Reinko

BOJ Foot Dragging Continues to Exert Upward Pressure on Japan's Bond Yields

I agree with the first comment:

The USA is heading towards a full decade long ZIRP system.

But the link posted at the end of the comment uses thousands and thousands of words and a lot of graphs that are not needed.

It's all pretty simple:

If average interest rates are about 5% and total debts inside an economy are 300% of the yearly gross domestic product, in that case 15% of the gross domestic product is needed to 'service the debt' (that means paying for the interest).

The USA has above 350% of debt on herself, so an average interest ratio of 5% would very soon lead to a complete and utter bankruptcy of the entire USA.

Simply because serving the interest is above the combined profits of the entire USA.

It is all so simple, why need thousands and thousands of words to arrive at this conclusion?????

Beats me...

As far as Japan is concerned, they have higher saving rates compared to the USA but their economy is not suited to survive when the USA finally defaults.
Poor poor Japs.

Mike Mayo's Seven Deadly Sins of Banking

Can we take the writer Tyler Durden seriously?

His black and white picture looks like a seventeen year old, his writings are at best a 27 year old running on testorone.

There is only repetition on info that is already out, zero future stuff has been observed.

So Tyler; who are you & for example where is the US$ one year from now???

Defending Financial Journalists - and Bloggers

I too think financial journalists are not 'obliged' to predict the future. For example on CNN the journo's are only there to popularize the economical stuff; explaining the difference between the real GDP and the one that includes inflation is about one of the most interellectual challenges over there.

On CNBC I have less mercy, after all they pretend to be a financial channel. But the truth is that even on CNBC they every now and then invite some very bearish folks.

As a profession however, I think the economists are much much more to blame. So often the Nobel prize for economics went to the USA and all of these folks simply did not see it coming.
That is strange because already in the Spring of 2004 I published how (for example) Central Banks from developing nations should behave... Ok I was a bit early may be but all my doom and gloom scenario's came out; to be honest reality with AIG, the investment banks or the derivative fun was even a larger then expected by me.

My vote for the worst performing profession goes to the USA economists (a kind of incest qlique only looking at their local pals missing the rest of economical theory in the rest of the world).

The Free Market Votes: Still No Change We Can Believe In

I completely disagree with most other commentors; Not only lawyers are economically illeterate, this goes for most US economists too.

And Wall Street voting with their feet & money after some Obama remark? They never did this when the previous Dubya told time in and again 'The fundamentals of the economy are strong'.

Years ago anyone who was a bit 'economically illeterate' could see the US economy was only castle of sand. Castles of sand have a habbit of survinving until the next tide comes in, any idiot who understood how the US economy worked could see that.

When your building blocks are made from debt, your debt levels rise always faster compared to your profit growth, how can you expect to live in a castle made from stones?

Worrisome Prospects for European Banks

This looks like a misleading article;

If you click on the first link from the author you get CDS on four banks I never heard of.

A far more important statistic is CDS on the USA; but unlike the author I do not have access to that 'grab' software he uses.

Of course CDS levels are sometimes rubbish and at other times a very reliable future indicator. CDS is often rubbsih when it comes to small players that can be wasted because CDS still has no real reserves when it comes to paying out the damage.

But as an indicator or the 'rumors' level it is very acceptable...

15 Notes on the Global Economy

To user 261133:

Nice to have some backup that the USA health care system is a lousy system.
I have worked a few times in Germany and I understand that you feel more freely in the USA, yet my relative liberal Dutch landscape is good enough for me.

Lets only zoom in on US healthcare and only one anecdote:

Lately I did read the adventures of a guy with a small company who managed to get health care for his entire family;

Entry costs only 5000 $ and above 1000$ a month for the entire family.

And what do you get?

Well if you go with a serious thing to a US hospital the first thing they do is run over 20 tests. (This to avoid judicial shit in the future.)

Here in the Dutch landscape when I go to the hospital, they first ask:
What is the problem?

And after that they try to solve the problem (that does not take away we have a lot of stupid doctors here too but the money thing is just different and better for the society as a whole).

15 Notes on the Global Economy

It is now a day later (there is 6 to 8 hours time lag you know).

It is amazing how many people react on what I wrote, so lets look at a few comments on for example health care:

My health insurance is 110 € a month and the kids are free, to be precise I can voluntary pay about 25 € for dentist insurance.
A lot of people point to the fact that via taxes we pay for the rest of the insurance; that is not correct. Here in the Netherlands the employer also pays a large part.

