Perspectives on the global economic meltdown- (Nov 28 2010)

[somnath]

What is also true is that private debt in India is in INR onlee, for the most part. Not so with the private debt of the oirostani TFTAs

Defaults on private debt, unless denominated in a "foreign currency" that the sovereign needs to source (and therefore can run out of), does not trigger a sovereign default..India's public debt too is largely domestic (and INR denomed)...

In the case of PIIGS, their private debt is largely in EUR (primarily mortgage)..Stress on that can create problems for the banks, and if they are securitised away into funny CDOs cause some more fun (though its not so much anymore)...But not trigger sovereign defaults...

Besides the low economic growth, another factor is the percentage of debt that is external, and in particular, external currency denominated debt, which is further subdivided into short term and longer term kinds

The concept of "external" debt isnt germane in the European case, their debt is all denomed in EUR, and held largely by European banks (hence no "covertibility" to another ccy required)...

Now if one of them quit the Eurozone and their new local currency was beaten down vs EUR, we'd have Weimar Germany redux...

That is in fact not a problem at all... If these guys had their own currencies, the first policy tool they would have exercised would be to devalue...the issue about anyone coming out of the common ccy is different, which is, even if they do and float a new domestic ccy (say Drachma) with full monetary powers, their debt will still be denominated in EUR...Which means, now they have to source a "foreign currency" to repay their debt...And keep servicing such a large volume of foreign debt without the advantage of a "siegniorage" curency....And a progressively more "expensive" debt as the new ccy will need to be allowed to depreciate in orer to kickstart the economy..Ergo, unless they manage to forcibly convert most of that debt into the local currency (like pesification in Argentina), the problems will just compound...

[Suraj]

The concept of "external" debt isnt germane in the European case, their debt is all denomed in EUR, and held largely by European banks (hence no "covertibility" to another ccy required)...

That's what I wrote in my original post, if you read it fully: "At least the Eurozone debt is primarily in their shared currency."

the issue about anyone coming out of the common ccy is different, which is, even if they do and float a new domestic ccy (say Drachma) with full monetary powers, their debt will still be denominated in EUR...Which means, now they have to source a "foreign currency" to repay their debt...And keep servicing such a large volume of foreign debt without the advantage of a "siegniorage" curency....And a progressively more "expensive" debt as the new ccy will need to be allowed to depreciate in orer to kickstart the economy..Ergo, unless they manage to forcibly convert most of that debt into the local currency (like pesification in Argentina), the problems will just compound...

Not being able to convert their debt to local currency and being forced to devalue their own currency, which in turn worsens the scenario, is just the scenario I alluded to as well.

[abhishek_sharma]

The Great Rebalancing

[Hari Seldon]

What is also true is that private debt in India is in INR onlee, for the most part. Not so with the private debt of the oirostani TFTAs

Defaults on private debt, unless denominated in a "foreign currency" that the sovereign needs to source (and therefore can run out of), does not trigger a sovereign default..

Thanks. Which is why:

Another complication is the assumption of private (notably bank) debt by the sovereign in nation after TFTA nation via the bailout route.

IOW, banks are at the losing end when private debt goes bad. And the sovereigns are assuming banking losses by an astonishing variety of means - from the sly to the brazen - all over the TFTA emerged world. And this is not likely to change, also. Banks seem to have a massive hold on elected gubmints, as example after TFTA example seems to show. That was my limited point is all.

India's public debt too is largely domestic (and INR denomed)...

OK. Good. I knew that but still.

In the case of PIIGS, their private debt is largely in EUR (primarily mortgage)..Stress on that can create problems for the banks, and if they are securitised away into funny CDOs cause some more fun (though its not so much anymore)...But not trigger sovereign defaults...

Aah. But it is precisely the fear of sovereign default that'll expose banking sector losses across the board euro-wide and beyond that makes the current situation in oirostan interesting, no?

And the problem with the PIGS is that their 'sovereign' (dunno why they still call it that when everything that matters has been mortgaged already to the EU commissars) credit rating is woefully hit (due largely to private sector debts assumed during the bubble years under seemingly low EU interest rates). YUp, thats another dis-cuss-ion, another day, perhaps.

