Here Comes The Double Dip Pt. 4 (merged) Archived

[ColossalContrarian]

Aah! Aha! Germans are (finally) beginning to see the light.

From Der Spiegel:

Playing Chicken Until the Germans Lose Their Nerve
For Germany, being part of the European Union has always included an element of blackmail. France has been playing this card from the beginning, but now the Spanish and the Greeks have mastered the game. They're banking on Berlin losing its nerve.

Hollande is returning to the tried-and-true method of weakening the Germans by undermining their economic strength. The next stage in the crisis will be blatant blackmail. With their refusal to accept money from the bailout fund to recapitalize their banks, the Spanish are not far from causing the entire system to explode. They clearly figure that the Germans will lose their nerve and agree to rehabilitate their banks for them without demanding any guarantee in return that things will take a lasting turn for the better. ... The Greeks will bargain with the other EU countries to see what it's worth to them to see Greece abandon the euro. The Greeks no longer have much to lose; but their EU neighbors -- and particularly the Germans -- still do. This discrepancy will determine the price to be paid.

This is priceless ... but when will the German taxpayers realize how badly they're being manipulated and screwed over by their conniving neighbors?

Soon, very soon.

This reminds me of this little nugget I found on ZeroHedge which is why I think it's so funny when people point fingers at the right or left when they're both the problem. I tend to lean more to the right but that really doesn't matter in this case. EVERYONE wants their free money and it's funny seeing what they'll resort to to get it!

"Solutions" that turn off the free money spigots are non-starters, not just from self-interest but from ideology. Any attempt to tighten the spigots steps on ideological toes, as each spigot is ideologically sacred to one political camp or another.

Liberals don't want to hear about scamming of their sacred "we must help everyone in need" welfare programs, and conservatives don't want to hear about cartel looting of their sacred "free enterprise" system.

http://www.zerohedge.com/news/guest-post-solution-collapse

[Daniel_Plainview]

EVERYONE wants their free money and it's funny seeing what they'll resort to to get it!

"Solutions" that turn off the free money spigots are non-starters, not just from self-interest but from ideology. Any attempt to tighten the spigots steps on ideological toes, as each spigot is ideologically sacred to one political camp or another.

Yep, everyone wants their free lunch ... That's how Obama got elected; ... That's how François Hollande got elected; ... And that's how the new Greek PM will be elected in a few days... and now the Germans are (finally) realizing that they're the losers in this ill-fated paradigm.

It's become a predictable farce at this point.

[TheAntiDoomer]

^You are so utterly and completly clueless DP. PRESIDENT Obama never offered nor delivered any "Free lunch" to anybody. Maybe you should read for a change and see what is happening in the real world:

http://progressiveerupts.blogspot.com/2 ... obama.html

WALL STREET JOURNAL: UNDER OBAMA, GOVERNMENT SPENDING IS AT LOWEST RATE IN DECADES

[Daniel_Plainview]

Obama's budget is a disaster:



The ONLY reason Obama's spending flattened is because he has tapped out the kegger...



... and the Republican Congress has said "THAT'S ENOUGH":



Per capita, the US debt is already worse than Greece and Ireland ... and is WAY worse than Spain, Portugal and Italy ...



The US is an absolute basket-case of an economy propped-up by desperate Fed life-support.



Hopefully, Antidoomer, at SOME POINT, you will get a clue ... Meanwhile, please continue to highlight all of the green shoots sprouting amid this wondrous economic "recovery" ...

[TheAntiDoomer]

^ask and you shall recieve....

Wholesale Inventories Rise, Markets Advance

http://markets.financialcontent.com/pen ... ories_rise

A 0.6% increase in wholesale inventories lifted the markets higher during the midday with the Dow rising 24 points to 12,485. Nasdaq gained 11 points to 2842.

[Daniel_Plainview]

One of the most important concepts for understanding the role of debt on the health of the economy is the "diminishing marginal return of one dollar of debt," as expressed in the following chart:

Seeking Alpha: This chart shows the diminishing positive effect of each debt dollar on GDP growth since 1954. Nouriel Roubini likes to show this and project "zero hour" - when piling on new debt gets us nowhere. A straight line fit through the data hits zero at 2015. A curve fit (red line) gets there even sooner.

This out-of-control debt dynamic is nothing new here in modern America. A fascinating article over at zerohedge.com points out the math of debt creation vs the math of economic growth (very simple math) and how previous civilizations have dealt with it. When you think about, the effects of debt, even if its base doesn't increase, grows at the rate of interest and balloons to monstrous levels over 100 years due to the magic of compounding alone.

Virtually every economist who analyzes this reaches the same conclusion: i.e., that incremental increases in debt no longer pack any punch as they approach zero, and within a few years (by 2014 or 2015), the marginal return will actually become NEGATIVE. Thus, sovereigns already suffocating in debt who take on more debt are committing suicide, and they are either exceeding stupid, or exceedingly desperate (or both).

Here's another chart.

This “parabolic rise” in the debt-to-gdp ratio produces fewer and lower returns on investment over time, which guarantees the eventual “popping” of the credit bubble as the cost of the debt eventually exceeds the borrower’s ability to pay for it.

This is one more reason why the Ponzi scheme is guaranteed to collapse.

[dolanbaker]

But what will replace it!...

[dsula]

But what will replace it!...

and because there's nothing there to replace it, it will keep going for a long time...
Don't hold your breath waiting for the end.

[AgentR11]

DP, I'd only point out that debt effects shouldn't be fit to a linear curve, especially on the portion of the curve as it approaches zero. I'd expect a *very* long tail on that chart as debt vs growth goes below 10 cents heading to 1, and its probably a good bet that it never can reach zero. After all, if the fed loans 10 quadrillion to Bob, and Bob spends it, that's growth... it probably produces miniscule gdp growth, but it would be a positive, non-zero value.

And don't think quadrillions are impossible numbers. They aren't. They aren't even close to impossible.

Course, if you had $500,000 in a cash account and thought your retirement was set, this next step might be modestly painful.

[Daniel_Plainview]

its probably a good bet that it never can reach zero.

Perhaps the marginal impact of debt could turn negative if: (1) interest on the debt were being paid to foreigners; and (2) interest expenses were increasing along with the growing risks associated with carrying greater debt levels.

Think of Greece. 90% of their bailout money goes to foreign banks, and not to domestic GDP. For Greece to take on more foreign debt means 90% of the money bleeds out to foreigners. Thus, more debt means less GDP. The same could be said for Iceland, Ireland, Portugal, Italy, France, Russia, Argentina, Peru ... and the US.

In the US, the Fed could monetize 100% of all new bond issuances such that no interest is being paid ... and theoretically the marginal impact would approach zero, rather than turn negative. But in real (not nominal) terms, limitless debt monetization would have diminishing and eventually negative returns.

[Daniel_Plainview]

KABOOM!

Spain's Bailout Boost Quickly Turns to Rout

LONDON—Investors fled from Spanish government debt on Monday, an immediate rejection of the country's planned bank bailout by the constituency it most desperately needs to impress: the buyers of its own government bonds.

The market rout puts Spain and the euro zone in a dire position. The bailout plan—in which Spain agreed to accept up to €100 billion ($125 billion) to recapitalize banks—was hatched to alleviate the concern that Spain itself could be dragged down by the declining fortunes of its lenders.

But confidence in Spain is deteriorating, not rising. Behind the action is a swirl of concern about Spain, its banks and the mechanics of the bailout.

The unwinding was remarkable for its speed: The cheers for the Spanish bailout lasted just hours—by the end of the trading day any euphoria had evaporated and was replaced by gloom. That suggests Europe is quickly running out of time to find a bolder fix for the sovereign-debt crisis.

"The hourglass…has been turned over, but each time it's happened in Europe over the past few years there seems to be less and less sand in it," said Peter Boockvar, equity strategist at Miller Tabak & Co.

After a burst of strength Monday morning, Spanish bond yields changed course and began a sharp rise. By afternoon in London, the 10-year yield was at 6.54%, three-tenths of a percentage point higher than Friday's close. Bond yields rise when their prices fall.

