Will the UK pound be devalued? It is inevitable. Anyone who buys UK gilts (ie bonds) must have their head examined! Great Britain is bust, not so great for past many decades. The sovereign debt crisis is not over. It is just the beginning. What these governments will do is: print money out of thin air (or electronically) and inflate their way out of debts via debasement of their currencies. The Independent UK reports:
Britain is in a far worse financial crisis than many realise. Drastic action is needed, says venture capitalist Jon Moulton ….
The debt that Britain faces is monstrous, and neither Tories nor Labour will admit it. …. they are taking part in, in effect, a conspiracy on the British people. To make it worse, much of the media is allowing them to get away with it, presumably because they think – as the politicians seem to believe – that the public doesn’t want to hear the bad news. In short, we are complicit in a con.
Let me take you back to the terrible old days of the mid-1970s. The poor country was in a shocking way and we had to be rescued by the International Monetary Fund (IMF). The UK government was told what it had to do and the population suffered. You will have some mental pictures of industrial strife and large-scale job losses in those bad old times.
Thank goodness, it couldn’t happen now – or could it?
In 1975 the UK had government interest-bearing debt of about 45 per cent of the total economy (GDP) and the debt was rising at about 8 per cent per year. We then had to crawl to the IMF in 1976. Today, that interest-bearing debt is about 65 per cent of GDP, rising nearly 13 per cent a year. A degree in economics will not be necessary to spot that things are a lot worse than in 1975.
Actually, quite a few other things were better in the mid-1970s: unemployment was half of today’s level. The 1975 decline in the economy was only one-seventh of what happened to us last year. And the UK had much less of the largely unmentioned other debt – mostly, the pensions promises that will have to be paid by future generations, which now represents perhaps 125 per cent of GDP but was near 20 per cent in the 1976 time frame. Not a reassuring background.
The mid-1970s IMF crisis was triggered largely by the fact that foreign buyers of government debt were so nervous of the UK’s ability to repay debt that interest rates roared into the teens. Inflation was a much bigger issue then than now, and foreigners and Brits alike also feared we intended to “repay” our debt with relatively worthless scraps of paper.
So there was a buyers’ strike on government debt and we had to be bailed out. Rationally, the currency collapsed in value, and as the cost of importing oil and the like rose, so did inflation. The observant reader may have seen some of this starting to happen in the past few weeks. Should overseas buyers of UK debt worry about our ability to repay? Well, probably not – we have now come up with a new term, quantitative easing, to replace less attractive phrases like printing money or debasement. So last year the UK government did £200bn (20 per cent of GDP) of this latter-day version of slipping lead into the silver coins to buy roughly as much debt as it issued. So we can always repay with something – it might not be worth a lot, though.
So it really does feel as if the pound in your pocket will dwindle in value as the Government tries to drive interest rates down. Trying to destroy our national debt by letting inflation rip is quite attractive.
At some point the fear is that the debt markets will move their focus from Greece. Horrible but true – we have quite a lot of economic statistics worse than Greece. We might be one of the next to suffer, rather like the big banks a couple of years ago when they many found themselves with too much debt. The markets will probably attack one after another in a loss of confidence.
So here we are spending madly. Put simply, in the past year for every pound of receipts the Government spent £1.36p. And the gap is filled by borrowing. That gap is roughly £180bn a year. Wow. The last Budget shows borrowing continuing to rise for the next five years. Beyond doubt, there will therefore be an ongoing risk of a market panic with high interest rates and considerable economic effects throughout that period. However, you should not pay too much attention to budget forecasts – the 2008 Budget forecast that last year the Government would spend 99p for every pound it raised. Honest.
As debt rises, the cost of paying interest and making repayments obviously rises, too. To the extent this money is paid overseas, this is money leaving our economy and weakening it. At some point that cost will mean our economy cannot grow – even the Budget predicted a drop in government investment to one-third of last year’s level over the next five years, which will not be good for growth.
