have the normal inflationary knock-on impact, driving back up commodities, supporting industrial stocks, dragging the financials up with them… I think it’s all about the monetary injection trade,” Maughn told CNBC.

Global Economy Loses Steam

by TwoCentsEditor

Published on: 05/27/2011

Categories: Current Events, Economics, Financial Markets

Tags: alex jones, bonds, credit, debt, debt limit, Economics, economy, jim willie, max keiser, stocks

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Editor’s Note: We told everyone that this ‘rally’ in growth was a sham, bought with debt, and paid for with our kids’ future. Few listened. Now, 2 years later, the MSM is finally starting to admit the truth; always a day late and many, many dollars short.

May 27 (Bloomberg) — The world economy is losing strength halfway through the year as high oil prices and fallout from Japan’s natural disaster and Europe’s debt woes take their toll.

Goldman Sachs Group Inc. now expects global economic growth of 4.3 percent in 2011, compared with its 4.8 percent estimate in mid-April, while UBS AG has cut its projection to 3.6 percent from 3.9 percent in January. Downside risks also include a shift to tighter monetary policy in emerging markets.

“The world economy has entered a softer patch with the incoming growth data mostly disappointing,” said Andrew Cates, an economist at UBS in Singapore. “We suspect this soft patch will endure for longer.”

Data this week backed that outlook as reports showed Chinese manufacturing expanding at the slowest pace in 10 months, orders for U.S. durable goods dropping the most since October and confidence among European executive and consumers sliding for the third straight month. Investors are tuning in, pushing the MSCI World Index of stocks in advanced economies down 4.2 percent this month.

Goldman Sachs economists led by Dominic Wilson and Jan Hatzius said in a May 25 report they now expect “less upside in equities” with their colleagues reducing price targets for most of the major regions even though they still anticipate another 10 percent gain in developed markets this year.

The concern comes as leaders from the Group of Eight conclude a summit in Deauville, France, with a statement that declared the world economy is “gaining strength” and that its recovery will pave the way to debt reduction. They identified commodity prices as a “significant headwind” to expansion.

The MSCI World Index rose 0.6 percent at 6:15 a.m. in New York today, paring its weekly lose, after the G-8 statement.

Energy Costs

Oil prices reached a 31-month high of $114.83 on May 2 as the war in Libya cut supply. Goldman Sachs this week raised its forecast for Brent crude at the end of 2012 to $140 a barrel from $120, suggesting the price’s path will be 20 percent higher than anticipated at the start of the year. That’s enough to shave 0.5 percentage point from U.S. growth over two years and a little less in other wealthy nations, they said.

The fallout from Japan’s earthquake, tsunami and nuclear disaster may also be reverberating, said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York, who calculates the international expansion will duck beneath its long-term trend this quarter.

Japan’s Consumers

Japan’s retail sales fell 4.8 percent from a year earlier in April, the Trade Ministry said in a report released today, underscoring the impact on consumers from the March disasters and forecasts for gross domestic product to shrink for a third straight quarter in the three months to June.

While spillover to Asia’s emerging economies has been “surprisingly modest,” Hensley said supply-chain disruption is “likely to rise with time” as Japanese production and exports remain depressed before beginning to recover around September.

“The global economy is losing momentum,” Hensley said.

China, after powering the global economy out of the 2009 recession, may also be slowing. The world’s No. 2 economy has raised interest rates four times since mid-October and boosted banks’ reserve-requirement ratio eight times since November, most recently on May 12.

ING Groep NV this month cut its estimate for China’s full- year growth to 9.8 percent from 10.2 percent and reduced its second-quarter forecast to an annual pace of 9.6 percent, from 10.3 percent. Credit Suisse Group AG adjusted its 2011 expansion estimate to 8.8 percent from 9.1 percent. China’s stocks this week fell by the most in eleven months.

Central Banks

“Investors are worried that the tightening is overdone and concerns have widened to a slowdown in earnings and economic growth from just inflation,” said Wang Zheng, chief investment officer at Jingxi Investment Management Co. in Shanghai, which manages about $120 million.

