Here are my Top 10 links from around the Internet at 10 to 9 pm, brought to you in association with New Zealand Mint for your reading pleasure.
My apologies for lateness tonight.
The South Canterbury/Allan Hubbard thing is blowing up big time.
I welcome your additions and comments below, or please send suggestions for Monday's Top 10 at 10 via email to bernard.hickey@interest.co.nz. Remember that registered commenters can more easily include links out in their comments. Use the box in the right hand column to register. We're turning off unregistered comments from September 12. I'll pop any surplus suggestions I get into the comment stream under the Top 10.
1. A cunning plan - America's banks are being bailed out in slow motion through the recession.
It's almost as if they don't want a recovery.
Economist Andy Harless explains on his blog.
How does the Recession allow the government to bail out banks? With the recession going on, people are afraid to do anything risky with their assets, so they keep them deposited in banks, earning no interest. Banks can then invest these deposits in Treasury notes and credit the interest on those Treasury notes to their bottom line, thus improving their balance sheets. So the government pays to recapitalize banks while receiving nothing in return. Now this bailout program is not without its risks.
The biggest risk is that the economy will recover, which would be a disaster for the program. Suddenly, not only would banks be holding losses on their Treasury notes, but their cost of funds would go up, as depositors realized that there were more attractive investments available than zero-interest bank deposits.
2. Americans are worried - Here's what Bill Bonner at The Daily Reckoning is saying will happen in US financial markets.
The US economy will become a Zombie Economy, with more and more activity dependent on government spending and government support. Banks are already Zombie Investors. Rather than lend to viable businesses that expand the world’s wealth, they borrow from the feds and lend the money back to them. We’ll see private investors become Zombie Investors too – putting nearly all their savings into US Treasury paper, just as the Japanese did.
The Dow will sink down towards 5,000. The feds will announce program after program to boost up the economy. Household savings rates will head to 10%. Unemployment will go to 12%…maybe 15%. Bond yields will collapse to new record lows. Ben Bernanke will threaten to drop money from helicopters…but as long as the US remains in an orderly decline, he will not dare to do it.
Eventually, the whole system will blow up in a spectacular fireball. But not until America’s investors are fully committed to US paper. Then, after having suffered huge losses in stocks and real estate, they can be finally ruined in what they thought were the safest investments in the world – dollar-based US Treasury bonds.
3. An entertaining theory - Gonzalo Lira writes at Zerohedge how record low interest rates and near deflation can turn into Hyper-inflation. Essentially Gonzalo reckons an almighty bust is likely in US Treasuries that will undermine faith in the US dollar and we're all going to a hell in a hand cart shortly after that.
It all reads in a sensible fashion and is certainly entertaining. It seems bit too convenient and tidy for my liking. Life or the markets are never that well organised...
Here the panic phase of the event begins: Asset managers—on seeing this massive Fed buy of Treasuries, and the American Zombies selling Treasuries, all of this happening within days of a largish Treasury auction—will dump their own Treasuries en masse. They will be aware how precarious the U.S. economy is, how over-indebted the government is, how U.S. Treasuries look a lot like Greek debt.
They’re not stupid: Everyone is aware of the idea of a “Treasury bubble” making the rounds. A lot of people—myself included—think that the Fed, the Treasury and the American Zombies are colluding in a triangular trade in Treasury bonds, carrying out a de facto Stealth Monetization:
The Treasury issues the debt to finance fiscal spending, the TBTF banks buy them, with money provided to them by the Fed. Whether it’s true or not is actually beside the point—there is the widespread perception that that is what’s going on. In a panic, widespread perception is your trading strategy. So when the Fed begins buying Treasuries full-blast to prop up their prices, these asset managers will all decide, “Time to get out of Dodge—now.”
4. The big deleveraging lie - Jim Quinn from the Burning Platform writes at Zerohedge that deleveraging hasn't really started in America yet and the scale of the deleveraging to come is ginormous.
