Producer Mack Sennett's comedy reels featured a bevy of "bathing beauties," among them Marvel Rea, seen here in the harlequin costume
Ilargi: It's a thin line beteeen comedy and tragedy. From time to time, quite often actually, stories pass before my eyes that make me think: did I really just read that? Was that serious? Like I had one last week, with Paul Krugman talking about aliens:
Paul Krugman: Fake Alien Invasion Would End Economic Slump"If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months [..]"
Ilargi: Only, what I found weird was not so much that he talked about aliens, but that he implied that a “common enemy" would end the US economic slump in 18 months. That to me, once again, shows such a deep lack of understanding of the issues at hand that what's maybe truly weird is that the man still has readers. Unless the US declares all-out war on its creditors, there's no way it can get rid of its piles of debt, public and private, in 18 months. So, nah, not all that remarkable perhaps, just more Krugman.
The following series of articles form today's Daily Telegraph, however, does have that je ne sais quoi level. First off, James Hurley writes:
UK household finances are 'worse than during height of recession'Household budgets are deteriorating at a faster rate than during the height of the recession in early 2009, according to an analysis of consumers' finances. Almost 40pc of households saw their finances deteriorate between July and August, compared to just under 6pc that reported an improvement as Britons were hit by rising prices and a squeeze on take-home pay.
The latest Markit household finance index also found consumers suffered the fastest fall in their available cash since the monthly survey began in February 2009. Income from employment fell for the eleventh month running – August saw the steepest decline in take-home pay for nine months – while spending power continued to be squeezed by rising prices.
Markit said these factors contributed to the sharpest reduction in savings since March 2009. Debt levels increased for the fifth consecutive month, and at the fastest pace since November 2010. The gloomy outlook applied to all income groups, age ranges and regions monitored by the survey, but consumers in the north of England are suffering more than those in the south, the financial information company found.
Tim Moore, senior economist at Markit, said: "With consumer spending accounting for around two-thirds of UK gross domestic product, this does not bode well for the second half of the year. It is likely that the UK economy will be increasingly dependent on external demand."
Ilargi: In short, the UK economy is gasping for air, being gutted alive. Nothing we didn't know already. So it’s only logical that we see this item by Rebecca Choules next up:
Half of first-time buyers have given up hopeMore than 50pc of would-be first-time buyers have given up hope of being able to afford property.
Fifty three per cent of would-be home buyers believe that they won’t ever be able to afford to buy a home. According to the Post Office, half of prospective home owners said that in order to save enough money for a deposit, they would need to either get a better-paid job with a higher salary, or receive a lump sum from a relative. The average age of a first-time buyer is 35 today compared with just 23 in the 1960s. The Post Office blamed rising house prices and the huge deposits needed to get on the property ladder.
The research found that on a regional basis, would-be buyers who are already living in London are being hit hardest when trying to raise a deposit, as they are faced with the obstacle of high property prices. Some 43pc of people living in the capital say that they could not afford a deposit unless their financial circumstances changed. This is considerably higher than the national average of 37pc.
Ilargi: Yeah, color me surprised to see all those people still looking for homes to buy. They should than the banks for saving them the misery. Britain has a huge housing bubble waiting to blow. Or is it different this time, and this place? Emma Wall reports:
UK house prices to rise 14% to record highs by 2015The housing slump is over, according to the Centre for Economics and Business Research (CEBR). The think tank has predicted that by 2015 house prices across the UK will have risen on average 14pc – to an all-time high. A new report from the CEBR predicts that the average British home will be worth more than £200,000 by 2015, up from the current value of £176,000. This is nearly £10,000 more than the previous house price peak in 1997, when the average home was worth £191,200.
This prediction is less aggressive than the previous forecast from the CEBR in May, when it predicted that house prices would grow 16pc over the next four years. The CEBR blamed the lack of houses compared to demand for the expected rise. Shehan Mohamed, an economist for the CEBR, said: "We forecast an average of 110,000 new homes to be built every year over the medium term.
"This is significantly lower than the 225,000 homes that need to be created every year to keep pace with current housing needs, population growth and the trend towards reduced household sizes.
Ilargi: Let's see: prospective first-time buyers can't get a loan no matter what they try, but home prices will still rise to record highs, according to the CEBR. The question then becomes: who's going to furnish the loans that will be needed for those record purchases? Will it be these guys that Patrick Jenkins writes about in the Financial Times?
Pension conundrum at UK banksThe slump in equity values in recent weeks – particularly acute for Britain’s banks – has done much to undermine confidence in the financial sector and the economy’s prospects for growth. But it has also left the industry with a peculiar anomaly. Of the big four high-street groups, only HSBC now boasts a market capitalisation greater than its pension fund liabilities.
Lloyds, Barclays and Royal Bank of Scotland are, in the view of the stock market, worth less than the amount they owe their current and future pensioners. The gap is widest at Lloyds – with pension liabilities of £27bn, against a market cap of less than £20bn. It is pretty dramatic as trivia facts go. But since pension liabilities are long-term in nature, they have no direct connection with the banks’ own short-term market values.
The pension funds in question – so-called defined benefit schemes – are also independent from the banks, with their own assets to cover their liabilities. But there are ways in which the costs of meeting pension fund obligations can spill over into the banks themselves.
Ilargi: They can't pay their own employees' pensions, but they are going to push up home prices to infinity and beyond? Hmm. Here's what British banks lost in market cap since August 2006:
- Lloyds: -94.54% (-58.10% in past year)
- Barclays: - 76.85% (-53.08% in past year)
- RBS: -96.83% (-54.15% in past year)
No, I don't think so. I don't think home prices in Britain are going to rise. I'd say it's pretty obvious it's in the early stages of a severe credit crunch, the same one the entire western world is in. US home prices have dropped over 30% to date, and that's where Britain will go. And then, just like the US, it will go on falling, For a long time.
Unless, unless, the crazy scheme Jenkins was talking about actually flies. Hard to imagine, but hey, nothing seems too far-fetched anymore in the world of finance, does it?
Banks shift assets to cut pension deficitsSome of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, moving them off their balance sheets and into staff pension funds.
The moves – designed with the dual purpose of clearing unwanted assets from the banks’ own books while at the same time closing pension fund deficits – have been made as exceptional top-up payments into the pension schemes over recent months.
HSBC made a £1.76bn exceptional payment into its pension scheme, comprising a portfolio of assets ranging from subordinated debt to asset-backed securities, last December. Lloyds also made a £1bn commitment to its pension fund as part of a £5bn transfer of assets into an intermediary funding vehicle. Lloyds did not respond to requests for information about the arrangement, but pensions experts said the measures were comparable with the HSBC plan. [..]
Nobby Clark, who runs HSBC’s pensions solutions group, said the transfer of illiquid assets into pension schemes was a sensible way for banks to deal with funding deficits. "The pension scheme has the ability to take liquidity risk with assets that aren’t liquid temporarily," Mr Clark said. Pension funds’ liabilities are long-term, so short-term illiquidity is unimportant.
Many big banks found themselves with vast portfolios of illiquid assets, such as asset-backed securities tied to the US mortgage market, following the 2008 financial crisis. Not only must banks mark the value of the assets, held in their trading books, to still-low market rates, but the majority also attract higher capital requirements under new regulations. The rules do not apply to assets in pension funds, however.
Banks gain from capital and tax relief on the transfer transactions, while the pension fund typically secures contributions much sooner than if it were to wait for cash payments. Some pension fund trustees have expressed concern that they are receiving questionable assets in place of cash. "[Trustees] might say: ‘If I can have a crisp new white shirt why would I want one you wore yesterday?’" said Dawid Konotey-Ahulu, co-chief executive of consultancy Redington.
But bank executives point out that transfers into bank pension funds have occurred at impaired book values. In addition, some assets have been given another valuation "haircut" of as much as 20 per cent, according to pensions experts – sufficient to placate pension fund trustees.
Ilargi: Yes, you read that correctly: Britain's banks, having been propped full with taxpayer money but still lost 75%-95% of their market value, are busy unloading their landfilling toxic waste (a term that comes straight from the banking world) unto their very employees. Who at least to some extent should be bankers, and understand what this stuff is worth; they may have well sold it themselves. And all this is presented as being beneficial to all parties. No scruples there.
Got to love this, though: ”... transfers into bank pension funds have occurred at impaired book values. In addition, some assets have been given another valuation "haircut" of as much as 20 per cent [..]" Oh, is that a fact? Now that makes me wonder what these"securities" are carried on the banks' books for.
The people whose pension funds are poisoned with the toxic paper can stand in line with all the others who -will- have no pensions left. There's a number that actuallydoes show remarkable growth rates, says Rachel Louise Ensign in the Wall Street Journal:
For Many Seniors, There May Be No RetirementMany older people are finding themselves in a position they never expected to be in at retirement age: still working or in need of a job. And the laundry list of reasons just keeps growing. Already battered nest eggs took another beating this month with the market's wild swings.
With interest rates essentially at zero since 2008, income from Treasurys and certificates of deposit is pretty paltry. And the Federal Reserve recently said it would likely keep rates "exceptionally low" through mid-2013. On top of that, housing prices are still in the doldrums, leaving homeowners with much less equity to tap.
More than three in five U.S. workers in their 50s and 60s plan on working past 65 -- and 47% of that group say they'll do so because they'll need the money or health benefits, according to a 2011 study from the nonprofit Transamerica Center for Retirement Studies
Ilargi: Calculated Risk's Bill McBride summarizes a survey on the topic.
The New Retirement Plan: No Retirement
The survey found that for many Americans, the foundation of their retirement strategy is simply not to retire, to work considerably longer than the traditional retirement age, or work in retirement:
- 39 percent of workers plan to work past age 70 or do not plan to retire
- 54 percent of workers expect to plan to continue working when they retire
- 40 percent now expect to work longer and retire at an older age since the recession
Workers’ greatest fears about retirement include “outliving my savings and investments” and “not being able to meet the financial needs of my family.”
- Workers estimate their retirement savings needs at $600,000 (median), but in comparison, fewer than one-third (30 percent) have currently saved more than $100,000 in all household retirement accounts
- Most workers, regardless of age or household income, agree that they could work until age 65 and still not have enough money saved to meet their retirement needs
- Of those who plan on working past the traditional retirement age of 65, the most commonly cited reasons are of need versus choice
- Many workers (31 percent) anticipate that they will need to provide financial support to family members
Ilargi: Pensions, health care, education, you name it. Whatever field does not produce profit will be gutted, cut out and thrown by the wayside, no matter the consequences for anyone. It’ll happen in Greece, in Britain and in the US. And nowhere will it be accepted lying down once reality sinks in. The reality we're busy creating is one most of us wouldn't want to live in. So we choose to ignore we're creating it. Until we're in it, and ignoring is no longer an option.
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UK house prices to rise 14% to record highs by 2015
by Emma Wall - Telegraph
Property prices will rise 14pc to hit an all-time high by 2015 predicts Centre for Economics and Business Research.
The housing slump is over, according to the Centre for Economics and Business Research (CEBR). The think tank has predicted that by 2015 house prices across the UK will have risen on average 14pc – to an all-time high. A new report from the CEBR predicts that the average British home will be worth more than £200,000 by 2015, up from the current value of £176,000. This is nearly £10,000 more than the previous house price peak in 1997, when the average home was worth £191,200.
This prediction is less aggressive than the previous forecast from the CEBR in May, when it predicted that house prices would grow 16pc over the next four years. The CEBR blamed the lack of houses compared to demand for the expected rise. Shehan Mohamed, an economist for the CEBR, said: "We forecast an average of 110,000 new homes to be built every year over the medium term.
"This is significantly lower than the 225,000 homes that need to be created every year to keep pace with current housing needs, population growth and the trend towards reduced household sizes."
Though the 14pc rise may be bad news for first time buyers, this rate of increase is less than the Government's official rate of inflation which rose to 4.4pc this week. Douglas McWilliams, CEBR chief executive, said that first time buyers need not worry that this increase is a repeat of the housing boom in the Nineties. He said: "We do not expect a house price boom, but the housing shortage is likely to push prices gently upwards."
Half of first-time buyers have given up hope
by Rebecca Choules - Telegraph
More than 50pc of would-be first-time buyers have given up hope of being able to afford property.
Fifty three per cent of would-be home buyers believe that they won’t ever be able to afford to buy a home. According to the Post Office, half of prospective home owners said that in order to save enough money for a deposit, they would need to either get a better-paid job with a higher salary, or receive a lump sum from a relative. The average age of a first-time buyer is 35 today compared with just 23 in the 1960s. The Post Office blamed rising house prices and the huge deposits needed to get on the property ladder.
The research found that on a regional basis, would-be buyers who are already living in London are being hit hardest when trying to raise a deposit, as they are faced with the obstacle of high property prices. Some 43pc of people living in the capital say that they could not afford a deposit unless their financial circumstances changed. This is considerably higher than the national average of 37pc.
In contrast, only 32pc of people living in the West Midlands said that raising the deposit was the main reason impeding their decision to buy. However, it seems they are feeling the pinch more that their southern counterparts, as 32pc of people in the region cited unaffordable mortgage repayments as their main reason, compared to the national average of 12pc.
David Hollingworth, mortgage broker for London & Country Mortgages recommended first time buyers prioritise saving a deposit in order to access a more affordable loan rate. He said: “The key issue for any first time buyer is the size of deposit that they can manage to pull together. The bigger the deposit the more options they will have and the cheaper the interest rates will be.
"Mortgage options for those with only a 5pc deposit can be pretty much counted on the fingers of one hand and although there’s been slow but steady improvement for those with 10pc to put down, the market remains restricted."
Mr Hollingworth compared Skipton Building Society's two year fixed rate mortgage at 5.99pc, which requires a 5pc deposit with Chelsea Building Society's home loan, which requires a 10pc deposit but has a rate of 4.39pc. "At the other extreme if you have a 40pc deposit, ING Direct offers a two year fixed rate of just 2.49pc," he said.
UK household finances are 'worse than during height of recession'
by James Hurley - Telegraph
Household budgets are deteriorating at a faster rate than during the height of the recession in early 2009, according to an analysis of consumers' finances. Almost 40pc of households saw their finances deteriorate between July and August, compared to just under 6pc that reported an improvement as Britons were hit by rising prices and a squeeze on take-home pay.
The latest Markit household finance index also found consumers suffered the fastest fall in their available cash since the monthly survey began in February 2009. Income from employment fell for the eleventh month running – August saw the steepest decline in take-home pay for nine months – while spending power continued to be squeezed by rising prices.
Markit said these factors contributed to the sharpest reduction in savings since March 2009. Debt levels increased for the fifth consecutive month, and at the fastest pace since November 2010. The gloomy outlook applied to all income groups, age ranges and regions monitored by the survey, but consumers in the north of England are suffering more than those in the south, the financial information company found.
Tim Moore, senior economist at Markit, said: "With consumer spending accounting for around two-thirds of UK gross domestic product, this does not bode well for the second half of the year. It is likely that the UK economy will be increasingly dependent on external demand."
