Archive for January 22nd, 2013
You knew it was going to happen.
Japan adopted an “official” 2% inflation target. At the same time the so-called “independent” BOJ said it will begin open-ended money-printing starting in January of next year, when it will begin buying a total of 12 trillion Yen of government bonds monthly.
This is about $135 billion in dollars, more or less, per month — or about $1.6 trillion annually.
The market initially spiked on this, but then people started to contemplate: This is a fiscal devaluation of about 22% annually!
That’s well beyond eating the seed corn and into the realm of burning the furniture — and perhaps the wallpaper.
The impact of this policy on the common Japanese citizen is going to be catastrophic and will lead to the collapse of the economy and government. This is not speculation; it is mathematically certain. We are talking about a “fiscal operation” that is approximately three times what our government is doing, and the impact here has been horrifying, boosting unemployment and pressing firmly into the neck of Americans while driving food stamps and other social “program” demand to the moon.
The impact in Japan will be nothing short of cataclysmic, which leads one to wonder: Are they really that dumb or is this a promise that nobody intends to actually keep?
The market seems to believe the second — for now. I don’t blame traders either — it doesn’t take long for me to pull out my trusty HP12c [calculator] and figure out the fiscal impact, nor to do a back-of-the-envelope on what this will do the common Japanese citizen. There aren’t enough non-radioactive sticks left in the country to hand out for tongue-biting protection on this deal — short of an intent to wind up in a hot war (probably with China) my only reaction to this announcement is “You must be lying — or nuts!”
We’re boxed into the same corner here in America, incidentally. The House appears to be prepared to once again play “kick the can”, basically postponing the debt ceiling issue for three months in a gambit to try to force The Senate to do its Constitutional job and pass a budget.
This won’t matter. Without putting a stop to deficit spending the spiral of exponential growth in debt will continue and this cannot continue on anything approaching an indefinite forward horizon. Obama’s first term added roughly $6 trillion dollars to the National Tab, expanding it by some 60%. Trying to do that again over the next four years, which is exactly where we’re headed at an accelerating rate, is going to wind up leaving us in the same box that Japan is in but with much higher levels of government dependence at the starting gate, which means that the fiscal demands will be even more-severe than they are for the Japanese.
This will not work and no agenda to “promote growth” will fix it either; you cannot grow out of this just as we didn’t during the 1980-2007 time frame — debt increased at a rate of about 3% more than GDP did over the entire period, irrespective of the claims otherwise.
The numerical facts are what they are. I would like to believe in various machinations and their ability to produce outcomes that are desirable, but I have to cede “desires” to arithmetic. Irrespective of what I want or anyone else wants to believe in, the math cannot be argued with or bargained against — it is not a political creature and does not respond to political incentives, including bribes.
The Senate, to a large degree, knows this and “gets it.” I’m certain of it, having spoken with the staff of a few folks in that chamber. I’m not sure The House leadership does, but if they don’t they had damned well better figure this out and then figure out how to deal with it.
This much I know for certain — The Senate won’t raise this until and unless The House is on board, because it’s political suicide to do so without a sizable caucus behind it. It’s one thing to sacrifice one’s political career to do the right thing — it’s another to do so pointlessly when there is nobody standing with you and as such you will accomplish nothing by personally taking the pipe.
I have long been a critic of Ryan’s budget proposals as they simply refuse to accept the drivers of the deficit in this country and what has to be done to fix it. There’s a new version, I’m sure, of Ryan’s follies on the way through the pipe and it will be interesting to see if there’s any hint of recognition of those drivers in it. I doubt it, simply because there has been no evidence that reality has yet intruded in The House leadership.
Here’s the problem, in short: The time to get in front of this problem has already run; that was back in 2007 and 2008. Now, four years and a 60% increase in Federal Debt later, the exact outcome that was inevitable has become realized – but the worst of the consequences has thus far been forestalled by adding huge numbers of people to the public dole.
To those in The House who think we can get through this on the path we’re on: You’re wrong.
The political calculation is now much more-perilous, and comes down to this:
If we don’t stop this foolishness the odds of a fiscal crisis of some sort in the next two years is extremely likely and within four nearly certain. If you get the timing wrong then Pelosi gets the gavel back in 2014 and we’re utterly screwed across the board.
So to the leadership in The House, I leave you this: You’re not kicking the can, you’re kicking yourselves in the balls. Stop it — that’s stupid – and start dealing with the actual drivers of this problem now.
