Foreign Exposure to PIGS Debt Is a Major Threat

The BIS’s latest quarterly review contains a tabulation of exposure, broken down by nationality, to debt of the four most problematic countries: Portugal, Ireland, Greece, and Spain. Major industrial countries are over exposed to PIGS.

The grand total: A staggering $2.2 trillion! Nearly one quarter — $513 billion — is held by German investors. U.S. investors are on the hook for $353 billion and U.K. investors for $370 billion.

These are humongous numbers.

Conservatively speaking, these debts will need at least a 30 percent haircut for the PIGS to have a realistic opportunity of getting out of the hole they’re in. And if that 30 percent is the result of defaults, the international banking system would again be severely wounded.

 

For the 2nd consecutive year senior citizens will get no cost of living increase on their Social Security. The average monthly Social Security payment is $1,074. While seniors struggle to make ends meet, Wall Street banks are handed billions in free money by Ben Bernanke. The chart below details the COLA increases since 1975. Alan Greenspan and his commission began manipulating the CPI in the early 1980s. 

Social Security Cost-Of-Living Adjustments

Year COLA 1975 8.0 1976 6.4 1977 5.9 1978 6.5 1979 9.9 1980 14.3 1981 11.2 1982 7.4 1983 3.5 1984 3.5 1985 3.1 1986 1.3 1987 4.2 1988 4.0 1989 4.7	Year COLA 1990 5.4 1991 3.7 1992 3.0 1993 2.6 1994 2.8 1995 2.6 1996 2.9 1997 2.1 1998 1.3 1999 2.5 2000 3.5 2001 2.6 2002 1.4 2003 2.1 2004 2.7	Year COLA 2005 4.1 2006 3.3 2007 2.3 2008 5.8 2009 0.0 2010 0.0
a The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.

 

Since 2000, seniors have seen their monthly payment increase by 27%, or less than 2.5% per year. I challenge anyone to convince me that inflation has been 0% for the last two years. I have calculated my real inflation and it is four times the government reported figure. I suppose government bureaucrats and Federal Reserve Chairmen don’t fill up their gas tanks or go food shopping. John Williams at www.Shadowstats.com calculates the CPI as it was calculated prior to the Greenspan fraud. Based on this true assessment of inflation, prices have increased by 100% since 2000, or 8% per year.

Only an Ivy League academic could examine the following yearly price data and conclude, as Bernanke has, that inflation is well contained:

• Unleaded gas up 24%
• Heating Oil up 28%
• Corn up 50%
• Wheat up 48%
• Coffee up 56%
• Sugar up 27%
• Soybeans up 30%
• Beef up 26%
• Pork up 22%
• Cotton up 101%
• Copper up 33%
• Silver up 72%

I wonder what a can of Who Hash will cost in 2011?

The truth is that senior citizens spend a much higher percentage of their limited income on the basics of housing, transportation, food, and insurance. So, these increases have a much greater impact on seniors than rich bankers and Princeton scholars. The figures for key items over the last decade prove the point that seniors have fallen further due to the inflationary policies of the Federal Reserve

 

 

Mutual fund cash levels have been near record lows since September, and topping it off, a respected friend tells me NYSE cash levels are negative $35 billion.

 

It is not just the stock market that is at the highest levels since Lehman. Probably just as importantly, NYSE margin debt has surged to $269 billion, an increase of $13 billion from the prior month, and the highest since September 2008 when it was at $299 billion, and subsequently tumbled as investors rushed to get out of all margined positions. And this has happened even free cash credit accounts and credit balance in margin accounts remained relatively flat. In other words, net NYSE available cash decreased by $10 billion M/M to ($34) billion, the lowest since April 2010, just before the market tumbled, and net cash surged by almost $50 billion in two months. We are confident that NYSE cash in November will be at the lowest level of the year, not to mention December, as hedge funds leveraged everything they could, in some cases hitting as much as 3-4x gross leverage, in pursuit of beta, now that unleveraged alpha strategies have ceased to work. Which means that with retail stubbornly missing from the picture, the only beneficiaries of the HFT and Fed facilitated melt up are the 1000 or so hedge funds, where average net worth is in the 6 digits, that will be profitable this year. Everyone else can drown their sorrows in McDonalds fries which are about to surge in price. Of course, what this means should some unexpected credit event occur, is that the forced selling that will follow this two year high margin debt unwind will lead to a comparable results as those seen after the Lehman collapse. For the sake of America, we can only hope that the centrally planning Chairman can sustain the lie for a few more months before the house of cards on the camel's back, which in turn is suspended on a ladder as the eye of the hurricane passes over, finally topples.

 

 

 

My estimates included this change in structure because I accounted for those declines. The window dressing from the Fed made it sound less extreme, but make no mistake, the Fed is working full time to expand our money supply. That is what the foreign central banks are so upset about because they hold dollars in the form of Treasuries that will be diluted as the dollar weakens from printing money to buy the Treasuries.

The Fed says that it is doing this to help the economy through lower rates intended to increase business borrowing and to lower unemployment. That is also a deception because evidence shows that such programs will not have much effect on unemployment. The real reason is to bail out the deficit of the federal government – a deficit that is too big to be bought by the traditional buyers, which for many years were the foreigners.

 

1- Americans now owe more than $875 billion on student loans, which is more than the total amount that Americans owe on their credit cards.

2- Since 1982, the cost of medical care in the United States has gone up over 200% but that is nothing compared to the cost of college tuition which has gone up by more than 400%.

3- The typical U.S. college student spends less than 30 hours a week on academics.

4- The unemployment rate for college graduates under the age of 25 is over 9%.

5- There are about two million recent college graduates that are currently unemployed.

6- Approximately two-thirds of all college students graduate with student loans.

7- In the United States today, 317,000 waiters and waitresses have college degrees.

8- The Project on Student Debt estimates that 206,000 Americans graduated from college with more than $40,000 in student loan debt during 2008.

9- In the United States today, 24.5 percent of all retail sales persons have a college degree.

10- Total student loan debt in the United States is now increasing at a rate of approximately $2,853.88 per second.

11- There are 365,000 cashiers in the United States today that have college degrees.

12- Starting salaries for college graduates across the United States are down in 2010.

13- In 1992, there were 5.1 million "underemployed" college graduates in the United States. In 2008, there were 17 million "underemployed" college graduates in the United States.

14- In the United States today, over 18,000 parking lot attendants have college degrees.

15- Federal statistics reveal that only 36 percent of the full-time students who began college in 2001 received a bachelor's degree within four years.

16- According to a recent survey by Twentysomething Inc., a staggering 85 percent of college seniors planned to move back home after graduation last May.