With or without a job my health care is only 110 Euro, it is impossible not to be insured because by law everbody has to pay for health insurance.
(So there is no large pool of relative healthy people that opt for no insurance.)
Even stronger: The hospitals have insurance against those who are not insured (like illegal aliens).
In short: Here are no millions without healt care.
We might not have a third or a fourth car, but what extra happiness does that bring to society?

__________

Without backing it up, User64738 knows that we have far higher taxes compared to the USA. That falls into the category of popular myth; I did think that too for a long time but most USA folks pay 30 to 40% taxes on their income and that is pretty much in line with over here.
However in the past this has been a problem here after we had socialist labor parties running the country; above 100000 of income? Easily over 60% was taxed away and at some point in time people in high paid jobs refused to work any longer any overtimes because they more or less worked for free.

__________

Then otbricki adds that the few trillions towards East Europe will wipe out the Euro. He forgets to mention the logic involved; aren't it the countries that stayed out of the Euro that get the real beating?

The Euro might still be a young currency but without it troubles would have been much greater. Going back to a situation without the Euro would also multiply the problems; once more Europe would be a wheelbarrow with frogs.
Giving up the Euro would be the same as the Americans giving up the $.

Often you hear that in Europe there are no multinational organizations to deal with the problems, that is correct but this also brings the benefit of flexibility; every country can do what it wants where in the USA for exampla California is not allowed to run a deficit (or face Chapter 11 if they do).

And the fact that a lot of banks will go is obvious; there is much to much banking capacity anyway. Let them die!
In the USA before the crisis broke out, financial sector was 20% of the economy. If you think about it; that is crazy, counter productive and such a large size can only work as a parasite on the real economy.

__________

On the reserve status of the US dollar:

I simply stay with my many year long obervation that the reserve status has always propped up the dollar and the Americans got lazy by that.
I am also hefty against such a role for the € in the future; the first one or two decades it will bring benefits, after that you get similar sizes in drawbacks.

__________

On obesity rates:

It is well known that in the USA this is a statistic running rampant, in no other nation there are so many very fat people. When people get lazy they get fat, that is as simple as 1 + 1 = 2.

Here in Europe obesity is also on the rise but I never studied those statistics so I cannot make much comment on that.

Bosun.j wrote 130 million Europeans qualify for obesity; that would be a large fraction of the population. I think it is less, lets say 100 million, but it is on the rise so in this regard the crisis is a good thing...

__________

At last: The 17 trillion of debt the US financial sector has will be a giant producer of future toxic debt. It is not in the news but those folks at CNN or CNBC or Fox News do not understand what happens when debt is above one USA GDP and routinely grows faster then the GDP for a few decades.

Interest obligations (and coupon for bonds) are so huge; this credit crisis hasn't really begun yet.

Printing money will become more important because the sizes of toxic debt will be to large for taxpayer money.

__________

I hope (although one day late) I have answered some of the things you folks threw up.

Have a nice crisis or try to get one...;)

15 Notes on the Global Economy

A Swiss bankruptcy?

I never studied the details in depth but for the time being I consider this a non starter. From the very beginning it was clear tremendous amounts of money needed to go to East Europe.

Remeber the union between East and West Germany?

In those long lost years we were told the union could cost about one hundred billion Deutsche Marks, these were devestating numbers in those years.
But I visited East Germany during a Summer holiday as soon as that was possible and that was just the money needed.

Indeed for East Europe stuff strikes hard; the big motor behind defaults will be the currency decline.
For the time being I consider this a temporary problem; the East Europeans are willing to work hard and long and are willing to adept.

You connot compare that to the obese USA population that is waggling around without any serious industrial base and still think they are the masters of the universe.

If the Swiss nation will go bankrupt it will be because they hugged the US economical theories that make debt the central growing thing instead of savings. If the Swiss banks have done that they deserve to be wiped out, life is so easy...

U.S. Dealing with a Boatload of Debt - Moody's

There are a few remarks to make on this subject:

1) Indeed the 5.8 trillion $ mentioned is only the puclic outstanding debt as you can find for example in this FED file:

www.federalreserve.gov...

2) Lately the US Congress and/or Senate gave the new ceiling for US Federal debt: above 10 trillion $.
Although I am looking for this for a long time: It is still unknown if the two decades of so called emergency spending is in this ceiling yes or no.

It might very well be that the difference is only the combined sum as found in the Federal funds; all these funds contain Treasuries and the money is long long spend.

Example: The FDIC has a bank saving fund; but there is no money in it, all banks that need to be rescued directly come to the wallet of the taxpayers or freshly borrowed money.