Although respondents were slightly less pessimistic than in the previous survey about the outlook for their finances in 12 months' time, 49pc said they expected their financial position to worsen while just 27pc anticipated an improvement.
Markit said the pressure on purchasing power is unlikely to ease in the short term, with the Bank of England expecting inflation to reach 5pc later this year as higher prices continue to filter through to household budgets. Fears over the eurozone crisis and the prospect of a double-dip recession are also hitting consumer confidence, Mr Moore added.
Banks shift assets to cut pension deficits
by Patrick Jenkins- FT
Some of Britain’s biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, moving them off their balance sheets and into staff pension funds.
The moves – designed with the dual purpose of clearing unwanted assets from the banks’ own books while at the same time closing pension fund deficits – have been made as exceptional top-up payments into the pension schemes over recent months.
HSBC made a £1.76bn exceptional payment into its pension scheme, comprising a portfolio of assets ranging from subordinated debt to asset-backed securities, last December. Lloyds also made a £1bn commitment to its pension fund as part of a £5bn transfer of assets into an intermediary funding vehicle. Lloyds did not respond to requests for information about the arrangement, but pensions experts said the measures were comparable with the HSBC plan.
Both moves were revealed in annual reports, although few details were disclosed. Royal Bank of Scotland is believed to have considered a similar transaction, though this month it decided for the time being to use only cash to address its pension fund deficit. Like many companies, all the big UK banks are currently running deficits, with insufficient assets to cover projected liabilities.
Nobby Clark, who runs HSBC’s pensions solutions group, said the transfer of illiquid assets into pension schemes was a sensible way for banks to deal with funding deficits. "The pension scheme has the ability to take liquidity risk with assets that aren’t liquid temporarily," Mr Clark said. Pension funds’ liabilities are long-term, so short-term illiquidity is unimportant.
Many big banks found themselves with vast portfolios of illiquid assets, such as asset-backed securities tied to the US mortgage market, following the 2008 financial crisis. Not only must banks mark the value of the assets, held in their trading books, to still-low market rates, but the majority also attract higher capital requirements under new regulations. The rules do not apply to assets in pension funds, however.
Banks gain from capital and tax relief on the transfer transactions, while the pension fund typically secures contributions much sooner than if it were to wait for cash payments. Some pension fund trustees have expressed concern that they are receiving questionable assets in place of cash. "[Trustees] might say: ‘If I can have a crisp new white shirt why would I want one you wore yesterday?’" said Dawid Konotey-Ahulu, co-chief executive of consultancy Redington.
But bank executives point out that transfers into bank pension funds have occurred at impaired book values. In addition, some assets have been given another valuation "haircut" of as much as 20 per cent, according to pensions experts – sufficient to placate pension fund trustees.
The trend is a version of a pension funding strategy popularised by retailers in recent years, based on property transfers. The news comes as HM Revenue and Customs prepares to close a loophole in tax relief rules governing asset-based pension fund transfers.
Last week HMRC concluded consultation on a plan to clamp down on what it said was a ruse by some companies to claim double corporate tax relief on pension contributions, by routing assets into an intermediate vehicle first, before income is then paid on annually in a series of secondary transactions into the pension fund.
Pensions experts say as many as 20 companies may have adopted the structures, with Lloyds being the biggest, though it is unclear how many are "double-dipping" on tax relief.
John Ralfe, an independent pensions expert, believes Lloyds may lose out on as much as £155m of anticipated relief on its £1bn planned contribution when the loophole is closed. "The real issue," Mr Ralfe said, "is why it has taken HMRC since 2007, when the first transaction was completed, to take the first step to plug this loophole."
Pension conundrum at UK banks
by Patrick Jenkins - FT
The slump in equity values in recent weeks – particularly acute for Britain’s banks – has done much to undermine confidence in the financial sector and the economy’s prospects for growth. But it has also left the industry with a peculiar anomaly. Of the big four high-street groups, only HSBC now boasts a market capitalisation greater than its pension fund liabilities.
Lloyds, Barclays and Royal Bank of Scotland are, in the view of the stock market, worth less than the amount they owe their current and future pensioners. The gap is widest at Lloyds – with pension liabilities of £27bn, against a market cap of less than £20bn. It is pretty dramatic as trivia facts go. But since pension liabilities are long-term in nature, they have no direct connection with the banks’ own short-term market values.
The pension funds in question – so-called defined benefit schemes – are also independent from the banks, with their own assets to cover their liabilities. But there are ways in which the costs of meeting pension fund obligations can spill over into the banks themselves.
As analysts at Citigroup recently pointed out, the bank with the biggest issue is probably Barclays. Its deficit is the widest, at nearly 16 per cent of market capitalisation, using an end-2010 accounting measure.
Deficits matter because they get deducted from banks’ core tier one capital ratio – the key measure of financial strength and a sharp focus point of regulatory scrutiny. They also matter because they need to be remedied. After valuations by actuaries, companies have to promise pension fund trustees that they will fill funding gaps with top-up payments.
Like most companies, the banks are likely to see deficits increase in the current environment. Not only is the value of the equities they hold declining; low interest rates mean the so-called discount rate applied to the calculation of liabilities inflates the amount needed to meet pay-out requirements.
The banks, though, have not been idle. In recent years, they have started to take pension deficits seriously, applying innovative financial tools to deal with assets and liabilities.
HSBC took the lead, following a review of its pension schemes in 2004. "We started to drag pensions away from HR and into the bank’s Treasury function," says Nobby Clark, who runs the bank’s pensions solutions group and oversees more than 200 schemes. "As soon as you start to think of pension liabilities as part of the overall balance sheet – and think about the way the deficit evolves – that is a useful discipline."
Part of the approach has involved cutting liabilities by closing schemes to new members, restricting the amount of future pay increases that would count towards "final salary" calculations. But there has also been a more creative approach to managing liability risk. One of HSBC’s innovations was to start using derivatives, such as interest rate swaps, in large quantities.
Robert Waugh, who has a similar role at RBS, has also overseen liability hedging but has also focused on improving asset management. "One of the first things we did was to cut the number of investment consultants we used and reduce asset management fees. We instantly generated a 10 per cent cost saving," he says.
Asset allocation has also evolved. The banks have shifted more of their assets away from equities and towards long-dated bonds that more closely match the funds’ liability profile. RBS, for example, cut its equity allocation from 39 per cent to 26 per cent last year. Barclays has been the exception, increasing equity exposure from 27 to 30 per cent.
The biggest innovation of recent times, though, has been the realisation that just as retailers have been able to use their property assets instead of cash to make pension contributions, so banks have also been able to use balance sheet assets. The banks are shy to talk about the practice, since it may involve moving assets that were sometimes dubbed "toxic" amid the financial crisis off the banks’ own balance sheet and into the pension funds. Both Lloyds and Barclays declined to be interviewed.
But HSBC, which took the lead in this area, is convinced it makes sense for both sides. Many "toxic" assets, such as asset-backed securities may be only temporarily impaired in value and illiquid in terms of market appetite. That should not matter for a pension fund, whose liabilities are long-term. "The pension scheme has the ability to take liquidity risk," says Mr Clark.
Last December, HSBC put £1.76bn of assets into the fund as part of a 10-year plan to close the £3.2bn actuarial deficit identified in December 2008. Lloyds has made similar transfers and RBS is believed to have considered the idea. Pension fund trustees appear to have been mollified by discounts applied to the assets’ book value.
Not everyone believes the mechanism is appropriate. "It’s a matter of whether trustees are happy to accept these assets," says Alistair Asher, partner at Allen & Overy, the law firm. But if Mr Clark is right, it could be a crucial answer to the pension funding challenge, allowing pension funds to benefit in the long term and banks to benefit now.
For Many Seniors, There May Be No Retirement
by Rachel Louise Ensign - Wall Street Journal
When Angela Gregor's mother became ill and needed long-term care in the 1990s, Ms. Gregor tapped her individual retirement account for funds and stopped making contributions. Then came the tumultuous stock-market ups and downs of the past decade, dealing the IRA another blow.
To make ends meet, Ms. Gregor went back to work part time last September, as a data-entry clerk at a senior center near Chicago. The 67-year-old hopes to retire by age 70, but says she'll have a hard time doing so if she can't sell her home. "Everything is more expensive. I cannot retire, I wish I could," says Ms. Gregor. "Like most older people, my money is in my home. ... I'm caught between a rock and a hard place."
Many older people are finding themselves in a position they never expected to be in at retirement age: still working or in need of a job. And the laundry list of reasons just keeps growing. Already battered nest eggs took another beating this month with the market's wild swings. With interest rates essentially at zero since 2008, income from Treasurys and certificates of deposit is pretty paltry. And the Federal Reserve recently said it would likely keep rates "exceptionally low" through mid-2013. On top of that, housing prices are still in the doldrums, leaving homeowners with much less equity to tap.
More than three in five U.S. workers in their 50s and 60s plan on working past 65 -- and 47% of that group say they'll do so because they'll need the money or health benefits, according to a 2011 study from the nonprofit Transamerica Center for Retirement Studies. But in this tight labor market, working into your golden years isn't easy. And you'll have to make your age and years on the job come across as assets, not liabilities. In addition, with the current market upheaval, you'll need a financial plan that puts your savings on the fast track and takes into account how Social Security and Medicare benefits could be affected.
Staying the Course
For many older workers, the easiest option may be to continue with their current employer. But that will entail making themselves essential. Workers should take on new projects when possible. And it's crucial to stay on top of the latest technology being used; you don't want to be perceived as the old guy who doesn't know what's going on. Older employees also can put their experience to use -- and on display -- by volunteering to mentor younger workers either formally or informally.
Dave Bowe, 70, says he has kept his position at Stacy Adams Shoe Co. since 1977 because he has continued to be one of the men's footwear company's top-selling sales representatives. He says working has helped him pay for expenses related to his wife's disability and keep insurance that covers her medical expenses, though he also enjoys the job.
Mr. Bowe says he stays close with longtime customers, answering their calls at night or on the weekend. When he had to cut back on overnight travel when his wife became disabled, he made up for lost business by aggressively pursuing new clients closer to home. "I have to produce or the company wouldn't let me work out here," says Mr. Bowe.
Of course, some workers may have to take illness or physical limitations into account. If you feel like you can no longer manage physical labor, late hours or travel, talk to your manager about moving to a different position, says Beverly Harvey, a career coach in Pierson, Fla. Suggest the position you'd like to move to and show how you're qualified for it, she says. If your boss is the one initiating such a conversation, chances are your standing at the company has already suffered.
Another option is phased retirement programs that let workers gradually reduce their hours, says Cornelia Gamlem, president of human-resources consulting firm GEMS Group. There also are job-sharing arrangements, she says. For instance, if you and a co-worker are both thinking of paring your work hours, approach management with a plan detailing how you could divide your time and responsibilities. Just keep in mind that a change to your full-time status could affect your eligibility for benefits such as health insurance or a 401(k) match.
Starting Over
Finding employment outside your company will present more of a challenge since you essentially have to prove yourself from scratch. Ideally, you want to seek work within the same industry to take advantage of your network and work experience. If you look in a different field, figure out what skills you can translate into a new role.
When Ms. Gregor interviewed for her position at the senior center, she highlighted the computer and accounting skills she'd honed in decades of office work, even though she had most recently worked as a home health aide. Some employers are known to hire senior citizens. AARP (aarp.org) has a directory. Search for "National Employer Team." Some temporary-employment agencies, including Kelly Services and Adecco, specialize in placing seniors.
Keep Saving
While you may need a steady paycheck to pay the bills, you'll still need to save for when you eventually do stop working. Workers age 50 and older typically can contribute an additional $5,500 to a 401(k) annually and an extra $1,000 to an IRA. You also can get a tax credit of up to $2,000 annually if you contribute to a retirement plan and make $55,500 or less (for joint filers) or $27,750 (for single filers). You generally don't have to take required distributions from your 401(k) as long as you keep working for the employer offering the plan -- regardless of your age. But at age 70[frac12], you'll need to start taking annual distributions from a regular IRA. So make a plan to set aside or reinvest as much of those distributions as you can afford.
Hold off on taking Social Security benefits as long as possible since the longer you wait, the higher your monthly benefit will be. If you keep working, benefits are likely to be subject to federal income tax and may be further reduced if you take them before full retirement age. Finally, if you're using Medicare, keep in mind that your premiums are determined by your income.
Stock Market Plunges Begin To Feed Economic Fear
by Bernard Condon and Christopher Rugaber - AP
The stock market is starting to feed economic fear, not just reflect it.
Stocks have fallen four weeks in a row. Some on Wall Street worry that the resulting blow to confidence, not to mention 401(k) statements, has set off a spiral of fear that could push prices even lower, cause people and businesses to pull back and tip the economy into a new recession. "I'm nervous that fear will lead companies to stop hiring and people to stop spending," says Jim Paulsen, chief investment strategist of Wells Capital Management, famous for his usually bullish take on the markets.
A home sales report this past week showed that more sales than usual fell apart at the last minute, which suggests plunging stocks and dismal economic news gave buyers cold feet. At least 16 percent of deals were canceled ahead of closings last month, four times the rate in May. Beth Ann Bovino, senior economist at Standard & Poor's, says that another big plunge in stocks could "push us closer to the brink."
The Standard & Poor's 500 stock index ended Friday at 1,123.53, down 5 percent for the week. The average is down 16 percent during the four-week losing streak. One reason for the drop is fear that another recession, if not certain, is more likely now. The run of bad economic news started last month when the government said the economy grew much more weakly in the first half of this year than thought. Growth, at an annual rate of 0.8 percent, was the slowest since the Great Recession ended in June 2009.
The economic weakness has made investors more likely to sell stocks at the first hint that things are getting worse. And last week, they got signs aplenty. A regional survey by the Federal Reserve said manufacturing had slowed in the mid-Atlantic states by the most in more than two years. Existing home sales fell in July for third time in four months. Another report showed that exports from Japan, the world's third-biggest economy, had slumped for the fifth straight month. Japan is still reeling from the effects of an earthquake and tsunami in March.
The housing market, which usually helps lead an economic recovery, keeps getting worse. The plunging stock market and scary economic news won't make it any better. "What you're seeing with the economy, on the job front – it's scaring a lot of people," says Brian Fine, a loan manager at Mortgage Master in Rockville, Md. He says the housing market will languish until buyers and sellers feel more secure about the economy. "People are really motivated by larger economic trends. It's all about if you feel confident enough to buy a home right now," he says.
The news from Europe got worse, too. Its economy has slowed considerably – even in Germany, which has been its greatest source of strength. Fear spread that European banks, already ailing because they hold bonds of countries that are struggling with debt, were having trouble getting short-term loans to pay for day-to-day activities.