[svinayak]

^^^Aah. But that's public debt only saar. What is also true is that private debt in India is in INR onlee, for the most part. Not so with the private debt of the oirostani TFTAs. Owed in a currency their country's central bank (if its no longer defunct, that is) can't print only. Another complication is the assumption of private (notably bank) debt by the sovereign in nation after TFTA nation via the bailout route. No wonder in practice, despite what Marx said, it is the bankers of the world who are uniting only.

The OECD countries had borrowed under the assumption that the population , consumption and growth will remain the same as in the previous decades. The ability to pay out of these debt has decreased and it is a kind of trap. The cost of living cannot be supported with that kind of debt

Witness how Portugese banks refused to lend to the Porugese gubmint in the middle of a national election and forced all contesting parties to sign a 'bailout assent' (!! Yes, I know, I'm shocked only!)- those banks knew where their pork chops come from these days - its the Brussels not Lisbon only.

THis is the same in US where they put the fear in the congress with collapse and got them to bail out the big banks.

[Theo_Fidel]

Withdrawing from the monetary union may actually be good for the country and the banks involved.

The classic case is Iceland. They essentially withdrew from the Euro zone and forced the banks to take the resulting haircut. They are going to come out of this in better shape than the PIGS though with a weakened currency value.

The Euro depends on Germany. In hindsight the Deutschmark essentially became the Euro. As long as Germany holds the wall the Euro will stay strong.

[Neshant]

i wish i could get a job like this guy has.

i'd just have to read a speach stating the obvious and collect a nice paycheck.

---------

Bernanke says some economic problems may persist

http://finance.yahoo.com/news/Bernanke- ... 11666.html

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke says some of the problems that are slowing the economy could persist into next year.

[abhishek_sharma]

It isn't just the euro. Europe's democracy itself is at stake: Amartya Sen

[Neshant]

Vast numbers of suckers will be needed to extract wealth from to pay for those who did not save for their retirement.

Those suckers will be the people who lived their life frugally, saved nickles and dimes, rented instead of buying a home, did not take vacations...etc basically underconsuming & sacrificing hoping it will afford them a better life in the future with their savings. All these good habits are under attack. Meanwhile bad habits like living beyond one's means, counterfeiting aka printing money, bailing out cronies, being a wall street con man, banking & financing and other useless middleman industry professions are promoted.

Its almost as if we've fallen into the Twilight Zone where good is bad and bad is good.

Watch the video, link below.
----------

Retirement As We Know it Is “Dead”: EuroPacific’s Pento
By Peter Gorenstein | Daily Ticker

An increasing number of Americans are worried about their retirement. In fact, a recent Gallup poll finds retirement is the top financial worry in this country. The poll found that 58% of adults are "very/moderately worried" about maintaining their current lifestyle after they stop working. The number jumps to 77% among 30 to 49-year-olds.

There's good reason to worry, says Michael Pento, senior economist at EuroPacific Capital. "Retirement is on life support, if not indeed dead as we know it today," he tells Aaron Task in the accompanying interview.

"Where is the income going to come from to sustain a viable retirement?" Pento asks. The problem, as he sees it, is simple -- income and asset values have plateaued over the last decade, while pension and entitlement programs are underfunded.

Pento recently penned a piece called "The Extinction of Retirement," detailing the financial problems facing Americans on a fixed income.

"In the past many retirees could count on accumulated stock market wealth to help fund retirement. Not so much anymore. As of this writing, the S&P 500 is now no higher than it was in January of 1999. For over 12 years the major averages have gone nowhere in nominal terms and have declined significantly in real (inflation adjusted) terms. The dreams of becoming rich from investments have crashed along with Pets.com and Bernie Madoff. Then there is always the supposedly safest asset of all -- a retiree's home.

Despite a misguided faith that real estate prices could never fall, they have done just that … with a vengeance. According to S&P/Case-Shiller, the National Home Price Index has declined some 30% to levels not seen since the middle of 2002. And prices are still falling, with the rate of decline accelerating. The National Index dropped 4.2% in Q1 of 2011, after dropping 3.6% during Q4 2010. This means that only those retirees who have owned their homes for at least 10 years have any hope of selling at a profit. Ownership of significantly longer periods may be needed to have built up significant equity.

