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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A question everyone asks after the Irish bailout is "Why were
there no haircuts to Irish bank bondholders?" Why, in other words,
are the people who financed Ireland's debt forays not on the hook
for aiding and abetting this misadventure?
Michael Cembalest of JP Morgan weighs in on this in his latest:
Greece, Ireland, Spain and Portugal (GISP) are small in GDP
terms relative to Germany and France. But their banking
systems grew to be very large (e.g., a 20% haircut on
French bank exposure to GISP countries would wipe out French
bank equity). Irish Finance Minister Lehinan
intimated that Ireland asked to be able to apply haircuts to
senior bank debt, and was told by the EU that it would make no
money available if there were any haircuts, due to fears of
contagion. What does that tell you about the risk of small
countries, or the European banking system?
Welcome to yet another example of banks being too metastasized
to fail.
Deutsche Bank have broken down the debt threat facing Europe's
banks, and it isn't pretty for many of them.
In fact, many banks have significant exposures to Total Bank
Value (TBV) associated with the already bailed out Greek
and Irish sovereigns, as well as the likely next
to fall, Portugal.
We've included both the exposure level, by % of TBV, and the
risks associated with the exposures.
This information is particularly important in light of the
eurozone leaders' new plan to establish a means for member states
to restructure (partially default) by 2013.
Is the target of the Wikileaks
"Big Bank" exposé going to be Bank of America?
As the
Huffington Post points out, Julian Assange talked about BofA
last year in an
interview with Computer World, claiming "he had acquired a
large cache of information from Bank of America."
He specified that he has 5GB of material on the company.
"At the moment, for example, we are sitting on 5GB from
Bank of America, one of the executive's hard drives. Now
how do we present that? It's a difficult problem. We could just
dump it all into one giant Zip file, but we know for a fact that
has limited impact. To have impact, it needs to be easy for people
to dive in and search it and get something out of it."
He confirmed that the information comes from a U.S bank.
Speculation that BofA is the bank in question is not
unexpected, especially in the wake of
the robo-signing scandal, which exposed an uncontrolled, often
messy operation within the bank's finance and mortgage divisions.
Plus, Assange told Forbes that the Big Bank leak will include
thousands of internal documents, which have "an overlap between
corporate and government leaks."
In typical Assange fashion, he emphasized the information "will
be exposed on Wikileaks.org with no polite requests for
executives’ response or other forewarnings. The data dump will lay
bare the finance firm’s secrets on the Web for every customer,
every competitor, every regulator to examine and pass judgment
on."
Exclusive: WikiLeaks will unveil major bank scandal
Forbes
Republicans in Washington are eagerly promoting their promise
to abstain from earmarks. But the pledge made on the campaign
trail is proving more complicated in practice.
Nathaniel Rothschild ’s most successful trade as a hedge-fund
manager was his investment in U.S. mining company Phelps Dodge
Corp. The future 5th Baron Rothschild says he now plans to build
one of the world’s largest coal producers.
Household Deleveraging - Largest Decline on Record NTrust
"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.
