Saturday, October 22, 2011

Can Hyperinflation Happen in the US? 





80 Years Later - Same Culprits, Same Rage

In 1932, approximately 80 years ago, 43,000 marchers (17,000 veterans) descended upon Washington D.C. The Bonus Expeditionary Force, also known as the “Bonus Army”, marched on Washington to advocate the passage of the “soldier’s bonus” for service during World War I. They set up a camp with tents to bring attention to their cause. After Congress adjourned, bonus marchers remained in the city and became unruly. On July 28, 1932, two bonus marchers were shot by police, causing the entire mob to become hostile and riotous. The government turned the U.S. military upon its citizens. Army cavalry units led by General Douglas MacArthur dispersed the Bonus Army by riding through it and using gas. Fifty five veterans were injured and 135 were arrested. Critics of the marchers described them as communists, troublemakers, and criminals. Fast forward 80 years and we have protestors setting up camp in a public square, not far from where the same exact banks that caused the Great Depression have created the Greater Depression. The biggest Wall Street banks have gotten bigger. The Federal Reserve, in collusion with the Wall Street banks, has engineered a two year stock market rally, while the average American has seen their wages decline, food and energy prices soar, home prices fall, and banks paying them .1% on their savings. Anger and disillusionment continue to build in this country like a volcano preparing to blow. Some people are angry at Washington politicians. Some are angry at Wall Street. Others aren’t sure who to be angry at. The evil oligarchy of bankers, corporate titans, and bought off Washington politicians that control the agenda and mainstream media, continue to scorn, ridicule and denigrate the middle class of America. Their financial engineering is failing. They’ve gone too far. The debt accumulation is unsustainable. The mood of the country has darkened and talk of revolution and the shadow of impending violence is growing.

Wealth Inequality In America, Understanding The Source

With the OWS movement leaving many Americans confused as to whether they should support or stay away, one thing is for certain, Americans are aware of a certain truth that is happening in our country.  We have a certain combination of events that is leaving many people struggling and asking very good questions.  The truth is this; We have structurally high unemployment, salaries are stagnant, debt burdens are rising, costs for education, health and energy are on the rise and we are increasingly overwhelmed with clear and present danger coming from every corner of the earth.  To make matters worse the ruling elite of this country and the very wealthy are continuing to benefit while the remainder of the population struggles.  This is the appeal of the OWS movement despite the fact that the members making up the movement are advocating entirely unappealing solutions in the form of wealth distribution, punishing success and other hard left ideologies...In a country where American Idol and the Jersey Shore are better known than who currently runs the Federal Reserve it is hardly a wonder that cries for Socialism just sound appealing.  To further exacerbate the overall ignorance of the populace our education system and emphasis on history and economics appear to be tilted in the direction that highlight correlation and anecdotal evidence rather that fundamentals.  I understand it does not behoove me to openly ostracize a large segment of the population, but until we address core understanding of our economy and core principles of what makes our society tick then the partisan rifts will continue.  So let us tackle this "explanation" of inequality which is now being circulated on the internet and shared on Facebook with proud posters feeling rather enlightened about their "discovery".

Heading Into The Holiday Season, The US Consumer Is Worse Off Than Last Year

As so often happens, one of the biggest surprises of the recent period of broad economic weakness, has been the American consumer, who always somehow manages to come through (or so the official econometric authorities make us believe) and cross a chasm of economic stagnation with shopping bags full of stuff. But while the "consumer" (or his department of truth proxy) has sourced the US economic dynamo in the past several months as Europe imploded, and thus served as a supporting brace for the latest incarnation of the US decoupling thesis (where not just Europe, but also the economies of Japan and China have been deteriorating rapidly), the reality is that unless European problems are promptly fixed (which they won't be) the last ditch global economic support pillar, the US consumer, is about to roll over, because as Bank of America explains, "heading into the holiday shopping season; most [consumer statistics] measures are no better than they were last year. In fact, many are worse." And in what may be news to JP Morgan, "With home prices continuing to decline, a wealth driven consumption binge looks unlikely." In other words, while for now the bottom had managed not to fall off the global economy as the tapped out US consumer spent their last dollar to avoid a worldwide re-depression, if European problems are not rapidly resolved, and by that we mean well before the Thanksgiving sales begin, not even "record" corporate profits (which incidentally are rolling over and are purely at the expense of consumption capacity), will do much to prevent the market from finally catching up to reality.

