Paul Farrell Expects No Recovery Until The End Of Obama’s Second Term… IF He Gets Reelected
by ilene - August 31st, 2010 10:33 am
Paul Farrell Expects No Recovery Until The End Of Obama’s Second Term… IF He Gets Reelected
Courtesy of Tyler Durden
Paul Farrell’s take on Jeremy Grantham’s recent essay Seven Lean Years (previously posted on Zero Hedge) is amusing in that his conclusion is that should Obama get reelected, his entire tenure will have been occupied by fixing the problems of a 30 year credit bubble, and if anything end up with the worst rating of all time, as the citizens’ anger is focused on him as the one source of all evil. "Add seven years to the handoff from Bush to Obama in early 2009 and you get no recovery till 2016. Get it? No recovery till the end of Obama’s second term, assuming he’s reelected — a big if." Also, Farrell pisses all over the recent catastrophic Geithner NYT oped essay, which praised the imminent recovery which merely turned out to be the grand entrance into the double dip: "In his recent newsletter, "Seven Lean Years Revisited," Grantham tells us why expecting a summer of recovery was unrealistic, why America must prepare for a long recovery. Grantham details 10 reasons: "The negatives that are likely to hamper the global developed economy." Sorry, but this recovery will take till 2016."
For those who have not had a chance to read the original Grantham writings, here is Farrell’s attempt to convince you that Grantham is spot on:
But should you believe Grantham? Yes. First: Like Joseph, Grantham’s earlier forecasts were dead on. About two years before Wall Street’s 2008 meltdown Grantham saw: "The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … The bursting of the bubble will be across all countries and all assets … no similar global event has occurred before."
Second: The Motley Fools’ Matt Argersinger went back to the dot-com crash of 2000: Grantham "looked out 10 years and predicted the S&P 500 would underperform cash." Bull’s-eye: The S&P 500 peaked at 11,722; it’s now around 10,000. Factor in inflation: Wall Street’s lost 20% of your retirement since 2000. Yes, Wall Street’s a big loser.
Third: What’s ahead for the seven lean years? Wall Street will keep losing. Argersinger: "Grantham predicts below-average economic growth, anemic corporate-profit margins, and other
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IMF Eliminates Borrowing Cap On Rescue Facility In Anticipation Of Europe Crisis 2.0; US Prepares To Print Fresh Trillions In “Rescue” Linen
by ilene - August 30th, 2010 11:28 pm
IMF Eliminates Borrowing Cap On Rescue Facility In Anticipation Of Europe Crisis 2.0; US Prepares To Print Fresh Trillions In "Rescue" Linen
Courtesy of Tyler Durden
Back in April, when we discussed the inception of the IMF’s then brand new New Arrangement to Borrow (NAB) $500 billion credit facility, we asked rhetorically, "If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose." A month later the question was answered, as Greece lay smoldering in the ashes of insolvency, and the developed world was on the hook for almost a trillion bucks to make sure the tattered eurozone remained in one piece (leading to such grotesque abortions as Ireland, whose cost of debt is approaching 6%, funding Greek debt at 5%).
Well, if that was the proverbial canary in the coalmine, today the entire flock just keeled over and died: today the IMF announced it "expanded and enhanced its lending tools to help contain the occurrence of financial crises." As a result, the IMF has as of today extended the duration of its existing Flexible Credit Line (FCL) to two years, concurrently removing the borrowing cap on this facility, which previously stood at 1000 percent of a member’s IMF quota, in essence making the FCL a limitless credit facility, to be used to rescue whomever, at the sole discretion of the IMF’s overlords. Additionally, as the FCL has some make believe acceptance criteria (and with countries such as Poland, Columbia, and Mexico having had access to it, these must certainly be sky high), the IMF is introducing a brand new credit facility, the Precautionary Credit Line (PCL), which will be geared for members with "sound policies [which just happen to need an unlimited source of rescue funding] who nevertheless may not meet the FCL’s high qualification requirements." In other words everyone. In yet other words, the IMF as of today, has a limitless facility to bail out anyone in the world, without a maximum bound in how much is lendable. One wonders who would be stupid enough to take advantage of the gullibility of IMF’s biggest backers (the US), to borrow an infinite amount of money for any reason whatsoever… And just what all this means for the imminent explosion of the amount of money in circulation…Not to mention the brand new Ben Bernanke smokescreen of…
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DO BOND MARKETS FUND OUR SPENDING?
by ilene - August 27th, 2010 1:41 pm
DO BOND MARKETS FUND OUR SPENDING?
