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FAZ to $20: Profits at banks constrained for yeas to come...
...Changes proposed in both bills -- driven by lawmakers eager to look tough on Wall Street ahead of mid-term congressional elections in November -- threaten to constrain the banking industry and reduce its profits for years to come.
Obama said the final version of the bill will hold financial firms accountable but not stifle the free market.
"Over the last year, the financial industry has repeatedly tried to end this reform with hordes of lobbyists and millions of dollars in ads, and when they couldn't kill it they tried to water it down .... Today, I think it's fair to say these efforts have failed," Obama said.
http://www.reuters.com/article/idUSTRE64G54N20100521
>>The "Joyride" on WallStreet will come to a screeching halt:
Senate Passes Reforms Designed to Prevent Worst U.S. Collapse
By Alison Vekshin and Phil Mattingly
May 21 (Bloomberg) -- The U.S. Senate, bringing Congress to the brink of passing the most comprehensive regulation of the financial industry since the Great Depression, approved a bill that imposes restrictions on proprietary trading by banks and creates a consumer protection agency designed to prevent lending abuses that triggered the housing collapse and the worst unemployment in almost three decades.
The legislation, approved by a 59-39 vote yesterday and requiring reconciliation with a bill passed by the House of Representatives in December, provides a mechanism for liquidating financial institutions, until recently considered too big to fail, a council of regulators monitoring threats to the economy and specific restraints on the trading of so-called derivatives, which spawned the toxic debts that seized up the credit markets in 2007 and 2008 and prompted the Federal Reserve to make trillions of dollars of loans to banks on the brink of insolvency.
“When this bill becomes law, the joyride on Wall Street will come to a screeching halt,” Senate Majority Leader Harry Reid, a Nevada Democrat, said after the vote.
Prohibiting financial institutions from trading derivatives -- contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather -- is especially controversial and opposed by Wall Street lobbyists and by some regulators, including Fed Chairman Ben S. Bernanke. The proposed consumer protection bureau, which the Senate has placed inside the Fed, would have powers to write and enforce rules banning lending considered abusive.
$150 Billion Fund
House Financial Services Committee Chairman Barney Frank, the Massachusetts Democrat who shepherded a financial-overhaul bill through his chamber last year, said in an interview yesterday that he intends to make sure final legislation has a free-standing Consumer Financial Protection Agency, reflecting President Barack Obama’s original proposal.
Negotiators will have to reconcile differences over a pre- paid $150 billion fund created by the House bill to cover the government’s cost of unwinding a failing financial firm. The Senate bill requires the industry to repay the government only after a company collapses. Frank said yesterday he wouldn’t push to keep the industry-financed pre-paid fund in the bill.
“The two bills are very similar, and the House is ready to go to conference to work out the remaining issues,” Frank said in a statement. “I am confident that we can have a bill ready for President Obama’s signature very soon.”
Wall Street Bailout
Congressional Democrats moved to change regulation of U.S. financial companies after taxpayers provided $700 billion in emergency loans to rescue the insurer American International Group Inc., mortgage lenders Fannie Mae and Freddie Mac, and Citigroup Inc., following the forced takeover of Bear Stearns Cos. by JPMorgan Chase & Co. and the collapse of Lehman Brothers Holdings Inc., the biggest bankruptcy in U.S. history.
The unprecedented bailout of Wall Street was the culmination of the worst housing market since the 1930s, precipitated by so-called subprime mortgages, which were packaged by Wall Street derivatives specialists into toxic fixed-income securities, known as collateralized debt obligations, and sold to investors worldwide. After credit markets froze in 2007, the unemployment rate in the U.S. surged to 10.1 percent during the next two years from 5 percent before the recession began. It remains at 9.9 percent.
‘Hardly Perfect’
Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said the bill is “hardly perfect” and will be improved in the House-Senate negotiations.
Dodd said he planned to consider strengthening language to ban proprietary trading by U.S. banks. The issue was raised in an amendment offered by Democrats Jeff Merkley of Oregon and Carl Levin of Michigan that wasn’t considered during debate of the bill on the Senate floor.
Dodd said he wants to present a revised bill to the Senate before July 4.
Republicans criticized the Senate bill, saying it failed to deal with government-sponsored enterprises Fannie Mae and Freddie Mac, which were seized by the government in 2008. The Republicans also said the consumer financial protection bureau the bill would establish amounts to a massive new bureaucracy.
“We hope that we have a conference where we all are participants and that we’re dealing with trying to reconcile the bill section-by-section and come out with a good piece of legislation, but we’ll have to see about that,” Senator Richard Shelby, the banking committee’s top Republican who voted against the bill, said about the House-Senate talks.
‘Section-by-Section’
Senate Republicans largely stuck together in opposing the bill. Four voted with the Democrats, including Senator Charles Grassley, who became the first Republican to break ranks when he voted for the derivatives bill in committee.
“It was important and essential to engage in fundamental reform of financial institutions at this moment,” Senator Olympia Snowe, a Maine Republican who backed the bill, told reporters after the vote. “The American people have to have the confidence that we’re rectifying many of the issues that really contributed to putting our economy on the precipice.”
The Obama administration welcomed the vote.
“The House and Senate have now each passed strong bills that protect consumers, limit risk-taking by large institutions and address the problem of ‘too-big-to-fail,’” Treasury Secretary Timothy Geithner said in a statement.
Obama’s Outline
The Senate measure adopts priorities Obama outlined last June for strengthening financial rules. It allows the Federal Deposit Insurance Corp. to take apart failing financial firms in an orderly way if their collapse could threaten the economy.
The legislation would push most of the $615 trillion in over-the-counter derivatives to be processed, or cleared, with a third party.
The derivatives language, offered by Senate Agriculture Committee Chairman Blanche Lincoln, also contains one of the most contentious issues of the Senate debate -- the measure that would require commercial banks to wall off their swaps-trading operations.
To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net. Phil Mattingly in Washington at pmattingly@bloomberg.net.
Last Updated: May 21, 2010 03:44 EDT
>>NKorea warns of war if punished for ship sinking
By JEAN H. LEE and HYUNG-JIN KIM, Associated Press Writers – 1 hr 5 mins ago
SEOUL, South Korea – Tensions deepened Thursday on the Korean peninsula as South Korea accused North Korea of firing a torpedo that sank a naval warship, killing 46 sailors in the country's worst military disaster since the Korean War.
President Lee Myung-bak vowed "stern action" for the provocation following the release of long-awaited results from a multinational investigation into the March 26 sinking near the Koreas' tense maritime border. North Korea, reacting swiftly, called the results a fabrication, and warned that any retaliation would trigger war.
It continued to deny involvement in the sinking of the warship Cheonan.
"If the (South Korean) enemies try to deal any retaliation or punishment, or if they try sanctions or a strike on us .... we will answer to this with all-out war," Col. Pak In Ho of North Korea's navy told broadcaster APTN in an exclusive interview in Pyongyang.
An international civilian-military investigation team said evidence overwhelmingly proves a North Korean submarine fired a homing torpedo that caused a massive underwater blast that tore the Cheonan apart. Fifty-eight sailors were rescued from the frigid Yellow Sea waters, but 46 perished.
Since the 1950-53 war on the Korean peninsula ended in a truce rather than a peace treaty, the two Koreas remain locked in a state of war and divided by the world's most heavily armed border.
The truce prevents Seoul from waging a unilateral military attack.
However, South Korea and the U.S., which has 28,500 troops on the peninsula, could hold joint military exercises in a show of force, said Daniel Pinkston, a Seoul-based analyst for the International Crisis Group think tank.
South Korean and U.S. officials also said they are considering a variety of options in response to the warship's sinking, ranging from U.N. Security Council action to additional U.S. penalties.
The exchange of war rhetoric raised tensions, but the isolated communist regime — already under international pressure to cease its nuclear weapons program — often warns of dire consequences against South Korea or Washington for any punitive steps against it. Its large but decrepit military would be no match for U.S. and Korean forces.
The impoverished country is already chafing from international sanctions tightened last year in the wake of widely condemned nuclear and missile tests. U.N. sanctions currently block funding to certain officials and companies, while North Korea is barred from exporting weapons and countries are authorized to inspect North Korean ships suspected of carrying illicit cargo.
South Korea "will take resolute countermeasures against North Korea and make it admit its wrongdoings through strong international cooperation," Lee said during a call with Australian Prime Minister Kevin Rudd, the presidential office said. Lee convened an emergency meeting for Friday.
The White House called the sinking an unacceptable "act of aggression" that violates international law and the 1953 truce. Japanese Prime Minister Yukio Hatoyama declared his support for South Korea, calling North Korea's actions "inexcusable."
China, North Korea's traditional ally, called the sinking of the naval ship "unfortunate" but stopped short of backing Seoul.
Pyongyang continued its steadfast denials of involvement in the sinking.
"Our Korean People's Army was not founded for the purpose of attacking others. We have no intention to strike others first," Col. Pak, the naval spokesman, told APTN in the North Korean capital. "So why should we attack a ship like the Cheonan which has no relation with us, no need to strike it and we have no significance in doing so."
North Korea's powerful National Defense Commission warned the South against provocative acts near their border, and urged the U.S. and Japan to "act with discretion," the state-run Korean Central News Agency said in a dispatch monitored in Seoul.
North Korea has waged a slew of attacks on South Korea since the 1950-53 fighting ended, including the 1987 downing of a South Korean airliner that killed all 115 people on board.
Pyongyang has never owned up to the attacks.
North Korea also disputes the maritime border drawn unilaterally by U.N. forces at the close of the Korean War, and the waters have been the site of several deadly naval clashes since 1999.
Detailed scientific analysis of the wreckage, as well as fragments recovered from the waters where the Cheonan went down, point to North Korea, investigators said.
The bending of the ship's keel backs the theory that an underwater torpedo triggered a shockwave and bubble effect that tore the ship apart, the report said.
The report also cites fractures on the main deck, statements from survivors and a sentry on a nearby island, and fractures and lacerations on the remains of deceased sailors.
Pieces of the torpedo "perfectly match" the schematics of a North Korean-made torpedo Pyongyang has tried to sell abroad, chief investigator Yoon Duk-yong said.
A serial number on one fragment is consistent with markings from a North Korean torpedo that Seoul obtained years earlier, Yoon said.
"The evidence points overwhelmingly to the conclusion that the torpedo was fired by a North Korean submarine," he said. "There is no other plausible explanation."
At Seoul's main train station, scores of people watched raptly as the investigator laid out the evidence against North Korea.
"I'm afraid," said Naima Vela, 26-year-old student from Italy. "I still have a month or two to stay in Seoul and I don't know if I should."
Near the Demilitarized Zone, tourists peered across the border into North Korea.
"As a mother of a boy who is serving his military duty right now, I don't want a war to break out," Jeon Bok-soon said in Paju as she looked across the border into North Korea.
"However if (North Korea) keeps mentioning war, I think we should also show our strong military power," she said.
___
Associated Press writers Matthew Lee in Washington, Jay Alabaster in Tokyo, Kelly Olsen and Claire Lee in Seoul, and Chi-Chi Zhang in Beijing contributed to this report.
>>Thousands march in Greek general strike
Thousands march in Greek general strike 2 weeks after deadly riots
Demonstrators hold a banner which reads in Greek "General uprising'' during a march organized by a Communist-backed labor union, in central Athens, Thursday, May 20, 2010. Labor unions are staging a general strike Thursday to protest austerity measures. (AP Photo/Petros Giannakouris)
Elena Becatoros, Associated Press Writer, On Thursday May 20, 2010, 6:41 am
ATHENS, Greece (AP) -- Thousands of protesters marched in central Athens on Thursday, as unions challenged harsh austerity measures in Greece by holding their fourth general strike this year.
Members of a communist-backed labor union staged an occupation of the Labor Ministry. More than 5,000 protesters chanting "Don't bow your heads" filed past the ministry, while thousands more gathered for the day's main rally to parliament.
Store owners closed up and lowered protective shutters before the march got under way. Police deployed 1,700 officers and detained 36 people in an early show of force after violent protests two weeks ago left three people dead in a bank fire.
The strike closed schools, halted ferries and trains, and kept hospitals running on emergency staff.
Unions are protesting harsh measures imposed by the cash-strapped government. During Greece's last general strike May 5, three workers -- including a pregnant woman -- died when a bank was torched by rioters.
Public anger has grown against deep pension and salary cuts, as well as steep tax hikes, imposed in an attempt to pull Greece out of an unprecedented debt crisis. The measures were needed for Greece to receive a euro110 billion ($134.97 billion) three-year rescue loan package from other EU countries and the International Monetary Fund that staved off bankruptcy.
Unions argue low-earners will suffer disproportionately from the measures.
"When will construction workers retire, at age 80?" Communist Party lawmaker Haralambos Haralambous asked. "How do you expect him to carry a bag of cement on his back until that age?"
Thursday's major strike -- the fourth this year -- affected all public and many private employers. However, unlike other general walkouts, most flights were unaffected as air traffic controllers stayed on the job. Some small regional airports closed, and Greece's Olympic Air carrier said it was canceling 30 domestic flights.
About 5,000 protesters also marched in Greece's No 2. city Thessaloniki.
Greece's largest traders association urged the government to take appropriate police measures to prevent damage to stores which are frequently vandalized during protest marches.
The country's debt crisis has sent shock waves through global markets. That, combined with fears for Europe's struggling economy and German warnings that the future of the euro is at stake, sent the common currency to a four-year low against the dollar Wednesday.
Warding off bankruptcy, Greece on Wednesday repaid 10-year state bonds worth euro8.5 billion ($10.43 billion) after receiving the rescue loans.
Associated Press writers Nicholas Paphitis and Derek Gatopoulos contributed to this report.
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>>Russia Drops ‘Bellicose’ Dollar Talk as Reserves Grow (Update3)
By Paul Abelsky
May 20 (Bloomberg) -- The dollar’s ascent against the euro may be stifling Russian efforts to challenge the greenback’s dominance as a reserve currency, with policy makers in Moscow allowing the dollar’s share of foreign reserves to swell.
