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Europe’s Banks Brace for UK Debt Crisis

UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece.

By Ambrose Evans-Pritchard, International Business Editor

No turning back: Sterling is going to fall further over coming months, warns Unicredit

The Italian-German group, Europe’s second largest bank, said Britain’s tax structure will make it hard to raise fresh revenue quickly enough to restore confidence in UK public finances.

“I am becoming convinced that Great Britain is the next country that is going to be pummelled by investors,” said Kornelius Purps, Unicredit ‘s fixed income director and a leading analyst in Germany.

Mr Purps said the UK had been cushioned at first by low debt levels but the pace of deterioration has been so extreme that the country can no longer count on market tolerance.

“Britain’s AAA-rating is highly at risk. The budget deficit is huge at 13pc of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that,” he told The Daily Telegraph.

“Sterling is going to fall further over coming months. I am not expecting a crash of the gilts market but we may see a further rise in spreads of 30 to 50 basis points.”

Yields on 10-year gilts have already crept up to 4.14pc, compared to 3.94pc for Italian bonds, 3.48pc for French bonds, and 3.19pc for German Bunds, though part of this reflects worries about higher inflation in Britain.

Ian Stannard, currency strategist at BNP Paribas, said markets are fretting over how the UK will cover its deficit following the pause in quantitative easing by the Bank of England. The Bank has absorbed £200bn of debt, more than total Treasury issuance over the last year.

“The UK may have difficulty in attracting extra investors to fill the gap. We think they will have to do more QE as recovery falters,” he said.

BNP Paribas expects sterling to drop to $1.31 against the dollar this year and reach parity against the euro despite troubles in Club Med. “We’re very bearish on the UK,” he said.

Big global banks are divided over Britain’s economic prospects . Goldman Sachs is betting on a turbo-charged recovery as the delayed effects of sterling devaluation kick in. Britain’s trump card is an average debt maturity of 14.1 years, nearly three times US maturities and double those of France. This greatly reduces the risk of a “roll-over” crisis.

UniCredit said Greece is better placed than the UK in coming months even if deficits look comparable. “The polls point to a minority government in the UK, while Greece’s government can count on a majority to push austerity measures through parliament. Secondly, the British tax system offers less leverage for a rise in revenue,” he said.

Paradoxically, Greek tax evasion creates scope for a surge in revenues from tougher enforcement. “It is not out of the question that we will see a positive surprise in Greece: is there any such hope for Britain?” said Mr Purps.

Still, while it is arguable whether a hung Parliament in Britain will lead to policy drift, analysts said Greece was in trouble already. The country was brought to a standstill on Thursday by the second general strike in weeks. Police clashed with rioters , again reducing Athens to a fog of tear gas. Observers said that did not augur well for a nation that has hardly begun its three-year ordeal of draconian cuts.

Albert Edwards: At 500% Net Liabilities To GDP, It Is Too Late To Prevent The Collapse Of The G-7; Greece Is Irrelevant, We Are All Now Insolvent

Submitted by Tyler Durden

For Greece, with on and off balance sheet liabilities at over 800%, it’s game over. For the Eurozone, with the same ratio at about 500%, it is also game over. For the US, at 500%+, it is, you guessed it (sorry Joseph Stiglitz), game over, but since we have the printers, it will simply take a little longer. Following up on yesterday’s popular post on prevailing delusions as captured by Albert Edwards’ colleague Dylan Grice, we present Albert’s latest outlook. Please don’t read this if you want to keep believing there is any hope left for the (developed) world.

But first some aeral photography from Dylan Grice, indicating just how far the US government is willing to go to get the population stoked about owning fixed (shouldn’t it be called broken really?) income. With British QE over, and the country still to implement the same criminal annuitizing of 401(k)s that Uncle Sam is contempltating in order to make “Buy Bonds” a “voluntary” option one can’t really decline, maybe letters on modern architecture building blocks is all that would works. As Edwards says: “I’m not sure leaving man-sized building blocks around the City of London is really going to make an awful lot of difference, but I suppose when your public sector deficit is around 13% of GDP, every little bit helps!”

So back to Greece, the Eurozone, and policy response in general, Edwards places the causes (and “solutions”) of the escalating problem precisely where it belongs: at the core of the Keynesian systemic outlook flaw.

