Creditors

The numeric implications as well as the magnitude of the student loan bubble have been discussed extensively before. Yet just like most people's eyes gloss over when they hear billions, trillions or quadrillions, so seeing the exponential chart of Federal Student debt merely brings up memories of a math lesson from high school, or at best, makes one think of statistics. And as we all know statistics are faceless, nameless and can never apply to anyone else. It is the individual case studies that have the most impact. Which is why we would like to introduce you to Devin and Sarah Stang - student loan debt slaves in perpetuity.

As if our recent discussion of Austerity were not enough, Citi's Steve Englander invokes 'String theory' to open the door to multiple universes, and in one of them Paul Krugman is undoubtedly Fed Chairman. Start with the assumption that a Paul Krugman Fed would advocate strong fiscal and monetary measures and tolerate a significant run-up in inflation. The question is how the USD would respond in this world. The presumption is that the Krugman Fed would cooperate by financing the fiscal expansion, allowing government spending or (or in a very strange Republican Krugman parallel universe) tax cuts to have a real impact without affecting government debt, making a strong distinction between pumping liquidity into the banking system and directly into the real economy. In conventional terms,  this is Financial Repression 101, but inflation is desired, achieved and beneficial. As Krugman points out there is a cost to an extended period of long-term unemployment. The bottom line is that unless you make low inflation a canonical virtue, you have to compare the long-term losses from lower credibility (if they exist) against the long-term gains from moving to full employment quicker (if they exist).

All you need to read and more.

All you need to read.

On that note, I fully believe the EU in its current form is in its final chapters. Whether it’s through Spain imploding or Germany ultimately pulling out of the Euro, we’ve now reached the point of no return: the problems facing the EU (Spain and Italy) are too large to be bailed out. There simply aren’t any funds or entities large enough to handle these issues.

Austerity is dead!  Long live Spending! Futures are up, Italian and Spanish bonds are up, CDS spreads on them are at least 10 bps tighter, and MAIN is 3 bps tighter on the day (though I have this feeling I better type fast as we are starting to fade off the best levels). Lots of little things seem to be contributing to the strength, TXU earnings, no economic data, auctions that raised the required money, etc., but there does also seem to be a belief that Germany finally “gets it”.  That Germany is finally going to relent on their demands for austerity. So “Austerity Now” may be over, but killing something that didn’t work, isn’t the same as solving the problem.  Going back to the norm that caused the problem in the first place, hardly seems like a solution either.  Currency reversion and/or debt restructuring will be the ultimate end-game.

Has the case really gone cold? Or, are those who are in charge of the investigation, the "regulators" and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions?

On a day when Lagarde happily trots out statement after statement that the IMF has another bucketful of promises to solve the world's excess debt problems with its own debtors providing more of the wealth-creating debt in ever-increasing circles of ridiculous indebtedness, we may have found the perfect antidote. Perhaps, given the weakness in European sovereign markets this week, bond market investors have already watched the following presentation. Explaining in simple terms and for the broadest audience Paul Grignon's 'Money As Debt' explores the baffling, fraudulent and destructive arithmetic of the money system that holds us hostage to a forever-growing debt - and how we might evolve it into a new era. Get your popcorn ready.

On April 16, Argentine president Cristina Fernandez de Kirchner announced that her Argentine government would expropriate and re-nationalize YPF, an energy company operating mostly in Argentina founded by its government in the 1920s and de-nationalized in the 1990s. Repsol, a Spanish company that owns (owned) 57% of YPF called the act “illegal and unjustified” and vowed to sue. As Paul Brodsky and Lee Quaintance of QBAMCO note, in times past such expropriation would surely be an act of war. FdeK’s timing was brilliant, to re-nationalize the Spanish-controlled energy company when Spain’s economy and funding are teetering means the Spanish government and businesses domiciled there lack the clout to make demands of Euro confederates. The political calculus among leaders of sovereign governments reduces to short-term domestic political benefits vs. threats of economic or military retaliation but with regard to natural resources, the QBAMCO pair critically note, the bigger implication that it is sovereign vs sovereign as the paper bets representing global production and resources that we call “capital markets” is in jeopardy of becoming a sideshow. Baseless paper money, fractional banking, revenue shuffling, financial returns, ever-increasing debts, unwarranted confidence building, nominal output growth and politicians posing as policy makers cannot sustain the most basic needs of societies.

Back in July of last year, before it was even remotely acknowledged (and in fact it was roundly denied) that Greece would set a debt haircut precedent, which despite all the rhetoric has merely given all the other PIIGS ideas about debt haircuts of their own (and how to achieve these as fast as possible), Zero Hedge was the first media outlet to cut to the truth, with "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP." Note we said "soon to be" because it was obvious that the modestly complicated math of Germany bearing the cost of keeping the Eurozone alive would take quite a while to trickle down to the common German man. We did, however, underestimate the Bundesbank's mathematically helping hand in the form of one chart, most recently observed here, which makes the math far clearer than anything we could ever do to explain: namely the exponentially grown Bundesbank TARGET 2 balance, which is essentially Germany's way to fund, via the ECB, account imbalances across the Eurozone (explained in gory detail here), and put the national economy on the hook in ever greater amounts to a sudden and disastrous collapse of the Eurozone, because should a fat tail even occur, a solid 25% of German GDP would be Corzined. Today, The Telegraph's AEP does a bring down on the current status of this one biggest wildcard for Europe's future: namely, German anger, or as he puts it "tempers" which it appears have finally begun to boil.

Post-illusion choices. 

Three rings...count 'em. Or, are those jail cells? New emails show MF's General Counsel Ferber desperate to get Corzine in front of Gensler and keep the zombie Corzine Trade alive.

• First Japan now... Australia Ready to Help IMF (WSJ)
• "Not if, but when" for Spanish bailout, experts believe (Reuters)
• Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup (Bloomberg)
• Spain weighs financing options (FT)
• Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer (Bloomberg)
• Spain and Italy Bank on Banks (WSJ)
• Chesapeake CEO took out $1.1 billion in unreported loans (Reuters)
• China preparing to roll out OTC equity market – regulator (Reuters)
• Angry North Korea threatens retaliation, nuclear test expected (Reuters)
• North Korea Breaks Off Nuclear Accord as Food Aid Halted (Bloomberg)

Better stock up on the Depends now. 

Addressing his perception of lessons learned from the financial crisis, Ben Bernanke is speaking this afternoon on poor risk management and shadow banking vulnerabilities - all of which remain obviously as we continue to draw attention to. However, more worrisome for the junkies is the total lack of QE3 chatter in his speech. While he does note the words 'collateral' and 'repo' the proximity of the words 'Shadow, Institutions, & Vulnerabilities' are awkwardly close.