Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16
Gold Price Target is $3,000 and Silver is $75 per Ounce - 25th Apr 16
Parameters for a Stock Market Sell Signal-in-the-making - 25th Apr 16
Stock Market Dangerous Divergence - 25th Apr 16
Gold Miners Nub is the Sweat of the Sun - 24th Apr 16
US Dollar Price Forecast - 24th Apr 16
Stock Market Upside Objective Reached - 24th Apr 16
Why Leftist Greeks have more reasons than Liberals to favour Entrepreneurship and Support Entrepreneurs - 24th Apr 16
The Dow Jones is a Catalyst for Misplaced Stock Market Optimism - 24th Apr 16
Why Russia Harasses U.S. Aircraft and Ships - 24th Apr 16
Stocks Bull or Bear Market Rally? - 23rd Apr 16
A Bright Future for Solar Power in the Middle East - 23rd Apr 16
Silver Commitments of Traders – Halloween is Arriving Early This Year - 23rd Apr 16
Good News, Bad News, Both Favor Gold And Silver - 23rd Apr 16
Mish's Sure Fire Proposal to End Japanese Deflation - 23rd Apr 16
Mish Shedlock: “EXCUSE ME MR. PRESIDENT, IS THAT A JOKE?” - 23rd Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

Financial Armageddon is Looking Better and Better

Politics / US Debt Jul 24, 2011 - 05:53 AM GMT

By: Bill_Bonner

Politics

Best Financial Markets Analysis ArticleIs there a fender anywhere in Christendom that the financial authorities have not dented yet?

They are lost without a compass. They are up the river without a paddle. At the automatic teller without a pin number. They have no theory that has not been discredited. They have no experience which does not contradict them.


In 2006, they couldn’t see the crisis coming. In 2008, they couldn’t understand it. In 2009-2011, they couldn’t fix it. Their theory told them they couldn’t spot a bubble; it was obvious to just about everyone else. Even here on the back page, we warned readers. Then, the financial elite mistook the problem for a lack of ready cash. Practically every American household knew what the real problem was: too much debt. And then, while everyone else knows you can’t fix a problem of too much debt by adding more debt, the authorities missed the point entirely. Since they began applying their fixes, the national debt of Italy grew $360 billion. Japan’s national debt rose $1.1 trillion. And the US added more than $2 trillion. They may have successfully ‘kicked the can down the road’; but now it is a bigger can. Last week, they tripped on it again.

In these, the world’s 3 leading debtors alone, the problem is now $3.5 trillion worse. And that is just a piece of it. These figures do not count the trillions’ worth of other monetary and fiscal duct tape the feds have run through. Congressman Ron Paul put the figure for the US alone at $5 trillion and asked Mr. Bernanke about it.

What do you think you got for all that money, he wanted to know? The Fed chief remained true to his delusions. The money wasn’t spent, he protested; it had been ‘invested.’

Then, what was the return on investment? By every measure, the US economy is worse off than it was before the fixes began. After $7 trillion in losses, housing is still falling. The jobs picture is even worse. The broad “U6” unemployment rate – which includes those who have stopped looking for a job, part-time workers who can’t get full-time jobs, etc. – increased from 15.8% to 16.2% in June. The number of Americans with jobs fell by a quarter million to 153.4 million. And the time it takes to find a new job now exceeds the time in which the jobseeker typically stops looking – a record of 39.8 weeks. Hourly wages dropped. Hours worked fell too. And the portion of the population that is employed hit a new low of 58.2%.

While the proximate problem in America is at the household level, in Europe, it is in the banks, bailouts and boondoggles. Moody’s, the giant rating company, tossed Irish debt into the junk yard last Wednesday, after already having knocked down Portuguese debt the week before. Greek debt has had junk status for months; but Fitch downgraded it anyway; last week 10-year Greek notes were selling at a 48% discount. Two year debt yielded 36% when we checked on Tuesday. Moody’s said it was looking at US debt too; a downgrade is coming sooner or later.

The bigger the pile of debt gets, the more it stinks. Last week, investors began to notice a bad smell coming from Italy, the world’s third largest debtor. The world’s other two leading debtors – the US and Japan – have $26 trillion of sovereign debt between them. Add Italy and the total is nearly half the world’s GDP. These are big numbers; they’re not going away.

There is nothing especially deadbeat about Italy. At 120% of GDP its government debt is, officially, between that of the US and Japan. Unofficially, it is about even with the US. As for deficits, Italy is a model of integrity. Its deficit is only 4.5% of GDP, compared to America’s 11%.

On these numbers you’d think that the cost of borrowing for one of these deadbeats should be about the same as for another. But recently investors decided that Italian debt could be as fatal as Spanish cucumbers. They sold it. Doing so, they sent yields on 10-year Italian bonds over 6%. Spain pierced the 6% level soon after. Since 7% is viewed as the upward practical limit – this brought all of Europe to only 100 basis points from Armageddon.

The authorities looked on like housecats watching the evening financial news. They saw the images. They heard the words. They had no idea. In Europe, they rushed to put together another bailout.

In America, meanwhile, the day of reckoning approaches too. In two weeks, unless the statutory limit is raised, America will cease making debt payments. It will be “worse than the Lehman bankruptcy,” says former US Treasury Secretary Larry Summers. Armageddon, in other words. But in light of what their fixes have wrought so far, Armageddon is looking better and better.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

http://www.lewrockwell.com

    © 2011 Copyright The Daily Reckoning, Bill Bonner - 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.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jerry
24 Jul 11, 14:01
Financial Armageddon is Looking Better and Better

In 2008, bail out the banks or we'll have a depression....In 2011, cut spending and don't raise taxes or we'll have Armageddon.....Please "Bring in the clowns, don't bother, they're here!!!"

Let's be Sweden and Iceland....maybe we can freeze out the greedy with a default!!!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife