When the Crisis comes… Kick the Can Down the Road…

October 28, 2011 1 Comment

The Economic Collapse
October 28, 2011

Have you heard the good news?  Financial armageddon has been averted.  The economic collapse in Europe has been cancelled.  Everything is going to be okay.  Well, actually none of those statements is true, but news of the “debt deal” in Europe has set off a frenzy of irrational exuberance throughout the financial world anyway.  Newspapers all over the globe are declaring that the financial crisis in Europe is over.  Stock markets all over the world are soaring.

The Dow was up nearly 3 percent today, and this recent surge is helping the S&P 500 to have its best month since 1974.  Global financial markets are experiencing an explosion of optimism right now.  Yes, European leaders have been able to kick the can down the road for a few months and a total Greek default is not going to happen right now.  However, as you will see below, the core elements of this “debt deal” actually make a financial disaster in Europe even more likely in the future.

The two most important parts of the plan are a 50% “haircut” on Greek debt held by private investors and highly leveraging the European Financial Stability Facility (EFSF) to give it much more “firepower”.

Both of these elements are likely to cause significant problems down the road.  But most investors do not seem to have figured this out yet.  In fact, most investors seem to be buying into the hype that Europe’s problems have been solved.

There is a tremendous lack of critical thinking in the financial community today.  Just because politicians in Europe say that the crisis has been solved does not mean that the crisis has been solved.  But all over the world there are bold declarations that a great “breakthrough” has been achieved.  An article posted on USA Today is an example of this irrational exuberance….

 

Investors — at least for now — don’t have to worry about a financial collapse like the one in 2008, after Wall Street investment bank Lehman Bros. filed for bankruptcy, sparking a global financial crisis.

“Financial Armageddon seems to have been taken off the table,” says Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Wow, doesn’t that sound great?

But now let’s look at the facts.

Read Full Article…

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U.S. National Debt at $214 Trillion not $14 Trillion

August 11, 2011 1 Comment

NPR
August 11, 2011

When Standard & Poor’s reduced the nation’s credit rating from AAA to AA-plus, the United States suffered the first downgrade to its credit rating ever. S&P took this action despite the plan Congress passed this past week to raise the debt limit.

The downgrade, S&P said, “reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”

It’s those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan’s Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.

“We have all these unofficial debts that are massive compared to the official debt,” Kotlikoff tells David Greene, guest host of weekends on All Things Considered. “We’re focused just on the official debt, so we’re trying to balance the wrong books.”

Kotlikoff explains that America’s “unofficial” payment obligations — like Social Security, Medicare and Medicaid benefits — jack up the debt figure substantially.

“If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap,” he says. “That’s our true indebtedness.”

We don’t hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.

“Why are these guys thinking about balancing the budget?” he says. “They should try and think about our long-term fiscal problems.”

According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America’s obligation to make Social Security payments to future generations of the elderly.

“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population,” he says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”

“We’ve consistently done too little too late, looked too short-term, said the future would take care of itself, we’ll deal with that tomorrow,” he says. “Well, guess what? You can’t keep putting off these problems.”

To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what’s being negotiated right now in Washington.

“What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office's] numbers say we have an absolutely enormous problem facing us.”

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U.S. Stock Market Slides after Downgrade

August 8, 2011

by Stan Choe
AP
August 8, 2011

NEW YORK (AP) — U.S. stocks tumbled amid a rout in global markets Monday after Standard & Poor’s downgraded the U.S. credit rating for the first time.

S&P cut the long-term debt rating for the U.S. by one notch to AA+ from AAA late Friday. The move wasn’t unexpected, but it comes when investors are already feeling nervous about a weak U.S. economy, European debt problems and Japan’s recovery from its March earthquake.

The Dow Jones industrial average fell 151 points in morning trading, or 1.3 percent, to 11,300. The S&P 500 index fell 19 points, or 1.6 percent, to 1,180. The Nasdaq composite index fell 51 points, or 2 percent, to 2,481.

In Europe, the German DAX index fell 3 percent, and the French CAC 40 index fell 2.5 percent. In Asia, Japan’s Nikkei 225 index fell 2.2 percent, and the South Korean Kospi index fell 3.8 percent.

“Fear of a repeat of 2008 is what’s really driving investments,” said Gary Schlossberg, senior economist with Wells Capital Management. Memories of the 2008 financial crisis are driving investors away from risky investments and into what’s considered safer.

Prices for U.S. government debt rose because Treasurys are still seen as one of the world’s few safe havens. The yield on the 10-year Treasury note fell to 2.48 percent from 2.57 percent late Friday. It fell as low as 2.46 percent earlier Monday. A bond’s yield drops when its price rises.

But where Treasury prices are at the end of the day will be more important than where they are at the start, Bill O’Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report.

“We will learn more about the future path of Treasury prices at today’s close than we will by the open,” he said. “I want to see how the market clears and how it synthesizes the cacophony of news of late.”

Gold is another investment that investors traditionally run to for safety. It rose above $1,700 per ounce for the first time. Its price remains below its 1980 record after adjusting for inflation.

Investors are worried that Spain or Italy could become the next European country to be unable to pay its debt. The European Central Bank said it will buy Italian and Spanish bonds in hopes of helping the countries avert a possible default.

Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.

“We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets,” they said.

Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $2.84 to $84.04 per barrel.

Last week, the Dow Jones industrial average fell 698.63 points. That was its biggest point loss since October 2008, during the financial crisis. The Dow has dropped in nine of the last 11 trading days.

Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected. The economy grew at a 1.3 percent annual rate between April and June, below economists’ expectations of 1.7 percent. It expanded at just a 0.4 percent rate in the first quarter.

Then reports showed that the manufacturing and services industries barely grew in July. Job growth was better than economists expected last month. But the 117,000 jobs created in July were still well below the 215,000 that employers added between February and April, on average.

The Federal Reserve will meet on Tuesday, but economists don’t expect much to come out of the meeting. The central bank’s key interest rate is already at a record of nearly zero, where it has been since 2008. The Fed has also already said that it plans to keep rates low for “an extended period.”

The central bank finished a $600 billion program in June to buy Treasurys in hopes of supporting the economy. Chairman Ben Bernanke said last month that the Fed would step in to help the economy if it further weakened. But some Fed policymakers oppose more bond purchases, saying it could lead to higher inflation.

Fears about a weaker U.S. economy have overshadowed profit growth businesses have reported. Earnings rose 12 percent in the second quarter from a year earlier for the 441 companies in the S&P 500 that have already reported. Revenue growth has also topped 10 percent for the first time in a year.

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The Debt Crisis Is A Trojan Horse To Cause The Fall of America

August 2, 2011 1 Comment

by Saman Mohammadi
The Excavator
August 2, 2011

“A sovereign nation can always find the money to pay debts owed in its own currency. The U.S. could, if it wished, pay its bills using debt-free U.S. Notes or Greenbacks, just as President Lincoln did to avoid a crippling debt during the Civil War. Alternatively, it could eliminate the deficit with Ron Paul’s plan, which amounts to the same thing.” – Ellen Brown, “Forget Compromise: The Debt Ceiling Is Unconstitutional.”

