Archive - Sep 9, 2012

It's time for the FACEBOOK FIASCO MSM blame game...

As of Friday, total US debt subject to the limit was $16.006 trillion, or $387 billion below the latest and greatest official debt ceiling. In the past 3 months the US has been raising debt at a slower pace than usual precisely for this reason. Debt issuance will now pick up at far faster pace as the trendline mean reversion reasserts itself. It means that sometime over the next few months, and certainly before the end of the year, the US debt ceiling will be breached (with all the usual tactics employed to delay this event from happening as much as possible, including resuming the pillaging of various government retirement funds) as the Treasury itself warned. It also means that either just before or just after the presidential election, the topic of the debt ceiling will be once again upon us. As a reminder, the reason why the market plunged back in August of 2011 is because as the GOP proved unwilling to compromise, suddenly everyone, led by Tim Geithner, realized just how close to a failed auction, read endgame, the US was, and the dire need for a wake up call became paramount. Furthermore as is well-known, the only stimulus Pavlovian politicians react to is a market collapse, which not only instills the fear of the "401(k)" god falling to earth, but lights up the switchboards as concerned "voters" suddenly realize that all their mark-to-Bernanke's market "wealth" may disappear in a puff of smoke. It is now, courtesy of Bob Woodward, that we learn just how close we came. And since the polarity and discord in Congress after the election, already at record levels, will soar to new all time highs after November, it is safe to say that the debt ceiling debacle deja vu is coming, and this time it will make the first one seem like child's play.

Who in their right mind would buy any government bonds today?

One of the populist buzzwords of the past 5 years, particularly in Europe, has been "austerity", which as we have said for the roughly the same past 5 years, is simply a synonym for "deleveraging" but one which carries just the right amount of negative connotations, and is used by crafty politicians to shift blame from their own failure to enact proper policy (which over the past 30 years has merely meant to borrow growth from future political cycles, aka, issue debt) onto a "technical" word conceived by Ph.D.-clad economists, who too, are looking for a passive victim on which to project their failure of enacting a voodoo economic theory. There is one problem with all of the above. As we have also been saying for the past five years, the austerity deleveraging myth is one big lie. We are setting the record straight below with facts and figures. We would be delighted if some politician, somewhere, could disprove these facts, which essentially imply that the world is now in a global recession, having experienced no growth as the recent 100% contractionary PMI print of all major economies confirms, yet without any country actually having implemented austerity, pardon deleveraging to have at least a modest justification for this failure of growth.

Earlier this week, former U.S. president Bill Clinton gave the keynote address to the Democractic National Convention in an effort to lend some of his popularity to Barack Obama.  With the unemployment rate still stubbornly high at 8.1%, Obama has lost many of the enthused voters who put him into the Oval Office in 2008.  Clinton was tapped to deliver the speech not only because of his image of a wonkish pragmatist but because of his presiding over the booming economy of the late 1990s.  Like a prized mule, Clinton was dragged out to give Democrats someone to point to and say that his policies were the hallmark of smart governance.  Today, Clinton still takes credit for Greenspan’s manipulated boom.  His supporters on the left love nothing more than to point at his presidency as vindication of the backwards theory that higher taxes equal more growth.  Clinton wasn’t a policy wonk; he was a politician who dipped into the Social Security trust fund to give an appearance of balancing the budget while the national debt still climbed higher. Through all of his financial scandals, womanizing, aggressive foreign policy approaches, and possible cover ups, it is actually fitting that Clinton is still looked to by the political establishment as someone worthy of respect.  He is representative of F.A. Hayek’s timeless lesson: in government the worst rise to the top and state power corrupts.