FedUpUSA

Archive for November, 2011

No doubt emergency meets are underway in numerous countries right now following a failed German bond auction. Bond auctions have failed before, but not in Germany (at least by this much), and never at a worse time.

 

Link if above video does not play: German Bond Auction Disaster

Key Ideas Expressed in Video

“What people are saying is Germany is going to have to pay the bill. … Just possibly, today is the day people may have decided German bonds are not the safe haven they thought they were. … It’s all about confidence isn’t it?”

It’s actually about solvency, not liquidity, not confidence. Solvency issues in Greece, Spain, and Portugal have now affected the core.

Mike “Mish” Shedlock

Global Economic Analysis

Is the world on the verge of another massive global financial collapse?  Yes.  The western world is drowning in an ocean of debt unlike anything the world has ever seen before, and our financial markets are gigantic casinos that are dependent on huge mountains of risk and leverage remaining very stable.  In the end, this house of cards that has been built on a foundation of sand is going to come crashing down in a horrifying manner.  Usually in this column I go on and on about why things will soon get much worse.  But today I am going to take a bit of a break.  Today, I am going to let some of the top financial professionals in the world tell you why things will soon get much worse.  Many of the quotes that you are about to read just might make the hair on the back of your neck stand up.  Most people out there have no idea what is about to happen.  Most people out there are working hard and are busy preparing for the holidays and they are hopeful that the economy will turn around soon.  But that is not going to happen.  We are heading for another major global financial collapse, and when it happens the U.S. economy is going to get even worse.

The epicenter for the coming global financial collapse is almost certainly going to be in Europe.  As you will see below, financial professionals all over the world are sounding the alarm about Europe.  It is a disaster that everyone can see coming but that nobody seems to be able to prevent.

Of course the failure of the “supercommittee” in the United States certainly is not helping matters.  There is already talk that we may soon see another downgrade for U.S. debt.  It is hard to even describe how incompetent the U.S. Congress is.

There is a tremendous lack of leadership both in the United States and in Europe right now.  The financial world is more interconnected than ever before, and when the financial dominoes start to fall it is going to take a miracle to keep a complete and total disaster from unfolding.

So when the time comes, who is going to step forward and provide that leadership?

That is a really, really good question.

Right now, panic and fear are spreading like wildfire in the financial world and nobody knows for sure what is going to happen next.

But one thing is for certain.  Pessimism is growing stronger by the day.

The following are 17 quotes about the coming global financial collapse that will make your hair stand up….

#1 Credit Suisse’s Fixed Income Research unit: “We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”

#2 Willem Buiter, chief economist at Citigroup: “Time is running out fast.  I think we have maybe a few months — it could be weeks, it could be days — before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it.”

#3 Jim Reid of Deutsche Bank: “If you don’t think Merkel’s tone will change then our investment advice is to dig a hole in the ground and hide.”

#4 David Rosenberg, a senior economist at Gluskin Sheff in Toronto: “Lenders are finding it difficult to finance their day-to-day operations with short-term funding. This is a lot like 2008 but with more twists.”

#5 Christian Stracke, the head of credit research for Pimco: “This is just a repeat of what we saw in 2008, when everyone wanted to see toxic assets off the banks’ balance sheets”

#6 Paul Krugman of the New York Times: “At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.”

#7 Paul Hickey of Bespoke Investment Group: “More and more, we are hearing anecdotal comments from individual and professionals that this is the most difficult environment they have ever experienced as the market is like a fish flopping around after being taken out of the water.”

#8 Bob Janjuah of Nomura International: “Germany appears to be adamant that full political and fiscal integration over the next decade (nothing substantive will happen over the short term, in my view) is the only option, and ECB monetisation is no longer possible. I really think it is that clear and simple. And if I am wrong, and the ECB does a U-turn and agrees to unlimited monetisation, I will simply wait for the inevitable knee-jerk rally to fade before reloading my short risk positions. Even if Germany and the ECB somehow agree to unlimited monetisation I believe it will do nothing to fix the insolvency and lack of growth in the eurozone. It will just result in a major destruction of the ECB‟s balance sheet which will force an ECB recap. At that point, I think Germany and its northern partners would walk away. Markets always want short, sharp, simple solutions.”