Discussion (registration required to post)
The SEC has successfully silenced the only ratings agency that consistently told the truth; only honest voice in ratings, silenced for 18 months.
SEC Bars Egan-Jones From Rating The US And Other Governments For 18 Months
It is refreshing to see that the SEC has taken a much needed break from its daily escapades into midgetporn.xxx and is focusing on what is truly important, such as barring Egan-Jones from rating the US and other governments. From the SEC: “EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.” Hopefully the world is no longer insolvent in July of 2014 when this ban runs out.
Egan-Jones and Founder Sean Egan Agree to 18-Month Bars from Rating Asset-Backed and Government Securities Issuers as NRSRO
The Securities and Exchange Commission today announced that Egan-Jones Ratings Company (EJR) and its president Sean Egan have agreed to settle charges that they made willful and material misstatements and omissions when registering with the SEC to become a Nationally Recognized Statistical Rating Organization (NRSRO) for asset-backed securities and government securities.
EJR and Egan consented to an SEC order that found EJR falsely stated in its registration application that the firm had been rating issuers of asset-backed and government securities since 1995 — when in truth the firm had not issued such ratings prior to filing its application. The SEC’s order also found that EJR violated conflict-of-interest provisions, and that Egan caused EJR’s violations.
EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.
“Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “EJR and Egan’s misrepresentation of the firm’s actual experience rating issuers of asset-backed and government securities is a serious violation that undercuts the integrity of the SEC’s NRSRO registration process.”
Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Provisions requiring NRSROs to retain certain records and address conflicts of interest are central to the SEC’s oversight of credit rating agencies. EJR’s violations of these provisions were significant and recurring.”
Egan and his firm were charged last year for falsely stating on EJR’s July 2008 application to the SEC that it had 150 outstanding asset-backed securities (ABS) issuer ratings and 50 outstanding government issuer ratings, and had been issuing credit ratings in these categories on a continuous basis since 1995. Egan signed and certified the application as accurate. According to the SEC’s order, EJR had not issued any ABS or government issuer ratings that were made available through the Internet or any other readily accessible means. Therefore, EJR did not meet the requirements for registration as a NRSRO in these classes. The Commission found that EJR continued to make material misrepresentations about its experience in subsequent annual certifications. EJR also made other misstatements in submissions to the SEC, and violated recordkeeping and conflict-of-interest provisions governing NRSROs — which are intended to safeguard the integrity of credit ratings.
EJR and Egan agreed to certain undertakings in the SEC’s order, including that they must conduct a comprehensive self-review and implement policies, procedures, practices, and internal controls that correct issues identified in the SEC’s order and in the 2012 examination of EJR conducted by the SEC’s Office of Credit Ratings. EJR and Egan consented to the entry of the order without admitting or denying the findings. The order requires them to cease and desist from committing or causing future violations.
The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation was led by James Kidney with assistance from Alfred Day and Ms. Nolan. The related examinations of EJR were conducted by staff from the SEC’s Office of Credit Ratings, Office of Compliance Inspections and Examinations, and Division of Trading and Markets. Examiners included Michele Wilham, Jon Hertzke, Mark Donohue, Kristin Costello, Scott Davey, Alan Dunetz, Nicole Billick, David Nicolardi, Natasha Kaden, and Abe Losice.
And to think of all the actions the SEC took against S&P, Moodys and Fitch for rating AAA-rated suprime junk weeks before the market imploded. Oh wait, the SEC did nothing there, because, you see, they filed their NRSRO applications without any glitches.
So be careful S&P: you are on thin ice here with your 2011 downgrade of the US, and likely next in the SEC’s sights: better go through all those registration applications and make sure every comma is in place.
Now we look forward to news that Moodys and Fitch are about to get the Congressional medal of honor.
FedUpUSA co-founder and owner of Market-Ticker.org, Karl Denninger, sits down with Greg Hunter of USAWatchdog to discuss the budget crisis. Denninger says don’t expect politicians to do the right thing just yet when it comes to solving America’s financial problems. Further, he says, “There is no stomach to put their jobs on the line . . . We need statesmen who will say I will get fired over this. . . . That’s the price the country has to pay.”
Join Greg Hunter as he goes One-on-One with financial analyst Karl Denninger.
January 22, 2012. FRONTLINE investigates why Wall Street’s leaders have escaped prosecution for any fraud related to the sale of bad mortgages.
More than four years since the financial crisis, not one senior Wall Street executive has faced criminal prosecution for fraud. Are Wall Street executives “too big to jail”?
Watch on air and online beginning January 22 at 10 pm ET on PBS.