National Debt

We have long been concerned at the implicit and explicit subordination of both financial and sovereign bondholders in Europe by the actions of their overlords political elite in pursuit of short-term liquidity fixes to insolvency issues. As talk of the ESM coming to life in the short-term and a 'Redemption Pact' in the intermediate term - which as Goldman describes involves mutualizing a portion of each country's debt (resulting in a partial upgrade of the existing pool of Eurozone sovereign bonds) in a European Redemption Fund (ERF) and, in the process, extending debt maturities (kicking that can) onto the public sector's balance sheet. As with all these mutualization schemes, the ERF ineluctably raises the twin problems of  'moral hazard' and 'subordination', which need to be mitigated. Goldman discusses these two sides of the same coin as it notes subordination is explicit when the ESM intervenes (and also with the ECB's SMP) but a little less obvious in the ERF (though still as painful) which is, we note, perhaps more appealing to keep the masses unaware.

Though the November election will be hyped as two opposites squaring off against each other, both candidates are considered rather moderate compared to who could have been the nominees.

The question is, are Barack Obama and Mitt Romney really that moderate?

Let’s account for the similarity in policy of both.

Greece, Spain, Portugal, Italy and others besides have fallen into the trap of bribing their electorates with promises that become ever more unsustainable. In each of these states, expectations have been created that cannot be met and that cannot now be undone. This is surely a recipe for social unrest. These will not be the only countries to succumb to failure. The national debt, the unaffordable long-term cost of social security, health care and a myriad other entitlements and the mounting evidence of the insolvent state point to the same outcome for the UK and the US. Failure is ensured; the more pressing question is, what happens next?

As we witness the riotous dissolution of corrupted capitalism, we need not wait for the history books to identify the mile markers of self-destruction. If we are to rebuild capitalism, even as it is tearing itself down, then we will need to become street-smart detectives in analyzing the current economic murder-suicide in progress. Every fall has its tell-tale confirmations and corrupt capitalism is no exception. There arrive key points where a system’s own contradictions become so evident and self-damaging, where motive, means, and opportunity become so clear, that one can mount an informed, effective counter-offensive.

Tony Robbins warned about the risk of dollar devaluation and spoke about the opportunities in gold

In an epic rant, trumping Biderman, UKIP's Nigel Farage appears to have reached the limit of his frustration with his 'peers' in the European Parliament after the Spanish bailout. Rajoy's proclamation that this bailout shows what a success the euro-zone has been, sends Farage over the edge as he sees the Spaniard as just about the most incompetent leader in the whole of Europe (up there with favorites like Van Rompuy and Barroso). The erudite Englishman notes that by any objective criteria "The Euro Has Failed" expanding on the insane farce of Italy funding Spain's banking bailout at a loss (borrowing at 6% to fund a loan at 3% as we discussed here). "This 'genius' deal makes things worse not better" as it merely drives other nations towards needing bailouts themselves and while his socialist colleagues in the room are mumbling and checking their blackberries, he reminds them that Spanish national debt will surge and that 100 billion does not solve the problem, and that if Greece leaves, the ECB is failed, is gone, and to rectify this there will be a cash call from the very same PIIS (Ex-G) that are tumbling towards the abyss. Blood pressure surges as he screams "you couldn't make this up" concluding that "the Euro Titanic has now hit the Iceberg and sadly there simply aren't enough lifeboats."

The financial elite - using academe for intellectual cover - want you to believe that markets are efficient, as defined by the Efficient Market Theory (EMT). Neoliberal economic philosophy is based on the belief that neoclassical economic theory is correct. That is, that “markets are efficient”. Wall Street touts markets as trustworthy and infallible, but that faith is misplaced. Gullible US politicians believe that markets are efficient and defer to them. Therefore, US politicians abdicate their responsibility to manage the overall economy, and happily for them, receive Wall Street money. Mistakenly, the primary focus during the 2008 credit crisis is on fixing the financial markets (Wall Street banks) and not the “real economy.” The financial elite are using this “cover-up and pray” policy—hoping that rekindled “animal spirits” will bring the economy back in time to save the status quo. This is impossible because the trust is gone. The same sociopaths control the economy. A Federal Reserve zero interest rate policy (ZIRP), causing malinvestment, and monetizing the national debt with quantitative easing by the Fed, and austerity for the 99% to repay bad bank loans has not worked—and doing more of the same will not work—and defines insanity.

