"They should start by downgrading the U.K."
That's the word from BOF Governor Noyer when asked about the rumored French rating cut. That follows a report of Sarkozy calling David Cameron an "obstinate kid" over his behavior at the summit. “A downgrade doesn’t strike me as justified based on economic fundamentals,” Noyer told Le Telegramme, a Brittany-based newspaper. “Or if it is, they should start by downgrading the U.K., which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.”
That's a Big Central Banking no-no. One Central Banker doesn't generally use the word COLLAPSING when discussing the another Central Bank's economy - especially when the economies are as closely tied as France and the U.K.'s. To some extent, this is evidence of how tightly ratcheted up tensions are in Euroland as well as how crazy everyone and everything is going these days.
Note in the chart above that Spain and Italy are not so much the U.K.'s problem as they are that of France and Germany and England does have Ireland to worry about in much larger proportions so it's natural that this should shape policy on both sides of the Channel. Obviously people who issue Fiat currencies shouldn't cast dispersions on ANYONE - as you REALLY do not want people questioning the soundness of the entire system where each country simply puts its ink on a piece of paper and calls it money and tricks people into trading their stuff for it.
My 11-year-old daughter thinks the whole system makes no sense (her school hasn't completely extinguished her ability to question authority - yet) and asked me on what basis the dollar goes up and down and why she gets the same allowance each week regardless of changes in its buying power. Even a child realizes she is being ripped off by this system and the worst thing Central Banks can do is to wake up the population to the fact that the "legal tender" ain't what it used to be. I pointed out to Madeline that she was on the right track and and told her to listen Jackson Brown's "The Pretender" - she caught it the first time around - we're still waiting for the rest of the happy idiots to wake up ...
Pretense is what Fiat Currencies are all about! There's no gold backing these notes, no silver, no land - NOTHING! As I pointed out in an extensive economic discussion this morning in member chat, it says right on the bills you have in your pocket: "This note is legal tender for ALL DEBTS PUBLIC and private." It says that on a $5 bill and a $20 and a one and a $100 and, should the government decide it needs to, it would say that on a $100 billion dollar bill too - muhahaha!!
Evil laughter aside, what do you expect the United States to do to pay off its $15,000,000,000,000 current debt and the $320,000,000,000,000 projected debt as our "unfunded entitlements" come due? We could:
- A) Reneg on all our entitlement obligations and default on our debts and suffer whatever consequences up to and including seeing our FORMER leaders heads on pikes
- B) Tighten our belts and cut back all government programs to the point where the $2Tn in taxes and FICA payments the government receives each year has a surplus, let's pretend it's a trillion dollar surplus as we cut our $3.5Tn government to $1Tn by giving up our Army and Medicare and Medicade and stop fixing roads and bailing out banks, etc. - even then it will take us 15 years to pay off our current debts and another 300 years to pay off our forward obligations, or
- C) We print $15Bn worth of new currency, give it to our creditors and say "now can we have some more?"
If you chose C - you can be the next Fed chairman. Europe, of course, is pretending they are choosing "B" on a country by country basis but, as a Union, they are running those presses day and night. Here's Ron Paul's commentary on the subject. With people like Ron Paul around pointing out the the Emperor has no clothes, the last thing Central Bankers should be doing is pointing out each other's nakedness.
Click to enlarge
So, as we move into the Global Fiat Currency End Game, where even the boys at the top of the food chain are beginning to turn on each other, we still have our simple bullish premise - hyperinflation. There's no other logical outcome, all other roads lead to ruin and perhaps hyperinflation does to but, in the very least, it's the "solution" that, in the short-term, kicks the can furthest down the road.
Our November PPI was 50% higher than predicted by Economorons but the core PPI was just 0.1% so the Fed can continue to pretend inflation is under control - as long as they don't find themselves in a room where my daughter is able to challenge them anyway ...
We're in very good shape for a little pop today, after having taken our bearish money and running on yesterday's dip. As I said to members in yesterday's chat regarding the next two days:
End of week – Well it’s options expiration on Friday so we should get a move back up tomorrow to put us up about 1-2% (close to where this option period began) and then we’ll likely flatline into Friday to burn off the premium.
We're certainly not gung-ho bullish but we made our Egg McMuffin money this morning as we went bullish in the futures so now we can simply relax and see how much of the pre-market run ends up sticking. Bearish Fed speak tomorrow morning from Evans and Fischer should keep a lid on our gains.
Disclosure: I am long FAS, XLF, JPM, VLO.
Additional disclosure: Positions as indicated but subject to change.