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Thursday, November 10, 2011

Today, the Germans and French are Talking About Breakup of Euro

European debt crisis spiralling out of control

Reports that Germany and France have begun talks to break up the eurozone amid fears that Italy will be too big to rescue

Fears that Europe's sovereign debt crisis was spiralling out of control have intensified as political chaos in Athens and Rome, and looming recession, created panic on world markets.

Reports emerging from Brussels said that Germany and France had begun preliminary talks on a break-up of the eurozone, amid fears that Italy would be too big to rescue.

Despite Silvio Berlusconi's announcement that he would step down as prime minister once austerity measures were pushed through parliament, a collapse of investor confidence in the eurozone's third-biggest economy sent interest rates in Italy to the levels that triggered bailouts in Portugal, Greece and Ireland.

Italian bond yields surged through the critical 7% mark, at one point hitting 7.5%, amid concern that the deteriorating situation had moved the crisis into a dangerous new phase.

In Athens talks to appoint a prime minister to succeed George Papandreou were in deadlock, and will resume on Thursday morning. The Italian president, Giorgio Napolitano, sought to reassure the markets by promising that Berlusconi would be leaving office soon.

Angela Merkel, the German chancellor, said the situation had become "unpleasant", and called for eurozone members to accelerate plans for closer political integration. "It is time for a breakthrough to a new Europe," she said. "Because the world is changing so much, we must be prepared to answer the challenges. That will mean more Europe, not less Europe."

The president of the European commission, José Manuel Barroso, issued a new call for the EU to "unite or face irrelevance" in the face of the mounting economic crisis in Italy. "We are witnessing fundamental changes to the economic and geopolitical order that have convinced me that Europe needs to advance now together or risk fragmentation. Europe must either transform itself or it will decline. We are in a defining moment where we either unite or face irrelevance," he said.

Senior policymakers in Paris, Berlin and Brussels are reported to have discussed the possibility of one or more countries leaving the eurozone, while the remaining core pushes on toward deeper economic integration, including on tax and fiscal policy. "France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.

Financial regulators across Europe were last night carefully monitoring the health of their heavily exposed banks, amid concern that the turmoil could lead to a debt default, or even the break-up of the euro.

George Osborne, just three weeks away from delivering his autumn statement on the health of the economy, believes Europe's problems are blighting the UK's growth prospects, but he will use the sell-off of Italian bonds to insist there is no alternative to his austerity plans.

Nick Clegg, the deputy prime minister, spent Wednesday in Brussels urging the council president, Herman Van Rompuy, and a clutch of EU commissioners to focus on growth, and not further treaty changes, warning that if Europe does not become more competitive it will end up in a spiral of perpetual decline. Both he and David Cameron are urging EU integrationists to recognise that EU Treaty changes in the next few months would be a massive distraction and no cure for the underlying economic crisis. He pointed out that they would require referendums in at least four countries.

The latest chapter in the ongoing sovereign debt crisis came as Bank of England policymakers gathered for their monthly two-day interest rate-setting meeting. The monetary policy committee announced £75bn-worth of quantitative easing last month in an effort to prevent a recession.

City analysts believe the renewed turmoil in the eurozone is pointing to a deep recession in Europe. "It's unavoidable that there will be an outright contraction in the fourth quarter of this year, and a 60%-70% chance of another decline in the first quarter of next year," said Nick Parsons, head of strategy at National Australia Bank.

Shares fell heavily on both sides of the Atlantic. The Italian stock market lost 4% of its value. The FTSE100 index of leading shares closed 106.96 points down, at 5460.38. The Dow Jones closed 389 points down at 11,780.94.

Christine Lagarde, head of the IMF, told a financial forum in Beijing that Europe's debt crisis risked plunging the global economy into a Japan-style "lost decade" of weak growth and deflation.

"Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability and potential collapse of global demand … we could run the risk of what some commentators are already calling the lost decade."

Simon Derrick, currency strategist at BNY Mellon, said: "We're at the point of asking the question, if I put my money into Italy, am I going to get it back? The fact is, there isn't a safety net." He added that the mood in the City was reminiscent of Black Wednesday, in September 1992, when the UK crashed out of the European Exchange Rate Mechanism.

