In
September 2008 the US came to a fork in the road. The Public Policy
decision to not seize the banks, to not place them in bankruptcy court
with the government acting as the Debtor-in-Possession (DIP), to not split
them up by selling off the assets to successful and solvent entities, set
the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar, the
US ignited an almost riskless global US$ Carry Trade and triggered an
uncontrolled Currency War with the mercantilist, export driven Asian
economies. We are now debasing the US dollar with reckless spending and
money printing with the policies of Quantitative Easing (QE) I and the
expectations of QE II. Both are nothing more than effectively defaulting
on our obligations to sound money policy and a “strong US$”. Meanwhile
with a straight face we deny that this is our intention.
Though prior to the 2008 financial crisis our largest banks had become
casino like speculators with public money lacking in fiduciary
responsibility, our elected officials bailed them out. Our leadership
placed America and the world unknowingly (knowingly?) on a preordained
destructive path because it was politically expedient and the easiest way
out of a difficult predicament. By kicking the can down the road our
political leadership, like the banks, avoided their fiduciary
responsibility. Similar to a parent wanting to be liked and a friend to
their children they avoided the difficult discipline that is required at
certain critical moments in life. The discipline to make America swallow a
needed pill. The discipline to ask Americans to accept a period of intense
adjustment. A period that by now would be starting to show signs of
success versus the abyss we now find ourselves staring into. A future
that is now massively worse and with potentially fatal pain still to come.
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The
critical issues in America stem from minimally a blatantly ineffective
public policy, but overridingly a failed and destructive Economic
Policy. These policy errors are directly responsible for the opening
salvos of the Currency War clouds now looming overhead.
Don’t be fooled for a minute. The issue of Yuan devaluation is a political
distraction from the real issue – a failure
of US policy leadership. In my
opinion the US Fiscal and Monetary policies are misguided. They are wrong!
I wrote a 66 page thesis paper entitled “Extend
& Pretend” in the fall of 2009 detailing why the proposed Keynesian
policy direction was flawed and why it would fail. I additionally authored
a
full series of articles from January through August in a broadly
published series entitled “Extend & Pretend” detailing the predicted
failures as they unfolded. Don’t let anyone tell you that what has
happened was not fully predictable!
Now after the charade of Extend & Pretend has run out of momentum and more
money printing is again required through Quantitative Easing (we predicted
QE II was inevitable in
March), the responsible US politicos have cleverly ignited the markets
with QE II money printing euphoria in the run-up to the mid-term
elections. Craftily they are taking political camouflage behind an
“undervalued Yuan” as the culprit for US problems. Remember, patriotism is
the last bastion of scoundres
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o 85B Euro over 7.5 years. Rate "close to 6%" o 50B
Euro for Fiscal Deficits o 10B Euro to recapitalize
banks o 25B bank contingency (17.5 from Ireland) o
IMF putting in 22B
European finance ministers are racing to conclude an
international rescue package for Ireland before markets
open to stop the country’s financial crisis from spreading
to the rest of the euro region. Finance ministers from the 16 euro nations meet at 1 p.m. in Brussels before a
meeting of all 27 EU ministers. European Central Bank President
Jean-Claude Trichet will also attend.
“The market has got it into
its head that it is going to pick off one country at a
time.”
Alan McQuaid, chief economist at Bloxham Stockbrokers
in Dublin.
o More than 50,000 people took to the streets of
Dublin yesterday to protest budget cuts o Investors are looking for details on:
i) The interest rate Ireland will pay on its
loans and ii) The fate of senior bondholders in the country’s banks.
o The average yield investors demand to hold 10-year debt from Greece, Ireland,
Portugal, Spain and Italy climbed above 7.5 percent on Nov. 26. The yield on
German 10-year bonds was 2.73 percent. o 14% Unemployment o 31B Euro Bank
Capital Support already => 32% of GDP deficit o 31.5B
Tax revenue this year. o Ireland’s Sunday Business Post and the Sunday Tribune newspapers today reported
that the ECB vetoed hurting senior bond holders.
o The Irish government is expected to take Allied
Irish Banks, the weaker of the two, into full public
ownership with Bank of Ireland set to have around 85 per
cent of its shares held by the Irish government. o Both banks also passed European-wide stress tests at the end of July conducted
under the auspices of the Committee of European Banking Supervisors. The tests
have been facing increasing criticism in recent months. o Yesterday a European Commission spokeswoman said the banks would face "severe"
restructuring requirements linked to the country's bailout package."There will
be a severe restructuring plan in place for Irish banks," the spokeswoman said.