Behind all the flim-flammery of this manufactured “crisis,” we are watching the creation of a new form of government — or rather, the further mutation of the new form of government that the United States has been crawling toward for a long time. We called it a “neo-feudal oligarchy backed by a militarist police state” here the other day. No doubt there are many other ways you could describe this murderous, ravenous, lopsided monstrosity of a system. But the one thing you cannot call it is a “republic.” – Chris Floyd, “If the Republic Had Not Died A Long Time Ago, This Would Indeed Be the Death of the Republic (Reprise).”
“Well, we are reportedly 48 hours out from a total default on the debt to the foreign governments and private Federal Reserve that have taken over this country through economic fraud, and have engaged in a conquest that the British Empire couldn’t succeed in, that Hitler couldn’t succeed in, that the Soviets couldn’t succeed at. They have conquered us through fraud by stealth. But, the moment you become aware of the private banking cartel’s global government that they’re publicly admitting now they’re setting up, that you’ll pay your VAT taxes to, your carbon taxes, and the rest of it – the minute you’re aware of it then their power begins to wane.
That’s why the banksters are setting up a homeland security control grid in every country they’re in under international agreements and rules to crackdown and go after anybody that criticizes the private central banks running those nations. When you get the internal training manuals from England to Australia, from Germany to Canada, to the United States, it is the same thing. The public is told, “Give your rights up because al-Qaeda is hiding underneath every table,” but when you get the actual manuals its people that don’t want to give up their sovereignty to the global government.” – Alex Jones, “The Debt Crisis: Banksters, Thugs and Crooks,” from 04:42 to 06:04.

“They are slaves who dare not be in the right with two or three.” – James Russell Lowell

The long transformation of America from a relatively free society into a full-fledged, technocratic police state is now complete. President Barack Obama and political leaders from both major parties are getting ready to completely turn over America’s sovereignty to the traitorous private banking cartel and multinational corporations.
The gang of liars and crooks behind the private Federal Reserve Bank seized America’s sovereignty on December 23, 1913, when the illegal and unconstitutional Federal Reserve Act was signed into law by President Woodrow Wilson.
The Act ensured the protection of a criminal monopoly of America’s credit in the hands of a few powerful banking families who have no loyalty to any nation, people, or system of law: they only have loyalty to their own power and their own bottom line.
With America in their pockets, the private banksters went ahead with phase two of their deceitful plan to dominate the world’s credit, natural resources, and peoples – the creation of a global authoritarian state that is beholden to their interests.
Generations of anti-freedom and anti-American turncoats in Washington have went along with this treasonous, century-long plan by elite private banking families and multinational corporations to covertly establish an unlawful global economic, governmental and political infrastructure to phase out the nation-state system and consolidate world power into a tiny global oligarchy.
The plan to destroy the American economy and establish a dictatorial global government was accepted by the political and technocratic elite in Washington a while ago. President Barack Obama and House Speaker John Boehner are simply going through the motions in the historic farce that is being presented to the American public and the world as a political debate about a debt crisis.
The truth is that most of America’s debt is fictitious debt. It is odious debt. The traitors who control the Democratic and Republican parties, the Federal Reserve, and the Department of the Treasury will never tell the American people the truth because the truth is the greatest threat to their existence and treasonous schemes.
If the American people knew the truth about the Federal Reserve they would hang their political leaders, from George H. W. Bush to Bill Clinton, to George W. Bush and Barack Obama. As Henry Ford said, “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
The last real American president was John F. Kennedy. The Presidents who came after him made peace with the fact that America is owned and operated by an international financial oligarchy that views the American people as slaves. Most politicians who climb the ladder of blood and lies in Washington believe the elitist arguments that the American people are not fit for self-government and deserve to be ruled by a small power elite.
But the exact opposite is true. Society has more to fear from an arrogant and psychopathic elite than an undisciplined mob. The dangers of a dictatorial, collectivized and privately controlled world government to humanity are beyond words. And the fact that so many people refuse to see the writing on the wall and point out the construction of this monster from hell is a big sign that we’re heading for disaster. Millions of innocent people die, get beaten, and tortured whenever political and economic power is centralized, and controlled by a ruthless, unaccountable elite.
If we do not resist the treasonous private banks and criminal corporations with our words and our lives, generations of men and women will live through a global catastrophe caused by these savage tyrants. It is a tragedy that the Russian people know well because of their experience of living under a godless, and centralized system.
America is the one nation that has been in the grips of the traitorous forces who are bringing this global government beast into the world through acts of deception, treason and fraud. America is also the one nation that can change the fate of the world by bringing down this beast before it sets the whole world on fire and reclaims it as its own after the rubble has settled.
But first, America must rediscovers its destiny as a revolutionary nation that put the freedom of the individual and the rule of law above the whim of tyrants.
In 1976, two hundred years after the signing of the Declaration of Independence, American philosopher William Irwin Thompson wrote in his book, “Evil and World Order,” that modern America has lost touch with its founders’ vision for the country and the ideals of America when it was created, saying:

As the Church lost the vision of its founder, so has the country lost the vision of its founding fathers, but now that industrial society is strangling in its own contradictions, we have one last chance to re-vision human society. (Thompson: Evil and World Order; Harper & Row, Publishers: New York; pg. 13-14).

