Saturday, December 18, 2010

$16 trillion at the end of 2011


As we have said before, and pro forma for the Obama tax deal, we expect total debt issuance in 2011 to accelerate once again, and to hit just under $2 trillion, putting total US debt at the end of next year at around $16 trillion.

--http://www.zerohedge.com/article/us-end-2010-139-trillion-debt-total-debt-incurred-great-financial-crash-44-trillion

Yea, that's my prediction too. I think there will be a huge Euro and Yen crisis in 2012 with the dollar being seen as a safe haven, and then the dollar will collapse and hyperinflate about 2017.

Friday, December 17, 2010

Mary's Bar

Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed drunks and alcoholics and consequently they can no longer afford to patronise her establishment. To solve this problem she comes up with a new marketing plan that allows her customers to drink now but pay later. She keeps track of the drinks consumed in a ledger thereby granting loans to her customers.

Word quickly gets around about Mary’s 'drink now and pay later' marketing strategy and as a result increasing numbers of customers flood into her bar. Soon she has the largest sales volume of any bar in Dublin.

By providing her customers with drinks without asking for immediate payment, Mary gets no resistance at all when at regular intervals she substantially increases her prices for wine and beer and also for her gastronomic table which is of wide renown.

Mary's sales volumes increase massively. A young and dynamic manager at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed drunks and alcoholics as collateral and through Mary's success he believes that he''ll be promoted to vice president of the bank.

At the bank's corporate headquarters expert traders work out a way to make huge commissions and transform these customer loans into Drinkbonds, Alkibonds and Sickbonds. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed drunks and alcoholics.

Nevertheless the bond prices continuously climb and these securities soon become the hottest selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers and diners which by now are becoming enormous. He therefore informs Mary that they must pay up or be banned from the establishment.

Mary then demands payment from her drunk and alcoholic patrons but being unemployed alcoholics she quickly finds that they cannot meet their drinking debts. As the suddenly very unhappy and disconsolate Mary cannot fulfil her loan obligations, she is sadly forced into bankruptcy and the bar closes with eleven employees losing their jobs.

Overnight Drinkbonds, Alcibonds and Sickbonds drop in price by 99%. These collapsed bond asset values destroy the bank's liquidity and prevent it from issuing new loans, thus freezing all credit and economic activity not only in Dublin but throughout Ireland.

The suppliers of Mary’s bar had granted her generous payment terms and had invested their firms' pension funds in the various Drinkbond securities. They find that they are now faced with having to write off her bad debts and with losing over 99% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had existed for three generations and her beer supplier is taken over by a competitor who immediately closes the local brewery and lays off 150 workers.

Fortunately however the bank, the brokerage houses and their respective executives are saved and bailed out by a multi billion euro no strings attached cash injection from their friends and cronies in government. The funds required for this bailout are obtained by high new taxes levied on employed middle class non drinkers who have never been to Mary’s bar and who have never even heard of it.

--From: http://www.telegraph.co.uk/finance/economics/8207710/European-Central-Bank-arms-itself-for-Spanish-crisis.html

Tuesday, December 14, 2010

Confidence In U.S. Treasuries Is Dying


Confidence is U.S. Treasuries is dying, and if confidence in U.S. government debt completely collapses at some point we could literally be looking at financial Armageddon. Why is that so? Well, when the world totally loses faith in U.S. Treasuries, interest rates on U.S. Treasuries will have to keep going up until enough investors are found to buy them. But much higher interest rates will mean much higher interest on the national debt and thus much higher federal budget deficits. That will erode confidence in U.S. Treasuries even further. In the end, a vicious cycle of eroding confidence and higher interest rates could ultimately lead to hyperinflation as the U.S. government and the Federal Reserve flood the system with endless amounts of paper money to try to keep the system solvent.
--http://theeconomiccollapseblog.com/archives/10-signs-that-confidence-in-u-s-treasuries-is-dying-and-that-financial-armageddon-may-be-approaching

Sunday, December 12, 2010

China's army of graduates is struggling


But the supply of those trained in accounting, finance and computer programming now seems limitless, and their value has plunged. Between 2003 and 2009, the average starting salary for migrant laborers grew by nearly 80 percent; during the same period, starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.

Chinese sociologists have come up with a new term for educated young people who move in search of work like Ms. Liu: the ant tribe. It is a reference to their immense numbers — at least 100,000 in Beijing alone — and to the fact that they often settle into crowded neighborhoods, toiling for wages that would give even low-paid factory workers pause.
--http://www.msnbc.msn.com/id/40626200/ns/world_news-the_new_york_times/

Thursday, December 2, 2010

The debt went up $400 billion in only 2 months

On 9/29/2010, the total national debt was $13,466 bn. On 11/30/2010, the total was $13,861 bn. Ok, that isn't $400 billion, it is only $395 bn, and it is one day more than 2 months, but still this is shocking. It isn't a stretch to think that the deficit might be $2 trillion this fiscal year. If the GOP-controlled house doesn't like that then the alternatively is to shut down the government, which would be a good thing if it could happen.