Credit-default swaps on the Spanish government, insurance-like contracts that pay off if Spain defaults, zoomed higher Monday. Spain dragged Italy deeper into trouble, too; the Italian 10-year yielded 6.04%, up more than a quarter of a point.

European stock markets started the day off strong but steadily lost ground. By the end of the trading session, most European markets were modestly in the red, though the Milan exchange was off 2.8%—hurt by big declines in Italian bank stocks—and the Spanish benchmark index was down 0.5%.

Over the weekend, European finance officials pressed Spain to accept help for its banks. The Spanish government agreed to ask for up to €100 billion to recapitalize lenders.

Spain pushed hard to separate itself from its banks—at one point arguing that European aid should be channelled directly to the banks, not through the government.

But Europe's bailout funds don't permit that, and the funds will lend directly to Spain, which will in turn use the aid to buy stakes in banks.

That structure has unnerved many market participants. One of the euro zone's two bailout funds, the European Stability Mechanism, is considered a "senior" creditor by European authorities, and it is meant to be paid back first if Spain defaults on its debts.

That means investors who might buy Spanish bonds now risk being behind the ESM if Spain can't repay. On Monday, Austrian Finance Minister Maria Fekter said she would prefer the bank aid to come from the ESM.

While the bailout helps Spain by providing it with funds upfront—and at a relatively low cost—to help the banks, the bailout is not a gift: Spain must repay the loan. That means potential bond buyers are lending to an even-more indebted country.

The poor performance Monday of Spanish bonds suggest few investors are attracted to them these days.

"Spain's capital injections entail a transfer of risk from the private to the public sector," said Phoenix Kalen, a macro credit strategist at Royal Bank of Scotland Group PLC. The European loan "will increase Spain's debt burden, while equity injections represent additional risk that the Spanish government is taking onto its balance sheet."

Ms. Kalen added that Spain is likely to need "more external help going forward," for the government, not just the banks.

One key variable in determining Spain's financial future is the willingness and ability of Spanish banks to keep gobbling up their government's debt.

Brimming with cheap three-year loans provided by the European Central Bank, Spanish lenders this year have been among the few buyers of Spanish sovereign bonds. Their heavy buying had helped keep a leash on bond yields, slowing their steady rise.

But Spanish banks largely have exhausted their stockpiles of ECB funds, analysts say. Now the question is whether, after getting recapitalized by the government, they will keep buying sovereign bonds.

There are signs that some banks are less than willing. Banco Bilbao Vizcaya Argentaria SA, BBVA.MC 0.00% Spain's second-largest lender, said in late April that it had kept its exposure to Spanish government debt steady in the first quarter. BBVA replaced maturing government debt with new bond purchases, but didn't increase its overall holdings, a spokesman said.

"Everybody's attention right now is on their banks and their ability to do it," said Oliver Burrows, a senior bank-credit analyst at Rabobank International. "You would hope they don't go out" and buy more sovereign bonds, because that will only increase their perceived riskiness.

KABOOM!

[Daniel_Plainview]

Fed: Americans’ wealth dropped 40% in 3 Yrs ! ! !

The net worth of the American family has fallen to its lowest level in two decades, according to government data released Monday, driven by a more than 40 percent drop in their stakes in their homes.

The Federal Reserve’s detailed survey of consumer finances showed families’ median wealth plunged from $126,400 in 2007 to $77,300 in 2010 — a 39 percent decline. That put them on par with median wealth in 1992.

The Fed’s data underscore the depth of the wounds of the Great Recession and how far many families remain from healing. The median value of Americans’ debt did not change between 2007 and 2010. Meanwhile, the housing market crash inflicted particularly severe damage, with the Fed showing that the median value of Americans’ equity in their homes plunged 42.3 percent between 2007 and 2010.

The survey is conducted every three years, and this report offers one of the most exhaustive looks to date at the greatest economic upheaval in a generation. Although there have been some signs that the recovery has picked up steam — housing prices have begun to stabilize and unemployment has fallen — Fed economists said those improvements largely do not change the survey results.

“Recovery from the so-called Great Recession has also been particularly slow,” the Fed said in its report.

