Friday, July 1, 2011
Iceland is free. And it will remain so, so long as her people wish to remain autonomous of the foreign domination of her would-be masters — in this case, international bankers.
On April 9, the fiercely independent people of island-nation defeated a referendum that would have bailed out the UK and the Netherlands who had covered the deposits of British and Dutch investors who had lost funds in Icesave bank in 2008.
At the time of the bank’s failure, Iceland refused to cover the losses. But the UK and Netherlands nonetheless have demanded that Iceland repay them for the “loan” as a condition for admission into the European Union.
In response, the Icelandic people have told Europe to go pound sand. The final vote was 103,207 to 69,462, or 58.9 percent to 39.7 percent. “Taxpayers should not be responsible for paying the debts of a private institution,” said Sigriur Andersen, a spokeswoman for the Advice group that opposed the bailout.
A similar referendum in 2009 on the issue, although with harsher terms, found 93.2 percent of the Icelandic electorate rejecting a proposal to guarantee the deposits of foreign investors who had funds in the Icelandic bank. The referendum was invoked when President Olafur Ragnur Grimmson vetoed legislation the Althingi, Iceland’s parliament, had passed to pay back the British and Dutch.
Under the terms of the agreement, Iceland would have had to pay £2.35 billion to the UK, and €1.32 billion to the Netherlands by 2046 at a 3 percent interest rate. Its rejection for the second time by Iceland is a testament to its people, who feel they should bear no responsibility for the losses of foreigners endured in the financial crisis.
That opposition to bailouts led to Iceland’s decision to allow the bank to fail in 2008. Not that the taxpayers there could have afforded to. As noted by Bloomberg News, at the time the crisis hit in 2008, “the banks had debts equal to 10 times Iceland’s $12 billion GDP.”
“These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks,” Iceland President Olafur Grimsson told Bloomberg Television.
The voters’ rejection came despite threats to isolate Iceland from funding in international financial institutions. Iceland’s national debt has already been downgraded by credit rating agencies, and now those same agencies have promised to do so once again as punishment for defying the will of international bankers.
This is just the latest in the long drama since 2008 of global institutions refusing to take losses in the financial crisis. Threats of a global economic depression and claims of being “too big to fail” have equated to a loaded gun to the heads of representative governments in the U.S. and Europe. Iceland is of particular interest because it did not bail out its banks like Ireland did, or foreign ones like the U.S. did.
If that fervor catches on amongst taxpayers worldwide, as it has in Iceland and with the tea party movement in America, the banks would have something to fear; that is, the inability to draw from limitless amounts of funding from gullible government officials and central banks. It appears that the root cause is government guarantees, whether explicit or implicit, on risk-taking by the banks.
Ultimately, such guarantees are not necessary to maintain full employment or even prop up an economy with growth, they are simply designed to allow these international institutions to overleverage and increase their profit margins in good times — and to avoid catastrophic losses in bad times.
The lesson here is instructive across the pond, but it is a chilling one. If the U.S. — or any sovereign for that matter — attempts to restructure their debts, or to force private investors to take a haircut on their own foolish gambles, these international institutions have promised the equivalent of economic war in response. However, the alternative is for representative governments to sacrifice their independence to a cadre of faceless bankers who share no allegiance to any nation.
It is the conflict that has already defined the beginning of the 21st Century. The question is whether free peoples will choose to remain free, as Iceland has, or to submit.
The past month we have seen stocks pick up momentum to the down side after an already very weak month prior (May – Sell in May and go away). This second wave of high volume selling in June was enough to spook the masses out of the market shifting the sentiment from bullish to bearish. But just recently we are starting to see big money accumulate stocks down at these oversold prices, which has me thinking we just may be headed higher sooner than later.
During market reversals we typically see the more sensitive stocks move first, which are the small cap and tech stocks. Then a couple days later we see the brand name stocks (big cap, energy and banking) follow. It’s these large sectors which provide the power in trends.
Taking a look at the graph below you can see on the far right both tech and small caps are leading the market higher and as of today the power sectors (energy and financials) started to move higher also. So if things play out I expect the SP500 which is a basket of the 500 largest companies to follow the small caps higher over the next 1-3 weeks. David Banister is finding stocks ready to explode during bull market advances which may just be starting…
If we take a look at the charts to see how each of these sectors have been performing you will notice that the small caps (IWM) and tech stocks (XLK) broke out one day before the energy and financials did. This is very typical to see and it also works for playing gold. I have seen gold stocks lead the price of gold bullion up to 7 days before gold bullion started to move. It’s these little golden nuggets of info which can not only save you money but make you even more when put to work.