A major divergence of views in the market at the moment concerns what governments should be doing with their outsized fiscal deficits. Economists seem to be polarised between those who think governments should be rapidly cutting fiscal deficits to avoid impending insolvency and/or a surge in bond yields, and those who believe this will be totally counterproductive and that deficits should stay very large. Behind this controversy probably lies the key to the economic outlook.

To Edwards, and to ever more hedge fund investors judging by the jump back in Greece Bund spreads which just broke the most recent technical resistance level of 300 bps, Greece is nothing more than Russia and LTCM (or Bear Stearns as the case may be).

The situation in Greece following hard on the heels of similar solvency issues in Dubai feels to me very much like the Russian default and LTCM blow-up in 1998. For the blow-ups that year were a direct follow-on from the Asian crisis a year earlier a different chapter in the same book. There will be more crises to follow Greece, both inside and outside of the eurozone.

The outcome of broken Keynesian policy (by definition) will be ugly, and will destroy the eurozone. We said it some time ago, and SocGen has now also confirmed this bearish perspective.

My own view of developments, for what it is worth, is that any “help” given to Greece merely delays the inevitable break-up of the eurozone. But, for me, the problem is not the size of the government deficit and the solvency or otherwise of the governments in the PIGS (Portugal, Ireland, Greece and Spain – we deliberately exclude Italy).
The problem for the PIGS is that years of inappropriately low interest rates resulted in overheating and rapid inflation, even though interest rates might well have been appropriate for the eurozone as a whole. Rapid inflation has led to overvalued bilateral real exchange rates (they do still notionally exist) for the PIGS and in most cases yawning double-digit current account deficits. With most trade done with other eurozone countries, the root problem for the PIGS is lack of competitiveness within the eurozone – an inevitable consequence of the one size fits all interest rate policy. Even if the PIGS governments could slash their fiscal deficits, as Ireland is attempting, to maintain credibility with the markets in the short term, the lack of competitiveness within the eurozone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Hence the PIGS public sector deficit will inevitably remain large as a direct consequence of this weak growth outlook.

As noted earlier on Zero Hedge, in Europe the population is a little less brainwashed by the moronic happenings on prime time TV, so while in America the destruction of the economic system, as trillions are transferred to the kleptocracy which knows fully well the end game is nigh, results in some sighs of desperation at best, in Europe the outcome will be somewhat more violent.

In my opinion this will not be tolerated by the electorates in these countries. Unlike Japan or the US, Europe has an unfortunate tendency towards civil unrest when subjected to extreme economic pain. Consigning the PIGS to a prolonged period of deflation is most likely to impose too severe a test on these nations. And the political “consensus” within the PIGS to remain in the eurozone could falter in the face of another of Europe’s unfortunate tendencies -the emergence of small extreme parties to take advantage of any unrest. My own view is that there is little “help” that can be offered by the other eurozone nations other than temporary confidence-giving “sticking plasters” before the ultimate denouement: the break-up of the eurozone.

And in case you were wondering why all European leaders are powerless to provide a bailout proposal that actually has a snowball’s chance in hell of doing something/anything to help Greece, read on. Alternatively, if you want to find out why any plan suggested on Monday will be thoroughly useless and once digested by the market will cause another major crash, read on as well.

The pressure to tighten fiscal policy from current nose-bleed levels of deficits is not just an issue for crisis hit Greece. It is an issue for virtually all economies. It is a particular issue for the US and UK with structural (cyclically adjusted) general government deficits of almost 10% of GDP (according to the OECD)! There is a ferocious debate ongoing between those who believe there needs to be a rapid reduction in these deficits to avoid some combination of insolvency/default/rapid inflation and those who believe that there should be even more fiscal stimulus. The debate is loud and opinions are tending to be polarised.
My own view on this is that obviously we should never have got into this wholly avoidable mess in the first place. But having got here, there really is no way out that does not trigger a major market-moving upheaval. Ultimately economic prosperity over the past decade has been a sham: a totally unsustainable Ponzi scheme built on a mountain of private sector debt.GDP has simply been brought forward from the future and now it’s payback time. The trouble is that, as the private sector debt unwinds, there is no political appetite to allow GDP to decline to its “correct” level as this would involve a depression. So burgeoning public sector deficits and Quantitative Easing are required to maintain the fig-leaf of continued prosperity.

