By Claus Vistesen, on April 26th, 2010
Earlier this week Edward mused about whether we were about to see movements in the Greek trenches as yields on 10 year bonds rose to a record 7.76 per cent at one point and closed up 26 basis points on the day. Today, as yields on 2 year bonds flirted with the 10% marker Greece opted to call in the outstanding favor from the IMF and the EU at about as 45 billion euros ($60 billion) put up as a financial lifeline (and in an attempt to calm markets) a little over a week ago.
(quote Bloomberg)
Greece called for activation of a financial lifeline of as much as 45 billion euros ($60 billion) this year in an unprecedented test of the euro’s stability and European political cohesion. The appeal for help from the European Union and International Monetary Fund follows a surge in borrowing costs to what Greek Prime Minister George Papandreou called unsustainable levels that undermine efforts to cut a budget deficit of more than four times the EU limit. Greek bonds and stocks rallied after the announcement.
“There was no response from the markets, either because they didn’t believe in the political will of the EU or because they decided to go on with speculation,” Papandreou said today. “The situation threatens to demolish not only the sacrifices of the people but also the regular course of the economy. All the efforts by the Greek people are in danger of being in vain.”
With national debt of almost 300 billion euros and investors demanding almost triple what they charge Germany for its 10-year bonds, Greece faces a fiscal mess that threatened to spread to Spain and Portugal, forcing the EU to set up a standby aid facility. At stake is the future of the euro 11 years after its creators gave the European Central Bank responsibility for interest rates while leaving budget policy in national capitals.
Obviously, this is more like to be the end of the beginning than the beginning and as Greece readies itself to receive the loan (which will be tallied at 5%) other countries are sitting in the holding room waiting for the doctor to call them. Spain and Portugal come immediately to mind here and it remains to be seen whether Germany or indeed the EU or the IMF have the will and capacity to take another tête-a-tête with the market as Portuguese and Spanish spreads begin to widen. Of course, we are not there yet and it is still highly doubtful that the current plan will help Greece to avoid a default.
Activating the aid and turning over economic policy to EU and IMF oversight was “a new Odyssey for Greece,” Papandreou said. “But we know the road to Ithaca and have charted the waters,” referring to the return of mythological hero Ulysses to his island home.
We should consequently remember the debt snowball here and my guess is that 5% is still way too high a levy to pay for Greece with the nature of nominal GDP growth the country can expect in the coming years as deflation is imposed on the economy. We will see soon enough, but my feeling is that part of the whole policy rigamole that will now unfold, Greece will have to “restructure” notable chunks of her debt.
Finally and on a brighter note, markets do not seem to be able to decide whether this is good or bad for the Euro. Consequently, Bloomberg’s ever flashing newsstream today pitted CMC Markets’ chief market strategist Ashraf Laidi predicting the Euro to move down to 1.27 to the USD against Commerzbank analyst Ulrich Leuchtmann who predicted the Euro to gain on the “successful” bailout.,
Well, well … place your bets accordingly gentlemen. Unlike in Greek’s case he who ultimately raises the white flag should be able to live another day.
By Richard Daughty, on March 11th, 2010
The pills that I thought were tranquilizers turned out to be vitamins, and although I am on the verge of some kind of mental breakdown because of the mix-up, I feel great!
Turning to the old tried and true, I soon learned that I had started too late, and I was not nearly drunk enough to have properly anesthetized my nerves when I chanced to read Agora Financial’s 5- Minute Forecast report that “The CBO’s latest numbers reveal that President Obama’s proposed fiscal 2011 budget would add $9.7 trillion to the national debt over the next 10 years.”
My hands shook and my guts churned at the horrific prospect of adding $9.7 trillion to the money supply, which means (I gulp in horror at the prospect) inflation in pieces like you never saw! Yikes!
I mean, (my voice rising in pitch and volume) the entire GDP of the USA is about $14 trillion, and the government wants to increase, over ten years, government spending by 70% of everything that this country currently makes!