Russia’s central bank “changed the currency structure of reserves,” raising the U.S. currency’s share by 3 percentage points to 44.5 percent, BNP Paribas said May 18, citing Bank Rossii numbers on the final months of last year. The euro’s portion fell 3.7 points to 43.8 percent. The figures, part of the central bank’s annual report to parliament, aren’t official yet, said a Bank Rossii spokesman who declined to be identified, citing bank policy.
It’s “very much a case of economic rationalism trumping bellicose politics,” said Neil Shearing, a London-based emerging markets economist at Capital Economics Ltd., in an e- mailed response to questions. “With the euro likely to fall further over the coming quarters and a general retreat to safe havens likely to boost the dollar, expect more of the same.”
The euro has dropped 18 percent against the dollar since Nov. 25 on investor concern that policy makers may fail to contain Europe’s debt crisis. Central banks have probably lost $300 billion this year on the euro and may consider cutting holdings of the currency, Stephen Jen, a managing director at hedge fund BlueGold Capital Management LLP, said May 6.
More Than Half
The dollar’s share in Russian reserves will probably account for “50 percent, maybe more” of the total by the end of this year, said Julia Tsepliaeva, head of research at BNP Paribas in Moscow, in a phone interview.
“We must be prepared for changes to the allocation of various currencies on the market because the global situation isn’t very stable,” Economy Minister Elvira Nabiullina told reporters in Moscow today. The central bank has a “sensible currency diversification,” she said. “I don’t think substantial changes need to be made here.”
Russian policy makers have been devising alternatives since the credit crisis erupted that would allow the world’s biggest energy supplier to reduce its reliance on the dollar. Officials in Moscow have been backed by BRIC peers seeking to limit the dollar’s dominance in the $8.36 trillion of global reserves.
India said in July that the world economy was too reliant on the dollar. China and Brazil in April last year joined Russia in discussing the creation of a new supranational currency.
Medvedev’s Coin
Russian President Dmitry Medvedev has pushed for the creation of regional reserve currencies and in July produced a prototype coin for a “world currency,” which he said was needed to stabilize the global economy.
“Common sense tells you that Russia’s rhetoric doesn’t always correspond to reality,” said Nikolai Kashcheev, head of research at the treasury department of Moscow-based OAO Sberbank, Russia’s biggest lender. “What we are seeing now is the central bank trying to balance reserves after skewing them toward euros.”
A euro decline to $1.2150 would wipe out gains from reserve managers’ efforts to diversify away from the dollar into the European currency, Jen wrote in a May 6 report. China may have lost $80 billion and Russia $14 billion, according to that note. The euro traded as low as $1.2144 yesterday.
Arkady Dvorkovich, an adviser to Medvedev, said May 12 it would be “absolutely incorrect” to assume the central bank had suffered losses on the scale suggested by Jen and said returns must be calculated over a longer timeframe.
Quality Restrictions
Dvorkovich told reporters in Moscow today the euro area economy may stagnate for months or even years. Growth will be “very slow or even zero,” he said. “It will be a very difficult time.”
Russia’s foreign reserves reached $458.2 billion in the week ended May 14. The stockpile peaked at $598.1 billion in August 2008 before the central bank was forced to spend a third of the holdings to manage what it called a “gradual” ruble devaluation against the dollar sparked by a 54 percent slump in Urals crude, Russia’s main export, in 2008.
“The euro’s depreciation will be the central bank’s best argument for increasing the dollar’s share in reserves,” Tsepliaeva said. “Because of the restrictions on the quality of the assets into which the central bank can invest, the central bank will tend to focus on dollar assets in the near future.”
To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.
Last Updated: May 20, 2010 06:29 EDT
>>Germans Now Want All Of Europe To Adopt Short-Selling Rules -- Speculators Respond By Hammering DAX
Joe Weisenthal | May. 19, 2010, 5:06 AM
After hastily announcing new regulations to go after short-sellers yesterday, German leaders have quickly realized the folly of country-specific regulations within the EU. Nothing's to stop traders from going after these various instruments in other countries.
So now they're on a campaign to get the rest of Europe on board. According to Bloomberg, Deputy Finance Minister Hans Michelbach is pushing the UK to join in, and then, hopefully the rest of the EU. Somehow we'd be surprised if the UK succumbed to this nonsense, given its desire to keep its place as a pre-eminent financial city. But stupider things have been done.
Meanwhile, investors have responded by hammering the German stocks. The DAX is off 2.7%.
Read more: http://www.businessinsider.com/germans-now-want-all-of-europe-to-adopt-short-selling-rules-speculators-respond-by-hammering-dax-2010-5#ixzz0oNUbS8mM
>>>Stocks Hammered After Germany's Giant Blunder: Here's What You Need to Know
Posted May 18, 2010 04:44pm EDT by Joe Weisenthal in Investing, Recession, Banking
Related: EUO, DIA, SPY, WMT, BP, GS, ^IXIC
From The Business Insider, May 18, 2010:
Stocks were wobbly all morning, but the situation in the eurozone went from uneasy confidence to nervousness in the blink of an eye after the German government idiotically announced a temporary emergency naked short-selling ban. It applies to certain bank stocks, and the new regulations will also go after bond and currency speculators. Naturally,t he move is being re as a gigantic no-confidence move.
But first, the scoreboard:
Dow: -115
S&P 500: -16
NASDAQ: -37
And now for some key stories:
Story #1 is Germany's short-selling regulations. The ramifications of this move will certainly be felt overnight, and possibly for some time to come.
The euro has fallen to a new four-year low, following the German news. It is now below $1.23.
Goldman Sachs continues to get hammered, and the stock is now down to close to book value. Other financials were hit hard as well.
The one big winner today: Wal-Mart. The firm's decent earnings helped carry the stock into the green all day.
Commodities sold off across the board. Oil is below $70 again. Copper did manage to rally back a bit. Gold slipped.
The BP oil slick is taking an ominous turn for the worse, with the emergence of a large "tail" extending to Florida.
More coverage from The Business Insider: Global Macro's Raoul Pal: Here's why a crash is coming in two days-to-two weeks
http://finance.yahoo.com/tech-ticker/stocks-hammered-after-germany's-giant-blunder-here's-what-you-need-to-know-489632.html;_ylt=AhuH0AfJwa87tGnsjSB.7z1l7ot4;_ylu=X3oDMTE2cmoxbjdzBHBvcwM0BHNlYwNyZWNlbnRQb3N0cwRzbGsDc3RvY2tzaGFtbWVy?tickers=euo,dia,spy,wmt,bp,gs,^ixic
UKT: Market chaos predicted as Germany bans shorting
German ban on all naked short-selling of European public debt and shares in the country's 10 largest financial institutions takes effect at midnight.
By Harry Wilson, Financial Services Correspondent
Published: 9:04PM BST 18 May 2010
Comments 28 | Comment on this article
The unprecedented step saw the euro sink to a four-year low after Germany said that from midnight shorting of credit default swaps of any European government would be banned. The prohibition is an attempt to counter speculators that Berlin believes are trying to destabilise the region's sovereign bond market.
Traders greeted the move by BaFin, the German regulator, with a mixture of anger and astonishment. One bond trader said he expected Wednesday's trading session to be one of the most volatile in living memory: "It will be complete chaos, I really don't know what the Germans think they are doing."
One immediate effect was that the cost of insuring European government debt fell as markets were hit by a so-called "short squeeze" where investors with short positions are forced to offload their holdings and buy the bonds, causing the price to increase.
This is certain to please the German authorities, who have waged an increasingly hostile war of words with supposed speculators.
BaFin said the ban was being introduced due to "extraordinary volatility in debt securities issued by eurozone countries".
In a statement, it said short-selling had led to excessive price movements "which could have led to significant disadvantages for financial markets and have threatened the stability of the entire financial system". However, traders said that the measures, which will also prohibit the naked short-selling of shares in major German financial institutions, such as Allianz. Commerzbank, and Deutsche Bank, could lead to an immediate backlash from investors around the world.
They added that the ban was likely to be effectively unenforceable. It will not stop traders from shorting the bonds and shares using other European markets.
"Without the two-way flow the German market is likely to become utterly dysfunctional," said one London-based bond trader. "Nobody ever thought they'd do this in a million years and it raises the long-term question of who is now going to want to buy their debt."
Germany, like other European governments, must raise hundreds of billions of euros by selling new bonds, but banning short-selling could jeopardise demand.
Analysts at Bank of America Merrill Lynch summed up the mood with a note titled What's Germany going to ban next? Rainy days, harsh words, the Macarena?
US shares fell as traders began to assess the consequences. After an early rally, the Dow Jones closed down more than 100 points, despite a day of gains for European markets.
The German authority's actions echo those taken by many major Western governments in the wake of the financial crisis in late 2008 following the collapse of US investment bank Lehman Brothers. Britain and the US both temporarily banned shorting bank shares, fearing that speculators could cause the collapse of other major financial institutions.
Speaking to Reuters, Lawrence Glazer, managing partner of Boston-based Mayflower Advisors, said: "The motive is probably more towards limiting volatility and trying to prevent some sort of raid on debt, or equities. We have seen this before, but whenever you see any type of regulatory changes it is worth paying attention."
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7738144/Market-chaos-warning-after-German-ban-on-shorting.html
Greece, Dred Scott, and the American Civil War
By Ambrose Evans-Pritchard Economics Last updated: April 15th, 2010
Never underestimate the impact of supreme court rulings. The plan by a quartet of German professors to freeze the EU bail-out for Greece and block the European Central Bank’s back-door rescue through lax lending has epochal implications.
As I reported in this morning’s story after talking to two of the four, Wilhelm Hankel and Karl Albrecht Schachtschneider, the complaint is primed and ready to go to the Verfassungsgericht (constitutional court) in Karlsrühe days after the rescue mechanism is activated.
I have been scratching my head thinking about precedents and suddenly the light bulb went on: the Dred Scott case, the ruling by the US Supreme Court in 1857 that brought the simmering conflict over slavery out into the open. The forced resolution one way or another.
The case involved a Virginia slave — and please correct me if I am wrong — who moved around the US in the service of an army officer. Having spent time in Missouri and Wisconsin where slavery was not established, he launched a court challenge, backed by abolitionists, asserting that he and his wife and children had become free.
The Supreme Court under Roger Taney issued the most infamous ruling in American history. The majority of Southern justices seized on the case to go far beyond Scott’s complaint, exploiting it in a bid to crush the abolitionist movement once and for all.
The ruling set off a bond crisis — the 1857 Panic — that led to a crash of railway stocks and brought down part of the Northern banking system. The South’s system of smaller branch banks survived better, creating the illusion that King Cotton was stronger than it really was. It was this illusion that emboldened the Confederate states to overplay their hand.
Chief Justice Taney wrote that blacks were not and could not be US citizens and had no protection under the Constitution ( huge step backwards from the 18th Century when free blacks could vote in most states).
Crucially, it said the US Congress could not prohibit slavery in the new territories of the West. This was seen as a precursor of a further ruling that would establish slavery as the dominant structure of the US, reducing the free North over time to a minority with diminishing votes in Congress. Hence Abraham Lincoln’s `House Divided’ speech, where he raised the alarm that even a free Illinois risked falling under control of the slavers.
The ruling tore up the great comprise of the Continental Congress, that the 36th parallel should be the dividing line of slave and free. For the slavers, the Court ruling was a catastrophic error. It forced the North to respond. Gettysburg and Reconstruction were the results. So was the total abolition of slavery.
I do not wish to suggest that the judges of the Verfassungsgericht are men of Taney’s stripe. Far from it. They have proved to be the only real defence of liberties in Europe, playing the role that the European Court of Justice has betrayed — becoming the instrument of civil rights abuse instead (See Connolly, Andreasen, and Tillack), for which they have never been held to account by the respective sovereign democracies. The Verfassungsgericht is the only effective court of appeal against EU aggrandizement.
Nor do I wish to suggest that Europe will descend into civil war. That is obviously not the issue here, though political conflict of some ferocity is on the cards.
My point is that this court challenge over the Greece may bring long-bubbling, long-suppressed tensions into the open.
It clearly poses risks that the media, markets, and South Europeans have failed to understand. Most appear to think that Chancellor Angela Merkel is being truculent because of the North Rhine-Westphalia elections on May 9. This presumption reveals more about them, and the legal-political cultures they come from, than it does about German affairs.
The German passion for sound money is not just the result of hyper-inflation in 1947-1948 and 1923. It stems from the deeper intuition that sound money and democratic freedom are inter-linked. Monetary disorder bled Weimar of legitimacy.
Of course, this complaint threatens to unleash havoc in all kinds of ways. “This may cause a great crisis in Europe but we already have a crisis,” said Dr Karl Albrecht Schachtschneider, law professor at Nuremberg University and author of the complaint, when we chatted yesterday.
He will ask for an injunction to freeze all aid for Greece while the case is pending, which may take weeks or months.
How will the Court rule? The breach of the no bail-out clause of Article 125 of the Treaties is so clear that it will be very hard to finesse. “It is a question of law – the duty of the court to defend the German constitution. They have no choice other than reaching a lawful decision,” he said.
His fellow Musketeer, Professor Wilhem Hankel from Frankfurt University, is more sceptical, telling me that the Verfassungsgericht is a “political court” that will try to wriggle out of a hot issue. He said a clear ruling that prohibits the bail-out is “unlikely”, but the political fall-out will be great whatever happens.
German chancellor Merkel at the Getty Centre in California
There is a game of timing here. Will the quartet file the complaint immediately to freeze aid, or will it wait just long enough to allow the first tranche to reach Athens? If the professors wait, they may think they can strike a knock-out blow by arguing that Europe’s monetary union is damaging monetary stability and has therefore become an illegal undertaking in which Germany can no longer participate.
Much depends on this point, says Hans Redeker, currency chief at BNP Paribas. If the professors go for the jugular, they may force the Verfassungsgericht to pull the plug on the entire EMU Project.
“This court hearing is going to be very dangerous. It could lead to Germany itself being catapulted out of the currency union. Once investors begin to fear this, there will not be a single euro in further financing for the EMU periphery.”