And here is the topic that will dominate over all pundit round table discussions in the next weeks: the entire world is insolvent, although some are more insolvent than others. Greek total net liabilities (on and off balance sheet) to GDP are 800%! EU: at 470%, the US, at over 500%. There is no way out but default.

Edwards’ poignant summation.

I am persuaded by my colleague Dylan Grice’s analysis that, including unfunded liabilities, most governments are already insolvent with debt to GDP ratios closer to 500% of GDP instead of around 100% for most G7 countries . It is too late.
Nor were Dylan and I persuaded by recent comments from Nobel Prize Winner Joseph Stiglitz that it is absurd to suggest that the US and UK governments might default on their debts as they could just print money. Indeed. But a client pointed out to us that Weimar Germany did not default on its debts during its hyper-inflation. How reassuring!
I am persuaded though by Richard Koo’s book about the lessons from Japan’s balance sheet recession. The crux of his analysis is that governments have no option but to stimulate aggressively all the while the private sector is de-leveraging. ANY attempt at fiscal cuts simply results in renewed recession and a further loss of confidence, thus making it even harder and more costly to sustain any subsequent recovery – and hence the budget deficit ends up bigger than before (e.g. see chart below). This is exactly the outcome I expect.

The take home is very, very simple: we can delude ourselves that the game can be won (it can’t), or we can prepare for the imminent collapse when delusion finally fails.

Pimco move to sell gilts raises spectre of a UK sovereign debt crisis

Fears that Britain may be heading for its first sovereign debt crisis since the 1970s hit a new intensity after Pimco, the world’s biggest bond house, declared that it is starting to sell off its holdings of gilts.

By Angela Monaghan and Edmund Conway

The American investment group said it will be a net seller of UK Government bonds this year, at the very point when the Bank of England brings its £200bn programme of purchases to and end and the Treasury attempts to raise unprecedented sums through the capital markets.

The move is doubly embarrassing for the Government because the head of Pimco’s European investment team is Andrew Balls, brother of Schools Secretary Ed Balls, who is mastering the Government’s re-election strategy. The move will be seen as a financial vote of no-confidence in the Government’s handling of the economy.

Paul McCulley, a managing director at Pimco, said: “We are currently cutting back in the US and UK because… supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines.”

The yield on the benchmark 10-year gilt has leapt from below 3pc to above 4pc in the past year amid concerns about the Government’s capacity to bring its budget back under control, and worries about the coming end of quantitative easing (QE), under which the Bank has been buying massive numbers of gilts. However, UK equities staged a strong start to the year, with the FTSE 100 up 87.46 points to a 16-month high of 5500.34.

The Pimco switch was described by Mike Amey, its portfolio manager in London, as “a significant policy statement”.

“Those areas of the bond market that have had greatest support from central banks will be most vulnerable as that support comes to an end,” he added. Few economists expect the Bank, whose monthly meeting begins tomorrow, to extend the QE scheme beyond February, meaning the private sector will soon be solely responsible for demand for government debt. The gilts market has also been supported by new liquidity rules, which have seen banks buy large gilt holdings to bolster their balance sheets. These purchases, too, are seen as one-off, again implying a sudden drop in demand in the coming months.

Although the QE scheme has had its detractors, it has kept gilt yields down and helped prevent the flow of money in the economy from dropping into “depression territory”, according to economists. Figures from the Bank yesterday showed a welcome 0.3pc rise in the holdings of broad money, M4, by non-financial companies, in November, indicating that the radical policy of pumping cash directly into banks’ balance sheets may now be yielding effects.

Some accuse the Government of failing to lay out extensive enough plans on how to bring the budget deficit back under control, with the major ratings agencies threatening to downgrade the UK’s credit rating unless the next Government provides more ambitious plans for budget reduction. In what was seen as the starting gun for the pre-election battle, Labour yesterday published a document accusing the Conservatives of hiding the full details of its tax and spending plans from the public, sparking a war of words between the parties.

As everyone is engrossed by assorted groundless Christmas (and other ongoing bear market) rallies, and oblivious to the debt monsters hiding in both the closet and under the bed, Zero Hedge has decided it is about time to present the ugliest truth faced by our ‘intellectual superiors’ and their Wall Street henchman who succeeded in pulling off Goal #1 for 2009 – the biggest ever bonus season (forget record bonuses in 2010… in fact, scratch any bonuses next year if what is likely to transpire in the upcoming 12 months does in fact occur).