That leaves public and private pension plans. But here again there are serious issues. Let's just look at state public pension shortfalls. According to the American Enterprise Institute for Public Policy Research, "States report that their public-employee pensions are underfunded by a total of $438 billion, but a more accurate accounting demonstrates that they are actually underfunded by over $3 trillion. The accounting methods that states currently use to measure their liabilities assumes plans can earn high investment returns without risk." Huge returns without risk? Bond yields are the lowest they have been in nearly a century! What world are these states living in? With few options, the states will undoubtedly look to the Federal government (taxpayers) for a bailout. Failing that, cuts are inevitable."

He continues by saying "Americans are have negligible savings, the real estate market is still in secular decline, stock prices are in a decade's long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are bankrupt."

Pento believes these issues could be resolved if the government takes the right steps. What might those be? He recommends lowering taxes, reducing inflation and balancing the budget as a means to increase the value of the dollar. If the dollar had more purchasing power and interest rates were higher, retirees would be able to live off their fixed income, he says.


http://finance.yahoo.com/blogs/daily-ti ... VtZW50YXM-

[Neshant]

Bankers, wall street people, lots of government employees..etc are grossly overpaid for what they do. Anyone can do their job. He should have stayed in the Federal Reserve or some big bank where he would have had a secure job looting the working class. This is particularly true as he has no experience being a productive member of society.

If you get a good salary, the FIRST thing you should do is to secure your future asap. That includes hedging against the scam that is central banking, the financing "industry", fiat money and other wealth confiscation schemes which increasingly look like a dangerous liability.

---------------------

STARTING OVER
Michael Blattman, now jobless, once earned $225,000 a year

MICHAEL BLATTMAN, 58, took a prudent path to a successful business career. Armed with an M.B.A., he started with the federal government, working at the General Accounting Office and Federal Reserve, before moving to the Sallie Mae student loan program, where he rose to be director of national sales.

From 2001 to 2008 he was a senior vice president for a private student-loan company and at his high point earned $225,000 a year in salary and bonuses, he says. He also taught business courses at the University of Maryland; lived in a 4,000-square-foot home in upscale Potomac, Md., and drove a Mercedes.

And then, in short order, this stable life came undone. When his younger of two children was almost ready for college, Mr. Blattman asked his wife of 25 years for a divorce.

“We’d just grown apart, we had a different opinion on mostly everything,” he says. “Life is short — you got to do what makes you happy.” Since he worked out of his home, he could live anywhere, and decided Florida would be the place to start over.

But soon after, in January 2008, he lost his job. His company was shutting down much of its student loan business. Still, Mr. Blattman wasn’t worried. He received a $188,000 severance package and says, “I thought I’d find another job quickly, and actually wind up ahead.” He is well regarded in his field. Jim Murphy, a former president of the New York State Financial Aid Administrators Association, calls him “innovative, dependable, an asset to any organization.” Tony Doyle, a dean at Widener Law School, describes him as “a highly capable, dedicated professional.”

None of that matters in this economy. Mr. Blattman has been out of work ever since, 18 months. He moved to New York because he thought prospects would be better than in Florida. (“I couldn’t go back to Maryland, tail between my legs.”)

But after applying for 600 jobs, he’s had just three interviews — two of them over the phone. At the only in-person interview, for a position supervising international admissions at a Westchester County college, he was asked about salary. “I said: ‘Whatever you’re paying, I’ll take it. I understand it’s a different world now, I can adapt.’ ” The job went to someone half his age, he says.

http://www.nytimes.com/2009/08/30/fashi ... 8046-VV1MJ

[Chinmayanand]

Bill Gross on College Education in amrika ...
Few lines from the piece ...worth reading in full

School Daze, School Daze Good Old Golden Rule Days

A mind is a precious thing to waste, so why are millions of America’s students wasting theirs by going to college? All of us who have been there know an undergraduate education is primarily a four year vacation interrupted by periodic bouts of cramming or Google plagiarizing, but at least it used to serve a purpose. It weeded out underachievers and proved at a minimum that you could pass an SAT test. For those who made it to the good schools, it proved that your parents had enough money to either bribe administrators or hire SAT tutors to increase your score by 500 points. And a degree represented that the graduate could “party hearty” for long stretches of time and establish social networking skills that would prove invaluable later on at office cocktail parties or interactively via Facebook. College was great as long as the jobs were there.

