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Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
Updated: 2 years 25 weeks ago

Where is the Unemployment Rate Headed? Interactive Mapping Lets "You" Set the Parameters, and Plot a Graph

Fri, 2012-03-23 04:29
I have a pretty cool interactive map below that will let you graph the unemployment rates based on parameters that you can choose.

First let's take a look at the current unemployment rate and a discussion of the parameters that define it.

The BLS says the unemployment rate is 8.3%. There is much recent debate over that number, and many do not believe it. Regardless, this is where we stand as of Friday March 9, as reported in my post Nonfarm Payroll +227,000 ; Unemployment Rate Steady 8.3%; BLS vs. Gallup.
Quick Notes About the Unemployment Rate


  • In the last year, the civilian population rose by 3,584,000. Yet the labor force only rose by 1,569,000. Those not in the labor force rose by 2,014,000.
  •  
  • In February, the Civilian Labor Force rose by 476,000.
  •  
  • In February, those "Not in Labor Force" decreased by 310,000. If you are not in the labor force, you are not counted as unemployed.
  •  
  • Participation Rate rose .2 to 63.9%
  •  
  • Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.The key is not how we got here, but rather where the unemployment rate is headed next.

Unemployment Rate Factors

Whether the unemployment rate rises or drops is a function of two factors

  1. How many jobs are created or lost
  2. How fast the labor force is rising or contracting

Bernanke estimates it takes about 125,000 jobs a month to keep up with population growth. Demographically speaking, I agree with that number but it should decline over the next few years as boomers retire.

The math is straight forward, all things being equal (they aren't) the labor force should rise by about 1.5 million jobs per year.

Household Survey Data



click on chart for sharper image
 
Recall that the unemployment rate is based not off the payroll survey, but the household telephone survey show above. This past month the BLS reported a "seasonally-adjusted" gain in employment of 428,000 workers.

The unemployment was steady because the BLS reported a "seasonally-adjusted" gain in the civilian labor force of 476,000.

Both unusually warm weather and questionable seasonal adjustments are at play.

The following numbers are from the "payroll survey" not the "household survey" but they may help give you a perspective on jobs.

Monthly Job Growth 1999-2011



Chart courtesy of BLS. Annotations in red by me, numbers are in thousands.

Key Points

  • At the height of the internet bubble with Greenspan stepping on the gas out of irrational fear of Y2K problems, the economy managed to gain 264,000 jobs a month.
  • At the height of the housing bubble in 2005, the economy added 208,000 jobs a month.
  • At the height of the commercial real estate bubble with massive store expansion, the economy added 172,000 jobs per month.

Neither the housing boom, nor the commercial real estate boom is coming back. Nor is there going to be another internet revolution.

Use those thoughts and whatever else you wish to decide how many jobs the economy will realistically add per month for the next several years. You can factor in a recession or not. It's up to you.

Next determine how many jobs it will take per month to keep up with demographics. Bernanke thinks 125,000 but you also need to decide how many of those 2 million people who gave up looking for work decide to start looking again.

With that backdrop ....

You Make The Call


<a href="#"><img alt="Will Unemployment Go Over 10%? " src="http://public.tableausoftware.com/static/images/Un/Unemployment2016/ProjectedUnemployment/1_rss.png" style="border: none" /></a>Powered by Tableau
Thanks to Ross Perez at Tableau Software for the above interactive map.

I had this idea from the first moment I saw Tableau Software. A recently introduced feature, the ability to map user generated input, is what made the graph possible.

Assuming 150,000 jobs a month and a labor force rise of 125,000 jobs a month, the unemployment rate would not cross below 8% until April of 2013.



Note the "Hover Over" effect. Put your cursor at any point on the line to see point-in-time details.

If disgruntled workers come back into the work force faster than job growth, regardless of what that job growth is, unemployment will rise. In general, that would be a good thing economically were it to happen, but it could mean a difficult time for those expecting the unemployment rate to drop as it has over the last couple years.

Regardless, I see no reason to deviate from my "Structurally High Unemployment For a Decade" call made years ago and reiterated in January in Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Atlantic Magazine Cover Proclaims Ben Bernanke "THE HERO"

Thu, 2012-03-22 17:59
If you are looking for the most nauseating cover possible on Ben Bernanke, please consider the April 2012 issue of the Atlantic.



The cover asks the question "Ben Bernanke saved the global economy. So why does everyone hate him?"

For starters Ben Bernanke did not save the global economy. Making such a proclamation is like a football fans proclaiming victory at the end of the third quarter with the score 54-24 following a 24 point rally after being down 54-0.

Simply put, it is far too early to make a presumption the Fed "saved" anything given the global economy remains hugely imbalanced and highly vulnerable.

Furthermore, we can state without a doubt Bernanke is Inflationist Jackass, Devoid of Common Sense, and Clueless About Trade, Debt, History, and Gold.

Even if the game was over, why should any credit be given when we can say without a doubt the Fed caused the global economic crisis in the first place?

Once again I repeat ....

Bernanke: Why are we still listening to this guy?

The following video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It's a compilation of statements he made from 2005-2007 that will have your head spinning.



Please play that video. Bernanke proves over and over again he is a clueless jackass, devoid of common sense.

Proving that he cannot think clearly, Roger Lowenstein, writer for the Atlantic says "The visceral criticism of Bernanke is hard to fathom." Really?

Lowenstein concludes with "history may marvel that Bernanke has been a success".

Contrarian Cover Indicator

I suggest the cover for the Atlantic will prove to be as contrarian as the Time Magazine Home $weet Home | June 13, 2005 cover.



I used that cover to call a top in housing. Take that Atlantic cover as another huge contrarian indicator.

Given the enormous global imbalances that still remain were caused by the Fed, given that "too big to fail" has become "too bigger to fail", given that those on fixed income have been crucified by Fed policies, and given US deficits are over $1 trillion as far as the eye can see, the idea the "global economy has been saved" by the Fed is preposterous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


"Eurozone Slides Back Into Recession" Says Markit PMI News Release; Sharp Decline in German Export Business; Misguided Decoupling Theories

Thu, 2012-03-22 13:13
Inquiring minds are digging into details of the latest Eurozone releases. The Markit Flash Eurozone PMI® says Eurozone slides back into recession as output falls at stronger rate in March
Both manufacturing output and service sector activity contracted in March, showing the worst performances for three and four months respectively. However, in both cases, the rates of decline were only very modest.

Output rose in Germany, but the rate of growth slowed to a three-month low to show only a marginal gain. Output meanwhile fell slightly in France for the first time in four months, and dropped sharply again in the rest of the region.

  • Flash Eurozone PMI Composite Output Index at 48.7 (49.3 in February). 3-month low.
  • Flash Eurozone Services PMI Activity Index at 48.7 (48.8 in February). 4-month low.
  • Flash Eurozone Manufacturing PMI at 47.7 (49.0 in February). 3-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 48.8 (50.3 in February). 3-month low

Eurozone PMI vs. GDP



Core v. Periphery PMI Output Index



Incoming new business fell for the eighth successive month, deteriorating at the fastest rate since December. Renewed declines in France and Germany were accompanied by a sharper rate of contraction elsewhere (on average). The rate of decline of new orders also exceeded that for output, causing backlogs of work to fall for the ninth successive month. This is likely to put further downward pressure on output levels in April.

New orders fell at the fastest rate for three months in both manufacturing and services. Goods producers reported the steeper rate of decline, as falling domestic demand was exacerbated by a ninth consecutive monthly drop in new export orders.

Companies cut employment levels for the third month in a row, contrasting with rising headcounts over the prior 20 months. The rate of job losses was only very modest, but nevertheless the highest for two years.

Employment barely rose in Germany, contrasting with the strong growth seen throughout last year and showing the weakest increase for two years.

Chris Williamson, Chief Economist at Markit said:
“The Eurozone economy contracted at a faster rate in March, suggesting that the region has fallen back into recession, with output now having fallen in both the final quarter of last year and the first quarter of 2012. The downturn is only very mild at the moment, with the PMI signalling a drop in GDP of approximately 0.1-0.2%, and an upturn in business confidence in the service sector provides hope that conditions may improve again later in the year. However, firms are clearly focusing on cost reduction, with employment falling at the fastest rate for two years as inflows of new business continued to deteriorate, reflecting weak demand across the region.

