Spain Goes From Bad To Worse

Despite the world and their lemur believing that, with a self-referential EUR100 billion bailout (loan) for its banks and a ponzi guarantee scheme for its insolvent regions, all will be well and more debt fixes too much debt, Spanish 10Y yields are back near 7% and spreads over 575bps. The reason - simple - the backbone of their credit-fueled economic growth has crumbled and is now crumbling faster.

"This government can't decide between a good and a bad choice," Mr. Rajoy said. "This government has to choose between the bad and the even worse." 

Since the EU Summit, and basically month-to-date, Spanish 10Y spreads are 100bps wider back near record wides... 

and Spanish bad loans are rising at an extremely high pace and for 14 months in a row...

........................ Tyler Durden

FT's Gillian Tett provides the rationale for gold price suppression

Explaining "financial repression" as the coercion of investors to purchase government bonds that pay negative real interest rates, Gillian Tett of the Financial Times this week provided the perfect rationale for the Western central bank gold price suppression scheme -- all without mentioning gold at all.

In an essay published in The Wall Street Journal last December, recently resigned Federal Reserve Board member Kevin M. Warsh was among the first to complain about "financial repression," which he described as a matter of policy makers' "suppressing market prices that they don't like":

http://www.gata.org/node/10839

Almost exactly a year ago, the economists Carmen Reinhart and Belén Sbrancia wrote a path-breaking International Monetary Fund paper about "financial repression." It initially caused many Western investors to blink. For while such "repression" has been extensively discussed in emerging markets in recent years, not many people in America knew what this dark-sounding phrase meant.

(Answer: "Financial repression" occurs when governments engineer a situation in which investors feel compelled to buy bonds at unfavourable rates, ie below the prevailing level of inflation, thus helping to reduce national debt.)

How times change. A year later, the word "repression" is being bandied about at investor conferences across the Western world. No wonder. In the eurozone, there are growing signs that governments in places such as Spain and Ireland are "encouraging" -- if not forcing -- banks and state pension funds to buy public sector bonds, at potentially unfavourable prices.

Anybody buying Treasuries.... is essentially agreeing to subsidise the US government in coming years -- unless you believe that deep deflation looms. Call it, if you like, a form of "voluntary" repression; either way, it will almost certainly end up helping the US state, to the detriment of investors.

Another Way Washington Just Robbed Retirees …
Whenever Washington is given an opportunity to stand up for savers and retirees, they almost always do the opposite. As usual, the name sounds innocent enough. In this case, it’s called “The Surface Transportation Bill.”Yet what this law actually does is allow employers to contribute less money into their pension plans.

All told, it should mean an estimated $35 billion LESS going into those plans in 2012 vs. original expectations of $80 billion. Yes, that means almost half as much money going into employee retirement plans this year. Then, next year, it will likely amount to another $73 billion less in private pension plan contributions! .....Pension plan contributions are tax deductible, so instead of going into retirement plans this money will now go into Federal coffers.

What’s going to happen right now, however, IS certain. The money that should be going into corporate pension plans will now go to Washington, who will be using the proceeds to:
Renew transportation programs (essentially meaning more highway and bridge construction projects to “save or create” jobs)
Keep student loan interest rates at low levels (because they know that this is likely to be the next major bubble to pop)

We have corporate plans that are underfunded. We have new laws that amount to less money going into those plans. And we have the government-sponsored insurance for those plans without enough money to even pay the pensioners it’s already covering. 

................ Nilus Mattive

Equities of Mega Banks - Avoid Forever
Too Big to Fail—Then Who Needs their Stock
..... large banks will not be allowed to go bankrupt.