You can’t watch the mainstream media propaganda channels for more than ten minutes without a talking head breathlessly announcing that gas prices have dropped for the 24th day in a row and are now back to $3.55 a gallon. Wall Street oil analysts, who are paid hundreds of thousands of dollars per year to tell us why prices rose or fell after the fact, are paraded on CNBC to proclaim the huge consumer windfall from the drop in price. This is just another episode of a never ending reality show, designed to keep the average American sedated so they’ll continue to spend money they don’t have buying crap they don’t need. The brainless twits that pass for journalists in the corporate mainstream media never give the viewer or reader any historical context to judge the true impact of the price increase or decrease. The government agencies promoting the storyline of those in power extrapolate the current trend and ignore the basic facts of supply, demand, price and peak oil. The EIA is now predicting further drops in prices. Two months ago they predicted steadily rising prices through the summer. What would we do without these government drones guiding us?

After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger (it is also the US, although while the US TARP was $700 billion or 5% of then GDP, the just announced Spanish tarp is 10% of Spanish GDP, so technically Spain is 2x the US). So now that the European bailout has moved from Greece, Ireland and Portugal on to the big one, Spain, here are the key outstanding questions.

10 Questions ...

Here we go again. Back in July 2011 we wrote an article entitled "The Real Banking Crisis" where we discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Since that time (and two LTRO infusions and numerous bailouts later), Eurozone banks, as represented by the Euro Stoxx Banks Index, have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the abysmal situation currently unfolding in Greece and Spain.... Although the last eight months have not played out the way we would have expected for gold, they have played out the way we envisioned for the banks. The question now is how long this can go on for, and how long gold can remain under pressure in a banking crisis that has the potential to spread beyond Greece and Spain? So much now rests on the policy responses fashioned by the US Fed and ECB, and just as much also rests on what's left of European citizens' confidence in their local banking institutions. Neither of these things can be precisely measured or predicted, but we continue to firmly believe that depositors in Greece and Spain will choose gold over drachmas or pesetas if they have the foresight and are given the freedom to act accordingly. The number one reason we have always believed gold should be owned, and why we believe it will go higher, is people's growing distrust of the banking system - and we are now there. We will wait and see how the summer develops, and keep our attention firmly focused of the second phase of the bank run now spreading across southern Europe.

Just in case there's somebody left who still believes so, Spain is not going to make it. In addition, Spain will crack the EU and bring the art of true fundamental analysis back into the fold.  Here's mucho evidence!

The word "sacrifice" has been sacrificed on the altar of expediency. The politicians we elect (those who dare speak the truth of our impoverishment and complicity don't get elected--we abhor and fear the truth) have ground the word "sacrifice" into meaningless with overuse; it now means nothing but yet another clarion-call to swallow lies and artifice to protect our share of the loot. The government can't be the problem, because the government issues me a nice check every month. And so we cling to easy falsehoods...  The problem is our consumerist, Central-State dominated society/economy that depends on ever-rising debt and and leverage is unsustainable, and placating ourselves with expedient simplicities that shift the accountability and responsibility from ourselves to someone or something else solves nothing. This reliance on excuses, denial and expediency is the hallmark of adolescence; in adulthood, these are the hallmarks of failure and pathology.
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Is this what we've become, brittle, simulacra "grown-ups" who are incapable of acknowledging the truth of our situation? If we cannot dare acknowledging reality, then how can we solve our problems? If we cannot bear an awareness of our systemic rot and unsustainability, then how can we move past denial and expediency? If we have lost the ability to live within our means and to acknowledge difficult facts, then we have lost everything: our national integrity, our ability to problem-solve, our vigor and our future.

As Americans mindlessly celebrate another Memorial Day with cookouts, beer and burgers, the U.S. war machine keeps churning. As we brutally enforce our will on foreign countries, we create more people that hate us. They don’t hate us for our freedom. They hate us because we have invaded and occupied their countries. They hate us because we kill innocent people with predator drones. They hate us for our hypocrisy regarding democracy and freedom. Just when we had the opportunity to make a sensible decision by leaving Iraq and exiting the Middle East quagmire, Obama made the abysmal choice to casually sacrifice more troops in the Afghan shithole. We have thrown over $1.3 trillion down Middle East rat holes over the last 11 years with no discernible benefit to the citizens of the United States. George Bush and Barack Obama did this to prove  they were true statesmen. The Soviet Union killed over 1 million Afghans, while driving another 5 million out of the country and retreated as a bankrupted and defeated shell after ten years. Young Americans continue to die, for whom and for what? Our foreign policy during the last eleven years can be summed up in one military term, SNAFU – Situation Normal All Fucked Up. These endless foreign interventions under the guise of a War on Terror are a smoke screen for what is really going on in this country. When a government has unsolvable domestic problems, they try to distract the willfully ignorant masses by proactively creating foreign conflicts based upon false pretenses.  General Douglas MacArthur understood this danger to our liberty.

“I am concerned for the security of our great Nation; not so much because of any threat from without, but because of the insidious forces working from within.”

No one likes paying taxes. You’d think.