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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

United States of Denial

Interest-Rates / Global Debt Crisis Jun 28, 2011 - 07:39 AM GMT

By: Midas_Letter

Interest-Rates

Best Financial Markets Analysis ArticleThe suggestion that there is anything remotely approaching a recovery in the United States, or the world economy, is pure cow pie, as evidenced by the requirement for more borrowing, more easing, and more deterioration in employment and housing. But as the title suggests, its not just America. I’m referring to the heads of state around the world. Apparently too busy jetting back and forth from Washington, New York, Vienna, Athens, Berlin, London and Paris to have anything approaching a grip on reality, we’re delivered surreality by world leaders immersed in United States of Denial. Now the banks in Europe are carving up the assets of Greece as vig for continued lending.


How much do you think the Parthenon could bring at auction? Well okay, maybe not the Parthenon, but the fire sale, according to a CNN report on June 20, would include “airports, highways and state-owned companies, as well as banks, real estate and gaming licenses, to meet international lenders’ demands that it raise funds.”

And so the ‘why’ of the glaring inconsistency in this whole global debt mess, namely, throwing arguably good money after bad, was revealed. Just as the top layer of the financial food chain targets the assets of weaker former clients and partners in their quest to be the boys with the most toys, so the Eurobanks and their faceless shareholders target the assets of governments now that anything worth owning in private hands has been forced into those of the banks.

Do the banks holding US$114 billion of Greek debt want the money back, or would they prefer to exercise the option to have first choice over the plum producing assets driving the deteriorating Greek GDP? Since money is worth nothing, and the whole default dance is just a case of bullying the junior members of the Trillionaires Club if they want to keep their seat at the table, I think the answer is somewhat obvious. The top 8 economies in the world are essentially So Big that they Won’t Fail, not because they will ultimately and miraculously get their financial houses in order, but just becasue there’s nobody to force them to sell their assets in exchange for a bailout. They’re the top of the heap, the Big 8, the G8, and with each member approaching or exceeding debt loads in excess of 100% of GDP (Japan’s at 225%!), it is mathematically impossible for a balanced check book to materialize anywhere in that mix. Unless of course GDP for each of the countries were to miraculousy double, or in Japan’s case, triple. But they’re the main conspirators in this wealth agglomeration exercise, and they’ve divied up the booty already in exchange for a nudge-nudge, wink-wink understanding when it comes to voting on certain matters in key organizations such as the IMF, the World Bank, and of course, in their own Treasury departments.

Of course, the banks holding the bag on Greece are highly motivated to keep the flow of payments in a condition that is optically acceptable to their shareholders. If they forced Greece into default, they’d have to write down large chunks of their own books, which would in turn affect their valuations and credit ratings negatively. In many cases, a Greek default would, in the case of France and Switzerland anyways, precipitate a restatement of loans in the amount of US$79 billion each. No wonder the French banks announced today an initiative to voluntarily re-invest maturing Greek bonds. According to the Bloomberg report, “Fifty percent of the redemptions would go into 30-year Greek securities, with the remaining 20 percent invested in a fund made of “very-high quality” securities that would back the 30-year bonds”.

Apart from the high-priced asset sweep and obvious continental fees that are pocketed from the Global Debt Farce, what motivation based on logic could possibly justify the ‘rolling over’ over a debt load that constitutes 145% of that nation’s GDP? It’s a giant fraud in progress that only exists to keep the emasculated banks propped up, and their shareholders from having to sell off works of art, cars and European chateâus.

If I was Greek and not a member of the elite class, I too, would protest. As mentioned repeatedly around the blogoshpere, this is the stuff that revolutions are made of.

United States of Delusion
Surprise, surprise. As predicted, the United States Federal Reserve is not going to launch another round of Quantitative Easing. Instead, the Fed will “continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system”, according to Bloomberg News. It’s not QE3, then, its ‘re-investment’. Okay.

So lets just tally up the state of financial affairs in the United States of Delusion. Since the Lehman Brothers collapse, the Fed has fabricated $2.3 trillion in counterfeit dollars and handed it over to the banks. In that same time frame the ‘economic recovery’, which officially started in June 2009, saw the United States economy grow by 4.9%, according to Sebastian Mallaby, Director of the Maurice R. Greenberg Center for Geoeconomic Studies and Paul A. Volcker Senior Fellow for International Economics . But since total U.S. GDP was US$14.26 trillion in 2009, and according to estimates, the 2011 total U.S. GDP will be $14.62 trillion, that figure is more realistically 2.52%. But the amount of cash fabricated and dispersed into the economy so far is, as stated, $2.3 trillion, or 16.1% of 2009 GDP. So there’s a discrepancy, on a macro scale, of $1.94 trillion missing from the national balance sheet.
I don’t know about you, but if I’m going to borrow money to put into my business, its becasue I’m convinced that my rate of business growth and therefore profit will increase at an exponentially greater rate than the cost of servicing and maintaining the loan. Otherwise, the bank comes and takes away my business, and boots me out of my house, and sells my car. If the bank lends me money at 10 points per annum, then I better come up with a personal GDP increase of at least 11 points, but preferably more like 20 points, after the cost of servicing the debt is factored in. Otherwise, what’s the point?