If someone asks you what happened in 2009, the answer is simple – two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed’s equivalent of band-aiding a zombied and ponzied corpse, better known as the US economy. It worked for a while, but now the zombie is about to go back into critical, followed by comatose, and lastly, undead (and 401(k)-depleting) condition.

In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) – the very same greed and stupidity that brought us here. Luckily, so far securitization and CDOs have not made a dramatic entrance. They likely will, at which point it will be time to buy a one-way ticket for either our southern or northern neighbor, both of which, in the supremest of ironies, transact in a currency that will survive long after the dollar is dead and buried.

Back to the math… And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to “drain duration” from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that.

And while you are lamenting the death of private debt markets, here is precisely what the Fed, the Treasury, and all bank CEOs are doing all their best to keep hidden until they are safely on their private jets heading toward warmer climes: in 2010, the total estimated net issuance across all US$ denominated fixed income classes is expected to increase by 27%, from $1.75 trillion to $2.22 trillion. The culprit: Treasury issuance to keep funding an impossible budget. And, yes, we use the term impossible in its most technical sense. As everyone who has taken First Grade math knows, there is no way that the ludicrous deficit spending the US has embarked on makes any sense at all… none. But the administration can sure pretend it does, until everything falls apart and blaming everyone else for its fiscal imprudence is no longer an option.

Out of the $2.22 trillion in expected 2010 issuance, $200 billion will be absorbed by the Fed while QE continues through March. Then the US is on its own: $2.06 trillion will have to find non-Fed originating  demand. To sum up: $200 billion in 2009; $2.1 trillion in 2010. Good luck.

As we pointed, the number one reason why 2010 is set to be a truly “interesting” year is a result of the upcoming explosion in US Treasury issuance. Fiscal 2010 gross coupon issuance is expected to hit $2.55 trillion, a $700 billion increase from 2009, which in turn was  $1.1 trillion increase from 2008. For those of you needing a primer on the exponential function, click here. But wait, there is a light in the tunnel: in 2011, gross issuance is expected to decline… to $1.9 trillion.

And while things are hair-raising in “gross” country (not Bill…at least not yet), they are not much better in netville either. Net of maturities, 2010 coupon issuance will be about $1.8 trillion, a 45% increase from the $1.3 trillion in FY 2009 (and the paltry $255 billion in 2008).

Now everyone knows that the average maturity of the UST curve has become a big problem for Tim Geithner: nearly 40% of all marketable debt matures within a year (a percentage that has kept on growing). In fact, the Treasury provided guidance in its November 2009 refunding, in which it stated that it intends “to focus on increasing the average maturity” of its debt after relying heavily on Bill issuance in H2. Once again, we wish Tim the best of luck.

Why our generous best intentions to the US Treasury? Because unless the US consumer decides to forgo the purchase of the 4th sequential Kindle and buy some Treasuries (and not just any: 30 Year Bonds or bust), the presumption that the Bond printer will have the option of finding vast foreign appetite for its spewage is a very myopic one. We already know that China is a major question mark, and will aggressively be looking at pumping capital into its own economy instead of that of Uncle Sam’s – at some point the return on investment in its own middle class will surpass that of funding the rapidly disappearing US middle class. That tipping point could be as soon as 2010.

As for Japan – the country has plunged into its n^th consecutive deflationary period. Whether or not the finance minister announces yet another affair with the Quantitative Easing whore on any given day, depends merely on what side of the bed he wakes up on. The country will have its hands full monetizing its own sovereign issuance, let alone ours.

Lastly, the UK – well, with the country set to have zero bankers left in a few months, we don’t think the traditionally third largest purchaser of US debt will be doing much purchasing any time soon.

None of this is merely speculation: October TIC data confirmed these preliminary observations. It will only become more pronounced in upcoming months.

How about that great globalization dynamo: emerging markets? Alas, they have their hands full with issuing their own record amounts of both sovereign and corporate debt as well: in 2009 gross EM debt issuance reached an astounding $217 billion, $29 billion higher than the previous record in 2007. Gross EM issuance was particularly high in the last quarter at $73 billion, with October breaking the record for the largest ever monthly gross issuance of emerging market global bonds at $38 billion (January is traditionally the busiest month of the year.) With $81 billion, 2009 was notably a record year for sovereign bonds, while gross issuance of corporate bonds amounted to $136 billion, the second highest level after that of 2007 with $155 billion.

