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Author Topic: Consolidated Financial Doom Thread  (Read 105333 times)

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Offline oldguy52

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Re: Consolidated Financial Doom Thread
« Reply #1075 on: August 19, 2011, 01:22:58 AM »
Thanks SD for the laugh. I gotta' admit though, it'd be a hell of a lot funnier is I wasn't living it as I read.....
O.G.

"Stupid is supposed to be painful, it's nature's way of learnin' ya" - Me, 1994

When one finds himself living in interesting times, it is prudent to become as uninteresting as possible.... Me, 2011

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1076 on: August 23, 2011, 09:49:07 PM »
8/23/2011 Market Ticker


Are You Ready? The Government Doesn't Give A Damn
By Karl Denninger

http://market-ticker.org/akcs-www?post=192780

I hope you are.

Today proved one thing - oversold doesn't mean jack.  The ~20 handle pop into the open was sold into immediately, despite the market's severely-oversold condition.

A condition that is worse than during the height of the 08/09 crash.

Drill that into your head folks: The government doesn't get it, exactly as they didn't get it in early 2008.  They are, right now, squandering the opportunity to take effective action.  I know this for a fact because the Republican Caucus has refused to address the issue and I know they're aware of it.

This weekend I listened to McCain with his condescending bullcrap on talk TV.  Let me remind you, this is the same Senator McCain who I sent this letter to in 2008 predicting what was going to happen in the election if he did not act.  He did not, and he lost.  In fact, today he still claims that he couldn't see it coming.  Not only did he see it coming, his campaign manager was in receipt of that letter and Governor Ridge personally told me at that campaign event that they knew full well it was all driven from greed and scams.  In short, not only did he lie about what he knew at the time he's still lying.

This is the GOP.  This is what it has done and is doing.  The GOP is proving time and time again that it will not get in front of these issues because doing so means kneecapping the banksters that have trashed our economy and continue to do so today.

Not that Obama, Pelosi and Reid are any better, of course.

The GOP doesn't care, the Democrats don't care, and you're going to get creamed.

There is no way to avoid what's coming.  We have added roughly $4.5 trillion in debt to the Federal balance sheet trying to paper it over and have failed.  Even the "good" banks like JP Morgan and Goldman are failing to make progress.  The poorer ones such as Citibank, Morgan Stanley and Bank of America are seeing their market prices collapse.  The XLF, the composite of the large banks, is back to where it was in the summer of 2009.  Should it break below these levels it is likely going for the spring 2009 lows.

All the fraudulent accounting games, shifting Granny's earnings on her CDs to the banks through zero-interest rates and money printing have been used up as policy tools.  There are few if any weapons left in the arsenal to combat what is coming.

This is where we are, and where we're going.

http://market-ticker.org/akcs-www?get_gallerynr=2153

I'm sure this will be scoffed at.  We'll see.  Go have a look at 2000 if you'd like.  It's pretty similar.  Through the mid-bolinger on the monthly, a bounce back, often off or near the lower bolinger, then a collapse that loses half or more of the market's value.  Twice, and now we're setting up for it again.  It's as clear as day and the reasons for it are just as clear now as they were before.

The time in that chart is probably not quite to scale, but I bet the price move is.

Impossible?  Oh no it's not.  The Nikkei stood at 40,000 before it collapsed.  It now trades under 10,000 - a 75% loss - decades later.  It has not recovered and neither will we because we refuse as a nation and as a government to force recognition of bogus debt that cannot be paid while destroying capital formation and interest margins with zero interest rates.

400 is roughly where the S&P was before the "great bull market of fraud" began in 1995.  To think we can't return there when the fraud collapses is utter folly.  We not only can, we probably will.

But instead of putting a stop to the games we choose to allow crazy derivative schemes, balance sheets that do not reflect reality and the repeated asset-stripping from savers and productive members of society, all to protect the "gilded ones" on Wall Street from the just consequences of their own 30-year old foibles and scams.

Now let me explain what happens "down there", because it is my unbroken opinion, going back to 2007, that's where we're headed irrespective of attempts to stop it (and we've already seen how fast those attempts unwind when they fail, haven't we?)

Quote
    -Every pension fund blows up.  All of them.  Many doubled into the decline and will be utterly destroyed.  Chief among them will be big municipal funds like CALPERs.  If you have a pension of some sort, ask the pension administrator what happens to your pension if the S&P goes to 400 and stays there.  He'll poo-poo your question - but I bet he won't answer it.

-    Annuities and insurance companies blow up.  You don't think they can pay when they're figuring on an 8% annualized return, do you?  Well, no they can't.  Oh yeah, your state insurance on those is $100,000 in most states - the rest of your principal is "at risk."  This, of course, assumes the State has the $100,000 too.  Did you know this in advance or are you learning it now (let's not hope the latter is true!)

-    The FDIC has no prayer of covering it.  The good news is that if they act now they can shut the banks that are exposed and cram down debt to equity.  The bad news is that they have a horrible record in doing that in a timely manner and of late the losses have been anywhere from 20-40% of assets, which is both a violation of the law ("Prompt Corrective Action" is supposed to prevent this from happening) and they have no way to cover it should it become a widespread problem.  It will.  Oh yeah, you can't sue the government either.  Have a nice day.

-    The government Ponzi blows up.  Unemployment will reach 20% or more.  Tax receipts will get cut in half.  Deficit spending will be impossible.  Instead of a 40% "draconian" cut in government spending we will have to cut spending by 60% or more.  Entitlements will be decimated; retirement entitlements will go last, but go they will.  Food stamps, Section 8, Medicaid, all gone.  Bet on it.

-    All the other things that depend on the government Ponzi blow up.  Medical care as we know it, education, state programs, all gone.  We will return to a simpler time whether we like it or not, and we won't like it.  That much I'm sure of.

-    Best guess on whether civil order is lost.  In some places I'm sure things will be fine in that regard, likely in places where self-defense is recognized as the unalienable right that it is.  In others?  Not so much.  If you live in a big city - or an "unfriendly" place in regards to self-defense, you need to be thinking about this quite-seriously.  Yesterday would have been a good time to consider it and figure out what you're going to do about it.

-    Short-term and minor to moderate disruptions in what would be considered "essential" goods and services are likely.  Go down the list and figure out what you must have and what you can do without.  Be realistic.  Most people won't be, which will put you one step in front of them.

-    The world will recognize the Depression we have tried to cover up.  This is not a US-centric story.  The Eurozone will get the unemployment and tax consequences too.  Germany will be forced to choose between propping up the entire rest of the Euro (which it can't) and detonating it and going back to the Deutsche Mark (which it will be forced to.)  There is a very high probability of war that comes out of this, although the exact trigger is not something I can forecast.  War is the classical solution to these problems, and it is unlikely to be different this time.

This is going to be a rough time folks.  Our government has refused to deal with the basic mathematical constructs that underlay all economies and debt.  It's not a matter of competing theoretical ideas - it's a matter of basic mathematical laws.  We are now running into the end game where entire nations are coming unglued along with their various patrons and parasites, as the cold, hard mathematical facts run into the fantasy conjurations of people like Bernanke, Geithner and Obama, along with the chortling harpies on Wall Street.

If they manage to "sticksave" things once again, and you can bet they'll try, you've lost nothing by being prepared.  But even if they do pull another rabbit from the hat, instead of a burning stick of dynamite, there are a limited number of rabbits, there are sticks of dynamite in the hat, one will eventually be inadvertently selected and the games will end.

The only real choice is whether that option will take place voluntarily and now, or involuntarily and later.

Either way it's going to suck, but a voluntary acceptance of reality will both suck less and be over sooner, along with being able to be mitigated.  An uncontrolled event - which is what we're headed for at the present time - will be most unpleasant.

PS: Yes, this is an update to the "What's Broken" ticker....  The last time they reached into the hat they got a rabbit - and made the problem worse.  How many more pulls do you think they'll get before the burning stick of dynamite pops out?
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004


Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1077 on: August 23, 2011, 09:50:51 PM »
8/23/2011 Market Ticker


The Recognition of Reality
By Karl Denninger

http://market-ticker.org/akcs-www?post=192809

It would be a good idea to become grounded in it folks, because it's coming, and it's not going to be fun if you're not well-grounded in the facts.

Let's take a few examples, some of them from the forum and some from my own personal experience, and flesh them out.

Take many if not most allegedly "middle-class" and "upper middle-class" business owners and managers.  They live in a nice 3,500 sq/ft house in the suburbs with a manicured lawn and the service that comes once a week.  Their home is immaculate and full of granite counter tops and Viking appliances.  There are two $50,000 automobiles in the driveway - and perhaps another one, or some sort of recreational vehicle (a boat or RV) in the garage or a nearby storage area.

Now look at how much actual wealth they have, on a balance-sheet basis.  Their home is likely underwater or has limited equity - 10 or 20% of the current market value at most.  Their vehicles are not owned outright, they all have notes on them.  There's $100,000 or less in their retirement accounts, but they're middle-aged - in their 40s.

On the spending side they have a $200/month cellphone bill for themselves and their kids ($2,400 a year), spend $300/month on utilities ($3,600 a year) and pay $5,000 or more in property taxes and hazard insurance.  Between these there's more than $10,000 that goes out the front door, plus their income tax burden.  This family also eats out a couple of times a week ($200/month or $2,400 a year) and in general treats money and credit as though it's something they have access to and thus will use.

This prototypical family manages to make it work predicated on being paid by the government for the use of leverage through the mortgage tax deduction.  This has induced them to (among other things) refinance serially, since as a loan amortizes the interest percentage drops and so does the tax write-off. To keep that "extra" $3,000 a year in deduction the family has buried itself in debt - intentionally - through serial refinances, while stripping every dime of equity they could get their hands on to spend on their lifestyle.  What they don't admit to is that they're simply pyramiding debt upon debt, goaded on by a tax system that has encouraged profligacy, immaturity and a mathematically-inevitable economic collapse.

As they head toward "retirement age" their children have gone off on their own.  They treated their kids as chattel during the time they were kids, smothering them and yet at the same time showering them with "things."  A car at 16.  An extravagant prom experience.  Travel-team soccer at hundreds of dollars a month.  New clothes from the latest trendy place - several times a year.  A college that costs $20,000/year.  None of this was earned by Junior, it was "deserved" because the little darlings "should have the best."

These people will argue, to the last man and woman, that they've done "everything right all their lives."

