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.”

BERLIN (Reuters) – Following a now-familiar script, Europe again averted disaster in its debt crisis when German deputies rallied behind Chancellor Angela Merkel to approve a stronger euro zone bailout fund on Thursday.

But bigger challenges lie ahead for the euro zone and markets are already demanding more far-reaching measures to prevent a crisis that began in Greece from spreading far beyond Europe and its banks.

The Bundestag (lower house) overwhelmingly approved new powers for the 440-billion-euro EFSF fund to make precautionary loans, help recapitalize banks and buy distressed countries’ bonds in the secondary market.

Despite a rebellion by 15 backbench Euroskeptics, Merkel won 315 votes from her own conservative-liberal coalition, enough to avoid the humiliation of having to rely on opposition Social Democrats and Greens to pass the plan.

“The result of the vote is a strong signal for Europe. The broad majority in parliament clearly shows that Germany is committed to the euro and to protecting our currency,” said Hermann Groehe, general secretary of her Christian Democratic party.

The measure was part of a July 21 agreement by euro zone leaders meant to solve the crisis by providing a second bailout for debt-stricken Greece, partly funded by private sector bondholders, and providing more firepower to prevent contagion engulfing bigger EU economies Spain and Italy.

But that deal failed to stop Italian and Spanish borrowing costs soaring, forcing the European Central Bank to intervene in August to buy their bonds, and may yet unravel in Greece, which has fallen behind again on its deficit reduction targets, pushing it closer to default.

“There is a growing realization, even among the more reticent, that the July 21 package is yesterday’s war, and we need to go further,” a senior EU official said, speaking on condition of anonymity.

The euro and European shares ticked up and safe-haven German bonds fell after the closely-watched vote in Europe’s pivotal power, where public opposition to further bailouts is rife.

But analysts said financial markets and outside powers still want a more comprehensive response from European Union policymakers to the debt crisis.

U.S. President Barack Obama kept up a barrage of criticism of the EU’s crisis management, saying on Wednesday: “In Europe, we haven’t seen them deal with their financial system and banking system as effectively as they need to.”

EU officials are already working on ways of leveraging up the rescue fund, but kept those legally and politically fraught ideas under wraps ahead of the German vote to avoid antagonizing waverers in the Bundestag.

The European Commission welcomed German approval of the EFSF boost and said it was confident the ratification process would be complete throughout the 17-nation currency area by mid-October.

Elsewhere in Europe, there was a sense of relief. French Finance Minister Francois Baroin said the Bundestag vote “confirms German determination to preserve the financial stability of the euro zone.”

So far 11 states have backed the new powers. Of the rest, only Slovakia’s endorsement appears politically difficult.

PAIN IN SPAIN, ITALY

Despite the German vote, developments in Spain and Italy highlighted the stark challenges still facing the euro zone in coping with the sovereign debt crisis.

Spain’s ruling Socialists abruptly shelved plans to boost public coffers by selling part of the state lottery for up to 9 billion euros ($12 billion), in the face of tough market conditions, political opposition and banks’ funding concerns.

The backtracking, a day before bookbuilding was supposed to begin on the public offering of 30 percent of Loterias, was a blow a few weeks before a November 20 election, which opinion polls show the center-right People’s Party sweeping.

Banks involved in the sale, Santander and BBVA, saw the Loterias flotation as a direct rival to their efforts to bolster their capital by enticing Spaniards to withdraw deposits to invest in lottery shares.

Italy meanwhile had to pay the highest yield on a 10-year bond since the introduction of the euro in 1999 at an auction on Thursday, the first long-term sale since Standard & Poor’s cut the country’s sovereign credit rating.

Rome’s funding costs remain under pressure despite ECB bond-buying and a pick-up in risk appetite due to expectations of a stronger euro zone rescue fund. Analysts say the government’s tentative crisis response has harmed investor confidence.

Italy sold 7.86 billion euros of long-term bonds, moving closer to an overall issuance target of 430 billion euros for the year, but the 10-year yield rose to 5.86 percent at the auction, up from 5.22 percent a month ago.

“That’s eye-watering yield levels,” said David Schnautz, a rate strategist at Commerzbank.