So if the Fed borrows, fabricates, conjures, prints, or however you want to refer to their unequivocally fraudulent creation of money to the tune of $2.3 trillion to obtain a growth in gross output of only $0.36 trillion, what does that say about the real state of American finance. What does that say about the United States of Delusion?

What that says, dear people, is that there is no ‘economic recovery’ underway, and there has been worse than 0 economic growth, and that what is underway is the biggest fraud in the history of the human race. As this reality filters downward, and the economic circumstances of the average American householder continue deteriorating, look for increasing protests, attacks on government property, and a broad increase in civil disobedience. More than a deepening of the divide between ‘haves’ and ‘have nots’, this is the manifestation of an attempt by the elites to isolate and destroy the middle class.

China, China, China.
More evidence that the Chinese balloon has started the long slow pop that the monstrously corrupt and totalitarian beast of a nation has been heading for. You want to talk about a revolution, well you know, China’s the perfect candidate.

The big big big, out-of-left-field revelation this weekend, as stated in the Wall Street Journal:

“China’s local governments had amassed 10.7 trillion yuan ($1.65 trillion) of debt by the end of last year, Liu Jiayi, auditor general of the country’s National Audit Office, said Monday. That’s equal to more than a quarter of China’s 2010 gross domestic product of 39.7983 trillion yuan.

Debts assumed by local governments have become a key risk factor for China’s financial system following the country’s post-financial crisis stimulus package, which was fueled by bank lending and infrastructure spending.

According to Credit Suisse, “China could suffer a “perfect storm” of crises when falling property prices are matched by a slowing Chinese economy and rising debt defaults among local governments, cause sour property loans to climb as high as 921 billion yuan (US$142.5 billion)”.

That groaning sound is toppling of the world’s financial system. Soon it will sound more like a ‘whoosh!’ before the final sound of the big thump as it hits the ground hard. Let if fall, I say. If I have to go back to raising corn and chickens while the bankers resurrect the system, that’s fine with me. Watching the Davos Men pompously pat little debtor nations on the head while they go about as if the mantle of civilization is their exclusive domain is frankly quite nauseating.

Oh! Canada!
And here I thought we were the model of financial restraint. I was surprised to understand just how close Canada is to becoming another basket-case G8 member, with our future gross government debt load currently running at 84% of GDP. That number is projected to drop to 72%, assuming no reduction in GDP and economic growth of 2% per annum. But what if the extremely high real estate values start to plummet when the market goes soft as a result of global downward GDP pressures, and all $200 billion in mortgages start heading into non-performance mode? If the prices of key commodities like copper and oil drop in value to, oh lets say 2005 levels, then Canadian GDP will be horribly afflicted. That might seem unrealistic right now in this commodity price environment that, remember, is largely inflated by the aforementioned $2.3 trillion in monopoly money that has been pumped into the system by the kings of pump and dump on Wall Street and Capitol Hill. But I suppose when all your neighbours are taking on debt in complete denial of the consequences, to not emulate them becomes a competitive disadvantage for the nation. Hmmmmmm.

Certain truths are increasingly held to be self-evident by we the people. First of all, everybody can see that the economist class that owns banks and governments are a despicable breed of human being who feel that by virtue of their privileged birth and education they can steal from the public at will. The second is that this whole sovereign debt charade is just a continuation of that mentality in the pockets of every last citizen for the remaining drachmas pesos dollars and pounds that are slowly but surely accruing at the top of that putrid food chain. And the third emerging reality is that the game will continue until governments are toppled by the people from whom they are stealing.

James West is the publisher of the highly influential and widely respected Midas Letter at midasletter.com. MidasLetter specializes in identifying emerging companies in gold and silver exploration at the beginning of their share price appreication curves, and regularly delivers 10 baggers (stocks that increase in value by at least a factor of 10) to his premium subscribers. Subscribe at http://www.midasletter.com/subscribe.php.

© 2011 Copyright Midas Letter - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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