3) The combined US financial sector has over 17 trillion of debt on herself, that is a manifold of the total profits and this debt still climbs double digit percent each year.
Needless to say: the financial sector is only a fraction of the US economy and the size is above one GDP. It grows faster than the GDP so this produces gigant sizes of so called 'toxic loans'.

4) As a whole the US economy has over 350% of GDP in debt, if interest rates return to a normal level, lets say 5%, then there is 17.5% of GDP needed just to cover interest expenses...

Conclusion: this will not survive!

Risks to U.S. AAA Rating Have Grown

This is a dumb article that contains major faults and mistakes.

The most important is the so called net Federal debt that is 42% of the GDP. You can find that 'net debt' for example in the next link from the FED:

www.federalreserve.gov...

It says: 5822.7 billion in Federal debt.

This is a nonsense figure; lately US Senate and Congress gave a new ceiling above 10 trillion.
Furthermore there is all kinds of hidden debt, for example the Pentagon has a budget in fiscal 2007/2008 of 700 billion;
That is 500 billion in 'real budget' and a small 200 billion in 'supplements' that do not count for the official deficit.

Just another example:
All Federal Funds do not contain money but US Treasuries, for example the Fund of the FDIC is filled with Treasuries. All insurance money laid in by the banks is long gone.
This goes for all Federal Funds, again a few trillion is added to the Federal debt. Think of the Social Security funds for example; no real money in it but only Treasuries...

In reality the 42% is a joke and debt stands far far above other AAA rated nations.

I could go on longer, but at S&P they know their stuff; as long as nobody complains they keep on doing their best for the USA.

The First (and Possibly Last) Euro Decade

Not often such a dumb article was published around here.

So many actual faults in it and it still gets published?

Just look in the gold reserve positions in the table as publised above:

USA with a 300+ million population,
The Netherlands with only a 16+ million population

and we are to believed that gold reserves stand at:

USA = 76.5 % of reserves &
My country = 57.8 % of reserves...

In my country these reserves are not borrowed out, in the USA it is different.

Lets leave it with that....

Ok ok one more blast against this kind of stupidity:

In the USA the reserves of the FDIC are only Treasuries, all the money paid by the banks is gone by now. All their insurance money is replaced by US Treasuries. And every bank saved is only via tax payer money, or as lately money press fun from Ben Bernanke.

Here in the Dutch landscape we are not that stupid, here when we talk about reserves we talk about reserves.

That is saved money....

In the USA the only saved money is belly fat and on the bank accounts only debt is found.

Forex: Why the Dollar Is Staying Strong

We have to take into account that dollar moves these years are often not good to explain, for example lately European inflation was reported at 1.6% instead of 1.8% (while core inflation still above 2%).

That gave an intraday swing of 2% on the €/$ pair.

Later Obama stated that trillion deficits will be there for a couple of years and almost nothing happens...

There simply is no economical theory that explains such weird behavior; one thing is clear:

Those who have the deep pockets to steer the value of the dollar neglect large parts of what the real value should be.
Don't forget: In the 600 trillion nominal value in the OTC derivative markets a tremendous amount is bounded to currencies; if we would have more insights who has what kind of derivatives you might better understand the weird weird behavior of the US dollar.

It might very well be that if the dollar gets too weak, a few trillions must be paid in the derivative markets...

That is not unreasonable.

Citigroup's Derivatives Reduce Bailout to a Non-Event

My dear reader, the author Rakesh Saxena is talking about 'maturity mismatches' but do you know what that is?

For example before all those weird investment banks fell; up to 25% of their total balance 'asset value' had to be financed via 24 hour borrowed money.

The working model was as next:

We borrow out money for the long term, this creates high yields.
We finance this (since we have no money for ourselves) with short term borrowed money that is cheap cheap cheap.

In the end 25% of total balances were financed by one day borrowings,
that is 'maturity mismatch'.

It is not very rigid by the way.

Citigroup's Derivatives Reduce Bailout to a Non-Event

To 1977 degree C:

It could very well be that Citi has mostly those swap instruments on her derivative books. But this does not take away that worldwide there is over 600 trillion in nominal value in the OTC markets and that was bought and sold for about one US GDP (14.5 trillion).

The basic instability problem is as next:

As just a few percent of this 600 trillion has to be paid, money streams like one US GDP have to be there.

After my humble opnion this is a fairy tale world; no institution has a few trillion on the shelfs in case this need to be paid out...

The Economic History of Interest

Now the Federal Reserve has finally implemented the ZIRP it is only waiting until they tell you can only eat halal meat...

Al Qaida is having the fun of a lifetime with ZIRP.