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Global Economy Bursting?

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EU rescue costs start to threaten Germany itself

http://www.telegraph.co.uk/finance/...e-costs-start-to-threaten-Germany-itself.html

You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver.

Germany has been through tougher times than most like memories of 1923 and 1948 when they lost their savings.

With out Germany and its wealth to prop up the EU and failing states like Ireland, Spain, Italy, Portugal, and Greece, you can imagine the probable outcome of Germany saying "no more".

tick-tick-tick.
 
I was musing over the various financial bombs going off, especially in Europe.

What people are missing is that no news reporting is going on in this country about the real conditions of our banks. Sure, some of the symptoms have been reported but not the reality of day to day operations. For example, how many bank wires of money occur each day, incoming and out going, and to who? Is the deposit base growing, stable or shrinking?

With more and more mortgages defaulting and becoming totally nonperforming, how much cash is needed? Proceeds from sales of REO properties are not generating enough to cover daily operating cost but they do produce a negative impact on the balance sheet. Hence the reason not to foreclose, just hold.

QE 2 is necessary to shovel more money into the system. The system is composed of the banks, who are not lending to anyone except the government through purchases of U.S. Treasury debt. QE 2 buys back the U.S. Treasury debt from the banks at a profit to the banks. The banks need the money to support daily operations. Some too big to fail banks are in worse shape than others, for example, B of A and they need more money.

How does a bank trim its losses from operations? If it can't, then what? New equity? Sell performing assets? Borrow directly from the FED?

This game of hide the losses continues until the FED decides to allow the losses to extinguish the banks. FDIC is limited on its ability to deal with the problems of insolvent banks.

The only question now is who will be on the hook to take the losses: taxpayers or investors? The banks don't have investors other than the federal government. TARP has been declared a success. Therefore the FED is the only means to prop up the banks and it has chosen print the money via purchasing U.S. Treasury debt.

Folks, the day of reckoning is approaching and investors will not continue to purchase U.S. Treasury debt at these low interest rates with the FED printing money to monetize a portion of the debt.
 
Folks, the day of reckoning is approaching and investors will not continue to purchase U.S. Treasury debt at these low interest rates with the FED printing money to monetize a portion of the debt.
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The Chinese are propping up our currency. As a closed system, investors cannot actually "buy" Chinese treasuries if I understand that correctly. So the proxy to purchase the "strong" currency is whatever China is buying. China is buying dollars.
We see what we call "inflation" - insurance, health care, fuel, etc. But otherwise, on a comparative basis with Europe and Japan, our currency is deflating... getting stronger, not weaker.
QE2's implicit aim appears to be to create inflation because of the comparative strengthening leaves the dollar stronger abroad while helping the average Joe not one whit. Are we saving the world at the expense of the American citizen?
 
Terrel L. Shields said:
The Chinese are propping up our currency.
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Yes they are. Every country that pegs its currency to the dollar has that problem.

As a closed system, investors cannot actually "buy" Chinese treasuries if I understand that correctly. So the proxy to purchase the "strong" currency is whatever China is buying. China is buying dollars.
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Yes, in order to keep the yuan fixed relative to the dollar, China must buy U.S. Treasury debt with its accumulation of dollars from its trade surplus with the U.S. And, China has been using U.S. dollars to buy natural resources and companies that own natural resources. Even with that, China has a surplus of dollars, which it holds.

We see what we call "inflation" - insurance, health care, fuel, etc. But otherwise, on a comparative basis with Europe and Japan, our currency is deflating... getting stronger, not weaker.
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Actually not. The excess dollars in the world are flowing into foreign countries. We export inflation to those countries. China has implemented capital controls which regulates how many dollars can come into its economy, as have other countries that run a trade surplus with the U.S. The yuan internally is in high demand so China raises its interest rates through the banks soaking up yuan as savers and investors chose to buy chinese government bonds and put yuan into the banks. China's inflation is raging and the government is suppressing it with capital controls and interest rates.

QE2's implicit aim appears to be to create inflation because of the comparative strengthening leaves the dollar stronger abroad while helping the average Joe not one whit. Are we saving the world at the expense of the American citizen?
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See charts below.

Dollar vs Euro exchange rate

graph120.png



chart-of-the-day-us-dollar-index-nov-2010.jpg


The dollar demand is coming from Europe as people there don't trust their governments and the the EU.


November FOMC Minutes Reveal Significant Concern About The Dollar Getting Crushed

Read more: http://www.businessinsider.com/november-fomc-minutes-2010-11#ixzz16bP939s8



Surplus Countries Threaten The Global Recovery And Could Cause A Depression


Read more: http://www.businessinsider.com/surplus-countries-depression-2010-11#ixzz16bRahmeT

The major driver for our inflation is imports. The number one item of U.S. imports? Oil, something you know about.
 
Yuan-Hungry Investors Urge Companies to Sell Dim-Sum Bonds

http://www.bloomberg.com/news/2010-...anies-to-sell-dim-sum-bonds-china-credit.html

Demand for the debt is driving down borrowing costs for Chinese issuers at a time when the central bank is raising interest rates to fight inflation.

Selling yuan bonds soaks up yuan and drives the dollar down as investors try to unload dollars. This is done in the Hong Kong market. China is closed to internal trading of its debt at market rates.
 
Ruble Squeeze Sends Yields to Nine-Month High Over Dollar: Russia Credit

http://www.bloomberg.com/news/2010-...ine-month-high-over-dollar-russia-credit.html

The central bank more than doubled its estimate for capital flight this year to $22 billion. While Brazil and South Korea are imposing capital controls to rein in currency appreciation, Russia is tapping its reserves, the world’s third largest reserves stockpile, to prevent a rout in the ruble. Russia’s international reserves, only exceeded by stockpiles in China and Japan, is allowing capital flight from Russia as it prints Rubles. Policy makers canceled an auction of central bank bonds designed to soak up excess rubles.
 
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