They're deluded, and if you're reading this you're probably one of them.

The fact is that the bubble that made possible the appearance of rapid accumulation of wealth was just that - a bubble.  It was a fraud.  This prototypical family, and the majority of Americans live like this even today, having learned nothing from the last few years,  is literally one disruption in the ability to put leverage upon leverage from a full-blown economic disaster.

But bubbles always pop.

Always.

It's not a bubble eh?  Care to rethink that in light of this chart?

If you want to know where that came from, look right here:

When did the market start to take off?  Right after 1980, right when the government, industry and you set forth upon the path of borrowing more and more money to spend beyond your means, saving nothing, investing nothing.

This drove asset prices higher.  But this game must eventually end, because every dollar you borrow comes with interest, and eventually you are unable to borrow any more, since your borrowing has outrun your earnings capacity.

That's what happened in 2007.  It is why all the games with QEx have failed - all they did was create more "excess reserves" that could be loaned out, but the economy's ability to absorb more loans and pay more interest has been exceeded.

Pressing that bet further and further will not work.  It cannot work.

Now we're in trouble, and lots of it.  We're faced with the reality of what we've done because when that leverage comes out of the system and it will the market is likely to go right back where it started - or fairly close to it.  Contemplate that, and read the Ticker I posted yesterday, because that's the macro economic impact of that leverage being removed.

But on a personal note the impact is going to suck too. In no particular order you might want to consider all of the following:

-    Americans have levered themselves up to the gills.  Despite claims in the media, that leverage has not been taken down.  Think about yourself, your family, neighbors and friends. Would you be ok if you had no credit cards, in fact no credit of any sort, no government handouts and no job - for six months.  Very few families would be able to survive such a thing without ending up in the street, yet without that ability you have excessive financial leverage in your life.  You have not removed that leverage.  You had better start - now.  If you didn't believe in the risk in 2007 when I started writing about this, the 2008/09 market collapse should have convinced you.  If that wasn't enough this latest swoon should have underlined the point.  If neither of those two events has made clear what you must do - right now - then like it or not you deserve what's going to happen to you, despite the fact that I'm sure I'll get hate mail for saying it.

-    Can you make it in "retirement" - by whatever means, including continuing to work, without government support?  If not, you're not unlevered.  You've simply believed the lies told to you by the political establishment that it could lever itself up on an indefinite forward basis and give the benefits to you despite the fact that the demographics - that the Baby Boomers were going to retire en-masse and overload the Medicare and Social Security systems - has been known for more than 30 years.  The government did nothing about it because fixing this would have meant curtailing forward promises of benefits or massive tax increases thirty years ago.  Today, that problem cannot be solved with tax increases as the money is not there and cannot be extracted from the economy.  As a consequence major benefit cuts are going to happen, irrespective of the political demands placed on the government.  You must be prepared to survive and continue onward without any government support.  Figure it out, right now and alter your lifestyle today, or suffer the consequences.

-    Did you successfully transition your relationship with your children (if any) from one of dependence to one of mutual respect?  This doesn't always work, by the way.  Kids are independent human beings, and no matter how you parent them some percentage will be anti-social jackasses as will some parents.  This is reality.  However, it doesn't help if you treated your kids as chattel or worse, abused them or worse, or showered them with all sorts of "entitlements" as kids, because now they'll expect the same as adults!  Historically the solution to getting older meant living in extended family units.  It will again - if you didn't ruin those connections with your children.  If you did, I hope you're wealthy - truly wealthy - or you're in lots of trouble.  Begging sucks as does apologizing for your previous acts along with repairing broken family relationships but it beats the hell out of starving and/or freezing to death.  Choose wisely and choose today.

-    Got faith?  There may or may not be a God, but it's a fact that there's a congregation in the corner Church on Sunday.  Consider that if the Zombie Apocalypse comes knocking your local faith community may be the best option for mutually-arranged self-defense, the patching of any holes that might get made in places you'd rather not have them, and the provision of basic human needs, including most-particularly something hot to put down the pie hole.  Is faith practical?  You decide, and consider this along with the following indisputable fact: Once you know for sure if there's a God it's too late to change your mind.

-    Resolve self-regulation issues - now.  The majority of Americans are overweight or obese.  A minority exercise three times a week for 20 minutes at a moderate to intense level of activity.  One of the Christian "seven deadly sins" is gluttony, and it's not just found in the bottle or the dope bag - it's also found in the grocery store, at the fast-food joint and on the couch.  America has enjoyed the ability to call "911" any time and have an ambulance magically appear to whisk you to the hospital when you feel that nasty tightness in your chest.  In fact, an amazing number of municipalities have managed to vote into place ridiculous tax increases (including my local area) to pay for exactly that.  Instead, a volunteer fire department would be sufficient without the "ALS" ambulance service at a quarter of the cost - and the average homeowner, who pays $250 a year or more for that "enhanaced" level of service, could buy more than enough running shoes and save five times that much or more on food not consumed - and not need the EMS!  The same thing happens in the doctor's office every day: "Doc, do you have a pill for that?"  Guess what - we can't afford to pay for your pills, the EMS, or the hospital - you can't cover it individually and we can't cover it as a society.  Therefore, either solve your self-regulation issues or suffer the inevitable consequences.  It's time to grow up America.

-    Come to grips with your mortality.  If you prefer to use faith, that's fine.  If you don't believe in God, that's fine too - Darwin will do as well.  Nonetheless we are all mortal and we are going to have to deal with the fact that we cannot have medical services we are unable to personally pay for.  This is a major shift after the idiotic moves of the last 30 years, but it is nonetheless a fact.  Leverage enabled the pulling forward of demand for medical services into today that were promised to be paid for tomorrow, but now tomorrow has come and there's no more ability to pull that demand forward.  See the "Self-Regulation" bullet point above and consider that your success or failure in dealing with that will materially change your interaction with this point, then choose.  If you believe that with the global finance ponzi collapsing you'll be able to demand a pair of $100,000 hips, a $90,000 prostate cancer treatment or $250,000 for bypass surgery from "society", you're wrong.  The money doesn't exist any more, which means you either earn and stash it yourself during your productive years, do what you need to so those things are unnecessary (to the extent you can), or face the fact that we all die and your time might be now.


If you'd like the above in a "religious" format someone on the forum posted a link to the a sermon tracking much of the above.  Yeah, it's 45 minutes.  But it's pretty much spot-on in Christian terms.

Time is short; choose wisely.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1078 on: August 23, 2011, 09:52:09 PM »
Read the comments here: http://market-ticker.org/akcs-www?post=192809

Real eye-openers abound, and the sheep are starting to wake-up and get scared.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline Mr. Bingley

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Re: Consolidated Financial Doom Thread
« Reply #1079 on: August 24, 2011, 06:07:50 AM »
Well that was a cheery way to start my day! ;)

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1080 on: April 13, 2012, 03:17:57 PM »
Welcome back to the slow motion train wreck friends.

"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1081 on: April 13, 2012, 03:18:11 PM »
4/13/2012 Zero Hedge


Friday Fun With Financial Fatalism
by Tyler Durden

http://www.zerohedge.com/news/friday-fun-financial-fatalism

It seemed appropriate, given Europe is hitting the wall again in its vicious cycle of self-financed self-hypnotizing recovery-less recovery, to present the 'World Collapse Explained In 3 Minutes' that so mockingly relates the real state of absurdity we face in today's financial markets.

http://youtu.be/NOzR3UAyXao

« Last Edit: April 13, 2012, 03:21:27 PM by SilverDeth »
"There are many things worse than dying, and there are some things far more important than living."
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Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1082 on: April 15, 2012, 01:47:11 PM »
4/15/2012 The Market Ticker


CPI: All Gas Prices, All The Time?
By Karl Denninger

http://market-ticker.org/akcs-www?post=204696

No really? I needed a laugh this morning....
Quote
    The indexes for food, energy, and all items less food and energy all increased in March. The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably.

We'll get to that household energy thing in a minute....

But from the standpoint of the leading presentation, all I can say is "duh."

Incidentally, the unadjusted price change in all items last month was 0.8%.  That, my friends, is a shocker.  Leading the charge was meats, poultry, fish and eggs (animal products) which anyone with a brain has seen in the supermarket.

Energy commodities, again unadjusted, were up 7.6% this last month.  Motor fuel was the screaming leader with an 8% increase, while piped gas was down 0.9%.

Other screamers in the number were appliances (up 0.7% last month, 9% annually) with laundry leading with 1.1% and 11.5%, respectively.  Apparel was up big as well, although that move looks to be all "right here and now" rather than trend, so whether it's a one-off remains to be determined.  And for those who claim that health insurance costs are leveling off and won't play hell with the United States, well, the numbers say otherwise -- 1.3% last month and 11.3% annual, which is above the 9.3% that we've historically recorded over the last 30 years.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1083 on: April 16, 2012, 10:22:50 AM »
4/16/2012 Zero Hedge


When Does This Travesty of a Mockery of a Sham Finally End?
by Charles Hugh Smith

http://www.zerohedge.com/news/guest-post-when-does-travesty-mockery-sham-finally-end

Intersecting global crises cannot be papered over with artifice and propaganda for long.

We all know the Status Quo's response to the global financial meltdown of 2008 has been a travesty of a mockery of a sham--smoke and mirrors, flimsy facades of "recovery," simulacrum "reforms," and serial can-kicking, all based on borrowing and printing trillions of dollars, yen, euros and yuan, quatloos, etc.

So when will the travesty of a mockery of a sham finally come to an end? Probably around 2021-22, with a few global crises and "saves" along the way to break up the monotony of devolution. The foundation of this forecast is this chart I prepared back in 2008:



This is of course only a selection of cycles; many more may be active but these four give us a flavor of the confluence of crises ahead.

Cycles are not laws of Nature, of course; they are only records of previous periods of growth/excess/depletion/collapse, not predictions per se. Nonetheless their repetition reflects the systemic dynamic of growth, crisis and collapse, and so the study of cycles is instructive even though we stipulate they are not predictive.

What is predictable is the way systems tend to follow an S-curve of rapid growth with then tops out in excess, stagnates in depletion and then devolves or implodes. We can see all sorts of things topping out and entering depletion/collapse: debt, financialization, the Savior State, Chinese auto sales, oil production, and so on.



Since each mechanism that burns out or implodes tends to be replaced with some other mechanism, this creates the recurring cycle of growth/excess/depletion/collapse.