The inflation route was explored a lot in the 1970s and 1980s; it’s chaos and permanently weakens the economy. Increasing taxes is not going to get there. We need to get £50bn plus in each year to stop the debt from rising in five years’ time. Look at the bickering about National Insurance rises – try 10 per cent on VAT as a political idea to make a good dent in the budgetary hole. It’s inconceivable that our current politicians would have the stomach to do this. In any case, the tax load would probably become counterproductive with businesses and people moving overseas to less taxing environments.
Will growth get us there? Well, very short-term growth will probably return as the economy restarts. But the fact is that over the past 10 years the economy’s ability to grow has reduced – largely because we have moved from 40 per cent of the economy being public sector to 50 per cent. Civil servants do not really generate growth, so a smaller private sector has to support a larger public sector. We have casually added about a million people to the public payrolls. No one actually knows what the economy’s growth potential is and our government merely hopes for the best. However, it does not seem feasible that growth will be enough to plug the gap over the next few years.
Now that really leaves the only route to stability, which is to cut the public proportion of our economy, which means reducing spending, increasing the ability of the economy to grow and reducing the number of civil servants, and probably their pay and pensions. And the numbers are large: we need to take out several hundred thousand public sector jobs. We need to reduce the vast liability for public pensions that clouds our future. The politics – and human costs – of this are not palatable. Tough choices have to be made as to what we can afford.
But, actually, we have to do this. Only the timing is uncertain, because either we work up the stomach to do it ourselves or the debt markets will at some point stop buying UK debt; interest rates will rise, probably rapidly and a lot, and we will be forced into doing it by the IMF and the debt markets on their terms.
http://socioecohistory.wordpress.com/20 ... y-realise/
Be Your Own Messiah
The global monetary crisis is coming; Make no mistake about it. There is no sane way Japan can repay its debts. How can it, when the country is running budget deficits after deficits? The Illuminist money power intentionally engineer this coming collapse.
The plan is to destroy all major currencies which will lead to financial and economic collapse worldwide. The cabal will trigger a World War 3 to distract the sheeple from all the real problems. War will be used for depopulation, destroying the current world system and forcing the people to accept the Satanic New World Order, One World Government. The Mystery Babylon Whore of Revelation 17.
The Telegrapgh UK reports:
Japan’s ruling party has called for drastic monetary easing to devalue the yen by 30pc and halt the slide into deflation, putting it on a collision course with the Bank of Japan.
A draft by 130 lawmakers from premier Yukio Hatoyama’s Democratic Party of Japan said the country needs a radical shift towards growth policies, calling for an inflation target above 2pc. The exchange rate should be steered to ¥120 against the dollar, from the current ¥90. Shizuka Kamei, financial affairs minister, said the central bank must monetise government debt to support the market for state bonds and prevent deflation becoming deeply lodged in the economy.
The Bank of Japan’s governor, Masaaki Shirakawa, told lawmakers that it would illegal to fund state spending by printing money. “History has proven that central banks directly buying government securities caused severe inflation and dealt a blow to the economy. The BoJ is now providing adequate funds,” he said.
Tokyo is still able to issue 10-year bonds at ultra-low rates of 1.4pc, relying on a captive savings market, even though gross public debt will reach 225pc of GDP this year, the highest in the world. However, there are growing fears of a “malign scenario” where rising rates set off a debt compound spiral. The IMF has warned that borrowing costs may rise sharply as Japan’s aging crisis bites in earnest.
Junko Nishioka, an economist for RBS, said the BoJ is haunted by hyperinflation after World War Two. It is afraid debt monetisation could back-fire, triggering the very crisis that everybody fears. “We don’t think a fiscal accident is likely yet. Pension funds will keep buying debt for another five or six years. After that pressure increases,” she said.
http://socioecohistory.wordpress.com/20 ... valuation/
Be Your Own Messiah
More green shoots for the US economy? I don’t think so! This is Great Depression 2.0. Even with their manufactured data, the snakes have difficulty hiding the truth! The reality is: only the Wall Street banksters who have ‘raped’ the country are doing well. Main Street is in severe distress. The number of people on food stamps is 39 million and rising. Independent economics researcher like www.shadowstats.com is reporting U6 unemployment at 22% and CPI at 9.7%. These are clearly horrendous and depression conditions. In the 1929 Great Depression, unemployment was around 25%.
