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The Truth and nothing but....
| REAL POWERFUL AND SOPHISTICATED FINANCIAL CALCULATORS |
KEYNESIAN ECONOMICS
| Right of Green Line, Era of Keynesian Economics, Right of Red Line no Gold Standard |
The Greek default, and this will happen one way or the other at this point, will be similar to the demise of
Lehman in 2008. Contagion spread throughout the world financial system. In the U.S. the close to trillion dollar
TARP program had to be instituted to hold up the banking system. In total, as much as $11 trillion in programs (the
Federal Reserve alone had half a dozen major ones) had to be implemented to patch things up. The will for such
an effort no longer exists, which will mute whatever response the authorities come up with, and will be delayed
and muted.
Lehman in 2008. Contagion spread throughout the world financial system. In the U.S. the close to trillion dollar
TARP program had to be instituted to hold up the banking system. In total, as much as $11 trillion in programs (the
Federal Reserve alone had half a dozen major ones) had to be implemented to patch things up. The will for such
an effort no longer exists, which will mute whatever response the authorities come up with, and will be delayed
and muted.
The problems that have arisen in
Greece are those that occur when a
government borrows too much
money relative to its GDP. Eventually
the interest payments on the debt
become overwhelming and default
becomes inevitable. Default can
take place in two ways however. It
can be a simple failure to make
interest payments on bonds or it can
result from a major inflation of a
currency. With inflation, borrowers
get the nominal amount of money
due them, but that money doesn't
have the same purchasing power.
Since Greece is part of a
currency union and can't print
its own money, it can only
default by not paying off its
bonds.
The U.S. on the other hand, can print
all the money it wants too, so it can
only default through inflation.
Greece are those that occur when a
government borrows too much
money relative to its GDP. Eventually
the interest payments on the debt
become overwhelming and default
becomes inevitable. Default can
take place in two ways however. It
can be a simple failure to make
interest payments on bonds or it can
result from a major inflation of a
currency. With inflation, borrowers
get the nominal amount of money
due them, but that money doesn't
have the same purchasing power.
Since Greece is part of a
currency union and can't print
its own money, it can only
default by not paying off its
bonds.
The U.S. on the other hand, can print
all the money it wants too, so it can
only default through inflation.
Not over
HISTORICAL PERSPECTIVE FYI:
Debt to GDP Japan 229%-2012
The other major development in Japan during its two lost decades was a massive bond bubble, which caused
even long-term rates to approach zero. This same type of bubble is now developing globally, although the
powers that be are denying that this is taking place. When massive government stimulus causes interest rates to
drop, it is because of a liquidity trap - money does not flow into the real economy and so the economy doesn't
significantly benefit from stimulus. Eventually a steep depression develops (what has prevented the depression
phase so far in Japan is that its population had enough savings to pay for the last 20 years of stimulus - sort of like
rich people who have no income, but still manage to live well by slowly selling off all of their assets). The only way
out of this depression is to reignite economic growth with inflation. The Japanese have yet to figure out how to do
this and U.S. monetary authorities are still reluctant to pursue this option.
Debt to GDP Japan 229%-2012
The other major development in Japan during its two lost decades was a massive bond bubble, which caused
even long-term rates to approach zero. This same type of bubble is now developing globally, although the
powers that be are denying that this is taking place. When massive government stimulus causes interest rates to
drop, it is because of a liquidity trap - money does not flow into the real economy and so the economy doesn't
significantly benefit from stimulus. Eventually a steep depression develops (what has prevented the depression
phase so far in Japan is that its population had enough savings to pay for the last 20 years of stimulus - sort of like
rich people who have no income, but still manage to live well by slowly selling off all of their assets). The only way
out of this depression is to reignite economic growth with inflation. The Japanese have yet to figure out how to do
this and U.S. monetary authorities are still reluctant to pursue this option.
| The EU Has Fallen Into a Liquidity Trap and It Can't Get Up |
| Investors should look to Japan for a lesson on how inept central bank and fiscal policy can lead to decades of a failed economy and low stock prices. The Nikkei closed at 9213 its last night, more than 75% off from its high around 40,000 on the last day of 1989. The Japanese economy has been in the doldrums for two decades now. In the United States, it's three years and counting. |
The Great Recession began in the housing market after subprime loans started to default in large
numbers in 2007.
