Wednesday, July 22, 2009
Under the worst of circumstances, the report said, the government's maximum exposure could total nearly $24 trillion, or $80,000 for every American.
The figures are part of a tough new quarterly report to Congress from special inspector general Neil Barofsky, who accuses the Treasury Department of repeatedly failing to adopt recommendations aimed at making one component of the government financial rescue effort more accountable and transparent. (more)
All the same hoodoos unfailingly claimed that it's stupid to consider worst-case scenarios when you calculate risk, because...
They have learned absolutely nothing from the ongoing financial meltdown which annihilated some of the oldest and largest investment banks in the world, and plunged the global economy into an almost vertical downturn. (more)
CIT Group, the new epicenter of systemic financial risk, got thrown a lifeline this week from its bondholders. As we reported Friday (link), the company needed $3 billion — fast — in order to stay afloat. It was rightfully denied a government bailout, but was able to strike a last-minute deal with holders of its debt. Of course, the market rejoiced… the S&P 500 rose 1.1% yesterday largely on the news.
But again, we’re calling the market’s bluff. Anybody read the fine print of this deal? The loan was secured by “substantially all unencumbered assets.” That lawyer talk means CIT will have no collateral left over for a similar deal in the future. What’s more, the company will have to pay 13% annually on the $3 billion loan… no small order. (more)
Biggest Bargain... is natural gas says Sean Brodrick...natural gas prices have been driven lower by over-supply & weak demand recently, also US liquid natural gas imports have more than doubled from Nov through April, & huge initial production rates in shale have added to supplies... but longer-term "I think that more U.S. buses, trucks and cars will run on natural gas. So it could be a very good play for the long-term"... (more)
Unfortunately, later has arrived. Growth built on the sandy foundation of debt-based consumption (instead of saving and investment) was fun while it lasted. But now the economic party glass has been filled to overflowing with debt, and we are all getting wet. The great global debt party must now be wound down and cleaned up, but no one seems willing to face the inevitable hangover. The US has more than doubled its debt burden, relative to GDP, since the 1980’s and the consequences are beginning to crash the party. (more)
We have always assumed that governments would surreptitiously default on their debt via inflation, but recently we've come to the conclusion that a direct default is a distinct possibility. Here's why.
Under the current monetary system there is no limit to how much debt a government can take on, provided that the debt is denominated in its own currency. The reason is that the central bank stands ready, willing and able to be the bond-buyer of last resort, and the central bank's pockets are infinitely deep (there is no limit to the amount of new money that the central bank can create). As a result, if it chose to do so the government could continue to issue new bonds until the currency became worthless. At the point where the currency had lost almost all of its purchasing power the surreptitious default would essentially be complete because any debt denominated in this currency would be almost worthless. (more)
While the proportion of consumers without jobs rose to 9.5 percent last month, household borrowing fell to 128 percent of the average family’s after-tax income in the first quarter from a record 133 percent a year earlier, according to data compiled by Bloomberg. The total debt of individuals, nonfinancial companies and federal, state and local governments grew at a 4.3 percent pace at the start of the year, down from a peak of 9.9 percent in the fourth quarter of 2005, Goldman Sachs Group Inc. estimated. (more)
The increasingly bearish fundamentals are raising concerns over the rally in oil prices. While some analysts say oil's gain was helped by hopes for an economic recovery, others believe it's speculation that has pushed oil higher, and a major correction could pull prices back to around $50 a barrel.(more)
But on July 2, overlooked by us mere mortals but to great fanfare among trend followers, the Dow's 50-day moving average rose above its 200-day moving average. And, sure enough, within a couple of trading days the market dutifully reversed course. And it is now at a new rally high -- rising another 104 points on Monday alone. (more)
Stocks and commodities have been on the rise this year, and it seems clear investors and traders have recently been seeking out riskier assets as confidence in the economy’s prospects improves. Treasury bonds, which investors turn to as a safe haven during uncertain times, are being put on the backburner. Given the magnitude of government spending, people are also getting worried about the prospect of inflation, which is bearish for Treasury bonds. Treasury prices trade inversely to their yield. If inflation is rising, your real returns (reflected in your bond’s coupon payment) will decline. (more)