Here's the killer chart below that everyone should learn off by heart and Quinn's thoughts. HT Troy via email.
Consumer spending as a percentage of GDP is still above 70%. This is well above the 64% level that was consistent between 1950 and 1980. Consumer spending was entirely propped up by an ever increasing level of debt. The American economy will never recover until consumer spending drops back to the 64% range that indicates a balanced economic system. For the mathematically challenged on CNBC and in the White House, this means that consumers need to reduce their spending by an additional $850 billion PER YEAR.
Total credit market debt peaked at $52.9 trillion in the 1st quarter of 2009. It is currently at $52.1 trillion. The GREAT DE-LEVERAGING of the United States has chopped our total debt by 1.5%. Move along. No more to see here. Time to go to the mall. Can anyone in their right mind look at this chart and think this financial crisis is over?
The consumer hasn’t cut back at all. They are still spending and borrowing. It is beyond my comprehension that no one on CNBC or in the other mainstream media can do simple math to figure out that the deleveraging story is just a Big Lie.
5. An ugly mood - The fear of some sort of upheaval or revolution is growing among the richest of the rich in New York. Here's Yves Smith from Naked Capitalism talking about it.
The conversation turned to whether the US was going towards revolution or fascism. One argued for the a continuation of trends underway: that the continuing weakness of the Obama Administration (and the discrediting of other members of the elite) meant there was a power vacuum. The obvious group to exploit it is the most strident, uncompromising opportunists, an area where the extreme right has a monopoly.
The other, who has ben reading up on the French Revolutions. took issue with the conventional idea that a revolution is impossible in America: “In France, the trigger was that people were hungry. We are close to that point than most think.” He stressed the desensitization to violence (video games, more and more violence) plus widespread gun ownership.
The U.S. Commerce Department developed 14 proposals to crack down on illegal import practices and require parties to pay the full amount of any duties, according to a statement today. The process to adopt the plan, which the department said is especially aimed at countries where the government has control over markets, will begin later this year.
“Generally, this is targeted at China, and China will see it as such,” said David Spooner, a former Commerce Department official in the Bush administration and now a trade lawyer with Squire Sanders in Washington. “The aim is to raise the price of goods from China.” The plan is part of the administration’s effort to double exports in the next five years to spur job growth, a goal President Barack Obama set in his State of the Union speech in January.
7. New global currency? - The FT is reporting that large banks are now offering to settle deals with large corporate customers in Renminbi rather than US dollars.
A number of the world’s biggest banks have launched international roadshows promoting the use of the renminbi to corporate customers instead of the dollar for trade deals with China.
HSBC, which recently moved its chief executive from London to Hong Kong, and Standard Chartered, are offering discounted transaction fees and other financial incentives to companies that choose to settle trade in the Chinese currency.
“We’re now capable of doing renminbi settlement in many parts of the world,” said Chris Lewis, HSBC’s head of trade for greater China. “All the other major international banks are frantically trying to do the same thing.”
8. 'It was the war what did it' - Italian economist and journalist Loretta Napoleoni argues on Australia's ABC that the US-led war on terrorism was a major cause. Here's another interview on BBC.
In launching military and propaganda wars in the Middle East, America overlooked the war of economic independence waged by Al-Qaeda.
The Patriot Act boosted the black market economy, and the war on terror prompted a rise in oil prices that led to food riots and distracted governments from the trillion-dollar machinations of Wall Street. Consumers and taxpayers, spurred by propaganda fears, were lured into crushing global debt.
9. Totally irrelevant video - A man takes his clothes off and jumps into a haybaler. Looks painful to me. Or a hoax. Sort of fun to watch. HT John via email.
10. Totally irrelevant video - My Wife Knows Everything vs. The Wife Doesn't Know. It's a horse race. Guess which horses are in the running at the end. The announcer has a ball. Miss Tallahassee is third.
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