The surge in Italian bond yields was eventually capped by the European Central Bank, which intervened in the markets to buy limited quantities of Italian debt. But analysts say the ECB will eventually have to step up its action, and act as a lender of last resort to bring interest rates down to pre-crisis levels. Sony Kapoor, director of Brussels-based think-tank Re-Define, said: "We may be fairly close to the point where an existential threat to the eurozone, and hence the ECB, is on the horizon. This could easily spiral out of control."

The ECB is seen as the only institution with the firepower to rescue Italy, because the EU lacks the resources to bail out such a large economy. Ben May, of Capital Economics, said Italy would need a €650bn bailout to keep it out of financial markets for the next three years or so. "The European Financial Stability Facility will not be able to provide a bailout of this size," he said.

Officials in Brussels insisted on Wednesday there would be no rescue package for Rome, saying, "financial assistance is not on the cards". A key test will come on Thursday morning when Italy has to raise €5bn from investors on the bond market.

Economic and monetary affairs commissioner Olli Rehn ratcheted up the political pressure on Italy with a strongly-worded letter to finance minister Giulio Tremonti. In it, Rehn demanded concrete written details of how Italy will implement each of the 39 separate reform measures it has promised to undertake.

In Rome the head of state, Giorgio Napolitano, insisted that Berlusconi would be leaving office soon, and that his departure would not be the prelude to a lengthy period of political instability.

His intervention came after hurried consultations with the speakers of both houses of parliament to ensure the speediest possible approval for a package of economic reform and austerity measures agreed with the European institutions. On Tuesday evening, after losing his majority in the chamber of deputies, Berlusconi told Napolitano he would resign.

But, to prevent the economic measures being blocked by the fall of his government, he said he would only go once the package had been approved.

As concern grew that he might delay the passage of the legislation, which has become a litmus test of Italy's credibility in the markets, Berlusconi said he would insist on holding new elections and one of his ministers speculated that could be next February.

After the yield on Italy's benchmark bonds soared above 7%, taking interest rates to a level beyond which previous euro zone debt crisis victims have sought a bail-out, the president issued a statement to say the new economic measures would be "approved in the space of a few days" and that there was "no uncertainty over the prime minister's decision to resign".

Napolitano, who cannot begin consultations with party leaders until Berlusconi leaves office, said that either a new government would be formed "to take every necessary decision" or an election would be held "within the shortest time".

That would still mean a vote was not held until January. But a source close to the president stressed to the Guardian that "early elections are not a foregone conclusion."


  1. Greece’s political crisis deepened on Wednesday after Antonis Samaras, the conservative opposition leader, stormed out of a meeting with Carolos Papoulias, the president, amid disagreement over the appointment of a coalition premier.

  2. Italy's key borrowing rate on Wednesday breached the 7 percent threshold seen as the tipping point to making new loans unsustainable. The European Central Bank (ECB) intervened, buying large amounts of Italian bonds.

    When their borrowing costs reached similar levels, Greece, Ireland and Portugal were forced to seek bailouts.

    Italy appears to have replaced Greece at the center of the eurozone debt crisis and is on the verge of requiring a bailout that Europe cannot afford to give. Unlike Greece, many observers believe an Italian default would threaten the entire euro project.

  3. 08:26 GMT, Italian bond yields at 7.28pc.

    Yesterday they rose to 7.48pc .

    Yields are still in the 'danger zone' above 7pc.

  4. In France, the finance ministry has prolonged a ban on short-selling shares in 10 key financial institutions for three more months to prevent harmful speculation.

  5. Charles Dumas, chief economist at Lombard Street Research:

    The people who are most exposed to Italy are the Italians - they've already been crushed by membership of the euro. The wage bill is so out of line that the government deficit cannot be got rid of because they cannot get any growth in the economy. Italy is hopelessly overvalued and with deflation in its domestic economy, outside growth is the only hope and that's not happening.

  6. Spanish and German 10-year yield spread has widened to a euro-era record.
    This implies a risk of contagion, which could create a domino-effect on the EU countries as they often hold each others' debt.

  7. All this bullshit goes back to the financial products produced by the big banks and the merchant banks, products too complicated to understand and now as the World financial system is listing at five degrees, too difficult to unwind. Spain will not be far behind and that will then jump to Latin America.