“Even hiring in Germany has almost ground to a halt due to a further drop in new business, suggesting that the brief improvement in business conditions seen at the start of the year is running out of steam. French companies meanwhile reported a drop in activity for the first time in four months, and the first cut in staffing levels since last September. Germany and France look to have avoided a return to recession, but only by very narrow margins.Sharp Decline in German Export Business

Let's now turn our focus on the vaunted German export machine. Please consider the Markit Flash Germany PMI®.
  • Flash Germany Composite Output Index at 51.4 (53.2 in February), 3-month low.
  • Flash Germany Services Activity Index at 51.8 (52.8 in February), 4-month low.
  • Flash Germany Manufacturing PMI at 48.1 (50.2 in February), 4-month low.
  • Flash Germany Manufacturing Output Index at 50.5 (53.9 in February), 3-month low.

At 51.4 in March, down from 53.2 in February, the seasonally adjusted Markit Flash Germany Composite Output Index indicated only a marginal expansion of private sector business activity. Output growth has now been recorded for four months in a row, but the latest rise was the weakest since December 2011 and slower than the long-run survey average.

March data pointed to a slight reduction in new business received by private sector companies in Germany. This renewed contraction in client demand means that total new work has now fallen in seven of the past eight months. The overall reduction was driven by a solid drop in manufacturing new orders, whereas service providers noted a modest expansion in March.

Manufacturers also reported a sharp and accelerated decline in new export business, suggesting that softer global trade flows had been a key factor behind the latest fall in new work. Highlighting a corresponding weakening of worldwide demand for raw materials, manufacturers pointed to the strongest improvement in suppliers’ delivery times since July 2009.

Input price inflation meanwhile accelerated for the fifth month running in March, reaching its highest since June 2011. Anecdotal evidence widely cited higher costs for fuel and raw materials. Strong competition for new work meant that firms were generally unable to pass on the full extent of these price rises to clients in March.

Tim Moore, Senior Economist at Markit said: “A slight stumble for Germany’s private sector in March, meaning the survey is tracking a modest GDP rise of around 0.2% over the first quarter. While perhaps a disappointment given the strong upward momentum at the very start of 2012, this would still mean Germany avoiding the double-dip recession that hangs over the euro area at large."Key Points

  • Manufacturers also reported a sharp and accelerated decline in new export business
  • Renewed contraction in client demand means that total new work has now fallen in seven of the past eight months.
  • Strong competition for new work meant that firms were generally unable to pass on the full extent of these price rises to clients in March.

What's with the Markit "Pollyanna" Forecasts?

This month Markit is talking about Germany avoiding a recession. Even more amazingly, just last month Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:

“A retreat back below the 50.0 no-change level for the Eurozone PMI is a disappointment, and highlights the ongoing risk that the region may be sliding back into recession. Although business conditions are showing signs of stabilising so far this year, which represents a marked improvement on the widespread deepening gloom seen late last year, the Eurozone is by no means out of the woods. Demand needs to improve considerably in coming months before we can safely say that the region will return to anything like reasonable growth.

Sharp divergences in performance also continued to be evident across the region, with modest growth in Germany contrasting with a steep decline in the periphery. Given the lack of domestic demand in austerity-hit peripheral countries, this divergence looks set to continue for some time.”

My response in Eurozone PMI "Worse Than Expected" and Back in Contraction; Expect German-Periphery Divergence to Resolve to the Downside for Germany was as follows.
Expect German-Periphery Divergence to Resolve to the Downside for Germany

The idea that Europe can avoid a recession is complete silliness. Europe is clearly in a recession already.

The amazing thing is things have not deteriorated more than they have. Unlike the Chief Economist at Markit, I expect the divergence to resolve to the downside for Germany, not for the divergence to continue for some time. Given conditions in Europe and Asia, the odds that Germany is immune from the global slowdown are essentially zero.Notes on Misguided Decoupling Theories

Look for outright contraction next month in Germany and for economists everywhere to finally throw in the towel on the half-baked notion that Germany can avoid a recess in austerity-driven Europe with China slowing as well.

The same holds true for the US.

The irony in the US is economists who expected Asia to avoid a US recession in 2008, now believe the US can avoid a slowdown in the rest of the world. Decoupling theories are as silly now as they were then.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


FedEx Lowers Outlook Due to Tepid Economic Growth

Thu, 2012-03-22 12:29
All is not well in the global economy and FedEx knows it. Reuters reports FedEx global economic view darker, shares drop
A strong holiday season and mild winter helped FedEx Corp beat Wall Street's profit forecast, but the world's No. 2 package delivery company warned that it had lowered its outlook for the rest of this year due to tepid economic growth.

"The fourth quarter is still very good, but what we're seeing at the moment ... is we just don't have as strong an economy as we would have hoped it would be a year ago," Chief Financial Officer Alan Graf told analysts on a conference call.

"The economic environment and the elasticity that we're seeing on our premium services due to high fuel costs are dampening momentum a bit."

The company said more expensive fuel was prompting customers to choose to ship goods by truck rather than air to save money.

FedEx is undergoing a fleet upgrade to improve fuel efficiency, having announced in December that it was buying new Boeing aircraft to replace some aging planes and delaying delivery of others to cut expenses.

Graf said FedEx will continue to reduce flight hours and park planes in the desert until economic conditions improve.

The massive volume of goods moved by FedEx makes its shipping trends a bellwether of consumer demand and the pace of economic growth.Expect more profit warnings from companies because they are coming.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Ben Bernanke: Inflationist Jackass, Devoid of Common Sense, and Clueless About Trade, Debt, History, and Gold

Thu, 2012-03-22 01:05
Jo Weisenthal writing for the Business Insider claims Ben Bernanke Just Murdered The Gold Standard.

In an equally feeble post, Simone Foxman also writing for the Business Insider writes Ben Bernanke Explains Why The World Will Never See Another Gold Standard.

What is the Proper Supply of Money?

Let's start with Simone Foxman who says
Bernanke pointed out various reasons that there's simply "not enough gold" to sustain today's global economy. First, extracting gold from the ground is a costly and uncertain endeavor. There is a limited amount of gold in the world, and it just doesn't make sense in the modern world for central or commercial banks store large amounts of gold in vaults. The size of the gold supply and inconvenience of the metal renders it too impractical to keep up with the pace of global commerce.Startling Truth About Money Supply

Please consider a snip from a free eBook on Mises.Org by Murray Rothbard, What Has Government Done to Our Money?
An increase in the money supply, then, only dilutes the effectiveness of each gold ounce; on the other hand, a fall in the supply of money raises the power of each gold ounce to do its work. We come to the startling truth that it doesn’t matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the gold-unit. There is no need to tamper with the market in order to alter the money supply that it determines.That snip is on page 29. Inquiring minds should start reading on page 26, the beginning of the chapter The “Proper” Supply of Money.

Moreover, I would like to point out that if there was a "proper" supply of money, different than stated above, the jackasses at the Fed (and the bubbles they have blown) have without a doubt proven they sure do not know what it is.

As Russia (and numerous other countries) have proven throughout history, the very idea that a bunch of central planners sitting in a room can decide on the proper supply of virtually anything is inane. Only free markets, operating without artificial interference from clueless bureaucrats can do that.

Price Volatility

Simone Foxman continues with still more economic drivel.
Second, while advocates of the gold standard are right that prices remain stable in the long-term, "on a year to year basis, that's not true." Limited supplies of gold—or changes to the supply of gold—cause prices of goods to be volatile in the short-term, regardless of long-term price stability.Now that's pretty interesting. Simone admits that prices under a gold standard remain stable in the long term but she, like Bernanke is worried about the short-term.

There are two errors in in that short snip. Did you catch them? The first error is prices under a gold standard are not necessarily stable in and of themselves (short or long-term). Rather prices are relatively stable under a gold standard if and only if banks do not lend out more gold than there is.

History shows that alleged problems of the "gold standard" are primarily a problem of central bank interest rate manipulations in conjunction with fractional reserve lending that allows banks to lend out more money than there is gold backing it up.

The John Law Mississippi Bubble is a classic example.

Certainly when it comes to short-term price stability, the Fed does not have a leg to stand on. The housing bubble and its collapse and the dot-com bubble and its collapse are proof enough. How anyone could miss those analogies is nearly beyond belief, but Simone Foxman managed to do it.

Inability to Open Up Credit

Foxman continues with ...
[Bernanke] pointed to a substantial tome of economic research finding that the gold standard aggravated the Great Depression, saying "the gold standard was one of the main reasons the Great Depression was so bad and so long." The inability of the Federal Reserve to control monetary policy—open up credit, address unemployment, and drive business demand—left it with much less power to avert or mitigate the decade-long crisis. Bernanke added that countries not tied to the gold standard also had a much easier time getting out of the Depression. In the modern world, he said, "we've seen that problem with various kinds of fixed exchange rates."Bernanke Says Pigs Can Fly

In other news, Bernanke said "pigs can fly" and Foxman concluded "pigs can fly". Seriously, just because someone in authority says something, does not make it true.