Now, however, a growing number of skeptics wonder whether it’s worth the time or the cost. Peter Thiel, an early investor in Facebook and head of Clarium Capital, a long-standing hedge fund, has actually established a foundation to give 20 $100,000 grants to teenagers who would drop out of school and become not just tech entrepreneurs but world-changing visionaries. College, in his and the minds of many others, is stultifying and outdated – overpriced and mismanaged – with very little value created despite the bump in earnings power that universities use as their raison d’être in our modern world of money.

Fact: College tuition has increased at a rate 6% higher than the general rate of inflation for the past 25 years, making it four times as expensive relative to other goods and services as it was in 1985. Subjective explanation: University administrators have a talent for increasing top line revenues via tuition, but lack the spine necessary to upgrade academic productivity. Professorial tenure and outdated curricula focusing on liberal arts instead of a more practical global agenda focusing on math and science are primary culprits.

Fact: The average college graduate now leaves school with $24,000 of debt and total student loans now exceed this nation’s credit card debt at $1.0 trillion and counting (7% of our national debt). Subjective explanation: Universities are run for the benefit of the adult establishment, both politically and financially, not students. To radically change the system and to question the sanctity of a college education would be to jeopardize trillions of misdirected investment dollars and financial obligations.

Conclusion to ponder: American citizens and its universities have experienced an ivy-laden ivory tower for the past half century. Students, however, can no longer assume that a four year degree will be the golden ticket to a good job in a global economy that cares little for their social networking skills and more about what their labor is worth on the global marketplace.

It is becoming obvious that the 2012 election will be fought on a battlefield of job creation. A 9.1% official unemployment rate, and a number nearly double that when discouraged and part-time workers are included in the rolls, portend an angry and disillusioned electorate, which will include millions of jobless college graduates ill-trained to compete in the global marketplace. Over the past 10 years under both Democratic and Republican administrations, only 1.8 million jobs have been created while the available labor force has grown by over 15 million. It is clear, however, that neither party has an awareness of the why or the wherefores of how to put America back to work again.

Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea. While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama’s long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans’ extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years.

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.

Those who advocate that job creation rests on corporate tax reform (lower taxes) or a return to deregulation of the private economy always fail to address dominant structural headwinds which cannot be dismissed: 1) Labor is much more attractively priced over there than here, and 2) U.S. employment based on asset price appreciation/finance as opposed to manufacturing can no longer be sustained. The “golden” days are over, and it’s time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street.

[Chinmayanand]

PIMCO'S Gross says Fed to unveil QE3 at Jackson Hole

Bill Gross on Wednesday said the Federal Reserve will likely hint at a third round of bond purchases, better known as "quantitative easing," at its next Jackson Hole meeting in August.

[Chinmayanand]

Greece and You

Credit-default swaps are the kind of derivatives that were behind the blowup of the American
International Group and the near meltdown that followed in the global financial system…
In his recent confirmation hearing to be the next leader of the European Central Bank, Mario Draghi,
the central banker of Italy, warned that no one really knows who is on the hook for these risky financial
instruments… Whether or not American banks are at serious risk from this crisis, the fact is that nearly
three years after A.I.G., derivatives are still largely unregulated. The financial reforms that are supposed
to improve transparency and reduce speculation — trading derivatives on fully regulated exchanges,
strict reporting requirements to regulators and new rules on capital adequacy and business conduct —
have yet to be implemented.
The process has been slow in the face of heavy lobbying by the banks…The uncertainty is greater
when you consider that credit-default swaps are only one type of derivative that links banks worldwide.
What dangers lurk in other derivatives, like those on currencies and foreign exchanges?