He sees a 10pc chance that this ruling will lead to German exit from monetary union.
For the four professors, Hankel, Schachtschneider, Wilhelm Nölling from Hamburg Univerity, and Joachim Starbatty from Tübingen University, have been fighting their lonely crusade for a long time.
They battled the Lisbon Treaty and some battled the Maastricht Treaty as well. They did not succeed in blocking these transfers of power to Europe, but they did extract rulings that established limits to the erosion of German sovereignty and democracy.
Among them is the Maastricht decision of 1993 which said that a failure by EMU to ensure monetary stability would constitute a breach of the German Constitution. The Court kicked the issue into the future, and now the future has arrived. Will it be rope enough to hang the Project?
Tags: dred scott, Greek crisis, US civil war, Verfassungsgericht
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100004933/greece-dred-scott-and-the-american-civil-war/
BL: Demand for Dollars Exceeds Estimate With China Among Big Buyers
By Daniel Kruger and Vincent Del Giudice
May 18 (Bloomberg) -- “Reverse diversification” boosted global demand for long-term U.S. financial assets to a record as the European fiscal crisis may be beginning to translate into increased demand for dollar assets.
Purchases of equities, notes and bonds totaled $140.5 billion in March, more than double economists’ projections, after net buying of $47.1 billion in February, the Treasury Department said yesterday. Treasury purchases rose by the most since June as China, the largest lender to the U.S., added to its holdings for the first time since September.
“Diversification was a major deadweight on the dollar last year and reverse diversification is now a major source of vulnerability for the euro,” said Alan Ruskin, head of foreign- exchange strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. The crisis may result in 2 percentage points of “growth divergence in the U.S.’s favor,” he said in a telephone interview yesterday.
Signs of a sustained economic recovery, including a rebound in earnings and stock prices, may increase demand for U.S. investments as concerns mount about the sustainability of government debt in Europe. The world’s largest economy has expanded for three consecutive quarters and added 573,000 jobs in the first four months of the year. Russia cut the share of euros in its international currency reserves to 43.8 percent at the end of 2009 from 47.5 percent a year earlier, Interfax reported yesterday, citing central bank data.
‘Fear Was Misplaced’
The dollar has strengthened 7.2 percent so far this year while the euro has slumped 8.7 percent, according to Bloomberg Correlation-Weighted Indices. The euro dropped to $1.2235 yesterday, the lowest level since April 2006.
The Standard & Poor’s 500 Index in March rose 5.9 percent, its biggest gain since July 2009, while the Dollar Index, a gauge of the U.S. currency’s strength against six other major currencies, gained 0.9 percent. Treasuries declined 0.9 percent in March, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit.
“Foreign institutions and individuals are still turning to the U.S. as a safe haven,” said Paul Christopher, senior international investment strategist at Wells Fargo & Co. in St. Louis. “There was some concern foreigners were abandoning the U.S. currency. That fear was misplaced.”
Europe’s debt crisis is prompting some of the Treasury market’s biggest bears to reverse calls for Federal Reserve interest-rate increases this year. Morgan Stanley, Wrightson ICAP and Pierpont Securities LLC say the Fed will keep interest rates near zero percent after the European Union unveiled an almost $1 trillion loan package to halt a slide in the euro and sovereign bonds that threatened to shatter the currency union.
‘Years to Resolve’
Futures show traders place a 40 percent likelihood that the central bank will raise borrowing costs by December, down from 58 percent a month ago.
“What we are seeing in Treasuries is ongoing concern in Europe,” said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. “The problem with sovereign debt crises is that they take years to resolve. The risk aversion bid is likely to continue for weeks and maybe months.”
Treasuries, the benchmark for everything from corporate bonds to mortgage rates, have returned 3.4 percent since December through March 14, including reinvested interest, the most at this point in a year since gaining 8.48 percent in 1995, according to Bank of America Merrill Lynch indexes.
Analysts have also become more bullish on the dollar since it touched a high for the year of $1.4513 per euro on Jan. 11. The median year-end forecast for the dollar has dropped from $1.45 to $1.24, according to Bloomberg News surveys.
Dollar Forecasts
Including short-term securities such as stock swaps, investors abroad purchased a net $10.5 billion, compared with net buying of $9.7 billion the previous month.
Economists in a Bloomberg News survey forecast a $50 billion net increase in long-term U.S. financial assets in March, according to the median of seven estimates.
Treasury holdings by China rose 2 percent in March to $895.2 billion, the biggest increase since July. China added $18.7 billion in notes and bonds, bringing the total to $854.4 billion. The country’s holdings of bills fell by $1 billion to $40.8 billion, the smallest decline in the shortest-term securities since China added $8.8 billion of bills in July 2009.
Japan, the second-largest holder, increased its holdings by $16.4 billion to $784.9 billion in March. Holdings in the U.K. gained $45.5 billion to $279 billion, the fifth straight monthly increase. The Organization of Petroleum Exporting Countries increased its position by $10.7 billion to $229.5 billion.
Dollar Appreciation
Total foreign purchases of Treasury notes and bonds were $108.5 billion in March compared with purchases of $48.1 billion in February.
The dollar’s share as a percentage of Russian currency reserves rose to 44.5 percent from 41.5 percent, the Russian news service Interfax said.
Some of that shift likely reflects the appreciation of the dollar versus the euro rather than active trading, RBS’s Ruskin said.
Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac registered net buying of $22 billion in March, the biggest gain since June 2008.
Net foreign purchases of equities were $11.2 billion in March after net purchases of $12.9 billion in February.
Investors bought a net $16 billion in U.S. corporate debt in March, the first increase since May 2009, after net sales of $12 billion in February.
To contact the reporters on this story: Vincent Del Giudice in Washington at vdelgiudice@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
Last Updated: May 18, 2010 00:00 EDT
UKT: Global investors flock to US debt at record speed
Investors concerned about debt problems in the eurozone and China's continuing growth potential flocked to the safety of the US in their droves in March, snapping up a record net $140.5bn (£97bn) of long-term debt.
By James Quinn, US Business Editor
Published: 8:40PM BST 17 May 2010
The net increase was almost a $100bn rise on February – when foreign purchases of long-term securities stood at $47.1bn – and was a new record, according to US Treasury figures.
The marked increase in securities purchases – which saw China become a net-buyer of US assets for the first time in six months – is evidence that the rest of the world continues to view the US as a relative safe haven.
New data from the US Treasury show that private purchasers led the increase, buying $125bn of US bonds and other assets in March, while foreign governments bought $32.7bn worth.
Although the bulk of the capital inflows were focused on US Treasuries – known in the UK as gilts – corporate and other forms of long-dated debt were also popular.
Private investors increased their holdings of Treasury bonds and notes by $33.2bn, while overseas governments snapped up $27.1bn of US Treasuries.
China, Japan and the UK – the three largest holders of US Treasuries – all increased their holdings. China increased its Treasuries position by 2pc to $895.2bn, with total foreign holdings of Treasuries up 3.5pc to $3.88 trillion.
Win Thin, senior currency strategist at Brown Brothers Harriman, said he expected investors to continue to favour dollar-denominated assets. "Given the debt crisis that Europe is struggling with, flight to safety will most likely favour the United States in quarter two," he said.
Gregory Daco, economist at HIS Global Insight, said the investment trends were clear evidence of trust in the US. "As the sovereign debt crisis in Greece intensified in March, foreign investors mostly sought refuge in the safe-haven US Treasury bonds and notes," he said.
"Nonetheless, government agency securities and corporate debt provided very attractive alternatives for investment – an encouraging sign that investors have faith in the US recovery."
Mr Daco pointed to the US's strong economic recovery – relative to the rest of the world – and the continued strength in the dollar as further reasons why overseas investors are continuing to buy American.
Meanwhile the Federal Reserve Bank of San Francisco predicted the US will continue to grow at a faster pace than previously thought, projecting a growth rate of 4pc this year, compared with the 3.7pc growth rate witnessed since the recession ended last June.
The forecasts were contained in the San Francisco Fed's economic letter, and are based on a model built in part by its research director John Williams.
"Analysis of the factors that determine economic growth rates indicates that recovery from the most recent recession is likely to be faster than from the two previous recessions, but slower than earlier V-shaped recoveries," Mr William and colleague Justin Weidner wrote.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7734426/Global-investors-flock-to-US-debt-at-record-speed.html
UKT: Funds embrace America in flight from risk
The world's fund managers have seen the sharpest drop in risk appetite since the dotcom recession, losing faith in the "Goldilocks" recovery as China chokes off credit and the fuse blows on sovereign debt.
By Ambrose Evans-Pritchard, International Business Editor
Published: 8:08PM BST 18 May 2010
Comments 12 | Comment on this article
The May survey of investors by Bank of America Merrill Lynch showed revulsion towards the euro and European shares as funds battened down the hatches for a global "growth shock", switching their affections to "safe-haven" America in record numbers.
"Investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations," said Gary Baker, the bank's chief European equity strategist.
Mr Baker said the "comfortable status quo view" that China's perma-boom and global recovery would last long enough to allow states to deal with their fiscal deficits had been shaken badly by the recent events. "Goldilocks has been mugged by the bears," said Mr Baker. The survey's "risk indicator" plummeted from 46 to 38, a sharper drop than during the worst months of the banking crisis
Funds have woken up to the risk that Chinese credit tightening is a global game-changer. The Shanghai bourse already in a bear market with a fall of 22pc since November. The index is down 58pc from its peak in 2007.
At the same time eurozone countries are having to implement austerity packages to appease the bond markets, knocking away the growth props that underpin rosy profits forecasts.
A net 74pc of fund managers favour the US over Europe, the widest margin since 2003. Preference for the dollar over the euro is at the highest level ever recorded. A net 66pc said the dollar is the major currency most likely to appreciate over the next year. Some 90pc think the European Central Bank will delay rate rises until 2011, up from 62pc a month ago.
These survey results are not a tool for prediction. They are often a contrarian sign, indicating when a strategy has become too "crowded" and poised to swing in the opposite direction.
Mr Baker said flight from European equities has become "stretched" and is "close to contrarian trigger levels".
Risk aversion has caused funds to raise their cash levels from 3.5pc to 4.3pc. This is still shy of a contrarian "buy signal" at 4.5pc, suggesting that investors may want to keep their powder dry for a little longer. Merrill said bank shares were pervasively loathed again, making them a tempting buy.
The survey was carried out before the EU's $1 trillion plan to stabilise Southern Europe and before the ECB's purchase of bonds. Spreads on Greek, Portuguese, and Spanish debt have come down sharply, but the Libor-OIS spreads used to gauge stress in interbank lending shows that the market remains under strain.
There was good news from Greece, however, which hopes to return to the capital market soon after cutting its budget deficit by 42pc in the first four months of the year. Greece received a payment of €14.5bn in EU aid, the first tranche of its €110bn rescue package.
BL: Germany to Ban Naked Short-Selling at Midnight
By Michael P. Regan and Elizabeth Stanton
May 18 (Bloomberg) -- The euro slid to a four-year low against the dollar, stocks tumbled and oil erased its rally as Germany’s ban of certain bearish investments fueled concern the region’s debt crisis will worsen.
The euro slid below $1.22 for the first time since April 17, 2006. The Standard & Poor’s 500 Index tumbled 1.4 percent at 4 p.m. in New York, erasing an early rally of 1 percent triggered by better-than-estimated housing starts and results at Wal-Mart Stores Inc. Oil erased a 3.5 percent advance to settle below $70 a barrel. Treasuries surged, sending the benchmark 10- year note’s yield down 11 basis points to 3.37 percent.
The euro and stocks extended losses as Germany’s BaFin financial-services regulator said it will introduce a temporary ban on naked short selling and naked credit-default swaps of euro-area government bonds starting at midnight. The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, BaFin said today in an e-mailed statement.
“It makes it look as if the Germans are worried about something behind the scenes that the market’s not aware of,” said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which provides trading services to institutional investors. “It almost looked panicked, which further undermines confidence in the markets. They’ve done as poor a job as one can do in delivering a message.”
Naked Shorts
Short selling involves the sale of borrowed securities in the hope of profiting by buying them later at a lower price and returning them to the owner. When securities are sold naked, the trader fails to borrow the assets before sending an order to sell. BaFin will prohibit trading in credit swaps on euro-area governments that aren’t used to hedge against losses in the event the government defaults, according to a statement on the regulator’s Web site.
BaFin said it was taking the step because of “exceptional volatility” in euro-area bonds. “Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system.”
“This is a mistake of a serious fundamental nature and of severe consequence,” Mark Grant, managing director of Southwest Securities Inc., in Fort Lauderdale, Florida, said in a note to institutional clients. Germany is making “an obvious attempt to control financial markets across the globe by this action just as they plead for investors to provide funding,” he said.
Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase & Co. lost at least 2 percent to pace declines in 78 of 79 financial shares in the S&P 500.
Default Swaps
A gauge of U.S. corporate credit risk rose to the highest in more than a week as Germany planned the temporary ban. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 10.37 basis points to a mid-price of 118.87 basis points, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
The MSCI World Index of stocks in 23 developed nations slipped 0.7 percent, erasing a 1.3 percent rally.
European Stocks
European financial markets closed before BaFin confirmed the ban. The Stoxx Europe 600 Index ended the session up 1.3 percent as shares of banks and basic resources companies rebounded. Banco Santander SA, Spain’s biggest lender, gained 6.1 percent in Madrid, snapping a three-day, 11 percent plunge. Rio Tinto Group, the world’s third-largest mining company, rallied 2.7 percent in London.
The gains came even as the ZEW Center for European Economic Research in Mannheim, Germany, said its index of investor and analyst expectations dropped to 45.8 from 53 in April as the debt crisis threatened to break up the euro zone. Economists expected a slide to 47, according to the median of 35 forecasts in a Bloomberg News survey.
The MSCI Emerging Markets Index lost 0.5 percent, reversing a 0.9 percent gain. Brazil’s Bovespa index slumped 3.2 percent, while the real lost 1.1 percent against the dollar. The U.S. currency rallied against 14 of 16 counterparts, falling only against the South Korean won and Japanese yen.