Proper analysis shows the true cause of the great depression was the enormous runup in credit and money the preceded it, just as happened in the Mississippi Bubble scheme. With that in mind, it is beyond silliness to propose more credit and more money is the cure for a problem caused by too much money and too much credit.

To believe so is to believe the solution to the Mississippi Bubble would have been to print still more money in the wake of that economic collapse.

Sorry Simone Foxman, You Can't Think Independently

Foxman concludes with "Sorry, Ron Paul. We think Bernanke just destroyed your position."

I conclude Foxman cannot think on her own accord, accepting economic drivel as fact because it comes from a position of authority.

Jo Weisenthal's Drivel

Let's now turn our attention to a point-by-point rebuttal of economic drivel presented by Jo Weisenthal.

Weisenthal: To have a gold standard, you have to go dig up gold in South Africa and put it in a basement in New York. It's nonsensical.

Mish: In my rebuttal to Simone Foxman, I stated that any amount of money was sufficient. One does not need to dig up more gold to have a proper supply. However given the credit bubble and the housing bubble, it should be quite clear we had vastly more supply of paper money than needed.

Weisenthal: The gold standard ends up linking everyone's currencies.

Mish: So what? Look what happened after Nixon closed the gold window. We have had nothing but problems, temporarily masked over by printing more money until things blew sky high, culminating in bank bailouts at taxpayer expense, and those on fixed income crucified in the wake.

Bear in mind, no one needs to fix the price of gold in dollars or any other currency. Indeed that is the wrong way to do it. Rather, one dollar should represent "x" amount of gold. As long as fractional reserve lending does not come into play and banks do not lend out more money than they have gold, problems under a gold standard would be far less than they are now. History suggests the same.

By the way, nothing about "linking" stops devaluations. For example, suppose the Drachma is defined as 1 drachma is redeemable for 1/1000th of an ounce of gold. Tomorrow, nothing stops the Greek government from saying, effective immediately you can only get 1/2000th of an ounce of gold for a drachma. That is a 50% devaluation, something Greece is unable to do now, on a "Euro standard".

Weisenthal: [A gold standard] creates deflation, as William Jennings Bryan noted. The meaning of the "cross of gold" speech: Because farmers had debts fixed in gold, loss of pricing power in commodities killed them.

Mish: Hello Joe. Please tell me how many in this country would not like to see lower prices at the gas pump, lower prices on food, lower rent prices, lower prices on clothes? The fact of the matter is price deflation is a good thing. The only reason why it seems otherwise is debt in deflation is harder to pay back. That is not a problem with deflation, that is a problem of banks foolishly lending more money than can possibly be paid back. Fractional reserve lending is the culprit.

Weisenthal: The economy was far more volatile under the gold standard (all the depressions and recessions back in the pre-Fed days).

Mish: Really? On what planet? Did the collapse in the housing bubble affect your ability to reason? Except for cases like Weimar, Mississippi Bubble, and for that matter all bubbles, gold provided stability. The bubbles (and the subsequent collapses) were caused by fractional reserve lending, not the gold standard.

Weisenthal: The only way the gold standard works is if people are convinced that the central bank ONLY cares about maintaining the gold standard. The moment there's a hint of another priority (like falling unemployment) it all falls apart.

Mish: That is one of the silliest defenses of paper money I have ever seen. The fact of the matter is, the ONLY reason paper money works at all is governments mandate its use. The free market would never except as money something that can be created at will in infinite supply. The idea that gold would "fall apart" in the case of employment conditions is simply inane.

Weisenthal: Gold standards leave central banks open to speculative runs, since they usually don't hold all the gold.

Mish: In a series of weaker and weaker arguments, Weisenthal proves 100% without a doubt he does not know a damn thing about either gold or what causes bank runs.

What Causes Bank Runs?

  1. Lending out more money than there is gold backing it up
  2. Duration mismatch - Banks secure money for 5 years via CDs then lend the money for 30 year mortgages. The problem comes when people want their money back after 5 years and it isn't there.

Both practices are fraudulent. They are the equivalent of selling the Brooklyn Bridge without having ownership of it.

Conclusion

All of the problems allegedly caused by the gold standard are in fact properly attributed to one of the following four things:

  1. Central banks and their inept Soviet-style central planning
  2. Fractional reserve lending
  3. Fed manipulation of interest rates
  4. Government sponsored monetary printing, frequently but not always to fight absurd wars that have no justified explanation. The War in Vietnam and the War in Iraq are recent examples.


The biggest housing bubble in history happened because the Greenspan Fed held interest rates too low too long. I made that case recently in a pair of related posts:



Here is the key chart and commentary from the first link.
HPI-CPI



click on chart for sharper image
The Fed kept interest rates at historic lows between 2002 and mid-2004. The last two rate cuts by Alan Greenspan were not justified at all, by any measure, and downright absurd considering the bubble brewing in housing prices vs. rent.Certainly the Greenspan Fed ignored (cheerleaded is a better word), the housing bubble every step of the way. Bernanke defended the housing bubble and failed to see its consequences.

The most amazing, and galling thing, is Bernanke has the nerve to preach about "price stability" in the wake of that collapse.

Bernanke: Why are we still listening to this guy?

The following video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It's a compilation of statements he made from 2005-2007 that will have your head spinning.



Please play that video. Bernanke proves over and over again he is a clueless jackass, devoid of common sense.

In regards to trade, I ask you to read Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Finally it is important to point out it is those with first access to money that benefit from inflation. Who is that?

  1. Banks, because they can conjure up loans out of thin air and the Fed will bail them out if they go bust
  2. The already wealthy
  3. Government (via tax confiscation, especially property taxes)

By the time money is readily available to any fool who wants it, it is primarily fools who want it. Once again, the housing bubble is proof enough.

Those on fixed income and those in the middle class have been hammered by Fed policies. If you are looking for a reason for the shrinking middle class, then look at the Fed. 

For some reason Jo Weisenthal and Simone Foxman are not only listening to Bernanke's economic drivel, they actually believe it and are attempting to spread the word.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Another MF Global, Only Smaller: WorldSpreads has 13 Million-Pound Shortfall in Client Money

Wed, 2012-03-21 12:21
Following an "unusual pattern of client trading" WorldSpreads Announces 13 Million-Pound Shortfall in Client Money
WorldSpreads Group Plc (WSPR), a U.K. brokerage and spread betting company, said it has a shortfall of 13 million pounds ($21 million) of client money as it appointed KPMG LLP as an administrator to manage the business.

WorldSpreads owes clients 29.7 million pounds and has about 16.6 million in cash, the London-based company said in a statement. The firm’s stock was suspended on March 16 after it discovered a hole in its accounts.

“Due to the accounting irregularities that have been discovered, it is likely that there will be a shortfall to clients,” KPMG said in a separate statement. “One of the immediate priorities of the special administrators will be to investigate and attempt to reconcile all client positions in order to establish the extent of the shortfall.”

WorldSpreads’s founder, chief executive officer and largest individual shareholder, Conor Foley, resigned March 14. Roger Hynes, a former managing director at CMC Markets Plc, replaced him as interim CEO. Niall O’Kelly resigned as chief financial officer in February as WorldSpreads said it would post a full- year loss after an “unusual pattern of client trading.”

Clients’ accounts were frozen on the afternoon of March 16, preventing them from withdrawing money or adding to their funds, according to Sorrelle Cooper, a spokeswoman for KPMG in London. Any open positions were also closed, she said.

WorldSpreads clients facing losses may have access to the Financial Services Compensation Scheme, which covers as much as 50,000 pounds per claimaint, the Financial Services Authority said in a separate statement.

The firm has about 15,000 client accounts and 66 employees, who will be initially retained “to support the orderly wind down of the business,” KPMG said. Redundancies are nonetheless probable, it said. This begs the question: Do you know where your money is?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Spain Faces "Increasing Risk of Debt Restructuring" Says Citigroup Chief Economist

Wed, 2012-03-21 12:02
Spanish Sovereign debt yields jumped again today following Restructuring Concerns expressed by Willem Buiter.
Spanish bonds fell, pushing 10-year yields to the highest level in a month, after Citigroup Inc. chief economist Willem Buiter said the nation faced an increasing risk of a debt restructuring.

Ten-year Spanish securities slid for an eighth day, widening the extra yield over similar-maturity German bunds, as a decline in European stocks sapped demand for higher-yielding assets.

“Spanish spreads moved much wider after Buiter’s comments,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “This highlights concern over further debt restructuring. Bunds recovered on the resulting safe-haven demand.”