I plotted four long-wave cycles in the first chart:

1. The credit expansion/renunciation cycle. a.k.a. the Kondratieff cycle. Credit expands when credit is costly and invested in productive assets. Credit reaches excess when it is cheap and it's dumped into malinvestments, and as collateral vanishes then credit is renunciated/written off.

This is inexact, but obviously the postwar cycle of expansion has ended and is now rolling over into the collapse/renunciation stage.

2. The generational cycle of four generations/80 years described in the seminal book The Fourth Turning. American history uncannily tracks an 80-year cycle of crises and profound transformation: 1860 (Civil War), 1940 (world war and global Empire) and next up to bat, 2020, the implosion of the debt-based Savior State and the financialized economy.

3. The 100-year cycle of inflation-deflation described in the masterful book The Great Wave: Price Revolutions and the Rhythm of History. The price of bread remained almost constant in Britain throughout the 19th century. In contrast, the 20th century has been characterized by inflation--the U.S. dollar has lost approximately 96% of its value since the early 20th century.

Another characteristic of this cycle is wage stagnation: people earn less even as costs of essentials rise, a dynamic that inevitably leads to political crisis and upheaval.

The end-game for inflation is destruction of fiat currencies, i.e. hyper-inflation or complete loss of faith in paper money. This is of course "impossible," just like World War I, the Titanic sinking, the global meltdown of 2008, etc. Impossible things happen with alarming regularity.

4. Peak oil, which does not mean the world runs out of oil, it simply means oil production no longer rises to meet demand and eventually declines even as new fields are brought online.

Many observers are confident that fracking and other technologies will enable current energy proligacy to continue unabated as the U.S. replaces oil and coal with newly abundant natural gas. Not only will this lessen American dependence on non-U.S. oil exporters, but domestic energy will spark a jobs boom as well: Fuel to Burn: Now What? (via Joel M.).

Quote
“The reduced vulnerability of North America — and the world market — to oil price spikes also has deep consequences geopolitically, including the reduced strategic importance to the U.S. of changes in oil- and natural gas-producing countries worldwide,” Mr. Morse said in a recent 92-page report called Energy 2020. ”Pressures towards isolationism in the U.S. will likely grow, with consequences for global stability that can only just begin to become understood.”

“In a world of high energy prices, the potential economic activity generated by this wave of new hydrocarbon production is extraordinary and should strongly boost national output, increase incomes, create wealth, stimulate consumption and create jobs,” according to Citigroup.

Mr. Morse of Citigroup forecast that North American oil production could reach an astounding 27 million barrels a day by 2020, almost twice the rate of production of 15 million barrels a day at the end of 2011. Production from the United States could grow to 15.6 million barrels a day by 2020, up from nine million barrels a day in 2011.

If that trend continues, the growth in oil and natural gas supplies in the next decades could turn the United States into a top energy exporter, rivaling some members of the Organization of the Petroleum Exporting Countries. Natural gas could be sold to Mexico and Canada (because exploiting oil sands is so energy-intensive, Canada might have to import natural gas to produce its oil). Refined petroleum products, and even crude oil, could find customers in Europe and Latin America. Coal could be exported to China.

With less gasoline demand, the nation’s surplus refining capacity means the United States is already exporting petroleum products — like gasoline and diesel. The United States is now the top exporter of refined products, just ahead of Russia.

James Brick, an energy analyst with Wood Mackenzie, a research firm, said in a recent report that by 2030 the United States could end up exporting 500 million tons of coal a year, 3.2 billion cubic feet a day of natural gas and 2.5 million barrels a day of oil products.

All this surplus energy in North America sounds wonderful, but that doesn't mean the world as a whole has escaped Peak Oil. Even if these projections turn out to be accurate, that expansion of production will not replace the loss of production as supergiant fields in Mexico, the North Sea and the Mideast enter the depletion phase. Yes, technology can extract more oil, but technology is costly. The days of cheap natural gas may have arrived, but the days of cheap oil are numbered.

How all this plays out is unknown, but even raising U.S. production by 10 million barrels of oil equivalents a day--quite a challenge in the real world despite the easy-to-pen hype-- might not be enough to maintain current production levels. Since several billion more people desire the U.S.-type lifestyle of energy profligacy, then what are the consequences of the mismatch between global demand and supply?

We can also posit that "good-paying jobs" in developed economies are also tracking an S-curve. The post-industrial decline in labor has many causes, but the Internet is a key factor going forward as the Web leverages all sorts of productivity gains without the pesky overhead, costs and trouble of workers.

This reality was masked by the initial boom in Web infrastructure that topped out in 2000, and again by the credit-fueled global malinvestment in real estate that topped out in 2007. Now that those bubbles have popped, the reality of long-term employment stagnation can no longer be masked.

Credit bubbles are not engines of employment, they are only engines of mis-investment and wealth destruction on a grand scale.

A number of other questions arise as we ponder these dynamics. How "cheap" will all that cheap energy be to those without full-time jobs? How will 100 million workers support 100 million retirees, pensioners, welfare recipients and parasitic Elites as costs rise and wages stagnate?

The Status Quo is unsustainable on a number of fundamental fronts. How long it can maintain the facade of stability and sustainability is unknown, but the global willingness to squander four years on artifice and propaganda suggests that another decade will fly by and the end-game will be at hand whether we approve of it or not.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1084 on: April 16, 2012, 10:32:03 AM »
4/16/2012 The Market Ticker


Euro Area: We're Fooked And We Know It
By Karl Denninger

 http://market-ticker.org/akcs-www?post=204781

Oh this is rich....

Quote
    Three weeks after European leaders unveiled emergency euro-area funding exceeding the symbolic $1 trillion mark, concerns about Spain’s position have ratcheted the nation’s borrowing costs to the highest levels this year. Crisis-fighting resources will dominate talks at the International Monetary Fund’s spring meeting in Washington from April 20-22.

    While the U.S. insists that Europe can overcome the crisis using its own financial firepower, euro-area officials say they’ve done enough to trigger additional global assistance. The urgency was underscored last week as Spanish and Italian yields jumped, challenging assumptions among the region’s leaders that the worst of the fallout was behind them.

But I thought there was no crisis?  That we all took "decisive" and "effective" actions in 2008 and 2009?

Hmmm... you mean that was a lie?

Spain's 10 year bond is trading near 6%, and Italy is trading near 5.5%.  That's a problem; Spain is feeling desperate, as one of their economic ministers is now calling for the ECB to buy yet more of it's trash, er, "debt."

The real problem that Europe has is the same one we have in the United States -- we, and they, are unwilling to fund our government programs with sufficient money in the present tense.

That is we're all unwilling to come to the public of our respective nations with the open question as to exactly what services we want our governments to provide, and then set tax levels such that they're paid for in full in the present tense.

But this is exactly what we must do -- and what they must do.

This weekend I was at a political event canvassing for Calen Fretts who is running for Congress as a Libertarian.  Our current hurdle is getting on the ballot, which requires petitions.  In the course of gathering them I spoke with a lot of people, and one of them was very focused on foreign policy, hammering on the Iraq war and generally being hostile to Libertarian ideas.

At one point I pointed out that irrespective of what he, or I, might like the fact remained that $750 billion a year (our defense budget) is roughly 1/3rd of all tax revenues that the Federal Government currently receives.  While national defense is certainly one of the Constitutional powers of the Federal Government if you can't write the check without it bouncing it's immaterial.  I recognize, for example, that we cannot simply walk off into the sunset on foreign policy as we've managed to create for ourselves a world where we need foreign resources, particularly oil, but this is something we can correct over time.

What we can't do is continue to believe that we can cut taxes further while increasing spending at the same time.  If we're going to have lower taxes (and everyone likes lower taxes) then we must also have lower spending.  This isn't optional -- it's absolutely necessary.

We simply have to have the conversation with the American public in recognition that we either have to cut federal spending by about 50%, double tax receipts or some combination of the two. Either is going to have a significant and inescapable economic impact.

Spain, Italy and the rest of the Euro Zone are in the same box.  None of these nations have actually addressed the funding and spending mismatch that led them into this box and none of them have shown any indication of correcting that error.  Nor have we.

But if we're going to ever make a serious effort at resolving our debt problem before we play Thelma and Louise, driving straight off the cliff, we must stop with the rhetoric and deal with the mathematics.

Walker was up on CNBS this morning again saying that the problem is not "today" but "tomorrow."  He's wrong.  In fact, he's lying as he knows he's wrong.  The problems we have today are real, they are emergent, and health care is not a Medicare or Medicaid problem, it is a structural issue in our medical system.

We simply cannot continue to run $1 trillion+ annual deficits.  This has to end now.

In Europe they must also end these imbalances now.

If those problems are resolved then while the short-term economic difficulty will be significant the intermediate and longer-run benefits will be stability and economic prosperity.

If not then the outcome will be ruin. 

In that case it is not a matter of if, but when.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline xtron

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Re: Consolidated Financial Doom Thread
« Reply #1085 on: April 16, 2012, 04:30:54 PM »
raise taxes and/or cut spending...been there done that..twice....under regan, the democrats promised to cut spending, in return for tax hikes.  regan agreed to the tax hikes, and, suprize suprize, never got the spending cuts......

i would gladly support an across the board 5% tax hike...from TODAYS tax rates(NOT the clinton era pre bush tax reduction rates)......ONE YEAR AFTER an across the board 10% spending reduction

what do you think the chances of that happening are???   

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1086 on: April 16, 2012, 08:28:59 PM »
Zero
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline oldguy52

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Re: Consolidated Financial Doom Thread
« Reply #1087 on: April 16, 2012, 08:33:15 PM »
O.G.

"Stupid is supposed to be painful, it's nature's way of learnin' ya" - Me, 1994

When one finds himself living in interesting times, it is prudent to become as uninteresting as possible.... Me, 2011

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1088 on: April 17, 2012, 01:22:38 PM »
4/17/2012 Zero Hedge


Guest Post: Why the Middle Class Is Doomed
by Charles Hugh Smith

http://www.zerohedge.com/news/guest-post-why-middle-class-doomed

The dwindling middle class, squeezed by higher taxes and costs, is losing its political voice.

The middle class is doomed by some very basic dynamics. Economic historian David Hackett Fischer laid out the fundamental dynamic in his book The Great Wave: Price Revolutions and the Rhythm of History.