China’s Shanghai Composite Index jumped 1.4 percent, rebounding from its biggest plunge since August yesterday, when the gauge tumbled 5.1 percent. Most Asian stocks declined, sending the MSCI Asia Pacific Index down 0.2 percent.
Copper futures for July delivery gained the most in seven weeks, rising 9.9 cents, or 3.4 percent, to $3.031 a pound on the Comex in New York, the biggest increase for a most-active contract since March 29. Housing starts rose to a 672,000 annual rate last month, the U.S. Commerce Department said. Builders are the biggest users of copper.
To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: May 18, 2010 16:30 EDT
BL: Stocks, Commodities Fall; Treasuries Rise After Germany Bans Short Selling
By Patrick Chu
May 19 (Bloomberg) -- Asia stocks dropped to a three-month low and metals tumbled after Germany banned speculators from some bets against government bonds and financial institutions. Treasuries rallied.
The MSCI Asia Pacific Index lost 1.3 percent to 114.95 at 12:55 p.m. in Tokyo. Standard & Poor’s 500 futures fell 0.6 percent following a 1.4 percent decline in the index yesterday. The euro weakened below $1.22 for the first time since April 17, 2006 before recovering. Yields on 10-year Treasury notes slid 2 basis points to 3.33 percent. Oil slumped to a seven-month low below $68 a barrel and copper dropped as much as 2.8 percent.
German Chancellor Angela Merkel’s government shook investor confidence with the new regulations. The nation’s BaFin markets regulator banned investors from naked short sales -- speculating on declines of stocks they don’t own -- for 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds starting today.
“It almost looked panicked, which further undermines confidence in the markets,” said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which serves institutional investors. “They’ve done as poor a job as one can do in delivering a message.”
The rules hurt demand for European assets on concern that investors will face challenges hedging their holdings or selling assets. The euro weakened to as low as $1.2144 before recovering at $1.2217. The pound slumped to a 13-month low of $1.4278 and the yen gained against all 16 major counterparts. The German ban will last until March 31, 2011, BaFin said yesterday in an e- mailed statement.
Concern Increases
“If you don’t feel like you can sell bonds and equities in Europe, you’re left with selling the euro to express a negative view,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. The ban “creates a view that the authorities sense bigger problems than what may appear on the surface, creating more nervousness and fear.”
The MSCI Asia Pacific Index has declined 11 percent from its high for the year on April 15 as Europe’s debt crisis and concern China will quell inflation eroded investor confidence. A decline of 10 percent is the level some analysts refer to as a correction.
All stock markets in the Asia Pacific region fell. Japan’s Nikkei 225 Stock Average dropped 0.9 percent. South Korea’s Kospi Index slumped 1.4 percent and Australia’s S&P/ASX 200 Index declined 1.4 percent. Hong Kong’s Hang Seng Index retreated 1 percent.
Share Movers
Nippon Sheet Glass Co., which gets 42 percent of its revenue from Europe, tumbled 3.6 percent to 243 yen in Tokyo as a stronger yen dimmed the earnings prospects for Japan’s exporters. Daiwa Securities Capital Markets Co. cut its rating on the stock to “neutral” from “outperform.” Canon Inc., a camera maker that counts Europe as its largest market, retreated 1.1 percent to 3,930 yen.
Materials companies posted the biggest declines among the MSCI Asia Pacific Index’s 10 industry groups. Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, dropped 1.3 percent in Sydney to A$42.50 after oil retreated for a seventh consecutive day. Crude oil for June delivery declined as much as 1.9 percent in New York. Rio Tinto Group, the world’s third-largest mining company, fell 1.7 percent to A$62.76.
Banks Fall
Financial-services companies dropped as European deficit concerns caused the cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment to rise. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 10 basis points to 131.5 basis points, Royal Bank of Scotland Group Plc prices show.
HSBC Holdings Plc slumped 1.3 percent to HK$72.45 in Hong Kong. Commonwealth Bank of Australia, fell 1.8 percent to A$51.70 in Sydney.
Guangzhou R&F Properties Co., the biggest real estate company in the southern Chinese city, dropped 1.3 percent after Goldman Sachs Group Inc. downgraded Chinese developers. Shimao Property Holdings Ltd., controlled by billionaire Xu Rongmao, lost 1.2 percent. Yanlord Land Group Ltd. declined 1 percent.
Short Selling
Short selling involves the sale of borrowed securities in the hope of profiting by buying them later at a lower price and returning them to the owner. When securities are sold naked, the trader fails to borrow the assets before sending an order to sell. BaFin will prohibit trading in credit swaps on euro-area governments that aren’t used to hedge against losses in the event the government defaults, the regulator said.
BaFin said it was taking the step because of “exceptional volatility” in euro-area bonds. “Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system.”
“This is a mistake of a serious fundamental nature and of severe consequence,” Mark Grant, managing director of Southwest Securities Inc., in Fort Lauderdale, Florida, said in a note to institutional clients. Germany is making “an obvious attempt to control financial markets across the globe by this action just as they plead for investors to provide funding,” he said.
The MSCI World Index of stocks in 23 developed nations slipped 0.7 percent, erasing a 1.3 percent rally. European financial markets closed before BaFin posted the ban. The Stoxx Europe 600 Index ended the session up 1.3 percent.
To contact the reporter on this story: Patrick Chu in Tokyo at pachu@bloomberg.net;
Last Updated: May 18, 2010 23:56 EDT
Credit Markets: Default Swaps Soar Following Merkel's `Act of Desperation'
By Shannon D. Harrington and Pierre Paulden
May 19 (Bloomberg) -- Credit-default swaps soared on German Chancellor Angela Merkel’s move to ban speculation on European government bonds with the contracts, sparking concern among investors about increasing government regulation.
The Markit CDX North America Investment Grade Index Series 14 climbed 12.17 basis points to a mid-price of 120.67 basis points in New York, according to Markit Group Ltd. The increase in the index, which typically rises as investor confidence deteriorates, was the second-largest since March 2009.
Merkel’s coalition is increasing market regulation as German lawmakers prepare to debate a bill authorizing a $1 trillion bailout to backstop the euro. The unexpected ban, done independently of the European Union, came after the rescue package failed to stop the 16-nation common currency from weakening to a four-year low and as banks became increasingly reluctant to lend to one another.
“The market sees an inadequate policy such as this as an act of desperation and a refusal to address the fundamental problems at hand,” said Brian Yelvington, head of fixed-income strategy at Knight Libertas LLC in Greenwich, Connecticut.
Prohibiting speculation in the contracts, used to hedge against losses on corporate debt and bet on creditworthiness, may cause trading in swaps tied to Europe government bonds to freeze up, said Tim Backshall, the chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. Trading limits may increase borrowing costs or limit the flow of capital, he said.
Asia-Pacific
The Markit iTraxx Australia index jumped 17 basis points to 125 basis points as of 10:35 a.m. in Sydney, on course for its biggest one-day gain since May 7, according to Nomura Holdings Inc. and CMA DataVision in New York. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 15 basis points to 136.5 as of 8:42 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show.
The Markit iTraxx Japan index climbed 14.5 basis points to 138.5 as of 9:10 a.m. in Tokyo, according to Morgan Stanley. A basis point is 0.01 percentage point.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt rose 1 basis point to 172 basis points, or 1.72 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields fell 4.1 basis points to 3.905 percent.
Ford’s Credit Rating
Ford Motor Co.’s credit rating was raised one level to B1, within four steps of investment grade, by Moody’s Investors Service on demand for new models and lower costs.
The upgrade includes the Ford Motor Credit finance unit and affects about $65 billion in debt. Moody’s outlook on the only major U.S. automaker to avoid bankruptcy last year is “stable.”
The company’s 7.45 percent bonds due July 2031 rose 0.5 cent to 88.5 cents on the dollar as of 3:52 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds have climbed from a low this year of 82.85 cents on Feb. 9.
“Ford now has a healthy and sustainable operating model,” Bruce Clark, Moody’s senior vice president, said in a statement. “As demand in the U.S. continues to recover through 2011, Ford is well-positioned to generate stronger operating performance and cash flow.”
First Data Bonds
First Data Corp. bonds tumbled to the lowest levels since at least September as prospects for an initial public offering faded after a quarterly loss. The company’s $3.52 billion of 10.55 percent notes due in 2015 fell 2.5 cents to 77.75 cents on the dollar, Trace prices show. The notes were quoted at 92 cents on the dollar as recently as March 10. The credit-card processor, based in Atlanta, reported a $240 million loss for the three months through March.
“The first-quarter results suggest to us that an IPO is not likely in the near term,” Dave Novosel, an analyst with corporate bond research firm Gimme Credit in Chicago, wrote in a note yesterday.
First Data, purchased by Kohlberg Kravis Roberts & Co. in 2007 for $27.5 billion, hasn’t discussed the timing of an IPO, a “potential strategy” for a company of its size, spokesman Chip Swearngan said. First Data doesn’t comment on analyst reports, he said.
Universal Health Services Inc. started offering terms on $4.15 billion of loans being used to buy Psychiatric Solutions Inc. and refinance existing debt.
Universal Health
The operator of more than 100 U.S. medical facilities is seeking an $800 million revolving credit line, a $500 million term loan and another $2.85 billion term loan, according to a commitment letter from lenders attached to a filing yesterday with the U.S. Securities and Exchange Commission.
The company, based in King of Prussia, Pennsylvania, will pay an initial margin of 3.5 percentage points over Libor on the bigger term loan. The six-year loan has a 1.5 percent floor for the lending benchmark, according to the letter.
Universal Health is buying Franklin, Tennessee-based Psychiatric Solutions in a transaction valued at about $3.1 billion, including assumption of debt.
Emerging-market bonds weakened, with the spread to Treasuries climbing 15 basis points to 309 basis points, the highest since this year’s peak of 328 on May 7, according to JPMorgan Chase & Co.’s Emerging Market Bond index.
Argentina’s government doesn’t need to sell new international bonds to finance spending this year following its $18.3 billion debt restructuring, said Jane Eddy, the Latin America director for Standard & Poor’s.
Emerging Markets
“The government can make it through 2010 with or without the new sale of bonds,” Eddy said in an interview in Buenos Aires. “There are certainly other sources of funds domestically and within the government itself that can be tapped for 2010.”
Economy Minister Amado Boudou said May 17 in Rome the country plans to sell $1 billion in bonds after its debt swap ends next month. A restructuring would give Argentina access to international credit markets for the first time since its record $95 billion default in 2001.
Germany’s ban, which took effect at midnight Frankfurt time and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said.
The regulator didn’t provide details on how it will enforce the ban, or whether it would extend to trades outside Germany. The majority of credit-default swap trading takes place in New York and London.
Investor Confidence
The announcement came the same day that a report showed German investor confidence plunged in May as Europe’s deepening debt crisis stoked concern about the euro’s future. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations dropped to 45.8 from 53 in April, the biggest decline since the collapse of Lehman Brothers Holdings Inc. in September 2008.
Concern that nations led by Greece will struggle to meet the EU’s requirements to lower their budget deficits has driven the euro to below $1.22 from last year’s high of $1.5144 in November.
The London interbank offered rate, or Libor, the rate banks charge to lend to each other, rose for a sixth straight day, reaching 0.465 percent, the highest since Aug. 5, according to data from the British Bankers’ Association. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, was about 24 basis points, up from 6 basis points in March.
The three-month Singapore interbank offered rate, or Sibor, rose to 0.46 percent yesterday, the highest level in nine months, according to the city state’s Association of Banks.
Interbank Tensions
“We have seen tensions rise in interbank markets as renewed concerns regarding counterparty risk among banks have intensified,” Loredana Federico, an economist at UniCredit SpA in Milan, wrote in an e-mailed report. “Given that some sovereign debt tensions will accompany us for a while, new waves of increasing risk aversion within the banking system cannot be ruled out.”
German Finance Minister Wolfgang Schaeuble said the government decided it was best to introduce the ban on naked short-selling as soon as possible. “If you do something like this, you don’t let it drag out but you implement it right away,” he said in an interview on ZDF television.
Political Battle
Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. EU Financial Services Commissioner Michel Barnier called this week for stricter disclosure requirements on the transactions. Last month, the EU proposed that the Financial Stability Board, set up by the Group of 20 nations to monitor financial trends, “closely examine the role” of swaps on sovereign bonds.
“In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.”
The move may also add to concern the EU nations aren’t working in coordination.
“Since it’s not synchronized, it smacks of knee-jerk panic,” said Scott MacDonald, head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion. “This has a huge potential impact on credit-default swaps. You’re saying CDS is evil.”
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
European Bonds
“This will close the CDS markets if it is anything like what it appears to be,” said Backshall at Credit Derivatives Research. “The removal of the possibility to hedge government bond risk will necessarily cause risk premia to rise in bond markets, which could easily lead to a broad-based repricing of government bond risk.”
Bets made with swaps on the bonds of 10 European nations including Greece, Spain, Italy and Portugal total less than $108 billion, according to the Depository Trust & Clearing Corp., which runs a central registry that captures most trading. That’s 0.97 percent of the $11 trillion in outstanding debt of those countries, International Monetary Fund data show.
BaFin itself said two months ago it found “no evidence” that credit-default swaps were being used excessively to speculate against Greek bonds. Depository Trust data “do not support the conclusion that speculation is taking place on a massive scale,” the regulator said in a March 8 statement on its website.
To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net
Last Updated: May 18, 2010 23:27 EDT
BL: Oil Tumbles, Copper, Zinc Drop as Europe Debt Spurs Demand Risk
By Ben Sharples and James Poole
May 19 (Bloomberg) -- Crude oil slumped to a seven-month low, and copper and zinc dropped, on concern the European debt crisis will worsen, derailing the global economic recovery and reducing demand for commodities.
Oil dropped for a seventh day, falling 2.2 percent to $67.90 a barrel, the lowest level since September. The fuel plunged 16 percent in the past month. Copper lost 2.5 percent to $6,530 per metric ton and zinc declined 3.6 percent to $1,870 a ton. Gold for immediate delivery fell 0.9 percent as investors sold the metal to raise cash.