The Spanish 10-year yield jumped 14 basis points, or 0.14 percentage point, to 5.37 percent at 2:55 p.m. London time after rising to 5.38 percent, the highest since Feb. 16.

Dutch Bonds

The extra yield investors demand to hold Dutch bonds instead of German bunds widened after an independent agency said the Netherland’s budget deficit may increase.

The Netherlands Bureau for Economic Policy Analysis said the shortfall would exceed the European Union’s target of 3 percent. The agency said the 2013 deficit would be 4.6 percent, revised from 4.5 percent. Spanish 10-Year Bond Yield



Willem Buiter is a bit too politically correct. I suggest the odds of a Spanish Debt restructuring is greater than 90%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Mitt Romney Proposes $8 Trillion Welfare Program for Defense Contractors; Prepare for Two Wars if Romney Wins

Wed, 2012-03-21 01:57
I sit back in amazement and watch Republicans self-destruct with ridiculous proposal after ridiculous proposal.

Let's ponder two plans, neither of which is going anywhere, and one of them may very well cost Mitt Romney the election should he win the nomination.

Ryan Plan Revives Deficit Duel

The Wall Street Journal reports Ryan Plan Revives Deficit Duel
Rep. Paul Ryan's budget instantly became the centerpiece of an election-year debate over the size of government on Tuesday, thrusting back into the spotlight a topic—the deficit—that has been largely overlooked by the presidential candidates.

Mr. Ryan (R., Wis.), who heads the House Budget Committee, said his plan would put the U.S. on a sound economic path by spending $5.3 trillion less than Mr. Obama recommends over 10 years, resulting in a budget deficit that would be $3.3 trillion narrower.Let's pause right there for a second. The deficit is about $1.4 trillion. If the US lapses back into a recession at any time, (something I think is highly likely) it will worsen. Cutting $5.3 trillion over 10 years, is $530 billion a year, still leaving deficit spending at $900 billion a year, not counting the odds of a recession.

Let's continue with a few more snips ...
Congressional budgets by nature lack specifics—those are provided in spending bills that come later—and this one was no different. Still, Mr. Ryan made some things clear. Most dramatically, he proposed repealing Mr. Obama's health law.

The plan also would cut the top tax rates for corporations and individuals to 25% from 35%, creating just two brackets for individuals, 10% and 25%.

Mr. Ryan angered Democrats, and privately frustrated some Republicans, by proposing a $1.028 trillion cap on discretionary spending for next year, a figure that excludes formula-based programs such as Social Security and Medicare. The two parties, after weeks of negotiation, had agreed on a level of $1.047 trillion in a deal in August.

Mr. Ryan said he was taking into account another section of that deal, which requires across-the-board cuts of $97 billion beginning in January, $55 billion of that in defense. Party leaders are planning to negotiate a way to restructure those cuts, probably after the election. Mr. Ryan's plan instead directs six House committees to come up with cuts by May that total a similar amount.Ryan Reneges on Defense Cuts

Notice that Ryan cannot even stand for a measly $55 billion cut in defense spending instead wanting to cut entitlements. Yes, entitlements should be cut, but so should defense spending.

This proposal is doomed from the get-go. It is both pointless, and weak. All Ryan has proven is that he is a deficit-cutting wimp. If you are going to start another budget war, at least have the decency to propose a balanced one.

Ron Paul alone wants to balance the budget. 

Searching for Sings of Intelligent Thought

The only possible conclusions for Ryan's proposals are: He is brain-dead. He does not want a deal for political reasons.

Although it's frequently hard to see signs of intelligent life from either party in Congress, I will give Ryan the benefit of the doubt, suggesting that he purposely wants to antagonize Democrats for political reasons.

No Deal Coming

A USA Today Editorial states GOP budget hurts prospects for deficit deal.
If anything is obvious from the past several years of budget wrangling, it's that meaningful progress on the federal deficit will require a grand, bipartisan deal of the kind that President Obama and House Speaker John Boehner were negotiating last summer before their talks collapsed.

Democrats will have to give ground on the entitlement programs that are swallowing the federal budget. Republicans will have to compromise on tax revenue.

If that is too tall an order during a presidential election year, the two parties should at least avoid fanning flames that will make future deals harder to achieve.

What's most galling, however, is that the plan would violate the terms of the stopgap budget deal worked out last summer. It would breach the cap on defense spending and take money from other areas. It is hard to imagine a better way to undermine prospects for a broad long-term deficit deal than for one side to go back on its word.

As for Democrats, they need to get their heads out of the sand. The argument that they can simply "protect" Medicare against marauding Republicans does not square with reality. While prudent tax hikes can buy some time, and cuts in other spending might be in order, the biggest threats to the nation's solvency by far are health care and retirement entitlements.

The Democrats' response to Ryan's latest plan was both predictable and troubling. Even before the plan was out, they launched a Medi-scare campaign of letter-writing and robocalls targeting 41 vulnerable Republican incumbents.

But, in an era in which both parties try to pawn off partisanship as patriotism, why let the facts get in the way of a good attack ad? Perhaps after this year's election, when big spending cuts and tax hikes are slated to take effect, the two sides will seriously address the long-term fiscal problems the nation faces. After all, notwithstanding the fantasies of party leaders, a sweeping deficit reduction package enacted on a party-line basis is not going to happen.Mitt Romney Proposes $8 Trillion Welfare Program for Defense Contractors

As noted above, Ryan's proposal is seriously misguided at best. Unfortunately, Romney's plan is far worse.

Please consider A Lesson in Republican Math: Throwing Money at the Pentagon
If you’ve been fretting about faltering math education and falling test scores here in the United States, you should be worried based on this campaign season of Republican math. When it comes to the American military, the leading Republican presidential candidates evidently only learned to add and multiply, never subtract or divide.

Despite current Pentagon budgets that have hovered at the highest levels since World War II and 13 years of steady growth, the administration’s latest plans would only reduce spending at the Department of Defense by 1.6% in inflation-adjusted dollars over the next five years.

Still, compared to his main Republican opponents, Obama is a T. rex of budget slashers.

After all, despite their stated commitment to reducing the deficit (while cutting taxes on the rich yet more), the Republican contenders are intent on raising Pentagon spending dramatically. Mitt Romney has staked out the “high ground” in the latest round of Republican math with a proposal to set Pentagon spending at 4% of the Gross Domestic Product (GDP). That would, in fact add up to an astonishing $8.3 trillion dollars over the next decade, one-third more than current, already bloated Pentagon plans.

Nathan Hodge of the Wall Street Journal engaged in polite understatement when he described the Romney plan as “the most optimistic forecast U.S. defense manufacturers have heard in months.”

In fact, Romney’s proposal implies that the Pentagon is essentially an entitlement program that should receive a set share of our total economic resources regardless of what’s happening here at home or elsewhere on the planet. In Romney World, the Pentagon’s only role would be to engorge itself. If the GDP were to drop, it’s unlikely that, as president, he would reduce Pentagon spending accordingly.

Rick Santorum has spent far less time describing his military spending plans, but a remark at a Republican presidential debate in Arizona suggests that he is at least on the same page with Romney.

Mitt Romney at Sea

But let’s stick with the Republican frontrunner (or stumbler). What exactly would Romney spend all this money on?

For starters, he’s a humongous fan of building big ships, generally the most expensive items in the Pentagon budget. He has pledged to up Navy ship purchases from 9 to 15 per year, a rise of 50%.

Romney is also a major supporter of missile defense — and not just the current $9-$10 billion a year enterprise being funded by the Obama administration, primarily designed to blunt an attack by long-range North Korean missiles that don’t exist. Romney wants a “full, multi-layered” system.

That sounds suspiciously like the Ronald Reagan-style fantasy of an “impermeable shield” over the United States against massive nuclear attack that was abandoned in the late 1980s because of its staggering expense and essential impracticality.

If the development of Romney’s high-priced version of a missile shield were again on the American agenda, it would be a godsend for big weapons-makers like Boeing, Lockheed Martin, and Raytheon, but would add nothing to the defense of this country. In fact, it stands a reasonable chance of making things worse. Given the overkill represented by the thousands of nuclear warheads in the American arsenal, the prospect of a nuclear missile attack on the United States is essentially nil.

Ensuring a Cost-Overrun Presidency

If you were hoping that, with an eye to fighting yet more disastrous wars in the Greater Middle East like the $3 trillion fiasco in Iraq, the U.S. would raise ever larger armies, then Mitt’s your man. Prepare for Two Wars if Romney Wins

Should Mitt Romney win election this November, prepare for two wars.