Senior officials of the troika of European Commission, ECB and International Monetary Fund resumed talks in Athens aimed at checking that Greece has met the terms of its international bailout program after adopting new austerity measures.

The government will run out of money to pay salaries and pensions in October unless it receives the next 8 billion euro installment of emergency loans. It pushed an unpopular new property tax through parliament this week despite public anger.

Anti-austerity protesters blocked the entrances to several ministries before the start of the talks.

Around 200 finance ministry employees gathered in front of their ministry, shouting: “Take your bailout and leave.”

“The occupations are carried out today when the troika returns to our country and as we face new barbaric measures which were decided and are being decided for further wage reductions … new tax hikes and mass layoffs,” public sector ADEDY said in a statement.

There’s been word that the jobs will be cut in the U.S., but there is not confirmation of that today. The announcement simply refers to “layoffs,” with no mention of whether it’s globally or not.

However Moynihan said that layoffs would affect those areas under review in Phase 1 of Project New BAC.

That means these units are getting chopped: the consumer and small business banking, credit card, home loans, global tech and operations, and support areas.

The layoff plans were anticipated last week, as people familiar with BofA said it would cut from 30,000 to over 40,000 employees.

It sounds like a lot and it is, but here’s a bit of context. CEO Brian Moynihan said on a conference call this morning that BofA acquired 200,000 people through 6 deals in the past 5 years.

Check out the layoffs about to hit other Wall Street banks >

The announcement:

Bank of America’s Project New BAC is key to the company’s strategy of focusing all of its resources on serving individuals, companies, and institutional investors.

The first result of New BAC was the recently announced management reorganization, removing a layer of management and streamlining the company by aligning its businesses with the customer groups.

This reorganization follows on work that started in January 2010. The company continues to sell non-core business units and assets that don’t support its strategy, thereby strengthening the balance sheet, and improving capital and liquidity.

Bank of America is nearing the end of the first phase of a comprehensive review of its consumer businesses and support functions. As the company implements the thousands of decisions from Project New BAC over time, it intends to become a more focused, leaner, and more efficient company, providing all of its customers and clients with the best financial services, generating strong revenues, carefully managing expenses and risks, and delivering long-term value for shareholders.

Bank of America’s goal is not a given number of job reductions, but rather implementation of New BAC decisions. As the decisions are implemented, employment levels in the areas under review during Phase I are expected to be reduced by approximately 30,000 jobs over the next few years. The company expects that attrition and the elimination of appropriate unfilled roles will be a significant part of the anticipated decrease in jobs.

Full implementation of approved ideas in Phase I is expected to lead to net expense reductions of $5 billion per year by 2014, on a baseline of $27 billion in annual expenses for the areas the company reviewed.

New BAC Phase II is scheduled to begin in October and continue through March 2012, and cover those businesses and operations that were not reviewed in Phase I.

The U.S. Senate, in an unusual procedure, cleared the way Thursday for the U.S. to lift its borrowing authority by $500 billion to $15.19 trillion, enough to keep the support federal government borrowing through late January or early February.

The action came under an unusual legislative procedure spelled out under the August agreement to raise the U.S. debt ceiling and avoid a U.S. credit default. In a 52-45 vote, the Senate blocked an attempt by Republicans to slow down the process that will result in the $500 billion debt-ceiling increase.

The increase stems from a deal between Congress and the White House, finalized last month, that spells out how the borrowing limit would be increased by $500 billion. Under the process, lawmakers in both the House and Senate must vote on a resolution of disapproval against the increase in the borrowing limit. President Barack Obama would then have to veto the resolution of disapproval, and Congress would then vote to try and override that veto.

The complicated procedure, designed by Senate Minority Leader Mitch McConnell (R., Ky.), would allow an increase of the borrowing limit while allowing most Republicans to vote against such an increase.

There was a twist in this scenario Thursday evening, however. Democrats held firm, rejecting the resolution of disapproval, thereby speeding the process and increasing the borrowing limit immediately.

Only Sen. Ben Nelson (D., Neb.) broke from his party to vote with the Republicans in trying to move forward with the measure.

The next increase in the borrowing limit, likely in the first quarter of next year, will be dependent on the ability of a panel of 12 lawmakers to reach a deal that cuts at least $1.2 trillion from federal budget deficits over the next decade.