By assembling price and wage data stretching back hundreds of years, Fischer found that cycles of economic growth spawned population growth, an expanding number of workers entering the market economy (as opposed to the non-market subsistence economy) and a demand-driven expansion of essential commodities such as grain and energy (wood, coal, oil, etc.).

In the initial phase, wages rise and commodity prices remain stable as supplies of essential goods expand and the demand for labor pushes up wages.

But this virtuous cycle reverses when the supply of essentials no longer keeps pace with rising population and demand: the price of essentials begin an inexorable rise even as an oversupply of labor drives down wages.

We like to think that modern economies have escaped this cycle, but that is hubris and denial, not reality, for the 20th and early 21st centuries have been characterized by inflation (the U.S. dollar has lost approximately 96% of its value since 1900) and wages have stagnated for the past 40 years: Soaring Poverty Casts Spotlight on ‘Lost Decade’:

Quote
    According to the Census figures, the median annual income for a male full-time, year-round worker in 2010 — $47,715 — was virtually unchanged, in 2010 dollars, from its level in 1973, when it was $49,065.

    Overall, median household income adjusted for inflation declined by 2.3 percent in 2010 from the previous year, to $49,445. That was 7 percent less than the peak of $53,252 in 1999.

We can see this steady decline in wages in this chart:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/04/Labor-share4-12_0.png

The more recent fall-off is depicted in this chart:



Notice that the only age bracket with rising incomes is the 65 and over cohort; everyone younger than 65 has seen their income slashed. And this is assuming "official" inflation is accurate; if it understates real inflation (loss of purchasing power), then the income declines are actually much more severe than charted here.

As I have observed many times before, the middle class filled this gap between rising costs and stagnating wages with debt. This chart reflects this reality:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/04/household-liabilities-wages.png

Household debt has soared far above wages. (Note that this chart is not adjusted to inflation; in real terms, wages have been flat for decades).

Now that the average household is heavily indebted with student loans, vehicle loans, credit card debt and mortgages, its ability to leverage a declining income into more debt is seriously impaired. So filling the gap between rising costs and declining wages with debt is no longer a possibility.

Living within their means and servicing their mountains of debt removes most families from the middle class. As a rough metric, I define middle class as any household with the following attributes:

1. Meaningful healthcare insurance, either provided by an employer or paid by the household

2. Significant equity in a home or other real estate

3. An income and expense sheet that enables the household to save at least 6% of its income

4. Significant retirement funds, either employer-provided or 401Ks, IRAs, income property, etc.

5. The ability to service all debt and expenses over the medium-term if one of the two primary household wage-earners lose their job, i.e. either the household has significant savings or its debts are modest compared to the household income.

Anything less than this basket of attributes is too precarious to qualify as middle class. These basics of financial security were standard-issue for the middle class in the postwar era.

A household could have all of the above attributes on an annual income of $40,000, or they may not have them with an income of $80,000, as "middle class" means some measure of financial security, i.e. owning assets and carrying a debt load that isn't large enough to crush the household balance sheet if income declines.

We can further understand the precariousness of many American households by examining IRS tax data. The top 25% of taxpayers--34 million workers out of a workforce of 160 million and 140 million wage earners--pay almost 90% of all Federal income taxes. Where Do You Rank as a Taxpayer?

Quote
    An adjusted gross income (AGI) of $66,193 or more puts you in the top 25% of earners. The top-earning 25% of taxpayers reported 65.81% of all AGI and paid 87.30% of total federal income taxes ( $755.9 billion).

    How much do you need to make to be in the top 50% of earners? Just $32,396. Fall below that level and you are in the bottom half, along with nearly 70 million of your fellow taxpayers. All told, that group earned just 13% of the income reported on 2009 tax returns. And they coughed up 2.25% of all the income taxes paid.

All these numbers mask the sobering reality that 38 Million Workers Made Less Than $10,000 in 2010-- Equal to California's Population (The Atlantic magazine)

If we dig into the data, we find that the top 25% (34 million workers) is really the top 33%, as only 104 million tax returns actually pay any Federal tax--and as noted above, the bottom 70 million paid a scant 13% of all Federal taxes while the top 34 million paid 87% of all income taxes.

Many Unhappy Returns? (America's aggregate 1040, from IRS tax data).

Quote
    In 2009, the IRS reported 140.5 Million personal income tax returns were filed. From this starting point, 36.3 Million returns (or, one quarter of the total) are lost to the tax base because of losses, exclusions or deductions. By line 43, taxable income, only 104.2 Million returns survive. In aggregate dollar amounts, total income from all sources falls from $7.7 Trillion to $5.1 Trillion — a decline of more than one-third. This latter amount is what truly constitutes the tax base, since it is the income ultimately subjected to tax.

Of course Social Security taxes are paid by low-income workers, but this amounts to 7.6% of income--not zero, but not too punishing compared to Federal tax rates.

What all this reveals is that the middle class has lost its political power. Roughly 40% of all households receive a check or equivalent from the Federal government, while at the top Power Elite crony capitalists skim capital gains and pay an average of 17% of all income.

The 100 million dependents on the Federal government (Central State) vote to support their share of the largesse, regardless of the consequences to future generations, and the Power Elite crony capitalists buy political protection for their cartels and financialization scams. The dwindling middle class ends up paying most of the taxes even as their percentage of the population falls to the point that their political voice is drowned out by more numerous dependents and Elites that both favor the Status Quo.

The Federal government is supporting its dependents and its crony-capitalist Elites with borrowed money: $1.5 trillion every year, fully 40% of the Federal budget. It is in effect filling the gap between exploding costs and declining income, just like the middle class did until they ran out of collateral to leverage.

The dwindling middle class, now at best perhaps 25% of the workforce, has been reduced to tax donkeys supporting those above and below who are dependent on Federal largesse.

Fisher found that this cycle ends in transformational political upheaval. No wonder; even as the class paying most of the taxes shrinks and is pressured by higher costs, the class of dependents expands as the economy deteriorates and the super-wealthy Power Elites continue to control the levers of Central State power.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline Ken

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Re: Consolidated Financial Doom Thread
« Reply #1089 on: April 17, 2012, 04:08:03 PM »
While I would normally agree with your longwave forecasts that you are presenting, I think a lot of it is going to be thrown off by some of the newer technologies that are coming out.

Two of the major new developments are the really better energy generation and the shrinking of the infrastructure footprint.  (a lot of the newer tech stuff is leaning towards an almost cottage-industry like structure, rather than what we have, at present.)

Of course, the transition looks to be a real SOB, though.
“If mankind is to survive, then throughout man’s history except for a very few years the word “ship” will mean “space ship.”
Arthur C. Clarke

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1090 on: April 18, 2012, 09:12:42 AM »
4/18/2012 Zero Hedge


Central Banks Favour Gold As IMF Warns of “Collapse of Euro” and “Full Blown Panic in Financial Markets”
by Tyler Durden

http://www.zerohedge.com/news/central-banks-favour-gold-imf-warns-%E2%80%9Ccollapse-euro%E2%80%9D-and-%E2%80%9Cfull-blown-panic-financial-markets%E2%80%9D

Gold’s London AM fix this morning was USD 1,646.50, EUR 1,258.41, and GBP 1,030.80 per ounce. Friday's AM fix was USD 1,652.00, EUR 1,255.51 and GBP 1,035.54 per ounce.

Silver is trading at $31.61/oz, €24.16/oz and £19.78/oz. Platinum is trading at $1,577.25/oz, palladium at $656.90/oz and rhodium at $1,350/oz.


Cross Currency Table – (Bloomberg)

Gold fell $1.50 or 0.09% in New York and closed relatively unchanged at $1,650.20/oz yesterday. Gold traded sideways prior to gradually creeping up in late Asian trading. It then gave up those gains in European trading and is nearly unchanged from yesterday’s close in New York.

Gold remained relatively unchanged from yesterday as Spain’s debt auction eased some worries about the eurozone debt crisis. Although this is another temporary respite as the euro may remain under pressure ahead of Madrid’s long term debt sale later this week.

Investors appear more focused on Europe even though US industrial output numbers and housing starts were low.  A surprise jump in German business sentiment lifted riskier assets including equities.

http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart2_18-04-12.png
Gold 1 Year Chart – (Bloomberg)

India’s central bank is further debasing the Indian rupee which will lead to further safe haven demand for gold, and is still the world’s largest buyer of gold.

India has had its first rate cut in 3 years and was cut by a higher than expected 50 basis points to 8%. 

This comes despite inflation being higher in March compared to last month surging to 9.47%.

The recent tax increase on gold was a futile attempt to curtail gold demand – as Indian policy makers realised accelerating inflation would lead to further gold demand.

Wedding season is at its peak in India now and Akshaya Tritiya, a large gold buying festival, happens later this month. There are forecasts of a 25% increase in demand during the Hindu festival next week after demand was curtailed during the gold jewellers strike (see Other News below).

Deepening negative real interest rates in India and the risk of an inflation spiral will see Indian demand remain robust and it may even accelerate if inflation deepens - contrary to suggestions that Indian gold demand will fall precipitously.

IMF: Risk of Collapse of Euro and “Full Blown Panic in Financial Markets”
The Eurozone could break up and trigger a “full-blown panic in financial markets and depositor flight” and a global economic slump to rival the Great Depression, the IMF warned yesterday.

In its World Economic Outlook report, the International Monetary Fund said the collapse of the crisis-torn single currency could not be ruled out.

It warned that a disorderly exit of one member country would have untold knock-on effects.

"The potential consequences of a disorderly default and exit by a euro area member are unpredictable... If such an event occurs, it is possible that other euro area economies perceived to have similar risk characteristics would come under severe pressure as well, with full-blown panic in financial markets and depositor flight from several banking systems," said the report.

"Under these circumstances, a break-up of the euro area could not be ruled out."

“This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse," said the report.

Risk Averse Central Banks Favour Gold Over Euro
The risks outlined by the IMF are real and are being taken seriously by central banks who are becoming more favourable towards diversifying foreign exchange reserves into gold.

Central bank reserve managers responsible for trillions of dollars of investments are shunning euro assets and questioning the currency’s haven status because of the region’s sovereign debt crisis, research has found, according to the FT.

Among the most conservative of investors, central bankers have tended to keep much of their fx reserves in high quality euro and dollar denominated assets, such as government bonds.