Some Wall Street analysts say reports of trouble were exaggerated, but that didn't seem to matter. For investors, the prospect of banks scrambling for cash dredged up bad memories of the global credit freeze that hit in the fall of 2008 – and they sold stocks. "A negative feedback loop ... appears to be in the making," two economists at Morgan Stanley wrote Thursday in a widely cited report that itself seemed to beget more fear and selling. It warned that the U.S. was "dangerously close" to recession.
Stock investors aren't the only ones worried. Martin Fridson, global chief credit strategist at BNP Paribas Investment Partners, notes that investors in bonds issued by the riskiest U.S. companies are dumping them, too. These investors fear that in a recession companies might not be able to pay interest on these so-called junk bonds. The selling has forced up the average interest rate on the bonds to 8.3 percent. If investors had faith in the economy, the rate would be 4.6 percent, Fridson says. "I'm nervous," says Fridson, who has followed the junk bond market since 1984. "I think there's a very material risk of falling into recession."
Investors are responding to the risk by putting their money where they feel safe. Demand for the 10-year U.S. Treasury note was so high last week that the yield dipped below 2 percent for the first time in half a century. And the price of gold has set one record after another. It topped $1,800 an ounce last week.
Although unemployment remains stubbornly high, at 9.1 percent, there are signs that the economy, while not strong, is still growing. Retail sales grew in July at the fastest pace since March. Employers added 117,000 jobs last month – a modest gain, but far better than the hundreds of thousands of jobs lost each month during the Great Recession. Factory production rose in July because automakers made more cars.
And Wall Street analysts who analyze companies and advise investors when to buy and sell don't seem to be worried. As stocks were falling Friday, research firm FactSet released figures that showed just how much more optimistic these analysts are than the average investor.
Stocks are priced at roughly 11 times their expected earnings per share over the next year. That's a steep discount compared with the market's long-term average of 15 times. Translation: If you believe the U.S. will avoid recession and companies will generate profits as high as the analysts think they will, the S&P should be trading at 1,560 – just below the S&P's record high of 1,565 in October 2007.
Of course, if the economy is weak and earnings don't come in as expected, it could turn out that stocks were trading today at 15 times the next year's earnings. That's what many of today's sellers seem be expecting. And skeptics note that analysts are notoriously bullish, and tend to overestimate profits as the economy slows. Wells Capital's Paulsen thinks stocks should be trading higher, though he suggests investors will pay a steep price if he's wrong. "If we have a recession, we'll probably break 1,000" on the S&P index, he says.
Investors will be on edge this week as they scrutinize new data on the economy. On Tuesday, new home sales for July are released, followed on Thursday by a weekly report on how many people are joining the unemployment line. On Friday, the government will give its second estimate of how fast the economy grew from April through June.
The most anticipated event, though, is a speech the same day by Federal Reserve Chairman Ben Bernanke at a retreat in Jackson Hole, Wyo, sponsored by the Federal Reserve Bank of Kansas City. The Fed pledged earlier this month to keep interest rates super-low through mid-2013. Investors hope Bernanke will announce, or at least preview, further steps to help the economy. But economists say it is unlikely Bernanke will unveil anything ambitious.
With all the high emotion surrounding stocks, economist Joel Naroff cautions investors not to read too much into the recent swings. He says that stocks have a habit of running from one extreme to the other, including this spring, when he thought they were far too high. He thinks stocks may be fairly valued now. They reflect an "economy that is growing but not growing at any great pace," he says. "It is not in recession."
Bernanke May Have to Go for 'Shock and Awe': Strategist
by CNBC.com
As global markets await hints of further stimulus in Fed Chief Ben Bernanke's annual speech at Jackson Hole, Wyoming, this week, one strategist says the U.S. central bank may be forced to take extreme measures to prop up the U.S. economy.
"If the Fed really is going to go down the route of another round of unconventional policy making, I think they've got to go in for, what I called, shock and awe," Russell Jones, Global Head of Fixed Income Strategy at Westpac Institutional Bank told CNBC on Monday.
"The problem from Bernanke's point of view is that, really, he is beholden to price action in equity markets, which is not something really where any central bank wants to be."
Jones believes the pressure on Bernanke to respond with a policy move will be "absolutely overwhelming" if the U.S. stock market sees further selloff. He thinks the trigger point would be a decline of a further 10 percent from the current levels. The recent stock market rout has already wiped out more than 10 percent from major indices. "If we really are in trouble at the end of the week, I think they'll have to respond," Jones said.
Pressure has been mounting for the Fed to take to take action - possibly a third round of stimulus or quantitative easing 3 (QE3) – after recent data, particularly the Philly Fed manufacturing index and weekly jobless claims, pointed to continued economic weakness. Still, higher inflation and the Fed's already pledging to keep interest rates low till 2013 have many thinking there may not be anything new at Jackson Hole later this week.
But Jones thinks otherwise. "Aggressive or dramatic weakness in the stock market probably trumps any fears about inflation, and that would dominate," he said, adding that "the Fed would seek to look through an inflationary threat and offer up a policy response." He believes there may be some effort by the Fed to extend the maturity of its balance sheet, though this would only be an incremental policy move.
For more impact, Jones says the Fed should launch a much bigger quantitative easing program than the previous two rounds, including formally targeting longer term interest rates such as setting the 10-year Treasury at 2 percent or lower for an extended period and allowing the balance sheet to expand to whatever level is necessary to achieve that aim. "That would certainly be shock and awe, and I think that might generate a more positive response in stock markets."
Merkel defies pressure on debt crisis
by Gerrit Wiesmann, Jennifer Thompson and Kerin Hope - FT
Angela Merkel on Sunday urged Europe to stand firm in the face of market pressure and the "dramatic crisis" gripping the eurozone, insisting the solution was for states to slash public debt and boost competitiveness.
"Politics cannot and will not simply follow the markets," Germany’s chancellor said, repeating her refusal to countenance funding indebted nations with a bond guaranteed by all members of the single currency bloc. "The markets want to force us into doing certain things, and that we won’t do," Ms Merkel said, shrugging off last week’s gyrations in equity and bond markets.
Her remarks came as a leading French banker warned that anxiety swirling around European banks could continue for months to come. "Nervousness around banking stocks could last at least until the beginning of November," Frédéric Oudéa, chief executive of Société Générale, told a French newspaper.
Shares in European banks have slumped by more than 20 per cent so far this month amid fears over the debt crisis and slowing global growth. US officials remain deeply concerned about Europe’s inability to resolve the crisis and the potential knock-on effects on the world economy.
Greece’s four biggest banks on Sunday stepped in to rescue a small lender and avert a run on the country’s fragile banking system. The deal to recapitalise Proton Bank was essential to prevent "creating a mood of fear with unpredictable consequences", one banker said.
Ms Merkel was backed by Wolfgang Schäuble, her finance minister, who said the eurozone would become an "inflation community" if countries opted to sell a joint bond without first unifying their fiscal policies. Mr Schäuble is due to meet his French counterpart François Baroin on Tuesday to discuss the crisis, including proposed remedies such as a tax on financial transactions.
With investors increasingly worried about the government debt in core eurozone countries including Italy, Spain and France, calls to issue a so-called eurobond have grown louder. But in her most comprehensive rejection of the idea so far, Ms Merkel spoke of legal hurdles including lengthy ratification of an amended EU Treaty and possibly tricky changes to the German constitution. "Solving the current crisis won’t be possible with eurobonds and that’s why eurobonds are not the answer," Ms Merkel told German television.
Instead, states should continue to tackle the markets’ crisis of confidence "at the roots" by pursuing the "extremely difficult task" of improving competitiveness and growth. "The ‘debt union’ has to be replaced by a ‘stability union," she said. "This is a hard and arduous path, which we will not be able to avoid by means of some magic bullet, like issuing eurobonds."
Why The Current Bear Market Is Far From Over
by Comstock Partners
What is currently happening in the market and the economy was predictable and is following the sequence we have long expected. Households accumulated enormous debts in the past decade, leading to the credit crisis and recession of 2007-2009. The government stepped in with massive monetary ease and fiscal expansion that produced only a weak recovery and a vast increase in government debt. The market erroneously assumed that the recovery would follow the pattern of typical post-war expansions and rallied strongly from the early 2009 bottom to the recent highs.
A similar pattern developed in Europe where sovereign debt of the weaker EU members has become a serious problem that EU leaders have been unable to solve. Now we are undergoing the aftershocks of the crisis.
As we have repeatedly stated, crisis recoveries are characterized by short sub-par recoveries and numerous recessions as household debt burdens dampen consumer spending for long periods. We did see the short sub-par recovery and now it seems to be ending at a time when the Fed has already used its best weapons and fiscal policy is due to become more restrictive. First half GDP was revised down sharply. Housing has continued to weaken. Consumer spending has been sluggish. Initial jobless claims for the latest period jumped back over 400,000. The ECRI leading index has declined to 127.9 from its April peak of 131.1.
Even more shocking was the plunge in the August Philly Fed Index to minus 30.7 from 3.2 in July. The drop was the weakest since October 2008. In addition, the August University of Michigan Consumer Confidence Index dropped to 54.9, lower than any level during the recession and the lowest in 31 years. These are the types of readings seen only in recessions. Although the Fed only recently lowered its economic outlook for the second half of this year and 2012 these projections already seem outdated. Today the New York Fed lowered its outlook while numerous brokerage firms and banks have belatedly been scrambling to cut their forecasts as well.
If anything the situation looks even worse in Europe. Germany reported second quarter GDP growth of 0.1% and growth in France was zero. Moreover European banks with exposure to PIIGS debt have been turning to the ECB for emergency loans. Today the ECB reported that one bank (not named) has borrowed 500 million Euros a day for seven days.
The remaining areas of the world cannot stop global GDP growth from shrinking. Japan is in a recession. China is still tightening to dampen inflation. China as well as the other emerging nations are export-driven economies that depend heavily on American and European consumers.
We, therefore, believe that the market has now entered a major downtrend. It is a mistake to dismiss the slide we’ve seen to date as mindless and devoid of fundamentals as many strategists maintain. These are not just scary headlines—-they are scary fundamentals. As usual, there will undoubtedly be some more sharp rallies that will be interpreted as new bull markets. In our view, however, the bear market has only begun, and has a long way to go.
We are in an 'L' of a mess on all fronts
by Bill Jamieson - Scotsman
No autumn storm or "soft patch" this. Across the world, confidence - not just in financial markets but in governments - drained notably in the past week. Bank shares have been battered back down to the crisis lows of 2009. Fears are rising of a massive and resounding failure.
Across America and Europe the markets have priced in a relapse back into recession. But there is something much worse that investors fear. It is a failure of leadership - in America and in Europe - to lift us out of a self- fulfilling collapse of confidence.
How have we gone, in a few months, from an expectation of modest but hopeful recovery to the precipice of a prolonged debt depression - one we thought we had avoided in the financial crisis of 2008-9?
There is a growing sense, not just of recession but of a much larger, epochal step change. In America as much as in Europe, the belief is gaining ground that this will be no short dip back into recession but a period of negative to low growth stretching for years ahead.
Too pessimistic a view? In America last week the yield on US government bonds was driven down to its lowest since 1950. Here in the UK, research by the Bank of England showed gilt yields have fallen to their lowest since 1899. Investors are now pricing in a financial crisis and slump greater than that of the Great Depression.
Little wonder that all eyes are now focused on the annual banking get-together next weekend at Jackson Hole, Wyoming. US Federal Reserve chairman Ben Bernanke and European Central Bank (ECB) president Jean-Claude Trichet will both attend. Hopes are now desperate that Bernanke will signal a further bout of quantitative easing (QE).
But there is still insufficient support for this in the Federal Open Markets Committee. As for the ECB, it is reluctant to take on more liabilities on its balance sheet while Germany's Angela Merkel will not countenance the introduction of "eurobonds" without a Euro-wide iron grip on the budgets and fiscal policies of the member states.
Little wonder markets are running out of hope. The market plunges, says veteran UBS economic guru George Magnus, "reflect not only a rise in anxiety about the deteriorating health of the global economy, but the draining of confidence that political elites are up to the task of addressing it".
Allied to this is a growing view that we did not dodge but only delayed the consequences of the banking crisis, and indeed may have made them worse. The transfer of vast debt obligations onto the balance sheets of governments and central banks in 2008-09 fed the illusion that a debt transferred was a debt paid off. What a delusion that was.
In the immediate aftermath the consensus was that economies and markets would rebound. Little therefore needed to change, either in the structure of these economies or in the dynamics of government spending and borrowing, barring some short-lived belt-tightening. This, too, has proved a mirage. Now add to this the loss of faith in the ability of conventional politics and government to handle the scale of the challenge we face.
Political divisions have sharpened in intensity. Last week saw an American presidential candidate Rick Perry denounce any further resort to quantitative easing by the chairman of the US Federal Reserve as "tantamount to treason". With this sort of rhetoric, what hope is there?
Despite tough-sounding austerity talk, deficits and debt have continued to grow. America narrowly avoided formal debt default by last minute agreement to raise its $14.3 billion (£8.7bn) debt ceiling - but still lost its Triple A credit rating. Here in Europe, Ireland, Portugal and Greece have already required bail-outs. Spain and Italy saw massive rises in government bond yields, prompting emergency purchases by the ECB. France then became the target of attack. Whatever "solution" is adopted, the crisis just gets bigger. Amid all this, serious collective action to halt a slide into recession has been notable by its absence.
Governments cannot resort to higher spending because the politics of vote-buying has taken borrowing to the limit of creditor tolerance. Resort to higher taxation may provide a temporary boost to revenues. But this hits consumer pockets, depresses spending and denies governments the very growth needed to bring down those sky-high debt ratios.
Remarks last week by Paul Polman, chief executive of the consumer products giant Unilever, sent more shivers down the spine. Europe and America, he warned, were entering a period of "low growth" so the group is now planning to have 75 per cent of its revenues in emerging markets by the end of the decade.
To this has now been added the spectre of global slowdown, knocking hopes of an export-driven recovery. Conventional "V" or "U" shaped recovery is now being replaced by arguably the most nightmarish shape of all in economics - a prolonged "L" .
It is this prospect that explains why the market falls experienced last week were beyond any reasonable response to disappointing US data on manufacturing and employment.
Prospects are no better in continental Europe where Germany, the continent's motor economy, reported a sharp slowdown to growth of just 0.1 per cent in the second quarter. The French economy is at a standstill. And there was nothing in yet another of those photo-op summits between German chancellor Angela Merkel and French president Nicolas Sarkozy last week that brought comfort - either in immediate and urgent reform of EU financial institutions or in an economic strategy. On the contrary.
The summit came out with plans for a tax on financial transactions. There were few more effective ways of worsening the mood in markets.
So the fear now is of a prolonged recession, stretching for years ahead. If there is no prospect of a cyclical upturn, then market prices will adjust accordingly. What is now desperately needed is targeted QE, a shift away from crippling, money-no-object welfare budgets, a sharp reduction in business taxes - especially on employment - and political leadership to see all this through. The flight of confidence will not stop until these are evident.