  8. 'Run For Your Lives’

    "Run for your lives" is the new motto in Europe, and not just among banks and insurance companies, which are selling off southern European bonds as quickly as they can, but also among ordinary holders of savings accounts. Banks and regulatory agencies are noticing that anxious citizens throughout Europe are trying to bring their money to safety. The flight of capital from Italy, Spain and Greece is in full swing.

    Since the beginning of the crisis, ordinary Greeks have withdrawn about €50 billion ($69 billion) from their accounts, or a fifth of total deposits. In May, when the first rumors about a possible withdrawal from the euro zone were making the rounds, the Greeks withdrew €1.5 billion from their accounts within 48 hours. And it is no longer just the rich who are moving their money to a safe place. A Greek nun recently closed her convent's bank account, telling the bank employee that she needed the €700,000 in the account for renovations. But when pressed by the bank employee, she finally admitted that she was worried about her order's assets.

    Switzerland is a popular safe haven. The Greeks have reportedly deposited about €280 billion in Swiss banks. At the airport in Athens, passengers are often caught leaving the country with upwards of €100,000 in cash, well in excess of the €10,000 limit.

    This capital flight has triggered a boom in the European real estate market, especially in Berlin and London, where wealthy Greeks are buying second homes. Knight Frank, a real estate firm, estimates that about €290 million from Greece was invested in London in 2010 alone.

  9. Italy will have to place €30 billion worth of bonds in the coming weeks. The country's financing requirements will increase to more than €600 billion within three years. Then the government will have to replace the money it once borrowed at low rates with new, more costly bonds. Each additional percentage point costs the Italian government an additional €20 billion in the medium term.

    Italy already spends about 5 percent of its total gross domestic product to pay the interest on its government bonds.

  10. I can just see Don Corleone - "How did it come to this?"

  11. Quirk said... I expect Doug's head will explode when he finds out I can't vote for Romney because I'm a PETA member.

    People Eating Tasty Animals?
    Prime Entrees of Toasted Antelope?

  12. Deuce said...
    Switzerland is a popular safe haven. The Greeks have reportedly deposited about €280 billion in Swiss banks.

    Where are the Swiss putting the money?

    If memory serves, back in the 70's the Swiss charged fees on parked money, helping to offset the inflation of the Franc.

  13. Italy is the worlds fourth largest debtor after the US, Japan and Germany. It's debt is larger than Spain, Greece, Portugal, and Ireland combined.

    And I read awhile back how Spain was too big to save...

  14. To big to fail, or save?

    Little countries that can't...

    Shit is gonna get deep.

    Where's the beach?

  15. The Swiss, allen ....

    They're looking for a "Safe Haven" and are buying US Treasuries.

  16. It was a play on "Too big to fail". The argument was that Spain had so much debt the the Central banks IMF et al didn't have the firepower to save the country. Sorta like your fantasy of printing up a few trillion dollar coins to 'save' the US - the effects of that flood of cash would negate the saving grace of it.

  17. Well, ash, $1.2 trillion, is no "Flood".

    It is just the interest payment on the Federal debt, in the coming year.

    Peanut dough, in the scheme of things.

  18. What makes you believe, ash, that the M1 money supply, today, is at the "correct" level?

  19. What evidence is there that it is not "short" a couple of trillion?

  20. There is plenty of evidence that the M1 is just that, "short" on liquidity.

  21. Going back to the start of the recession, back in 2007/8.

  22. October 7, 2008

    By Larry Kudlow

    McCain also should state that the Federal Reserve needs to keep expanding the money supply. Milton Friedman taught us many years ago that the monetary contraction of 1929-32 was a key cause of the Great Depression. So Big Mac should tell Ben Bernanke to stop targeting the federal funds rate and pump up the money supply even more. Right now credit deflation and recession are the problems -- not inflation.

    From the beginning of 2007 to the middle of 2008 the monetary base controlled by the Fed has grown only 1.6 percent at an annual rate. The basic M1 money supply has been flat. This amounts to a long-run liquidity squeeze. The credit-crunched economy desperately needs cash. But the Fed is not providing it.

    Over the past three months the central bank has stepped up a bit to a 4 to 5 percent growth rate. But that is still way too little in today’s confidence-lacking banking environment. Everyone is hoarding cash rather than putting it to work. McCain should highlight this point.