Mid-Week Trading Conclusion:
In short, I feel the market has been forming a base for almost 3 weeks. Just last week we saw the big sectors (financials and energy) reach their key support levels from several months back and that should trigger a sizable bounce and with any luck the start of another leg higher in the market.
The greatest lesson of the still young 21st century is proving to be that governments are the primary source of systemic risk to the economy, our standard of living, and our liberty.
The latest case in point is the European government debt crisis, with Greece once again running out of money and threatening to trigger yet another financial crisis. The government’s debt now totals more than 150% of its GDP, and continues to grow. Last year’s bailout by other European governments was supposed to give it the time needed to reduce its budget deficits so that next year Greece could roll over its maturing debts, as well as finance additional deficits at interest rates under 6%. However, the government’s austerity plan of tax increases and budget cuts has not reduced current or projected government deficits because the economy in 2010 contracted by 4.5% and the unemployment rate jumped to 15%.
The combination of a contracting economy and rising debt levels has driven the market yield on Greek two-year notes to near 25% and on its 10-year debt to around 15%. Since these loans are in euros, rates this high reflect the growing risk the people of Greece will not be able to make good on their collective debts. They also effectively shut the government out of the capital markets. Last week, S&P downgraded its rating on Greek debt to B from BB-, well into junk bond territory.
The downgrade reflects the increasing possibility that Greece will restructure its debt by forcing current debt holders to accept longer maturities, or do what demonstrators in the streets of Athens are demanding, which is to force its creditors to take a loss on their loans.
Normally, this would be a matter between a debtor and its creditors. However, European Central Bank (ECB) Executive Board Member Juergen Stark warns that the effects of restructuring “could overshadow the effects of the Lehman bankruptcy,” which is associated with the beginning of the 2008 financial crisis.
At the heart of that financial crisis were government policies including Federal Reserve efforts to manipulate the economy by keeping interest rates artificially low and a weak dollar policy that fueled the housing bubble, federal government rules and regulations that de facto required banks to make loans to high risk borrowers, and two government sponsored enterprises, Fannie Mae and Freddie Mac, who stood ready to purchase hundreds of billions of dollars of sub-prime mortgages if only Wall Street could figure out how to turn them into high grade bonds.
In the case of Greece, government actions and regulations also lie at the heart of what threatens to be a European financial crisis.
Greek social security funds hold nearly two-thirds of their liquid assets in government bonds. Thus, any default would undermine these funds’ ability to meet their obligations to pay promised health and pension benefits. Such an outcome understandably would create massive political unrest that could reduce government revenues and the government’s ability to make good on its debts.
This risk is amplified by special rules created by politicians that encourage banks to lend freely to governments.
Here’s how it works. Governments require banks to hold capital against the loans that they make, anticipating that in the normal course of business, some of the loans will not be repaid. The riskier the loan, the more capital that needs to be held in reserve.
However, under international rules negotiated by government representatives through the Bank for International Settlements (BIS), government loans fit into a special category that has a 0% risk requirement. That means European banks do not have to hold any reserves against loans they make to European governments. That’s right, politicians implicitly promised banks that governments would never default. And, given the opportunity to make “risk free” loans that require no capital commitment, bankers purchased mountains of government debt.
According to Reuters, Greek banks own nearly 60 billion euros ($84 billion) of Greek government debt, and would almost certainly need additional capital and potentially a government bailout in the event of a government default.
In addition, the European Central Bank has increased the risk of systemic failure by becoming one of Greece’s largest creditors. As reported by The New York Times, J. P. Morgan estimates that the ECB owns 40 billion euros of Greek debt. In addition, it has lent 91 billion euros to Greek banks, with much of that backed by Greek government bonds.
That means any Greek default would cost the ECB billions of euros in losses and potentially impact the value of the euro, disrupting European and international financial markets, and the conduct of European monetary policy.