  1. War with Iran
  2. Trade War with China

Both would be stupid and both will cost trillions of dollars.

Actually, the sane thing to do is prepare for two wars regardless of who wins. The odds may be lower under Obama, but that is the best one can say.

Republican Self-Destruction

The self-destruction of Republicans is very painful to watch because I am not a Democrat and do not like President Obama in the least.

Unfortunately, some Republican proposals are so out of whack with what needs to happen that independents are highly likely to make a lesser-of-two-evils choice of Obama over whoever the Republican nominee is.

Given the strong likelihood Republicans manage to hold the House, a divided Congress and a divided executive-legislative split might easily be the best we can hope for.

I am writing in Ron Paul. The chips will fall, how they fall.

Hopefully Republicans get their act together in 2016 because this was a pathetic performance.

 Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Saudi Arabia Aims to Deliver "Wall of Oil" to US; Oil Minister Says "High Oil Prices Unjustified" ; Highest March Price in History; Republicans Say Obama Not Doing Enough

Tue, 2012-03-20 14:47
Wall of Supertankers Heads For US

Brent crude at $125, US Crude at $110, and soaring gasoline prices everywhere have caused quite a stir. See Highest Price Ever of Gasoline in March; State-by-State Gas Price and Gas Tax Comparison for a discussion.

In response to high prices, Saudi Arabia has a plan to send a wall of supertankers to the U.S. to knock down prices and Republicans have attacked President Obama for not doing enough.

Please consider The price that launched a wall of ships
In a matter of days, Saudi Arabia has hired the largest number of super-tankers in years. When the tankers load their cargo in Ras Tanura, the world’s largest oil terminal, in the next couple of weeks and start a 40-day voyage towards the US Gulf coast, they will deliver a wall of oil with a single aim: to bring prices down.

“This is the first time in several years for [Saudi Arabia] to hit the market with such volume – and in such a short time frame,” says Omar Nokta, a shipping expert at specialist investment bank Dalham Rose & Co.

Last week, Vela, the shipping arm of Saudi Aramco, hired over a few days 11 so-called very large crude oil carriers, each capable of shipping 2m barrels, to deliver to US-based refiners. “In 2011, Vela fixed one VLCC to the US every other month,” Mr Nokta says.

The hiring spree was the most public move by the kingdom in a series of efforts aimed at bringing down oil prices from $125 a barrel towards $100. “They want to bring prices down. That is it,” says a former Western oil official.Saudi Oil Minister Says "High Oil Prices Unjustified"

Please consider Naimi calls high oil prices ‘unjustified’
Saudi Arabia’s powerful oil minister Ali Naimi sought to cool overheating oil markets on Tuesday, saying high oil prices were “unjustified” and that the kingdom could boost its output by as much as 25 per cent if necessary.

Supply was much more robust than it had been in 2008 when crude rose to $147 a barrel, he said.

As the west’s nuclear stand-off with Iran escalates, oil prices have rallied this month to a post-2008 peak of $128 a barrel with markets bracing for European Union sanctions on Iranian crude that could knock out a chunk of global supply. Jitters have been fuelled by supply outages in Syria, Yemen and South Sudan.
High quality global journalism requires investment.

Christine Lagarde, managing director of the International Monetary Fund, said on Tuesday that rising energy prices had now overtaken Europe’s sovereign debt crisis as the biggest worry for the global economy. Speaking in New Delhi, she said that while the world financial system had strengthened over the past three months, volatile oil prices would have “serious consequences”.

But Mr Naimi insisted that supply was “much more firm today than in 2008”, the time of the last big oil increase. Saudi Arabia had 2.5m b/d of additional production capacity, which it could bring online if necessary.

Saudi Arabia is likely to be producing about 9.9m b/d of oil in April and exporting roughly 7.5m-8m b/d of that, he said. Asked if the kingdom could ease prices by exporting more oil, he said customers were not asking for additional crude. “We are ready and willing to put more oil on the market, but you need a buyer,” he said. Republicans Say Obama Not Doing Enough

MarketWatch reports Republicans launch new attacks on Obama, Chu over gas prices
Republicans launched fresh attacks on the Obama administration on Tuesday over the soaring price of gasoline, ripping the White House in an election-year bid for the upper hand with consumers.

Testifying before the House Oversight and Government Reform Committee, Energy Secretary Steven Chu was peppered with questions about what the administration has done to bring down gasoline prices, which are now averaging $3.85 a gallon versus $3.55 a gallon a year ago.

Republican presidential candidates Mitt Romney and Newt Gingrich have called for Chu to be fired as gasoline prices climb. On Tuesday, Gingrich released an ad highlighting Chu’s September 2008 statement (retracted since he became head of the Energy Department) that he’d like to see gasoline prices at similar levels to Europe’s and his support for the Chevrolet Volt.

Gingrich — who competes against Romney, Rick Santorum and Ron Paul on Tuesday in the Illinois Republican primary — has touted a plan to bring gasoline prices down to $2.50 a gallon if elected president. The White House has criticized that plan as unrealistic.

Obama has said that there’s little that can be done from Washington in the short term to lower gasoline prices and that there’s no “silver bullet” to bring them down in a global market.
Warmongering Fools

Obama is essentially correct when he says "no silver bullet" on energy prices. Moreover, Gingrich is a fool if he really believes he can bring prices down that low without other devastating consequences such as a massive recession and 13% unemployment.

Finally, the leading Republican warmongers are angling for war with Iran, something sure to send oil prices to new highs should it happen. With $trillion deficits as far as the eye can see, the last thing the US needs to do is start another idiotic war, one likely to cause a supply shock sending gasoline prices over $5 if not much higher.

If you want a good reason for high gas prices, you can blame six things

  1. Fed policies - The Fed and its supporters in both political parties are to blame
  2. Fractional Reserve Lending - The Fed is to blame
  3. US Policy in the Mideast - Republicans other than Ron Paul will make matters worse
  4. Deficit spending - both political parties are to blame
  5. Warmongering - both political parties are to blame
  6. Peak Oil

Drill Baby Drill is an inane response to those fundamental problems.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Highest Price Ever of Gasoline in March; State-by-State Gas Price and Gas Tax Comparison

Tue, 2012-03-20 13:28
Highest Gas Price Recorded in March

An ABC consumer report shows Highest Gas Price Recorded in March
The average price of a gallon of regular is now $3.87, the highest recorded price in March. The average price is up nearly 4 cents from a week ago, and over 30 cents from a year ago, according to the Department of Energy, as more drivers face gas prices of $4 a gallon or more across the country.

Last week, the average gas price was $3.83 a gallon, the previous record according to data going back to 1990.

The West Coast was once again the most expensive region with an average gas price of $4.23, up almost 2 cents from last week, with an increase of over 37 cents from a year ago.

The least expensive was the Rocky Mountain region with $3.62 a gallon. That region had the highest increase from last week, 14 cents, while the average price there climbed almost 24 cents from a year ago.
State-by-State Gas Price Comparison

The AAA Fuel Gage Report by the American Automobile Association tracks gasoline national averages including state-by state comparisons.



Site is updated daily. Map above shows prices as of March 20, 2012.

Gasoline Taxes State-by-State



Diesel Fuel Taxes State-by-State



The above maps by the American Petroleum Institute.

In what should be no surprise, the highest gas price states are in general the states with the highest gasoline taxes.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


IMF and ECB Bailouts "Created" Huge Bondholder Losses; More Haircuts Coming Up

Tue, 2012-03-20 03:59
It's hard to have too much sympathy for those buying Greek bonds. Then again, one should always want a fair market, not a rigged one in which certain players can never lose.

Please consider the question How much did the IMF, ECB and EU bailouts harm Greek bondholders?
The Greek CDS auction results are in, and the implied recovery rate on the Greek bond swap is 21.5 percent – so a 78.5 percent loss. What isn't widely appreciated is that most of this loss was created by the bailouts. That is of course true in the sense that the Greek bailouts have delayed the process of adjustment in Greece, so it continued on an unsustainable path for longer meaning its eventual defaults are larger.

And no one thinks the new situation is really sustainable – new Greek bonds are pricing in of order a 75 per cent further write-down. But that's not what I'm referring to here. I mean something much simpler: because Greece was bailed out with loans from the IMF, ECB and EU that have been treated as senior to the bonds of the private sector (i.e. any losses were to be experienced first by the private sector – all loans to the IMF, ECB and EU were to be repaid with a higher priority than loans to the private sector), that meant that the losses to those Greek private sector bondholders that ended up taking losses were much greater.