#9 Dan Akerson, CEO of General Motors: “The ’08 recession, which was a credit bubble that manifested itself through primarily the real estate market, that was a serious stress….This is much more serious.”

#10 Francesco Garzarelli of Goldman Sachs: “Pressures on Euro area sovereign bond markets have progressively intensified and spread like a wildfire.”

#11 Jim Rogers: “In 2002 it was bad, in 2008 it was worse and 2012 or 2013 is going to be worse still – be careful”

#12 Dr. Pippa Malmgren, the President and founder of Principalis Asset Management who once worked in the White House as an adviser to President Bush: “Market forces are increasingly determining what the options are and foreclosing on options policymakers thought they had. One option which is now under discussion involves permitting a country to temporarily leave the Euro, return to its native currency, devalue, commit to returning to the Euro at a better debt to GDP ratio, a better exchange rate and a better growth trajectory and yet not sacrifice its EU membership. I would like to say for the record that this is precisely the thought process that I expected to evolve,but when I proposed this possibility back in 2009, and again in September 2010, I had a 100% response from clients and others that this was “impossible” and many felt it was “ridiculous”. They may be right but this is the current state of the discussion. The Handelsblatt in Germany has reported this conversation, but wrongly assumes that the country that will exit is Germany. I think that Germany will have to exit if the Southern European states do not. Germany’s preference is to stay in the Euro and have the others drop out. The problem has been the Germans could not convince the others to walk away. But, now, market pressures are forcing someone to leave. Germany is pushing for that someone to be Italy. They hope that this would be a one off exception, not to be repeated by any other country. Obviously, though, if Italy leaves the Euro and reverts to Lira then the markets will immediately and forcefully attack Spain, Portugal and even whatever is left  of the already savaged Greeks. These countries will not be able to compete against a devalued Greece or Italy when it come to tourism or even infrastructure. But, the principal target will be France. The three largest French banks have roughly 450 billion Euros of exposure to Italian debt. So, further sovereign defaults are certainly inevitable, but that is true under any scenario. Growth and austerity will not do the trick, as ZeroHedge rightly points out. Ultimately, I will not be at all surprised to see Europe’s banking system shut for days while the losses and payments issues are worked out. People forget that the term “bank holiday” was invented in the 1930’s when the banks were shut for exactly the same reason.”

#13 Daniel Clifton, a policy strategist with Strategas Research Partners on the potential for more downgrades of U.S. debt: “We would expect further downgrades, a first downgrade from Moody’s and Fitch and possibly a second downgrade from S&P.”

#14 Warren Buffett on the problems in the eurozone: “The system as presently designed has revealed a major flaw. And that flaw won’t be corrected just by words. Europe will either have to come closer together or there will have to be some other rearrangement because this system is not working”

#15 David Kostin, equity strategist for Goldman Sachs: “The wide range of possible outcomes on both the super committee process and the unstable political economy in Europe drives our view that investors should assume the worst while hoping for the best.”

#16 Mark Mobius, the head of the emerging markets desk at Templeton Asset Management: “There is definitely going to be another financial crisis around the corner”

#17 Gerald Celente, founder of The Trends Research Institute: “The whole system is going down. Pull your money out your Fidelity account, your Scwhab accout, and your ETFs.”

Are you starting to get the picture?

When so many top financial professionals are freaking out like this, perhaps the rest of us should start paying attention.

They are telling us that “time is running out”.

They are telling us that “there is definitely going to be another financial crisis”.

They are telling us that this “is going to be worse” than 2008.

They are telling us that “the whole system is going down”.

Yes, a devastating financial collapse really is coming.  Just like in 2008, it will seem like the “end of the world” while it is happening, but it won’t be.  It will severely damage our financial system and our economy, but it will not finish us off.

Think of it this way.  When you build a sand castle at the beach, it doesn’t get totally wiped out by the first wave or the second wave that hits it.  Each wave does significant damage, but the destruction of your sand castle is a process.