[Chinmayanand]

Change To Inflation Measurement On Table As Part Of Budget Talks -Aides

Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.
According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.
Such a move is widely seen by economists as resulting in a slower rise in inflation…
Those talks involve Democratic and Republican lawmakers from both chambers and are led by Vice
President Joe Biden.

Why should driving less allow the government to report lower gasoline prices? What the clueless Biden committees and their aides don’t realize is that the CPI is already constructed to mitigate price increases via behavior changes. The scam is called ‘geometric weighting’ or substitution.

[Singha]

America needs to bring back hardcore manufacturing jobs in bulk. the brick n mortar economy needs...a lot of brick n mortar.

but americans have grown fat and demanding on the back of cheap (relative to income) china made products. how do you tell the drug addict that his daily fix is going to um cost 3x more but deliver only the same kick?

will americans want to consume less goods ? do pigs fly ?
will they go for public transport ? will pakistan convert enmasse to buddhism?
will they abandon suburbia and live in efficient cities ? NO - where is my white picket fence and two car garage?
will they save and not spend on latest iThings and vacations? how can they, its supposed to be for less than $2 a day turd world types

[ramana]

And who will do the hardcore mfg jobs that are brought back? Basic mechanical skills are gone.

Young people now don't understand the sequence of torquing bolts in diametrically opposite pairs as they call AAA for tire changes.

Need detail instructions and numbering the bolts to remove ambiguity!

[Singha]

>> as they call AAA for tire changes.

hmmm....looks like the old hands-on america is fading away to be replaced by apps for everything on the iphone. I am reminded of the wall-E movie where fat humans ride on anti-gravity sleds and use holographic interfaces to get stuff done ..and have lost the ability to walk, let alone run.

http://sf.streetsblog.org/wp-content/up ... _chair.jpg

[ramana]

GD, Its not funny and is NS issue.

Meanwhile New Yorker on Wall Street Crime

They had the writer on NPR today discussing the article contents.

Wall Street Pre-Economic Crisis was Dirty business

One quote I liked was crisis caused due to "reluctance to look under some rocks for fear of what one would find!"

[ramana]

How is oil doing after the IEA released the stocks? Will have impact on West Asia and North African economies.

[Manishw]

DJIA:11918/-190
Gold: 1513
Silver: 34.79
Oil:91.06
Good scare tactic, now we can watch the deflationists coming out of the woodwork.

[Prem]

As per one estimate , Gas prices falling below 4 Dollar puts 100 Billion in the pocket of conusmers to spend on other items. Onlee the Middlemen Wall street guys are screaming at the falling of crude prices.

[Neshant]

The oil stored away was deferred American consumption aka savings. (assuming it wasn't pilfered from Iraq that is).

What was saved is now being consumed/spent.

The mere act of spending by itself is not progress. Anyone can spend.

Rather one should ask if this oil subsidy is the most efficient use of those savings which were taxed from the productive economy (more like borrowed from China) in the first place.

[Neshant]

This will happen after Europe's choice (Mrs. Lagarde) is IMF chief :

1) She will rubber stamp all IMF loans to Greece & PIGS.
2) The money will go straight to german & french banks who are owed money by Greece.
3) Greece will later default on the IMF loans.
4) Taxpayers of the world will be left holding the bag.

France & Germany want to pass on their banking losses to suckers (taxpayers) of the world. Tim Geithner is meanwhile doing a song & dance pretending that the selection process of the IMF head is based on merit. The guy is himself a lobbyists for banks and will throw American taxpayers under the bus to pay for this Greek IMF bailout (which won't be repaid). Geithner's buddies in American banks have sold credit default swaps on Greek debt which they will be on the hook for if Greece defaults.

So now he'll want the American taxpayers to bailout FOREIGN BANKS via the IMF racket !

Meanwhile the only other candidate to challenge the appointment of Laggard is this Mexican gentleman who highlighted the conflict of interest. He knows he does not have a chance of winning as the selection process is rigged.