Apparently eager to change the subject since I seem to be getting worked up about this and could, possibly, probably, almost certainly, damned near guaranteed, erupt into some loud Mogambo Hysterical Tirade (MHT) and make a shambles of everything, The 5 says, “Further, the CBO projects the national debt will be 90% of GDP by the end of this decade”, which I guess they thought would calm me down or something, but it didn’t, which was bad enough to cause me to have chest pains accompanied by loud howls of pain and outrage in another tiresome Screaming Mogambo Fit (SMF), but then went on to make it all worse by saying that debt will equal 90% of GDP, which is “higher than the 83.4% recorded at the end of fiscal 2009 last fall.”
Suddenly, there was an uproar as I jumped to my feet and shouted “What kind of bizarre crap is that? The national debt is already $12.5 trillion in a $14 trillion economy, and somehow you add $9.7 trillion to $12.5 trillion to get 90% of the economy which means that …that…that…”
Well, I knew what I meant to say, but did not have a calculator handy, and the security guards had me by the arms and were hustling me out of the room pretty quick.
I later found out that what I meant to say, but did not have the figures handy, is that this means that the CBO thinks that, unbelievably, in ten short years, a staggering $22 trillion of national debt will be 90% of the economy, which means that the CBO thinks that the economy in ten years will be, I gulp to report, $24 trillion, which is a whopping 71% higher than today! I am stunned!
What can one say but, “We are freaking doomed!”
Perhaps hearing my plaintive voice with its unmistakable undertone of angry paranoia and wanting me to calm down, The 5 says, “We’re 100% certain this comment will elicit the customary response: ‘Look at Japan, its debt is 170% of GDP…and it’s been running massive deficits for years!’”
I think to myself, “Okay, they just take time to raise the blade of the guillotine higher and higher, but the end result will be the same, and if anyone thinks that Japan proves otherwise, then I laugh the Mogambo Laugh Of Scorn (MLOS) at them and turn around to wave my buttocks in their faces in a final fillip of disrespect!”
The 5, in what I imagine is said with a deliciously snotty tone, says, “To which we can only sigh and respond: ‘Exactly.’”
Well, I can do more than that, because I am, after all, The Loudmouth Mogambo (TLM)! And I say that if all prices doubled, today, GDP (which measures spending) would instantly double, too! Hahahaha! Everything costs twice as much, but the economy looks like it boomed! Hahahaha! Welcome to Inflationary Hell!
I often marvel that it’s a good thing that the poor are usually ignorant or stupid, because if they could, or would, comprehend how this huge explosion of money is going to make prices rise and make them enormously poorer and more miserable, worse and worse, and probably for the rest of their lives, they would go freaking berserk.
As for the middle class, they are supposed to be smart and educated enough to know this stuff, but they don’t, and so they don’t understand the sheer enormity of how much poorer and miserable they will be for decades to come, either, and they will suffer, too.
Then there are those of us who are buying gold, silver and oil to protect ourselves against the ruinous, crushing, cataclysmic inflation in prices that this inflation in the money supply, and debt, will cause, because then, for us, it all becomes idle dilettantism and pleasure, which is, once you boil it down, the whole point of investing, isn’t it?
And could anything be easier? Whee! This investing stuff is easy!
CBO Budget Projections and the Horrors of Inflation originally appeared in the Daily Reckoning.
By Richard Daughty, on February 23rd, 2010
I can tell you the exact date (Saturday, February 13, 2010) that I saw that TheDailyBell.com had a “guest Editorial” by Dr. Ron Paul, who I admire because he is the only Senator in Congress whose economic philosophy is the Austrian school of economics, which, in fractured German, is “ein Austrian economischer”, which I purposely use to paraphrase John Kennedy, who famously said, “Ich bin ein Berliner”, which actually translates from German as “I am a cream-filled pastry”, but everybody knew what he meant, which was that he was just another clueless American Democrat who wanted to save the whole world by taking over the whole world so that they could change the whole world, and who had the majority of American voters and Congress behind him, all of whom have heads that, for all apparent intents and purposes, are cream-filled, and that is why Kennedy said that he, too, behaved as if he had a head filled with whipped cream.
Oh, I am sure that there are those who disagree with my interpretation of what a dead president meant when he said he was a “cream-filled pastry”, and there are those who dispute my understanding of the vital role of the taco (“The prefect snack, any time!”) and the candy bar (“Perfect for times between tacos!”) in today’s modern, health-conscious world, too, so go figure. Idiots!