U.S. Foreclosure Filings Rise 16% as Bank Seizures Set Record
April 15 (Bloomberg) — Foreclosure filings in the U.S. rose 16 percent in the first quarter from a year earlier and bank seizures hit a record as lenders stepped up action against delinquent homeowners, according to RealtyTrac Inc.
A total of 932,234 homes, or one out of every 138 households, received a default or auction notice, or were repossessed by banks, the Irvine, California-based firm said today. In March, filings rose 8 percent to the most in any month since RealtyTrac began publishing reports in January 2005.
New US jobless claims unexpectedly jump
New claims for US unemployment insurance benefits unexpectedly rose last week, largely due to Easter holiday-related factors, the Labor Department said Thursday. Initial jobless claims totaled a seasonally adjusted 484,000 in the week ending April 10, the highest level since late February, the department reported.
That marked an increase of 24,000 from the prior week’s unrevised figure of 460,000 and surprised most analysts who had forecast new claims would fall by 440,000.
http://socioecohistory.wordpress.com/20 ... edly-jump/
Be Your Own Messiah
It is anybody’s guess whether the Eurozone will disintegrate and along with it the Euro. My feeling is that any attempt to create a ‘Core Euro’ by France and Germany will not be successful. Although, there are plans for such an eventuality, by the money PTB, I suspect that they will go the whole hog and aim for their final One World Currency objective. Even the IMF is re-engineering itself for this coming monetary crisis to become the global central bank. See:
IMF Prepares for Global Cataclysm, Expands Backup Rescue Facility By Half a Trillion for “Contribution to Global Financial Stability”
Vincent Fernando writes:
The latest Global Monetary Analyst raises the notion of stronger Eurozone nations ditching the euro in order to form a stronger, smaller currency union. Morgan Stanley’s Joachim Fels believes that the eurozone/IMF financial backstop for Greece, plus the European Central Bank’s recent backing-down on collateral rules for Greece have substantially, and ironically, increased the long-term risk of a eurozone break-up. Joachim Fels at Morgan Stanley:
… which gives rise to moral hazard: The bail-out and the ECB’s softer collateral stance set a bad precedent for other euro area member states and make it more likely that the euro area degenerates into a zone of fiscal profligacy, currency weakness and higher inflationary pressures over time. If so, countries with a high preference for price stability, such as Germany, might conclude that they would be better off with a harder but smaller currency union. And because the Maastricht Treaty does not provide for the possibility of expelling euro area members, the only way how Germany could achieve this would be by leaving the euro to introduce a stronger currency.
Obviously, we have not reached the end-game yet. However, with the recent developments, such a break-up scenario has clearly become more likely, for two reasons. First, the lesson for other euro area members from the Greek bail-out package that no matter how badly you violate the SGP guidelines, financial help will be forthcoming, if push comes to shove. This introduces a serious moral hazard problem into the European equation. Fiscal slippage in other countries has now become more rather than less likely.
Moreover, the central bank’s credibility has been massively eroded.
Second, the ECB’s climb-down on its collateral rules regarding lower-rated bonds, which ensures that Greek government bonds will still be eligible as collateral in ECB tenders beyond 2010, adds to this moral hazard problem and confirms that the ECB is not immune to political considerations and pressures.
Most importantly, what to watch for that might signal the beginning of the end of the currency union as we know it:
What are the signposts that would indicate our break-up scenario is in fact unfolding?
First, watch fiscal developments in other euro area countries closely: Our suspicion is that the aid package for Greece lessens other governments’ resolve to tighten fiscal policy, especially in an environment of ongoing economic stagnation or recession.
Second, watch ECB policy closely: If the ECB turns out to be slow in raising interest rates once inflation pressures return, this would be a sign of a politicisation of monetary policy.
