The People Fiddle as the Country Burns

July 6, 2011, at 10:46 am
by Greg Hunter in the category USAWatchdog.com |

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Thank goodness the Casey Anthony case is over! The jury thinks she is not guilty of murder. I don’t know if they got right or wrong, but I do know many dollars and much air time was devoted to a story that will have zero effect on the lives of 99.999% of Americans. I think the discovery of a walking, talking Martian would have gotten about the same attention. I guess this stuff sells newspapers and gets TV ratings but is sure not what U.S. citizens should be focused on. Maybe that’s the point. Are stories like Casey Anthony just our version of a Roman Circus? Are the masses being kept preoccupied with events that have no bearing on their lives while the country burns in a cloud of debt? I think so.
Most people have no idea of the perilous position the U.S. is in. One wrong move by our government or even a government the size of Greece, Portugal, Spain or Italy, and there could be a daisy chain of debt explosions around the globe. The people are in the dark, and I blame the mainstream media (MSM.) A story that should have people really terrified is the battle going on in Washington D.C. over raising the debt ceiling some $2.4 trillion dollars. If the issue is not settled by early August, the U.S. could have the mother of all debt defaults. The Democrats and Republicans cannot agree on a package that contains both tax increases and budget cuts. President Obama has called for a “balanced approach.” Bloomberg reported yesterday, “The Obama administration and congressional leaders are working to complete a deal on a long-term budget reduction package by July 22 as part of a plan to raise the $14.3 trillion debt limit. The Treasury Department has said that its borrowing authority expires Aug. 2 and could result in a first-ever U.S. default on its obligations. Obama’s comments came as Democrats were intensifying a showdown with Republicans over whether tax increases should be part of a deficit-cutting deal before the Aug. 2 deadline.” (Click here for the complete Bloomberg report.)
Everyone should be watching this debt ceiling negotiation because, no matter the outcome, it will affect the lives of 99.999% of Americans and many people around the globe. If a deal is not reached, catastrophic consequences would follow. In his latest report, economist John Williams from Shadowstats.com said, “Such a default would be a serious mistake, and it most likely will be avoided as political games push the limits of brinksmanship. An outright default likely would trigger massive dumping of the U.S. dollar, and it would accelerate movement to much higher U.S. inflation and, ultimately, to hyperinflation.” According to Williams, there are $12 trillion in liquid dollar assets held outside the U.S. That is where the hyperinflation would come from.
More…

Get Ready To #AskObama Why The Country's Credit Card Is Maxed Out

The biggest farce of the day is about to unfold as Obama holds a "twitter hall" meeting in which he will accept questions, pre-cleared and moderated by Twitter itself, which means congratulations, about the economy and jobs. The town hall can be accessed by using the #AskJobs hash tag or at the website below. As usual, this will be merely another PR debacle in which everyone participating will see the questions which are not being answered, and ignore the softballs lobbed at the teleprompter in chief.

Citi Starts EURCAD Short With 1.3050 Target, 1.4160 Stop Loss

Submitted by Tyler Durden on 07/06/2011 15:05 -0400

We admire the zeal and enthusiasm of Citi's Steven Englander who, like a modern-day Don Quixote, has, courtesy of his long-term bearish EIR call, taken on not only the Fed, but the PBoC windmill as well, which as has been confirmed, is an official buyer of the doomed European currency. This time, instead of reiterating his short EURUSD call, he advises clients to short EURCAD with a 1.3050 price target and a 1.4160 stop loss. The call summary: "We add a new trade to the G10 FX Strategy trade idea portfolio: short EURCAD spot at 1.3850 with a target of 1.3050 and a 1.4160 stop loss. Euro zone downside risks have increased as peripheral debt issues have intensified and spread with the euro zone. Light positioning in CAD and substantial pessimism toward US economic data means that CAD will benefit from positive US and Canadian economic surprises in coming weeks."

Here We Go Again: RIG Stock Drops Following Report Transocean Marianas Rig In Danger Of Sinking

It's deja vu all over again. From Bud's Offshore Energy: "We just received word this morning that the Transocean Marianas rig has developed a large crack in one of the pontoons on the #5/#6 anchor chain locker while they were picking up anchors, and is currently taking on water and listing. The bilge pumps are keeping up (barely), but there’s certainly concern that it might sink on location. So far, 68 people have been evacuated from location. According to RigZone, the Marianas was working offshore Nigeria. [Per one of our readers, (see comment below) Petrodata shows the rig operating offshore Ghana.] More: The Marianas, spudded the Macondo in October, 2009, but was damaged by Hurricane Ida and towed to shore. The Deepwater Horizon was the rig that replaced the Marianas."

Guest Post: How Commercial Paper Prices In Economic Recession

Submitted by Tyler Durden on 07/06/2011 14:24 -0400

In what is becoming a multi part series on how various products price in recession tonight it is time to check out the commercial paper markets. Below are two charts (1) showing the last two recessions and how commercial paper rates performed and (2) commercial paper rates since Q2 2009. Both charts utilize non financial AA rated 30 and 90 day terms. The results were similar for financial paper as well. Commercial paper seems to be an excellent market timer of economic recession. Notice the last two periods where rates began falling precipitously and the timing of economic contraction.