    The efforts to expand the M, by the Fed have been half-hearted and failed to be "enough".

  23. Over the past three months the central bank has stepped up a bit to a 4 to 5 percent growth rate. But that is still way too little in today’s confidence-lacking banking environment

    So Kudlow thinks Bernanke should print money faster. I thought that was "treason".

  24. PETA - domestic terrorists.

    Ingrid Newkirk - a rat is a pig is a dog is a boy.

  25. .

    Good heavens, quoting the faux economist Kudlow is worse than citing Krugman.


  26. Well, Q, his facts and figures are correct, or they are not.

    Unless you have an alternate reality to tell us of, the M1 has been "flat", was and still is.

    "Treason", Ms T towards the Banks and the existing power structure that is Corporate America, that's fer sure.

    But not to the people of the nation.

  27. Kudlow from '08. The Fed has certainly eased, as he urged, significantly since then with QE1 and QE2 and now the twist. Krugman has urged further easing and the thoughts are along similar lines of your trillion dollar coins just not quite as radical. You have been the only one I've read who has urged the closing of the US Treasury market and the blatant printing of cash at the hand of POTUS. Most of them have been urging a more 'subtle' approach to devaluation of the US dollar.

  28. You could argue that the flat M1 is an effect, not a cause, of the economic malaise, I guess.

    But not that growth of the M1 has been robust, nor that it is "enough" to liquify the economy.

    That is the point, really.

    The lack of growth in the M1 and the oil price increases both came to US, prior to the Banking Debacle.

  29. Not enough, ash.

    That is the point.

    The Fed eased but their members did not "ease" the liquidity available to the public.

    The member banks tied that money up, in the safe haven provided by the Treasury.

  30. That capital needs to be driven out of Federal bonds and into the market.

  31. The challenge is greater than the Federal Reserve can handle, with its mandate from Congress.

    Mr Obama should take direct action.

  32. As much as QE1 & 2 have or have not done, there is still no inflation to speak of.

    The Consumer Price ndex, a poor measure of economic reality.
    It always has been.

    But now it does not factor the losses in real estate equity.

    Over $7 trillion, just sucked out of the economy.

  33. Over $7 trillion, lost, since 2008.

    No amount of "easing" by the Federal Reserve can compensate, for that.

  34. Well, the FED could buy 7 trillion in securities but, yeah, the FED can only do so much. The political folk need to step up.

  35. .

    All Kudlow is concerned about is business profits, what he calls the 'mothers milk' of the economy.

    He is concerned with GDP growth and the markets. The fact that GDP growth doesn't necessarily translate to more jobs or a higher standard of living for most Americans illudes him, or he just doesn't care.

    He wants QE3 because he saw corporate profits rose under QE1 and QE2. The fact that the programs didn't do much to spur the economy? Well keep inflating those corporate profits and eventually it will trickle down. Pure supply side bull.

    Along the same line, Kudlow says cut corporate taxes and reduce regulation, whatever it takes to increase profits. The man is a Wall Street shill.

    There's plenty to blame Bernanke and the FED for. For instance, They lend out money to the banks at 0%. Then they turn around and pay the same banks 1% on the reserves the banks keep at the FED. If you want to give the banks incentive to spend and invest, take that 1% down to 0% so you're not paying them to barrow money.

    Any money raised through your coins would be spent in one of three ways.

    One, it would be processed through the FED at which point you've gained nothing but more of the same.

    Two, it would be used directly as a slush fund by the executive for various projects. To think you could keep Congress out of the process is laughable.

    Three, it could be returned directly to the taxpayers. Might make for a nice Christmas season but that is about all. Most of it would be spent paying down debt, trying to fend off foreclosures, and for Florida vacations; nothing to spur the economy, except maybe in Florida. Short-term and ineffective.

    There have been numerous other arguments listed here before against minting the coins. No need to bring them up again. But, the idea of minting the coins is so silly, I didn't even go into the legal ramifications.

    You say it's all perfectly legal. Yet Obama and his lawyers indicate otherwise. He has said that he's been advised that there is no legal basis for him to mint the coins in the denominations you are talking.