However, a survey of reserve managers at 54 central banks responsible for portfolios worth $6 trillion, almost half the world’s total, signals that the sovereign debt crisis has sparked a reversal of that trend.

More than three-quarters said the sovereign debt crisis has had a profound impact on their reserve management strategy, with their central banks pulling back from eurozone counterparties and reconsidering attitudes toward the single currency.

Signifying the mood of caution among the world’s central bankers, 71% of those polled said gold was a more attractive investment than it had been at the start of last year. Central banks made their largest purchases of gold in more than four decades last year and have continued to buy the precious metal in the early months of 2012.

Central bank demand is set to continue and may accelerate as the global debt crisis deepens in the coming months.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart3_18-04-12.png
XAU/GBP 1 Year Chart – (Bloomberg)

OTHER NEWS

(Bloomberg) -- Hindu Festival Seen Reviving Gold Demand in India After Shutdown

Gold demand in India, the world’s biggest importer, may climb as much as 25 percent during a Hindu festival next week, according to Rajesh Exports Ltd., reviving jewelry buying that was curtailed by a nationwide shutdown.

Consumption may increase to as much 15 metric tons on Akshaya Tritiya on April 24, said Rajesh Mehta, chairman of Rajesh Exports, India’s biggest gold jewelry exporter. The festival is considered by the majority Hindu population in the South Asian nation as an auspicious day to buy precious metals.

Imports plunged last month after Finance Minister Pranab Mukherjee raised taxes to curb a widening current-account deficit fuelled by record bullion purchases. The National Spot Exchange Ltd., India’s biggest bourse for physical gold, expects its festival coin sales to double from a year earlier, according to Chief Executive Officer Anjani Sinha.

“People will buy a lot of gold this Akshaya Tritiya,” Rajesh Exports’ Mehta said. “We expect sales to be good, especially because of the strike” and the pent-up demand from the shutdown, he said.

Jewelers closed stores for three weeks in the longest-ever shutdown, curbing imports, after Mukherjee doubled import levies on gold and imposed a 1 percent excise duty on non-branded ornaments. The shutdown ended on April 6 after the government assured jewelers’ that their concerns on taxes will be considered. The strike cost the industry about 200 billion rupees ($3.9 billion) in lost revenue, according to the All India Gems & Jewellery Trade Federation.

‘Kickstart Momentum’

The Akshaya Tritiya “will kickstart momentum to slack imports,” Kunal Shah, head of research with Nirmal Bang Commodities Pvt., said from Mumbai. “It will support the ongoing bull run in gold.”

During Akshaya, a Sanskrit word meaning “that which never diminishes,” Indians begin a new venture or buy valuables with the belief it will bring luck and prosperity. Based on the lunar calendar, the date changes every year. It is the second-biggest gold buying day in the country after Dhanteras, according to fund manager Quantum Asset Management Co.

Bullion for immediate delivery rose 0.2 percent to $1,652.82 an ounce at 9:08 a.m. in Mumbai today. The June- delivery contract fell 0.3 percent to 28,482 rupees ($554) per 10 grams on the Multi Commodity Exchange of India Ltd. yesterday. Gold has advanced 5.6 percent this year, adding to 11 consecutive annual gains buoyed by central bank buying and increased haven demand driven by Europe’s sovereign-debt crisis.

Competitive Asset

“Gold is very competitive in its asset class,” said Anindya Mitra, senior vice president of retail liabilities at HDFC Bank Ltd., the second-largest coins seller among Indian banks. “We are looking at doing good business this year.”

Coins sales may be 10 percent to 15 percent higher on the festival day from a year ago after HDFC increased outlets and on investment demand, Mitra said.

The national exchange has 1,700 orders for coins for delivery on Akshaya Tritiya, or about 25 kilograms worth of bullion, National Spot Exchange’s Sinha said. Demand will double to as much as 34 kilograms from 17 kilograms last year, he said.

“It is a special occasion, demand will be very good,” Sinha said. “People don’t expect the price to go down from here.”

India’s gold imports may fall to 700 tons to 800 tons in 2012, Prithviraj Kothari, president of the Bombay Bullion Association, said April 2. That compares with record purchases last year of 969 tons, according to World Gold Council data.

http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart4_18-04-12.png
XAU/EUR Currency Chart – (Bloomberg)

(Bloomberg) -- Comex, Nymex Metals Delivery Issues, Stops for April 16
Following is a table detailing daily issues and stops related to deliveries of metals against expiring contracts traded on the Comex or the New York Mercantile Exchange for April 16, according to CME Group Inc.

The notices reflect the movement of metals to offset each long or short futures position with supplies held in exchange- monitored warehouses. Issuers are making deliveries, and stoppers are taking deliveries.

================================================================================

                 April 16   April 13   April 12   April 11   April 10   April 9

                     2012       2012       2012       2012       2012      2012

================================================================================

                 -------------------------- Gold -------------------------------

Issues/stops          794          6      1,040         95          1        37

Month to date      4,475      3,681      3,675      2,635      2,540     2,539

================================================================================

                 April 16   April 13   April 12   April 11   April 10   April 9

                     2012       2012       2012       2012       2012      2012

================================================================================

                 -------------------------- Gold -------------------------------

Settlement        1,648.7    1,659.1    1,679.5    1,659.0    1,659.5   1,642.5

Delivery date    04/18/12   04/17/12   04/16/12   04/13/12   04/12/12  04/11/12

Contract       April 2012 April 2012 April 2012 April 2012 April 2012April 2012

                 --------------------------Copper--------------------------

Issues/stops          182      1,000         51        205         31        56

Month to date      2,795      2,613      1,613      1,562      1,357     1,326

Settlement         3.6240     3.6230     3.7165     3.6360     3.6460    3.7160

Delivery date    04/18/12   04/17/12   04/16/12   04/13/12   04/12/12  04/11/12

Contract       April 2012 April 2012 April 2012 April 2012 April 2012April 2012

                 -------------------------- Silver ----------------------------

Issues/stops           54          0          0          0          0         0

Month to date        227        173        173        173        173       173

Settlement         31.364     31.380     32.515     31.511     31.670    31.513

Delivery date    04/18/12   04/17/12   04/16/12   04/13/12   04/12/12  04/11/12

Contract       April 2012 April 2012 April 2012 April 2012 April 2012April 2012

 

================================================================================

                 April 16   April 13   April 12   April 11   April 10   April 9

                     2012       2012       2012       2012       2012      2012

================================================================================

                 ---------------------------Platinum----------------------------

Issues/stops           25          0          0          3          0         0

Month to date        508        483        483        483        480       480

Settlement       1,571.70   1,583.40   1,601.50   1,579.80   1,589.20  1,613.60

Delivery date    04/18/12   04/17/12   04/16/12   04/13/12   04/12/12  04/11/12

Contract       April 2012 April 2012 April 2012 April 2012 April 2012April 2012

                 --------------------------Palladium----------------------------

Issues/stops            1          0          0          0          0         0

Month to date          2          1          1          1          1         1

Settlement         649.75     646.25     652.15     635.65     635.90    642.85

Delivery date    04/18/12   04/17/12   04/16/12   04/13/12   04/12/12  04/11/12

Contract       April 2012 April 2012 April 2012 April 2012 April 2012April 2012

================================================================================

SOURCE: CME Group Inc.

(Bloomberg) -- Gold May Advance to $1,800 in 12 Months, Trinity’s Gurdgiev Says
Gold probably will advance to $1,800 an ounce in 12 months on a negative outlook for the European economy and China’s real estate sector, according to Constantin Gurdgiev, an economist at Trinity College in Dublin.

“I can see a rather bullish scenario for gold in the short-to-medium term,” said Gurdgiev, who is also a non- executive member of the investment committee at GoldCore Ltd., a Dublin-based brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars.

Bullion was little changed at $1,651 an ounce by 9:22 a.m. in London, for a 5.6 percent gain this year. The price may be driven higher by Europe’s sovereign debt crisis and a slowdown in China’s real-estate sector, Gurdgiev said in an interview in Moscow on April 13, while stressing that other scenarios are possible.

The global economy by 2014 may have started a cycle of growth accompanied by inflation, increasing demand for gold as a means of protecting wealth, pushing the price to more than $2,200 an ounce, Gurdgiev said.

“Heightened inflation prospects” will be driven by expectations of stronger demand for commodities and a large- scale liquidity withdrawal in Europe and Japan, according to Gurdgiev.
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Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1091 on: April 18, 2012, 09:17:33 AM »
4/18/2012 The Market Ticker


Get Ready (Europe)
Karl Denninger

http://market-ticker.org/akcs-www?post=204874

From the 2012 Predictions Ticker:

Quote
    The fissures -- if not outright failure -- in the Euro Zone become realized.  I fully expect one or more nations to leave the Euro and there is a non-zero chance of an outright collapse.  Timing is the problem -- I'll go ahead and stick this in 2012 but may be early a year.  We'll see.  Incidentally because of how I worded this Greece leaving is a "score" but I'm not thinking Greece here -- try Spain or Italy on for size.

And now we have this:

Quote
    Spain’s surging bad loans are spurring doubt on whether the government can persuade investors that it can clean up the country’s banks without further damaging public finances.

    Non-performing loans as a proportion of total lending jumped to 8.16 percent in February, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data published today. The ratio rose from 7.91 percent in January as 3.8 billion euros of loans soured in February, a 110 percent increase from the same month a year ago. That takes the total credit in the economy that the regulator lists as“doubtful” to 143.8 billion euros.

This is bad.  Very bad, when one considers that Western Banking Systems all depend on default rates closer to 1%, not 8%.

Why?  Because of leverage.  If you're running 30:1 gearing then a 3.3% loss wipes you out.  A 1% loss is tolerable, but just barely.

And all western "banking systems" have been run between 10:1 and more than 30:1 for the last couple of decades, with Europe consistently at or above the top end of that scale.

It's not just private funding either; worse is the government side:

Quote
    Spanish, Italian and Portuguese banks are loading up on bonds issued by their own governments, a move that shifts more of the risk of sovereign default to European taxpayers from private creditors.

    Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January, data from Spain’s treasuryshow. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February, according to Bank of Italy data.

This is picking up shiny pennies in front of a steamroller.  The banks are doing this because they can borrow from the ECB at 1% and then "buy" Spanish 10 year debt at 6%.

What could possibly go wrong with this, especially when you can count the sovereign debt as all "money good" and thus factor it via a repo and do it again, and again, and again.