Commodities, as measured by the Standard & Poor’s GSCI index of 24 futures, plunged 9 percent in the past month. The euro fell to a four-year low today and Asian stocks dropped, dragging the MSCI Asia Pacific Index to the lowest level in three months, after Germany temporarily banned naked short selling and naked credit-default swaps of euro-area government bonds starting today.
“The trend is still down for the price of oil,” said Mike Sander, an investment adviser a Sander Capital Advisors in Seattle. “As long as the euro continues to sink like a rock, the price of oil will remain on the defensive.”
Crude oil for June delivery dropped as much as $1.51, or 2.2 percent, on the New York Mercantile Exchange, and traded at $68.26 at 10:33 a.m. in Singapore.
Copper for three-month delivery fell as much as 3.4 percent to $6,470 per metric ton. The metal has plunged 15 percent in the past month. Zinc dropped as much as 4.4 percent to $1,853.25.
Short-Lived Rallies
“There may be short-lived rebounds now and then for some metals but the big downtrend is not over yet,” said Zhu Mingyuan, an analyst at Xiangyu Futures Co. in Shanghai.
Bullion for immediate delivery fell 0.9 percent to $1,214.40 an ounce. The metal yesterday touched $1,207.10, the lowest level since May 11.
“Some investors are taking profits on recent gains, which is exerting a little pressure on the gold market,” said Park Jong Beom, a trader with Tongyang Futures Co. in Seoul. “Psychologically, gold still remains attractive as European fiscal woes have yet to ease.”
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; James Poole at jpoole4@bloomberg.net
Last Updated: May 18, 2010 22:52 EDT
TC dear!
LOL..then tell us a joke
ty. Me too. I think I need to go to NYC or CT, tho, to find a good MD
I'll ask my friend in Columbia SC. I'd trust that as well
At this point I just dont trust Texan docs
Lobster Wax - like Turtle Wax...
Ever since they announced the GS case on expiration Thursday, blowing puts out of the stratosphere, followed by the mystery "fat finger" plunge a few weeks later, all bets are off, imho
ANYTHING could happen
Watching LIBOR rate...the European sovereign debt situation cast as the new Bear Stearns/Merrill/Lehmann?
GM! What's the good word from Europe?
FUN FUN FUN lol...I'm here trying out a paraffin bath
Sucker rally today, or rally to screw the option put holders?
hmmmm....
GM! And today?
please, i'm home most today, as opposed to yesterday. Am researching yet a few more docs (this time up in NY)
First they'll run the euro again, like today. This thing will slowly pull apart, and of course currency traders playing the headlines will get slaughtered
HAHA, gm!
GM...I'm still one handed typing, so off the boards a bit, and somewhat distracted. This sure is a pain
UGH: "A transaction tax would involve a small levy on individual transactions"
and we know how their goofy ideas have a bad way of crossing the atlantic and finding their way into our legislators' brains
So sorry! Hope we can talk later
yesterday sucked
GM! My hand still aching. Hope you're well
Sorry I missed you Alex...
Catch you later...I have doc appt in 1 hr, will tell you more later
has me kinda depressed, actually
have fun!
Exactly, which is why it is not off the table, I think.
UKT: US faces one of biggest budget crunches in world – IMF
By Edmund Conway Business Last updated: May 14th, 2010
94 Comments Comment on this article
Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.
Its cross-country Fiscal Monitor is not easy reading and is a VERY big pdf (17mb), so I’ve collected a few of the key points. The idea behind the document is to set out how much different countries around the world need to cut their deficits by in the next few years, and the bottom line is it’s going to be big and hard (ie 8.7pc of GDP in deficit cuts around the world, which works out at, gulp, about $4 trillion).
But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country.
US gross debt as a percentage of GDP
Compare it with the UK, which is often pinpointed as a Greece in the making. As you can see, gross debt increases sharply, but not by anything like the same degree.
UK gross debt as a percentage of GDP
Another issue is that, according to the IMF, the cost of extra healthcare and pensions will increase by a further 5.8pc over the next 20 years. This is the biggest increase of any other country in the G20 apart from Russia, and comes despite America having far more favourable demographics. It is significantly more than the UK’s 4.2pc.
But level of debt isn’t the only problem. Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are. The killer table to show you that is this one, which shows a country’s “gross financing needs” – in other words how much debt it has to issue in the coming years to keep itself functioning.
Britain, as you can see from the second column on the left, has one of the biggest deficits in the world. However, because it also has the longest maturity of average debt in the world (far right column), and so doesn’t have to issue as much new debt each year just to keep rolling that stuff over, its gross financing needs are – at 32.2pc of GDP, way bigger than Britain’s, at 20pc. Come to think of it, it’s actually worse than Greece on this measure.
What does this mean? Basically with a large financing need, you are particularly vulnerable if the market suddenly decides it doesn’t want your debt, since those extra interest rates they charge you mount much more quickly. Japan, by the way, is the one with a real problem on this front. It could hardly be any more vulnerable to a sudden drop in investor demand, and many over there fear that the moment domestic savers stop buying JGBs, the country is doomed to Greek-style collapse (though it doesn’t share Greece’s current account deficit and, crucially, has its own currency, so I don’t know about that).
On the flip side, unlike Japan or Britain, the US does not have a central bank with quite such a large stock of government debt. Both the Bank of England and Bank of Japan have done so much quantitative easing (buying bonds with printed money) over the past few years that they have the power to cause a fiscal shock if they decided they wanted to sell off their bonds at once. This table shows you that America, while not entirely guiltless on this front, has less of a shadow hanging over it.
But all of the above is what explains why the US, according to the IMF’s projections, has more to do than any other country in the developed world (apart from Japan) when it comes to bringing its debt back towards sustainable levels. Here’s the killer table. The column to look at is on the far right: note how the US needs a 12pc of GDP chunk chopped out of its structural deficit (ie adjusted for the economic cycle). That’s $1.7 trillion. Wow – that’s not far off Britain’s total annual economic output.
So does all of this mean the US is Greece? The answer, you might be surprised to hear, is no. Now, it is true that the US has some similar issues to Greece – the high debt, the need to roll over quite a lot of debt each year, the rising healthcare costs and so on. But it has two secret (or not so secret) weapons. The first is that unlike Greece it is not trapped in a monetary union. The US, like Britain and Japan, can independently control its monetary policy; it can devalue its currency. These are hardly solutions in and of themselves, but they do help make the adjustment a lot easier and more gradual. Second, the US has growth. It remains one of, if not the, world’s most dynamic economies. It is growing at a snappy pace this year (in comparison to other countries). And a few percentage points of GDP make an immense difference, since they make those debts much easier to repay.
Finally, some might be tempted at this point to cite the fact that the US has the world’s reserve currency in the dollar as another bonus. I am less sure. There is no doubt that this has made the US a safe haven destination (people buy US bonds when freaked out about more or less anything), and has meant that America has been able to keep borrowing at low levels throughout the crisis. However, the flip side of this is that because it has yet to feel the market strain, the US also has yet to face up properly to the public finance disaster that could befall it if it does not do anything about the problem. America is not Greece, but if it does not start making efforts to cut the deficit within a few years, it will head in that direction. The upshot wouldn’t be an IMF bail-out, but a collapse in the dollar and possible hyperinflation in the US, but it would be horrific all the same. America has time, but not forever.
http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/
COMMENTS
YOu can see from that chart that in 1950 the US debt was 80% of GDP. At that time it was experiencing the biggest industrial consumer boom economy in the history of the world.
The difference now is that the US has off shored practically it’s entire civilian manufacturing base to china. it is that fact, rather than the national debt it is carrying, that will be it’s undoing.
debunker on May 14th, 2010 at 7:25 pm Report comment[...] 1 votes vote US faces one of biggest budget crunches in world – IMF Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing [...]
US faces one of biggest budget crunches in world – IMF on May 14th, 2010 at 8:11 pm Report comment@debunker
Well that rather depends on political will. The thing I note from these tables is the fact that in most cases the situation is no worse than at the end of WW2, and most countries then knuckled down through the 1950s and 60s to rebuild their economies.
Providing – and it is a huge proviso – that the message can be got across and accepted by the electorate that the situation is as serious as it was after WW2, then there is hope that countries like USA and UK can rebuild their manufacturing economies and chop off funding of the idle, the fraudulent and the wasteful.
If it means erecting some limited forms of protectionism – and remember that currency manipulation as practiced by the Japanese and Chinese* in recent times amounts to that anyway – then so be it. Above all, the coalition government has to recognise the situation for what it is and get out and convince the people.
(* Allegedly)
Mrs t on May 14th, 2010 at 8:26 pm Report commentIt is also worth reading the BIS report which looked at long term national-debt, a rather scary prospect given the conclusion that on Britain’s current trajectory we are headed for a national debt of 400% of GDP by 2040.
http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/
jethromg on May 14th, 2010 at 9:36 pm Report commentSo….every country in the world is in debt…??
Who are the Lucky Lenders…???
They will be rolling in it, will they not..???
Crouchback on May 14th, 2010 at 9:45 pm Report commentThe problem for the US – and every other industrialised nation around the world – aiming to grow its way out its debt hole will be, er, the small matter of the end of mankind’s era of cheap energy.
The situation we’re in today is wholly unprecedented. We are at the leading edge of the long descent from the giddy heights of the cheap, fossil-fuelled industrial age to some new era of a world made by hand.
Few economists and commentators seem to factor in this huge issue when they talk glibly about a return to growth and all things consumerism. That era is dead; deceased; no more.
It beats me just how the industrialised nations of the world, now carrying almost unimaginable debt burdens, are going to get out of this unholy mess without absolutely savage reductions in living standards over the coming decade. Without cheap energy, there will be no aggressive economic growth; it’s as simple as that. Cheap energy and (apparently) sustainable economic growth are synonymous.
We really ain’t seen nothing yet. Soon we’re going to see nations looking like the guy in the Great Depression who, when asked how he went broke, replied, “Slowly. Then all at once.”
Moraymint on May 14th, 2010 at 9:56 pm Report commentEdmund well done on extracting the data. America is the Mother of all Tsunamis, waiting to be triggered. I feel that the only way the Fed will be able to stop crazy inflation will be to issue a new dollar at say 70% internally and to China and around 40% to everyone else. I would very much like to be entirely wrong.
Moraymint – you have hit that nail. The new Government just has to get going with Nuclear. The lights will be going off in 2017, as we get held to ransom by Russia and Algeria. “Swampy” will be holding forth in the appeal to outline planning permission as we listen by candlelight, unless something dramatically changes. I was terrified to see Nuclear as the final item on the “Agreement” and what was recorded. However, I took heart from the fact that it was there and given the opposite positions prior to the coalition, it was as good as it was going to get. Harsh reality of an audit of our generating capacity and energy sources should move positions substantially. One of the Nuclear plants is currently still on line, 13 years beyond its 30 year original planned lifespan. Testament to the design but not part of a sensible strategy. Milliband and Wicks were whistling in the wind, with their Energy Review and Response (1st April. So apt.)
fredone on May 14th, 2010 at 10:30 pm Report commentPeter Schiff, who is running for the US Senate and who has been extraordinarily accurate about the US economy for the past ten years writes:
“Don’t let Washington insiders fool you. The economic growth we’ve seen this year is phony – it’s based on consumption and debt financing. If we do not put an end to Congress’ spending spree, there will be an economic catastrophe that dwarfs the 2009 recession.
Mark my words… The bond market will collapse. The value of the dollar will plunge. Interest rates will rise. There will be runaway inflation and unemployment. And the only way to prevent this is to get government spending under control”.
mandeville95 on May 14th, 2010 at 10:40 pm Report comment“One of the Nuclear plants is currently still on line, 13 years beyond its 30 year original planned lifespan. ”
And that is what will happen if there is a shortage of power. Do you think these stations will just shut down because the EU says so ? I think not. A coal fired station can continue to generate just about forever – and will probably have to if we continue to build useless windmills.
PaulW on May 14th, 2010 at 10:58 pm Report commentWhat I find more interesting than anything is the basics here. Except for Japan and Singapore the table of countries in trouble is all about Western capitalist nations with free market models who were until recently the images of success we were all expected to follow.
Singapore and Japan of course are historically bound into Western economies tightly and so they may be expected to be part of the economic collapse that Western media is always trying to paint as worldwide but in fact it isn’t.
I love the way correspondents in the West talk about ‘issuing debt’ rather than borrowing money, which is what they are really talking about. The West is massively indebted to the manufacturing world from which they need to buy ’stuff’ in order to consume and they are desperate to consume because their economies rely on consumption. They are going downhill in relation to how much manufacturing capacity they have to feed a domestic market. Those with a better manufacturing sector are going down slowly and if they rebuild that sector they may even reverse the trend (typically the USA and Germany, say). Those (like Britain) with virtually no manufacturing are going down fast.
These graphs and the article are good but if they are used to try and mask the underlying basic truths they will be just one more bit of economic blether as the problem gets worse.
Duckham.tk
John Duckham
Duckham on May 14th, 2010 at 11:20 pm Report commentCrouchback on May 14th, 2010 at 9:45 pm
That isn’t every country in the world. A typically West centric viewpoint! The countries who are rolling in it are the producer countries and if you don’t know who they are I suggest you start looking on products you buy where there used to be ‘Made in Britain’ and ‘Made in USA’ labels and see what is there now.
Duckham.tk
John Duckham
Duckham on May 14th, 2010 at 11:24 pm Report commentIt depends on more than political will Mrs T. It depends on specific policy changes implemented with immediate effect. None will be forthcoming. The powers that be are fully committed and pregnant with expectation of a resumption of business as usual. Wrapping up assets in phony “black box bonds, real estate, hedge funds etc.
That model is now broken and like humpty dumpty it wont ever be fixed again. Only bringing quality high wage jobs back through manufacturing will solve the various crises affecting the western democracies.
debunker on May 14th, 2010 at 11:46 pm Report commentEdmund, your scales on the first two charts aren’t the same. It looks like the US figures are going from about 60 to 110, the UK figures from just under 50 to just under 100. Both give about a 50 increase – so actually we are about the same as the US!
fredarnolds on May 15th, 2010 at 12:41 am Report commentsorry, should have said i’m looking at the period 2007-2015
fredarnolds on May 15th, 2010 at 12:43 am Report commentCrouchback on May 14th, 2010 at 9:45 pm So….every country in the world is in debt…??