Third, watch the political debate in Germany: Support for Greece has been extremely unpopular and fears that the euro will turn into a soft currency abound. If the aid package for Greece, which so far is a backstop credit line, becomes activated, eurosceptic forces would receive a significant further boost. And, needless to say, if other countries also needed financial support, this would further strengthen euro opposition.
(Via Morgan Stanley, Global Monetary Analyst, Joachim Fels, 14 April 2010)
http://socioecohistory.wordpress.com/20 ... h-out-for/
Be Your Own Messiah
Sat, 17 Apr 2010 10:30 EDT
Railway porter-turned-billionaire financier George Soros delivered a stark warning last night that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.
The man who 'broke' the Bank of England (and who is still able to earn a cool $3.3 bln in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learned.
Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned us to heed the lesson that modern economics had got it wrong and that markets are not inherently stable.
"The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods," he told a meeting hosted by The Economist at the City of London's modern and impressive Haberdashers' Hall.
"Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.
Comment: "We" here refers to the financial terrorists like Soros who caused the mess in order to implement their global corporatist solution.
"We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount."
Comment: Yes, you have. All part of your agenda, eh George?
One crumb of comfort could be the 10-year period between the 1998 Asian crisis and the 2008 credit crisis. If the pattern is repeated, it should at least mean we have another 8 years to go before the next crash...
http://www.sott.net/articles/show/20699 ... arns-Soros
Be Your Own Messiah
Greece is but 3% of the entire Eurozone GDP. It is a small economy. The bailout amount is not that large. Still, I think they will need another bailout 1 year down the road. There are bigger sovereign debt crisis brewing in the Eurozone. All these are hiding the fact that Britain and the US are the big potatoes in this mess!
Must Germany bail out Portugal too?
Portugal, not Greece, poses the greater existential threat to Europe’s monetary union.
…. However, Portugal did not cheat (much) and did not start as an arch-debtor. It did mishandle the run-up to EMU in the 1990s, failing to offset a fall in interest rates from 16pc to 3pc with fiscal tightening. Boom-bust ensued. But that was a long time ago. Portugal has since settled down to a decade of sobriety. The reward never came.
Brussels admitted last week that Portugal’s external accounts have switched from credit in the mid-1990s to a deficit of 109pc of GDP. This has been caused by the incentive structures of EMU itself. “The more broadened access to credit induced a significant reduction in the saving rate, while consumption kept growing faster than GDP. This development led to an increase in Portuguese indebtedness,” it said.
The IMF’s January report – worth examining for its horrifying charts - said “The large fiscal and external imbalances that arose from the boom in the run-up to adoption of the euro have not been unwound, resulting in the economy becoming heavily indebted and growing banking system vulnerabilities. The longer the imbalance persists, the greater the risk the adjustment will be sudden and disruptive.” The IMF noted the “heavy reliance” of banks on foreign wholesale funding, equal to 40pc of total assets.
Yes, Portugal’s public debt will be 86pc of GDP this year against 124pc for Greece (EC estimates). That is small comfort. Giles Moec from Deutsche Bank said Portugal’s private debt reached 239pc in 2008: Greece was 123pc. Total debt levels matter. The last two years have taught us that private excess lands on the taxpayer one way or another. For Portugal, the figure is now is in the danger zone above 300pc.
If CDS Traders Are Right, France Is Next Up For A Sovereign Shakedown (As Are Spain And Portugal); Greece Long Forgotten
….Well, Greece can sleep well: according to the latest DTCC CDS data (for the week ended April 9), CDS specs have completely deserted Greece, which saw the single biggest amount of Net Notional CDS decrease, to just over $8 billion, a reduction of $367 million in the prior week (which means all the widening in Greek spreads is now, and has been, just cash bond sales, precisely what Zero Hedge has claimed all along). CDS traders are now focusing their attention on the one country which has so far slipped under everyone’s radar, yet which we disclosed is more on the hook in terms of Southern European exposure than even Germany: France, with $781 billion in total claims. Should Greece topple the PIIGS dominoes, France will implode. And this is precisely what CDS traders are betting on now, taking advantage of absurdly tight France CDS levels. Also, just in case they are wrong on France, Spain and Portugal, not surprisingly, round out the top three names in which Net Notional saw the largest increase. Also not surprisingly, Japan rounds out the top 5 deriskers.