    Because of the Executive usurping Congressional perogatives when it comes to the budget process actions along the lines you suggest would quickly end up in the Supreme Court. And while you say it is all perfectly legal, I doubt it.

    The SCOTUS usually look for the intent of the law when judging its application. The fact that some legislature offered up some tag-on sop to the platinum industry in some past law doesn't mean the intent was to allow the President to usurp the role of Congress.

    Too silly.


  36. Exactly, ash.

    There is very little that the politicos CAN do, given the state of gridlock that exists.

    That is a reality.

    No, we can wait for a year, for an election that will provide for the status que little matters who wins.

    Mr Romney will not execute, by Executive Order, a restructuring of the US. Just not in his nature.

    The Congress, it will remain deadlocked.

    While the GOP may gain a few seats, in the Senate, they will not have 61, in total.

    Even if they do, it still would be "Back to Bush".

    Which is right where we have been for the three years of Obama.

  37. Wrong, again, Q.

    About the coinage.

    I know not much about Mr Kudlow, but that he provided the data set on the M1 money supply, in 2007 & '08.
    Which you don't dispute.

    As to the coins, there is only one way that they can be processed.

    There is existing law which must be followed.

    The coin are deposited into an account at the Federal Reserve.

    Yes, Congress would get into the act.

    It is, after all, their Constitutional responsibility and duty.

  38. Better the politicos, who are answerable to the people

    Than Bankers that are not audited.

  39. The International Financial System, which has grown up around the Federal Reserve and our Boner Bankers and Politicos, is in the midst of systematic failure.

    We have to use the existing structure and morph it into something new. Going back to the future, politically.

    Start the pendulum swinging towards the people, for a while.

    There is very little that the President, or anyone else, can do.

    The President does have to power to reset the Federal debt cycle.

  40. .

    Wrong, again, Q.

    About the coinage.

    Nonsense. Lest you misunderstood, of course the money would have to be deposited with the FED initially for any of the three options I mentioned. It's kind of hard to break up a coin into 200,000,000 pieces.

    Regarding the legality, SCOTUS would eventually decide. We can argue about it but I believe it is you who would be proved wrong again.


  41. .

    I know not much about Mr Kudlow...

    Since you don't know much about Mr. Kudlow I would suggest that whenever Larry throws a number out there that you double check it independently.

    I like the guy myself but some of the statements he comes up with are straight out of La La Land.

    His numbers on M1 and M2 could be right on for all I know but citing Larry for the numbers usually tends to diminish the argument, except to the folks on CNBC.

    Just saying.


  42. .

    Heard something interesting on the GOP debate last night.

    Newt said that the SS funds were put into the general fund starting under LBJ in the 60's.

    I thought that move came under Reagan when he instituted the SS fix in the 80"s.

    Newt's a historian, he should know. Have I been giving the Gipper a bad rap all this time?


  43. desert rat said...
    Over $7 trillion, lost, since 2008.

    With respect, that number is incorrect. For real estate, alone, it is slightly too small. For the economy, as a whole, who knows and who can be believed.

  44. Larry "Buy Lehman" Kudlow - great adviser.

    Re: Italy to big to save:

    Peter Morici
    Forget Berlusconi. Bring back the lira


    Italy’s budget deficit is 3.6 of GDP, less than half of the U.S. gap, but its total debt, amassed over many years, is 130 per cent. That’s an amount well above what economists consider manageable even for a country, such as the United States, that can print money, and it’s even worse for one, such as Italy, without its own currency.

    Although the final act of the Berlusconi government was to craft austerity measures that will lower the deficit to less than 2 per cent of GDP, about €25-billion, it must borrow €300-billion – a massive 19 per cent of GDP – in private capital markets in 2012 to repay maturing debt. Italy is simply not growing fast enough in a Europe crippled by crises in Ireland, Greece, Spain and Portugal for private investors to take that bet.


    Next year, the euro zone is likely not to grow in real terms, and Italian nominal growth (real growth plus inflation) is unlikely to much exceed 3 per cent and more likely to be nearer to zero. With such low nominal growth, interest rates on Italian debt much below 5 per cent would be needed to keep Rome afloat. Even at those rates, the ECB would have to take a lion’s share of Italy’s new debt issues.