In a television interview last Friday, ECB Vice President Lucas Papademos warned: “…the adverse consequences both on the banking system in Greece as well as on financial stability in the euro area as a whole can be far reaching and undesirable. So all in all, I think that Greek debt restructuring should not be on the agenda.”
One possible “far reaching and undesirable” consequence of such a disruption to European financial markets would be follow-on defaults by Ireland, Portugal, Spain and Italy. According to AEI Scholar Desmond Lachman, the combined debt of the first four countries alone is about $2 trillion, a large portion of which is held by European banks. As a consequence, a write-down of 30% of that debt could lead to a European financial crisis not unlike that which struck the US banks from subprime mortgages.
Thus, the systemic risk created by the political class has put the citizens of Europe on the hook for irresponsible levels of government spending. Wealth producers are faced with the lose-lose choices of bailing out governments, bailing out bankers who were induced into buying government debt, or suffering the economic consequences and losses associated with widespread bank failures.
The brewing European debt crisis demonstrates again that the greatest source of systemic risk is believing politicians when they promise government guarantees are costless, and that elite public servants are capable of protecting us from systemic risks in the first place. The lesson is that giving governments more power over the economy and financial system is itself a source of potentially catastrophic financial and economic instability.
I still grocery shop, for things like coffee, cereals, meat, black olives, tuna fish, baking soda, chocolate, sweeteners, a few stock-up items. You'd think because of all we grow I'd be saving a lot, but actually, my food budget remains the same. Why? Because instead of buying people food, I now buy grains and pellets for the chickens and goats too. Add to that other supplies necessary for their well being, more seeds in the spring, and the rising cost of food (both human and animal), and I have to admit that my budgeted food spending hasn't changed a cent since we started working toward food self-sufficiency.
A question often arises amongst homesteaders regarding raising one's own food - is it worth it? Is it cost effective to grow and preserve all one's fruits and vegetables, and to raise one's own eggs, meat, or milk? Realistically, wouldn't it be cheaper to buy them?
More importantly is one's world view, one's mindset, because this ultimately determines how we set our priorities in life. I discussed this in detail in this post, "Mindset: Key to Successful Homesteading?". For our purposes here, we need to consider how mindset determines our motivation toward how we feed ourselves. Am I seeking to raise my own food to gain a financial benefit or a return on an investment? Or because I want to eat real food, to know where it comes from. Maybe I'm motivated by environmental concerns. Or it's simply for the love of doing it. Perhaps I do it because of concerns for the way our world food supply is being managed, and for the sense of purpose, security, and freedom food self-sufficiency affords.
In terms of food self-sufficiency, I honestly think money is a poor standard of value. If I look at my garden harvest and only see what it's worth in terms of money, I must realize that its value is unstable and changes as conditions fluctuate. Yet, I always need to eat. That doesn't change. It doesn't change if produce is worth 25 cents a pound, or if it's worth $5 a pound. I still need to eat.
For my husband and me, our ultimate goal is to decrease our need for money and our dependency on the consumer system. Raising our own food is an important step in meeting that goal. We are working toward raising all or most of our own animal feed, beginning by planting thewheat, the corn, and black oil sunflower seeds. We will look into other crops as well. We will research pasture improvement and what kinds of hay mixes will grow well in our part of the country. What we can grow will eventually determine the number of animals we can keep; we must strive for a need based balance. It will be a step by step process, but will enable our homestead to be more self-sustaining in the long run.
Is it worth it? There's obviously no one-size-fits-all answer, but it is something every homesteader needs to consider. For us, the answer is a resounding yes.
Interesting map, showing what each state charges in taxes for gasoline, per gallon. My home state, New York, appears to have highest gasoline taxes in the Nation. For those of you (us) who favor a Pigou tax, this is somewhat sobering . . .
click for larger graphic
The U.S. corn supply is far larger than thought and a bumper crop could be on the way, the Agriculture Department said on Thursday in a report that shocked traders and shoved grain markets sharply lower.
Farmers defied expectations by planting significantly more corn acres despite rain and floods, and sky-high prices curbed demand which left June 1 stockpiles 11 percent larger than traders had predicted.
The dramatic turnaround from fears of bare-bones supplies could signal comfortable supply levels for the coming year and ease fears about high world food prices.
"American producers stepped up," [USDA's] Vilsack told Reuters Insider.