European Status Update: No Progress

The math of the European bailout (using the EFSF or otherwise) is so easy even a cave-EUReaucrat can do it: It doesn't work. But leave it to Europe's financial ministers to figure this out in the literally last minute. As Bloomberg reports, "A 10-hour meeting in Brussels failed to yield a blueprint for banks’ role in a revamped Greek rescue as European finance ministers haggled over what they called a “credible firewall” against fallout from deeper writedowns." And now it's 5 start dinner time: "The ministers’ meeting broke up at about 7 p.m. after reaching agreement that European banks may need about 100 billion euros ($139 billion) in capital after marking their sovereign-debt holdings to market values, according to a person familiar with the discussions. This amount is needed to reach a core tier 1 capital level of 9 percent based on a European Banking Authority test, said the person, who declined to be identified because discussions are private." No, it's not, it's a joke. The number, once again for those who dare to approach "stuff" mathematically is anywhere between €400 billion and €1 trillion. But we give the EUReaucrats another 2 months before they comprehend this simple fact. Which means that tomorrow's summit which was supposed to be the "come to God" meeting which was expected to resolve all of Europe's problems, much to our, and every other non-momo's relentless snickering, will be a complete and total disaster. But fear not: because Europe has another 3 whopping days after that until Summit #2, when everything will be fixed. For realz.

Goldman Sees An "Unusually Uncertain" Future And Another Debt Ceiling Hike Just In Time For The Presidential Election

Even if the European Lack of Union does, miraculously, come up with some short-term resolution of a mathematically unsolvable crisis (at its core, the problem is that there is simply far more debt than there are assets, let alone cash flow, period, end of story) suddenly the market's will refocus its attention on the question of our own intractable math: i.e., how will America, suddenly once again the "neo-decoupled" source of global growth (don't look now but the Shanghai Composite is at multi-year lows even post the bank bailout from two weeks ago so the "dynamo" sure won't be Beijing), proceed to lead the world out of its latest slump? The answer is simple - it won't. At least not according to Goldman Sachs, which once again focuses on what everyone so conveniently chooses to ignore - the complete fiasco that is America's fiscal situation. Here is a reminder: "The fiscal policy outlook is unusually uncertain, and this uncertainty will persist even after the “super committee” reaches a decision by its deadline roughly one month from today." The European math is not the only one that does not work: "Even if reforms are agreed to next month, further legislation will need to be passed next year to address the expiring 2001/2003 tax cuts and the potential constraint of the statutory debt limit (again). Some lawmakers may also want to intervene to alter the automatic spending cuts that would take effect in early 2013 if the super committee fails to reach its $1.2 trillion deficit reduction target." For those who enjoy solving insolvable problems: you take your 2.0% (tops) Q3 GDP, and cut it by 2.5%, and that's the growth rate in 2012. Why? "In FY2011, several temporary provisions added to the budget deficit. These included the payroll tax cut; emergency unemployment compensation; spending from the American Recovery and Reinvestment Act of 2009 (ARRA), and expensing for corporate investment. Together, these account for almost 2.5 percentage points of GDP in FY2011." With the GOP dead set on making the president seem like an economic disaster, you can kiss these "temporary" boosts goodbye. And, the kicker, as far as the president is concerned, is that as Steve Jobs predicted, he most likely will not have a second run for one simple reason. "Based on our FY2012 deficit forecast along with non-deficit financing needs and accumulation of Treasuries in federal trust funds (which count toward the debt limit) borrowing authority might be exhausted by November or December of 2012, not long after the presidential election." Or, not long before the presidential election if the US continues to spend at the current rate. In which case, Jobs will be once again 100% spot on.

In The News Today

Jim Sinclair’s Commentary

Euroland bombs one more time on handling their terminal debt problem. $11 billion to Greece borders on stand up comedy.