“Who are the Lucky Lenders…???”</i
You know, I've often wondered that myself!
Catweazle on May 15th, 2010 at 1:22 am Report commentPost war economies were supported by baby booms that increased populations and therefore consumption across the board. Now the baby boomers are approaching retirement and the number of workers as a percentage is falling. The absurd economic systems that we have constructed, built on debt, require constant increases in consumption to maintain them so that the interest repayments on the ever increasing debts can be met.
In crowded Europe this will definitely not be possible. The whole monetary and economic system is a great big ponzi scheme that is in the process of collapsing. In the UK pension schemes are built mainly on stock market gains. In Germany they are mostly invested in bonds. Everywhere you look there is debt. Government debt, consumer debt and corporate debt.
The numbers are often frightening. Is there a way out? Yes, but not under the current system and not with the Money Power firmly in control of politicians. They can manipulate markets and popular opinion only for so long before the game is up. The people are revolting in Greece and public opinion in Germany is totally against any bailout. Merkel is finished and is making a last gasp attempt at getting popular backing for more political unification, the opposite of what we need. In Germany she will not get it. She should resign now.
G
ytl83 on May 15th, 2010 at 1:39 am Report commentDuckham on May 14th, 2010 at 11:24 pm……………..
Yes, Ducks I agree it is a Western point of view, as I’ ve never been any where but the “West” ……… Hold on there, though, Ducks…!!! are you trying to tell me, that poor, child slaves in Third World countries are going to reap handsome rewards from the economic travails of Western Nations….???? Is that graph showing American debt, actually showing a vast lake of Honeyed Milk flowing through it’s tributaries to the East….???? Shurely not….!!!!
Might there not be one or two greedy Western rapscallions, who would much rather see all that largess flowing directly in to their wallets….????
Much as I’d dearly like to see all labourers rewarded with a just and honourable wage…….me thinks that the wage slave will be with us for a while yet……!!!!!
Me also thinks that poor child wage slaves are not exactly the first priority of many Third World Governments, or First World Governments either……..Broons odd £M100, here and there, was more of a Smashie & Nicey……..Charidee……….exercise than any real concern for suffering humanity…………else he would have got his hands dirty and told the truth about the state of the Country, rather than playng, to is left every day….?????
Crouchback on May 15th, 2010 at 2:15 am Report commentUseful blogs amd pieces these linked here Edmund. Thanks. I’m clearer in my mind now about the various complexities of the debt crisis.
rinpoche on May 15th, 2010 at 3:19 am Report comment@ jethromg
That 400% of GDP isn’t that scary, mate. It’s bandied about in somewhat of a disingenuous context.
I’m pretty sure it’s a gross figure that includes public, private and corporate debt. And the assets far outweigh debt. For example, the BIS report lists the assets of the UK financial sector alone at over 700% of GDP, what’s that $18 trillion/ish? (could be argued that that is far more scary ;)
But yeah, it begins to read differently when looked at like that.
John Talbot on May 15th, 2010 at 3:30 am Report comment[...] the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that [...]
Capitalism V3.0 Roundtable » Blog Archive » The Looming Obama Debt Disaster on May 15th, 2010 at 4:39 am Report commentPeople correctly reference Britain’s dismal manufacturing base as central to her financial problem. Contrary to what some believe, the US will be suffer from the reduction of manufacturing as well.
They’ve already ceded consumer goods manufacture to the 3rd World, and are following it with other sectors. The automotive industry is on life support and has only survived by government intervention. The steel industry is disappearing along with the things they build with it. The midwest manufacturing belt is closing up shop and is accurately known as the rust belt now. Cities like Detroit and Cleveland are now resembling the very worst of any post-industrial Midlands cities. The case for growing their way out of the mess is overstated in my opinion.
The last factor is natural resources. Those countries rich in them (Canada, Australia, Russia, etc) will have the means to move quickly away from and trade account imbalances. The US’s ruinous flirtation with Ethanol production at the expense of the Agricultural industry is nothing short of scandalous. It’s a Catch 22 for Britain (and to a lesser extent Britain), she doesn’t manufacture and has few resources, therefore ‘limited protectionism’ is not a solution either. It’s a losing hand in anybody’s poker game.
As someone who left for Canada I believe the decision was wise beyond any intent. Depending on your ages, many Brits should be planning the same. Sentimentality or national pride doesn’t alter the facts or the inevitable outcome. I fear Britain will have to go closer to Europe simply to survive. God bless you Gordon McRuin…..
hctroubador on May 15th, 2010 at 5:01 am Report commentMost of these figures are meaningless. Do the US figures include unfunded liabilities, excess interest payments or the multi-trillion Fannie and Freddie liabilities?
No. They are all off balance sheet. The stats you quote are based on Enron accounting values. The true state of affairs is vastly worse.
And the official figures are lies in themselves. In 2009 purchasers of US debt was divided between the Fed (QE), overseas lenders and the household sector. 700 billion in the household sector. This was a 35 times increase in “household sector” purchases from the year before. Household sector is just a catch-all term. Mom and pop did not increase their treasury purchases 3500% from 2008 to 2009. Household sector is a way of diffusing and concealing the true magnitude of QE.
InstantSaver on May 15th, 2010 at 6:20 am Report commentFor PaulW:
“A coal fired station can continue to generate just about forever – and will probably have to if we continue to build useless windmills.”
In the December freeze-up all the windfarms of Britain contributed virtually NOTHING to our energy needs.
There was very little wind.
In pre-Industrial times, if we had a choice of a watermill or a windmill we INVARIABLY chose a watermill.
NASA long-range forecasts of solar activity – the primary determinant of global temperature (and certainly not mankind’s activities) – are that by the 2020s there will be protracted, minimal solar activity.
It will be Icebox Earth in that decade.
We need to be building lots of reliable nuclear, gas and coal-fired power stations RIGHT NOW to make sure that our people are kept alive.
The con-men of the Manmade Global Warming Hoax (and of the Green movement) have done the people of Britain a criminal disservice with their cynical nonsense.
bedfordfalls on May 15th, 2010 at 8:27 am Report commentthe US will never repay it.. why would they pay the chinese.. they will just print more!… and yes, inflation will be caused, but that is the intention of QE, and the inflation game is not yet over.
andrewx on May 15th, 2010 at 8:29 am Report commentThe most probable long-term prediction for the USA is default on its colossal debt mountain.
This would represent the best of all possible strategies, guaranteeing the economic rebirth of America, and re-establishing it as the pre-eminent global super-power for the rest if the century.
The main sufferers would be the oil states,Russia, China, Japan and Britain.
I have little sympathy for the first four.
We would have to hope for special treatment.
China would, of course, have to suck it up. If they refused to supply the USA and accept the New Dollar there would be catastrophic economic collapse in that country and riots on the streets.
bedfordfalls on May 15th, 2010 at 8:39 am Report comment[...] the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that [...]
The Looming Obama Debt Disaster | No Bull. news service. on May 15th, 2010 at 8:46 am Report comment[...] the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that [...]
The Looming Obama Debt Disaster | No Bull. news service. on May 15th, 2010 at 8:46 am Report comment[...] The great interest rate rip off US faces one of biggest budget crunches in world – IMF – Telegraph Blogs [...]
The great interest rate rip off - Page 761 - The Consumer Forums on May 15th, 2010 at 8:59 am Report commentSome good comments here I have to say, mandeville95 I believe Peter Schiff is correct, not because of his track record which is very good but because of the fundamentals.
I dont understand how people can invest based on promises from the state. I dont see an alternative to QE, because politicians will take the least line of resistance.
Reaction to the trillion Dollar money creation (or just promises?) in Europe triggered a big fall in the Euro, simplistic I know it is similar to lots of money leaving Greece.
Energy, clean water, land, ammunition, a barn full of grain and maybe precious metals are the way forward if or when the bond markets fail. BUT how would one hold on to these things? No doubt many will argue it is not fair this man has these things and as for the hungry mob well…..
forsaken2 on May 15th, 2010 at 9:06 am Report comment“Energy, clean water, land, ammunition, a barn full of grain and maybe precious metals are the way forward if or when the bond markets fail. BUT how would one hold on to these things? No doubt many will argue it is not fair this man has these things and as for the hungry mob well”
There will be no Mad Max scenarios, Forsaken2.
This is the safest of all predictions.
bedfordfalls on May 15th, 2010 at 9:10 am Report commentCosmos needs no explanation, Kosmos is the Greek word used to describe the end of mans system. Judeo Christian tradition teaches not to concern ones self with economics that the Lord will provide. I prefer “God helps those who help themselves”. If persons and entire nations indulge in brainless borrowing and consumption bury their heads in the sand and ignore the warnings I am not sure what He can or will do.
I have reason to believe to an extent we have been left to our own devices, for a while.
forsaken2 on May 15th, 2010 at 9:16 am Report commentOf course America is screwed. But this has been known for years, even decades. The Austrian school of economics has predicted everything that has been happening (and will happen) and is being lead by great people like Texas Congressman Ron Paul and economist Peter Schiff.
Jamika on May 15th, 2010 at 9:40 am Report commentPointing out that the US “has growth” as somehow the answer to its debt problems is like saying an alcholic is OK, because he has a bottle of whisky to take his mind of his drink problems.
Surely the reason the US *has* growth is all the horrendous borrowing it is doing to finance it? What would the US’s “dynamic” economy be doing if they hadn’t been borrowing like crazy to buy all that stuff? And you have only talked about government debt here – the US’s problem is also that on top of state debt there is massive personal borrowing to content with as well.
Whilst some of Europe’s government’s have been spending other people’s money like its going out of fashion, its citizens (on the whole) haven’t.
NickinFrance on May 15th, 2010 at 9:49 am Report commentNot convinced the maturity of debt is that important, unless the country in question be in the habit of significantly varying the average length of her bonds. The amount to be rolled over at any time is what matters ; what makes it important is what the market thinks of the country’s performance and prospects at the time of roll-over.
“The US, like Britain and Japan, can independently control its monetary policy; it can devalue its currency. These are hardly solutions in and of themselves, …”
Important about a sovereign currency is that, in the mind of the market, the country in question could adjust monetary aspects of her economy. I return to my old saw : everything depends upon sentiment ; a belief that markets are entirely logical is unrealistic.
Cracking good summary of the I.M.F.’s publication and much more easily digested. Thank you.
??
Pericles on May 15th, 2010 at 10:20 am Report commentA great and informative article. However to properly evaluate it one would need the data from the surplus counties too, above all China, but there are many other important players.
Why is this so important?
Because however bad the situation in the West, it will be mitigated if the world economy carries on chugging along, and made much worse if it collapses.
Interesting times!
davewmart on May 15th, 2010 at 10:29 am Report commentScary stuff, all round I guess….but if this is such a problem how the heck does Japan keep going with those numbers!!
dude15 on May 15th, 2010 at 10:43 am Report commentDavid Cameron’s coalition, born of failure, may make the new politics succeed
I see that the DT’s package for “not finding pages” is in good working order this morning; hence the need to post in less obstructive areas
__________________________________________________________________________
I note that the IMF is already warning this new Govt. to up taxation quickly; particularly by putting VAT on food! It just shows how serious the current debt position of UK PLC really is!
Question: Why did they not tell Brown this months ago?
Question: What is the TRUE DEBT of UK PLC? Why are the politicians no telling the TRUTH?
OOPS! May be the last question is stupid! It should have been: Why do politicians NEVER tell the truth?
As an after thought: Senator OBAMA was a major supporter of sub-prime lending! Now he is bitten by the results of that profligacy
MikeC on May 15th, 2010 at 10:51 am Report commentBuy gold.
Move to Slovakia, esp. if they decide to get out of EURO.
The guy who grows his own food and live away from the masses will be in fine shape.
bsardi on May 15th, 2010 at 11:51 am Report commentPaul W. Accepted – coal generators have nothing in them that prevents maintenance prolonging life indefinitely. My understanding is that erosion of the graphite moderator blocks within the core, by the CO2 coolant being blown through, is an irreversible ageing process for nuclear. Local and temporary (several years)relief can come with selective placement of fuel rods (unspent/partially spent) in eroded areas. This is where we are at with many of the older Nuclear generators. NuLab dithered and committed as many lies over energy supply as ever they did over the economy. As at 1st April they were still leaving messages for the tooth fairy to drop of replacement nuclear generators that would be running in 2017 and making predictions based on such “facts”. [GDP up to 3.5% in 2011 anyone?] We are living on borrowed time in so many areas it is truly frightening. What would be a tragedy is that over the next 15 months, the scales are lifted and we eventually get going with a sensible nuclear rebuild, only to have one of the, by then, 50 year old nuclear plants suffer some minor disaster, which the public and press blow out of all proportion. Bringing the pain of real energy costs on earlier will help push through the tough decisions necessary, both from an energy point of view and financially. VAT up to 23% straight away (at least the Masters of the Universe cannot avoid that too much, they buy “stuff” with their highly deserved bonuses). Retirement up 6 months every year for the next 10 years. Take a number of the old nuclear stations off line and increase electricity bills, with greater incentive for off peak use. That will drop peak demand. Let the market take care of energy saving strategy and then I would not be fielding 3 calls a week from Delhi call centres asking me if I want to take advantage of government grants to insulate my loft. “I would love to but sadly I spent my own money 20 years ago and did it myself”.
hctroubador 5.01am Detroit as bad as the worst of the post industrial Midlands. The great “invest in property myth”. With house prices at under $1,500 in some areas and whole districts being flattened by local Govt, because it was cheaper to “purchase and flatten” rather than provide lighting and services to crime and drug ravaged neighbourhoods, I think Detroit is out there in a league of its own. Estimates put it that total vacant land in Detroit is equal in area to the city of Boston. However as an absolute precursor to what could come to a “town near you”, both Detroit and Greece are most eloquent and timely warnings. One trip I would pay for. Sending every MP to go for 3 days, 2 nights, to inner city Detroit and just $100 to live on for the 3 days. No swanky hotels. Now sunshine, what are you going to do to make sure Armageddon doesn’t land here.
fredone on May 15th, 2010 at 12:06 pm Report comment“However as an absolute precursor to what could come to a “town near you”, both Detroit and Greece are most eloquent and timely warnings.”