The U.S. economy will continue to have difficulties until all the excesses are ringed out of house prices.
Government policy has instead been geared toward stabilizing the market with temporary fixes. The
Federal Reserve instituted a number of programs to funnel money into the mortgage markets to protect
the banks that had too much exposure to real estate loans and the Obama administration has created
programs like HAMP (Home Affordable Mortgage Program) to lower the foreclosure rate.
numbers in 2007.
The U.S. economy will continue to have difficulties until all the excesses are ringed out of house prices.
Government policy has instead been geared toward stabilizing the market with temporary fixes. The
Federal Reserve instituted a number of programs to funnel money into the mortgage markets to protect
the banks that had too much exposure to real estate loans and the Obama administration has created
programs like HAMP (Home Affordable Mortgage Program) to lower the foreclosure rate.
Real e Finance means business. The truth and nothing but....
| Real e finance means business The truth and nothing but... |
| Real e Finance means business The truth and nothing but... |
E U Debt Spread World Wide-Daryl Montgomery
As the situation in Greece deteriorates further, Moody's announced today that it intended to downgrade 114 European financial institutions
and 17 global banks.
Hope that China will buy up EU Sovereign debt to help prop up the faltering eurozone may wind up costing the U.S. more than it does China.
The hostility between Greece and the EU/IMF/ECB bailout troika is palpable.
Nevertheless, there are claims that a deal should be reached by Monday.....read on
As the situation in Greece deteriorates further, Moody's announced today that it intended to downgrade 114 European financial institutions
and 17 global banks.
Hope that China will buy up EU Sovereign debt to help prop up the faltering eurozone may wind up costing the U.S. more than it does China.
The hostility between Greece and the EU/IMF/ECB bailout troika is palpable.
Nevertheless, there are claims that a deal should be reached by Monday.....read on
Weaker economies mean more downgrades from the ratings agencies can be expected. Both France and
Austria lost their coveted triple A ratings from S&P. They were downgraded a notch as was Malta, Slovakia and
Slovenia. Italy, Spain, Portugal and Cyprus were downgraded two notches. Italy is now rated BBB+. The only
countries in the eurozone that still have triple A ratings are Germany, the Netherlands, Luxembourg, and Finland.
S&P put the later three on negative outlook for a possible future downgrade however. The EFSF bailout fund itself
may also be downgraded.
Austria lost their coveted triple A ratings from S&P. They were downgraded a notch as was Malta, Slovakia and
Slovenia. Italy, Spain, Portugal and Cyprus were downgraded two notches. Italy is now rated BBB+. The only
countries in the eurozone that still have triple A ratings are Germany, the Netherlands, Luxembourg, and Finland.
S&P put the later three on negative outlook for a possible future downgrade however. The EFSF bailout fund itself
may also be downgraded.
Greece is in its fifth year of
recession and its economy
seems to be in an unrelenting
downward spiral. This is
happening because just like the
United States, Japan and a
number of other nations, the
economy is dependent on
government spending made
possible by huge budget deficits.
Each time Greece has been
forced to cut its budget deficit,
the economy has shrunk some
more. Additional cuts will only
cause additional contraction.
Although they receive little
coverage by the U.S. media, riots
have become common place in
Greece (there is currently a
48-hour strike). Democracy
might itself be threatened there.
Greece does have a history of
military dictatorship, with a
military junta running the country
between 1967 and 1974.
recession and its economy
seems to be in an unrelenting
downward spiral. This is
happening because just like the
United States, Japan and a
number of other nations, the
economy is dependent on
government spending made
possible by huge budget deficits.
Each time Greece has been
forced to cut its budget deficit,
the economy has shrunk some
more. Additional cuts will only
cause additional contraction.
Although they receive little
coverage by the U.S. media, riots
have become common place in
Greece (there is currently a
48-hour strike). Democracy
might itself be threatened there.
Greece does have a history of
military dictatorship, with a
military junta running the country
between 1967 and 1974.
Greece Interrupted — Bond Swap is Not the End...
The Greek bond swap is the biggest debt writedown in history. Over 85% of private
investors (essentially banks, the deal does not include bonds held by the IMF or
ECB) holding 117 billion euros ($234 billion) agreed to the "voluntary" exchange.