Topics discussed included the banker-crafted debt deal, AIER economic metrics and manufacturing forecast, general market conditions, and caller comments/questions.

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.

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.

“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.

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.

QE3 in Disguise

QE2 was winding down and when you go back and look at it, the USFed had already been blamed (quite properly too) for record high food prices around the globe and some of the unrest in certain locales as well. The overt monetization stage is generally the last one in the fiat life cycle, and obviously it is in Bernanke et al’s best interests to prolong the fleecing, er, rather prosperity, as long as they possibly can. The debt ceiling non-issue was really a work of semi-genius when you think about it. Set an artificial date for the end of the world, get your buddies in the media to put countdown clocks all over their news broadcasts – really a nice touch guys, and then proceed to scare the daylights out of everyone that those checks might not go out if everyone doesn’t get together and take one for the banksters. Uh, the team. So what really happened on 8/2 anyway? Well, I will tell you. QE3 was born. Come again? Here’s the stick. The consumer is now in pullback mode – again. The government is up against the wall with the full light of day being shown on its foolishness. The only institution with any wiggle room is the fed.

I have gotten confirmation from several well-placed sources that the USFed is now buying nearly 80% of all new Treasury bond issues. Most of these are being purchased directly from the primary dealers, who are required to place bids at all auctions. This is one of the reasons why it seems everyone around the world is divesting; yet the Treasury always has plenty of buyers for new debt. Pension funds and other mutual/closed-end funds are good for most of the rest. So follow the logic. The USFed needs cover to launch another round of monetary stimulus even though the first two were an abysmal failure. The USGovt needs to be able to issue a trainload of bonds to make payments on a bunch of ill-advised promises. The best bet at this point would be to borrow enough to divest everyone from SocSec at a 4% per annum rate and opt everyone out and shut the system down. People could invest their own money accordingly and at least if they blow it, it would be on them. And here’s the carrot: we get a debt ceiling extension for $2.8 trillion-ish and this gives the government the ability to borrow and spend while giving the Fed cover for the next round of semi-overt monetary stimulus. The mechanisms may be slightly different, but this one will likely mimic QE1 and 2 in most ways. The fed will be monetizing debt and the government will be spending more of its borrowed money to try to stimulate an economy, and, more and more lately, appears to be beyond stimulation. It would appear that we’ve now reached the phase in Keynes ‘theory’ where the long run is upon us and we’re not dead so now what? Unfortunately, Keynes left us no answers because there weren’t any and he knew it. This may come as a shock to many Keynes proselytizers, but we’re in uncharted territory, with not even the basis of a clue as to how to right this ship. So what we can expect moving forward is more of the same. The ‘cuts’ in this debt deal, from what I’ve been able to see so far, are going to gut the middle two quartiles of the economy. Not at once or immediately, but slowly. Many of the prescribed cuts won’t happen for a while, but others are yet unknown. The ‘super congress’ will have frighteningly dictatorial powers in deciding the winners and the losers and obviously there will be fierce battles by industries, corporations, banks, and pretty much everyone with a lobbyist – except the American people – to get people sympathetic to their cause on that commission. Go figure that 300 million Americans have not one single suite on K Street. Not even a single kiosk. Nothing.

Priming Demand for GBonds

On cue, USEquity markets have deteriorated over the past several weeks, pushing investor money across the aisle into Treasuries. I have made the case both anecdotally and factually in our paid publication for almost 2 years that the small investor is largely out of markets. Much of Middle America’s investments are in managed plans such as 401s, pension plans, and the like. Funds and banks have been driving the markets for quite some time now, shaving pennies off each other each day, with everyone claiming victory at the end of the quarter. I’ve chronicled how several firms have bragged on quarter long winning streaks. When you look at all the information, it becomes very clear that the big banks are running that show now more than ever. So why the recent selloff?  There are a couple of reasons really, and the first is the easiest to understand. The general public, for the most part, regards the stock market as the economy itself. Running down the markets was one way of making the fear campaign launched by Washington stick. Thanks to subterfuge and disinformation, Main Street really doesn’t understand most of the economic reporting other than unemployment, and perhaps GDP, but it certainly understands the stock market.  Dropping the markets was part of the psyop against the American people over the past several weeks. Secondly, there is typically a flow from more risky to less risky assets. Let me be clear that I preface both of those qualifiers with ‘perceived’. Perceived increased risk in the equity markets will push money into bonds and vice versa. That has been a basic paradigm for many years now and is fairly well understood by most investors. That paradigm is going to be ending in the not-too-distant future, but that is another article for another week.

