Even Greenspan Knows We’re Screwed

Posted by: Phoenix Capital Research

Post date: 07/01/2011 - 13:19

The take home point with all of this is that the Fed is in fact powerless to address, let alone fix, the Financial Crisis that began in 2007. Indeed, the Fed’s key role in creating it was to let Wall Street dictate the Fed’s moves. And now that the Fed is supposed to solve the Financial Crisis, we’re finding out not only do they have no clue how to do it, but they’re even aware of this fact

 

 

 

 

T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off

Ever since the famous Stanley Druckenmiller Op Ed published in early May, which called for an outright default of the US, saying it would not be the end of the world, and in fact the US would emerge stronger as a result of finally taking the first steps to getting its fiscal house in order, there has been a visible shift regarding the US debt ceiling discussion, with republicans (so far) digging in and refusing to budge on the issue. After all, on the surface Druckenmiller is absolutely correct: with interest rates near record lows for the past 3 years, interest payments would be manageable for a long time even if general rates were to surge due to the Treasury's fixing of low cash coupons over the past 3-4 years, amounting to about 20-30% of all annual tax receipts. There is however one very big problem with this argument, one which we pointed out back in April 2010 when we said that "What people don't realize is that...unless the UST can roll its debt not on a monthly but now weekly basis in greater and greater amounts, the interest rate doesn't matter. All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion risks. This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.

Strategic Thinking Behind Trading the Inevitability of the Inevitable Pan-European Bank Crisis 

Posted by: Reggie Middleton

Post date: 07/01/2011 - 09:02

The EU vs US - Who Crashes First? Reserve currency status is a very strong lever, historically. Equally important, the holder of said status has usually held the most powerful military and technology as well. Meanwhile, the EU has the twin problem of CRE debt rolling over on underwater properties and devalued (by up to 50%) sovereign debt held at 30x leverage as risk free assets at par by the banking system. True, the US has similar CRE issues + housing depression... So much to contrast & compare. 

 

 

 

 

Charting Reverse Decoupling

Submitted by Tyler Durden on 07/01/2011 14:51 -0400

Ever wonder why the US is a shining city on a Ponzi hill? Wonder no more. Cause heeeeeere's reverse decoupling^TM.

 

Guest Post: The Three Ds: Delegitimization, Definancialization, Deglobalization

Submitted by Tyler Durden on 07/01/2011 13:17 -0400

I tend to be years early on identifying trends, but three that will make a difference going forward are what I call "The Three Ds": Delegitimization, Definancialization and Deglobalization. Broadly speaking, the global economy and thus globalization and its sibling, financialization, depend on the legitimacy of centralized institutions. These include nation-state governments, international organizations such as the IMF, central banks, the mainstream global media, and various Central State agencies tasked with reporting data accurately, for example the Securities and Exchange Commission (SEC) in the U.S. and equivalent agencies in other trading blocs. By far the grandest experiments in legitimization of the past 20 years are the European Union (EU) and its common currency, the euro, and China's one-party rule combining a command economy with a quasi-free enterprise model, i.e. "Capitalism with Chinese characteristics." The vortex of insolvency gripping Europe is rapidly chewing through what remains of the legitimacy of the euro and the EU institutions tasked with overseeing the financial sector...As for the euro and the EU's grand integration experiment, we can turn to George W. Bush's inimitable phrase for a summary: this sucker's going down. The subprime mortgage meltdown offers a cogent preview of Europe's future. 

 

 

 

 

In The News Today

July 1, 2011, at 12:42 pm
by Jim Sinclair 

Dear CIGAs,

The American Dream has turned into a nightmare.





Jim Sinclair’s Commentary

The assets are a joke! The market laughed.

New York Fed Halts AIG Bond Auctions on Market Conditions By Caroline Salas Gage – Jun 30, 2011 3:11 PM MT
The Federal Reserve Bank of New York is halting its sales of mortgage bonds acquired in the rescue of American International Group Inc. (AIG) after coming under criticism that auctions were damaging credit markets.
“Given prevailing market conditions” for residential mortgage-backed securities, “we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public,” Jack Gutt, a New York Fed spokesman, said in an e-mail.
The New York Fed began unloading the bonds piecemeal after rejecting a $15.7 billion bid from New York-based AIG for the entire pool in March. As traders blamed declines in debt from high-yield bonds to subprime-mortgage securities on the sales, the bank slowed their pace. Its last auction ended June 9.
“On the surface, this is a positive because these sales will not weigh down the market,” Jason Weiner, a money manager who helps oversee $18.6 billion in fixed-income assets at M&I Investment Management Corp. in Milwaukee, said in an e-mail. “Longer term it will loom over the market until it clears.”
Barclays Capital analysts led by Ajay Rajadhyaksha wrote in a June 10 report that at current prices the portfolio of assets would probably fetch $15 billion “at most,” less than the offer from AIG.
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Jim Sinclair’s Commentary

Greece is here but the general media is extremely polite about it.