    The Germans won’t like such purchases, and those are not likely to happen. Even if Berlin went along, the ECB then would be compelled to monetarize significantly more of other European sovereign debt, and the inflation that followed would unravel the myth of stability and unity that justifies the euro.


    The only sane option Italy really has is to earnestly implement austerity, drop the euro, remake public and private debt in the re-established lira, and let a falling value for the lira in currency markets impose a haircut on private creditors. Under that scenario, the losses investors took from devaluation would be much less than the losses they would endure in the chaos that Italy’s finances could unleash.


    It is a short article that is worth reading in full but the above is the meat in my view.

  45. desert rat said...
    Over $7 trillion, lost, since 2008.

    With respect, that number is incorrect. For real estate, alone, it is slightly too small. For the economy, as a whole, who knows and who can be believed.

    We are talking about market equity in real estate or is this a realized figure? A writedown in bank assets or is this a published figure?

    If the fed created $7 T in money where would it go? What if it was used to purchase new treasuries or to speculate on commodities or used by vulture capitalists to further concentrate economic power in larger institutions? If the newly created money is not tied to specific domestic projects public or private, you have no control and should assume the worst.

  46. Re: trillion dollar coin:

    Drowning in all that liquidity is hardly a solution.

    Far from restoring competitiveness and accelerating economic activity, the price of commodities would soar and the US and Euroland would struggle to afford the imports it needs to make anything to sell, no matter how cheap that export product might be. Germany understands this sort of inflation and what it does. Much of the rest of the world clearly does not. Some on this blog do not either. The coin minting would be a classic devaluation. Two or three or more can play that game. There would be another wave of western devaluations and a race to the bottom and it would put the US in the same paddle-less shit creek as Euroland.

  47. The only true consistent winners are the bottom fishers/vultures. When they go into the water, follow them.

  48. desert rat said... Over $7 trillion, lost, since 2008.

    Seven large in wealth is gone? Oh well, from what I hear around here, wealth creation is as simple as issuing a $7 trillion dollar coin.

  49. Quirk: He wants QE3 because he saw corporate profits rose under QE1 and QE2.

    Not in real money they didn't rise, not since 2000.

    Maybe in Monopoly money the profits are up.

  50. Most Americans have good old down home cracker barrel folksy common sense, and we are allergic to the idea of creating "wealth" ex nihilo with a printing press or a metal stamping machine. In the Navy we always said, "Go tell it to the Marines."

  51. A nation doesn't try to create wealth through the printing press Ms. T but rather debt relief via the printing press.

  52. Well, fellas, it all depends upon the scale of the mining, does it not?

    Which is why minting the $1.2 trillion, to make the interest payments, is a plausible alternative to continuing the debt cycle.

    Could the idea be taken to extremes, of course. That is exactly what your counter argument is attempting.

    You are making faulty economic arguments, to thwart a viable political maneuver.

    The number is $1.2 trillion, the use, to pay the interest upon the Federal debt, and removing the Treasury from the bond markets.

    In an effort to put that money into the private economy.

    To continue until there is recovery or abject failure.

  53. Rat there is no reason to expect that those newly minted dollars will trickle down to 'the people'. Under your scheme the same old bankers would have the extra cash to do with as they please. There is every reason to expect they would behave as they have in the past and deploy the money to their best advantage.

  54. Having spent most of my business career in corporate bankruptcies and debt restructurings and studied many disasters in the public world, I feel confident in predicting what will happen.

    While the scale of Italy's problems is huge, so is the scale and gravity of several other countries, and there is always a series of temporary solutions that will keep the national wheels turning and the creditors/bondholders on the edge of their seats and grumbling but adequately satisfied that the end did not come today or this week.

    Italy and the others will declare a "moratorium" first on principal payments and then on interest payments for a succession of short term periods of 3-6 months. They will then rollover several times so that they cumulatively add up to 2-4 years of a defensive grace period. The creditors will not grant approval for these but will live with them as they have no viable alternatives. Creditors are screwed.

    The pain for Italy and others is that the only new debt they will be able to issue will carry an APR of 15-25%, and it will roll over every 90 days. But recognize that moratorium debt is also debt refunded by not paying the holder. Italy will have massive problems paying for domestic services, and its vile unions will be constantly on strike. But the trains will run, people will eat and there will still be wages paid to the vast majority of the population.