It is the same thing with the U.S. economy.  We once had the most incredible economic machine that the world has ever seen.  It is constantly being gutted and the financial crisis of 2008 hit us really hard, but we are still doing okay.

After this next financial crisis we will be in even worse shape.  But we will still be breathing.

More “waves” will come after this next financial crisis.  If we continue on the road that we are on, our economy will progressively get worse and worse.

Not everyone will agree with this analysis, and that is okay.  In the end, time will reveal the truth to all of us.

Right now, we all need to get ready for the next wave that is about to hit us.  A lot of people are going to lose their jobs over the next few years.  Hopefully you are prepared for that.

The Economic Collapse

I have repeatedly demonstrated that – despite the false divide-and-conquer tactics of the mainstream parties and mainstream media – the overwhelming majority of Americans agree on the most important issues facing our country. See this.

NO MORE BAILOUTS!

As I’ve noted since 2008, Americans are united in their overwhelming disapproval for bailouts to the big banks.

This has remained true right up to today.

As Rassmussen found only last month (as summarized by KXLF news):

Today’sRasmussen Reports survey finds that most Americans don’t like bailouts for financial institutions.

60% Oppose Financial Bailouts; 74% Say Wall Street Benefited Most

Survey of 1,000 American Adults

***

• Just 20% think it was a good idea for the government to provide bailout funding to banks and other financial institutions, but 60% say otherwise.

• While many activists try to link the Republican Party and Wall Street, Republicans think the bailouts were a bad idea by an eight-to-one margin.

• Those not affiliated with either major party think they were a bad idea by a four-to-one margin. Democrats are much more evenly divided. Thirty-four percent (34%) of those in the president’s party say the bailouts were a good idea while 42% disagree.

• Overall, 68% believe that most of the bailout money went to the very people who created the nation’s ongoing economic crisis, but 12% disagree and 21% aren’t sure.

As the Washington Post’s Greg Sargent notes, the recent proposal from lobbyists to the American Bankers Association recommending ways to co-opt the Occupy movement accurately stated:

Well-known Wall Street companies stand at the nexus of where OWS protestors and the Tea Party overlap on angered populism. Both the radical left and the radical right are channeling broader frustration about the state of the economy and share a mutual anger over TARP and other perceived bailouts. This combination has the potential to be explosive later in the year when media reports cover the next round of bonuses and contrast it with stories of millions of Americans making do with less this holiday season.

(Except that it is the majority of Americans – not “extremists” on either side of the aisle – that share this anger).

The “Tea Party” movement was centered on the protesting government bailouts of the giant banks, before it was hijacked by the mainstream Republican party, Sarah Palin, Neocons and others. See this, this, this, this and this.

Ron Paul said last month at a GOP debate:

Bailouts came from both parties…. If you have to give money out, you should give it to people losing their mortgages, not to the banks.

And one of the most common sayings of Occupy Wall Street protesters is:

Banks got bailed out. We got sold out

(See this and this.)

END CRONY CAPITALISM!

I noted last year:

A Rassmussen poll conducted in February found:

70% [of all voters] believe that the government and big business typically work together in ways that hurt consumers and investors.

(and see this).

Remember that the government helped and encouraged the giant banks to get even bigger, and then has hidden their insolvency and shielded them from the free market, and helped them grow even during the severe downturn.

In return, the big banks and giant corporations have literally bought and paid for the politicians.

Conservatives might call it “socialism” and liberals might call it “fascism” – they are the same thing economically.

But all Americans – conservatives and liberals alike – can agree that it is not capitalism, and it is not American.

PROSECUTE WALL STREET FRAUD!

I pointed out a year ago:

Liberals tend to believe that the public should be protected against harm, while conservatives tend to believe that people should be left free to buy what they want.

Too far apart to ever agree?

No. Conservatives believe that people must be held responsible for their actions and punished for their transgressions. Indeed, some 82% of the American public wants tougher regulation of Wall Street.