Courtesy of The Pragmatic Capitalist
This idea that the United States is the next Greece persists. We saw it several times this week from various analysts and the regular pundits who continue to trot out this argument despite having been terribly wrong about their hyperinflation and/or default thesis over the last few years. I think it’s very important that investors understand that the United States cannot default on its obligations in the same way that Greece, a US state or a household can. Why is it important to understand this? Because markets are psychologically driven. Regular readers know I am not the most optimistic prognosticator. Anyone who has read this site over the last few years knows that I have and continue to believe we are mired in a balance sheet recession. My outlook is not rosey, but it is not dire either. I do not believe doom is on the horizon and I most certainly do not believe the United States, as the sovereign supplier of a non-convertible floating exchange rate currency, will default on its obligations.
At the center of this argument is the actual workings of our monetary system. So, how does the United States actually fund itself? Unlike a household, the United States does not require revenue or debt to fund itself. The United States government simply credits bank accounts. They walk into a room and input numbers into computers – literally. This might sound counter-intuitive to the rest of us who fund our spending through debt issuance or revenue streams, but the same is not true for the Federal Government. This was best explained last week in an interview on BNN by Marshall Auerback, a portfolio strategist with RAB Capital:
“Governments spend by crediting bank accounts. The causation is that you spend money first. What happens afterwards is bonds are issued as a reserve drain. They don’t actually fund anything. This is one of the great myths that is perpetuated by most of the economics profession. So the idea that we have “unfunded liabilities” is ludicrous. If we declare a war, for example, in Iraq or Afghanistan, we don’t go to our bond holders. We don’t go to China to give them a line-item veto for what we can and can’t spend. We just spend the money. The implicit assumption here is that somehow we have some external constraint. The
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When Jail Threats Don’t Work: Greek Government Punctuates Case Against Strikers By Firing Tear Gas At Them
by ilene - July 29th, 2010 11:00 am
When Jail Threats Don’t Work: Greek Government Punctuates Case Against Strikers By Firing Tear Gas At Them
Courtesy of Tyler Durden
As we wrote earlier, Greece is currently paralyzed, literally, due to a wholesale shortage of fuel at gas stations, as drivers of trucks carrying the precious commodity have been striking for several days. As noted previously, the government invoked a war-time mobilization measure forcing the strikers to stop striking or face civil penalties and jail time. Shockingly, this had absolutely no impact on the angry mob. In order to make its point even more clear, the government accentuated its overturn of labor rights by firing tear gas at protesters, according to the Guardian. And, in an amusing turn of events, the IMF delegation which was rumored to be passing by at just this time to conclude the backroom deal in which US taxpayers would fund a few hundred more billion of failed Greek programs, was subjected to a Greek parliamentary guard wearing the traditional skirty attire, screaming in a bullhorn that the truckers were merely engaged in a modern remixed version of sirtaki and there was absolutely nothing to see there (obviously the guy had just graduated from the CNBC School for People who Want to Fabricate the Truth Good).
More from the Guardian:
With fuel shortages stranding thousands of tourists and disrupting supplies of food and medicines nationwide, prime minister George Papandreou resorted to emergency legislation, more usually used at times of war or great natural disaster, to end the walk-out.
But hopes of a return to normal were quickly dashed when riot police fired tear gas at thousands of truckers gathered outside the transport ministry this morning.
"The order is coming through to [drivers] but I have no idea how they are going to react to it," said Giorgos Stamos, a member of the truck drivers’ union. "It is highly unusual that after just three days of going on strike we should be mobilised in this way."
The ruling socialists called for the mobilisation – the fourth time since the collapse of military rule in 1974 that such an order has been issued – as it became clear that Greece was facing a public health crisis because of the strike.