    When the dust settles Italy may also be forced to issue some sort of high yield perpetual preferred stock with a coupon of 10+% or higher and no maturity date and only voluntary redemptions. It's been done before both by companies and countries.

  55. Ash, that is why Rat’s scheme would have to be economic specific, such as financing domestic energy projects or new industrial plants such as steel mills. The projects would either pay fees, royalties or rent. That is the only way to direct the spending and that could also have adverse conseqquences as bad as the over investment in domestic housing.

  56. Interesting post Wolfgang. Sounds reasonable and it reminded me of an article I read today about the largest US Muni bankruptcy:

    Alabama county votes to file for bankruptcy


  57. Deuce, Rat's 'plan' has specifically avoided allowing the government to direct the spend of the new coin.

  58. Deuce said...

    We are talking about market equity in real estate or is this a realized figure? A writedown in bank assets or is this a published figure?

    The figure comes from the NAR, among others. It is unrealized. Rather, it is the sum of extrapolations based on comparable sales throughout the US. Just as being "under water" on a mortgage cannot be proved until either a short sale or foreclosure, so the case with losses overall.

    Needless to say, the banks and Fed will have none of it on the books. A loss of such magnitude would destroy the "financial" sectors. Instead, the banks have chosen to SLOOOOOOWLY process delinquent loans rather than creating REOs en masse. For its part the government has been in the "process" of relieving cash strapped homeowners for years - never quite getting just that right mix of incentives that would bring relief.

    Given normal conditions, it will take decades of realistic appreciation to bring real estate to its 2006-2008 levels.

  59. By an economic rule, monopoly cannot exist without government approval. In time, I believe we will come to see the same approval necessary for a "balloon". Indeed, we may have seen exactly that during the Mississippi Bubble and the creation of facilitating paper notes. Hamilton cautiously used the combined Revolutionary War debt of the states to create notes for the purpose of the creation of economically stimulating liquidity within a fractional reserve system. Keeping greed to a manageable level determines success or failure.

  60. Rat, with respect to you minting 'plan':

    My understanding is that you think Obama should mint up a trillion and change and stop issuing new treasuries - right? That new coin is to pay the interest due right?

    How do you propose to redeem Treasuries as they come due - mint new coins?

    What do you propose to do to cover the annual spending deficit without issuing new Treasuries - mint more coins?

  61. This Penn State deal with the pedophile coach and the kids is going from bad to worse.

    This is gonna get real ugly. It is strangely paralleling the pedophile priest cover ups from a few years ago.

    If what is being said is true, Sandusky should not be allowed to live. I am surprised he hasnt been taken out already.

  62. The interest that the Treasury pays, ash, as of the debt ceiling debate, is $1.2 trillion per year.

    Mint that in coin and deposit it at the Federal Reserve.

    The sale of $1.2 trillion in bonds that the Treasury was going to sell, in the coming year to pay that interest, is suspended.

    The interest is paid, as it comes due, out of the account at the Federal Reserve.

    The Federal Treasury out of the debt market, for at least 12 months.

    Then the next Administration can do what is best, at that time.

    But, until Federal revenues rise enough to the point that they can cover the interest payments, the Treasury can issue coin, to cover the interest.

    It does call for the Congress to behave responsibly, in 2012 and beyond.

  63. All any of those "In Charge" had to do, gag, was call the police and file a report.

    But each and everyone of those people failed their civic responsibility, to protect those that are unable to protect themselves, from predators.

  64. You haven't accounted for the spending gap nor additional interest payments nor redemption of bonds coming due so much more than 1.2 trillion need be minted to keep out of the debt market.

  65. ...the defense leadership is worried that after a decade of counterinsurgency operations the U.S. military has lost its focus on conventional warfare, especially the strike and counterstrike that drives much of a military operation...

    Translation: The DoD is worried about the $450 billion dollars in cuts over thge next decade that will be their (our) contribution to the deficit-balancing equation. But as a DoD insider (GS-11) I can tell you there's a lot of fat that can be trimmed. Lately there has been a push to replace the ancient pyramid-style chain of command with a "matrix" type organization that has the same number of workers answering along two axes of authority, which allows for more management billets along the upper and left hand margins of the matrix. This congressional supercommittee might save us from going to a cube structure.