Bottom line: everyone has major problems at home, and is more focused on the supply than the demand side of the equation.

What options does this leave for the administration? Very few, and all of them are ugly. As we stated earlier on, the options for the Fed are threefold:

1. Announce a new iteration of Quantitative Easing. This will be met with major disapproval across all voting classes (at least those whose residential zip codes do not start with 10xxx or 068xx), creating major headaches for Obama and the democrats which are already struggling with collapsing polls.
2. Prepare for a major increase in interest rates. While on the surface this would be very welcome for a Fed that keeps hinting that deflation is the biggest concern for the economy, Bernanke’s complete lack of preparation from a monetary standpoint (we are surprised the Fed’s $200 million reverse repos have not made the late night comedy circuit yet) to a forced interest rate increase, would likely result in runaway inflation almost overnight. The result would be a huge blow to a still deteriorating economy.
3. Engineer a stock market collapse. Recently investors have, rightfully, realized there is no more risk in equities, not because the assets backing the stockholder equity are actually creating greater cash flow (as we demonstrated recently, that is not the case), but simply because taxpayers have involuntarily become safekeepers for the entire stock market, due to Bernanke’s forced intervention in bond and equity markets. Yet the President’s Working Group is fully aware that when the time comes to hitting the “reverse” button, it will do so. Will the resultant rush into safe assets be sufficient to generate the needed endogenous demand for Treasuries is unknown. It will likely be correlated to the size of the equity market drop.

If the Fed decides on option three, we fully believe a 30% drop (or greater) in equities is very probable as the new supply/demand regime in fixed income becomes apparent. We hope mainstream media takes the ideas presented here and processes them for broader consumption as indeed the Fed is caught in a very fragile dilemma, and the sooner its hand is pushed, the less disastrous the final outcome for investors. Then again, as Eric Sprott has been pointing out for quite some time, it could very well be that the US economy has become merely one huge Ponzi, and as such, its expansion or reduction on the margin is uncontrollable. We very well may have passed into the stage where blind growth is the only alternative to a complete collapse. We hope that is not the case.

Merry Christmas and Happy Holidays to all readers.

Good morning, worker drones: This Week in Mayhem

by Project Mayhem

Project Censored releases top censored news stories of 2009, Market Skeptics highlights catastrophic fall in global food production, gold bounces off $1100, Copenhagen succeeds in building global governance framework, Pakistan and Yemen sink further into chaos..

LAST WEEK IN MAYHEM

Project Censored releases list of 25 censored news stories of the past year

* 1. US Congress Sells Out to Wall Street
* 2. US Schools are More Segregated Today than in the 1950s
* 3. Toxic Waste Behind Somali Pirates
* 4. Nuclear Waste Pools in North Carolina
* 5. Europe Blocks US Toxic Products
* 6. Lobbyists Buy Congress
* 7. Obama’s Military Appointments Have Corrupt Past
* 8. Bailed out Banks and America’s Wealthiest Cheat IRS Out of Billions
* 9. US Arms Used for War Crimes in Gaza
* 10. Ecuador Declares Foreign Debt Illegitimate
* 11. Private Corporations Profit from the Occupation of Palestine
* 12. Mysterious Death of Mike Connell—Karl Rove’s Election Thief
* 13. Katrina’s Hidden Race War
* 14. Congress Invested in Defense Contracts
* 15. World Bank’s Carbon Trade Fiasco

http://www.projectcensored.org/top-stories/category/two-thousand-and-ten-book/

2010 Food Crisis for Dummies

The countries that make up two thirds of the world’s agricultural output are experiencing drought conditions.

The following article is HIGHLY recommended for anyone trading in the commodities futures markets or interested in possible future outcomes in 2010.

“If you read any economic, financial, or political analysis for 2010 that doesn’t mention the food shortage looming next year, throw it in the trash, as it is worthless. There is overwhelming, undeniable evidence that the world will run out of food next year. When this happens, the resulting triple digit food inflation will lead panicking central banks around the world to dump their foreign reserves to appreciate their currencies and lower the cost of food imports, causing the collapse of the dollar, the treasury market, derivative markets, and the global financial system. The US will experience economic disintegration.