Regardless, the state of my mental faculties or the fact that I sound, look and act exactly like an idiot is not the point. The point is about the importance of owning gold, silver and oil when the truly idiotic Federal Reserve keeps increasing the supply of credit and money, especially as it is used mainly to buy an avalanche of new government debt (monetizing the debt! Gaaaah! We’re freaking doomed!), and how the title of his article, “More Spending is Always the Answer”, is so ludicrously ridiculous that I could not believe my eyes that Senator Ron Paul, of all the people in the world, is saying that “more spending is always the answer”, because nothing could be farther from the truth, and it is, instead, waaaAAAaaay out there past the outermost, frigid fringes of Truth, a place where we find “The promise of True Love” and “The check’s in the mail.”
It turns out that he was being sarcastic, as I should have known, and he says, “Continually increasing the debt is one of the logical outcomes of Keynesianism, since more government spending is always their answer. It is claimed that government must not stop spending when the economy is so fragile. Government must act.”
The problem is that “when times are good, government also increases in size and scope, because we can afford it, it is claimed.” Exactly!
In short, the blockheads in Congress, the Federal Reserve, the majority of the laughably-incompetent university economics professors in the country, the morons of the President’s council of economic advisors, and all Democrats, all believe that “There is never a good time to rein in government spending according to Keynesian economists and the proponents of big government.”
As a case in point, “Last week, the House approved another increase in the national debt ceiling”, he says, meaning that the idiotic American government can now legally borrow $1.9 trillion more, on top of the $12 trillion already borrowed and owed, “to stay afloat and avoid default”, although he did not mention that this monstrous new load of debt is only expected to last until just after the mid-term elections this year, at which point Congress will take us farther and farther into a deadly financial quicksand with another extension of the debt limit! Hahaha!
In this regard, Junior Mogambo Ranger (JMR) Alan L. writes, “Call one drop of water a dollar. Five drops equals one milliliter. Question: What is the volume of water of $14 trillion?”
Instantly, I am back in high school, feeling panicked and trapped because the teacher has asked me a question that not only do I NOT know the answer to, or how to figure it out, but I don’t even care, and I never WILL care about it because if I was ever actually on a train that was leaving Chicago towards Los Angeles, 2,000 miles away, going 60 miles an hour, and I knew that another train was leaving Los Angeles going to Chicago at 70 miles an hour, I wouldn’t get on the damn train! It’s that simple!
So I don’t freaking CARE how long it would be before they met and they crashed into each other with a big explosion and there are bodies everywhere and what a mess, because I won’t be there! I’ll read about it!
Apparently, JMR Alan saw the panic in my eyes, or perhaps it was the way I was reaching under my jacket preparing to shoot my way out of here if necessary, but either way, he was pretty quick coming up with the answer: “Twenty times the volume of the Great Lakes. That puts the entire area of the United States 50 meters underwater.”
Wow! I seem to remember some handsome rascal and clever bon vivant, with a twinkle in his dazzling blue eyes and a roughish grin on his boyish-yet-rugged face, say “We’re freaking doomed!” as a result of the abject stupidity of Congress and the Federal Reserve in the last 90 years or so since the Fed was created, and especially as a result of the stupidity of the last 40 years when Nixon refused to exchange dollars for gold, and doubly especially since 1997 when Alan Greenspan really started getting insane with monetary policy, and triply especially since 2008 when the unbelievably preposterous Ben Bernanke and his loathsome Federal Reserve doubled the money supply at a stroke! At A Freaking Stroke (AFS)! Doubled!
This – THIS! – is the worst thing that could happen for those of us whose fear of hyperinflation, which is guaranteed after a hyperinflation in the money supply, makes us buy gold, silver and oil with a fearful, frantic frenzy that precludes even thinking about spouses and children, except maybe about how they are a big, heavy weight around my aching neck and my only hope is to get more gold, silver and oil, which, when I do, make the whole problem worse and worse! I can’t win!
And don’t get me started on the hassles of having a few defensive fortifications in the backyard to further protect yourself against the massive social unrest that inflation causes. Neighbors are always whining about something, like maybe a couple of accidental shots, probably less than a hundred rounds all told, allegedly emanating from the Mogambo Bunker Of Trembling Terror (MBOTT), that didn’t even hit anybody, and the only real damage was Carl’s stupid barbeque grill, which was old, rusty and ugly to start with, and I didn’t think he would even mind, and there was some collateral damage to his stupid water heater, too, which was ditto on the old, rusty and ugly.