Foreclosure Talks Snag on Bank Liability
by Ruth Simon, Vanessa O'Connell and Nick Timiraos - Wall Street Journal
Efforts to reach a settlement that would end the long-running probe of foreclosure practices are snagged over whether banks will get broad legal immunity from state officials for mortgage-related claims. Federal and state officials are seeking penalties of $20 billion to $25 billion from Bank of America Corp., J.P. Morgan Chase & Co. and other financial firms under investigation since last fall. The banks are pushing hard for a deal, but they have insisted on a wide-ranging legal release from state attorneys general.
"They wanted to be released from everything, including original sin," said a U.S. official involved in the discussions. The legal protection sought by the banks included loan origination; securitization and servicing practices; fair-lending procedures; and their use of the Mortgage Electronic Registration Systems, an industry-owned loan registry that often acts as an agent for owners of mortgage loans, people familiar with the discussions said.
"The reason the banks would settle or pay anywhere near $20 billion to $25 billion is to get this behind them," said one person familiar with the banks' thinking. "There's no reason the banks would pay that amount of money and leave their flank exposed."
U.S. and state officials dismissed the push for broad immunity as a "nonstarter," according to a federal official involved in the talks, but they have countered with a narrower offer. It would cover robo-signing and other servicer-related conduct but leave banks open to potential legal action for wrongdoing in fair lending and securitization, according to people familiar with the situation. Attorneys general in California, Delaware, Massachusetts and New York have said they are investigating mortgage-securitization practices.
"Those of us at the table…have maintained this investigation is about robo-signing and loss-mitigation problems," Illinois Attorney General Lisa Madigan said in an interview. "The release should be narrowly drafted to cover those issues."
The debate over the release is one of the most contentious issues facing banks and government officials, who began formal settlement discussions in March, and must be resolved for a deal to proceed.
Federal officials are aiming for a settlement by Labor Day, with some insisting that making a deal soon would give the housing market a much-needed boost and avoid the risk of a protracted legal showdown with the banks. The foreclosure machine has been sputtering since the issue came to the fore last fall, though banks insist their procedures resulted in few or no wrongful foreclosures.
Federal officials say they plan to step up their outreach directly with individual attorneys general as they bridge remaining gaps between different parties and that they remain optimistic about the prospect for reaching a settlement.
Legal releases are thorny to negotiate, since parties under investigation want the broadest possible protection and government officials want to maintain their ability to pursue wrongdoing. In the foreclosure investigation, the process is unusually complicated by the large number of regulators and financial institutions involved, big money at stake and high-profile status of the case.
The banks have said the size of any settlement should be tied to the scope of the legal release and number of states signing an agreement. One tactic being weighed by the banks is to agree to a settlement acceptable to 80% of the states, sources familiar with the banks' position said.
The scope of a release isn't likely to be a substantial hurdle for states that aren't pursuing their own investigations of mortgage practices. In addition, some types of legal claims could be difficult to pursue regardless of an immunity agreement because statutes of limitation might have expired, lawyers said. Some state attorneys general are publicly resisting a broad legal release or even a narrower agreement if it would impede existing cases. "We in Illinois have made it eminently clear every time we talk about releases that we are not releasing fair-lending claims," said Ms. Madigan.
Illinois has filed fair-lending lawsuits against Wells Fargo & Co. and Countrywide Financial Corp., acquired by Bank of America in 2008. A Wells Fargo spokesman said the company has filed a motion to dismiss the Illinois lawsuit, and is awaiting the court's ruling. A Bank of America spokesman said: "We continue to believe that the best way to get the housing market going again in every state is a global settlement that addresses these issues fairly, comprehensively, and with finality."
Nevada Attorney General Catherine Cortez Masto said she is "going to be very cautious" about any release that could affect investigations or litigation. Ms. Masto has alleged that Bank of America violated the law in its handling of troubled loans. "A broad release isn't going to do … any good [for me] or the people of my state."
Massachusetts Attorney General Martha Coakley recently said she won't let banks escape potential legal liability for claims related to securitization and use of the Mortgage Electronic Registration Systems "until we know all the facts and all of the damage." Doing otherwise "is like buying a used car without looking under the hood. There's a good chance you will get a lemon."
New York Attorney General Eric Schneiderman has issued subpoenas or requests for information to a range of parties involved in the mortgage machine. The attorney general "remains concerned by any settlement agreement that would preclude attorneys general from conducting comprehensive investigations of the mortgage crisis," a spokesman for Mr. Schneiderman said.
Delaware Attorney General Beau Biden has also begun investigating securitization and other mortgage-industry practices. "We would oppose any settlement that would release claims broader than servicing conduct," says Delaware Deputy Attorney General Ian McConnel."That would include origination, securitization and [Mortgage Electronic Registration Systems] claims."
Wall Street Aristocracy Got $1.2 Trillion in Loans
by Bradley Keoun and Phil Kuntz - Bloomberg
Citigroup Inc. and Bank of America Corp. were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
Foreign Borrowers
It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG, which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia SA, Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
Peak Balance
The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools. The Fed has said it had “no credit losses” on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.
“We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer,” said James Clouse, deputy director of the Fed’s division of monetary affairs in Washington. “Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses.” While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.
Odds of Recession
The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.
Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc.’s bond insurance was priced at the start of the week before the firm collapsed. Citigroup’s shares are trading below the split-adjusted price of $28 that they hit on the day the bank’s Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.
Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc.
Liquidity Requirements
“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” U.S. Representative Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. “They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”
The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kansas City, Missouri-based Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.
The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don’t take effect until 2015. Another proposed requirement for lenders to keep “stable funding” for a one-year horizon was postponed until at least 2018 after banks showed they’d have to raise as much as $6 trillion in new long-term debt to comply.
'Stark Illustration'
Regulators are “not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.
Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner. “The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread,” the council said in its July 26 report. Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.
21,000 Transactions
Fed officials argued for more than two years that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the U.S. Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.
Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world’s largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.
Morgan Stanley Borrowing
Two weeks after Lehman’s bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had “strong capital and liquidity positions.” The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley’s Fed loans.
That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.
Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to “fundamentally re- evaluate” the way it manages its cash. “We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward,” Lake said. He declined to say what changes the bank had made.
Acceptable Collateral
In most cases, the Fed demanded collateral for its loans -- Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn’t repaid. That meant the central bank’s main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.
As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included
$21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.
'Willingness to Lend'
“What you’re looking at is a willingness to lend against just about anything,” said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta and now chief monetary economist in Atlanta for Sarasota, Florida-based Cumberland Advisors Inc.
The lack of private-market alternatives for lending shows how skeptical trading partners and depositors were about the value of the banks’ capital and collateral, Eisenbeis said. “The markets were just plain shut,” said Tanya Azarchs, former head of bank research at Standard & Poor’s and now an independent consultant in Briarcliff Manor, New York. “If you needed liquidity, there was only one place to go.”
Even banks that survived the crisis without government capital injections tapped the Fed through programs that promised confidentiality. London-based Barclays Plc borrowed $64.9 billion and Frankfurt-based Deutsche Bank AG got $66 billion. Sarah MacDonald, a spokeswoman for Barclays, and John Gallagher, a spokesman for Deutsche Bank, declined to comment.
Below-Market Rates
While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.
The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.
JPMorgan Chase & Co., the New York-based lender that touted its “fortress balance sheet” at least 16 times in press releases and conference calls from October 2007 through February 2010, took as much as $48 billion in February 2009 from TAF. The facility, set up in December 2007, was a temporary alternative to the discount window, the central bank’s 97-year-old primary lending program to help banks in a cash squeeze.
'Larger Than TARP'
Goldman Sachs Group Inc., which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008. Among the programs New York-based Goldman Sachs tapped after the Lehman bankruptcy was the Primary Dealer Credit Facility, or PDCF, designed to lend money to brokerage firms ineligible for the Fed’s bank-lending programs.
The Fed’s liquidity lifelines may increase the chances that banks engage in excessive risk-taking with borrowed money, Rogoff said. Such a phenomenon, known as moral hazard, occurs if banks assume the Fed will be there when they need it, he said. The size of bank borrowings “certainly shows the Fed bailout was in many ways much larger than TARP,” Rogoff said.
TARP is the Treasury Department’s Troubled Asset Relief Program, a $700 billion bank-bailout fund that provided capital injections of $45 billion each to Citigroup and Bank of America, and $10 billion to Morgan Stanley. Because most of the Treasury’s investments were made in the form of preferred stock, they were considered riskier than the Fed’s loans, a type of senior debt.
Dodd-Frank Requirement
In December, in response to the Dodd-Frank Act, the Fed released 18 databases detailing its temporary emergency-lending programs.
Congress required the disclosure after the Fed rejected requests in 2008 from the late Bloomberg News reporter Mark Pittman and other media companies that sought details of its loans under the Freedom of Information Act. After fighting to keep the data secret, the central bank released unprecedented information about its discount window and other programs under court order in March 2011.
Bloomberg News combined Fed databases made available in December and July with the discount-window records released in March to produce daily totals for banks across all the programs, including the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, PDCF, TAF, Term Securities Lending Facility and single-tranche open market operations. The programs supplied loans from August 2007 through April 2010.
Rolling Crisis
The result is a timeline illustrating how the credit crisis rolled from one bank to another as financial contagion spread. Fed borrowings by Societe Generale, France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel.
Morgan Stanley’s top borrowing came four months later, after Lehman’s bankruptcy. Citigroup crested in January 2009, as did 43 other banks, the largest number of peak borrowings for any month during the crisis. Bank of America’s heaviest borrowings came two months after that.
Sixteen banks, including Plano, Texas-based Beal Financial Corp. and Jacksonville, Florida-based EverBank Financial Corp., didn’t hit their peaks until February or March 2010. “At no point was there a material risk to the Fed or the taxpayer, as the loan required collateralization,” said Reshma Fernandes, a spokeswoman for EverBank, which borrowed as much as $250 million.
Using Subsidiaries
Banks maximized their borrowings by using subsidiaries to tap Fed programs at the same time. In March 2009, Charlotte, North Carolina-based Bank of America drew $78 billion from one facility through two banking units and $11.8 billion more from two other programs through its broker-dealer, Bank of America Securities LLC. Banks also shifted balances among Fed programs. Many preferred the TAF because it carried less of the stigma associated with the discount window, often seen as the last resort for lenders in distress, according to a January 2011 paper by researchers at the New York Fed.
After the Lehman bankruptcy, hedge funds began pulling their cash out of Morgan Stanley, fearing it might be the next to collapse, the Financial Crisis Inquiry Commission said in a January report, citing interviews with former Chief Executive Officer John Mack and then-Treasurer David Wong.
Borrowings Surge
Morgan Stanley’s borrowings from the PDCF surged to $61.3 billion on Sept. 29 from zero on Sept. 14. At the same time, its loans from the Term Securities Lending Facility, or TSLF, rose to $36 billion from $3.5 billion. Morgan Stanley treasury reports released by the FCIC show the firm had $99.8 billion of liquidity on Sept. 29, a figure that included Fed borrowings.
“The cash flow was all drying up,” said Roger Lister, a former Fed economist who’s now head of financial-institutions coverage at credit-rating firm DBRS Inc. in New York. “Did they have enough resources to cope with it? The answer would be yes, but they needed the Fed.”
While Morgan Stanley’s Fed demands were the most acute, Citigroup was the most chronic borrower among the largest U.S. banks. The New York-based company borrowed $10 million from the TAF on the program’s first day in December 2007 and had more than $25 billion outstanding under all programs by May 2008, according to Bloomberg data. By Nov. 21, when Citigroup began talks with the government to get a $20 billion capital injection on top of the $25 billion received a month earlier, its Fed borrowings had doubled to about $50 billion.
Tapping Six Programs
Over the next two months the amount almost doubled again. On Jan. 20, as the stock sank below $3 for the first time in 16 years amid investor concerns that the lender’s capital cushion might be inadequate, Citigroup was tapping six Fed programs at once. Its total borrowings amounted to more than twice the federal Department of Education’s 2011 budget.
Citigroup was in debt to the Fed on seven out of every 10 days from August 2007 through April 2010, the most frequent U.S. borrower among the 100 biggest publicly traded firms by pre- crisis market valuation. On average, the bank had a daily balance at the Fed of almost $20 billion.
“Citibank basically was sustained by the Fed for a very long time,” said Richard Herring, a finance professor at the University of Pennsylvania in Philadelphia who has studied financial crises. Jon Diat, a Citigroup spokesman, said the bank made use of programs that “achieved the goal of instilling confidence in the markets.”
'Help Motivate Others'
JPMorgan CEO Jamie Dimon said in a letter to shareholders last year that his bank avoided many government programs. It did use TAF, Dimon said in the letter, “but this was done at the request of the Federal Reserve to help motivate others to use the system.” The bank, the second-largest in the U.S. by assets, first tapped the TAF in May 2008, six months after the program debuted, and then zeroed out its borrowings in September 2008. The next month, it started using TAF again.
On Feb. 26, 2009, more than a year after TAF’s creation, JPMorgan’s borrowings under the program climbed to $48 billion. On that day, the overall TAF balance for all banks hit its peak, $493.2 billion. Two weeks later, the figure began declining. “Our prior comment is accurate,” said Howard Opinsky, a spokesman for JPMorgan.
'The Cheapest Source'
Herring, the University of Pennsylvania professor, said some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.”
Whether banks needed the Fed’s money for survival or used it because it offered advantageous rates, the central bank’s lender-of-last-resort role amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster, Herring said. An IMF report last October said regulators should consider charging banks for the right to access central bank funds.
“The extent of official intervention is clear evidence that systemic liquidity risks were under-recognized and mispriced by both the private and public sectors,” the IMF said in a separate report in April. Access to Fed backup support “leads you to subject yourself to greater risks,” Herring said. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.”
QE3 is not a magic bullet for Ben Bernanke
by Larry Elliott - Guardian
A third round of quantitative easing may not be the best way for the Federal Reserve to boost output in the US and head off a double-dip recession
Jackson Hole is to central bankers what Cannes is to film-makers. Each year, the Federal Reserve bank of Kansas City invites policymakers to the Grand Tetons in Wyoming for a thinkathon, where they expect to be wowed by something new. It doesn't have to be a big budget production: central bankers can get just as excited by an elegant paper on the shortcomings of the Basel 2 capital adequacy arrangements as they can about a policy initiative from Sir Mervyn King.
Financial markets take a different view, this year in particular. They are not interested in low-fi musings on the merits of inflation targeting; they want the chairman of the Federal Reserve, Ben Bernanke, to do the full George Lucas bit and produce a real blockbuster of a speech that will rally share prices and prevent the world economy from sliding back into recession.
Last year, Bernanke turned up at Jackson Hole with a clear message: the US was preparing to turn on the money taps for a second time, something it finally did in November with the announcement of a $600bn package spread over eight months.