So far the crisis has been driven by the slow and steady increase in defaults on mortgages and other loans. This is about to change. What will drive the financial crisis in 2010 will be panic about food supplies and the dollar’s plunging value. Things will start moving fast.”

http://www.marketskeptics.com/2009/12/2010-food-crisis-for-dummies.html

Gold bounces off $1100

Gold has bounced off $1100, as expected, but the question  is whether this level will hold.  This is almost impossible to predict…what we do know is that gold is going much higher intermediate-term.  Short-term, we could see pricing pressures on gold until we get a new leg down in the economic crisis and/or war in Central Asia.  Things are heating up around the world, particularly in Yemen and Pakistan.  Regardless, we expect a hard floor for the gold price in the range of $1000-1050.  We will watch carefully for the next two business weeks leading into Jan 1st, as this will involve year-end mark-to-market for gold on many balance sheets so expect volatility.  In terms of the next year (2010) we are expecting a dollar crisis so it would be wise to own gold under such circumstances.

Tarpley – Hyperinflation possible in 2010
http://eclipptv.com/viewVideo.php?video_id=9059

Gerald Celente – 2010 – Prepare for the Worse
http://eclipptv.com/viewVideo.php?video_id=9060

Copenhagen Treaty yields start of Global Governance

The Copenhagen treaty was a success despite the massive scientific scandal; the global bankster-gangsters got precisely what they wanted.  The objective was to establish the framework for a world government, which is often called ‘global governance’ in policy planning circles. The seeds of this were successfully planted.  There were two main accomplishments at Copenhagen:  1) agreement on a global transaction tax on GDP, paid to the World Bank  and 2) agreement on preliminary funding for global governance, conservatively $100bn by 2020 but we believe this number will be much much higher (probably in trillions).

“In 2004, it was less than $300 million. But in 2005, the trade really started to soar, ending the year with $10.8 billion-worth of transactions. A year later, in 2006, the “carbon” market had grown to $31 billion. In 2007, again it more than doubled its turnover, to $64 billion. Last year, it did it again, reaching a colossal $126 billion. By 2020, some estimates suggest the annual value will reach $2 trillion.”

http://eureferendum.blogspot.com/2009/12/protecting-big-carbon.html

“This is the biggest heist in history. As they poured carbon over snow-covered Denmark from their gas-guzzling jets, world leaders were congratulating themselves on securing a deal which will make their backers and financiers a trillion pounds a year. These riches will come from buying and selling permits, the so-called ‘carbon credits’ which allow industry and electricity generators in developed countries to emit carbon dioxide.

The frenzied negotiations we have just seen were never about ‘saving the planet’. They were always about money.”

http://www.dailymail.co.uk/debate/article-1237235/ANALYSIS-Saved–trillion-pound-trade-carbon.html

Copenhagen accord keeps Big Carbon in business

“The part played at Copenhagen by all the tree-huggers, abetted by the BBC and their media allies, was to keep hysteria over warming at fever pitch while the politicians haggled over the real prize, to keep the Kyoto system in place.

The only tree they were concerned with hugging was the money tree and all the vast political apparatus that now supports it, allowing governments to tax and regulate us into handing over ever more of our money, largely without realising it, every time we drive a car, fly in a plane, pay our electricity bill or carry out any of a vast range of activities that involve the emission of CO2. ”

http://www.telegraph.co.uk/comment/columnists/christopherbooker/6845686/Copenhagen-accord-keeps-Big-Carbon-in-business.html

Saudis rain missiles down on Yemen

Saudi warplanes rain ’1,011 missiles’ on Yemen
“Houthi fighters say Saudi warplanes have fired some 1,011 missiles on the borderline with Yemen where the Shia population is already under heavy state-led and US-aided bombardment. “

http://www.presstv.ir/detail.aspx?id=114162&sectionid=351020206

US air raids kill 63 civilians in Yemen
“Yemen’s Houthi fighters say scores of civilians, including many children, have been killed in US air-raids in the southeast of the war-stricken Arab country.”
http://dprogram.net/2009/12/19/us-air-raids-kill-63-civilians-in-yemen/

Obama Ordered U.S. Military Strike on Yemen Terrorists
“The Yemen attacks by the U.S. military represent a major escalation of the Obama administration’s campaign against al Qaeda.”