Carstens cites Lagarde conflict of interest at IMF
Mon Jun 13, 2:57PM PT - AFP 1:29

Mexico's Agustin Carstens said Monday that his French rival to run the IMF, Christine Lagarde, might have a conflict of interest, because of Europe's high borrowing from the crisis lender.

http://news.yahoo.com/video/world-15749633/25594645

[vic]

PIMCO'S Gross says Fed to unveil QE3 at Jackson Hole

Bill Gross on Wednesday said the Federal Reserve will likely hint at a third round of bond purchases, better known as "quantitative easing," at its next Jackson Hole meeting in August.

So is the QE3 conming or somebody is trying to keep asset prices up?

[Altair]

How is oil doing after the IEA released the stocks? Will have impact on West Asia and North African economies.

Light Sweet Crude dropped almost 3.5% but other commodities are doing ok. There is a complete lack of sentiment in crude as of now.
Within 10 minutes of trading crude in India fell from Rs.4226 per barrel to Rs.4101 per barrel. 1 Rupee is 100 Rupee for 1 lot in MCX Exchange in India. People who did not have proper stop losses booked heavy losses. The US Dollar Index which is a good indicator of strength of dollar rose well in the process and shows signs of bullish trend. Overall the sentiment is bullish for USD but how long it remains that way remains to be seen.

Bombay Stock Exchange rose by 500 points today because of the fall in crude prices.

Altair

[kmkraoind]

David Cameron: Europe has promised Britain won't need to bail out Greece

Share your bread, but do not ask my cupcake.

[VikramS]

Regarding oil, what the release has done is drive out the speculative element bought in by the unrest in the Mid-East. Specifically Libya is out of the chain and that was affecting the situation. So very likely oil will find its way to the pre-Libya levels. It is already fallen about $25 from its peak, a fairly substantial move.

Interesting thing is that the US did not release any SPR oil during the summer of 2008. That spike drove the last nail through the US housing market as oil got close to 150.

The next few weeks are going to be quite interesting when it comes to the market. The levels of margin borrowing is very high so the risk of deleveraging shock is high. Ben's conference call this Wednesday was not taken well by the markets. He, for the first time acknowledged that the Central Banker's job is not easy during a balance sheet recession. Many traders saw signs of doubt in his faith on QE as a policy tool.

[Hari Seldon]

RUmor is that what the banksters are worried about in the latest euro crisis, greek tragedy and all, is not the actual haircuts they may have to take, that's pocket change really - a few billions here and there - but the off-the-books derivatives transactions that run into loose trillions are anybody's guess.

Forget banks, even that bank of banks - the BIS has stated that *nobody* has aggregate figs of the nominal values of derivatives which are unregulated almost everywhere and any attempt at whose regulation has met with stunningly swift countermeasures by the banks and their servants in govt (who masquerade as public servants by day).

TAE has some excellent features on this. More on that later.

[Hari Seldon]

OK. Here's from he grand old lady herself, NYT.

Derivatives Cloud the Possible Fallout From a Greek Default

It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.?

No one seems to be sure, in large part because the world of derivatives is so murky. But the possibility that some company out there may have insured billions of dollars of European debt has added a new tension to the sovereign default debate.

In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders.

The looming uncertainties are whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default.

Yup. AIG like fallout, eh? Chances are the amounts we're talking about here (unlike the piddly $180 odd billion for which AIG was on the hook for too-cleverly insuring Goldman's MBS trades of all things)

Even regulators seem unsure of whether a Greek default would reveal such concentrated risk in the hands of just a few companies. Spokeswomen for the central banks of both Europe and the United States would not say whether their researchers had studied holdings of such contracts among nonbank entities like insurance companies and hedge funds.

Asked about derivatives tied to Europe at a Wednesday press conference, Ben S. Bernanke, the chairman of the Federal Reserve, said that the direct exposure is small but that “a disorderly default in one of those countries would no doubt roil financial markets globally.

Ben's pronouncements are so cute, no?

OK, here's Ilargi to sign off with.

The Association that decides on any unwinding process is run by the very banks that have skin in the game. And if these bankers can't avoid any longer, they pass on the baton to Markit, a company they also -partially- own. No bias anywhere in sight?!