The bailouts mean that those bondholders that eventually take losses take a 75 per cent loss rather than a 33 per cent loss – they are badly harmed by the bailout process. Anyone with bonds in another eurozone state in receipt of bailouts had better beware. Portugal, anyone?More Haircuts Coming Up

The market is already predicting another 75% collapse in Greek bonds. Ultimately any fools that threw money at Greece (without CDS protection) will lose every cent, except of course the idiots who insisted on the bailouts in the first place: the ECB and IMF.

Portugal is now in the batter's box and Spain is on deck. Both will fail, just as Greece did. The only thing that remains to be seen is how much money the ECB throws at those problems before both blow up in the ECB's face.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Reflections on Buying Time: Did the ECB Buy Time? Time For What?

Mon, 2012-03-19 14:32
Wolfgang Münchau, Financial Times columnist says There is no Spanish siesta for the eurozone
If you think the European Central Bank’s policies have “bought time”, you should ask yourself: time for what? Greece’s debt situation is as unsustainable as ever; so is Portugal’s; so is the European banking sector’s and so is Spain’s. Even if the ECB were to provide unlimited cheap finance for the rest of the decade, it would not be enough.

On my estimates, Spain’s house price adjustment is still less than halfway complete. In real terms, the US housing boom has been almost completely cancelled out. The graphs of historic bubbles, if expressed in real prices, have nice bell-shaped curves. This makes sense, since domestic property is an unproductive real asset. In Spain, as elsewhere, it would be reasonable to assume real prices will eventually fall to where they were in the mid-to-late 1990s.

The Spanish government has forced the savings banks to write down €50bn in their property portfolios this year. This will only be a small part of what will ultimately be needed if the housing market falls as I expect it will. Official estimates assume mild price falls and a quick rebound in the economy. Both assumptions are delusional. How can the Spanish economy rebound if the private and the public sectors are deleveraging at the same time, and are likely to do so for many years?

The deleveraging of the public sector will be vicious. The deficit was 8.5 per cent of GDP last year. This was a big overshoot, but the reason was not fiscal indiscipline. It was necessary to avoid a bigger slump. The recently-revised target is 5.3 per cent for this year and 3 per cent next year. So the total public sector adjustment needed under the European deficit rules is an incredible 5.5 per cent over two years – this, in the middle of a recession. If you look at the extent of total deleveraging that lies ahead, in both private and public sectors, the question is not whether the Spanish economy rebounds in 2012 or 2013, but whether it can rebound at all before the end of this decade. Market Trumps Central Bank Arrogance

Münchau is not really stating anything new. Many have been commenting on the plight of Spain for what seems like "forever" now. With every passing day it becomes increasingly difficult to say anything new, so we all struggle to say the same thing in new ways.

Does anyone even remember how little the writeoff would have been had Greece been kicked out of the eurozone two years ago? What was once a 40 billion euro problem became a 300 billion euro bureaucratic nightmare because the ECB and EMU insisted on "buying time".

ECB president Jean-Claude Trichet emphatically said "We say no to default". Well guess what Mr. Trichet? The market trumps central bank arrogance, that's what.

Trichet now looks like a complete fool. Hopefully he feels like one as well, but odds are he doesn't. Fools never see themselves for the fools they are.

ECB Buys Time For Bigger Disaster


The ECB under a new president, Mario Draghi, has circled the wagons to contain Spain and Portugal. The markets are (for the time being), cheering the success of "Super Mario" in doing just that.

I must point out that for a time, Trichet appeared successful in containing Greece. However, time is fleeting.

History will show that the ECB did not buy time for anything but a bigger disaster, just as happened with Greece.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Carmageddon: European New Car Sales Crash, Worst February in History

Mon, 2012-03-19 11:42
Carmageddon

Truth About Cars reports European New Car Sales Have Worst February Of The Millennium


The European new car market crashed in February. According to data released by the European manufacturers’ association ACEA, new car sales were down 9.7 percent in February. Two months into the year, car sales in the EU are down 8.3 percent from the same period a year earlier.



The harmless looking percentages hide the fact that this February was the worst of the millennium. Only 888,878 units changed hands in the EU27 in February, the lowest level since comparing months made sense (going back further is futile, the EU was much smaller then…) Even during carmageddon, European had not seen a February as bad as this one.

EU basket cases Greece and Portugal saw their new car sales nearly halved. These are relatively unimportant markets, by now, tiny Luxemburg has more car sales than Greece. If Greece would leave the EU, it would not even register in the car statistics. What hurts much more is the deterioration of the volume markets. France is down 20.2 percent, not boding well for PSA and Renault. Italy is down 18.9 percent, putting pressure on Fiat. Flat sales in Germany spared Europe a double digit tanking.I commend author Bertel Schmitt for an excellent report. Click on the top link for model specific data.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Is There a Bubble in Treasuries? Both Sides of the Case; Explaining the 2011 Treasury Rally (It's Not What You Think); Where to From Here?

Mon, 2012-03-19 04:25
People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time.

Here is a chart going back 20 years from Steen Jakobsen at Saxo bank in Denmark.

Click on Any Chart in this Post for Sharper Image

$TYX 30-Year Long Bond




Operation Print-Money-Like-a-Madman

Via email, Steen writes
I think higher interest rates are for real, and not a fluke.

The move down in US yields below its long-term channel was an unusual move - as can be seen in the above chart - 30 year US has been in solid down-ward slopping channel since 1980s. There have now been two breaks to the down-side: One in 2009 when the stock market crashed to 666 in the S&P - and now since 2011, when Fed initiated Operation Print-Money-Like-a-Madman with QE, QEII and Operation Twist plus “low rates forever”.

These moves were the exception not the norm, a function of the “unconventional measures” all the central banks has been pointing to forever.

We are entering an extremely dangerous period. Valuations are stretched, even my internal bull, Peter Garnry is getting conservative. The divergence is bigger and bigger – actually to me this is beginning (on charts) to look at lot like end of 2007 into 2008.

Let’s hope I am wrong, again, and this is merely a pause before the world is saved and we can all believe that more debts creates growth and reforms. Bubble of Modern Banking

I happen to agree with Steen in his implied suggestion the world is not saved, but that is not the same as a treasury bubble (and Steen did not use that word).

However, James Grant, publisher of Grant's Interest Rate Observer is willing to state flat out that treasuries are a "Bubble of Modern Banking, a Desert of Value".
In case you missed it, please click on the above link to see an interesting Bloomberg video with James Grant and Deirdre Bolton. Here is a key transcript snip.

Deirdre Bolton: How is a bond investor to deal with this current environment? You are calling actually for a bear market in bonds, am I correct?.

Grant: I have forever. So I am no help there. But it seems to me a bond investor is almost better off in cash. If you were to go out 10 years in a US treasury security you earn yield of approximate 2%. To remain in cash and be flexible you sacrifice those 2%. The bond market is a desert of value.

Deirdre Bolton: What does this mean for gold?

Grant: The price of gold is the reciprocal of the world's faith in the deeds and words of the likes of Ben Bernanke. The world over, central banks are printing money as it has never been printed before. The European Central Bank has increased the size of its balance sheet at the annual rate of 89%. It's amazing. The Fed is far behind at only 15%. The Bank of England 67% over the past few months. These are rates of increases in the production of paper currencies we have never seen in the modern age. It takes no effort at all. They simply tap the computer screen.Recession 2012 Means Lower Treasury Yields Says Lacy Hunt

I certainly agree with Grant on gold, but what about the idea a recession is coming in 2012, and if so what does it mean for treasuries?

Lacy Hunt at Hoisington Management in the 4th quarter 2011 review says High Debt Leads to Recession. It's the last paragraph that is of most interest to the treasury bubble debate.
The long end of the Treasury market witnessed a decline in yields from 4.34% at the beginning of 2011 to 2.89% at the end of the year. To most, this 35% return was a surprise as there was near unanimity of opinion that rates would rise in connection with the higher real economic growth rate that was expected for 2011. Similarly, faster growth seems to be embedded in most rate expectations for 2012, and concomitantly expectations are for interest rates to rise. If recessionary conditions appear in 2012, as we expect, then even lower long-term interest rates will be recorded.

Van R. Hoisington
Lacy H. Hunt, Ph.D.There you have it, Lacy Hunt one of the biggest treasury bulls you can find vs. James Grant a perpetual treasury bear. Let's step back a bit and look at the last 10 years.

Treasury Bubble Calls




$IRX 3-month treasuries
$FVX 5-year treasuries
$TNX 10-year treasuries
$TYX 30-year treasuries

Except for the 30-year long bond (and that divergence could be significant), the rest of the yield curve has made lower lows for 30-years. Eventually that trend will break, but is this the time and are interest rates really as low as people think?