Emerging-market central banks elsewhere are also throttling back. Those in India, the Philippines, Chile, Poland, Peru and Malaysia all raised their benchmark borrowing costs this month to cool price pressures.

Europe’s 18-month debt crisis is another brake on growth as its policy makers prepare a second aid package to save Greece from default and other so-called peripheral economies deploy austerity measures to slash debt. At the same time, the euro’s 6 percent gain against the dollar since the start of the year and the European Central Bank’s shift toward tighter monetary policy may be slowing expansion elsewhere in the region.

Impact on Companies

The global economy’s change in tone is reflected in some company announcements. Chicago-based Boeing Co., the world’s largest aerospace company, said it received two orders last month compared with 98 in March. Hermes International SCA, the Paris-based maker of Birkin handbags, said on May 11 that its forecast for 2011 is “clouded by geopolitical and economic uncertainties.”

The slower growth may still be short-lived and by cooling the oil price could even provide some support for consumers and inflation relief for central bankers, allowing them to keep monetary policy looser for longer. Other reasons for confidence include job growth in the U.S., expectations for an infrastructure-led bounce in Japan’s economy, supportive equity markets and a likely recovery in inventory accumulation, said Hensley at JPMorgan Chase.

Economists Nariman Behravesh and Sara Johnson of IHS Inc. said in a May 24 report that while they expect worldwide growth to slow to 3.5 percent this year from 4.1 percent in 2010, it will rebound to 4 percent in each of the next two years as the pain of austerity, Japan’s woes and high oil prices passes.

“Assuming these shocks do not get any worse and that the world economy is not hit by additional unforeseen jolts, chances are good that the period of slow growth will be relatively short and that the recovery will pick up steam again,” they said.

Pile of Debt to Reach Stratosphere

by TwoCentsEditor

Published on: 05/23/2011

Categories: Current Events, Economics, Financial Markets

Tags: alex jones, bonds, credit cards, debt, default, deficits, government debt, government default, peter schiff

Comments: No Comments

(Reuters) – President Ronald Reagan once famously said that a stack of $1,000 bills equivalent to the U.S. government’s debt would be about 67 miles high.

That was 1981. Since then, the national debt has climbed to $14.3 trillion. In $1,000 bills, it would now be more than 900 miles tall.

In $1 bills, the pile would reach to the moon and back twice.

The United States hit its legal borrowing limit on Monday, and the Treasury Department has said the U.S. Congress must raise the debt ceiling by August 2 to avoid a default.

The White House is trying to hammer out a deal with lawmakers to cut federal spending in exchange for a debt-limit increase.

Most people have trouble conceptualizing $14.3 trillion.

Stan Collender, a budget expert at Qorvis Communications, said the biggest sum most Americans have ever handled — in real or play money — is the $15,140 in the original, standard Monopoly board game.

The United States borrows about 185 times that amount each minute.

Here are some other metrics for understanding the size of the national debt and United States borrowing:

* U.S. Treasury Secretary Timothy Geithner has said the United States borrows about $125 billion per month.

With that amount, the United States could buy each of its more than 300 million residents an Apple Inc iPad.

* In a 31-day month, that means the United States borrows about $4 billion per day.

A stack of dimes equivalent to that amount would wrap all the way around the Earth with change to spare.

* In one hour, the United States borrows about $168 million, more than it paid to buy Alaska in 1867, converted to today’s dollars.

In two hours, the United States borrows more than it paid France for present-day Arkansas, Missouri, Iowa and the rest of the land obtained by the 1803 Louisiana Purchase.

* The U.S. government borrows more than $40,000 per second. That’s more than the cost of a year’s tuition, room and board at many universities.

“That usually gets their attention,” Doug Holtz-Eakin, who was chief White House economist under President George W. Bush, said in an email. “I have two kids, so every 10 seconds, the feds borrow more than I paid lifetime.”

* The Congressional Budget Office projects the total budget deficit in fiscal 2011 at about $1.4 trillion.

“The net worth of Bill Gates, roughly around $56 billion, could only cover the deficit for 15 days,” said Jason Peuquet, a policy analyst with the Committee for a Responsible Federal Budget. “The net worth of Warren Buffet, roughly around $50 billion, could only cover the deficit for 13 days.”

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