Jim Sinclair’s Commentary

Every additional step forward in trading gold, be it size of kind, and denominating gold in Yuan is an advance for both currencies.

Renminbi Kilobar – Another Sign of China’s Growing Role in the Gold Market by Alena Mikhan and Andrey Dashkov
This week the Chinese Gold & Silver Exchange Society (CGSE) – a bullion exchange based in Hong Kong – started trading gold quoted in Chinese yuan. The contract, called Renminbi Kilobar Gold, is promoted as offering investors a "double safe haven" – exposure to both gold and an appreciating currency. This line of thought nicely accompanies China’s intention to boost the yuan’s international appeal. It is expected that this product will attract retail and institutional investors alike from both the Chinese mainland and overseas.
Whether or not the yuan can deliver its part of the "double safe haven plan," Renminbi Kilobar Gold trading in the first day was strong, with 322 traded gold contracts totaling 112 million yuan (or US$17.5 million). The settlement price ended up at 346.95 yuan per gram, or $1,693.9 an ounce.
This is yet another sign of how fast the gold investment sector is growing in China. In 2010 investment was up 70% over 2009. In Q1 and Q2 2011 gold investment rose by 123% and 44% over the same quarters of 2010 respectively. At such a pace, the Chinese market seems to be swallowing virtually every ounce of gold it is offered. Haywood Cheung, President of the CGSE, expects their new product to boost these already-growing volumes.
To make trading convenient for overseas investors, trading hours have been set for 8 a.m. to 3:30 a.m. the next day, Hong Kong time. Traders may choose to settle their trades either in cash or with spot gold delivery. Also, there is apparently a mechanism for investors to buy with US dollars.
The main goal of this investment tool seems to be promotion of the Chinese currency across the region and on the global scale. However, the impact – intentional or otherwise – on Chinese demand may potentially have positive implications for the price of gold.

The Groupon IPO Explained - A Capital Markets Satire

The only thing better than general satire, is capital markets satire, courtesy of William Banzai, who explains precisely what to expect following the imminent start of trading in GRPN shares (remember: get them now before they are "90% off" in a group discount liquidation, and bundled free with that weekly Brazilian wax special).

Revised Troika Forecast Sees Total Greek Debt-To-GDP Peaking At 186%: Here Is What Happens Next

Back in May 2, 2010, when discussing the first failed Greek bailout (still to be implemented) we made the following observation: "Ignore for a second the sheer lunacy of anyone who thinks that the Greek government can grow GDP and decline the budget deficit in a straight line now that the country will see crippling strikes and rolling riots (not to mention blackouts) on a daily basis. But do note the black line, which shows the projected Debt/GDP ratio for the country as part of the bailout package. In essence Greece will go from having "only" a 133% Debt/GDP ratio to an insane 149% in 2013 before presumably dropping to 144% lower in 2014, still a good 11% higher than currently. Greece just got bailed out so it can get into even more debt! What psychopath of the Keynesian school thinks that this unbelievable trajectory is anything but a complete and utter waste of money? German, and US taxpayers, are merely giving Greece money so it can increase it debtor status with French and a few other European banks. To say that this is a viable solution is something that only those who bow at the altar of Alan Greenspan can do." And so once again, in the endless battle between common sense and Keynesianism, it is former 1 - latter 0, after the Troika yesterday released its revised projections for total Greek debt/GDP, which has just been hiked from 149% to 186% by 2013! Said otherwise, Econ 101 textbook insanity just cost the Greek people roughly half their entire GDP in incremental debt (which they will never be able to repay anyway), however in the process they kept French banks alive and well as a Greek default in May 2010 (the only real option) would have not only destroyed a failed economic monetary union, but blown up the entire French bank system. Fair trade off in that other endless battle, between the 99% and the 1%.

Clarke and Dawe explain quantitative easing

Banks closed in Florid, Georgia; 83 have failed in 2011

Stocks Rise Sharply On Solid Corporate Earnings

First Half of 2012:  Decimation of Western Banks

The Coming Derivatives Crisis that Could Destroy the Entire Global Financial System

Does One "Super-Corporation" Run The Global Economy?


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