On islands, where fuel supplies have totally run out, tourists could be seen abandoning rented cars by the side of
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Economists Surprised Again as German Factory Orders Unexpectedly Fall
by ilene - July 7th, 2010 2:41 pm
Economists Surprised Again as German Factory Orders Unexpectedly Fall
Courtesy of Mish
Economists are surprised by the strangest things.
The UK has announced austerity measures, Greece, Spain, Portugal (3 little PIIGS) are in forced austerity programs, and Germany is paying more attention to deficit reduction than growth (rightfully so), yet somehow economists expect factory orders in Germany to keep improving.
Please consider the Bloomberg report German Factory Orders Unexpectedly Fell in May
German factory orders unexpectedly fell for the first time in five months in May as demand for goods made in Europe’s largest economy waned across the 16- nation euro region.
Orders, adjusted for seasonal swings and inflation, declined 0.5 percent from April, when they rose a revised 3.2 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.3 percent gain for May, according to the median of 30 estimates in a Bloomberg News survey. From a year earlier, orders increased 24.8 percent.
Europe’s sovereign debt crisis has pushed the euro down 17 percent against the dollar since late November, making exports to countries outside the currency bloc more competitive just as the global recovery gathered pace. With governments cutting spending to convince investors that budget deficits are under control, growth in the euro area, Germany’s biggest export market, may slow.
“You have to see today’s decline in orders in the context of strong increases in the previous months,” said Klaus Schruefer, an economist at SEB Bank AG in Frankfurt. “It doesn’t throw the German economy off its recovery track.”
Recovery Off The Rails
While it is true that any month can be an outlier, the European macro picture is anemic in light of austerity programs virtually everywhere you look.
Moreover, the Asia picture is anemic, the US macro picture is anemic, and indeed the entire global macro picture is anemic. Yet economists, an ever optimistic lot, still have faith in a recovery 100% based on unsustainable government spending even though governments in general are cutting government spending in an attempt to reduce budget deficits.
For now, the US is an exception to global budget tightening. However, it should be perfectly clear that Congress is taking a harder stance towards more stimulus efforts as a measure to extend unemployment benefits has died in the US senate.
Talk of continued recovery is nonsense. The best anyone can possibly hope for…
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ECB Shuts off Liquidity, Spanish Banks Scream Murder; Spain and Greece Will Both Default
by ilene - June 30th, 2010 4:05 am
ECB Shuts off Liquidity, Spanish Banks Scream Murder; Spain and Greece Will Both Default
Courtesy of Mish
For just under a year, the ECB has offered €442 billion to encourage lending. Instead, and easily predictable, the program did not increase lending and did nothing more than allow weak banks to roll over debts.
The program is now ending and Spanish banks are screaming about the ECB’s "obligation to supply liquidity".
The Wall Street Journal has part of the story in ECB Walks a Fine Line Siphoning Off Its Liquidity.
The European Central Bank is scrambling to reassure markets that Thursday’s expiration of a €442 billion ($547.46 billion) bank-lending program won’t destabilize the financial system, even as banks across the region remain wary of lending to one another.
The ECB introduced the 12-month lending facility last summer to encourage private-sector lending and ensure adequate liquidity within the 16-member currency bloc. Since then, the program, which represents more than half the ECB’s liquidity operations, has become a lifeline to banks in Greece, Spain and other countries hit by the region’s debt crisis.
The cost of borrowing euros in the interbank market rose to an eight-month high Monday, as banks prepared for the one-year loan’s expiration. The euro slid on worries that repayment will expose Europe’s financial system to new threats. Yields on German bunds, seen as a haven, fell.
Some investors worry that vulnerable euro-area banks, unable to borrow in the interbank market, could have difficulty replacing that funding, despite repeated assurances from the ECB that it will provide funds on similar terms, albeit for only three months, beginning Wednesday.
"We are confident that this very large financial transaction can take place without disruptions," ECB governing council member Ewald Nowotny said Friday.
Spanish Banks Whine About the "Obligation" to Supply Liquidity
The Financial Time reports Spanish banks rage at end of ECB offer.
Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a €442bn ($542bn) funding programme this week, accusing the central bank of “absurd” behaviour in not renewing the scheme.
