“Brazil is confronting a toxic combination of a primary budget deficit, high public debt (relative to EM countries), very high real interest rates (the Selic stands at 14.25%), sluggish trend growth, a negative commodity price shock and potential contingent liabilities for the sovereign, which together spell trouble for public debt dynamics.”
Dear Mr. President, your country faces a stagnating economy... The truth is it is too late for our politicians to act, because the speculative peak that precedes the crisis is already upon us.
"Can the government maintain this strategy of flooding the oil market? In our view, it is unlikely that Saudi leaders would want to exacerbate its ongoing reserve drain by pushing prices below $40/bbl. After all, pressure will quickly build on the riyal’s 30 year peg to the USD if Brent crude oil prices keep falling."
America’s leading Sunni ally is proving how easily hubris, delusion, and old-fashioned ineptitude can trump even bottomless wealth.
If the Fed raises the short-term interest rates next month, it will do so only as a token. And it will continue doing so only as long as it has no negative effect on asset prices. Higher rates, in other words, will only happen as long as – and only insofar as – they are irrelevant. Should higher rates begin to do the work of tightening credit, as they are supposed to, the Fed will back off and fly to the aid of Wall Street and fellow bankers coast to coast. They have rigged the system to function on fraudulently low interest rates; now the fraud has gotten into its bones. The economy – especially the Wall Street economy – depends on cheap money. It will fall in a heap without it.
In what sounds like the plot of a McCarthy-era propaganda spy novel, the Socialists and Communists have overthrown the government in Portugal. That means it's time for the troika to start pushing back against the undesirables by threatening the country with financial ruin. Just call it "tough love."
When Saudi Arabia moved to Plaxico themselves last November by killing the petrodollar in an effort to bankrupt the US shale space and tighten the screws on Moscow, Riyadh set in motion a series of events that culminted in a 20% fiscal deficit and, most recently, an S&P downgrade. Now, the kingdom is not only running out of money, but water and food as well.
It is possible that we might witness the formation of two blocks within OPEC during the next December 4 meet in Vienna. One, led by Venezuela, Ecuador, Libya and Algeria that would want to reduce production levels and the other led by Saudi Arabia, UAE and Kuwait that would stick to the current strategy of defending market shar. In the end, it will come down to survival of the fittest. Players who have higher breakeven costs will be the ones who will blink first and thereby reduce their production levels.
Who holds the majority of the debt that would be at risk in a Russian default? Not China. Not Iran. Not Syria. No, it’s the exact same nations, and banks and funds within those nations, that are applying the sanctions against Russia. So, if Russia does default, what does it mean in terms of its political relationship with the West? Nothing. But what does it mean to its creditors? Everything... Simply put, if Putin believes that the benefits of a default outweigh the consequences to his country, he won’t hesitate to do it, no matter the international ruckus it might raise.
Today, as we previewed last week, we got just the deal we envisioned. Which leaves us only with the soundbites, such as this one moments from from John Boehner.
BOEHNER SAYS AGREES WITH RYAN THAT PROCESS THAT PRODUCED BUDGET DEAL "STINKS"; BUT ALTERNATIVE WAS CLEAN DEBT CEILING HIKE OR DEFAULT
And as Boehner's last act, he now has the honor of telling the US public that its latest and greatest debt target has just been increased to just shy of $20 trillion.
Watch out for a snowball-effect in the Treasury market...
What this economic crisis does highlight is that short-term success should never be taken as proof of a long-term solution. And this is particularly true when it comes to quasi-socialist and extreme populist governments. In the long-run, countries that follow these policies have a consistent track record, which is basically the same as what we’re witnessing now in Venezuela.
"Then tell me, future boy, who's President of Brazil in 2016? Then who's vice president?"
Last week, beleaguered Illinois Comptroller Leslie Geissler Munger admitted that, thanks to the bitter budget battle going on in Springfield, the state would miss a $560 million pension payment in November. Now, in a move that shouldn't exactly surprise anyone, Fitch has cut the state's GO rating citing the budget impasse. The move affects some $27 billion in debt.