Sunday, December 26, 2010

Oh Canada

Today being Boxing day, it seemed fitting to start off this post with an example of the coinage being offered to our friends north of the border. That is a Canadian quarter my wife is holding with her magnetic bracelet. And yes, that spanking new Canadian quarter is magnetic. It contains iron. This recalls the debasement of the denarius in the latter days of the Roman empire where each successive emperor seemed to remove more and more silver from the coin of the realm from about 92% silver with Nero(60AD) to 43- 58% with Septimius Severus (200 AD). The same thing has of course happened in the declining empire south of Canada, which itself has a multitude of almost exact parallels with the decline and fall of the Western Roman empire. Like Rome, the military is the single largest item in the budget. Joseph Tainter writes: "At all times the single largest expense was the military, although the Roman dole was not inconsequential.". Sound familiar? Of course the difference in the US is that we put TBTF banks on the dole instead of citizens. The official pentagon budget is said to be in the $700 billion range but Mish of reports that it is certainly twice that with the hidden costs, secret off budget costs associated with a bloated military with over 1000 bases and outposts scattered throughout the galaxy. And like the Roman Emperors, our emperors court the military even going so far as to dress up in military flight jackets and strut around aircraft flight decks schmoozing with the troops thanking them for their service defending the nation when they are offensive military actions defending the corporate military state back home with expenditures bankrupting the country as a whole. here is our putative budget which is fraudulently reported as I have stated:
The true red line would extend to the edge of the page. You will observe that our offense budget is larger than the rest of the world combined. When you combine military expenditures with the massive unfunded pension and health care costs of the states from bloated public sector pensions and health care costs combined with underfunded SS and health costs of the rest of us, the country is indeed without a doubt BROKE. And the politicians who goose step ahead of the corporate ruling military class just keep adding shamelessly to the nations debt with QE from the banking cartel to stimulus plans from Iraq Obama and his congressional and senate pals. But not to worry. The selfsame corporate mainstream media including  Fox and NPR(National Pentagon Radio) dispense reassuring propaganda of the return to growth and mindless consumption as our economy turns the corner back to prosperity, conveniently omitting that in America, we make nothing and consume everything. The longer this flawed model is drawn out the bigger and more sudden the crash. The crash is likely to be triggered by events almost anywhere as the world Bond market finally loses patience with political morons everywhere and demand risk premiums commensurate with the sovereign default risk profiles of the bankrupt countries whose debt they hold.

Thursday, December 16, 2010

Time for a Haircut

Tis the season to be jolly but the recent cascade of  not so jolly events suggests that financial delamination not to mention social delamination is starting to take hold. The past 4 months have seen most the action in Europe with multiple attempts by the ECB and IMF to plug holes in the dike by saddling the PIGS with more debt than can ever be paid back. These bailouts are more of the same manure being shoveled out of Europe's money barn purportedly to bail out nations but as anyone with an IQ over 81 knows are bailouts of imprudent and insolvent bankers.  It is the system that is imploding as it tries to save itself and all the big players. The world bond markets are starting to get a wee bit restive. The financial markets are awash with rumors and statements from a variety of corners. Angela Merkel says that it may be time in a year or two for senior bondholders taking on a little more risk and that is angrily denounced by ECB finance ministers and  outcry from the other usual suspects denouncing such heresy. The fact of the matter from my unsophisticated perspective is that forcing insolvent countries to borrow their way out of debt is foolish and pointless and does nothing to start to solve the European and worldwide financial crisis. The situation is bankers trying to save bankers and banks by forcing debt onto citizens.  Citizens can and should push back against the austerity measures imposed by legislators owned lock stock and barrel by their financial cartels.  What needs to be done is for citizens to either vote to denounce and remove these governments or find other ways to bring down the governments. There is no way to begin to solve  these debt issues without rescheduling or repudiating the debt and that means telling senior bondholders they will not be getting 100 cents on the dollar which is what AIG and Goldman Sachs and a multitude of other European banks received from the US taxpayer not so long ago.  These bondholders do not intend to see this happen but unless and until they are taken down and given marine corps haircuts, there will be no way to even begin to rebuild the world economy. Some countries like Greece are skating perilously close to the edge and the riots are ratcheting up in severity with Molotov cocktails being thrown. The next riot may involve real bloodshed which will either result in bringing down the government or the government imposing a police state.
     The situation is Ireland is hardly less dire as Mr Lenihan keeps insisting that the Irish have an agreement to pay back bank debt and those bondholders and that anyone who thinks that not paying the bondholders 100 cents on the dollar "is living in a fantasy world." The elections coming up in Dublin in the next few months may determine who is living in a fantasy world.As I have written repeatedly, the Irish citizenry should throw out the bums and tell the European banking establishment that they will not pay.  It worked in Iceland. If they do, there will be a lot of unhappy banks. Look at the different country exposure to PIGS debt which I pulled from Mish's website:

Exposure to Spain
Germany - $216.6 billion
France - $201.3 billion
Great Britain - $136.5 billion
US - $172.8 billion

Exposure to Ireland
Germany - $186.4 billion
France - $77.3 billion
Great Britain - $187.5 billion
US - $108.3 billion
Spain - $17.7 billion

Exposure to Portugal
Germany - $44.3 billion
France - $48.5 billion
US - $35.6 billion
Spain - $98.3 billion

Exposure to Greece
Germany - $65.4 billion
France - $83.1 billion
US - $36.2 billion
Germany's exposure is over half a trillion and what I found surprising was that US bank exposure was around $350 billion. IF Ireland defaults, a lot of rich people will be less rich  and the Euro will be endangered and almost certainly lose value. I have a feeling that the impact of these events will hit the US pretty hard as well.
Bumbling Ben is under assault from all sides for continuing the tradition established by his predecessor of clueless incompetence. Bernanke  has no idea what is going on or what to do but his imprudent actions are destroying the currency and world wide confidence in the US dollar. My best trade in the markets has been shorting  treasuries. My double short has been twice as good. The yield on the 10 year treasury is up 1% in the last month or so. Muni bonds are in free fall and the traitor Iraq Obama has joined the Republican Party .
    If you look at economic historical events and the time frame within which significant events occur, what you see time after time is how long things lurch and limp along until WHAM-O!!. The manure hits the fan and chaos ensues. Bond market, step right up. It's time for your haircut.