But the point is that the Federal Reserve is going to kill us with inflation in prices as a result of their relentless inflation in creation of money and credit as a result of the federal government deficit-spending so incredibly much money, and you should get some gold, silver and oil right away!
You will be glad you did, and you can fit a surprising lot of them in even the most modest-sized bunker, yet still have lots of room for supplies of ammunition, frozen pizzas and pornography. So, whee! This investing stuff is easy!
Money Supply Flood to Drown US Economy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
By Trace Mayer, on July 17th, 2009
THE FAR EAST
China is a completely different world and the way of doing business there clashes with traditional Western practices. If the West’s great contribution to humanity was the rule of law then the East’s great contribution is bureaucracy. This method for allocating capital does have some advantages but that hardly means it is done morally or efficiently. China is not communist and I saw more entrepreneurship there than in America; particularly since the emergence of the Goldman Sachs Web. As Bill Gates has observed, “It is like capitalism on steroids. It is a little scary.”
STERN HU ARREST
Bloomberg reports that Rio Tinto executive Stern Hu who had a ’sharp focus’ on 2009 iron-ore negotiations was arrested and detained in Shanghai on charges of obtaining classified information or ’state secrets’ about steel mills. Both Australian Foreign Minister Stephen Smith and Australian Prime Minister Kevin Rudd are upset with China’s behavior.
A PRIZE FLOWER
Rio Tinto is a highly desired asset. With a recent announcement of $58B in gross revenue, $10.3B in underlying earnings, a monstrous $20.7B of cash flow from operations, a 50% decline in net income to $3.7B and a $45B market capitalization Rio Tinto is a world leader in finding, mining, and processing mineral resources such as gold, silver, platinum, copper, zinc and aluminum.
Rio Tinto rejected a BHP Billiton offer and a later hostile takeover valuing the company at $147B. Chinalco, a Chinese government owned resource group, purchased 12% of Rio Tinto’s London shares to complicate the hostile takeover. Chinalco currently owns 9% of Rio Tinto.
As Javier Espinoza of Forbes.com observes, Chinalco has a deal pending approval from American, Chinese and Australian regulators where the proposed investment structure involves $12.3 billion for the purchase of ownership interests of Rio Tinto assets in its iron ore, copper, and aluminium operations, plus $7.2 billion for convertible bonds. The transaction would bring Chinalco’s ownership of the company to approximately 18.5%.
Australia is a major exporter of iron ore and China has a voracious appetite. The Chinese are on a hunting trip for natural resources and Rio Tinto is an exceptional trophy asset.
CHINESE CORRUPTION
Like the American bailouts the $586B Chinese stimulus package is ripe pickings for the corrupt. As Chinese business leaders have gotten rich their allegiance to the central government has weakened. Some business leaders have even disobeyed the central government’s orders outright. The central government is most likely attempting to centralize power over key industries. This is similar to how Russia is dealing with their oligarchs.
Back when the United States used to define a dollar they had a low tolerance for corruption regarding financial matters. Under Section 19 of the Coinage Act of 1792 provided, “That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.”
Like the United States used to, China deals harshly with those involved in corruption who are not high enough on the bureaucracy ladder. For example, the New York Times reported that Zheng Xiaoyu, former head of the State Food and Drug Administration in China, admitted to taking bribes to approve untested medicine and he was swiftly executed.
There has been civil unrest in China. Significant unrest is happening opposite of Beijing in Xinjiang. Since 5 July 2009 shopkeepers have been unable to open their shops because the Grand Bazaar has been occupied by paramilitary troops. With 20,000 troops deployed in the area, over 192 people have died and more than 1,400 have been arrested and threatened with the death penalty. On 16 July 2009 most Chinese paramilitary troops withdrew.
THE GOLDMAN SACHS WEB
Goldman Sachs’ deep capture of the government of America, Washington DC and the various regulatory agencies has led to some interesting circumstances. Imagine what would happen to the country of America if current and former Goldman Sachs executives, which received over $10B of government bailout funds yet reported $3.4B in earnings due to generally accepted fair value lying standards and because of their ‘unmatched risk taking and management skills‘, received the same treatment?