Moreover, even for those who don’t like the government sticking its nose in our business, liberals and conservatives agree that if a company chooses to make a representation about something, it can be sued if it is a lie. In other words, all Americans agree that fraud laws should be enforced against everyone from the homeowner who fills out a mortgage application on a small house to the head of a giant bank who makes false statements about the bank’s balance sheets and the quality of it’s investments.

Everyone agrees that financial scammers must be tried and put in prison.

Indeed, Rasmussen found last month:

Two-out-of-three Americans (66%) believe the federal government has not been aggressive enough in pursuing possible criminal behavior by some Wall Street bankers, but 10% don’t feel that’s true and 25% are not sure.

Economists agree.

END – OR AT LEAST REIN IN – THE FEDERAL RESERVE!

As I pointed out last month, Americans are not happy with the Federal Reserve:

CNN notes:

“We are seeing a level of enthusiasm for Ron Paul that can be compared with President Obama in 2008″, said Eric Brakey, Media Coordinator for NYC Liberty HQ, the grassroots organization hosting the rally for the candidate. “Congressman Paul’s youth support is different now than it was during his last presidential campaign. It’s more organized and it’s picking up steam and continues to grow”.

As the longtime congressman from Texas stepped onto the stage, the crowd screamed with enthusiasm. The audience’s biggest reaction came when he spoke about ending the Federal Reserve. “The country has changed in the last four years, but my message hasn’t changed” Paul said. “The country is ripe for a true revolution”.

At least 75% of the American people want a full audit of the Fed, and most were against reconfirming Bernanke.

Indeed, as Bloomberg noted last December:

A majority of Americans are dissatisfied with the nation’s independent central bank, saying the U.S. Federal Reserve should either be brought under tighter political control or abolished outright, a poll shows.

***

Americans across the political spectrum say the Fed shouldn’t retain its current structure of independence. Asked if the central bank should be more accountable to Congress, left independent or abolished entirely, 39 percent said it should be held more accountable and 16 percent that it should be abolished. Only 37 percent favor the status quo.

Economists agree.

RESPECT THE CONSTITUTION AND OUR LIBERTY!

As I noted in September, Americans want our freedom back:

Americans have become much less tolerant of the wholesale destruction of our constitutional freedoms in the name of fighting terrorism.

As Talking Points Memo notes:

On the eve of the ten year anniversary of 9/11, the Pew Research Center has released new data on Americans’ reaction to the attacks, and the foreign and national security policies pursued in the post 9/11 era. They show a country with views that have evolved on the relationship between civil liberties and the tools given to government to fight terrorism, and a disbelief that the continuing wars in Iraq and Afghanistan helped to lessen the chance there will be another terrorist attack on the United States.

The Pew survey showed a large shift in the number of Americans who are willing to see some of their civil liberties go out the window in the name of fighting terrorism. Directly after 9/11, Americans were willing to make the deal, as 55 percent thought it was necessary, against 35 percent who felt the opposite. Now, only 40 percent felt that giving up some civil liberties is necessary to curb terrorism, with 54 percent against.

END PERPETUAL WAR!

Americans want to put a stop to perpetual warfare:

Ron Paul is [partly] gaining popularity because he is against the never-ending War On Terror, and wants to bring the troops home. Americans are sick of the never-ending, ever-creeping war. See this, this and this.

As Talking Points Memo reported earlier this month:

“…Only about a quarter say the wars in Iraq (26%) and Afghanistan (25%) have lessened the chances of terrorist attacks in the United States,” the Pew report reads. “In both cases majorities say the wars either have increased the risk of terrorism in this country or made no difference.”

Top American military leaders agree, saying that the war on terror has weakened our national security.

And a CBS News poll from November 11th found:

• Three-quarters of Americans support US withdrawal from Iraq.
• Two-thirds of Americans believe the Iraq War was not worth fighting.
• Half of Americans oppose US involvement in Libya.
• More than half of Americans want to end the war in Afghanistan.
• Seventy per cent of Americans do not support military intervention to change dictatorships into democracies.
• 55% of Americans say Iran can be contained via diplomacy.
• Only 15% of Americans support military intervention in Iran.

MAKE ELECTIONS FAIR!

