One who intends to leave others better off for his having existed.

6/29/15

"Puerto Rico’s governor says island cannot pay back $70 billion in debt"

"The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.

Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.

For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy.

...At one point in 2013, an estimated three out of four municipal bond mutual funds held Puerto Rican bonds, which were attractive because of their high yields and exemption from federal, state and local taxes.

Puerto Rico’s governor, Alejandro Garcia Padilla, will seek concessions from creditors...

...A U.S. commonwealth with a population of 3.6 million, Puerto Rico carries more debt per capita than any state in the country.

...until now the government has been able to keep things moving by cutting spending and borrowing more and more money on Wall Street.

...Beyond the bond debt, the island owes some $37 billion in pension obligations to workers and former workers."

http://www.washingtonpost.com/business/economy/puerto-rico-says-it-cannot-pay-its-debt-setting-off-potential-crisis-in-the-us/2015/06/28/cbae1bc4-1e05-11e5-84d5-eb37ee8eaa61_story.html

"The world is defenceless against the next financial crisis"

"...The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned.

The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.

These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.

...“Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”

...“Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates.

...Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates.

...The economies worst hit by the last crisis are now suffering the costs of persistent ultra-low rates, the organisation said, which could “inflict serious damage on the financial system”, sapping banks and weakening their balance sheets and their ability to lend.

And the continued misallocation of resources during busts prompted by central banks’s rock-bottom interest rates has also hammered productivity growth, the BIS said, as a prolonged reliance on debt had been used in its place.

...This problem is compounded as the world’s populations continue to age, the organisation warned, making debt burdens harder to bear. Yet politicians have relied too much on temporary growth boosts by using debt, rather than making painful choices, said the BIS.

...The BIS said that the current turmoil in Greece typified the kind of “toxic mix” of private and public debt being used as a solution to economic problems, rather than making the proper commitment “to badly needed” structural reforms.

http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html

6/28/15

Greece; Dear Ben Bernanke; Don't steal from my kids

The Fed did the Europeans a favor.

Joseph Gagnon
former Fed official

"The central banks of the wealthiest countries,
trying to prevent a debt crisis in Europe
from exploding into a global panic,
swept in ...by making it easier
...to borrow American dollars.

With what money from where?

Central banks will make it cheaper
...to borrow [US] dollars,
the dominant currency of trade.

Who is qualified by what metric
to borrow how much from whom?

To get the dollars to lend,
central banks go to the Fed and exchange their currency
for dollars under a special swap program.

What could happen
if a central bank prints currency for collateral
for printed money in return
and then do it again and again
untill gasoline is $10 per gallon?

...The coordinated action was a demonstration
of how interconnected the world financial system is,
and that the debt loads of countries like Italy and Greece
are everyone else's problem, too.

AP

Did some economic and political leaders
bail themselves and their compatriots out of their own mistakes,
by pledging trillions of debt and newly created money,
knowing the consequences would be handed down
to many who may be unaware
including the unborn of following generations?

Jim Grant on Libor, the Federal Reserve and the Status Quo, via Tyler

"You plant black walnut trees, and in 30 years they flower to $1000 each,
you pay $5 for them, that's a zero coupon tree,
that's where you get yield.

The Fed is not out of bullets;
the trouble is its gun shoot backwards.

These massive interventions in the marketplace distort the price
we call interest rates.

The banks fixed Libor.

The Fed fixes rates.

The banks do this surreptitiously and opportunistically.

The Fed does it for a living.

The idea ...that they are in charge of manipulating interest rates
is absurd.

The central banks do it all the time.

They do it massively.

The outrage ought to be directed at them...

Ever see the Truman Show
where Jim Carrey's character finds out he is living in a TV set.

He finds out because he rows his boat into the painted canvas sky:
that is life under the rule of central banks.

Everyone is talking about the "perfect storm":
the fiscal cliff, and China, and Greece, and Europe, there is a constellation of bad news:
the Wall Street Journal is the grimmest reading in years.

How can this be a perfect storm if we can see it coming?

Jim Grant via Tyler



Flashback; John Mauldin's selection of quotes with a little comment on the European Greece Deal

… the sixth time in 18 months European leaders
have announced a definitive solution to the Euro crisis.