One senior bank executive said: “Any central bank has to have the obligation to supply liquidity. But this is not the policy of the ECB. We are fighting them every day on this. It’s absurd.”
Another top director said: “The ECB’s policy is that they
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Illinois Leaps Ahead of California in Default Risk, Better than Iraq, Worse than Portugal; Pension Fraud in Milwaukee
by ilene - June 23rd, 2010 3:20 pm
Illinois Leaps Ahead of California in Default Risk, Better than Iraq, Worse than Portugal; Pension Fraud in Milwaukee
Courtesy of Mish
CMA data shows Illinois and California are in the top ten list of sovereign default risks, with Illinois leapfrogging California in terms of increasing risk.
Please consider CMA Market Data as of Wednesday, 23 June 2010.
Sovereign Default Risks
Illinois is ranked a better risk than Iraq, but riskier than Portugal and California.
The countries (or states) are ranked by their cumulative probability of default (CPD), which gives the market’s assessment of an issuer’s likelihood of default over the life of a CDS contract.
9,111 retired California government workers receive pensions in excess of $100,000
Here is the CalPERS Top Ten list
Bruce Malkenhorst is the top recipient making over half-a-million dollars a year in pension benefits. Is that insane or what?
Please click on previous link to search the entire CalPERS list.
3,090 retired California teachers and administrators receive pensions in excess of $100,000
Here is the CalSTRS Top 10 List
Please click on previous link to search the entire CalSTRS list.
Ironman Competitor Deemed "Permanently and Totally Incapacitated" Collects huge pension benefits.
Dave Orlowski, 54 years young, is fit enough for multiple "Ironman Competitions" but amazingly collects $53,063 disability benefits a year plus full health benefits because the Milwaukee police union deems him "permanently and totally incapacitated for duty."
Please consider Fit enough for Ironman but not for the MPD
Dave Orlowski can swim 2.4 miles. He can bike 112 miles. He can run 26.2 miles.
In fact, the 54-year-old athlete can do all of these one right after the other – several times a year. He completed six Ironman triathlons last year, has done three so far this year and hopes to compete in yet another one in Klagenfurt, Austria, on July 4.
Orlowski can also play a round of golf, as he did recently at a fund-raiser for the Make-A-Wish Foundation of Wisconsin.
But this is something the guy won’t do:
He won’t work for the Milwaukee Police Department.
That’s because the former homicide detective has been declared "permanently and totally incapacitated for duty."
As an injured ex-cop, Orlowski has been paid nearly $500,000 in tax-free pension checks by the city since 1999. He is currently receiving $53,063 a year from the city Employees’ Retirement System, plus
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DB: Greece is Bear Stearns, (fill in the blank) is Goldman Sachs
by ilene - June 22nd, 2010 3:18 am
DB: Greece is Bear Stearns, (fill in the blank) is Goldman Sachs
Courtesy of Andy Kessler
Even a win in the World Cup soccer tournament won’t save Europe. Nor will the G-20 meeting in Toronto this week. With Grecian urns, Irish eyes, Spanish flies, and Portuguese waterdogs all up to their eyeballs in debt, it’s only a matter of time before the whole venture implodes. Even after an almost trillion dollar bailout across Europe, Moody’s Investors Service last week downgraded Greece’s debt from A3 to Ba1--junk bonds.
We’ve seen this movie before—in 2008, when it was banks, not countries, reeling out of economic control. Once you recognize this pattern—desperate nations behaving just as the desperate banks did—the next 12 months of news will all make sense. Here is a handy guide.
Greece is clearly Bear Stearns. They’ve taken on too much debt, used derivatives created by Goldman Sachs to put off payment well into the future, and aren’t generating enough tax revenue to pay for their bloated expenses. The cost of Greece’s debt financing is skyrocketing, now 8 percent higher than the benchmark German bund. Either Athens defaults, causing more firebombs to be tossed and even larger riots in the streets, or the European Union arranges a takeover by deep-pocketed Germany.
Germany is the JP Morgan of this story. It will provide a lowball 200 billion Euros to Greece and then end up paying 1000 billion, reminiscent of JP Morgan offering $2 and then paying $10 for Bear Stearns. Now wait a second, I can hear you complain, countries can’t merge like companies.