We already have experience in Britain, Fredone, of what happens when an industry dies in a city, as it has in Detroit.
Margaret Thatcher wrecked a large number of communities in the 1980s when she destroyed the coalmining industry for union-hating, doctrinaire politic reasons.
bedfordfalls on May 15th, 2010 at 1:23 pm Report commentOne needs to look to Canada. They were in a situation similar to ours in the 1990s. It actually was a quite good time and they cleared out the stables of waste and entitlement. I lived in Vancouver at that time, and it was a good reality check for all. Too many people expecting to be paid to do nothing. We really could do with that here.
noimspartacus on May 15th, 2010 at 2:32 pm Report commentBedfordfalls;
Detroit died because the unions refused to accept a pay cut so production went elsewhere.
I’m sure a lot of the redundant works hate their union now they’ve lost their jobs.
Blue Rock on May 15th, 2010 at 2:55 pm Report commentComparing only Federal debt doesn’t capture the whole problem.
What many people in the US and Europe often fail to account for is the US states, counties and cities all issue ADDITIONAL bonds/debt on top of the federal debt. I’ve read this adds 20% to the author’s numbers and would make the US worse than Greece even now.
In addition, Americans carry much more personal debt than most Europeans – that must also be serviced out of the same GDP.
It’s irrational to assume Americans will forever be able to borrow at 0-3% to service ALL this debt – and when those rates inevitably rise, the tsunami will hit.
saxifraga on May 15th, 2010 at 2:58 pm Report comment[...] [...]
The Looming Obama Debt Disaster | NewsReal Blog on May 15th, 2010 at 3:18 pm Report commentBedfordfalls. I worked in the motor industry in the Midlands during the period of the good Mr Robinson and then moved to South Wales just in time to experience the same Union led insanity there. In one way I was so proud of the South Wales coalfield workers. No split in ranks, such spirit of community. Sadly their faith in their leadership was wholly misplaced. Scargil was a fantasist much as Brown has been so recently.
You cannot buck the markets.
Working out where the line is drawn between “A fair wage for fair work” and “we can steal higher wages than the market can sustain because the Union have created a monopoly and weak management and legislation allows exploitation of that monopoly”, requires wisdom which was so sadly lacking in so many of the Union leadership of the 60’s and 70’s. However, having lived pleasantly in South Wales as the every single deep pit was closed, I can assure you that not a single bomb was thrown, as opposed to two in the last week in Greece. One idiot did throw a paving slab off a dual carrigeway bridge and killed one taxi driver (quite how that served the Union cause I have never fathomed). To compare the 1980’s UK with Detroit or Greece is not appropriate and to do so reflects a wholly misplaced understanding of what lies ahead for us. Within the coal fields, more than generous settlements were made for those direct employees who lost their jobs. The private sector jobs supporting the coal industry did not receive such feather bedding. Did that feather bedding enable re-generation or mitigate against it ? Too much thread creep to argue here. However, I well remember the Labour council of Coventry insisting on charging full business rates on up-occupied industrial property in Coventry, such was their empathy with their ratepayers. The ultimatum they gave factory owners was, take the roof off and then we will not bill you. So with no other choice, “taking the roof off” was exactly what many did. Despite such lunacy passing for council resolutions, the good people of that city did not trash their houses and have a crime and drug spree that ripped nearly every vestige of their personal decency from them. Rather, their stoicism and spirit allowed them to rise above the quality of their elected leadership.
I have far more sympathy with the miners. Adverse geological conditions made it uneconomic to mine. Each ton brought to the surface, required a massive subsidy, not quite of the order of the subsidy currently being paid to photovoltaics curtesy of Mr Milliband, but near.
The markets could not be bucked. Productivty could only advantage just so far.
However not several hundred miles away in Germany is an example of a industiralised nation managing its way in automotive manufacture against cheap labour competition. In the UK, spoilt and stupid union leadership and inept management ensured that the golden goose was killed and its ashes danced upon. Mrs T gave us all a perfect lesson on the facts of economic life. Sadly come Major and Lamont those facts were translated to myth and ignored, by those who would have described themselves as the disciples of Mrs T.
In recent years we have again lived famously beyond our means. A bitter harvest awaits. Let us hope the same good sense of its citizenry that we have seen so many times in the past is replicated and people bear difficulty with stoicism, rather than bombs in the street, or in the burning of the innocents (Greece), and allow us agin to stand up to the challenge in front of us.
fredone on May 15th, 2010 at 4:53 pm Report comment[...] the national debt in the US will climb to above 100% in less than 5 years. Edmund Conway at The Telegraph reported, via Power Line: [T]he really interesting stuff is the detail, and what leaps out again [...]
Gateway Pundit on May 15th, 2010 at 5:17 pm Report comment[...] [...]
IMF: The U.S. has a debt problem - SoWal Beaches Forum on May 15th, 2010 at 5:32 pm Report comment[...] are a few charts from an IMF report (via the Telegraph) which show the US to be in very bad shape indeed. The punch line of this piece is at the [...]
Dinocrat » Blog Archive » A picture is worth a trillion words on May 15th, 2010 at 5:49 pm Report comment@ fredone,
Fair points all, and I concede that Detroit is perhaps not a completely fair comparison to post-industrial British cities – but with the caveat ‘yet’. Britain is far ahead of the US (actually US states) in the development of the welfare state. I believe it is only wealth transfer that has propped these cities up to even the low standards they currently have. The question is what happens when councils can’t afford to maintain estates at even the most rudimentary levels and the inhabitants lose their government benefaction?
In no way should the British people be compared to the Greeks or any other of the Mediterranean nations, but they have yet to experience true desperation in the recent generations. Is there a communal spirit and ’stiff upper lip’ embedded in British DNA? As a romantic I like to believe so, but I think the world that instilled it is long since past. When the lights go out for extended periods and people are cold and hungry there is no telling what will happen. I’m relatively certain those conditions are coming to Britain sooner than later. Sadly I don’t believe there is any way to avoid the ‘perfect storm’. I hope I’m wrong.
hctroubador on May 15th, 2010 at 6:11 pm Report commentI also wanted to add that a look at the current electoral map shows that people in the red bastions (Northeast, Midlands, Northwest) all know this as well. They know at some level the Labour government can’t stop the momentum, but might put off the end game a while longer.
hctroubador on May 15th, 2010 at 6:17 pm Report comment[...] 6) US faces one of biggest budget crunches in world – IMF [...]
Weekend News - May 15, 2010 « InvestmentWatch on May 15th, 2010 at 6:36 pm Report commentIn the US, there are a couple of easy ways out of this mess.
1. Pull out of all foreign wars for the protection of Israel (Afghanistan, Iraq). War only if the US is immediately threatened.
2. Rescind the left-wing schoolteacher pensions. They retire at 55 on 75% salary. So when they top out at an unbelievable $100000 or more a year for 9 month’s work ($133000 on a 12 month basis) they get $75000 a year in retirement, much more than I make working full time as a PhD for over 20 years.
edw234 on May 15th, 2010 at 7:31 pm Report commentOur problem is that we are unwilling to cut our domestic spending and foreign aid. We are continuing on as if there is no problem whatsoever. We are pretending like we are the US of the 50’s and 60’s, with a huge manufacturing economy. That economy is gone, we don’t take raw materials and make them into finished goods anymore. We can’t pretend that the service economy is as good as the manufacturing economy, and our politicians are pushing the “green” economy as if it is going to save us. It is going to make things much, much worse.
Russell on May 15th, 2010 at 8:41 pm Report commenthctroubador. We need to keep our fingers crossed here in the UK. As you say it is no winning hand. I fear for the worst, particularly as the concept of the dollar defaulting will bring with it such a change to the World order. However, everything I hear about our troops in Afghanistan fills me with hope. They do seem to have exactly the same dna as those who went to the Falklands or put up with being the “enemy” in NI. OK there are the odd slip-ups but weren’t there always. And if it can be in our troops it can be in our wider population. All my peers looking forward to retirement are all of one mind. If working longer until retirement means not leaving our children with debt, then tell us “how long?” and our shoulder is on the plough. But we do need some quality leadership. What we don’t want is some idiot pretending there will not be cuts everywhere, including the sacred NHS.
You correctly identify the point of weakness and mode from which civil unrest would emanate, were that to be the case. Rolling back the client state and undoing all the non-jobs is going to be a hell of a lot more difficult than rolling them out. As to America defaulting will that not be the power-pay with their largest creditor – China.
fredone on May 15th, 2010 at 8:42 pm Report comment[...] Telegraph [...]
Budget crunch « Newsbeat1 on May 15th, 2010 at 9:04 pm Report commentAs a follow up how things likely to unravel, READ “A US way out?”.
This article is over a year old but it is more up to date than ever. The times ahead of us are indeed fascinating.
andrewtaller on May 15th, 2010 at 9:22 pm Report commentEdmund, there is either a bit missing in this paragraph in your article after ‘Table 6' or it is incoherent as you’ve written it and needs to be re-edited.
“Britain, as you can see from the second column on the left, has one of the biggest deficits in the world. However, because it also has the longest maturity of average debt in the world (far right column), and so doesn’t have to issue as much new debt each year just to keep rolling that stuff over, its gross financing needs are – at 32.2pc of GDP, way bigger than Britain’s, at 20pc. Come to think of it, it’s actually worse than Greece on this measure.”
bamboom on May 15th, 2010 at 9:38 pm Report comment@Debunker:
“The difference now is that the US has off shored practically it’s entire civilian manufacturing base to china. it is that fact, rather than the national debt it is carrying, that will be it’s undoing”
It is both. There is a limit to debt and Greece has reached theirs right now and Spain and Portugal will soon follow. The thing that counts, rather than where the manufacturing is done, is the debt to GDP ratio. If the US has 6% growth, whatever it does, then we can grow out of this debt IF we cut spending and neither of those will happen.
The fact is that, sadly or not, the US is being driven into the ground by the far left and that spending is the only weapon they have against capitalism.
If you raise taxes severely then the GDP will fall. If you go green and tax gasoline some 2-3$ per gallon to put it on a par with the EU then small businesses collapse and consumers will howl.
If Fitch or S&P downgrades the AAA rating due to the massive US debt then interest rates will rise and business will be stifled. The ONLY push to the DOW in the past year has been low interest rates.
We have spent too much and do not have the kind of leadership that can revive the economy. WE still have people who want to push ‘affordable housing’ [http://tinyurl.com/2c49qay] and have the banks just forgive a major portion of mortgages given to people with poor credit.
We are heading for high inflation [http://tinyurl.com/yepumqh] and the formation of asset bubbles like the solar systems in Spain. [http://tinyurl.com/ylcujeq]
“The debtor nations are heading down and the only reasonable avenue is default.A reading of two recent books: Ascent of Money by Niall Ferguson’ and the newer book This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff show, very clearly, that the vast majority of governments cannot manage finances with any long term competence. They make enormous mistakes as outlined by 1957 book: War and Aftermath 1914-1929 by Pierre Renouvin that offers us a critical but objective scrutiny of the political and military actions of various government agencies starting in the 1890s and leading up to August 1914 where most world stock markets suddenly shut down for months; this history is enlightening. By 1916 most governments had spent all they had and were wildly printing money to fund the Great War. We achieved 51 million deaths out of that adventure and enough hate and discontent to set up the next world war for 31 million more to pay the ultimate price. This is government operating in full bloom and proves that diplomacy can recurrently solve no problems. Failed governments have no discernable history in the political sense.” [http://tinyurl.com/2dt47er]
Debt and defaults are in the future. We have to live with that and may have to move to do so.
ryckki@gmail.com
rycK on May 15th, 2010 at 9:52 pm Report comment[...] United States – One of the Biggest Budget Crunches in the World – Telegraph [...]
Site Maintenance and Additional Articles Worth Reading | Rebel Traders - Market Analysis Without The Hype on May 15th, 2010 at 10:02 pm Report commentThere could be naught better than the US Govt going BANKRUPT. THis would eliminate the myriad of Un Constitutional, suckling piglet-Agencies overnite, with the further positive result of not having to go to war to get rid of the mess. Civil war, that is. Alls required is CONgress, President and the Court, not FBI, CIA, IRS and a whole alphabet of corrupt agencies.
The US isnt printing money, its all ledger entries.
2010 US Census ILLEGAL http://second-amendment.tripod.com/d2a
doubtingthomas on May 15th, 2010 at 10:19 pm Report commentThe trouble with liberals is that they eventually run out of other people’s money.
brucealexy on May 15th, 2010 at 10:24 pm Report commentRicki you’re overlooking the obvious. Thye government is running up massive debt because it is spending more than it is taking in in tax revenue. Therefore it must rebuild manufacturing jobs in America (and the UK must do the same) to generate the vast quantities of revenues it did in the late 40s, 50s, 60s. and early 70s.
You can see also in the chart above, that the US debt started to rise again as soon as the Reagan era began, and the mass off shoring of high wage jobs.
This is so simple to understand yet so few can see it.
People should review some old videos of Ross Perot to see how right he was.
The broad tax base, and national debt is mitigated not by a few billionaire plutocrats, but by millions and millions of ordinary people orking hard, earning a decent living wage and paying their share of income tax. not the minimum wage burger flipping nation that the black box phony bond swindling hedge fund fraudsters have created. It has crashed and burned, as has the entire globalization project.
Time to bring the jobs, and the real treasure of the western world home, and take it back from communist china.
debunker on May 15th, 2010 at 11:03 pm Report comment[...] This article from the Telegraph summarizes the dreary conclusions of an IMF report which says, contrary to Alfred E. Krugman, the United States faces one of the most daunting fiscal crunches in the years ahead. [...]