Fed Releases Details On Secret $855 Billion Single-Tranche OMO Bailout Program: Just Another Foreign Bank Rescue Operation

A month ago we reported about Bob Ivry's discovery that the Fed had been conducting a secretive bailout operation between March and December 2008, under which banks borrowed as much as $855 billion over the time frame for a rate as low as 0.01%. As the Fed itself explains following a just disclosed launch of a page dedicated to this Saint OMO, "The Federal Reserve System conducted a series of single-tranche term repurchase agreements from March 2008 to December 2008 with the intention of mitigating heightened stress in funding markets. These operations were conducted by the Federal Reserve Bank of New York with primary dealers as counterparties through an auction process under the standard legal authority for conducting temporary open market operations. In these transactions, primary dealers could deliver any of the types of securities--Treasuries, agency debt, or agency MBS--that are accepted in regular open market operations. By providing term funding to primary dealers, this program helped to address liquidity pressures evident across a number of financing markets and supported the flow of credit to U.S. households and business." Well, not really. As the chart below shows the banks, pardon primary dealers, that benefited the most from this secret iteration of Fed generosity were once again foreign banks, with the Top 5 borrowers being Credit Suisse, Deutsche Bank, BNP Paribas, RBS and Barclays. Together these five accounted for $593 billion of total borrowings, or 70% of the total. So perhaps the Fed should rephrase the last sentence to "supported the flow of credit to U.S. European households and business" which is to be expected. After all, as we have demonstrated before, the European banking system's liabilities are orders of magnitude greater than the US. So in order to preserve the global Ponzi (a main reason why Greece must never be allowed to fail), the biggest weakness that has to be addressed constantly is and will be in Europe.

Here Are The 26 Banks Moody's Expect To Fail The Second European Stress Test

Submitted by Tyler Durden on 07/06/2011 12:19 -0400

Not like it matters much, because any bank that is found to be insolvent following the second consecutive European stress test will merely receive more taxpayer funds concealed as an SPV or a CDO or some other "complex" instrument, but for what it's worth Moody's has released a list of banks that it believes will either fail the farce, pardon, test outright, or will be "candidates for additional support going forward." As a reminder, the European Banking Authority (EBA) is about to publish the results of an EU-wide stress test involving 91 banks from 21 countries. The purpose of this exercise was to assess banks’ resilience to adverse external circumstances and to identify vulnerable banks, defined by EBA as banks whose Core Tier 1 (CT1) ratio falls below 5% under at least one of the scenarios included in the stress test. Moody's splits the sample into 4 Groups as follows: Group 1 : investment grade banks (at or above D+/Baa3 ) : 54 banks, Group 2 : non investment grade banks from peripheral countries (Ireland, Greece, Portugal, Spain) : 17 banks, Group 3 : non investment grade banks from other countries (Germany, Slovenia, Hungary, Austria, Cyprus) : 9 banks, and Group 4 : unrated: 11 banks. It is Groups 2 and 3 that are the focus of the analysis and which will be benchmarked against the test to determine credibility. As for the fact that all European banks are insolvent if just one is, just as all of Europe is bankrupt if Greece were to go under, that's a completely separate point.

Guest Post: The Promises That Cannot Be Kept

Submitted by Tyler Durden on 07/06/2011 11:14 -0400

I haven't found any firm estimates of the unfunded liabilities due in the next 20 years, but since 25% of the entire population (the Baby Boomers) will be retired and drawing on Social Security and Medicare within 15 years, I think we can reckon that about half that $106 trillion will come due in the next 20 years--and that is probably absurdly conservative. $15 trillion down, $35 trillion to go. Do you see how utterly hopeless this exercise is when Federal spending rises by 6.5% every year even as the underlying economy muddles along at 2% in good years and -5% in poor years, if we subtract borrow-and-spend deficit financing? In other words, $100 trillion in unfunded liabilities is the number now, but if spending continues rising at triple the rate of the real economy, then that number will only grow. If we're honest about our accounting, then the U.S. economy hasn't grown at all since 2008; it's shrunk by $6 trillion, a sum we have masked by borrowing and spending $6 trillion in Federal debt, money that replaced the decline of private borrowing and spending. Please look at the charts of healthcare and local government pension and healthcare costs again. Those rocket-launch lines shooting higher cannot be funded by a national income that is flat or declining. We need a national conversation about reality, not wishful thinking. We need to grasp the nettle and talk about triage, about conserving Social Security for those with no other sources of income, and about devoting our scarce resources for palliative and preventive care. The Status Quo is completely, utterly unsustainable, but that needn't bring the nation to its knees--unless we actively insist that it does so.

Is the US Dollar Telling Us Deflation is Back in Town?

Posted by: Phoenix Capital Research

Post date: 07/06/2011 - 14:09

In the last 100 years we’ve seen the US Dollar lose well over 95% of its purchasing power. However, once the world collectively dropped the Gold standard (the last hold out, Switzerland, officially went off it in 2000) permitting the creation of endless credit and money printing, the financial system entered a period of relative value. That is, all currencies (which are used to denominate other asset classes) are entirely paper-based and consequently trade relative to each other based on the money printing each central bank engages in.