That is, it's not a 5% profit being sought, it's a 50% profit -- by engaging in 10 "turns" of this crank.

Let's illustrate the problem with this "theory."

You start with €1 billion in capital.  You buy €1 billion in Spanish bonds.  On these you expect to earn a 5% profit, because you paid 1% interest but will receive 6%.  That is, you will get €50 million in net profit on this transaction.

But that's not enough.  So you pledge the bonds you own into a repo transaction (say, with the ECB) and use that to borrow another €1 billion, with which you do it again.

And again.

And again.

Soon you have €10 billion in bonds.  And you have €500 million in annual interest profits!

That's damn good on €1 billion in capital -- it's a return of 50% annually on your "investment."

But what happens if you suffer just a 1.5% loss on the capital value of those bonds?

You got a problem don't you?  You lose €150 million which is 15% of your capital.  You say "oh but the interest is still ok" and it initially is, except that the impairment will eventually result in a margin call.  Now what happens?  More selling shows up.  And when the decline in the capital value reaches 10%?  Oh gee, there's a billion euro hole which just happens to equal your capital, and now you're broke.

This is the problem facing Europe.  The entire system is levered like this and now, in a desperate attempt to keep the game going the banks are "eating their own tails" by buying up sovereign debt with loans from the ECB.  This is a desperate attempt to cover the losses on their property lending and yet all it winds up being is a sop to the governments which are deficit spending like mad to "prop up" their consumption.

This is a mathematical impossibility and everyone knows it, but the market is sticking its fingers in its ears and doing the "la la la la la la" game.

For now.
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Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1092 on: April 18, 2012, 10:48:40 PM »
4/18/2012 Zero Hedge


How Far to the Wall?
by Terry Coxon

http://www.zerohedge.com/news/guest-post-how-far-wall

Decades of manipulation by the Federal Reserve (through its creation of paper money) and by Congress (through its taxing and spending) have pushed the US economy into a circumstance that can't be sustained but from which there is no graceful exit.

With few exceptions, all of the noble souls who chose a career in "public service" and who've advanced to be voting members of Congress are committed to chronic deficits, though they deny it. For political purposes, deficits work. The people whose wishes come true through the spending side of the deficit are happy and vote to reelect. The people on the borrowing side of the deficit aren't complaining, since they willingly buy the Treasury bonds and Treasury bills that fund the deficit. And taxpayers generally tolerate deficits as a lesser evil than a tax hike.

Deficits are politically convenient for a second reason. They can take a little of the sting out of a recession. That effect is transient, and it's not strong – more like weak tea than Red Bull. But it can be enough to help a struggling politician get past the next election.

Yes, sometimes there's a big turnover in the personnel, such as with the 2010 election, when a platoon of self-styled anti-deficit commandoes parachuted into Congress. As soon as they had taken their seats, they began offering proposals to deal with the government's trillion-dollar revenue shortfall. But none of the proposals were serious. They were merely tokens intended to make politicians wearing anti-deficit uniforms look less ridiculous. Cut a ginormous $2 billion out of this program and a great big $500 million out of that program. Reduce spending by half a trillion dollars... over ten years. Balance the budget to the penny, but later. No one proposed anything close to dealing with the deficit now.

So stay up as late as you like on election night to see who wins, but the deficits aren't going to stop anytime soon. The debt mountain will keep growing. The part of it the government acknowledges is now approaching $16 trillion, which is more than the country's gross domestic product for a year. Obviously, the debt can't keep growing faster than the economy forever, but the people in charge do seem determined to find out just how far they can push things.

Inflation as Savior

At some point, personal and institutional portfolios will be glutted with Treasury securities, and the government will be forced to pay higher and higher rates to induce investors to take more of the paper – and the accelerating interest cost will make the deficits that much bigger. When that happens, the problem will be feeding on itself. The only way for the politicians to buy time will be through price inflation, to reduce the real burden of the debt, and whether they admit it or not, inflation is what they will be praying for.

The Federal Reserve will hear their prayer. It is 100% committed to protecting the value of the dollar, except when it is debasing the dollar in an effort to cure a recession or prevent a depression. It's been doing that important work since 1971, when the dollar slipped the leash of the gold standard. With every downturn in the economy, the Fed speeds up the creation of new cash. Each time, the economy does seem to recover, but the economic distortions that caused the recession are allowed to linger to one degree or another. They accumulate like the grotesqueries in the picture of Dorian Gray and predispose the economy to further and deeper slowdowns.

For the last three years, the Fed has been performing an additional service to help keep the system going. Whether or not you believe that suppressing interest rates with newly conjured dollars stimulates the economy in a healthy way, the practice certainly makes it easier for the Treasury to sell bonds to cover its deficit. And as total debt grows, the Fed will be biased more and more toward printing in order to retard any rise in interest rates. In short, the cost of postponing the bankruptcy of a government engaged in nonstop deficit spending will be progressively higher rates of inflation. There is no inherent stopping point in the process short of hyperinflation and the destruction of the currency.

Will it actually go that far? My guess is that it won't, but that's a guess about politics, not about economics. At some point, perhaps at an inflation rate of 30% or 40%, the turmoil that comes with runaway inflation will become so painful that the public will accept, and the politicians will find it wise to deliver, a balanced budget and a return to a stable currency. But even a year or two of such high inflation rates, while not a Weimar experience, would be a calamity. Most people's savings would be destroyed. Most businesses would be badly damaged, and most investment portfolios would be ruined. It would be like the economy hitting a wall.

But when will the economy reach the wall toward which it is headed? Not soon, I believe, but in the meantime there will be plenty of excitement.

The twin motors driving the economy toward the wall are deficits and money printing. Let's take them in turn and try to foresee their pace.

Danger Zone

When federal debt recently overtook a year's worth of gross domestic product, the US government crossed over into the zone at which, by historical experience, governments can get caught in a debt trap. High debt raises doubt about creditworthiness; doubt raises borrowing costs; higher borrowing costs add to deficits and day by day to the total debt burden; growing debt increases doubt about credit worthiness. Once in the cycle, it is hard to escape.

But Debt = GDP is not a formula for certain doom. It's possible to spend some time in a bad neighborhood without getting shot. Japan's ratio of government debt to GDP, to cite an extreme example, is over 230%. Perhaps the Japanese government is living on borrowed time as well as on borrowed money, but it is still able to find buyers for its debt at low yields.

The US may outdo Japan's ratio before hitting the wall. The capital markets will tolerate an especially high debt-to-GDP ratio for the US for a simple reason – it's safer than most other places. It doesn't get invaded, it doesn't get blown up in wars, it doesn't have revolutions and it hasn't destroyed its currency recently. Still, there is a limit to what the capital markets will tolerate.

How rapidly the US ratio of debt to GDP will grow depends on a list of barely-guessables, including how long the recovery from the recent recession drags on, the time elapsed until the next recession and the level of the public's actual tolerance for deficits. Assuming that the recent level of deficits continues indefinitely, it would take on the order of ten years for the US debt-to-GDP ratio to get where Japan's is now, which would bring us near 2022. After that, the safety factor still should buy the government a few years more.

That adds up to a long time to wait for the end of the world. Fortunately for the impatient, there is the Federal Reserve, and what the Fed will be doing, what the effects will be and when they will be felt all can be anticipated with a bit more clarity than the doings of Congress, although it remains guesswork.

Approaching the Wall

The M1 money supply has grown by 52% since the Federal Reserve opened the spigot in October of 2008. That alone is reason to believe that the current recovery, though painfully slow, is real. It has been held to a snail's pace by the fear of deflation that so many people learned in 2009. Fear of deflation is a reason to hold on to cash, but as 2009 becomes more distant, that fear is waning, and the holders of that 52% are becoming more and more disposed to think of it as excess cash that should be spent on something. That feeds the recovery.

Given the slow pace, it should be perhaps two years until the economy seems more or less normal, but the excess cash will still be at work. Give it one more year, and price inflation will emerge as a noticeable complaint. Then the Federal Reserve will let interest rates rise, but only slowly at first. By the time it tightens in earnest, price inflation will be approaching double-digit rates. It will look like the 1970s. And despite all the statistics it publishes, the Fed will only be feeling its way in the dark, since there is no reliable, real-time indicator of how much excess cash there is in the system. So inflation will keep rising, and the Fed will keep tightening until it produces a rerun of 2008-2009, with crashing investment markets announcing a new recession.

But there will be two important differences vis-à-vis 2008-2009. First, it will be happening with the US government far deeper in debt than it was when the last recession began. In the tightening phase, the government's interest expense will move above $1 trillion per year, and the budget deficit will jump to new record highs. Second, it will be happening with the rate of price inflation already at a troubling level. Another round of the monetary therapy the Fed applied to cure the last recession would push price inflation to levels beyond those reached in the 1970s. They'll do it anyway.

This gets us to 2016 or 2017 with the system in turmoil but still functioning. No wall yet, and there will be room for at least one more cycle of reflation. But it will be a fast cycle, since in an environment of already high inflation, people will be quick to spend the newly created cash. That means a quick recovery from the 2017 recession and a catapult into the 20% plus range for price inflation. Then the wall may be in sight.

In the Meantime

Did you hear about the 60-meter-wide rock? Asteroid 2012 DA14, with the kinetic energy of a thermonuclear bomb, is headed toward us. In February of next year, its approach path, as recently estimated, will bring it to within 17,000 miles of the Earth. What I haven't seen mentioned in any of the reports is that the closer an orbiting body is expected to get to the Earth, the less precise and reliable the estimates of its path become. Its path may veer this way or veer that way. And in astronomical terms, 17,000 miles is very, very close – closer than most man-made satellites. So it's not just the economy we need to anticipate.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1093 on: April 19, 2012, 04:08:27 PM »
4/19/2012 The Market Ticker


Jobless Claims 4/19: Oops
By Karl Denninger

http://market-ticker.org/akcs-www?post=204939

There's no love here.
Quote
    In the week ending April 14, the advance figure for  seasonally adjusted initial claims was 386,000, a decrease of 2,000 from the previous week's revised figure of 388,000. The 4-week moving average  was 374,750, an increase of 5,500 from the previous week's revised average of  369,250.

"But it went down!" I hear you say.  Uh, no.  The revisions folks, the revisions.  Again.

There's nothing good here; this looks like yet another train wreck and shows that job "creation" is at best tepid and might be turning negative.