http://socioecohistory.wordpress.com/20 ... -portugal/
Be Your Own Messiah
By Linus Chua and Shiyin Chen
April 20 (Bloomberg) -- Asia stocks rebounded from the biggest slump in two months as U.S. regulators were split on suing Goldman Sachs Group Inc. The yen fell as signs of a recovery damped demand for the Japanese currency as a refuge.
The MSCI Asia Pacific Index advanced 0.5 percent to 126.15 at 4:15 p.m. in Tokyo after plunging 2.1 percent yesterday. The yen slid against all 16 major counterparts. Futures for the Standard & Poor’s 500 Index were little changed. The Stoxx Europe gained 0.6 percent to 267.84 at 8:15 a.m. in London.
Banking shares in the U.S. and Asia jumped after a Bloomberg News report said the Securities and Exchange Commission voted 3-2 to sue Goldman Sachs for fraud. Japan’s demand for services fell less than economists estimated in February, indicating the recovery is starting to benefit households. Federal Reserve Bank of Chicago President Charles Evans said in a televised interview that the U.S. recession is “definitely over,” following news that the index of U.S. leading indicators rose 1.4 percent in March, the most in 10 months, a sign the economy will grow in the second half. “The leading indicators show that the recovery is ongoing and the market is now focusing on the earnings season,” said Roger Groebli, the Singapore-based head of financial market analysis at LGT Capital Management, part of the group that oversees $84 billion. “The Goldman Sachs suit is a problem for the industry but the financial regulatory issue has been recognized earlier.”
The Hang Seng Index increased 0.9 percent and the Kospi index advanced 0.8 percent, both rising for the first time in three days. The Bombay Stock Exchange Sensitive Index increased 0.8 percent after India’s central bank increased the reverse repurchase rate to 3.75 percent from 3.5 percent, as expected.
Sumitomo Mitsui Financial Group Inc. rose 0.8 percent in Tokyo as Morgan Stanley upgraded the nation’s banks and Citigroup Inc.’s profit beat estimates. Bank of East Asia Ltd., the third-biggest Hong Kong lender by market value, climbed 0.9 percent, while HSBC Holdings Plc, Europe’s largest, increased 0.9 percent in Hong Kong trading. China Minsheng Banking Corp., the nation’s first privately owned lender, rallied 3.4 percent in Hong Kong, poised for the biggest gain since its initial share offering in the city in November 2009, after profit jumped 53 percent last year.
The suit against Goldman will have a “limited” impact on local financial markets, South Korea’s Financial Services Commission said today, noting that the nation’s financial companies at the end of last year held $350 million of securities issued by Goldman. The SEC on April 16 accused Goldman Sachs, the most profitable company in Wall Street history, of creating and selling collateralized debt obligations in 2007 tied to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities.
Thailand’s SET Index surged 3.4 percent, the most in more than four months, as Tisco Financial Group Pcl and Kiatnakin Bank Pcl reported higher profit, raising expectations of earnings among the nation’s banks are improving.
“It suggest that most companies’ earnings growth remain strong despite domestic political crisis,” said Sasikorn Charoensuwan, the head of research at Phillip Securities (Thailand) Pcl. Thai stocks slumped 8 percent in the past three trading days amid a clash between authorities and anti- government protesters that left 25 people dead.
The yen fell ahead of reports forecast to show German investor confidence improved and sales of U.S. existing homes increased.
The yen was at 124.69 per euro in Tokyo from 124.64 in New York yesterday, when it touched 123.16, the highest since March 26. It dropped to 92.60 per dollar from 92.40.
“As long as the global economic recovery remains on track, stocks will rise and cross currencies should advance against the yen,” said Daisaku Ueno, a president at Gaitame.Com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “That’s an underlying theme.”