The CEO of one major European bank described the transaction as about as
voluntary as a confession during the Spanish Inquisition. The loss to bondholders is
twofold consisting of a reduction in face value of 53.5% and then lower interest
payments stretched over a longer period of time. All in all, private bondholders are
taking an approximately 74% hit (assuming of course there isn't another writedown
or Greece doesn't renounce its debt completely in the future) ....read on
The Greek bond swap is the biggest debt writedown in history. Over 85% of private
investors (essentially banks, the deal does not include bonds held by the IMF or
ECB) holding 117 billion euros ($234 billion) agreed to the "voluntary" exchange.
The CEO of one major European bank described the transaction as about as
voluntary as a confession during the Spanish Inquisition. The loss to bondholders is
twofold consisting of a reduction in face value of 53.5% and then lower interest
payments stretched over a longer period of time. All in all, private bondholders are
taking an approximately 74% hit (assuming of course there isn't another writedown
or Greece doesn't renounce its debt completely in the future) ....read on
DO NOT BE DISTRACTED
| One year Greek government bond yields were last at 1143%. Such yields represent collapse, not solvency. |
Volcker Says U.S. Mired in Recession and
Inflation is Coming
While most of Volcker's talk centered on the current crisis in Europe, he frequently made
connections to what was going on in the EU to what has taken place in the United States. His
remarks about the U.S. being mired in an ongoing recession were in response to a question on
whether an infrastructure bank would be a good idea. As part of his answer he stated, "We're not
going to end the recession in the next month or the next year. It's going to take several years
before the recession is over." The U.S. government claims that the last recession ended in June 2009
and has repeatedly said that the U.S. has not fallen back into recession even though unemployment
and consumer confidence have continually remained at recession levels...read
Inflation is Coming
While most of Volcker's talk centered on the current crisis in Europe, he frequently made
connections to what was going on in the EU to what has taken place in the United States. His
remarks about the U.S. being mired in an ongoing recession were in response to a question on
whether an infrastructure bank would be a good idea. As part of his answer he stated, "We're not
going to end the recession in the next month or the next year. It's going to take several years
before the recession is over." The U.S. government claims that the last recession ended in June 2009
and has repeatedly said that the U.S. has not fallen back into recession even though unemployment
and consumer confidence have continually remained at recession levels...read
| Unadjusted for inflation, U.S. retail sales rose 1.1% in February. There may have been little or no gain if price increases are accurately taken into account. |
Twenty years ago, Japan had a massive real estate bubble and it is possible that prices have finally bottomed there, but that
doesn't mean that they are ready to go up. Japan has had two decades of economic stagnation (and is heading toward a
third, if it is lucky) because of the collapse of its real estate and stock market bubbles. Massive borrowing by the government
has prevented the situation from getting worse. The debt to GDP ratio in Japan is now estimated to be 229% (well above the
just over 100% in the U.S.). More people are leaving the workforce there than entering it and this bodes ill for tax receipts. The
aging population is using up its savings instead of adding to them. This is a potentially serious problem because the massive
debt the Japanese government has incurred has been funded mostly internally by the savings of the Japanese people. A lot
of old debt has to be rolled over in 2012 and additional debt is still being incurred. Where the money will come from is not
clear.
doesn't mean that they are ready to go up. Japan has had two decades of economic stagnation (and is heading toward a
third, if it is lucky) because of the collapse of its real estate and stock market bubbles. Massive borrowing by the government
has prevented the situation from getting worse. The debt to GDP ratio in Japan is now estimated to be 229% (well above the
just over 100% in the U.S.). More people are leaving the workforce there than entering it and this bodes ill for tax receipts. The
aging population is using up its savings instead of adding to them. This is a potentially serious problem because the massive
debt the Japanese government has incurred has been funded mostly internally by the savings of the Japanese people. A lot
of old debt has to be rolled over in 2012 and additional debt is still being incurred. Where the money will come from is not
clear.