There is however, one interesting thing in the big table -- and note that this is in last month's numbers:

http://market-ticker.org/akcs-www?get_gallery=2981

That regular drop is definitely something to take note of.  We'll see if that's a one-off or an actual meaningful change...... there have been a number of drops in that figure of late, so it cannot be ignored without further evidence that it is an anomaly.
"There are many things worse than dying, and there are some things far more important than living."
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Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1094 on: April 19, 2012, 04:10:01 PM »
4/19/2012 The Market Ticker


Philly Fed - Softening
By Karl Denninger

http://market-ticker.org/akcs-www?post=204944

Not good...

Quote
    Manufacturing firms responding to the April Business Outlook Survey indicated that regional manufacturing activity expanded modestly this month. The survey’s broad indicators for general activity, new orders, and shipments all remained positive but fell slightly from their readings last month. The indicator for current employment, however, showed a notable improvement. Price pressures were only slightly more widespread this month. The survey’s broad indicators of future activity remained at relatively high readings, and firms were more optimistic about their plans for hiring over the next six months.

Yeah, ok.  Nice try.

The diffusion index came in at 8.5, down from 12.5 last month.  New orders and shipments were both down, unfilled orders (backlog) was an outlier and showed build, inventories were up (a lot) and prices paid were also up (not so good), far more than prices received (very bad.)

More ominously while hiring took place employee workweek contracted.  That implies overshoot in the activity by employers, which is very bad on a forward basis.
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Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1095 on: April 19, 2012, 04:11:44 PM »
4/19/2012 Zero Hedge


How States Can Protect Themselves From Financial Collapse
by Brandon Smith

http://www.zerohedge.com/news/guest-post-how-states-can-protect-themselves-financial-collapse

The states of America are, truly, children of the Constitution.  The legal framework that is the foundation of state sovereignty and internal administration is unique for perhaps any country in history up to the moment the U.S. won its independence.  States were designed to decentralize and keep in check the power of a subservient Federal Government.  They were meant to be the guardians at the gate, the barrier to the formation of oligarchy or outright dictatorship.  This, of course, has changed drastically.

The battle over centralized verses decentralized authority and economy has been going on for quite some time, and is undeniably critical in our climate of crisis now, under a government which is bankrupt in every sense and a currency which is on the verge of calamity.

A vast shift in state independence was definitely caused by the reformations of the Civil War, but the progressive erasure of financial sovereignty in the states was really placed on the fast track after the Federal Reserve Act of 1913, when the enforcement of new taxes fueled the establishment machine, including social security (which the government constantly steals from) and the income tax (which does not pay for any state infrastructure), came to life.  Now, the Federal Government could borrow fiat money created at will by the private central bank from thin air, and, it could tax the populace to feed the Federal Reserve in a cannibalistic circle of doom.  This dynamic has grown our government to a size so massive that it is now forced to monetize its own debt just to survive.

Setting aside the inevitable collapse of the dollar and our economic system as we know it, a considerable goal has been achieved by centralists; with so much free money at the disposal of the Feds, they could wipe away the last vestiges of state sovereignty by simply BUYING state compliance.  Through agencies like the EPA, FDA, ATF, etc, 10th Amendment checks and balances are trampled constantly without any regard for local laws or the will of the people, but really, state governments and citizens would be in a far better position to deny such agency intrusions if they didn’t gobble every dollar that D.C. waves in their faces like doggie treats.  In our era of tenuous fiscal sop-gaps and imploding economies, the need for Americans, and especially states, to decouple from the Federal Government and the mainstream system is more important than ever.

The following is a step by step method that states could use to accomplish the task of insulation from financial crisis and federal control.  Much of it hinges on a willingness by state governments to actually pursue independence, which might seem like a naïve dream to most of us.  But, in the wake of a major breakdown, and the fall of the greenback, I believe many states will be seeking a way to weather the storm, if only out of a desire to survive, and this includes walking away from their ties to Washington:

Step 1:  Stop Accepting Federal Funding

For states already drowning in debt, this is probably an incomprehensible idea (there is no financial escape for California or Illinois that I can see), but for those states which have some responsibility, and lower debt levels, federal funding is not necessary.  Much of the money that the Federal Government collects comes through state cooperation.  This money is then handed back to the states through various avenues with strings attached.  The rest of the capital D.C. pumps into states is attained through printing; which carries the high price of dollar devaluation and the hidden tax of inflation.  The fact is, states are not required by law (yet) to accept federal funds.  As long as states do so anyway, they expose themselves to federal influence.  As the dollar goes, so shall all those tied to it.  States should take a lesson from the Asian bloc nations like China or Japan and begin distancing themselves as far away from U.S. currency and debt as possible.  In the long term, those that do will endure.  Those that don’t will be drug under the water along with the sinking ship.

Step 2:  Enforce 10th Amendment Nullification

Once states are no longer beholden to federal monies, they have more leeway to obstruct intrusions by alphabet agencies and to deny dangerous legislative programs (like Obamacare) which put them at financial risk.  Nullification takes many forms, and numerous issues have the potential to become vehicles for the assertion of 10th Amendment rights.  One very fascinating political method was devised by representative Phil Hart of Idaho, who used the power to declare emergencies by states themselves to devise a piece of legislation which would allow Idaho to trump Federal and EPA restriction of the local wolf problem.  As the bill flew through the legislature, interestingly, Congress delisted the wolf as an endangered species.  Obviously, the Federal Government did not want the issue to become a success for 10th Amendment rights, and so defused the situation pulling the EPA back.  Essentially, the Federal Government blinked.

This strategy could be used for multiple state conflicts with the Federal Government to effectively nullify their ability to lord over and interfere with specific needs of the people of a particular region.  The future economic prosperity of the various states will depend greatly on their ability to take decisive fiscal action without constantly having to ask permission from the feds.

Step 3:  Set Up A State Bank

There is certainly some controversy over the idea of a state bank.  In the end, any institution can be twisted for devious ends, and a state bank is no different.  However, this system has worked well in North Dakota, where a state bank has been in operation for over 90 years.   Some from the “left” (whatever that means anymore) often attempt to use the institution as an example of “socialist banking”, which is not exactly accurate, and gives the strategy a bad name.  Yes, the bank is state owned, but its purpose is to invest in and encourage free market enterprise within the state, not create a state owned and operated economy.

A state bank would be especially effective in resource rich areas, where a state government can invest in local projects run by local companies which employ local people.  This is the opposite of what we see so often today, where international corporate entities are given monopoly over resource development within a state.  They siphon away most of the profits and jobs from the region, while the Federal Government thwarts the growth of competing small businesses through concerted taxation and regulation.  This goes on because states often do not feel they have the funding capability to encourage local business efforts.  The problem diminishes drastically with a state bank, if done correctly, honestly, and with oversight from the citizenry.

Step 4:  Resource Development

As mentioned above, resource rich states will have a noticeable advantage in the event of a primary system collapse.  As the dollar continues to tumble and inflation rises, trade methods will eventually revert to raw goods and materials.  This has taken place in nearly every recorded modern economic crisis, and was especially prevalent during Weimar Germany, when debtor nations began refusing the hyperinflated Mark as payment, and demanded natural resources from the Germans instead.  States with heavy resources will be in a perfect position to decouple from the failing establishment and build their own systems (which is probably a main motivation behind Obama’s latest “National Defense Resources Preparedness Executive Order…).

Step 5:  Adopt Alternative Currencies

There is a lot of debate over the “legality” of a state coining its own money, so, I recommend cutting out the debate entirely and merely adopting certain metals, like silver, gold and copper, as recognized methods of payment within the state.  Many state governments are considering measures for alternative currencies, and some, like Utah, have passed bills on precious metals.  The problem is that most of these bills do not go far enough.  At bottom, states are going to have to complete the economic chain by paying OUT precious metals into the system and encouraging businesses to do likewise.  It’s not enough for residents to be allowed to pay IN.

States that rely on the dollar as their only trade mechanism will fail.  States that decentralize currencies by adding other options into the mix will survive.  It’s really that simple.

Step 6:  Encourage Localized Markets

States will only be as healthy economically as their individual communities allow.  Small communities can become independent trade networks on their own, but the right state help and encouragement would make the process move along much faster.  The more self reliant each town and county becomes, the more insulated they become from wide spectrum disaster.  During any national breakdown, redundancy is the key.  It will mean the difference between a total nightmare scenario and large scale tragedy, or a minimal system shock followed by rapid rebuilding.  Barter must be reintroduced to the American lifestyle, and states have the ability to help nurture network growth.  Trade skills and micro-industries can easily be promoted through state programs.

This is the kind of constructive government involvement that is needed; it seeks to open doors and then gets out of the way, rather than closing doors, and grasping for more control.  Unfortunately, policies like this are not possible under the current Federal construct, but they still could be possible within the states.

I would like to point out that in the event that your state government is not receptive to the idea of independent economy, all is not lost.  Each one of the steps above can be accomplished in reverse at the neighborhood, town, and county level.  Over a period of time, and with relentless drive, solid alternative networks will spread, link, and take over a state regardless of what the local government approves of.  The secret is this;

Provide for yourself and others what the mainstream system will not, and eventually, they will either have to conform to your logic, because it works, or, they will have to try and stop you with violence and expose their inherent tyranny, building greater resistance.  In either case, you win.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1096 on: April 23, 2012, 04:09:36 PM »
4/23/2012 Zero Hedge


I Do Not Believe, Any Longer, That The Catastrophe Can Be Avoided
by Mark Grant

http://www.zerohedge.com/news/mark-grant-i-do-not-believe-any-longer-catastrophe-can-be-avoided

State Guarantees
Quote
    “Countries were additionally asked about the amount of state guarantees. These do not form part of government debt, but are a contingent liability.” -Eurostat
     
On No Account

I am asked so often about this that I wanted to print out the exact wording from the European Statistics office. In fact, no contingent liabilities are calculated in any government’s debt to GDP ratio in Europe nor are their liabilities (ownership) at the European Union or the European Central Bank. They not only do not include any of these numbers but state guaranteed bonds and bank guaranteed bonds and derivatives contracts also are not part of any debt to GDP ratios in Europe. Right, wrong or indifferent; this is the way Europe does its calculations.
 
The numbers speak for themselves. The contingent assets are trumpeted from the plains of Heaven. The contingent liabilities are lame mutes living in the “sounds of silence.” The proffered songs could not be more distinct.