The restoration of the rule of law and the survival of freedom rests in the hands of the American people, but the enemy of both is an undemocratic oligarchy that is destroying America’s constitutional institutions and national sovereignty from within Washington, not Jihadist terrorists.

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Despite Debt Deal, Greece Set to Default

July 25, 2011

Merkel and Sarkozy’s window dressing appearances were only that. No aid package will save Greece from defaulting. Lining up now Portugal, Spain and the U.S.

Reuters
July 25, 2011

Moody’s cut Greece’s credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.

It was the second rating agency to warn of a default after euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

“The announced EU program along with the Institute of International Finance’s statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent,” Moody’s said in a statement.

Bank lobby IIF, which led private sector negotiations, aims to attract 90 percent investor participation in the bond exchange plan which comes on top of the EU’s new 109 billion euro bailout.

Moody’s cut Greece’s rating by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed debt exchanges.

Greece now has the lowest rating of any country in the world covered by Moody’s, which, like Fitch last week, said it would review Greece’s rating after the debt swap is completed.

“Once the distressed exchange has been completed, Moody’s will reassess Greece’s rating to ensure that it reflects the risk associated with the country’s new credit profile, including the potential for further debt restructurings,” it said.

However, whereas Fitch pledged to quickly give Greece a higher, “low speculative grade” after its bonds had been exchanged, Moody’s said it could not forecast when the rating would change or how.

“It all depends how quickly the debt exchange takes place,” said Alastair Wilson, Moody’s Managing Director for EMEA Credit Policy. “Once we have greater visibility over that, we will reassess the credit profile quite quickly. Whether the rating will change, that’s a different question,” he told Reuters.

A senior EU official said on Saturday that the aim was to start a voluntary swap of privately-held Greek bonds in late August and conclude it in early September [ID:nLDE76M02I]

Greek bank shares and the broader stock market were unfazed by Moody’s action. Analysts said the downgrade and the default warning were priced in and less worrying following assurances provided by the EU deal.

“The EU Council last week effectively secured Greek banks’ continued access to ECB liquidity, even in the case that PSI (private sector involvement) triggers a selective default,” said Platon Monokroussos, an economist at EFG Eurobank.

The government has repeatedly criticized ratings firms for their downgrades and its spokesman threatened on Monday to end its subscriptions to these agencies as the new rescue package means Greece will not issue new bonds for years.

“All governments pay a subscription to these agencies. We, I think, do not need the reviews anymore. They have no practical value,” Elias Mosialos told Radio 9. “Perhaps the finance ministry should end its subscription.”

CONTAGION CONTAINED … FOR NOW

Moody’s said it would take into account the possibility of a second default while reassessing Greece’s rating.

“Our experience is that relatively small restructurings have often been followed by deeper defaults,” Wilson said, adding that he could not say if this would be the case for Greece.

The rescue package for Greece benefits other euro zone countries by containing near-term contagion risks but it was not necessarily positive in the longer run as it set a precedent for private sector involvement in rescue deals, Moody’s said.

“The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece. The impact of Thursday’s announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral,” it said.

The cost of insuring most peripheral euro zone government debt against default rose on Monday on market doubts that the fresh aid package for Greece agreed last week will protect bigger economies from contagion.

Standard & Poor’s and Fitch rate Greece CCC, broadly in line with Moody’s rating. S&P has not yet said how the EU summit deal will affect Greece’s rating.

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