Of course they can, it happens all the time—though usually when tanks roll. Ask Poland. Or Hungary. In this case, Germany won’t legally own Greece, but in reality, it will absolutely be in charge of fixing Greece’s mess. My sense is the Germans will be quite good at tax collection and not so strong at dismantling the welfare state. But Greek debt will be resolved and maybe the Euro will even rally.
But it won’t be over quite yet. That’s because sadly, Spain is Lehman Brothers. With 22 percent unemployment, and loaded with debt and deteriorating real estate prices, who is going to save it? Tongues will wag that defaulting on debts will teach a lesson to countries that live beyond their means. As a huge exporter,…
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Trouble in Europe, China
by ilene - June 20th, 2010 8:58 am
Terrific weekend reading with Eric at iTulip interviewing Michael Hudson.
Michael Hudson is Distinguished Research Professor of Economics at University of Missouri, Kansas City (UMKC), a Wall Street Analyst, consultant, and president of The Institute for the Study of Long-term Economic Trends (ISLET). He is also Chief Economic Advisor to the Reform Task Force Latvia (RTFL) and author of America’s Protectionist Takeoff and Super Imperialism – New Edition: The Origin and Fundamentals of U.S. World Dominance
Trouble in Europe, China
Based on an interview with Eric Janszen of iTulip
Courtesy of Michael Hudson
On April 10, 2010 I caught up with Michael Hudson and he was in rare form. Readers know that my personal view is that much of the right wing of the political spectrum doesn’t know what the problem is and all of the left wing, while nailing the problem, doesn’t know how to solve it. No one is too left wing or too right wing to get an interview here.
Interviewer (EJ): Thank you for your time this morning.
Hudson (MH): Glad to be here.
EJ: It’s been a while since I’ve interviewed you so let’s have a wide-ranging discussion today. I want to include your Thursday Financial Times article on the fate of the ex-Soviet debtor nations, the Bank of International Settlement report I sent you on New Europe and other industrialized debtors, and China, and see where it goes. Let’s start with the BIS report.
MH: I skimmed through it quickly, and it’s the same class war junk economics that the Peterson Institute for International Economics (the lobbyist for international banks) and other neoliberal (that is, anti-labor and pro-financial) lobbying organizations have mounted against public obligations to any parties but the Finance, Insurance and Real Estate (FIRE) sector. The aim is to prepare the ground for President Obama’s recently appointed “bipartisan” commission to scale back Social Security and Medicare.
The argument is that these two programs need to be pre-funded, with savings levied regressively in advance, to promote a balanced federal budget. The effect would be to prevent fiscal policy from providing the growth in money and credit that economies need. This would all be provided by private-sector banks – at interest. So recent focus…
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You Should Be Careful What You Wish For
by ilene - June 19th, 2010 4:05 am
You Should Be Careful What You Wish For
Courtesy of John Mauldin, Thoughts From The Frontline
Everyone" is upset with the level of fiscal deficits being run by nearly every developed country. And with much justification. The levels of fiscal deficits are unsustainable and threaten to bring many countries to the desperate situation that Greece now finds itself in. We must balance the budget is the cry of fiscal conservatives.
But there are unseen consequences in moving both too fast or too slow in the effort to get the deficits under control. Today we look at them as we explore what a fine mess we have gotten ourselves into. (I am working without internet today so the letter will be shorter with fewer references than normal.)
GDP = C + I + G + (X-M)
We have discussed the above equation before, but let’s look at it again from a different angle. Basically, the equation is another accounting identity. GDP (Gross Domestic Product) for a given country is the total of Consumption (personal and business) plus Investments plus Government spending plus exports minus imports.
The Keynesians argue that when there is a drop in C due to a recession that the G must rise to offset the drop. That was at the heart of the argument for stimulus packages in so many countries. And there is no doubt that stimulus did help keep a very deep recession from turning into an even deeper depression. One can legitimately argue about the size of the stimulus, or about the nature of the spending, but it is difficult to argue that it did not have an effect.
Now, of course, the hope is that a recovery will allow C to begin to rise…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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