Pakistan on brink ;  Obama feigns surprise

Internally displaced Pakistani women and children, aka alQueda

Pakistan continues to deteriorate, as we have been expected since the election of Obama.  There is definitely a new war brewing in the region.  The most likely conflict is either an event justifying going into Pakistan, or an event justifying going into Iran.  In either case, doing so would land us in deep deep trouble, and would escalate into a regional war.  Pakistan is a nuclear-armed country, with ballistic and cruise missiles, and Iran has advanced Russian weaponry.  War in either country would be a big mistake with catastrophic consequences for the world, but our fearless leaders do not seem to care about the people of the world or their lives.  Regardless, the CIA and ISI are doing an excellent job of destabilizing Pakistan, which seems to be the policy objectiive.

Pakistan political crisis deepens

“THE political crisis in Pakistan has deepened after the Government’s anti-corruption agency sought a warrant for the arrest of the country’s Interior Minister.”

http://www.theage.com.au/world/pakistan-in-crisis-as-creeping-coup-unfolds-20091219-l6lf.html

Symptom of a Deeper Malady Pakistan’s Refugee Disaster

In the meantime, with the winter months fast approaching, hundreds of thousands of “unintegrated” refugees who do not find more durable shelter, even as military sweeps continue, could face exposure and starvation. Some aid groups are demanding that the United States pressure Pakistan to respect international humanitarian law and allow independent access to the refugees.

THIS WEEK IN MAYHEM

source: cmegroup

Not much happening this week due to the Christmas holiday. Tuesday brings us the GDP number and existing home sales, Wednesday is new home sales, and Thursday is durable goods orders and jobless claims.  This week we are watching Yemen and Pakistan.

Have a great week and Merry Christmas

Project Mayhem Research (PMR) is a DC/Baltimore-based grassroots think tank dedicated to exposing corruption worldwide. PMR is affiliated with Zerohedge.com, a popular and growing anti-corruption site, through contribution of free articles for the public. Topics include the politics of war and weapons systems, unexpected applications of cybernetics, the growing international surveillance state, global warming ‘deindustrialization’ economics, broad systemic international corruption , in-depth policy analysis of studies from bank and military funded research groups, genetic analysis and surveillance of pandemic influenza, corruption in the international gold market, the power structure and history of the global elite, and analysis of their political objectives expressed through monopolistic international finance capital (read: powerful banks) between now and 2050.

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In his pre-budget report, British Chancellor Alistair Darling said that he will now levy a 50% tax on banker bonuses. The new tax will be effective from today until April 5.The tax will hit virtually all financial companies, including subsidiaries of foreign banks . Thus a Goldman banker working in London will suddenly be faced with a much higher marginal tax rate that his associate in New York. This will either generate much transatlantic resentment, or expect a comparable move to the replicated by the IRS with the President’s blessing, who has already lost control of the unemployment picture, so the last thing he can do to regain some popularity is to take Main Street’s outcry direct to the southern tip of Manhattan.

More from the FT:

“We hope it will be a disincentive for banks to pay bonuses,” said one Treasury official.

The
windfall tax – which politicians argue is justified, as banks have
generated excess profits as a direct, or indirect, result of the
bail-out of the banking system – will apply to all banks and building
societies, including groups that operate in the UK under a European
Union branch system.

The banker response did not come as a surprise:

Bankers reacted with shock to the measure. “This is extreme
victimisation,” said one senior investment banker. “A lot of people
have been working their tails off, never seeing their families to try
and fix the problems of the past and now they are being discriminated
against. It just makes me want to quit the job.”

Didn’t the AIG General Counsel say the same thing? Alas, the same gambit did not work out too well for her.

The government is convinced that banks are unlikely to consider
shifting headquarters away from the UK as a result of a one-year tax of
this kind. But there is a widespread expectation in the City that the
windfall tax will prompt London-based bankers to ask for their
contracts to amended to attach them to other financial centres, such as
Zurich, Paris and Frankfurt.

“It is completely naïve to think
this will have no effect,” said one banker. “The Treasury, the FSA, the
Inland Revenue and politicians are all being very aggressive across the
board. The UK is making itself business unfriendly. A huge number of
colleagues will get themselves relocated.”

Yet even as the likelihood of a copycat tax in the U.S. is increasing, the question is do the domestic trading desks now drop the market and show the administration who is really in charge? Because even the President’s working group can not survive a concerted attack from every single financial entity in the world. And bankers are nothing if not efficient at marking their territory in the protection of take home pay. If that requires a 200 point drop in the S&P, so be it.