The Fed chairman's message to his fellow central bankers was the signal for the markets to take off, and share prices on Wall Street rallied by 8% over the next three months. If Bernanke did it in 2010, goes the thinking, he is sure to do it again in 2011, especially with the markets in a state of upheaval. On Friday, the hope in the City and on Wall Street was that we were about to have the first screening of QE3: the central bank fights back.
Those who work in financial markets like to think of themselves as awfully clever but there are times when their analysis is strangely unsophisticated. Just because Bernanke turned up at Jackson Hole last year to announce QE2 – the second round of quantitative easing – does not mean he is going to repeat the performance this week. There are a number of reasons why this is the case. Last year, the Fed had already endorsed Bernanke's Jackson Hole remarks about QE. This year it is clear that no such prior approval has been given, or sought.
Politically charged
With a presidential election little more than a year away, the Fed knows that the debate about QE has become highly politically charged. Sceptics do not see it as the light sabre with which Bernanke fends off a second Great Depression. For them, QE is throwing good money after bad: less Star Wars than The Money Pit 3.
Bernanke justified QE2 not by the need to boost US growth but as necessary to prevent the world's biggest economy from slipping towards deflation. Last year there was some evidence that deflation was a risk; in the three months to July 2010, core inflation was falling at an annual rate of 0.2%. In the same three months of 2011, the annualised rate of core inflation is 3.1%.
QE is also designed to bring down long-term borrowing costs. The mechanism is as follows. By buying bonds, the central bank reduces their supply and hence pushes up their price. Bond prices move in the opposite direction to their yields, so dearer bonds means lower yields. Lower yields on Treasury bonds means the US government can borrow more cheaply. But it also means individuals and companies can borrow more cheaply as well. So QE helps the economy by leading to lower long-term interest rates.
But bond yields in the US (and in the UK too, for that matter) are already at historic lows, primarily because the markets fear a double-dip recession. It is far from obvious that another dose of QE would bring long-term interest rates down much lower than they already are.
On the other side of the ledger, the experience of the past two and a half years suggests that QE has costs as well as benefits. The main drawback is that the boost to the money supply does not appear to do much for domestic production but has heldholds back the economy's recovery by causing higher inflation.
The unintended consequence of QE was that commercial banks and hedge funds had more money with which to speculate. Since the intention in creating new electronic money was clearly to drive down the value of the dollar, much of this pile of casino chips found its way into the commodities market. China's rapid growth meant demand for industrial metals, oil and food was already strong: QE gave prices an additional upward twist.
In countries like the US and the UK, where wage increases have been extremely modest, higher inflation resulted in falling real disposable incomes. Consumers, already worried about being made unemployed and keen to reduce their indebtedness, have cut back on their spending.
The Fed will wait before embarking on a further bout of QE, and that may be no bad thing. Action now would look like a panic response to the events of the past month, engendering the suspicion that the Fed has been forced into emergency action because it knows something that nobody else does
Oil price drop
What's more, one of the few bright spots amid the market turmoil has been the drop in the price of oil. Cheaper fuel prices should start to feed through into lower inflation over the coming months, boosting real incomes and hence providing a bulwark against a double-dip recession. This would be put into jeopardy were QE3 to unleash a fresh wave of speculation in the commodity markets.
It would be a good idea for central banks to keep a few shots in what is starting to look like an awfully empty locker. Bernanke has said that the Fed currently sees no reason why short-term interest rates should be raised for the next two years, but he has no room to cut them further. Similarly, deficit reduction will start to bite in the US next year as tax breaks are withdrawn and spending is cut. The case for QE3 will look stronger in six months' time if the economy remains weak and inflation is coming down.
There is one school of thought which argues that the best course of action for policymakers would be to do nothing. Given time, low interest rates and the boost to the money supply will lead to recovery: all that is required is patience.
This advice is unlikely to be heeded if activity weakens over the coming months. In those circumstances, careful thought should be given to the best way of boosting output, since it is by no means obvious that QE in its current form is the best solution.
One suggestion, floated by Gerard Lyons, the chief economist of Standard Chartered, would be for countries like Britain and the US to take advantage of ultra-low bond yields by borrowing at low interest rates for long-term infrastructure projects. Another possibility would be for the money created to be used to finance national regeneration banks. In the UK, an alternative use would be to pay off the long-term financial burden incurred by projects built under the private finance initiative.
If QE is deemed to be necessary, some recalibration is called for. Thus far, it has operated as a welfare system for finance. The benefits have been enjoyed on Wall Street; the tab has been picked up on Main Street.
Prospect of New Core Euro Gains Traction
by Simon Kennedy - Bloomberg
The euro area may need to shrink to survive.
As its sovereign-debt crisis nears a third year and rescue efforts fail to stop the rot in financial markets, economists from Pacific Investment Management Co.’s Mohamed El-Erian to Harvard’s Martin Feldstein say ensuring the euro’s existence may require members to leave the 17-nation currency region.
The result would be what El-Erian, Pimco’s Newport Beach, California-based chief executive officer, calls a “smaller, much better integrated, fiscally strong euro zone.” While leaders such as German Chancellor Angela Merkel consistently rule out that option, El-Erian told “Bloomberg Surveillance” with Tom Keene on Aug. 17 that they eventually may embrace it over the fiscal union required to maintain the status quo.
“We’ve been warned by European policy makers never to underestimate their commitment to economic and monetary union, but that can also be interpreted as perhaps them, in the end, choosing quality over quantity,” said Stephen Jen, managing partner at SLJ Macro Partners LLP, an investment and advisory firm in London. “Political commitments to resolving the crisis cannot be infinite. We can’t have all the chips on the table.”
That the euro’s membership is even in debate is testament to the failure of its leaders to snuff out a debt turmoil that began in Greece in late 2009 before spreading to Portugal and Ireland. It now threatens Italy and Spain and this month has jolted France.
Europe’s Woes
So far the rescue bill includes 365 billion euros ($524 billion) in official loans to Greece, Portugal and Ireland, the creation of a 440 billion euro rescue fund and 96 billion euros in bond buying by the European Central Bank.
Investor concern that the turmoil will drag on was evident last week amid fear the global economic expansion is running out of energy, in part because of Europe’s woes. The Euro Stoxx 50 sank for a fourth week, falling 6 percent, and the cost of insuring against default on European sovereign and corporate debt rose. Questions about the ability of European banks to fund themselves pushed the price of insuring their senior bonds against default above the level when Lehman Brothers Holdings Inc. collapsed in 2008.
“Politicians have to have a game plan and get in front of the market, but unfortunately I don’t see any readiness to do so as they are frightened of thinking the unthinkable,” said David Marsh, co-chairman of the Official Monetary and Financial Institutions Forum, a London-based research group, and author of “The Euro: The Battle for the New Global Currency.”
'Economic Liability'
El-Erian isn’t alone in questioning the number of nations using the euro, which grew from 11 in 1999. Feldstein, a professor at Harvard University in Cambridge, Massachusetts, warned in a 1998 paper that monetary union would prove an “economic liability.” He has long said the single currency could falter because divergent economies couldn’t fit under one monetary roof and nations such as Greece could take a “holiday” from it.
Any exit would occur “by mutual consent,” Feldstein said by e-mail today. “Even if Germany and the others are willing to pay the cost of avoiding a default, they would not solve the longer-term problem of Greece and Portugal trade deficits and their inability to be competitive without a gradual adjustment of their currency,” he said. “So they would have to keep borrowing to finance their trade deficits and there would be perpetual debt problems.”
'Scary Story'
Joachim Fels, Morgan Stanley’s London-based chief economist, wrote at the outbreak of the crisis in April 2010 that Germany “might conclude” it would be “better off with a harder but smaller currency union” comprising only countries that share its support for price stability. Nobel laureate Paul Krugman said in an Aug. 18 interview in Stockholm that there is more than a 50 percent chance Greece will leave and 10 percent odds of Italy following.
“It’s a scary story,” said Krugman, who three months ago put the risk of Italy and Spain being forced to leave the common currency at 1 percent. The euro initially was envisaged as the currency for a band of northern European economies led by France and Germany. The project swelled when then-German Chancellor Helmut Kohl and French President Francois Mitterrand decided in the early 1990s that broader membership would deliver deeper economic integration.
Rallying Cry>
Even as the inflation-sensitive Bundesbank shuddered at opening the door to the deficit-prone southern European nations, Kohl turned the group into a political tool by declaring he wanted “the greatest possible number of countries” in the bloc. That was a rallying call for Italy, Spain and Portugal to meet the economic targets required for membership in 1999 and Greece two years later.
Once in -- and perhaps even before, given that Greece later admitted it had fudged its budget math to win entry -- countries started to break the fiscal curbs. Every year since Greece began using the euro, it has failed to keep its budget deficit below the required 3 percent of gross domestic product. Germany and France weakened the rulebook when they, too, failed to meet the standards.
The euro area is far from the optimum currency zone outlined by Nobel laureate Robert Mundell, proving instead to be a collection of disparate economies amassed under the same currency and interest rate.
Economic Divergence
Societe Generale SA economist Klaus Baader says growth rates in the region have never been so divergent under the euro as they are now, with a standard deviation of more than 3 percent. Debt varied from 143 percent of GDP in Greece to Estonia’s 7 percent last year, while unemployment is 21 percent in Spain and 4 percent in Austria.
And while ECB President Jean-Claude Trichet once cheered the convergence in bond yields toward Germany’s, Greece now pays 14 percentage points more than Germany to borrow for 10 years and Portugal pays 8 percentage points more.
Growth differentials and the likelihood that countries will prove unwilling to continue bailouts will mean a break-up of the euro by 2013, the London-based Centre for Economics and Business Research said in a June report. It predicted average growth from 2011 to 2015 of 1.2 percent for Italy, 1 percent for Spain and 0.6 percent for Portugal, while Greece contracts 0.5 percent.
'Necessary Steps'
Europe’s leaders are refusing so far to countenance the idea of slimming down. Defending the single currency means taking ‘the necessary steps to do so,” Merkel said last week at a summit with French President Nicolas Sarkozy, who expressed “absolute determination.” Trichet said June 13 that leaving the euro is “not a working assumption” for any government. Greek Prime Minister George Papandreou said in a July 19 interview that Greece assumes the crisis is “something that we are going to get through.”
The meeting between Sarkozy and Merkel shows that the major euro nations “want to do everything” to keep Greece in the currency area, “so I am seeing a bigger chance of that,” billionaire investor George Soros told Hungarian news portal hvg.hu last week.
That’s because the advantages of being bound together, such as easier trade and a deeper single market, still outweigh the disadvantages, said Julian Callow, chief European economist at Barclays Capital in London. The Maastricht Treaty that created the euro also lacks an escape hatch through which a country can abandon or be forced out of the euro region.
Speculative Attacks
For now, the likely fallout on economies and bank balance sheets from an exit is enough for officials to keep pumping money into the so-called periphery, said Joerg Kraemer, Commerzbank AG chief economist in Frankfurt. Among the risks: Banks could be pounded by speculative attacks and suffer losses, financial markets could be roiled by investor uncertainty, the core countries that remain might lose trade as the new euro surges, weaker members could face pressure to quit, too, and the departed could be locked out of markets and suffer insolvencies as their new currency slides.
“Excluding a country would be chaotic, so to avoid difficulties, politicians are likely to stick with the bailouts,” Kraemer said.
That will require even more money and unity than they’ve provided so far, says Marchel Alexandrovich, an economist in London at Jefferies International Ltd. Governments need to at least triple the size of their euro-area-wide rescue facility and consider issuing joint debt, he said. Merkel and Sarkozy rejected these initiatives last week, choosing instead to promote ideas already in the works, such as national balanced- budget amendments and a financial-transactions levy.
Cheaper Currency
Economists also disagree on which countries would leave. Greece and perhaps Portugal may decide financial stability and the bailouts aren’t enough to compensate for the continued austerity and bet it would be easier to write down debt, spur exports and improve competitiveness with a cheaper currency.
AAA-rated members such as Finland also may come under domestic pressure for a rethink of their own if they find themselves dispatching continued dollops of cash to the debt- stricken nations such as Greece, Callow said.
The euro-skeptic True Finns won record backing in April elections, making them Finland’s third biggest party. Creating a U.S. level of integration would force Germany to transfer 3.5 percent of GDP compared with the 0.7 percent it contributes to the current EU budget, economists at Nomura International Plc in London estimate.
“Sometime in the next two years, we probably will see an exit as it becomes increasingly impossible for the euro to overcome its internal contradictions,” Marsh said. “It’s like cutting off a gangrenous leg to preserve the body.”
313 comments:
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My apologies. I have fallen into the underserved snarky projection syndrome that I accuse others of. However, in my opinion, with one fairly glaring recent exception, I think the world of the new physics follows the ideal scientific paradigm fairly well. I believe that TPTB would rather leave that area to develop naturally and even subsidize it extensively, unless they have some really big fish to fry - and thus my one big exception.
I would be interested to hear why you feel such things as black holes, (and the big bang?) have no validity and everything is EM and plasma physics.
Re today's market and Libya
I listened to Amy Goodman's Democracy Now! news Monday on the Libya fiasco. This purported bastion of the "new left" mentioned on many occasion about Gadiffi's sons being war criminals to be brought before the Hague, but not one word on the illegal, unprovoked attack on a sovereign nation that was provoking no outward threat beyond maybe wanting to be paid in gold for its oil. The "scum rising to the top" have all their bases covered. It seems that Goodman's primary concern is whether her interviewed reporters are "award winning." I won't send her a donation, but I may send her some milk and cookies.
Re conspiracy theories
From dictionary.com for the iPhone
Conspiracy - an evil, unlawful, treacherous, or surreptitious plan formulated in secret by two or more persons
Conspiracy theory - 2) the idea that many important political events or economic or social trends are the products of secret plots that are largely unknown to the general public.
Antonym Conspiracy theory - the news and commentary espoused by the corporate controlled main stream media also known as THE TRUTH
I have read that over 50% of all federal indictments have a conspiracy clause. Apparently the DOJ is the biggest conspiracy theorist of all.
Re the markets
I saw yesterday's 3.5% jump caused by two factors. It certainly had no bearing on fundamentals and little on technicals. One was short covering. The other, and more interesting to me was there are a lot of institutional cretins on Wall Street that think that the Wizard of (moral) Hoz will proclaim QE the Third from behind the majesty of the Grand Tetons on Friday after the market close, and they want to be ahead of the curve. The vast bulk of the libertarian crowd are betting the farm on it. Wouldn't it be funny if the Great Glabrous One simply first emits a loud fart followed by a tale told by an idiot, full of sound and fury, signifying nothing.
With a full weeked to think about it, if this were to occur I think we would se the SPX in circuit breaker range within the first hour. I think this just may happen
Interestingly- found this map while searching for "fracking in Virginia"; and found this:
http://tinyurl.com/4ygx8p4
which has a little "fraccident" icon just about on top of the epicenter. But no link to details.
So far the MSM is mum on any fracking around the quake; but there are rumbles out in webville.