It would be most unfortunate for Goldman Sachs’ earnings if some Scout Sniper, like Mark Wahlberg in the highly rated fictional movie The Shooter, felt their patriotism had been abused because they and their combat buddies were expendable resources not for defending freedom but for the benefit of derivative traders and therefore decided to rectify the situation.
CHINESE LEADERSHIP MOTIVATION
The central government’s leadership knows they hold a bunch of worthless FRN$s. They know real assets are what matter. In China over the past 25 years over 300M people have been lifted out of poverty. They know regime change in China happens only one way and therefore they must quell any dissent.
To consolidate political power they are pressuring domestic businessmen, cracking down on ‘corruption’ and requiring greater evidence of allegiance while smashing domestic unrest with a bloodied iron hand. Some of those the central government deems ‘corrupt’ are executed.
As the financial crisis continues and the Chinese continue losing millions of jobs it will be even more difficult for the central government to maintain their power. Therefore, the Chinese are on a hunting trip for real assets so they can maintain and increase the standard of living of the average Chinese which will preserve the current political structure.
CONCLUSION
There has been some bad press to China for kidnapping Stern Hu. It will likely have negligible impact. China is probably still perturbed from the failed Unocal acquisition. Now they are playing corporate hardball and acquiring real assets.
Rio Tinto is only one company of many that the Chinese government wants to own. As one of the leading mineral resource producers it is a prized trophy. China is attempting to assert their power beyond their borders and international companies will take notice. The Chinese central bank acquired over 450 tons of gold and did not report their holdings. The Chinese know how to buy gold and why, to avoid the FRN$ bubble.
On the other hand, Goldman Sachs keeps stealing things, not doing anything productive for society, looting the American people, hijacking the United States federal government, making tons of profits and the victims keep getting angrier. There is one hardball game that will be very interesting to watch: Goldman Sachs v. China.
Disclosure: Long physical gold, silver and platinum with no interest in the problematic GLD or SLV ETFs, Goldman Sachs or Rio Tinto.
By J.D. Seagraves, on August 12th, 2008
The federal government’s debt will soon reach $10 trillion. That’s about $130,000 per family of four in the United States.
But if you think that’s bad, then consider the real national debt. After all, the phony $9+ trillion “debt” does not include any of the following:
- The Social Security deficit
- The Medicare budget shortfall
- The new Medicare Prescription Drug Benefit
- Unforeseen (but virtually guaranteed) future wars
According to Richard W. Fisher, president of the Dallas Federal Reserve Bank, the first three of the above account for $99.2 trillion. Of this, Medicare makes up 69%, Social Security 14%, and “conservative” President Bush’s Medicare Prescription Drug Benefit 17% (more than Social Security!).
But what about #4? The U.S. has been in a nearly perpetual state of war since Pearl Harbor, and we now have a “War on Terror,” the proponents of which admit has no end in sight and could last for 100 years. War is expensive, and yet government accounting doesn’t even consider it. We’re spending at least $6 billion per month in Iraq, and there are more (and bigger) wars on the horizon, if history is a reliable guide.
How do liberal and neoconservative economists – the ones who scoff at the gold standard and celebrate the Fed – respond to this? For the most part, they don’t. If they do, they make ridiculous claims that “enhanced productivity” will allow us to claw our way out of this hole. But for the most part, they ignore the matter and hope the monetary and fiscal facade can remain standing another day longer, hopefully until they’re in their graves from old age. Unless these economists are pushing 80, I fear they may not get their wishes.
The fact is that the U.S. is bankrupt. We’re just lucky that the rest of the world is still living the fantasy, pretending that the emperor (or in this case, the Empire) has clothes. Sooner or later, and I’m betting it’s sooner, the chickens will come home to roost. The U.S. dollar will follow all fiat currencies that came before it in reaching its intrinsic value of $0.
Or another way of looking at it, the Fed can simply print $1.3 million per family as part of a “national debt bailout” and call it even. I’m sure there would be plenty of court economists who would celebrate this as a majestic action by the U.S. economy’s central planners! But one way or another, Dollar Hegemony is coming to an end. The sensible thing to do is get prepared.
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