Explaining the 2007-2011 Treasury Rally

With the above, albeit lengthy, introduction let's take a look at some housing related charts. Yes, at long last this is the second half of my Home Price Index Post How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI

To quickly recap, I asked Doug Short at Advisor Perspectives to make a housing related change to the CPI. Specifically, I asked to see a chart of "real" inflation adjusted yields, were the BLS to substitute actual home prices in the CPI for Owners-Equivalent-Rent (OER).

If you missed the post you certainly need to read it to understand what follows, and you may need to take another look even if you have seen it.

Here is one of four charts from that post.
HPI-CPI



click on chart for sharper image
The Fed kept interest rates at historic lows between 2002 and mid-2004. The last two rate cuts by Alan Greenspan were not justified at all, by any measure, and downright absurd considering the bubble brewing in housing prices vs. rent.Two Year Treasury Yields



Five Year Treasury Yields



Ten Year Treasury Yields



"Operation Twist" Unwinds

Those three charts explain nicely the massive rally in treasuries since 2007. Global central bank printing, various QE and "Operation Twist" moves certainly helped, but "real" yields were far higher than most thought.

For a discussion of "Operation Twist" and the recent rise in treasury yields, please see Treasuries Hammered as "Operation Twist" Unwinds; Another Triumph of the 1% Over the 99%.

Note that HPI-Adjusted rates are still positive on the 10-year treasury note. Is this the making of a bubble?

The answer of course depends on the definition of bubble. That said, Grant is certainly correct that treasuries are devoid of value. Moreover, a 30-year rally in treasuries is quite long in the tooth. There is no value here.

Where to From Here?

Even if the 30-year long-bond does nothing more than rise to the top of that channel shown in the first chart, treasury holders will be massacred.

If the recovery is real (I do not think it is, others do), yields should rise to the top of that channel at a minimum, probably sailing even higher.

Moreover, it's certainly possible rates go sailing even if the recovery is not real. Should that happen, the US dollar will likely strengthen as well. Those are the two key take-aways at this juncture.

One thing is certain. Treasury bubbles sure take a heck of a long time to form, with many premature calls along the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Raucous Caucus: Largest Missouri Caucus Shut Down Before Delegates Chosen

Mon, 2012-03-19 01:04
Those awaiting complete returns from the Missouri caucus may be in for a long wait. The St. Charles County caucus was shut down before delegates were even chosen.

St. Louis Today reports Raucous GOP caucus in St. Peters is shut down
In St. Charles County, which was to have been the biggest single prize of the day, the caucus was shut down before delegates were chosen after a boisterous crowd objected to how the meeting was being run, including an attempted ban on videotaping. Two supporters of presidential hopeful Ron Paul were arrested.

At other caucuses, participants gathered outdoors as the appointed locations turned out to be too small to accommodate crowds or waited for hours as organizers worked through procedural questions.

Even before the day’s events took a rancorous turn, state Republican officials said the winner of the caucus would not be officially known until next month. But with the confusion surrounding St. Charles, and many more delegates available in a pair of caucuses next weekend, the primary picture for Missouri may have only become murkier Saturday.

In Ballwin, participants were shut out of an appearance by White House hopeful Rick Santorum because the City Council chambers had reached its 118-person capacity.

The caucus in St. Charles County, which was held at Francis Howell North High in St. Peters, was adjourned after police said they were going to “shut us down,” according to Matt Ehlen, the Republican activist who was named chairman of the meeting.

However, several individuals at the caucus said much of the consternation revolved around Ehlen himself. Ehlen became chairman after a voice vote, but the head of the county GOP organization failed to recognize any other candidate.

“All of sudden he’s the chairman and the place goes nuts,” said Tim Finch, a Paul supporter from Dardenne Prairie. “This is not how it’s supposed to work.”

Some of Paul’s supporters were also irked by an announced ban on video recording, with organizers asking police to help enforce it.

When the objections reached a fever pitch, the meeting was shut down without any delegates being awarded.I received an email from a cameraman who was arrested at the caucus for videotaping the event. Here is the footage.



Link if video does not play: Missouri Caucus Rigged Fraud

Second video showing the fraudulent selection of caucus chairman.



Link if video does not play: St. Charles MO Hijacked Caucus

Real Clear Politics now shows Missouri Caucus results moved from March 17 to April 21.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


China Halts 10 More Airbus Orders; Global Trade Wars Not Winnable and Should Not Be Fought

Sun, 2012-03-18 22:01
In retaliation for the EU's Emissions Trading Scheme, China Halts 10 More Airbus Orders
China has suspended the purchase of 10 more Airbus jets, two people familiar with the matter said on Thursday, raising the stakes in a potentially damaging trade row over European Union airline emissions charges.

The move to delay the purchase of extra A330 planes brings to $14 billion the value of European aircraft caught up in tensions over the EU's Emissions Trading Scheme, which has angered countries including China, India and the United States.

It comes amid urgent efforts to find a solution to the row, which airlines fear could provoke an aviation trade war capable of causing travel disruption and hitting air traffic rights.

The row is over a cap-and-trade scheme which could levy charges for carbon emissions for flights in and out of Europe.

Foreign governments say the EU is exceeding its legal jurisdiction by charging for an entire flight, as opposed to just the part covering European airspace.

"Aircraft sales are different from selling wine or cars, you can't switch the sales button from off to on from one day to another. A red traffic light in aircraft sales can destroy years of sales efforts and damage-repair will take years," said Rainer Ohler, head of Airbus public affairs and communications.Trade Wars Not Winnable and Should Not Be Fought

This is exactly the kind of spat Romney is bargaining for when he threatens to label China a "currency manipulator".

China is of course a "currency manipulator". Then again the Fed is an "interest rate manipulator" hoping to sink the US dollar. The EU wants the euro to fall (just not collapse), and Japan has intervened to sink the Yen. Switzerland's central bank has intervened to suppress the value of the Swiss Franc.

In short, every major nation on the planet is manipulating currencies either directly or indirectly via interest rate policy.

Global trade wars are not winnable. If Mitt Romney is elected and he does what he says he will do, expect a devastating collapse in global trade.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Stress Test Farce Shows Bank Shares Still Are Not Cheap

Sun, 2012-03-18 13:19
Last week the Fed conducted yet another "Stress-Free" test purposely designed to conclude banks are in better shape than they really are. The parameters seemed strict.

  • US recession marked by a 50 percent drop in stock prices
  • 21 percent drop in housing prices
  • Joblessness soaring to 13 percent
  • An even worse recession in Europe

15 out of 19 banks passed based on a measure of "regulatory capital". The four stress test failures are Citigroup, Ally, Suntrust and MetLife.
"In fact, despite the significant projected capital declines, 15 of the 19 bank holding companies were estimated to maintain capital ratios above all four of the regulatory minimum levels under the hypothetical stress scenario," the Fed said.

The exercise opened the door for some of the most capital-flush banks to immediately announce new or higher dividend payments to shareholders, after the Fed prevented or limited such payouts by a number of the banks last year following a similar examination.

JPMorgan Chase announced a 20 percent dividend hike and a $15 billion share buyback program, while Wells Fargo also sharply boosted its planned dividend.Bank with Negative Tangible Equity Passes Stress Test

Anyone who can think knew in advance the stress test would be a farce, but Jonathan Weil dug up the real dirt in his Bloomberg report Class Dunce Passes Fed’s Stress Test Without a Sweat.
The most important thing to understand about the Federal Reserve’s latest stress tests is what they were not intended to do. Their purpose wasn’t to test whether the nation’s biggest banks could survive a financial blowup like that of 2008 without government assistance.

Rather, the Fed designed its tests to measure the effects a hypothetical crisis would have on banks’ regulatory capital. Capital is the financial cushion a company has available to absorb future losses. While the Fed would like for us to believe that regulatory capital is the same thing, it’s quite different. And too often it bears little resemblance to reality.

Citigroup Inc. (C) was deemed well capitalized under the government’s methodology when it got bailed out in 2008. So was CIT Group Inc. when it filed for bankruptcy in 2009.

How stressful were the Fed’s tests? One anecdote stands apart: Regions Financial Corp. (RF), which still hasn’t paid back its bailout money from the Troubled Asset Relief Program, passed.