Minnesota Budget Talks Fail; Shutdown Is Likely By MONICA DAVEY
Published: June 30, 2011
CHICAGO — The broadest shutdown of state services in Minnesota’s history appeared all but certain to begin early Friday, Gov. Mark Dayton indicated late Thursday after intense talks over a new budget broke down among the state’s leaders.
Since early this year, politicians in St. Paul have been locked in a battle over how to work out a $5 billion budget deficit under a divided government. Republicans, who took control of both chambers of the Legislature after elections last year, called for cuts and reining in spending to the $34 billion that the state expected to take in over the next two years. But Mr. Dayton, a Democrat who was also elected in 2010, called for collecting more in income taxes from the very highest earners to spare cuts in services to the most vulnerable residents.
While private negotiations went on, day after day, and the Friday deadline approached, it seemed as though the argument had never really shifted much at all.
“This is a night of deep sorrow for me because I don’t want to see this shutdown occur,” Mr. Dayton told reporters late Thursday. “But I think there are basic principles and the well-being of millions of people in Minnesota that would be damaged not just for the next week or whatever long it takes, but the next two years and beyond with these kind of permanent cuts in personal care attendants and home health services and college tuition increases.”
Into the evening, both sides sought to sway public opinion on a shutdown that is certain to affect Minnesotans’ daily lives. Republican lawmakers went to their chambers asking that the governor call a special session so some state services might be temporarily kept running, even if negotiations took longer. Democrats, meanwhile, accused the Republicans of “political theater” and called for compromise.
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Jim Sinclair’s Commentary

If you know how bad it is out there then you know that Greenspan had one hell of an impact. That also means no QE equals a depression of all time. Politically, that is unacceptable.

Fed’s Massive Stimulus Had Little Impact: Greenspan Published: Thursday, 30 Jun 2011 | 5:24 PM ET
The Federal Reserve’s massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.
In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.
"There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview.
"It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion," he said. "Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."
Greenspan’s comments came as the Fed ended the second installment of its bond-buying program, known as QE2, after spending $600 billion. There were no hints of any more monetary easing—or QE3—to come.
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Jim’s Mailbox

July 1, 2011, at 12:13 pm
by Jim Sinclair 

Evolution of the Sovereign Debt Crisis 

CIGA Eric

The following headlines provide a classic example of practical economics in action not only in Greece but also many states within the United States. They reveal an evolving story of survival and protection against present and future actions of centralized planners. The similarities between Greece within the EU and many of the states within the US union outnumber their differences. This suggests a firm possibility of similar actions occuring in the US in the coming years.
Headline: Selling gold teeth to make ends meet in Greece
A smartly dressed woman waits as a young man behind a glass screen weighs her gold earrings, bracelets and rings and counts out 1,600 euros.
"I’ll see you again soon," she says, slipping the bills into her purse. Behind her, a grey-haired man shuffles toward the counter. "Do you buy gold teeth?" he asks.
In the Greek capital, gold is marking a divide between the "haves" and a growing number of "have nots."

GOLD RUSH FOR WEALTHY
That is one side of the coin. On the other, many wealthy Greeks, worried by the political paralysis gripping their country, are pulling money out of the bank and buying gold, regarded as the ultimate safe haven in times of uncertainty.
Burnishing its appeal, the price of the precious metal has climbed to record highs over the last year, driven in part by anxiety in financial markets over Greece’s prolonged agony which has prompted a flight to stable assets.
Source: reuters.com
Headline: Illinois out of money for income tax refunds
With the start of a new budget year just two days away, thousands of Illinois businesses are still waiting for state income tax refunds dating back to 2009.
The Illinois Department of Revenue said Tuesday it would end the fiscal year June 30 still owing about $620 million in business income tax refunds. As of June 21, the department still owed 7,572 business income tax refunds, although spokeswoman Sue Hofer said the number by the end of the month would be lower because some since have been paid.
The oldest of the overdue refunds goes back to April or May of 2009, she said. The average amount of the refunds owed is $104,000. Hofer said refunds less than $5,000 have been paid.
"There is not enough money in the Income Tax Refund Fund," Hofer said in explaining the delays.
The Income Tax Refund Fund is set up to provide sufficient money each year to cover refunds. State law determines the amount set aside annually.

pjstar.com

From Bob and Jim 

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