[Daniel_Plainview]

Spanish bond yields reach euro-era high of 6.68%
Spanish and Italian bond yields are climbing to dangerous highs as investors remained unconvinced that the €100bn (£81bn) bank bailout for Spain will help the country keep control of its finances.

The yield on benchmark 10-year Spanish government bonds hit a euro-era high of 6.68pc this afternoon. Italian 10-year bond yields also climbed above 6pc. Italy fought to get its bond yields back down below 7pc last year when Silvio Berlusconi's government collapsed and Mario Monti took over as leader, promising to cut government borrowing.

Bond traders are concerned that the bank bailout for Spain could push its borrowing costs even higher, because it would push up the country's public debt levels and if the money came from the European Stability Mechanism (ESM) bailout fund, priority would go to the repayment of those loans over money lent by the private sector.

Italian bonds came under added pressure as investors fretted that a government debt auction later this week might suffer because of the jittery market.

Also hitting market confidence today is Greece's looming election on Sunday, which could see voters give a majority to the the anti-austerity Syriza party, a move which could then see the country exit the euro.

Fitch cuts 18 Spanish banks ratings

Tue Jun 12, 2012 10:31am EDT
June 12 - Fitch Ratings has downgraded 18 Spanish banks' Long-term Issuer Default Ratings (IDR) and 15 banks' Viability Ratings (VR). At the same time, the agency has placed the Long-term and Short-term IDRs of three banks on Rating Watch Negative (RWN) and maintained five banks on RWN. The Support Rating Floors
(SRF) assigned to four banks have also been revised. A full list of rating actions is at the end of this comment.

The rating actions follow the downgrade of the Spanish sovereign to 'BBB'/Negative from 'A'/Negative (see "Fitch Downgrades Spain to 'BBB'; Outlook Negative", dated 7 June 2012 at http://www.fitchratings.com ). At the same time, Fitch has factored into its rating actions concerns about the potential for the loan portfolios of certain banks to deteriorate further. This is particularly true for those banks whose loan books are heavily exposed to the construction and real estate sectors, and those with low equity bases.

[AgentR11]

In the US, the Fed could monetize 100% of all new bond issuances such that no interest is being paid ... and theoretically the marginal impact would approach zero, rather than turn negative. But in real (not nominal) terms, limitless debt monetization would have diminishing and eventually negative returns.

Nominal is all that matters for this game.

We are in power-down mode, which means continuously decreasing real per-capita output. The only question involved is how to carry out power-down WITHOUT disrupting the economic system, and without displacing the haves from their location atop the pyramid.

Monetization at a rate which makes nominal change slow, balanced against the real per-capita production declines *IS* the answer.

Some here don't like that, because it means that those in the top 1% and top 20%, remain in the top 1% and top 20%, with an every increasing amount of potency as the gap in wealth increases sharply. That drop in net worth you mentioned above? Applies to the lower 80%; the top 20% don't depend on the value of their primary residence as the majority of their net worth, and consequently, when the markets rose after the crash, they made out exceptionally well.

[Daniel_Plainview]

US retail sales drop for second month

Total sales dropped 0.2pc during over the last month, the same contraction as seen during April, according to Commerce Department data.

Excluding new car sales, the figure fell by 0.4pc, the biggest decline in two years.

The producer price index, also out today, declined 1pc. The fall in the index, which measures the price received by domestic producers for their goods, is the biggest since July 2009.

Todd Schoenberger, managing principal at The Blackbay Group, said that car sales turned out to be a "negative surprise" but that the other figures were in line with expectations.

"Not too shocked about that, only because there wasn't much out there to encourage buying, especially with higher gas prices. PPI is a bit of a surprise and isn't a good sign. It continues to chip away at sentiment. This won't be well received by the market."

[Daniel_Plainview]

Monetization at a rate which makes nominal change slow, balanced against the real per-capita production declines *IS* the answer.

Moderate, constrained monetization might be tolerable in the short-term; but the problem is monetization can be highly addictive, and can easily spiral out of control. At some point reality will intrude upon the fantasy perpetuated by printing and monetization ... and when that happens ... POOF!