The footnotes to the company’s latest financial statements tell the story. There, the Birmingham, Alabama-based lender disclosed that the loans on its books were worth $8.1 billion less than what its balance sheet said, as of Dec. 31. By comparison, the company’s tangible common equity, a bare-bones measure of net worth, was $7.6 billion.Weil went through Regions’ balance sheet, using the company's own footnotes as to fair-market values of their financial assets and liabilities and concluded "Regions’ tangible common equity was negative $525 million as of Dec. 31."
In short, the test was a joke, although it had its intended effect. Shares of Regions and other large banks soared, and Regions raised $900 million selling common shares on Wednesday. The company, which hasn’t reported an annual profit since 2007, plans to use the money to help repay the $3.5 billion it got from the Treasury Department in 2008.

Regions probably would have failed years ago if not for its federal backstop. Instead, it now has a stock-market value of $9.1 billion. Clearly the Fed wanted it to attract new investors, and those who put fresh capital into Regions this week believe the government won’t let it die. That about sums up the company’s value proposition. In other words, we’re all still on the hook. Bank shares may look "cheap" but they aren't. The latest "stress-free" test by the Fed proves as much. How much longer the market lets the Fed get away with this nonsense is anyone's guess. I would have thought silly season would have been over long ago.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Public Union Wage Bargaining Ends at National Level in Great Britain

Sat, 2012-03-17 23:17
I am pleased to report the end of collective bargaining at the national level. Unfortunately, I am talking about the UK, not the US, and also unfortunately, local wage bargaining will remain in place.

The Telegraph reports National pay rates will be scrapped in budget.
Millions of teachers, nurses, civil servants and other public sector workers are to lose their right to national pay rates, the Chancellor George Osborne will announce in next week’s Budget.

George Osborne will say that public sector employees in poorer parts of the country should have their pay frozen until it is brought into line with local private sector workers.

Mr Osborne originally intended to introduce local pay rates in April 2013, but has decided to bring the plans forward by a year in an attempt to boost growth.

The move is likely to be met with a furious response from unions, which are already threatening industrial action over cuts to pensions.

The Chancellor will publish figures that show that in some parts of England and Wales public sector workers earn almost a fifth more than those in equivalent jobs in the private sector.

The Treasury argues that the pay gap leaves private companies struggling to compete for the best staff against public sector organisations, whose workers also enjoy better pensions and job security.

The National Union of Teachers said it was calling a one-day strike in London on March 28 as the next step in its pensions campaign. Mr Osborne, however, is determined to push ahead with the reforms to pay and pensions. The Treasury wants to base the plans on a local-pay system introduced for staff in courts under the previous government. This is a start, but if you are going to incur the wrath of labor unions, and Chancellor Osborne surely will, then you may as well go all out. The correct move is to end bargaining altogether. If unions don't like it, too bad. If they can make more in the private sector, they can go for it.

Public unions bankrupted Greece, they will bankrupt Spain, they have the UK and the US on the verge of ruin, and they have bankrupted numerous US cities already.

Correct Policy Trifecta

  1. End public union collective bargaining completely
  2. End all prevailing wages laws including Davis Bacon
  3. Institute National Right-to-Work Laws

Unlike parimutuel horse-racing bets, any order will suffice.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


James Grant Says Bond Market Is "Bubble of Modern Banking, a Desert of Value; Gold a Reciprocal Faith in Bernanke"; Time for an "Office of Unintended Consequences?"

Sat, 2012-03-17 13:41
James Grant, publisher of Grant's Interest Rate Observer, talks about Federal Reserve monetary policy, the bond market and investment strategy. Grant, speaking with Deirdre Bolton on Bloomberg Television's "Money Moves," also discusses the Chinese economy.



Link if video does not play: Bond Market 'Desert of Value'

Select Interview Quotes

Grant: The Fed seem bent on suppressing this most elegant thing we have called a price mechanism, the movement of price that determines all manner of things in a market economy. Yet the Fed seems bound and determined to superimpose its will in place of the price mechanism. Take the bond market for example, the Fed has hammered down yields directly and indirectly and in response people are throwing money at things like high-yield or junk bonds. These are the prices the Fed wants, but are they the right prices? No not necessarily.

Deirdre Bolton: How is a bond investor to deal with this current environment? You are calling actually for a bear market in bonds, am I correct?.

Grant: I have forever. So I am no help there. But it seems to me a bond investor is almost better off in cash. If you were to go out 10 years in a US treasury security you earn yield of approximate 2%. To remain in cash and be flexible you sacrifice those 2%. The bond market is a desert of value.

Deirdre Bolton: What does this mean for gold?

Grant: The price of gold is the reciprocal of the world's faith in the deeds and words of the likes of Ben Bernanke. The world over, central banks are printing money as it has never been printed before. The European Central Bank has increased the size of its balance sheet  at the annual rate of 89%. It's amazing. The Fed is far behind at only 15%. The Bank of England 67% over the past few months. These are rates of increases in the production of paper currencies we have never seen in the modern  age. It takes no effort at all. They simply tap the computer screen.

Time for an "Office of Unintended Consequences?"


Grant proposes the Fed start an "Office of Unintended Consequences" to study all the things that go wrong with Fed policy.

I believe Grant is speaking tongue-in-cheek. We certainly do not need such an office. Instead, we need to abolish the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.


Spanish Banks Account for 47% of ECB Credit in February; Spain's Real Debt to GDP Ratio is 110% Not Reported 68%; Spain Will Implode. It's a Wonder it Hasn't Already

Sat, 2012-03-17 02:11
Spain's weight in the eurozone economy is roughly 14%. Yet Spanish Banks Account for Nearly Half of ECB Credit in February. Vial Google translate ...
Spanish banks in February captured almost half of the credit granted by the European Central Bank (ECB), before the drought through the wholesale market funding. As reported on Wednesday the Bank of Spain, the use of the entities to the extraordinary liquidity window of the body that presides Mario Draghi reached half the 152,400 million euros, equivalent to 47% of total outstanding debt to return to ECB for all banks in the Eurosystem.

Both the percentage and the total volume of borrowed money account for two-time highs, exceeding by far the weight of Spain in the European sector, 14%.

Furthermore, for the future, the figure will rise, as these data do not reflect the impact of the second extraordinary auction to three years of the ECB, on February 29 which dealt with 529,000 billion from 800 banks.

Public debt has grown by 21% on bank balance sheets in December 2011 compared to 2010, "which shows that liquidity in the ECB does not reach the economy."

Juan Luis Garcia Alejo, Inversis Management director, said "There is no doubt that institutions take advantage of LTRO money to earn net interest income by investing in debt."Spain's Real Debt to GDP Ratio is 110% Not Reported 68%

While noting that Spanish banks are betting heavily on the success of the LTRO, please note strong evidence that Spain's debt-to-GDP ratio is wildly understated because it does not include regional debt, nor does it include government guaranteed bank debt and other miscellaneous items.

Please consider these snips from The Fool's Game: Unraveling Europe's Epic Ponzi Pyramid of Lies by Zero Hedge.
If we just take the newest figures for Spain, which were released this morning, we find an admitted sovereign debt of $732Bn and a touted debt to GDP ratio of 68.5% which is up 10.7% from last year.

In a report issued on 2/29/12 and apparently ignored by everyone including the ratings agencies, Eurostat reports that Spain has total sovereign guarantees of “other debt” which is 7.5% of their total GDP which would total around another $72.2 billion in uncounted debt. Then if we consider [all] the “known” debt we find:

  • Admitted Sovereign Debt ................. $732 Billion
  • Admitted Regional Debt ................... $183 Billion
  • Admitted Bank Guaranteed Debt ..... $103 Billion
  • Admitted Other Guaranteed Debt .... $72 Billion
  • Total Admitted Debt ......................... $1.09 Trillion
  • A More Accurate Debt to GDP Ratio ....... 113.2%

In the same Eurostat report, by the way, of 2/29/12 we also find that Belgium’s sovereign guarantee of “other debt” is 21.3% of their GDP, for Italy it is 3.6% of their GDP and for Portugal the number is 7.7% of their GDP. This does not include any guarantees of bank debt which would also have to be added in to the totals to reflect some sort of accurate fiscal picture. Consequently, as investors, we are not in some murky place but smack dab in a carefully engineered plan of outright Fraud where we are given manipulated and inaccurate numbers in the hopes that we will fund based upon them.Spain Will Implode

Not only are published GDP figures a lie, so are published debt figures. The result is a complete farce in debt-to-GDP accounting.

Meanwhile Spanish banks continue to plow into leveraged debt on their own bonds, with Spanish unemployment over 23%, with youth unemployment of 49%, with widening regional debt problems, with massive unrecognized housing sector losses, and with more austerity measures coming that will exacerbate all of the previously mentioned problems!

This Ponzi scheme cannot last, which means it won't. Spain will implode. Indeed, it's a wonder it hasn't already.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.



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