Global Economy Bursting?

[Randolph Kinney]

Time Bomb? Banks Pressured to Buy Government Debt

http://www.cnbc.com/id/47633576

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.

Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.

While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.

"Captive bank demand can buy time and can help keep domestic yields low," Lorenzen wrote in an analysis for clients. "However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn't used very prudently."

"Specifically," Lorenzen adds, "having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations."

The banks, though, are caught in a "great repression" trap from which they cannot escape.

There will be a strong political incentive in Europe to make banks captive buyers. That implies a move away from marking sovereign debt to market, away from raising risk weights, away from capital ratios that don't risk weight assets and away from stress tests incorporating government bonds.

"As long as policy remains to sustain the status quo, bondholders should come out fine. Conversely, if the burden becomes too great, then the alternative will most probably involve a radical departure from current convention — to the detriment of bondholders," Lorenzen said.

"We suspect this binary outcome requires a political judgement that many funds are not particularly well placed to make." he added. "Instead of those economics, accounting and finance degrees perhaps you should have done political science after all."

 

[Randolph Kinney]

Stock market had its worst day, dropping over 2%. Now has lost all gains since Jan 1. People are moving their funds to T-bills paying 1.5% on a 10-year note. More concerned about fund preservation than gains. The retail investor has just about abandoned the stock market, and most of the rest will walk away after the last week.

Dismal jobs report sends Dow into 275-point dive

http://www.google.com/hostednews/ap...ch1LpQ?docId=6a072ae966ab457680953a6156abdbde

Alarmed by an ominously weak U.S. jobs report, investors ran for safety Friday from new worries about a global slowdown, sending the Dow Jones industrial average to its biggest loss since November.

The nearly 275-point dive wiped out the last of the index's gains for the year.
Across Wall Street, fearful investors snapped up safer investments such as bonds, dragging the yield on the benchmark 10-year Treasury note to a record low. Gold spiked $50 an ounce, and oil fell to its lowest since October.

"The big worry now is that this economic slowdown is widening and accelerating," said Sam Stovall, chief equity strategist at S&P Capital IQ, a market research firm.

____________________________


There is inherent faith by the population that the political leaders will come to the rescue before the end of the year. Otherwise, the beginning of 2013 looks like this:

Investors and analysts everywhere are warning of the fiscal cliff that is approaching at the end of 2012 that could significantly hit the American economy.

Unless Congress acts, more than $600 billion in tax and spending provisions will change at the end of the year. And this will impose fiscal restraint at a time when the U.S. economy is growing very gradually.

 

[Randolph Kinney]

THE END GAME

 

[Randolph Kinney]

 

[Austin]

Somewhere back in this thread I predicted that one day people in the big US Cities would have to resort to cannibalism to survive. There are two stories on Drudgereport right this minute on to instances of cannibalism. It is not the world economic crisis that is a concern, it is what the looters will do to survive in the big cities as a result of the crisis that is the concern.

 

[Riick]

It is not the world economic crisis that is a concern, it is what the looters will do
to survive in the big cities as a result of the crisis that is the concern.

Ayn Rand talked about looters too, but *she* was speaking about the big-time looters,
such as the Leaders/Presidents of certain countries (including, but not limited to)
Argentina where the productive economy has been paralyzed by (removed) government
policies, while their central banks have been encourage, nay, prodded, to increase the
money supply and wipe out, via inflation, anyone who is not dependent upon the State.

Is it all just "coincidence" that the major economies are in lockstep in heading
to their destruction in the same manner? And the end result, the nanny State,
the iron hand within a velvet glove, is just a slightly different version of Orwell's 1984 prediction:

If you want a picture of the future, imagine a boot stamping on a human face — forever. - George Orwell, 1984

.

 

[Riick]

This looks like a repeat of last year... last year blamed on Japan and the "Arab Spring"....so whatza new whipping boy? Greece and Spain?

OSS on __________'s leadership methods
((--- do they seem particularly politically familiar this year?))

• never allow the public to cool off;
• never admit a fault or wrong;
• never concede that there may be some good in your enemy;
• never leave room for alternatives;
• never accept blame;
• concentrate on one enemy at a time and blame him for everything that goes wrong;
• people will believe a big lie sooner than a little one;
• and if you repeat it frequently enough people will sooner or later believe it

 

[William K]

next...."Dogs and Cats living together"

 

[Terrel L. Shields]

The Fiscal Cliff???

Frankly, I don't care if we fall off over it.

At some point we have to realize that this is a crisis and I believe that a real solution lies ahead only if we are knocked to our knees and HAVE TO deal with it... I wanna puke every time I hear "kick the can" on the financial channels...but it is the most apt description of what this nation has been doing for decades.

Once our trade deficit went south and stayed there back in the Nixon-Carter era, we should have been in a full blown crisis management state of mind. We haven't.

I am one who thinks that if you increase taxes, you will stifle growth BUT if you increase deficit spending, you only fuel inflation.

BUT if you cut spending, you will stifle growth, which will reduce revenue meaning you haven't controlled the debt problem. Catch 22. Neither path can assure us that it will improve things, and both paths have a high risk of making it worse.

To grow internally, we have to stop hemmoraging money overseas. We cannot import more than me export. But we have created these stupid laws that means we cannot stop imports from Canada or Mexico nor from any other country that we have a trade agreement with. We cannot even stop them from dumping because we usually cannot prove it.

Which leads to the question, what about import taxes? Well, there again, trade agreements prevent most of them, and the mavens of the Depression will tell you that Smoot Hawley Tariffs passed in 1930 HURT us more than helped "protect" our jobs....this time, perhaps the outcome might be different because we have so darn few jobs to "protect". How many furniture plants are there here now? We have a Lazy Boy plant but they do the tedious work here and ship it to Mexico, where it is sewn and put together, then shipped back. Of the half dozen in our area, they are gone. ditto in NC. Same for textile mills in NC, shirts, shoes, anything leather, American cow hides are sent to China, sent back to us as shoes. We used to import raw goods, export finished. Now we act as an oyster, we absorb everything coming our way but send nothing their way except intellicultal property which is pirated.

Perhaps punitive, selective tariffs might work. Find a chinese pirated copy, deny their import from being sent here. Single out a politically connected industry and hurt them..then the table might become more level.

 

[Restrain]

The coming economic collapse. The numbers and implications are terrifying.

http://theeconomiccollapseblog.com/...aste-of-the-economic-nightmare-that-is-coming