Should this version of the final bailout be taken any more seriously
than the first and second solutions to the Greek crisis in May and September 2010
or the Irish bailout of December 2010 or the Portuguese rescue package of March 2011
or the breakthrough vote in the Greek parliament of last month?

The supposedly good news for markets
was that the -21% haircuts to be imposed on Greek creditors
...were less than half those suggested a few days ago.”

"A 21% haircut is a bad joke.

If you assume that Greece can afford to spend
10% of their revenues just to pay the interest,
which is what they will need to be able to do to get out of their crisis,
then the haircuts look more like 75-80%.

Sean Egan, the most credible credit analyst in the country,
estimated this week that the eventual haircuts on the Greek debt will be 90%."

...Here is what it really says:

We are going to keep throwing good money after bad
and work as hard as we can to transfer the debt that is on the banks to the ECB
and European taxpayers as long as the voters will let us.

This first tranche will be another €109 billion.

That will last a few years,
and Greece will only have to pay about 3.5% on that debt and the rollover debt,
and people who expected to be repaid in that period
will see payment extended to either 15 or 30 years.

You can call this what you like, and they call it “selective default,”
but it is a default.

There will be government guarantees on the debt,
so the ECB can take it from the banks."

...First, notice that the plan claims haircuts will only be 21%.

But that assumes you can sell the new bonds at a 9% interest rate.

If the interests rate demanded by the market are 15%, which is closer to reality,
the haircuts are closer to 67%, after what appears to be an initial 20% cut.

Will any institution not immediately
try and get those bonds into the hands of the ECB?

This is just ugly.

John Mauldin

The Central Bank Emperors with no clothes; Greece Edition

Since the 2008/9 financial crisis, the world's central banks, largest financial institutions, wealthy investors, advertising dependent media, paid for economists and entrenched politicians dependent on campaign cash/ bribes etc..., have been kicking the economic reckoning can.

Quantitative Easing caused low interest rates to prop up real estate, financial markets and social spending by financing public deficits with money created out of thin air.

Artificially imposed stability creates ever larger levels of real instability, no different than those with addictions to harmful substances.

Monetary heroin.

Most global central bank balance sheets have at least doubled in seven years, and the European Central Bank came late to the game, with the worst balance sheets, the exception being Japan, which may reap some unintended consequences from Greece's financial mess.

Like Greece did after entering the Euro, many smaller European countries enjoyed the benefits of borrowing far more than could be repaid.

Other countries who could, took advantage of low interest rates while printing money to keep their respective currencies low relative to the US dollar.

When the Federal Reserve announced it would stop printing, US long term interest rates rose, affecting rates across the globe.

Then corporations stepped in with share buybacks.

Then England Japan, Switzerland and then Europe among others stepped into the printing breach.

If confidence falls and interest rates rise, the value of the underlying debt falls.

If values fall on government and corporate debt outside the US along with stock markets, investors should likely increase the extrication of monies from what appear to be more risky ventures, allocating heavily to perceived safe havens, compounding the affects of the problems triggering the bank runs.

The more investors begin to realize Quantitative Easing (printing money) didn't work, the sooner Emperors will appear to be holding up a financial house of cards, forcing the house to collapse with greater speed.

As the global economy is clearly slowing, many who didn't understand yesterday are suddenly awake, looking at naked Empires, now that the veil of QE can be seen for what it is.

I believe the world faces a massive debt restructuring, where investors and financial institutions take the hit instead of government bailouts like last time.

It's just a question of how and when a very pushed on string snaps back in the 1%'s faces.

This has taken far too long, which means the consequences are likely greater.

George Hartzman

6/21/15

China Non-Performing Loans Change

Fleas

Fleas put in a jar will jump out.

Fleas in a jar with a glass plate across the top will jump,
hit the plate, and stay in the jar.

Eventually, fleas in a jar with a glass plate across the top
won’t jump high enough to hit the plate.

If the fleas stop hitting the plate,
and the plate is removed,
the fleas won’t jump out.

If the removed glass plate is a metaphor for fear,
are you certain you’ve not been conditioned to fear glass plates
that aren’t there?