Large amounts of funds on deposit at any central bank are an indication of a crisis in the banking
system. Before the current EU debt crisis, eurozone banks usually kept only around 100 million
euros on deposit at the ECB. Even during the height of the 2008 Credit Crisis, EU banks kept only
around 33% of money lent out by the ECB on deposit. The percent now is over 70% (the ECB has
lent out 664 billion euros in total) meaning things are in much worse shape in the EU than they
were after Lehman Brothers collapsed. When money is trapped in the banking system, the
economy suffers and extra stimulus measures don't helpto revive it. EU money-printing measures
meant to rescue its profligate debt-ridden members aren't likely to help its economy, which in
turn will result in a self-feeding cycle of more and more debt (as happened in Japan during the
last two decades) or more and more money printing (as has been taking place in the U.S. since
the 2008 Credit Crisis).
system. Before the current EU debt crisis, eurozone banks usually kept only around 100 million
euros on deposit at the ECB. Even during the height of the 2008 Credit Crisis, EU banks kept only
around 33% of money lent out by the ECB on deposit. The percent now is over 70% (the ECB has
lent out 664 billion euros in total) meaning things are in much worse shape in the EU than they
were after Lehman Brothers collapsed. When money is trapped in the banking system, the
economy suffers and extra stimulus measures don't helpto revive it. EU money-printing measures
meant to rescue its profligate debt-ridden members aren't likely to help its economy, which in
turn will result in a self-feeding cycle of more and more debt (as happened in Japan during the
last two decades) or more and more money printing (as has been taking place in the U.S. since
the 2008 Credit Crisis).
| Realefinance means business The Truth and Nothing but... |
The real crisis in Europe is
not Greece in and of
itself, it is the stability of
the banks in France and
Germany that have lent
money to Greece (and
Italy, Spain and Portugal).
not Greece in and of
itself, it is the stability of
the banks in France and
Germany that have lent
money to Greece (and
Italy, Spain and Portugal).
John Paulson
Says Double-
Digit Inflation
is Coming
As average U.S. gas
prices head toward
$4.00 a gallon,
billionaire hedge
fund operator John
Paulson recently told
a standing room only
crowd at New York’s
University Club that
double-digit inflation
is about to rear its
ugly head. Paulson
assumes that the Fed
will continue to
engage in its
inflation-creating
behavior.
John Paulson is
famous for making a
killing on shorting
subprime bonds
before their collapse.
Most of Wall Street
was bullish at the
time and Fed Chair
Ben Bernanke
famously declared
that he didn't see
subprime mortgages
causing any
problem. The market
completely fell apart
weeks after Bernanke
spoke.....read on
Says Double-
Digit Inflation
is Coming
As average U.S. gas
prices head toward
$4.00 a gallon,
billionaire hedge
fund operator John
Paulson recently told
a standing room only
crowd at New York’s
University Club that
double-digit inflation
is about to rear its
ugly head. Paulson
assumes that the Fed
will continue to
engage in its
inflation-creating
behavior.
John Paulson is
famous for making a
killing on shorting
subprime bonds
before their collapse.
Most of Wall Street
was bullish at the
time and Fed Chair
Ben Bernanke
famously declared
that he didn't see
subprime mortgages
causing any
problem. The market
completely fell apart
weeks after Bernanke
spoke.....read on
More Debt Problems in Europe
While stocks weakened in the U.S. on Thursday because of disappointing economic data, they were down in Europe on the resurfacing
of the debt crisis issues. ...read on
While stocks weakened in the U.S. on Thursday because of disappointing economic data, they were down in Europe on the resurfacing
of the debt crisis issues. ...read on
Since interest rates were at such low levels, the spike in yields represented a big increase
on a percentage basis. This was most pronounced at the middle part of the curve. Yields
on the 7-year went from 1.43% to 1.69%, for a gain of 18%. Yields of the 5-year went from
0.92% to 1.13%, and this represented a 23% increase. An even bigger jump took place in
the 3-year, with yields up 28%when rates rose from 0.47% to 0.60%. The two-year though
was up only 18% after going from 0.33% to 0.40%. The percentage increase in the
10-year, where yields went from 2.04% to 2.29%, and the 30-year, where yields went
from 3.17% to 3.43%, were modest in comparison.
on a percentage basis. This was most pronounced at the middle part of the curve. Yields
on the 7-year went from 1.43% to 1.69%, for a gain of 18%. Yields of the 5-year went from
0.92% to 1.13%, and this represented a 23% increase. An even bigger jump took place in
the 3-year, with yields up 28%when rates rose from 0.47% to 0.60%. The two-year though
was up only 18% after going from 0.33% to 0.40%. The percentage increase in the
10-year, where yields went from 2.04% to 2.29%, and the 30-year, where yields went
from 3.17% to 3.43%, were modest in comparison.
Real e Finance
April 2012 Jobs,
Labor Force
Continues to Drop
The BLS release the
employment situation for
April 2012 this morning. The
report showed that 115,000
jobs were created last
month and the current
unemployment rate is 8.1%.
The big story however was
the incredible number of
people leaving the U.S.
labor force — almost ten
million in the last five years...
read on
Labor Force
Continues to Drop
The BLS release the
employment situation for
April 2012 this morning. The
report showed that 115,000
jobs were created last
month and the current
unemployment rate is 8.1%.
The big story however was
the incredible number of
people leaving the U.S.
labor force — almost ten
million in the last five years...
read on
www.realefinance.com
www.realefinance.com
Market Selloff Might Pause Despite EU Debt Crisis
The markets should soon find support on their current selloff, but this will only be temporary. Europe's debt
problems, which are at the epicenter of the current financial crisis, are not going to go away, they are only going
to get worse until some realistic solution is found...read on
The markets should soon find support on their current selloff, but this will only be temporary. Europe's debt
problems, which are at the epicenter of the current financial crisis, are not going to go away, they are only going
to get worse until some realistic solution is found...read on
The 6% yield level is
watched closely because
when rates went over that
level in Greece, the Greek
debt crisis emerged.
Spanish 10-year yields were
over 6% three times last
year. Prior to last November
they reached 6.32% on July
8, 2011 and 6.28% on August
4, 2011. The ECB (European
Central Bank) has intervened
directly in bond markets
under its Securities Market
Program (SMP) to hold down
interest rates in the
peripheral countries. At least
one Spanish official has
called for a renewal of these
efforts.
watched closely because
when rates went over that
level in Greece, the Greek
debt crisis emerged.
Spanish 10-year yields were
over 6% three times last
year. Prior to last November
they reached 6.32% on July
8, 2011 and 6.28% on August
4, 2011. The ECB (European
Central Bank) has intervened
directly in bond markets
under its Securities Market
Program (SMP) to hold down
interest rates in the
peripheral countries. At least
one Spanish official has
called for a renewal of these
efforts.
| 1000lb guerilla Financial Meltdown in EU countries and US of A |
Dollar Clears Resistance as Euro Falls Below Support
As the U.S. trade-weighted dollar (DXY) breaks out from a four month consolidation pattern, the euro (FXE) is falling below major
support. The movements of these currencies have important implications for the rest of the market.
The dollar has been stuck trading roughly between 79 and 82 since January. There is strong chart resistance at these levels both from
recent times and two decades ago. In the last couple of years, the dollar made a double top at just under 82 in late 2010 and early
2011. In the late 1980s and early 1990s the dollar made a triple bottom at three different points in this year's trading range. The dollar
finally broke above 82 on May 23rd. While there is minor resistance just under 84, major resistance is from 88 to 89 — the highs during
the Credit Crisis in late 2008 and early 2009 and in mid-2010 during the first phase of the Greek debt crisis. It should be assumed the
dollar will get to that level again (and possibly higher). How long it takes to do so is still an open question....read on
As the U.S. trade-weighted dollar (DXY) breaks out from a four month consolidation pattern, the euro (FXE) is falling below major
support. The movements of these currencies have important implications for the rest of the market.
The dollar has been stuck trading roughly between 79 and 82 since January. There is strong chart resistance at these levels both from
recent times and two decades ago. In the last couple of years, the dollar made a double top at just under 82 in late 2010 and early
2011. In the late 1980s and early 1990s the dollar made a triple bottom at three different points in this year's trading range. The dollar
finally broke above 82 on May 23rd. While there is minor resistance just under 84, major resistance is from 88 to 89 — the highs during
the Credit Crisis in late 2008 and early 2009 and in mid-2010 during the first phase of the Greek debt crisis. It should be assumed the
dollar will get to that level again (and possibly higher). How long it takes to do so is still an open question....read on
Japan's Economy Shows Limits of Keynesian
Policies...read on
Policies...read on