Greenpa
Geothermal system plants that are very large in size that extract heat from the ground cause mild earthquakes,
I am not talking about the small systems used by people in their back yards
large geothermal systems plants
http://www.youtube.com/watch?v=2Lu4ya0Qvlc
Fracking is the same idea
meanwhile; how about some feedback on basalt rebar?
I'm all aflutter about it.
The physicists Steven Jones documented how a substantial earthquake in Switzerland was triggered by forced pumping large amounts of water into a fault zone. On his Guns and Butter KPFA interview about two months ago. Makes sense. Kind of like pouring oil on your brake pads.
re basalt rebar
Jeez Greenpa - it's 71 pages long. My first comment though is that basalt will be real cheap when the Yellowstone caldera blows.
Anyone want to start an office pool as to whether Chavez gets reimbursed with his gold or depleted uranium?
El G: As I have posted before, swarms of earthquakes of increasing magnitude were noted in area of Denver or Boulder, don't remember which, back in 60s or early 70s. People couldn't explain the phenomon until someone pointed out that they had been injecting liquid toxic waste under high pressure right where the epicenter of the swarms was located.
They stopped injecting and the swarms stopped in short order. There was much talk about it and it was suggested that in might possible to inject high pressure water along the San Andreas fault to cause small earthquakes and, hopefully, relieve stress sufficiently to prevent the expected BIG ONE.
Didn't see much about it later. I guess no one wanted to take the chance of triggering the BO and be liable for the consequences.
It is very possible that that is what has happened. I was wondering at the time of the announcement of the quake if there was any fracking going on in that area.
Most petro geologists are probably aware of that occurance and any claims that they could not see it coming would be pure BS.
Cheers,
Robert 1
Is 80% a lot? It depends if it was there or not. One could argue that you cannot lose what you did not have in the first place:
U.S. to Slash Marcellus Shale Gas Estimate 80%.
Someone should inform Metanis about this development; and to the last one standing: don't forget to turn off the lights, please.
Robert 1
There are weather patterns, especially in the late fall and winter (when snow falls on Mt. Hood) where there is easterly or north easterly air flow at all levels including the higher elevations of the Cascades so it is possible that stuff is coming from Wyoming or Montana. One of the biggest sources of air pollution in the Gorge is from the Boardman coal power plant and that is definitely east of Mt. Hood.
I know from personal experience that planes coming from the east or north of east tend to fly right by or over Mt. Hood on their way in to land at PDX or Hillsboro. (Watched people night skiing more than once).
Don’t rule out the possibility of crap coming from China. Who knows what is being put up in the atmosphere there to drift to the West Coast? I’m certain they don’t much give a damn, either for their own citizens or elsewhere. Dan Jaffe at the University of Washington is doing research on this as we speak, and has a monitoring station on Mt. Bachelor here in Oregon.
I've been off line for a couple of days, at Stratford Theatre. Saw Jesus Christ Superstar and Titus Adronicus. Both performances speak to our times. I especially liked Titus as I hoped TPTB destroy each other as they did in the play:)Just the kind of madness one can believe in:)
Well, I'm going to wait until gold gets down to 1700 before assuming this might be the big unwind.
It didn't take too long for oil and gold to start correlating, now, did it?
I gotta concur with el g, global markets are solely hanging on to the actual and expected actions of the fed and other cbs to get any direction towards the upside, and even with qe3 announed on fri the markets may not see it is anything good after they sleep on it for a few nights. If no announcement, then merkel better give the queasy money managers something better than putting liens on all of europes gold, or the markets don't even have a wish and a prayer. The system has been dying for some time now, but I have never felt it was as vulnerable to large scale upheavel as it is now.
Also, as a native Virginian, I apologize to all those who were affected by the seemingly random EQ we spawned here. So far I haven't heard about any serious damage caused to people, buildings, power plants, etc. If skrugman really made that comment, he needs to be released from NYT immediately.
Scandia,
Thanks for referring to the ZH article on Canadian banks - I would have completely missed it otherwise.
Cheers!
Old Bird,
My guess would be depleted uranium.Mr C has been a serious pain in TPTB ass for quite some time now,and The only reasons I can see he is still in power is
#1The poor people love him.Really.
#2.TPTB have been too busy in the middle east to get serious w/Venezuala.
#3.We open up a can of worms the likes that thee and me cannot dream of...imagine 1000 Hispanic terrorist in the infrastructure of the USA...all who have lived here,and who can move through the system with the migrant farm workers...
I am sure some of deep thinkers at that Pentagon place have considerable that...and shuddered.
Punxsutawney,
One of the things I have thought long and hard about is air pollution from China.Living in the pacific northwest,I know all the shit they put in the air that does not "plate out"in the Pacific,is what I breath.I have noticed that several times when that topic is raised...it drops off the map completely...like 45 thousand Comcast workers on strike...did you hear one word about it on the nightly propaga..I mean news?...There exists a whole lot of stuff going on we never hear about,or know about,due to the manipulation of information that happens every day.
I need to get some work done..
Bee good,or
Bee careful
snuffy
@El G,
Yes, there are conspiracies. However, the conspiracies of the Very Powerful will never be proven in the court of public opinion. If there is a witness (s)he will be discredited (if not worse) by a whisper from the VP to the NYT and CNN, who will then not dare to run the story. Science will be countered with science.
I realized all this many years ago when an acquaintance claimed that the evidence for a conspiracy in the JFK assassination was on a par with that of a scientific theory. He was wrong. It is, rather, like that of a legal case. The prosecution may have a good case, but can't win, not when the defense has the power to discredit or eliminate any witness, and can, if necessary, corrupt the judge and jury. The VP hold all the cards in this courtroom.
But my real point is that it doesn't matter. The public actions of the VP are proof enough (for one paying attention thanks to the work of I&S and others) of their nefariousness, and the danger they hold for the rest of us. Adding charges that are impossible to prove (in the court of public opinion) would only destroy the main message.
Worth a gander:
Thinking the Unthinkable: might there be no way out for Britain?"
http://www.scribd.com/fullscreen/63007201
McCain says Russia & China will experience Libya-like uprising.
It is not rocket science to see where this is heading.
Snuffy,
Yes I heard about the Comcast Strike, but that’s because I rarely waste my time with the MSM. Just like when 10-20,000 progressives, or liberals if you like, show up at a rally, and you will never know it happened from the news coverage. But 50 Tea Partiers show up and it’s “breathless” coverage. Of course they may be carrying guns and I suppose there’s the potential for some “excitement” then.
As to Chinese pollution; as someone who expects to be living to some extent off his land (sooner or later) in the Coast Range here it concerns me as well. But we have it, and the only other alternative is se Kentucky and I prefer it here.
I also suspect the pollution may be affecting the jet stream over the Pacific. No proof of that so you can take my comment with a grain of salt. I can say that I’ve looked at the historical weather records for the area enough to know that the last couple of cool springs/summers are not unprecedented in the last 70 years, but it does look like we are getting wetter and nights are getting warmer.
Ka,
I liked your comment in general. But I guess one has to figure out what constitutes "proof." Is it the corporate controlled MSM media admitting it? Sometimes it happens. Even the MSM now admits that Saddam had no WMD or viable programs to produce such. But there are areas of the corporatacracy bedrock where this would never be allowed "to become reality," such as the truth behind the JFK murder, which you bring up in your comment, or 9/11. But maybe this is not the only criterion. There were periods during the 70's for example, where the majority of Americans in polls thought that the Warren Commission findings were a load of crap.
Which reminds me of some of the things that Dmitri Orlov has written about the Soviet Union. The vast bulk of the citizenry according to Orlov believed next to nothing that Izvetia or Pravda wrote, and this disbelief changed their behavior in a fashion that allowed them a greater ability to survive. Or as the Jim Jones expression now goes, not to drink the Kool-aide.
So if the reality of these events never reach a truthful conclusion in a court of law, which I agree they will not, or even an admission of their reality in the corporate controlled media, by having a majority, or even a significant minority of the population tuned into the reality behind these events has some value.
For the moment, telling the world that I cannot accept this Orwellian BS is an act of defiance on my part. If I should have the dubious fortune to live long enough, the time will undoubtedly come when O'Brien will hold up his hand, and I will see the approved number of fingers.
Brunswickian said...
McCain says Russia & China will experience Libya-like uprising.
He mention Arizona?
Re the question of fracking and yesterday's earthquake. Here is a link worth reading. BTW, it says that the original USGS report said that the epicenter was 0.1 km below the surface. For people who like to think in miles, that is one football field. It was latter revised to 6 km. Hmmm.
http://tinyurl.com/3ngbqf5
skilo
what about the oceans as a heat sink? with arctic sea ice annual melt such as it is these days might the oceans be absorbing more solar radiation which raises ocean temps which increases evaporation which provides more cloud cover and higher albedo, as part of the concurrent global dimming phenomenon that also has other albeit perhaps diminishing aspects to it?
I bring up this climate change dynamic because your case against GW has been (by definition) temperature-centric, what with the flatlining of temps over the last decade being drawn as a line in the sand. it appears the warming oceans are absorbing less and less CO2 like a warm cola going flat (bad analogy?). nobody ever said this climate change business was linear in any respect. why the emphasis on air temp?
I thought that this should be passed on to our USA readers.
http://4closurefraud.org/2011/08/24/back-off-banksters-ny-ag-eric-schneiderman-fights-back-after-being-kicked-off-robo-signing-investigation/
BACK OFF BANKSTERS! NY AG ERIC SCHNEIDERMAN FIGHTS BACK AFTER BEING KICKED OFF 50 STATE ROBO-SIGNING INVESTIGATION
Please everyone, we must support this man. He is our last hope on a national level.
This article by Pepe Escobar lines up with my view.
"Disaster capitalism swoops over Libya"
http://www.atimes.com/atimes/Middle_East/MH25Ak02.html
Will Germany get cut out of the spoils? Wondering what the payoff will be for Canada?
@jal
I wholeheartedly support your appeal to take Eric Schneiderman's back. Also, Beau Biden is getting pretty outspoken in Delaware as well.
Anyway, Yves Smith ran an article on this a couple of days ago and provided the following links to show support (or disdain with respect to Kathryn Wylde and Shaun Donovan):
I hope those of you who haven’t yet taken action will either give an “atta boy” to Schneiderman, or better yet, call or e-mail Donovan and/or Wylde and voice your disapproval.
Schneiderman: 800 771-7755 or 212 416-8050 or http://www.ag.ny.gov/online_forms/email_ag.jsp (the form is much more user friendly than most of this sort)
Shaun Donovan: Secretary.Donovan@hud.gov
Kathryn Wylde: no direct number, the “media outreach” (which shows what their priorities are) is (212) 493-7511. The main number for the Partnership for New York City (guess only the top 1% are “partners”) is 212-493-7400.
Barry Ritholtz has called for her resignation from the New York Fed (as a class C director, she purports to represent the public, when it’s clear she represents only the corporate funders of her not for profit). Call her office and say the New York Times editorial proves she is not standing up for what is best for the city and the country. Demand that she resign from the New York Fed.
Citizen action in support of the truth tellers and defenders of the public interest must be loud and large. It can "frack" the status quo. And as Snuffy so succinctly put it:
FATE BATS LAST!
(thanks for that Snuffy)
For anyone who might be remotely interested. I appear on the local progressive radio show as a "contributor" for one hour each week. This week's topic was: Allocating Resources after the End of Growth.
http://tinyurl.com/3oco3hg
run time: 45 min. The show can be played directly on your PC or podcasted.
Earlier in the thread a few of you mentioned the subject of Agri-Char. I've been experimenting with it just during this growing season on a spot of mostly virgin fill dirt. I soaked my charcoal in manure tea before spreading it, and I also added composted material to the area as well. On account of this being the first time I've grown anything on this spot I don't have a control to compare to, but some of the plants have done quite well in this space.
Does anyone on the board have much experience with trying to create their own Terra Preta?
A couple of weeks ago (if memory serves) I mentioned that townhall meetings that the US pols like to use are becoming rather confrontational. No pol is immune, even President Zero.
This post at Digby's place gives us an up to date observation of the fascist techniques being used to silence the angry citizens.
The cops are neighbors too, so they best be watching their backs or at least demanding much bigger bucks to defend these treasonous politicians.
FATE BATS LAST!
@Scandia
From Ian Welsh, a heartfelt remembrance.
I think you will appreciate this.
And yet another polka dot gallows observation from Ian Welsh.
This one rings particularly true having owned and operated a small business in Newark, NJ for a number of years. Every Nor'easter created a mess on Rt 22E and attributed to untold hours of traffic delays and economic disaster at the Port Elizabeth seaport and Newark airport; let alone the thousands of small businesses like mine that ring that teeming trade zone.
I like old cliches like:
"Penny-wise but pound-foolish".
Seems most appropriate nowadays!
Greenpa said...
meanwhile; how about some feedback on basalt rebar?
I've downloaded the report to keep for future reading as part of my study of modern and ancient construction techniques, but am in no way qualified/experienced enough to comment on it. Thanks for the link, though.
el gallinazo said...
...in my opinion, with one fairly glaring recent exception, I think the world of the new physics follows the ideal scientific paradigm fairly well.
I agree in general, but I do think the peer review system is functioning as a barrier to ideas that challenge the status quo in many fields.
re: electromagnetism – it is not about ditching gravity and our current understanding of Newtonian physics or GR, but about correcting some basic misunderstandings that lead to electromagnetism being left out of the picture, when it should be considered in all cosmological investigations.
The omission of electromagnetism as a major force in cosmological study has led to the invention of unnecessary entities such as black holes, and fundamentally wrong assumptions about magnetic fields in plasma – e.g. that you can have "frozen-in" magnetic field lines, and thus magnetic reconnection – which is false.
http://www.ft.com/intl/cms/s/0/00903bb2-c19c-11e0-acb3-00144feabdc0.html
S&P DOWNGRADES DTCC SUBSIDIARIES
CLEARINGHOUSE RISK...
@ben
>>what about...
I bring up this climate change dynamic because your case against GW has been (by definition) temperature-centric...<<
Point #1: I didn't say that AGW was accurate or not. I don't know. My position is that Earth's temperature inputs are highly complex. Based on prediction failure, I don't believe anyone else knows, either.
Point #2: Ash claimed AGW was scientifically proven and I provided *data* that contradicted expected AGW results 10 years earlier...
You are correct, nobody predicted linearity. The major publicized prediction was for a *parabolic* temperature increase.
You know, the "hockey stick."
http://en.wikipedia.org/wiki/Hockey_stick_controversy
Ice in the South Pole is growing.
Of course, growing ice is due to AGW, just as melting ice is due to AGW, just as rain is due to AGW, just as dryness is due to AGW, just as cooling is due to AGW.
It appears that AGW is the assumption and then every analysis, well paid no doubt, emanates from there.