Streetwise Professor » Further My Last: The IMF Calls BS on Alfred E. Krugman on May 15th, 2010 at 11:19 pm Report commentThis is no problem! The obamanation will just print more money. This is hope and change baby.
lel2007 on May 15th, 2010 at 11:50 pm Report commentThe problem is with the currency because funny money is no laughing matter. As long as bank loans are little more than numbers on paper and banks are allowed to collect payments on loans they mostly never made, no one will have any financial peace, including the banks. The imposing facade of our Federal Reserve headquarters is the merest stage prop and behind it is nothing but air and shadows, because the Fed deals in what they cleverly call an expandable currency, which simply means that whatever real value it has, which isn’t much, can be made to seem like more or less at will, a sort of dream-pantomime that turns into a hideous nightmare every time. Those who collect the loan repayments get very rich, and those who take out the loans and try to make the payments go bust. A sorry system for a sorry world, and yet it could be a lovely world if all human hearts were fair and generous.
marcusintl on May 16th, 2010 at 2:13 am Report comment[...] [...]
Debt to GDP Ratio to be 100% by 2015 | Republic Now on May 16th, 2010 at 3:23 am Report commentI’m writing this as someone from the USA…
How easily can we “produce” our way out of this? Well, let’s remember that some of our economy is tech. Some of our growth will be there. You can outsource some of it, but you get what you pay for. Someone has mentioned cheap energy and coal, so let’s talk about those:
The wild card in economic analysis is climate change.
The risk is real and we are already seeing some of the consequences. Actic sea ice had been predicted to melt in 2080, then in 2040, and now much sooner depending on which research group you talk to.
(
http://news.bbc.co.uk/2/hi/science/nature/7461707.stm
old link, but gives the years
)
Now, if you know your house will burn down at some point within 10 years, do you wait until afterwards to buy fire insurance? Do you hope someone will sell you fire insurance after the bathroom has caught fire? Do you start remodeling with the most flamable fire-starting tinder material you have? Or remodel with fire-proof/resistant materials?
Coal is tinder. Coal is not an option.
Randomly hoping things will magically get better is not an option unless you are willing to work to make them better. Fund research into making alternative options cost-effective. They aren’t an option yet.
Nuclear is an option.
We need to use it. Our plants are aging and need to be replaced. We need to build more. We need to convince people that the risk from climate disasters is worse. Because it is.
zecka on May 16th, 2010 at 3:32 am Report commentNo matter how much real money people come up with to build their state the way they want the government can just print up fake money and get their way.
Maybe this will help make the danger of fiat money clear.
Imagine you and me are setting across from each other. We create enough money to represent all of the world’s wealth. Each one of us has one SUPER Dollar in front of him.
You own half of everything and so do I.
I’m the government though. I get bribed into creating a Central Bank.
You’re not doing what I want you to be doing so I print up myself eight more SUPER Dollars to manipulate you with.
All of a sudden your SUPER Dollar only represents one tenth of the wealth of the world!
That isn’t the only thing though. You need to get busy and get to work because YOU’VE BEEN STIFFED with the bill for the money I PRINTED UP to get YOU TO DO what I WANTED.
That to me represents what has been happening to the economy, and us, and why so many of our occupations just can’t keep up.
stokeybob on May 16th, 2010 at 4:46 am Report comment[...] isn’t that far off for North America… if you want to see the scary picture, here’ a great article comparing the different counties debts titled: US faces one of biggest budget crunches in world – [...]
US State Governors Speak out | Vancouver Secrets on May 16th, 2010 at 5:15 am Report commentThe only thing that is being busted out is the US Citizen. http://www.cafr1.com Plenty of money.
sdchanman on May 16th, 2010 at 6:13 am Report commentDebunker: how are these rebuilt manufacturers going to make enough money to pay the labor costs in the US? Who will pay more for the same thing just so an American worker can make $20.00 per hour plus benefits when they can buy it cheaper from China?
kmyost on May 16th, 2010 at 6:13 am Report commentkymost, anyone who wants to afford to buy a house. That’s most people. They fortunately are more intelligent than you, and see the bigger picture.
debunker on May 16th, 2010 at 6:48 am Report commentTake a good look at the US debt-to-GDP chart in the article. The ratio of debt bottomed out below below 40% of GDP just after 1980 – which coincides exactly with the steep tax cuts Ronald Reagan enacted soon after assuming office.
Reagan steeply cut tax rates without cutting spending by a like amount. The result was a tripling of the US national debt during his eight years in office. The two Bushes increased the debt more. Only that ‘tax and spend Liberal’, Bill Clinton, actually cut the debt and (temporarily) restore fiscal balance.
From the time Reagan cut taxes, to election of Barack Obama, the US national debt increased by a factor of 11 in nominal terms. The economy grew only 5 times during the same period. For 28 years, under mostly ‘fiscally conservative’ Republican presidents, the debt was allowed to compound at twice the rate of economic growth. Sheer madness.
Obama’s fiscal performance is not encouraging. But the wildly hypocritical profligacy of his Republican predecessors set the stage for the fix the USA now finds itself in.
There can be no doubt: the Reagan boom was a sham based on massive debt. Combined with deregulation and a growing wealth gap, the ‘fiscally conservative’ policies of the Reagan Republicans eventually led straight to economic disaster.
searchlight on May 16th, 2010 at 6:52 am Report comment“However, everything I hear about our troops in Afghanistan fills me with hope. They do seem to have exactly the same dna as those who went to the Falklands or put up with being the “enemy” in NI.”
The British are essentially a warrior nation.
bedfordfalls on May 16th, 2010 at 7:35 am Report comment>Gasp< What is this heresy?
It is not the axis of evil in Paris Brussels and Frankfurt to blame?
Ahhhh……of course – this is someone writing about what they know, not the one track mind of Ambrose Evans Pratchild
markbarber on May 16th, 2010 at 7:45 am Report comment[...] Conway, Economics Editor of the Telegraph, provided excellent insight into the International Monetary Fund’s analysis, Navigating the [...]
Mr. Conservative » The Socialists Have Spent All of Our Money and Much More on May 16th, 2010 at 7:50 am Report comment[...] Read entire article [...]
US Becoming Like Greece? America Has Time, But Not Forever. | Nicolas Minacapelli: An Independent Authentic Conservative Voice on May 16th, 2010 at 8:26 am Report commentI’m sure that the bankers will still be able to pay themselves enormous bonuses despite the terrible fiscal collapse they are engineering for the rest of us.
nimbus on May 16th, 2010 at 8:40 am Report commentThe real question is what is the common man to do? Sell your stocks and buy Gold from the coin pushers? Become a survivalist and stock up on bottled water freeze dried prison rations? What is the end game for the world rulers parading as leaders?
thesavagenation on May 16th, 2010 at 9:41 am Report commentSo….every country in the world is in debt…??
Who are the Lucky Lenders…???
They will be rolling in it, will they not..???
******************************************************
If you owe the bank a million dollars and cannot repay it, you are in trouble. But if you owe the bank a billion dollars and cannot repay it, the bank is in trouble.
joev11 on May 16th, 2010 at 10:06 am Report commentDear Sir,
This is a most excellent diet of economic exegesis and so comforting to know others are in a worse state than ourselves, the States vis-a-vis the Kingdom.
I would also like to congratulate the hoi polloi for the restrained and mature nature of the proceeding discourse, with the usual exceptions of course.
Sir, please in the future would you turn your formidable intelect and forensic analysis in the direction of the Kingdom’s external debt, more than a trifling sum I do hear.
Your humble servant…
onmybike on May 16th, 2010 at 11:05 am Report comment[...] and guess who will be buying those up. If we look at the figure of the IMF in this report US faces one of biggest budget crunches in world – IMF – Telegraph Blogs then we clearly see that the 2 countries that are in the biggest crapper are the 2 countries that [...]
Euro/Eurozone viability - Page 2 on May 16th, 2010 at 11:05 am Report commentA worldwide re-structuring of debt is on the way.Bond holders will take a 30% haircut.Within 6 mos.U.S. municipal bonds issued by state and local governments will be guaranteed by the Fed,much like the Greece Bailout.Austerity in America will include the shrinking of the military and base closures in secure parts of the world such as Japan and Germany.Private health insurance companies will disappear and government will pay and regulate prices of procedures.A VAT tax will be coming to the U.S. in 2011 or 2112.Companies dodging taxes by locating HQ in low tax countries will pay large tariffs to the countries in which they do business.Expect a coalition of the worlds central banks possibly going to one worldwide reserve currency.Big changes are coming.buy gold/silver this is the worlds oldest reserve currency and the best bet to preserve what you have.Although this could backfire as well if the gold price is pegged to a worldwide currency.I’ve heard $1,000/oz. thrown around.Google revalue gold,interesting.
bondageguy on May 16th, 2010 at 12:28 pm Report commentI’m American in my 60’s. I watched this whole thing develop. It’s obvious to me that we (all the formerly industrialized nations) have been led down the rosy path to ruin by the money lenders and their agents the politicians. It’s an age old story: you engineer a situation so a person must borrow to live. With a little time and compound interest, that person (entity) is no longer a free person. He/it is controlled by debt. He is a slave, if you will. As Edmund Rothschild said “let me control a nation’s money and I care not who makes the laws.” At the other end of the spectrum, the song “Sixteen Tons” by Tennessee Ernie Ford tells the story.
Conway is only looking at one side of the coin: the debt side. The other side is that someone has a receivable of exactly the same amount – only much better because it earns interest! 5% interest will double the principle in 14 years. As bad as things are, they’re going to be twice as bad in 14 years, give or take whatever extra we can come up with to keep the game going. The score now is 99 – 0 and we’re playing to 100.
I remember back in the 1960’s, when the Johnson administration began the borrowing binge that led to the present topic, the public was very unhappy about it. The popular slogan put out by the politicos to rub the people’s bellies and put them to sleep was “we just owe it to ourselves.” Oh, we do, do we? Well, it we just owe it to ourselves, why don’t we just pay ourselves? Why is only the liability side of the transaction talked about and never the asset side? Obviously, it is not a “we” situation. As George Carlin said, “it’s a big club, but you’re not in it.”
The tragedy that faces all mankind is that it was all a great deception. The money lenders contributed nothing – and in exchange received everything. The debt we are drowning in is simply an entry on a ledger. It’s the perfect crime because not only did they steal everything, people willingly work to pay them back (so they actually stole it twice), and pay compound interest. Good work, if you can get it.
carmudgeon on May 16th, 2010 at 1:01 pm Report commentConcerns about public financing in the USA?
The USA has a puny tax per capita of 8.6k?
Social services are totally lacking.
Corporate welfare in the health care industry.
America’s problems are nothing that a snap of the fingers wouldn’t solve.
Roll tax cuts back to the Clinton/Reagan era.
Increase cap gains taxes.
Reform health care and the Pharma industry.
Cut defense spending.
The USA has an incredible amount of wriggle room precisely because it is a low tax, low social spending area. I know the hawks at the IMF must be eyeing social services cuts but they should look at those projections and realize they imply an increase to 30% of GDP for health care.
danasta on May 16th, 2010 at 4:07 pm Report comment[...] US faces one of biggest budget crunches in world [...]
Right-Wing Links (May 16, 2010) on May 16th, 2010 at 4:13 pm Report commentA number of posters have asked who the creditors are in this global debt orgy. They are you. They are your pension funds. Your social security systems. Your ‘Low Risk’ mutual funds and unit trusts. To an extent they are also net exporters like China and the Gulf Petro-states.
When these bond holders take a haircut or lose everything, there will be hell to pay. For example, the US social security system has been taking in more cash from the baby-boomers than it has paid out every year since it was founded. Unfortunately, the US Government has, over the years, taken every penny of this money and replaced it with IOU’s in the form of US Treasuries.
Now, when the Babyboomers come to retire and start drawing on that Social Security pot, all they have is a promise from future taxpayers to pay interest on those treasuries. If the US Govt defaults or inflates away the value of those treasuries…it’ll get ugly.
Here is a must watch video on the true nature of the situation the US is in. It’s nearly an hour long, but addresses most of the key points.
Some highlights:
1. If the US took 100% of all it’s citizens income this year in tax, it would still run a deficit.
2. If the US cut 100% of all government expenditure excepting only Social Security, Medicare and Medicaid, it would still run a deficit.
http://www.youtube.com/watch?v=eb1n1X0Oqdw&feature=player_embedded
francis on May 16th, 2010 at 4:48 pm Report comment[...] be violently sucked in. Consider what it might be like facing the sort of numbers outlined in Edmund Conway’s review of the IMF’s recent cross-country Fiscal Monitor [...]
On the Pensioning of Roman Veterans | Finance Blog on May 16th, 2010 at 6:32 pm Report comment[...] be violently sucked in. Consider what it might be like facing the sort of numbers outlined in Edmund Conway’s review of the IMF’s recent cross-country Fiscal Monitor [...]
On the Pensioning of Roman Veterans | Stocks! on May 16th, 2010 at 7:21 pm Report commentThe left hand axis on the first graph runs from 0-120. On the second it goes from 0-250. Since both graphs are supposed to show the same thing, debt as a percentage of GDP for the two countries, shouldn’t they be the same?
williamy on May 16th, 2010 at 9:16 pm Report commentGreetings from America! LMFAO! Our news outlets here don’t report much regarding our financial crisis here. When they do report anything, they lie and what I call, “sugar coat the poison.” FACT:Everyday, 7,000 American “Baby Boomers” are now on Social Securty, Medicare, and Medicare Rx Drug coverage! Foreclosures are getting much much worse. Some people are just “squatting” in thier homes or other homes! Sadly, I need to go on other news sites around the world to get the facts. Try this website: wwww.usdebtclock.org
gary4452003 on May 16th, 2010 at 10:22 pm Report commentThe English would expand themselves to death, the Germans would arm themselves to death, and the Americans would loan themselves to death.
Author unknown.
makan on May 17th, 2010 at 3:31 am Report commentdebunker; They are going to pay more for things so they can afford to buy a house? That does not make sense, big or small picture.
Morning dude! What you in?