The Lehman and J.P. Morgan Fiascos
....The American officials....realized in horror that the entire global financial sector was lined up to go down next. One hundred years of coddling and risk backstopping – starting with the creation of the Federal Reserve in 1914—had created a financial industry that wasn’t ready to be released in the wild.... the financial sector is the nervous center of capitalism. No modern elected government anywhere can allow its financial sector to have a nervous breakdown.... government’s implied guarantee to these banks creates a major case of moral hazard. If the government is going to pick up the losses, why, mega bank managements may ask, not take more risks on less capital? Of course that is what happened over the years...Over the years, large commercial banks gave the public an illusion that they were safe and protected by their governments. The banking crisis in 2008 shattered this illusion.

The LIBOR Issue—Another Reason to Go to Law School
The banks apparently gamed the system. The London Interbank Offered Rate or LIBOR is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. It turns out weaker banks reported rates to LIBOR that were below that which they were actually paying. The idea was to conceal weakness. Apparently the professionals and the regulators knew what was going on. So from an economic point of view (as opposed to a legal), the wholesale market adjusted and no big deal.

But LIBOR has been used for pricing many loans around the world by borrowers that didn’t know the system was not what it appeared. For example mortgage loans in East Los Angeles or Fresno made to overleveraged minority borrowers who had no business borrowing in the first place. That was not a good idea. LIBOR wound up being used for purposes it was not intended.


........... Peter T Treadway

19 Warnings About A Coming Global Financial Catastrophe

Global leaders have tried just about everything that they can think of, but the coming global financial catastrophe continues to march steadily toward us. We have seen "stimulus packages", quantitative easing, bond buying, interest rate cuts, emergency economic summits, bailout packages for banks, bailout packages for entire nations, "Operation Twist", unprecedented government intervention in business and massive amounts of new government debt and yet nothing seems to revive the global economy. In fact, it looks like we are rapidly heading into the second dip of a "double dip recession". Unfortunately, many believe that this next dip will be more like a full-blown depression. All over the world, top economic experts are warning that we are facing an unprecedented crisis of debt and insolvency that will result in a global financial catastrophe. The eurozone is drowning in debt, the U.S. government is drowning in debt and major banks all over the globe are drowning in debt. Global authorities have been trying to patch the system together and keep it going, but the incredible damage that all of this debt has done is now becoming apparent to everyone. The global debt bubble that has fueled prosperity in the western world for the last several decades is getting ready to burst, and when that happens the chaos that will result will be absolutely horrifying.

The following are 19 warnings about a coming global financial catastrophe....

1. "Dr. Doom" Nouriel Roubini says that the rapidly approaching financial crisis will be even worse than 2008.... The problem is that we are running out of policy rabbits to pull out of the hat!"

2. John Embry....

3. Jim Rogers....

4. Prominent Spanish politician Felipe Gonzalez....

5. Leader of the UK Independence Party Nigel Farage....

6. Peter Praet, chief economist at the European Central Bank....

7. Graham Summers....

8. Peter Schiff....

9. New York Times columnist Paul Krugman....

10. IMF Managing Director Christine Lagarde....

11. Andrew Kenningham, senior global economist at Capital Economics....

12. Zero Hedge....

13. Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute....

14. Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch..

15. Chris Williamson, the chief economist at Markit....

16. Howard Archer, chief European economist at IHS Global Insight....

17. Karl Denninger....

18. LEAP/E2020...

19. Steve Quayle's anonymous international banking source..

Scenes of Despair

Sometimes it can be easy to forget that behind all of the horrible economic numbers that we hear about are millions of real people that have had their lives absolutely devastated by this economy. Elderly couples are being brutally evicted from their homes, young families are living in their cars, terminally ill people are dying because they cannot afford medication that they need and millions of parents can't sleep at night as they wrestle with anxiety over not being able to provide for their children. Often those that lose their jobs or their homes discover that people start looking at them very differently and that there is very little compassion out there these days. As you will read about below, one major U.S. bank is even kicking an elderly woman with stage 4 breast cancer out of her home because she cannot make her full mortgage payment each month. When the next majorglobal financial catastrophe happens, we are going to see a whole lot more economic despair. Will society respond to that crisis by becoming warmer and more compassionate, or will the world around us become even more cold and even more cruel? As bad as things are right now, it truly is frightening to think about what the world is going to look like after the next major economic downturn.....

