And meanwhile the charade in Europe continues, after the ECB purchases a whopping €2,313 million in the week ended January 17, bringing total purchases under the SMP program (a/k/a toxic crap monetization) to €76.5 billion. This is roughly 20 times higher than the pathetic €113 million monetized in the week before, when deluded holders of PIIGS debt were not selling hand over fist on the inane assumption that Europe will actually survive the imminent implosion. Last week's total purchases were the second highest weekly amount since July 2010, only topped by the €2,667 million purchased in the week ending December 13 when Ireland went tits up, and peacefully and very gracefully presented the key to its sovereignty to ubercrat Olli Rehn.
Can A Sovereign Debt Crisis Happen Here? A Case Study Of The 1995 Debt Ceiling-Precipitated Government ShutdownSubmitted by Tyler Durden on 01/16/2011 21:49 -0500
Lately there has been a lot of chatter among the supposedly smarter-than-mainstream media that even should the debt ceiling not be raised, it would not mean the bankruptcy of America as interest payments would still be satisfied. While that technicality is absolutely true, it is even more absolutely irrelevant. What propagators of such theories forget is that lately there are just two exponential curve trendlines that are worth noting: that of the cumulative debt issuance, and of the US cumulative deficit (see chart below). Each month, the US issues around $50 billion more debt than is needed to just fund the deficit. This is debt that is on top of the debt that is needed to plug the different between revenues and expenditures. As Zero Hedge has pointed out repeatedly before, that ratio is already roughly 1 to 2, meaning for every dollar in revenue the US government issues more than one dollar of debt just to fund the deficit. And then some. As the chart below shows, in December alone the government issued $84.4 billion on top of the budget funding shortfall ($80 billion deficit and $164.4 billion in debt issuance)! So yes, while the Treasury can fund interest expense at record low interest levels, that is completely irrelevant. Unable to fund incremental expenses to the tune of hundreds of billions per month, the US government will shut down (a point when nobody will accept US government IOUs, not Social Security which passed the point of being self sustaining last year, and certainly not Medicare and Medicaid, and most certainly not private sector Defense Vendors) just like it did in 1995. Below, we present the key charts and the full report from a must read SocGen report on the sovereign debt crisis, titled Can It Happen Here? We urge all those who pretend to have an educated opinion on the US funding crisis to read this report before they open their mouths in public and once again validate their critics.
It appears that Irish savers are sufficiently smart to realize that their money is no longer safe in a banking system whose existence is now only backstopped merely from referendum to referendum. As it is very unclear what will happen to the IMF/ECB rescue mechanism once the Irish election is held in March, with a material possibility that the whole plan will be unwound, leaving the country's financial system in the wind, a behind the scenes bank run is accelerating. Incidentally while this was the topic of the December letter by Guggenheim's Scott Minerd, which we discussed in a post titled "Scott Minerd's Detailed Pre-Mortem On What Europe's Bank Run Will Look Like, And Other Observations", his just released January missive deals with precisely the same topic (see chart below). So faced with the prospect of accelerating deposit redemptions, what does the Irish Central Bank go ahead and do? According to the Independent it has gone ahead and proceeded with that traditional recourse to all regimes in the bring: print money. "The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money." In other words, whereas Ben Bernanke may be 100% confident that US inflation courtesy of POMO and inflation printing will be absorbed by the "massive" excess slack in the economy (oddly enough it wasn't in Tunisia, as food prices hit records despite surging unemployment), we wonder if he feels the same way about other countries in the world, which are already part of a monetary union, yet which have decided to boost the "other assets" line in their balance sheets.
The European Union has become its own worst enemy. By design, there is no real leadership at the top of the structure. This is now undermining the unity of the Union, when it needs it most.
The US has its separately elected President of the United States while Russia has its Putin. Europe, however, has...
Rosenberg On The Illusion Of Prosperity, The 7 Biggest Downside Risks, And The Fed's Third Mandate: "Higher Equity Valuations"Submitted by Tyler Durden on 01/14/2011 10:54 -0500
It is refreshing to see that an economist of David Rosenberg's statute agrees with Zero Hedge that the third mandate (we personally believe it is the one and only) of the Fed is "Higher Equity Valuations." While a faux-indignant Corker pretends to attempt to cull the Fed's powers and remove the inflation mandate, maybe someone can finally eliminate the one mandate that the Fed does not even have in its charter, yet which is the only one that it is beholden to: namely to get the Dow to 36,000. Which brings us to another point: instead of giving us his forecast on the GDP, maybe Bernanke can simply give everyone his price target for the Russell 2000. It will save everyone a lot of second-guessing effort: after all the Fed now has complete control over the stock market, and the whole frontrunning the Fed shtick is getting old.
The simmering situation in Ireland may soon be coming to a boil once again. The Irish Times reports that "speculation is growing in Leinster House that a motion of no confidence against Mr Cowen may be tabled by backbenchers at a crunch Fianna Fáil parliamentary party meeting this afternoon. [His] position is looking increasingly under threat following further revelations about his contacts with Anglo Irish Bank officials in the lead-up to the controversial bank guarantee in September 2008." Not surprisingly, this is the same bank that we wrote about in October, spotting one Goldman Sachs among the list of bailoutees. And, as we described in painful detail over two months ago, it is very likely that one Peter Sutherland, Chairman of Goldman Sachs International, may have been instrumental in discussions with the Irish government which led to a taxpayer funded bailout of not only AIB, but the preservation of Goldman interests. We are confident that if related allegations are proven, being fired from his post will be the last of Mr. Cowen's concerns.
Just out from Goldman's FX group: another "tactical" top tick call extraordinaire: "From an FX point of view we would go long EUR/$ at current levels of 1.3180 for an initial target of 1.37 with a 1-day stop on a close below 1.2850." Of course, that Goldman had a "strategic" 1.55 EURUSD target as the pair plunged by 1,500 pips is irrelevant. Time to take the other side of the trade (i.e., the same as Goldman's 50% margin prop desk).
The market tone is mixed today as the onslaught of sovereign headlines has expanded from Europe to the broader market. Moody’s issued commentary on the US, UK, France and Germany that illustrates concerns on the countries’ debt ratings, while reiterating the current AAA status for now. Following a mutedly optimistic Beige Book yesterday, today will feature weekly jobs data as well as PPI for December. The weekly data are likely still in their holiday downdraft, but we should see some return to normal trends over the next two weeks.
The most expected yet anticlimactic bond auction for 2011 has come and gone: after getting the backstops of the ECB, China and most recently, Japan, Portugal managed to sell €1.25 billion in 4 and 10 year paper. And while the the yield on the 10 year was better than expected, and notably lower than the 7% where the point had been trading on the curve recently, the 4 year priced notably weaker compared to previous. Of course, none of this would have been possible had the ECB not been buying Portuguese bonds in the open market for two days this week, and continuing into Wednesday, into the biggest farce of a market currently operating in Europe.
December's stock market rally helped the UK's defined benefit pension schemes end the year back in the black, but that can shift abruptly...
Zero Hedge is happy to announce a new collaboration with the precious metals experts at Gold Core. We look forward to posting periodic industry updates, notes, analysis and commentary in conjunction with GC on all matters of topical significance in the PM space. As an introduction, we would like to present GoldCore's review of 2010 and Outlook for 2011. A sample from the analysis: "Should the dollar and other debt laden currencies and government bonds fall sharply in value due to a panic and wholesale liquidation we could experience hyperinflation. In this scenario paper assets will be shunned and people will protect themselves by buying hard assets such as real estate, commodities and gold and silver bullion. In such a scenario, gold and silver surge would quickly reach their inflation adjusted 1980 high of $2,300/oz and $130/oz before overshooting to much higher levels as was seen in Weimar Germany and more recently in Zimbabwe."
Not every insane act by a "lone wolf" is a political event. A tragedy to be sure, but in this case even if Jared Lee Loughner thought he was making a political statement, it was not a political event. It is an insane event. Yet the MSM insists on making it a political event.
Interestingly, the esteemed economist John Maynard Keynes considered the love of money a form of mental illness. Our need for money becomes the ‘hook’ through which the Big Wetikos (who control the supply and value of money) can ‘yank our leash’ and manipulate humanity.
Like I said, the Euro in its current form is finished. Europe can no longer “kick the can” down the road. SOME KIND of resolution has to happen. And it is likely to happen before the end of February.
All you wanted to know about why the world is bankrupt in many pretty charts.