The simple naked truth is that nobody knows the numbers for outstanding swaps, or banks' exposure to them. Anyone who claims that they do is either lying in your face or has no idea what they talk about. Bankers don't even have any incentive to tell each other what they really hold.

[Neshant]

but the off-the-books derivatives transactions that run into loose trillions are anybody's guess.

Forget banks, even that bank of banks - the BIS has stated that *nobody* has aggregate figs of the nominal values of derivatives which are unregulated almost everywhere and any attempt at whose regulation has met with stunningly swift countermeasures by the banks and their servants in govt (who masquerade as public servants by day).

So true.

Anyway Europe is now trying to put that french woman Laggard on the IMF chief's seat.

She will rubber stamp all "loans" to Greece. Those "loans" will go straight to French & German banks as repayment of Greek debt without passing Go.

Note the switch of liability from German & French banks to the IMF taxpayers of the world.

Later when Greece defaults on the IMF loans, she will act shocked! That will have transferred the loss from French & German banks which made foolish loans to Greece to the world.

No wonder they were eagerly calling for greater participation of developing countries in the IMF.

If I'm right, then the runup to the IMF chief's selection will be filled with pretences about how fair the selection process is even though its rigged. A few small anglo countries will even vote against Lagarde to prove the developed world is not voting en-mass for the same pre-selected candidate. But the end result will be that woman getting onto the seat and passing on losses to suckers of the world.

[Neshant]

he's the guy challenging Lagarde (europe's candidate) for the top IMF position.

note : If he fails, it will prove IMF is a europe monetary fund rather than international monetary fund as they control the institution. In that case, any 'international currency racket' coming out of there should be met with great suspicion.

----

Mexico's Carstens takes long-shot IMF bid to India

http://news.yahoo.com/s/afp/20110610/bs ... ndiamexico

[Neshant]

release of oil from strategic reserves is another one of those money wasting stimulus programs.

its on par with money printing & stock market rigging the federal reserve has been engaged in.

the strategic oil reserves are supposed to be for emergencies, not for sitting presidents approaching an election to get their poll ratings up.

The market should be setting prices unfortunately its so rigged & inflated. For all you know JPMorgan or Goldman Sachs had a large short position on oil and needed a way out.

[Hari Seldon]

Just when I'd thought I'd seen it all, brazen-ness touches new highs (or is it lows?) only....

“Ex-Lehman chief risk officer appointed World Bank treasurer

Cute, or what?

The World Bank has appointed Madelyn Antoncic as its new vice president and treasurer.

Ms Antoncic served as Lehman Brothers’ chief risk officer from 2002 to 2007 and following the collapse of the bank, stayed on for a year as managing director and senior advisor at the Lehman Estate, helping to maximise value for creditors…

In her new role, Ms Antoncic will be responsible for maintaining the World Bank’s standing in financial markets and for managing an extensive client advisory, transaction, and asset management business.

She will also lead seven Treasury business lines as follows: the Capital Markets Department; Investment Management Department; Pension & Endowments; Quantitative Risk Analytics; Treasury Operations Department; Banking & Debt Management, and Sovereign Investment Partnerships.

Commenting on the appointment, World Bank Group president Robert B Zoellick, says: “Known for her forthrightness, I am delighted Madelyn is taking up this important role.”

wah re duniya....

[Hari Seldon]

Arrite, just for laughs....

[Neshant]

poll taken by CNBC on bernanke had a shocking result.

http://www.cnbc.com/id/43484679/

i bet they won't be reporting this on prime time TV.

[Neshant]

of course it will pass.

but they won't be able to stick to it.

The country is having the juice squeezed out of it. Its GDP is contracting and will continue to contract for a long time to come.

This is the end result of fast talking economists & banking goons leading a country into a rut with crap economic theories. We better pay attention. The larger the so called banking & finance, lawyering and other such paper shuffling sectors grows in India, the more in danger the economy is.

Eventually it crosses a rubicon from being a utility (useful) to society to being parasitic. The first thing companies like Goldman Sachs like to encourage in India is the growth of this useless middleman sector to create a lobby group for their BS. Let us be on guard against this.