I noted last year that Americans want fair elections:

All Americans agree that … there should be free and fair elections. That is why – according to ABC News and the Washington Post – 80 percent of all Americans oppose the Supreme Court’s recent decision allowing unlimited campaign contributions. Americans understand that – unless we take the flood of money out of elections – Washington will represent special interests, and not us.

And we all agree on publicly verifiable, automatically audited paper ballot elections with reasonable ID requirements, so that we assured that no party can manipulate electronic voting results.

KEEP POISON OUT OF OUR FOOD AND WATER!

I noted last year that Americans want safe food and water:

Americans want to be free to live our lives without being poisoned. We agree on safe food, clean water and a healthy environment.

For example, polls show:

• A large majority of Americans want strong food safety rules, and want genetically modified foods to be labeled

• Most Americans are worried about water pollution

• Americans don’t want to be exposed to toxic pollutants

IF THE AMERICAN PEOPLE AGREE ON THESE CORE ISSUES, WHY AREN’T OUR DEMANDS BEING HEARD?

If Americans from across the spectrum agree, why aren’t these desires being implemented by our politicians?

Because our politicians are bought and paid for … lock, stock and barrel.

And the powers-that-be are good at using the age-old divide and conquer trick to keep us weak, divided and fighting at each others’ throat … instead of for what we actually want.

But ultimately, the main reason that we are impotent is that we don’t realize that the overwhelming majority of Americans want the same things we do.

Indeed, most Americans – conservatives and liberals – are fed up with both the mainstream Republican and Democratic parties. This is not surprising, given that neither party is addressing the core demands of the American people as a whole.

Sure, liberals and conservatives will always disagree on some things. But if we realized how many core beliefs we share, we would unite to take our country back from those who disagree with fundamental American values.

Washington’s Blog

For those unfamiliar, you can read here about Janet.   To say she is the world’s foremost expert on structured finance would be an understatement.

Janet Tavakoli, Tavakoli Structured Finance, Inc.

Damning with nothing faint about it….

• Shortfall estimated at $1.2 billion or more (up from $600 million)
• “Repo-to-Maturity” is a “Total Return Swap-to-Maturity,” a Type of Credit Derivative
• Probable Shortfalls Throughout 2011
• Regulators Waive Required Tests for Jon Corzine
• Jon Corzine to Credit Derivatives Head: Next Time “Double Up
  JT Note: Subsequent to this report Jim Parascandola told me that he was never told to increase the size of any position, albeit his trades were profitable.
• Questions About How MF Global Became a Primary Dealer
• MF Global Wrote Rubber Checks for some Electronic Checks for Others
• Tip-Offs for Some Customers?
• CFTC’s Gary Gensler Didn’t Act
• MF Global Debacle Damages a Key Global Market

Here’s the punchline folks, as I’ve outlined as well:

MF Global’s problematic trades were different from AIG’s, but they were also derivatives, in fact, they were a form of credit derivative. The “repo-to-maturity” transaction was just a form over substance gimmick to disguise this fact. Specifically the transactions are total return swaps, a type of credit derivative, and the chief purpose of these transactions is leverage.

A total return swap-to-maturity includes a type of credit derivative. It allows you to sell a bond you own and get off-balance sheet financing in the form of a total return swap. Alternatively, you can get off-balance sheet financing on a bond with risk you want (but do not currently own so there is no need to sell anything) and take the risk of the default and price risk. (Price risk can be due both to credit risk and/or interest rate risk.) This is an off-balance sheet transaction in which the total return receiver (MF Global) has both the price risk and the default risk of the reference bonds. In this case, MF Global had the price risk and the default risk of $6.3 billion of the sovereign debt of Belgium, Italy, Spain, Portugal, and Ireland. As it happened, the price fluctuations of this debt in 2011 weren’t due to a general rise in interest rates, they were due to a general increase in the perceived credit risk of this debt.

In short the risk doesn’t go away but it’s not on your balance sheet so it is effectively hidden.

Read the entire report folks.  It’s not pretty and, in my opinion, it is required reading from a very credible source.