At the Chicago Board of Trade, corn for July delivery was down 10 percent, or 72 cents per bushel, at $6.26 in morning trade, and deferred contracts were locked down the limit of 30 cents per bushel. The July contract is in its delivery period and trading without limits.
July wheat was down 8 percent, or 49 cents, to $5.92-1/4. July soybeans were down 1 percent, or 19 cents, to $13.15-1/4.
Red-hot demand from corn exporters, livestock feeders and processors had been expected to consume every bushel grown in 2010 and eat into reserves, but the higher stocks number was a sign that demand has been rationed.
"We planted more acres than the trade had thought earlier in the year because we sent the signal to plant," said analyst Don Roose of U.S. Commodities. "The other thing was, we did find a way to slow down usage."
The USDA said the corn stockpile was 3.67 billion bushels on June 1, and it pegged plantings at 92.28 million acres. With normal weather and yields, a record-large crop could be harvested.
The soybean stockpile was 4 percent larger than anticipated by analysts, although plantings were 2 percent smaller. The soybean crop would still be the third-largest on record, but supplies are expected to run tight for another year.
Wheat stocks were 4 percent larger than traders expected and plantings were down marginally.
The USDA reports imply that corn growers would harvest 13.5 billion bushels of corn, which would be a record, and 3.2 billion bushels of soybeans, which would be the third-largest on record. Both estimates are Reuters' calculations and assume normal weather conditions and yields.
A mammoth crop would fatten the corn stockpile to nearly 1 billion bushels, but soybeans would run tight through fall 2012.
December corn was limit down 30 cents. However, front month contracts are in delivery warning period and there is no limit. Those playing front-month contracts on expectations of a lousy crop report were massacred.
With crude prices falling and corn hammered, expect the next set of CPI figures to be tame.
Bear in mind I do not consider prices to be a valid measure of inflation. Oil rising because of peak oil has nothing to do with inflation. Nor does rising grain prices based on flooding. Nor does demand from China have anything to do with inflation in the US.
Thus, this plunge has nothing to do with inflation or deflation either.
Inflation and deflation are monetary phenomena. As far as inflation goes, these price movements are noise. However, for those who think price is what matters, prices are headed down.
If oil and food prices continue to drop, ECB president Jean-Claude Trichet may change his tune on rate hikes. Of course Trichet will be out of the picture soon as his term expires in October.
In the US, the Bernanke Fed got another signal to keep rates excessively low.
Mike "Mish" Shedlock
Editor’s Note: Bernanke may appear confused now, but he told us in 2009 not to expect many jobs in his great ‘recovery’. Click here to read my post about this at the time Ben told us exactly what would happen.
Initial claims for state unemployment benefits slipped just 1,000 to a seasonally adjusted 428,000, the Labor Department said. Economists polled by Reuters had forecast claims dropping to 420,000. The prior week’s figure was unrevised at 429,000.
It was the 12th straight week that claims have been above 400,000, a level that is usually associated with a stable labor market. Employment stumbled badly in May, with employers adding just 54,000 jobs—the fewest in eight months.
“Payroll growth is going to be more like last month’s rather than first three months of the year,” said Troy Davig, senior U.S. economist at Barclays Capital in New York.
Nonfarm payrolls are expected to have increased 90,000 this month, according to a Reuters survey, with the unemployment rate edging down to 9.0 percent. The employment report for June will be released on July 8.
A Labor Department official said one state was estimated, noting there was nothing unusual in the state-level details.
The continued elevation of claims could raise concerns that the economic soft patch in the first half of the year could linger. The economy has been slammed by bad weather, high gasoline prices and supply chain disruptions after the March earthquake in Japan.
However, many economists and the Federal Reserve believe activity will pick-up in the third quarter as these temporary factors ease.
The four-week moving average of unemployment claims, a better measure of underlying trends, nudged up 500 to 426,750.
The number of people still receiving benefits under regular state programs after an initial week of aid fell 12,000 to 3.70 million in the week ended June 18. So-called continuing claims covered the survey week for the employment report’s household survey, from which the unemployment rate is derived.
The number of people on emergency unemployment benefits climbed 1,471 to 3.30 million in the week ended June 11, the latest week for which data is available. A total of 7.51 million people were claiming unemployment benefits during that period under all programs, down 30,701 from the prior week.