Crushing Poverty In Greece

As I have written about before, Greece is essentially experiencing a full-blown economic depression at this point.......There is a severe shortage of medicine in Greece right now, and many doctors are essentially volunteers at this point because so few people can actually afford to pay their bills. The following description of the chaos in the Greek healthcare system comes from a recent Natural News article....The economic situation in Greece is only continuing to worsen, as reports indicate that hospitals and care centers throughout the nation are running completely out of medicines, and many healthcare workers are now voluntarily providing care services without pay. Strapped with spiraling debt, the Greek healthcare, which is government-run, has had to receive gobs of international financial aid just to keep operating with some semblance of normalcy. There has also been plenty of IOUs issued, and desperate patients quietly forking over cash "gifts" to doctors to receive treatments. All in all, the healthcare situation is in utter chaos, save for those that have sacrificed their own time, often free of charge, just to help those in need. Economic conditions have gotten so bad in Greece that some parents are actually abandoning their children in the streets according to the Daily Mail....Children are being abandoned on Greece's streets by their poverty-stricken families who cannot afford to look after them any more.Youngsters are being dumped by their parents who are struggling to make ends meet in what is fast becoming the most tragic human consequence of the Euro crisis.

American Families Living In Their Cars

In some areas of the United States you would never even know that an economic crisis is happening, but in other areas things are clearly falling apart very rapidly. There is a very serious shortage of decent jobs in most parts of the country, and we are seeing clear signs of societal breakdownin many of our major cities.
During the last recession, millions of Americans lost their jobs. Because a lot of them did not have much money saved up, many of those unemployed Americans also quickly lost their homes.In the end, some of them ended up living in their vehicles.....And living in a car can be absolute hell. The following is from an ABC News report....Three children -- one suffering second-degree burns -- were taken into protective custody Monday after they were discovered living with their parents in a "filthy" car in a Walmart parking lot.
Police were called to the parking lot Monday morning in Mount Dora, Fla., where they found the family of five living in a 1987 Cadillac Coupe de Ville full of clothes and garbage. Police told the Orlando Sentinel that days-old chicken bones were strewn about the car, along with a spoiled carton of milk and a bottle of tequila.

                  ...............

Gold to Outshine Dollar?

As the price of gold has gone up fivefold over the past 10 years, why would one buy it at today’s prices? For the same reason an investor would buy any other asset: if one believed it would be a good investment now, that is if one believed it may appreciate in value and add portfolio diversification benefits. A key reason to hold gold today might be to prepare for the crisis tomorrow.

By now it is no secret anymore that the finances of the U.S. government are heading towards a fiscal train wreck – a positive step, as at least the discussion on how to tackle the deficit has started to broaden. Each year, the Congressional Budget Office (CBO) is warning in ever-clearer terms that the current path is unsustainable. In its 2012 long-term budget outlook, the CBO is warning of a 199% debt-to-GDP ratio by 2037 under its “extended alternative fiscal scenario” that considers “what might be deemed current policies, as opposed to current laws, implying that lawmakers will extend most tax cuts and other forms of tax relief currently in place, but set to expire and that they will prevent automatic spending reductions and certain spending restraints from occurring.” With regard to the forecast, the CBO cautions “the projections… understate the severity of the long-term budget problem… because they do not incorporate the negative effects that additional federal debt would have on the economy.”

.... Different from the Eurozone, however, the U.S. has a substantial current account deficit. In our analysis, currencies of countries with a current account deficit are more vulnerable, because such countries are dependent on inflows from foreigners to finance the current account. While the debt crisis weighs heavily on the borrowing costs in the Eurozone, the euro itself has held on remarkably well; we have our doubts that the U.S. dollar would has benign a ride should investors shun U.S. bonds.....

               ..............Axel Merk