The cost of protecting Asia-Pacific corporate and sovereign bonds from default declined. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 3 basis points to 94 basis points, while the Markit iTraxx Australia index retreated by 3 basis points to 81.5, Deutsche Bank AG prices show. The Markit iTraxx Japan index fell 0.5 basis point to 88.5 basis points, according to Morgan Stanley prices.
Commodities advanced. Copper for three-month delivery was up 0.6 percent at $7,740 per metric ton, rubber for September delivery increased 2.2 percent to 320 yen per kilogram and July corn gained 0.8 percent to $3.60 a bushel.
Crude oil rose from a three-week low on speculation a report tomorrow will show U.S. stockpiles declined for a second week and as rising equity prices buoyed investor sentiment. Oil climbed 57 cents to $82.02 a barrel in New York, reversing yesterday’s slump.
To contact the reporter on this story: Linus Chua at firstname.lastname@example.org; Shiyin Chen in Singapore at email@example.com
Last Updated: April 20, 2010 03:16 EDT
http://www.bloomberg.com/apps/news?pid= ... ePkg&pos=1
Be Your Own Messiah
Forbes - The Teacher Pension Nightmare
Josh Barro, 04.14.10, 11:27 AM EDT
Why the trillion-dollar gap will become taxpayers' problem.
Pension and retirement plans all over America have lost value. Plans covering public school teachers, by their own admission, are underfunded by $332 billion. However, the plans' real funding gap is far worse than their financial statements show, at nearly a trillion dollars--and you and I will bear the burden of covering their shortfall.
The story of how this happened is familiar: States expanded their promises to retirees when times were good. Then, the economy tanked, pension assets fell in value and states skirted their obligations to deposit cash in pension funds--all causing a funding gap. But because benefits are contractually guaranteed, the obligation to cover any funding shortfall lies with taxpayers.
Yahoo! BuzzActuaries are telling states and localities to cough up far higher payments out of current budgets to shore up the plans. In the education sphere these obligations are putting new pressure on local taxes and competing with funding for classroom instruction.
Unfortunately, an often overlooked aspect of the pension gap story makes matters even worse: Governments use accounting methods that have consistently understated pension funding gaps in both good times and bad. Examined on a more realistic basis, the true gap in teacher pensions is nearly three times the official amount--and the taxpayers who will have to close it are in for three times the pain.
Recently, Stuart Buck and I authored a paper for the Manhattan Institute and the Foundation for Educational Choice called "Underfunded Teacher Pension Plans: It's Worse Than You Think." We reestimated the unfunded liabilities of major teacher pension plans by applying private-sector-style accounting and marking asset values to market. We found that all the plans are underfunded, and the aggregate funding gap is $933 billion.
The key accounting problem lies in the "discounting" assumptions used by public plans. All pensions use some kind of discounting to reflect the fact that a promise to pay $1 next year does not require $1 in assets today. But the specific way that public pensions discount liabilities causes them to underestimate the present cost of paying future benefits
Operating under guidance from the Government Accounting Standards Board, public plans discount future liabilities at a rate equal to their expected return on assets--which, for the 59 plans in our study, was typically close to 8%. Under this assumption $100 assets today would be considered sufficient to cover a liability of $108 due in one year, or $317 due in fifteen years.
But private pension plans (overseen by the Financial Accounting Standards Board) may not set a liability discount rate based on anticipated asset performance. Instead, they use a rate that reflects the risk borne by plan retirees--that is, a low level of risk. In practice, plans use a rate based on high-quality long-term corporate bond yields, currently just above 6%.
This simple adjustment has a large effect on estimated liabilities. Moving from an 8% discount rate to a 6% rate significantly reduces the power of $100 in assets today--to covering just $240 in liabilities fifteen years from now. Accordingly, a lower liability discount rate means a larger funding gap between plan assets and liabilities
full article - pages 2,3
http://www.forbes.com/2010/04/14/teache ... barro.html
- Related topics
- Last post