Financial dictatorship is going to come across the (European) continent. – Bill Still

Some interesting commentary on OWS; if, in fact there is a co-opting in process in this regard, well……

If you remember, my friends, I said originally that this movement could turn into one of two things — one good, the other very bad:

1. A legitimate political movement that ultimately restores the rule of law.

2. A removal of we the people, perhaps through violence and anarchy, ultimately leading to dictatorship.

Which will it be folks?

OWS: The time for choosing has come; you either stand for the right things or you will wind up being used as puppets exactly as was The Tea Party.

Bill Still’s campaign can be found at http://still2012.com/

 

Scaremongering aside, the demise of the euro does not end European integration. It only means that which is unsustainable has been relinquished and a return to stability is finally possible.

So the euro is doomed. Toast. History. This will lead  to:

1. the end of civilization

2. the end of European integration

3. the start of new Dark Ages

4. the return to a sustainable reality

The correct answer is 4.The euro was an unsustainable, self-destructing  extension of the integration that has long simplified trade, travel and work throughout the EU (European Union).

At the risk of over-saturating you with more euro-related material, here are the basics we need to keep in mind as the third act plays out.

A common currency seemed like a good way to simplify trade and lower transaction costs.As I noted yesterday in Some Heretical Thoughts on the U.S. Dollar, such “folk” convictions rest on “sole-source causation”:  in this case, that a single currency would only offer more benefits of integration because it lowered complexity and transaction costs.

The euro supporters forgot or ignored the primary purpose of national currencies:to account for differences in transparency, productivity, trust, money creation and risk between nations’ economies and their Central Banks/States.

If you remove this means of accounting for these fundamental differences, then you have removed a feedback loop from a dynamic system, and thus removed an absolutely  essential flow of information and transparency.

What you’re left with is a system of lies, officially sanctioned opacity,  misinformation, disinformation, cooked books, artifice and propaganda, i.e. exactly what Europe has become.With the euro, there was no way for the system to account for thr vast differences in debt loads, credit risks, transparency, productivity and a dozen other fundamentals that are expressed in foreign exchange rates.

By all accounts, Greece and Italy have painfully dysfunctional national finances and  political Elites resistant to admitting the dysfunction is unsustainable.  Once those nations revert to national currencies, then their currencies will reflect the market’s assessment of their economy and their national/Central Bank policies.

The same will hold true for all the other EU member states: the market will shift through the various metrics and feedback loops and reach an equilibrium around the value of  each nation’s currency.

Profligate, over-indebted nations with dysfunctional Elites and systems plagued by political corruption and gridlock will see their currencies devalued and the interest rates they must pay to borrow money raise to the point that borrowing will no longer be an option to escape the consequences of profligacy, and the devalued currency will preclude buying imports  from strong-currency nations.

These feedback loops are essential to providing the citizenry and their economy with the transparency and information they need to adapt to reality. The euro has erased all that vital information, leaving only interest rates as the sole expression of differences between economies.

Interest rates are simply not a rich enough source of information  and market feedback to express the differences between national economies; the global markets need the information and feedback loop provided by currencies.

As I attempted to describe yesterday, currencies are not explicable with “sole-source causality” or “folk” understandings; they are distillations of numerous information feeds and feedback loops that only a transparent market can generate.

I have little doubt the euro is being held aloft by cloaked Central Bank intervention; the Elites are desperately attempting to cloak the system’s intrinsic dysfunction and stop the market from repricing the euro based on the inevitable return to national currencies.

Rather than fear this return to transparent feedback, we should welcome it and hurry it along.  Systems which cut off feedback and choke transparency with artifice and lies are doomed to implode.  If Europe ditches the failed “folk” experiment called the euro, then the process of recognizing and pricing dysfunction can begin, and the stability  that only transparency and feedback can provide will soon return to the EU.

This may sound counter-intuitive, but it’s the only way forward to a sustainable, stable reality.  The immense hubris of Europe’s dysfunctional Elites precludes their recognition that reality eventually trumps artifice and intervention. Their feeble, addled cries cannot turn back the tide, even if their bloated self-importance is infinite.

Charles Hugh Smith – Of Two Minds