[Daniel_Plainview]

Contagion has spread from Spain to Italy

Italy hit by market fears of contagion from Spain

Italian Premier Mario Monti saw nearly seven months of confidence-building by his government wiped out by Wednesday, when the country's borrowing rates in a bond auction skyrocketed back near levels last seen in December. A sale of 12-month bonds, a warm-up for Thursday's weightier longer-term debt auction, demonstrated the speed with which market jitters spread from Spain following Madrid's weekend concession that its banks need a bailout. ... `'Contagion is back with a vengeance, and Italy is bearing the brunt of the fallout from Spain's request for external assistance," sovereign debt expert Nicholas Spiro said. Markets, he noted, are no longer differentiating fiscally-stronger Italy from Spain, `'which is a sign that panic has set in."

Italian Bonds Back In The Crosshairs

10Y Italian bond spreads are surging wider intraday as it appears Europe's bond vigilantes (otherwise known as portfolio managers executing some level of due diligence to cover their fiduciary duty) have rotated their attention to Italy. After a few days in a row of Italian bank stock halts, the implicit LTRO-driven relationship between banks and sovereign is snapping 10Y yields above their Aug 2011 crisis peaks - at almost 5 month highs. A 20bps jump from the intraday lows this morning in spreads, underperforming any other European sovereign, seems to reflect our earlier concerns of Italy's lifeline running short. 5Y CDS are also pushing higher - near record wides but do not forget Spain which is also now legging higher in yield and wider in spread after some relief earlier in the day.

Italy is rather notably underperforming its peers intraday...

as 10Y Spanish yields and spreads are re-accelerating higher - notably back above the August 2011 crisis peak of last year...

[Daniel_Plainview]

Oil price could plunge to $50, says Credit Suisse
The oil price could almost halve later this year if the crisis in the eurozone escalates, Credit Suisse believes.

“Brent oil prices would again hit $50 (£32) a barrel” in a worst-case scenario, according to analysts Jan Stuart and Stefan Revielle. “Oil demand would deflate sharply following acute crises of confidence.”

The analysts said that all potential negative scenarios involved Europe “to some degree” with the starting point of collapse coming over the summer. ... Comparing the situation in 2008 and today, Mr Stuart and Mr Revielle noted that “global imbalances are worse and much of the available political and real capital has merely been squandered in the interim.”

* * *

[AgentR11]

Moderate, constrained monetization might be tolerable in the short-term; but the problem is monetization can be highly addictive, and can easily spiral out of control. At some point reality will intrude upon the fantasy perpetuated by printing and monetization ... and when that happens ... POOF!

Its not a fantasy at all. Everyone that matters, understands what is going on right now.

I also disagree with the notion of "poof"; "poof" could happen in a world where people can react in a paranoid fashion faster than the central bank can move money; but that is no longer the case at all. There is simply no way for those that would initiate "poof" to place stress on the system faster than the central bank can react.

Basically, with QEx, the silk gloves came off, and everyone had to come to grips with the reality of what a fiat currency is; and in the process, they have decided that if the game is to be played with a blatantly fiat currency, then everyone feels safer if the central bank is more concerned with liquidity than they are in trying to maintain a specific asset valuation of the unit of currency. Certainly, they'd like the changes in value to be steady, negative, and not overly large in velocity; but liquidity trumps all. And we see this in comparing the Euro disaster with the US situation. Euro... there is risk in getting your nominal principal back. Dollar... there is no risk in getting your nominal principal back. One is chaos, the other is calm.

So be ready... 500 Yen burgers are common on one side of the world. $500 burgers in the US are a perfectly reasonable outcome. And guess what, you pay for it exactly the same way, you hand the clerk the plastic card, they hand you back the card, the burger, and a slip of paper. What difference does it make to you, the buyer of the burger, where the decimal point was?

[TheAntiDoomer]

Report: Housing Inventory declines 20.1% year-over-year in May

http://www.calculatedriskblog.com/2012/ ... s-201.html

On the national level, inventory of for-sale single family homes, condominiums, townhouses and co-ops declined by -20.07% in May 2012 compared to a year ago, and declined in all but two of the 146 markets covered by REALTOR.com