"There's nothing wrong with saving Irish banks, but it's going to be done using
German, French, Italian money." o the Irish banks will eventually have to be re-privatised to help to repay the
vast loans that will be extended. The main interest would come from private
equity players, seeing them as a potential recovery play
when the problems have finally eased. Wilbur Ross, the
billionaire investor, said his WL Ross & Co is one of two
final bidders for EBS Building Society, another Irish
bank. Irish Life & Permanent and a group led by Cardinal Capital are the final two
bidders. The Cardinal group includes the Carlyle Group and WL Ross.
In a move that will see Irish workers shoulder yet
more pain in the years ahead, Dublin said it would now
begin digging into the €24bn (£20bn) pension nest-egg to
fund its day-to-day needs. Having already siphoned off €7bn (£6bn) to prop up its crippled banks last year,
Dublin will in the future force its National Pensions Reserve Fund to buy debt
issued by the government.
"Banks have been moving on from extend and pretend to
extend and amend"
The debt funding gap is defined as the difference
between the existing debt balance secured by commercial
property as it matures and the debt available to replace
it.
COUNTRY GAP
% OF CRE
Ireland
-$6.5B -16%
Hungary -$2.0B
- 1%
Spain
$33.0B
6%
USA
$49.0B 1%
UK
$54.0B
6%
Japan
$70.0B
Germany $10.0B
France
$10.0B
Europe accounts for over half of the global debt gap
between now and 2013 @ $245B
'Nasty Precedent' If Irish Bondholders Are Hit: Strategist
CNBC
PORTUGAL
Portugal ground to a halt as its two biggest unions
stopped trains and buses, grounded planes and halted
banking services in protest over planned austerity
measures.
Spain could be forced to seek bail-out 'within months'
Telegraph
GERMANY
“Germany cannot keep paying for
bail-outs without going bankrupt itself. This is
frightening people. You cannot find a bank safe deposit
box in Germany because every single one has already been
taken and stuffed with gold and silver.” Professor Wilhelm Hankel, of Frankfurt University
Germany and France have forged revamped crisis rules for the
euro that aims to make investors share some of the burden of any
post-2013 bailout, German government spokesman Steffen Seibert
said.
Creditors of euro-zone countries that face insolvency after
2013 will see their bond holdings restructured—and may be forced
to take losses—under a proposal agreed by the leaders of France
and Germany, and top European Union officials, according to people
familiar with the matter.
Finance ministers, meeting Sunday in Brussels to approve an
international rescue package for Ireland valued at about €85
billion ($110 billion), will also discuss the proposal.
The proposal to make private-sector creditors bear part of the
burden of future troubles was agreed earlier Sunday by ...
People collecting benefits from the Supplemental Nutrition
Assistance (SNAP) program in the US rose by 15 million since the
start of the recession in December 2007, says a report.
With the new addition, the total number of people receiving the
benefits from the program, commonly known as Food Stamps,
increased to 42.2 million this Thanksgiving, accounting for 1.37
percent of the US population, said Economic Policy Institute on
Wednesday.
13- GOVERNMENT BACKSTOP INSURANCE
14- CORPORATE BANKRUPTCIES
17- CHINA BUBBLE
Housing bubble risk intensifies in Hong Kong IBTimes
"Germany cannot keep paying for bail-outs without going
bankrupt itself. This is frightening people. You cannot find a
bank safe deposit box in Germany because every single one has
already been taken and stuffed with gold and silver. It is like an
underground Switzerland within our borders. People have terrible
memories of 1948 and 1923 when they lost their savings."
Professor Wilhelm Hankel, of Frankfurt University
EU rescue costs start to threaten Germany itself - Telegraph
"We're not swimming in money, we're drowning in debts"
German finance minister Wolfgang Schäuble before Bundestag
EU rescue costs start to threaten Germany itself - Telegraph
Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.ont>
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Gordon T Long
is not a registered advisor and does not give investment advice. His comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, we recommend that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
we encourage you confirm the facts on your own before making important
investment commitments.