The mere fact that so much money is piling into the long end of the yield curve reeks of manipulation since it simply defies common sense. A stay of execution is not a pardon, and the ridiculous spending spree in Washington will continue, albeit, most likely to a lesser extent in Middle America’s direction. There will be plenty of money for wars, regulation, and plenty of money for the next bailout when the banksters get zapped (most likely by design) by the derivatives time bomb they’ve created on a global scale. Nothing has been done to alter the trillions that SocSec and Medicare pass onto the nation’s plate in terms of unfunded liabilities each year. Perhaps the plan is simply to make the liabilities go away, and then there will be no need for funding. The supercongress could easily have that as its mandate. It will not be comprised of Ron and Rand Paul types, that is for sure, or even main line fiscal conservatives. Or advocates for the people. I wouldn’t be surprised if General Electric CEO Jeff Immelt wasn’t given a spot despite the fact that he isn’t even a Congressman.

Gold Smells the Rat(s)

In short, the run-up of the bond market is to push the perception that US government bonds are safe. There is likely a minor residual effect from the ongoing (and worsening) crisis in Europe, which is spreading well beyond Greece. Gold is properly responding to the debt and derivatives mess globally. At this point, it is one of the few markets that is ‘working’ yet the mainstream press calls the rally ‘ludicrous’.  And make no mistake, the roiling of markets is just as much about derivatives as anything else. Remember all the credit default swaps that were written on junk US mortgages? There are plenty of those written against various European (and American) government bonds, banks, and pretty much anything else that isn’t bolted down. And the nature of the derivatives time bomb is such that it will not matter where it begins, once the avalanche starts, it will take the entire financial system with it. That is the magnitude of the greed that has been poured into this rather unknown and virtually unregulated arena.

Ratings Russian Roulette

Another benefit to pushing up the bond market is to cover what declines may occur if a ratings agency actually does something other than talk about downgrading USGovt bonds. At this point at least it would appear to be a rather safe bet that this will not happen. Moody’s has already affirmed the top rating while saying everything negative they possible can in a vain attempt to save face. These agencies are merely political animals, serving the masters who pay their exorbitant fees. Nothing more. They are not independent by any stretch, because as anyone can understand, your allegiance is to who pays you. When a bank pays the agency to rate its mortgage tranches, the rating agency has a choice. Make the rating pleasing to the customer or lose the business. It is very simple. Amazingly the agencies essentially admit this, claiming their sovereign ratings are ‘more independent’. More independent than what? Than the AAA ratings slapped on C mortgage tranches?

If the Eurozone nations want the ratings agencies to stop arbitrarily and capriciously downgrading them, then they’d better take some of that rescue fund and send a large check. That is what appears to work best with these firms – a large application of money. There is also a little talked about motivator in there for the ratings agencies to keep the USGovt’s rating sterling. If they cut it that could very well mean that fewer bonds will be issued, and therefore diminished demand for ratings. When in doubt, always, always, follow the money.

There was certainly a lot of borrowed money to be followed today as the debt curve resumed its relentless upward climb to oblivion and the loss of the American standard of living we’ve come to enjoy. Meanwhile, awful economic reports continue to flow out of the various reporting agencies and if nothing else, maybe this time folks will come to understand you just can’t put humpty dumpty back together with endless monetary and fiscal stimulus; it is truly the ultimate exercise in financial futility.

If you haven’t taken an opportunity to download our free report entitled ‘If You Have Paper Assets… There are Three Things You Must Consider’, think about doing so now. As debt contagion swirls in Europe and now on our shores, it is more important than ever to take a protective stance towards the entirety of your assets. Simply Click Here to go to the download page. No obligations, no hassles, just common sense investing wisdom. There are also several other compilations available by clicking the above link as well.

The second shows what happens to your debt when you decide to become a consumer nation as opposed to a producer one and pay for it all with borrowed money.