Growing Number of Scientists Convert to Skeptics After Reviewing New Research
http://epw.senate.gov/public/index.cfm?FuseAction=Minority.Blogs&ContentRecord_id=927b9303-802a-23ad-494b-dccb00b51a12
Am I saying AGW is 100% false? No. Ash said it was 100% fact and implied that those who disagree are, shall we be kind, "mentally eccentric."
Ash has to prove his statement. Ash has to answer the question. BTW, I didn't see Ash ever answer that question. ;-)
Do I think giving Al Gore, Goldman Sachs and the Rothschilds billions of dollars and another market to rig will protect the planet?
You have got to be kidding.
Their solutions are fake and designed to enrich themselves at the expense of everyone else.
Big Finance Capital desperately wants an energy monopoly to *hurt* the middle class and bloody them up financially even more.
Carbon credits create monopolies and windfalls for BFC and bankrupts everyone else.
@I&S
3-month Treasuries vs. C of I Treasuries
If you're going to suggest Treasury C of I,
then at least you should research whether it's money-good like a 3-month treasury.
Otherwise you could spread very painful information to us little people when we end up getting burned with C of I.
We need quality information not guesses.
I want some clear information about Treasury C of I.
What are we getting ourselves into here?
El G, you've got money in Treasury C of I and you don't know if it's money good the way a 3-month Treasury is?
Isn't that kind of careless?
The end of cash:
Italian industrialists have demanded capital controls and the requirement that all transactions over 300 Euros occur on digital media vs. cash.
(See Zero Hedge)
Negative Treasury Yields.
Is it possible to get a negative treasury yield in the primary market.
Can somebody explain the math for how that's possible.
Zero hedge said it's happening now.
How?
Capital Control Questions:
1) What are they?
2) What is their history in the West? and elsewhere?
3) How do they work?
4) How are they implemented?
5) How are they regulated?
6) What are the implications for investors in Treasuries?
I&S and Treasuries:
We need more nuts-and-bolts boots-on-the-ground advice. We need it nitty-gritty with details. We need to get down-and-dirty with lead-tipped how-to bullet points.
We need more granularity. We need more fiber. The discussion is blocked-up and stuck-up with chock-a-block fuzzy Treasury details. There is no clarity. There is no peristalsis.
We need to dig down. We need to cut the crap and scratch below the surface.
We need to know the real-deal about Treasury C-of-I.
Goodnight Sweetheart
Anybody that tells you what the market is going to do on such and such a future date is pulling your leg. The only way to protect your future from TPTB is to develop informed, reasoned expectations of future events. Ie, to expect an event to happen in congress with other events that are expected to happen. In order to know when they are happening you need to expose your market theory to a process of iterative refinement that allows your conditions to change over time, thereby thereby creating temporal symmetry between market dynamics and market perception.
IMHO, the bond market is going to burst. This will happen as the global flight to the safety ("risk off trade) of US sovereign debt unwinds. Prices will fall and yields will go parabolic.
Keep yourself nimble.
You do realize that bonds can be traded before coupon expiry? A 10 year doesn't lock you in for 10 years.
I know to stay nimble.
Staying nimble is the point of having money in Treasury C of I rather than 3-month Treasuries
Treasury C of I is maximum nimbleness.
However, as Sir Lawrence asked, Is it Safe?
skilo,
ice may be growing at the south pole, which by the map looks to be in land-based east antarctica, but antarctica as a whole, according to the grace satellite, is losing mass at a rate of 100 cubic kilometers a year and accelerating. considering your legendary rigor I can only think that that was a disingenuous statement.
and enough of the habitual guff, man - it's really tiresome. how about a stickie note on the monitor to remind you?
http://www.nasa.gov/topics/earth/features/20100108_Is_Antarctica_Melting.html
@P01
Thanks for the Bloomberg article. I'm going to buy the rumor, sell the news, and burn the proceeds on hookers and blow.
By the way Doom, the oil and gold correlation broke today. I suppose it's fitting.
Treasuries Treasuries Treasuries...
Really, this is what matters for mom and pop
And we don't know squat about the elephant in the room
If Mom gets burned on Treasury C of I that aren't money-good like reinvested 3-month treasuries....then what's the point of all the talky talky?
@ben
"I bring up this climate change dynamic because your case against GW has been (by definition) temperature-centric, what with the flatlining of temps over the last decade being drawn as a line in the sand."
The people you want to trust when it comes to global warming are the oceanographic scientists. If you talk to them, you talk about climate change...global weirding, not global warming.
Punxsutawney said...
"Robert 1 There are weather patterns, especially in the late fall and winter (when snow falls on Mt. Hood) where there is easterly or north easterly air flow at all levels including the higher elevations of the Cascades so it is possible that stuff is coming from Wyoming or Montana. One of the biggest sources of air pollution in the Gorge is from the Boardman coal power plant and that is definitely east of Mt. Hood."
Thank you for clarifying that point for me. I have little knowledge about weather and wind patterns in that area.
Best,
Robert 1
Goodnight Sweetheart
Negative treasury yields are pretty easy to understand if you visualize debt as a see-saw where one side is yields and the other side is price.
@ Archie, the link to A Heartfelt Remembrance didn't work.
Was it his tribute to Jack Layton?
Goodnight Sweetheart
Just read your last post.
I spend a lot of time thinking about bonds and this is the first time that i've come across zero percent certificates of indebtedness (C of I as you say).
Buying a zero percent treasury security is a really stupid thing to do. If you look closely you will find that you can buy a 20 year treasury security (long bond) and sell it the next day. When you sell it, you are paid the value of the bond plus 1 days interest on a 20 year bond minus transaction costs. A C of I just pays you what you paid to buy the bond minus transaction costs, so you always loose money even though you expose yourself to the same sovereign default risk.
So buy into the zirp, but know that you are paying for peace of mind and nothing else.
If 3-month T-bills give a negative yield.....
then what's the point?
Treasury C of I have 0% interest and no fixed maturity...you can pull the money at any time
3-month Treasuries have a negative yield and your money is locked for 3-months.
So....Treasury C of I wins on both scores
That's what makes me think Treasury C of I isn't money good like 3-month T-Bills. You have to pay for those advantages of no duration and higher yield (0 vs. negative) somehow. I'm worried you pay for that by having a security that's not money good the way a 3-month T-bill is?
Thoughts? This is really critical for somebody who wants true safety in these turbulent waters.
The point is that current bond prices reflect a flight to safety, which necessarily pushes down bond prices, while the C of I is not. If you are worried that your bank is going to be foreclosed on, you buy US gov’t debt, which drives prices up, which pushes yields down (now into the negative in some cases).
On the flip side you can earn a much better yield on long bonds, but you expose yourself to market beta through the futures market. So if you are smart and on the right side of alpha, a long bond is the smart play. If you just want peace of mind (and don’t fancy yourself as running a bonds desk full time) the C of I is where its at.
I’m repeating myself here that ownership of bonds with a fixed maturity does not require that you wait for expiry to redeem. If you don’t know what I’m talking about then I’d say go with the c of i. I’m still not totally clear on topics such as calculating contango, and backwardation.
So just keep in mind that the difference in yields between C of I and 3 month T bills is a reflection of supply and demand for short dated government debt on the open market rather than beta (systemic risk).
I should have added that the only reason to buy Zero-Percent Certificate of Indebtedness (unless you are commercial/yields are below zero and you want peace of mind) is to protect yourself in a situation where your local bank goes belly up but the US government does not. You are basically paying the government transaction fees to hold your money.
I hope that was helpful. It's a little but of a mindf***...which is to be expected.
Starting the day with the funnies
Mish quotes from a Bloomberg article:
"Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.".....“Besides, none of the central banks believe in the currencies of other countries.”
Super-massive black hole caught shredding a star to pieces for the first time
Most galaxies have super-massive black holes - regions of space that suck in everything nearby with their strong gravitation pull - at their core, with masses of millions or even billions of suns ... The swallowing of a star by a black hole only happens once every one hundred million years in a galaxy.
ocmsrzr,
Thank you for the report thinking the unthinkable - might there be no way out for Britain?
Brilliant report. It explains clearly why private plus public debt in the UK is going to bring the roof down before too long.
The nature of addictive borrowing
To understand the conundrum posed by a growing capital (debt) base and diminishing growth, we need to distinguish between two types of debt. These are termed ‘self-liquidating’ and ‘non self-liquidating’ debt. If the owner of a successful restaurant borrows to invest in additional seating space, the debt is self-liquidating because it will be serviced and paid off from the higher income that the expanded restaurant will generated. But borrowing to pay for a new car or a foreign holiday is non self-liquidating, because it is a form of consumption which does not leverage the borrower’s income. Though the parallels are necessarily less than exact, the sharp fall in Britain’s return on capital reflects the fact that the overwhelming bulk of new borrowings have been non-self-liquidating. Government has been guilty of over-consumption, and very little has been invested in self-liquidating projects such the improvement of the country’s road, rail, power or telecommunications infrastructure. But the biggest problems have been caused less by government than by individual borrowers. The biggest single debt increment during the period between 2002 and 2009 was mortgage borrowing, which increased by £590bn between those years. Many borrowers saw this as investment, a view which was profoundly mistaken even though many policymakers and even bankers managed to delude themselves otherwise. As average property prices soared from £121,000 in 2002 to £197,000 in 2007 (a real terms increase of almost 70%), escalating mortgage debt looked like an investment, and a good one at that. But to believe this was to overlook two critical points. The first point that was generally misunderstood was that property prices, whilst realisable on an individual basis, are not realisable in the aggregate. Therefore, and as borrowers and lenders alike were to discover, property prices, far from being an absolute, are an example of ‘notional value’.
To put it colloquially, many of the imported gadgets might already be in landfill, but the debt incurred to buy them remains.
Sounds familiar.
I bought a cheap earphone for 2 dollars.
I took it home and it didn't work so I didn't bother to take it back.
This was made in China
All their stuff is not that bad but many are close to it
Buffett to Invest $5 Billion in BofA
?Que pasa?
http://online.wsj.com/article/SB10001424053111904787404576530211731979854.html?ru=yahoo&mod=yahoo_hs
5 x 10 exp 9 $ is only a drop in the bucket compared to their shortfall from reality. Other than a vote of confidence, what good does it do. Stock of BoAc up 22%.
Is fed doing some behind scenes propping that we are not privy to?
@Goodnight Sweetheart - The Treasury C of I is a holding area. It does not look like it has anyone's personal name in there.
Whereas when one purchases a Treasury Bill, you definitely have paperwork that shows you purchased it.
Instead of purchasing 3-month Treasury Bills, one could purchase 4-week T-Bills. Divide the money into 4 portions, and rotate in-and-out the C of I.
Robert 1 said "Is fed doing some behind scenes propping that we are not privy to?"
Probably so! I think they are propping things up and sending out the propaganda that there is nothing to worry about. Then the system crashes, and we will be told they couldn't have seen it coming.
Steve Jobs resigns; Everyone too busy playing on their iToys too notice.
ocmsrzr said...
I'm going to buy the rumor, sell the news, and burn the proceeds on hookers and blow.
That's the sensible thing to do. Always.
an eyewitness at the scene last night reports that in the battle for hearts and minds stoneleigh logged a 90min q&a after the espresso break. the eyewitness also reports that at least one proposed boules area is now slated for food production.
THANKS STONELEIGH AND ILARGI!
@Scandia
Sorry about the bad link. Yes, Ian's piece was about Jack Layton. You should be able to read it at this new link:
http://tinyurl.com/44o55be
@Board,
Caveat emptor...
British government begins stealing its peoples’ bank deposits ahead of the global financial collapse.
http://presscore.ca/2011/?p=3598
A brief look through world history will reveal that the biggest criminals reside in government.
Some have better "sheep's clothing" than others.
How many ways and how many times can the same message be repeated until people see how our economic system has been created and functions?
The following report is about England. However, you can substitute the names of any country and the numbers of any country and arrive at the same conclusion.
http://www.tullettprebon.com/Documents/strategyinsights/Tim_Morgan_Report_007.pdf
the final report of project armageddon
thinking the unthinkable
“... two types of debt. These are termed ‘self-liquidating’ and ‘non self-liquidating’ debt.”
Their conclusion is ...
“These levels of debt are manageable if – but only if – the economy can deliver growth.”
---
Growth cannot happen.
You can only get an illusion of growth by taking from Peter to pay Paul.
( Paul will feel good and think that he has achieved growth and Peter will be poorer. Instead of using Peter and Paul, You can substitute the name of countries.)
The “system” invented ‘non self-liquidating’ debt, (which started with credit cards some 50 years ago), was the killing blow to the “system”.
The economy will not reset to ‘self-liquidating’ debts without pain to those that have been seduced into getting ‘non self-liquidating’ debt.
Of course, you all know that the “lenders” want the pain to be taken by the borrowers.
The savvy savers are trying to take their money out of the “system” created by creative “lenders” and find “safe haven” to avoid losing their ill gotten gains from ‘non self-liquidating’ loans.
Do not expect any solutions from “lawmakers” that will avoid deflation/ defaults. If you are not one of the chosen elites, you will feel the pain of the reset.
They will not change the “system” that enslaved the ignorant, ( which means all of us), that permits the enslavement of present and future income, through ‘non self-liquidating’ debt.
The revolts of the slaves will not liberate the slaves because the “system” will not be changed.
jal
JAL - no offense intended here; but:
"How many ways and how many times can the same message be repeated until people see how our economic system has been created and functions?"
How many times, and how many ways, can logical analyses be presented to "the people" - with the expectation that surely THIS time, the logic is CLEAR, and everyone will finally understand-
before the logical thinkers logically understand that human brains, and human institutions- DO NOT USE LOGIC in making their decisions?
:-)
@Archie, so many Cdns are genuinely sad about the death of Jack Layton, " smiling Jack " as he was called.
The lower classes owe much to Jack as in his fight for public housing, acceptance of gays/queers...He was a " trend setter ".
JAL - it's just the mood I'm in. Earlier today I lift this bouquet garni for Frank Bruni, ex NYT food writer now OpEd writer without portfolio; for his bit decrying elite food fights-
"Surely, Mr. Bruni, you are aware that this kind of food-based snobbery is ancient. In fact "ancient" is inadequate; it's primal. As far back in history as we can see, humans have used food as a reason to despise whomever it is they wish to despise. Most likely our Cro-Magnon ancestors scorned our Neanderthal ancestors because they ate wooly rhinoceros; and cited that as an obvious and perfect reason to eradicate them.
"It's one of those bits of human interaction we know to be "intractable". You'll have to do more than just point it out, yet again, if you wish to make any headway."
@ Greenpa
I do not feel insulted or ???
I can add that people will get with ...
"NO PAIN NO GAIN"
JAL
JAL - good to know :-)
I'll add that an ornithologist friend of mine has his own version of that aphorism, which I freely use, and is as germane as the rain in Spain:
"No brain, no pain."
W. Buffett sure knows that we are in a deflation and knows how to make money from it.
He just got himself at the head of the cash flow line with $ 5B at 6%.