Keep the role of banks STRICTLY utilitarian. Start down the path of fancy jargon, high rolling, slick guys in Armani suits... and Greece is where we will land up. That is Greece minus the German bailouts.

------

European leaders have admitted they are preparing for a Greek default as the eurozone debt crisis enters a pivotal week

http://www.telegraph.co.uk/finance/fina ... fault.html

Greek politicians will vote on a radical €28.4bn (£25.2bn) austerity package in the coming days that they must pass if the country is to receive the vital fifth tranche of a €110bn bail-out agreed last year. The outcome is expected to go down to the wire as the ruling party's slim majority is pushed to the limit by the opposition's refusal to support the deal, a wave of national strikes, and another round of public protests.

[Neshant]

Presenting The (Only) Four Outcomes To The Global Public Debt Crisis

http://www.zerohedge.com/article/presen ... ebt-crisis

[satya]

For the record :

Zero Hedge is Market Maker's mouthpiece .

[Neshant]

IMF members are poised to pick French official Christine Lagarde as first female director

http://ca.finance.yahoo.com/news/IMF-me ... 6.html?x=0

Despite the enormous conflict of interest, Europe has planted a stooge, the french woman Lagarde, in the IMF.

Get ready to have bad PIGS debt owned by French & German banks offloaded onto your back.

This woman is going to issue IMF loans to PIGS which (she knows) will never be repaid.

In doing so, developing countries like India which pay into the IMF will suffer a loss.

Banking & financing, the IMF, the Federal Reserve, fiat money - its the biggest con game going.

[svinayak]

http://www.bloomberg.com/news/2011-06-2 ... lling.html

Why China’s Heading for a Hard Landing, Part 1: A. Gary Shilling

Few countries are more important to the global economy than China. But its reputation as an unstoppable giant -- as a country with an unending supply of cheap labor and limitless capacity for growth -- masks some serious and worsening economic problems.

China’s labor force is aging. Its consumers save too much and spend too little. Its political and economic policy tools remain crude. Its state bureaucracy seems likely to curb spending just as exports weaken, and thus risks deflation. As U.S. consumers retrench, and as the global commodity bubble begins to dissipate, these fundamental weaknesses will combine in a way that’s unlikely to end well for China -- or for the rest of the world.
To start, China is much more vulnerable to an international slowdown than is generally understood. In late 2007, my firm’s research found that too few people in China had the discretionary spending capability to support its economy domestically. Our analysis showed that it took a per-capita gross domestic product of about $5,000 to have meaningful discretionary spending power in China.

About 110 million Chinese had that much or more, but they constituted only 8 percent of the population and accounted for just 35 percent of GDP in 2009, while exports accounted for 27 percent. Even China’s middle and upper classes had only 6 percent of Americans’ purchasing power.
Why Overconfidence Abounds
With such limited domestic spending, why do so many analysts predict that China can continue its robust growth?
In part because they believe in the misguided concept of global decoupling -- the idea that even if the U.S. economy suffers a setback, the rest of the world, especially developing countries such as China and India, will continue to flourish. Recently -- after China’s huge $586 billion stimulus program in 2009; massive imports of industrial materials such as iron ore and copper; booms in construction of cement, steel and power plants, and other industrial capacity; and a pickup in economic growth -- the decoupling argument has been back in vogue.
This concept is flawed for a simple reason: Almost all developing countries depend on exports for growth, a point underscored by their persistent trade surpluses and the huge size of Asian exports relative to GDP. Further, the majority of exports by Asian countries go directly or indirectly to the U.S. We saw the effects of this starting in 2008: As U.S. consumers retrenched and global recession reigned, China and most other developing Asian countries suffered keenly.
Overconfidence in China’s ability to keep its economy booming is also partly psychological. It reminds me of the admiration and envy (even fear) that many felt toward Japan during its bubble days in the 1980s. As Japanese companies bought California’s Pebble Beach, Iowa farmland and Rockefeller Center in New York, what was safe from their zillions? Then the Japanese stock and real-estate bubbles collapsed, and Japan entered the deflationary depression in which it’s still mired.