Quote
    “There are two kinds of truths: those of reasoning and those of facts. The truths of reasoning are necessary and their opposite is impossible; the truths of fact are contingent and their opposites are possible.” -Gottfried Leibniz

The Counting House

This paradigm for liabilities then is in stark contrast with contingent assets. Here Europe not only counts sovereign guarantees but flouts them in the Press as is the case with the IMF firewall or the European Stabilization Funds. In each case there is very little actual paid in capital but a tremendous amount of promised capital if needed. So the methodology is to count contingent assets and not to count contingent liabilities and, hence, we have arrived at a position of inaccurate numbers, deceptive information and decisions made based upon falsifications by omission. In my view there is no rational justification for using the two opposing schemes at the same time except to distort the data for Europe’s own benefit and to mislead investors, suppliers and perhaps the non-domiciled international banks.
   
Quote
    “They're out there...One Flew Over the Cuckoo's Nest” -Ken Kesey
     
Belgium
 
Nowhere is the danger greater than in Belgium at present. They paid $7.13 billion for their share of Dexia and took on, at the time, another $71.9 billion in contingent liabilities. Since then they have provided sovereign guarantees for BNP Paribas in Belgium and for Fortis Banque which has taken Belgium to $182.2 billion in sovereign guaranteed bank debt. In addition they have provided $20.7 billion in capital and $11.4 billion in loans to the financial sector. Taken all together this totals $213.8 billion which is nowhere to be found in their debt to GDP ratio. Just these liabilities alone are then equivalent to 41% of Belgium’s GDP. On 4/20/12 the central Bank of Belgium admitted the economy was in contraction and that the current “official” debt to GDP ratio was 98.2%. This then takes financial sector contingent liabilities and the “official” debt to GDP ratio to an astounding 139.2% but the story does not end there. Belgium is accountable for $132.8 billion of the ECB’s balance sheet, $50 billion for the Stabilization Funds, $36 billion for the Macro Financial Assistance Fund, $26.8 billion of the European Investment Bank’s balance sheet which adds another $245.6 billion to Belgium’s liabilities. Consequently Belgium’s European liabilities are an additional 64% of their GDP. Then the gross total is:
 
Belgium’s Actual Debt to GDP Ratio                                    203.2%
 
Now guarantees and promises and contingent liabilities are funny things. You can pretend that they aren’t there but then they show up and demand payment. You may recall the monoline bond insurers who were just fine with their guarantees of American municipal debt and then they expanded their coverage to mortgage obligations and the result of that decision is now written in the pages of history.
 
The IMF
 
It is nice that they now have $430 billion in contingent assets pledged for Europe. You may wonder, since every politician on the Continent says that things are so much better, why this weekend they were holding the G-20 charity event. If things were actually better one would speculate that a request for alms would not be needed. If everything is so great at home; they would not need to come begging from other nations. I believe there is a clue here, a real indication of the problems and a real sign of the severity of the issues.
 
It is all fine and dandy that pledges have been made and that the back-slapping ensued. The reality is, however, that this does not change one blessed fiscal problem in Greece, Portugal, Ireland, Spain, Italy or Belgium. Nothing changed; nothing was minimized so that when the financial obligations overcome the available capital the result will be just the same. The real debt to GDP numbers for these countries will drive the results regardless of the funny numbers offered by Europe. There is NO opinion in the data for the liabilities that I have presented; it is Europe’s own numbers. I just counted what they did not wish to count.
 
When will the bough break?
 
I am asked this all of the time, each conference that I speak at, each television segment on Europe and at each discussion with various money managers concerning the problems on the Continent. I always smile because we have already had three branches snap and they are Greece, Portugal and Ireland. So the actual question is when will the next sprig be shorn and then when will the tree be felled. If we use this tree as the analogy then so far Europe’s responses have been to “water, water, water” and then “prune, prune, prune.” This is liquidity shoved in and austerity meted out. There are only two ways out of the current dilemma and that is growth which is not possible as the European economies contract and fare worse as the result of the austerity measures or Inflation; which Germany can’t stomach. The “at the very bottom of the barrel” answer then is not an economic response at all but a question of politics. The answer is actually when some nation cannot take it anymore; either the funding and the increase in national debt and the resultant credit downgrades or in receiving and the pain inflicted upon the populace. From the funding perspective it will be when the debts of the givers begin to match the debts of the borrowers. From the recipients it will be when the core nations decide that no more money will be given and so they will leave the funding nations and their banks with the debts and return to their own currencies and devalue. Which one comes first can only be answered by Divine Providence but I do not believe the train wreck can be stopped. I do not believe, any longer, that the catastrophe can be avoided and I would begin to immediately plan for an event that will eclipse the American financial crisis of 2007-2009 because this one will be far worse.
 
The Netherlands
 
The government has fallen. There will be a new caretaker government until things get straightened out. The government fell due to the austerity measures that have been demanded by the new fiscal pact in Europe. The Netherlands are one of the few “AAA” governments left in Europe and the head of the party that withdrew its support from the current coalition stated, “We don’t want to follow Brussels’ orders. We don’t want to make our retirees bleed for Brussels’ diktats.” That is pretty clear I think; long live the Dutch and to heck with the commands of the European Union. Europe is in a recession and Nationalism is coming to the fore and the real numbers are hitting the core nations in Europe regardless of whether they are recognized by politicians or not.
 
The Sounds of the Trumpet
 
The numbers that I have given you for various countries’ debt to GDP ratio are accurate and inclusive. There is nothing magic about them. The data all comes from what the Europeans provide themselves. There is a long slog in finding the numbers and then it is simple addition and one division by their stated GDP. Then since you have the real ratios you can make your own decisions before the contingent liabilities show up. I can assure you after my almost four decades in the Great Game that many of the liabilities will show up especially those connected to banks and other entities that are not under the State’s control. The signs are all around you; France will be ruled by an anti-bank socialist, the Netherlands government has fallen, every nation in Europe is becoming much more Nationalistic, the Continent is in recession, Spain cannot hold because any rational reading of their financial position decries the political nonsense, Greece will get another round of capital or leave the Euro in short order having milked everyone they could for their own benefit, Portugal is a continuing disaster, Ireland is hanging on  by the skin of their teeth and this grand experiment that Europe has constructed is about to end. Even if you disagree with my conclusions; you cannot ignore the risk. At the present time the Risk is so over weighted as to the Reward that common sense demands either a prompt exit or some kind of vote against if that is your mandate. There are those in life that get some sort of joy from singing the song of “I told you so” but I am not one of them. Take my advice now and when the hordes of Mordor begin their march we can smile and sigh that we were safely behind the castle walls and not out in the pasture being devoured.

Quote
    “It is forbidden to kill; therefore all murderers are punished unless they kill in large numbers and to the sound of trumpets. “ -Voltaire
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1097 on: April 23, 2012, 04:19:29 PM »
04/23/2012 Zero Hedge


Dutch Cabinet Resigns
by Tyler Durden

http://www.zerohedge.com/news/dutch-cabinet-resigns


As reported first thing this morning when we discussed the perfect storm in Europe, the Dutch government was expected to resign en masse in the aftermath of this weekend's auterity fiasco. Sure enough, that resignation is now fact.

From the WSJ:
Quote
    Dutch Prime Minister Mark Rutte and his cabinet have resigned after failing to reach agreement on reducing the country's budget to meet European guidelines, the Dutch government information service said Monday.

    The information service said that Mr. Rutte had met with Queen Beatrix and she had accepted his resignation, asking him to tend to pressing matters of state with a caretaker government for the time being. Mr. Rutte is due to address parliament Tuesday afternoon to discuss interim budget cuts and schedule new elections.

    Talks over measures to slash the government's budget deficit collapsed over the weekend after seven weeks of negotiations, raising questions about the future commitment of one of the euro zone's foremost proponents of fiscal stringency to a German-led austerity agenda.

    The Netherlands has been a key ally of Germany and one of the most vociferous supporters of austerity since Greece's debt problems initiated the euro-zone's debt crisis more than two years ago. But its economy is performing poorly and is expected to shrink this year, widening its budget deficit and making it one of the worst-performing in the euro zone.

    The talks collapsed after the right-wing Freedom Party pulled out of talks with Mr. Rutte's center-right liberal party. The negotiations had been aimed at cutting the budget deficit to 3% of gross domestic product next year, in line with European Union rules, from a forecast 4.6%.

And so the final Catch 22 for Europe unfolds: impair banks and suffer threats of the end of the world, or impair citizens and suffer falling governments. Check to you.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

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Re: Consolidated Financial Doom Thread
« Reply #1098 on: April 23, 2012, 04:23:29 PM »
4/23/2012 Zero Hedge


Russia Will Not Reopen: "The Situation Has Been Recognized As An Emergency"
by Tyler Durden

http://www.zerohedge.com/news/russia-will-not-reopen-situation-has-been-reocginzed-emergency


One temporary halt and three delay attempts later, and we get.... this.



Yes, this is the Russian stock market.
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004

Offline SilverDeth

  • ...a propagandist by inclination...
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Re: Consolidated Financial Doom Thread
« Reply #1099 on: April 23, 2012, 04:25:33 PM »
4/23/2012 Zero Hedge


US Welfare State To Run Out Of Cash Sooner Than Hoped For
by Tyler Durden

http://www.zerohedge.com/news/us-welfare-state-run-out-cash-sooner-hoped

Medicare trustees just released their annual report on the program's finances and it does not make for healthy reading. In fact the main headline takeaway is that the social security fund itself will now run dry three years sooner than was projected in 2011. While 2035, the new deadline, seems a long way off, the 5% rise in medicare costs in 2011 should be enough to worry most and perhaps more disturbing is the separate disability program is set to run dry in 2016 (two years earlier than expected) and Medicare is to be depleted by 2014. Headlines via Bloomberg:

    *MEDICARE COSTS RISE 5 PERCENT TO $549 BILLION IN 2011   :UNH US
    *LONG-TERM PROJECTIONS FOR MEDICARE WORSEN, TRUSTEES SAY :UNH US
    *HOSPITALS TO FACE MEDICARE PAYMENT CUTS IN 2024, U.S. SAYS
    *TRUSTEES SAY FUND TO RUN OUT THREE YEARS EARLIER THAN PREDICTED

Added Tim Geithner's ever-positive spin-fest...

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/04/20120423_TSY1.png
"There are many things worse than dying, and there are some things far more important than living."
- Me, 2004


 

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