Also, He has an option to buy out the shares at dirt cheap if the gov. bails out BoA.
jal
Hello,
I have recently seen here on TAE:
Nature bats last
Fate bats last
I was wondering what nature bats and fate bats are. Why do they endure longer than other bats?
Then again, perhaps you are not talking about Chiroptera (I found nothing in Wiki). Do you mean some sort of new baseball bat? Enquiring minds would like to know.
Ciao,
FB
;-)
Goodnight Sweetheart
I don't know where your complaint with I&S comes from. Neither are financial advisors nor pretend to be. Stoneleigh is Canadian and Ilargi is Dutch. When the subject of td.gov came up previously, Stoneleigh said she knew nothing about the specific details. One must have a Social Security card at least to participate in td.gov, which Stoneleigh does not. While you are obviously now panicked about your savings, please do not rant on this site for failing to give you a feeling of total security. We are entering a period of high risk for the simple reason that there are a huge number of multiple claims on the same assets, and the unscrupulous elite, who have gained complete control of most governments, including the USA, are aiming to make sure that all the claims other than their own are extinguished. In as much as they may continue a pretense of law for the moment, one strategy is to hide in their midst (mist?). Both Stoneleigh and CHS state very clearly that there is nothing risk free, just perhaps lower risk. One has two choices: live with risk or die.
CHS in his most recent book differentiates between apparent risk and real risk. Apparent risk is never the real risk. The closer your assets are to your back yard, the easier it is to evaluate real risk. All "investments" are thus speculations. There is no such thing as an investment. The idea is to try to evaluate your real risk and the probability of one's upside gain and to balance the two. This process is a function of one's individual creativity and self-expression, and in these times, only a fool or a very lazy or ignorant person delegates this responsibility to others. The typical investment counselor is still telling their clients to buy and hold despite the fact that the "risk markets" are probably about to violently implode.
And always bear in mind that everyone's milage will vary.
@FB It refers to batting (verb). No matter how big a score team A has, If team B bats last they can still win the game.
FB
These expressions come from the rules of baseball. The home team always bats second in each inning and this gives an advantage. For example, suppose the home team comes up at the bottom of the last (9th inning) and they are losing 4 to 2. But they score three runs at bat and the game ends immediately at that point whether all three outs were used up or not. So the expression means that someone, nature for example, makes the final decision.
Also
There was a very strange flash crash in the last few seconds of trading on the German DAX. No viablevexplanation as of yet.
Graphs at
http://www.zerohedge.com/news/and-meantime-fax-flash-crashes#new
and
http://www.bloomberg.com/apps/quote?ticker=DAX:IND
That report was a long read,but worth it.The only disagreement I saw was their insistence that the high-dollar help in the financial world should be exempt from responsibility to help pay for the mess...their thoughts on downsizing the financial sector in London strike an elitist note in what is otherwise a pretty good read..
If they did such a report in the USA my guess is they would have the same bias..Its hard to put blame where its due when it strikes too close to home.
...Here in the USA...
Until the fraud that was done by the high-dollar help is dealt with,and in such a manner that the rest of those in that class have nightmares about it,we will continue to see this garbage.
It is a shame that will live as long as the perps go free.Every day that goes by ,the smart kids see over and over the message,"If your big enough,and have enough powerful friends,you can do whatever you want,hurt whomever you want and never pay for it".
This is a bad,BAD message.Its the same as a black kid growing up in the ghetto who sees the only way up is by dealing dope..
Kids now know that crime does pay,and pay well..If they want the nice "everything"they just have to learn how to steal it.Why be a la-abiding citizen when being a thief is socially acceptable,and pays so much better?
That report needs to be done in a american version,and read by all...
time to work..
Bee good,or
Bee careful
snuffy
@ All
Thank you very much for the explanations about bats, but truly, did you not remark the ;-) at the end of my message?
The whole thing was intended strictly as levity.
Ciao,
FB
Hello,
About climate change, yes, the term "global warming" is way off base. In all the scientific documents I have translated for at least three years, no one speaks of global warming any more. It is always "climate change".
I second the comment about oceanographers, but would add that glaciologists also have some very interesting contributions. The ice cores now provide data going back 800 k years. Parts of that data are not easy to interpret (aspects of the carbon cycle, some contradictions with isotopic data, etc.), but to suggest that climate change and particularly the speed at which it is occurring are not in large part anthropogenic strikes me as mischievous.
Ciao,
FB
Regarding the question in td.gov of whether a bill is more secure than C&I, I really do not know. C&I is not a proper instrument but rather just a holding fund in the treasury. Stock brokers have similar funds, usually insured for what it's worth with ain't much, where they put your cash before or after you sell stocks. I am not a lawyer, though it seems that they are making the laws up as they go now so it may not make a difference, but my policy after some thought, is to just put 90% of my savings in 13 week and roll them automatically, and 10% in C of I for an emergency.
Hi El G
If you dont mind I have just copied and pasted a few of your posts today
Thanks
Like El G was saying that there is nothing risk free but at least by being here we are not holding on to something that is 100% risky
An Elegy for the Age of Space
John Michael Greer
In Houston, the same silence creeps through rooms where technicians once huddled over computer screens as voices from space crackled over loudspeakers. The screens are black now, the mission control rooms empty, and most of the staff have already gotten their pink slips. On the Florida coast, where rusting gantries creak in the wind and bats flutter in cavernous buildings raised for the sake of a very different kind of flight, another set of lauch pads sinks slowly into their new career as postindustrial ruins.
In addition to Chase closing out my checking account without any reasonable cause, I just learned that they also closed out both my MasterCard and Visa Card with it. My MasterCard had a limit of $15,000, was used occasionally but not often, and was automatically paid off electronically from my Chase checking account, so it was never overdue. It had been my primary credit card for at least 7 years. The inconvenience being in Mexico really sucks.
progressivepopulist
Matt, I listened to your radio show and really enjoyed it.
el g
"I am not a lawyer, though it seems that they are making the laws up as they go now so it may not make a difference, but my policy after some thought, is to just put 90% of my savings in 13 week and roll them automatically, and 10% in C of I for an emergency."
That seems like a prudent way of going about it. Goodnight Sweetheart, I would recommend this to you as long as markets are not in full retard (negative yields). If you haven't already, educate yourself on the impact of interest rates and inflation on bond pricing.
@snuffy
"That report was a long read,but worth it."
I'm glad you liked it. Though, I was hoping that someone here would summarize it for me :)
I know I sound like a broken record with the Greek bond yields.
But, honestly, now...
@P01
Yeah, check this out as well:
http://www.bloomberg.com/apps/quote?ticker=CGGB1U5:IND
I wonder if Stoneleigh has any thoughts about us seeing a sharp rally soon. The data I'm looking at says that we're at a bearish sentiment extreme right now, which tells me that despite the expectations of a continued decline, we should see a strong rally soon.
@Ric, I enjoyed reading Greer's, " An Elegy for the Age of Space."
thanks for posting it.
@Goodnight Sweetheart,
Am not up to speed on CI certificates. What is their advantage over holding cash in an insured bank account?
@ Ocmsrzr
In a nutshell, the author thinks the British government is making a courageous attempt, but is counting far too heavily on future growth to increase revenues and thus reduce future deficits.
Unfortunately, growth over the past decade has been very dependent on debt-based expenditure, both public and private, which will not be available in the years to come. So growth will not meet expectations and the government plan will unravel, leading to a debt vortex (rising interest rates, falling currency, etc.).
There are no good solutions, particularly in terms of macroeconomic policy, but supply-side reforms, notably for SMEs, could help mitigate the pain. Plus reductions in entitlements. The general tone is libertarian and the author ends with a plea for a "liberty agenda".
Ciao,
FB
re: negative bond yields on USD short-term instruments
Its really an unmistakable sign that investors are so fearful of deflationary collapse, they are willing to pay fees to hold cash or its equivalents. Similar to how Bank of NY Mellon could get away with charging their institutional clients fees on "excess" cash deposits. There has always been risk in this world, but perhaps never so much as there is right now, especially what Taleb would call "tail risk". These are the "black swan" low probability, high impact events, but the current financial swan is only black in the eyes of the lambs, not those who have the foresight to "front-run" the herd or those who perform and/or profit from the slaughter.
So there are true "black swan" events that no one can predict, and then there are "white swan" events that are quite capable of being predicted when one takes a step back and views the systemic forces at play from the broad perspective, such as a dollar-led deflationary collapse. People are now willing to pay others for the right to be kept out of the herd of lambs that will be (are being) slaughtered (i.e. pay others to hold on to their own cash outside of "risk assets"). Who are these others? None other than the global Mafia, also known as the owners and managers of the debt-dollar financial system, as well as the system itself. So make sure you know which Devil you're making deals with when deciding where to store your cash. Ideally, its best to keep away from the clutches of sociopathic extortionists in a system that encourages both sociopathy and extortion, because, despite the perception of short-term security, they will devour your humanity in the long-term every time.
Ash
Really good summary of the situation. The only thing that I would add is that a black swan event is US government default on debt, so holders of US gov't bonds could get a haircut or nothing at all....so holders of US gov't debt are not toatally insulated from lamb status.
I think the essential problem GS is having is that he/she doesn't understand that interest rates on US sovereign debt are inversly correlated to prices of US gov't bonds (which are determined by market supply and demand).
Re T-Bills
I am still skeptical that rates are negative in primary auctions though it would not surprise me if they are zero. I am rolling my C of I into 13 week and should get my cfm on Sep 1, so I will report back. The treasury used to sell your treasuries upon request into the secondary market prior to maturity via td.gov, but one very pissed off user of td.gov wrote that they are no longer doing this.
Muchtooloose
The advantage of C of I over a Bill is that you can get your hands on the money almost instantly. If both are paying zero interest, it makes sense perhaps to keep it there. But after mulling it over, I just think it may be a tad safer to lock it up in a bill which is in my name (in theory).
Board
The Morgue really screwed me over. I have not done **anything obvious** to trigger this cancellation. At the risk of being paranoid, or rather appearing paranoid, I wonder if it has to do with me badmouthing David Rockefeller here, who sort of owns Chase. Seriously. Because I was running a mail forwarding service here a couple of years ago, a simple check would connect my tag with my name. Wouldn't even need the NSA to do it. Wouldn't be a big deal for him to hire a couple of techies to scan the intertubes for him. Hmm. Reminds me of the Russo interview. Just turn off that chip implanted in your hand and you disappear down the memory hole.
I had a card with Citi but let it expire like an idiot last year, so while I do have another functional checking account tied to td.gov with a functional debit card working in Mexican ATM.s, I am now without any credit card, so I am basically in cash. Welcome to the New World Disorder. This is going to be a problem with Amazon I think. Has anyone had a vaguely similar experience?
You're welcome, Scandia. Like Greer, I grew up amidst aerospace engineers and shared many of the same technological dreams. As a kid, I was often haunted by fictional portrayals of future peoples wandering amidst the ruins of our civilization. Today, it seems one of the best things we can do when educating the young is to provide the perspective that maturity is seeing what is gained when we lose. Sounds glib, but it's true.
The question most people have on their minds in when will the bond market crash or when will USD
be wortless and then all the other currencies sink.
This is my view of the situatiion and if you see mistakes here feel free to correct me.
I am hearing about asset stripping and that when it is all striped than it will be the end of the dollar.
SO I am saying can we follow a few inicators like
The amount of savings indiviuals,corporations ,investment funds have in the banks
We dont know how fast this will happen but at least can can saefly say that this
is not going to happen next year.
If this keeps up I will become an economist in a very short time.
Ha Ha
During this asset stripping period the price of gold will probably stay high because there is that fear that money is going to collapse and the cartel knows this.
ocmsrzr,
The US default on sovereign debt and HI of the USD is what I would call the ultimate "slaughter" period, although its not exactly clear whether the "slaughterers" will be immune from the slaughter themselves, as the "entitled" masses will have absolutely nothing left to lose by that point. So, in that sense, it is yet another "white swan" that will appear black to many many people. The critical issue, of course, is timing the phases of systemic slaughter down a modified Exter's Pyramid (shadow derivatives to "risk assets" to safe haven bonds/currencies to gold/silver).
Jack,
Sounds like you are on the right track, but remember that "asset stripping" is best achieved by devaluing the assets relative to an intrinsically "worthless" piece of paper. If gold is a long-term capital asset that forms part of the foundation of a "wealth pyramid", then it too must devalue significantly before it can be effectively stripped. If we shed our attachments to the devious notions of price and value as defined by this system, though, then it becomes clear that gold is a critical asset to own long-term, if you are so fortunate enough to be able to afford it.
Ref the endless C of I badinage
The C of I supports Treasury’s
goal to provide the maximum
convenience, flexibility, and investor
self-sufficiency to New Treasury Direct
investors. A C of I also allows account
holders to consolidate funds from
various sources for the purchase of
another eligible security. A C of I is
issued daily and has a one-day maturity
with an automatic rollover at maturity,
until the account holder redeems the C
of I. The account holder may use the
redemption proceeds to purchase an
eligible security in New Treasury Direct,or may send the redemption proceeds by the ACH method to his or her
account at a financial institution. The C of I is backed by the full faith and credit of the United States.
This information instantly available via google at
http://www.treasurydirect.gov/lawguide/lawguide_08162004.pdf
C of I is no riskier than owning bills, notes or bonds. There is no transaction fee. In an emergency, the
Treasury can put significant holds on instruments having duration longer than
4 weeks, including resale in secondary markets. Holds are limited to 28 days maximum for 4 week bills and one day for C of I.
Wow, over 300 comments, the most so far
http://pleasemessageme.co.uk/cgi-bin/blog.dll/d1
El G
Bill is your name ... in theory!? Hmmm I will have to mull that one over for a bit!
;)
On those CI's, I take it one can send them to a brokerage account with less fear of that money being held up during whatever happens with FDIC in a bank failure? If so, that could be advantageous, as long as there still is a market at that time and something worth buying?
As said on this site , being nimble is the key, but then if one can't be nimble I guess one should buy gold. (That is just my preferece over holding a gun or, for saftey in extremus, hiding out in some god forrsaken hole that no one in their right mind would go to).
@El G,
Not sure why Amazon would be a problem. I buy stuff from them, including Kindle, with a debit card. The only thing I know of where using a debit card instead of a credit card is a major hassle is car rental.
@Scandia
Yes, smilin' Jack is the kind of person I have admired my whole life. Sadly, all too often these rare individuals die too young.
Earlier today I was reading up on him a bit and listening to the great Bill Evans in the background. Here is one of my favorites:
Blue In Green.
Would have had many interesting discussions with Smilin' Jack over espressos in my youth. Keep his memory and his ideals alive.
New post up.
Sex, Lies and Bank Stocks
.
These expressions come from the rules of baseball.
IMHO, I think it came from cricket. In both games, the winner of a toss decided who plays first (and who plays last). In baseball, this rule was changed in the 19th century.
Comparison of cricket and baseball
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