  66. An internet poll asks: While Perry be able to overcome his gaff?

    Will Perry be able to get over himself, is more to the point.

  67. That, ash, is cover in current expenditures and revenues.

    All the Federals borrow, $1.2 trillion this year, is all that needs to be supplemented.

    The objective is to take the Federals out of the debt market, not restructure the entire schedule.

    They were going to borrow $1.2 trillion, this year. Under "The Plan" the Federals will not have to borrow a dime from the markets.

    That is the economic stimulus, the market reallocating the money the Federals would have been borrowing.

    The political stimulus, that would be far greater.

  68. It has gone deeper than that, Rat.

    Sandusky's Second Chance program was apparenty loaning out little boys to rich pedophile donors.

    It has been a massive coverup from the get go, if what is being said is true.

  69. The poll could have asked "will" - indeed, it did exactly that :-)

  70. One call to the local police, ten years ago or so, gag, would have been enough to save the Program.

  71. .

    Teresita said...

    Quirk: He wants QE3 because he saw corporate profits rose under QE1 and QE2.

    T: Not in real money they didn't rise, not since 2000.

    Maybe in Monopoly money the profits are up.

    An interesting chart, but one that , IMO, is not really appropriate for judging the effect of QE1 and QE2 on corporate profits.

    First, since we are talking the period 2009-2010, most of the chart doesn’t cover the applicable time frame.

    Second, in judging the chart in inflation adjusted terms we have to note that it continues its downward slope even though in 2009 we had a negative inflation rate and in 2010 the rate was only positive by about 1.5%.

    Third, the S&P index reflects stock prices not profits. And while, it would be nice to believe that there should be a direct 1 to 1 correlation between projected earnings and the stock price, it is a lot more complicated than that especially given the economic circumstances over the past couple years.

    Fourth, my comment that corporate profits rose after QE1 and QE2 had no great research behind it other than numerous columns that have been written on the subject. I’ve listed the first two that popped up when I googled the subject.

    Corporate Profits Were the Highest on Record Last Quarter


    US corporate profits hit record high, new home sales at record low

    The first columb is from the NYT; but once again Doug will likely jump all over me for listing a column from World Socialist Network but honestly it just the luck of the draw. Besides while possible they may tend to skew the interpretation, the data seems to be from BLS.


  72. But instead of doing their civic duty, these "Men of Power" tried to feather their own nests, at the expense of the future victims.

    Now the house of immorality comes tumblin' down.

    All Along the Watchtower.

    Businessmen, they drink my wine, plowmen dig my earth
    None of them along the line know what any of it is worth.

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  74. .

    Conservative sources (I forgot whether Doug was incensed in them being called conservative, right wing, or just 'the right') appear to believe Newt did a great job last night.

    Columns from the Weekly Standard, Fox News, and the Telegraph say he had a boffo performance. I didn't see it as being that great but everyone has their opinion.

    I believe it was jenny that made the point that Newt would fit right in here at the EB. I tend to agree.

    Newt as president, however? I'd need a lot more convincing.


  75. .

    Romney says he will prevent Iran from getting nuclear weapons.

    I want peace. And if I am president, I will begin by imposing a new round of far tougher economic sanctions on Iran. I will do this together with the world if we can, unilaterally if we must. I will speak out forcefully on behalf of Iranian dissidents. I will back up American diplomacy with a very real and very credible military option. I will restore the regular presence of aircraft carrier groups in the Mediterranean and the Persian Gulf region simultaneously. I will increase military assistance to Israel and coordination with all of our allies in the region. These actions will send an unequivocal signal to Iran that the United States, acting in concert with allies, will never permit Iran to obtain nuclear weapons.

    Romney Says Nyet to Iran's Nuclear Ambitions


  76. Men and institutions of man are falling like dominos.

    Strange days.

  77. Anonymous said... Men and institutions of man are falling like dominos.

    The universe is squaring some accounts, that's all. Contradictions cannot exist. Manufacturing energy from thin air cannot happen. You can move energy around, but when you've tapped all of the producers, your whole redistribution structure comes crashing down.

  78. 101 Maz2: “Unions Furious at Obama for Killing Pipeline Jobs”

    Obama is getting long-delayed revenge for Rosa Parks being told to go to the back of the bus by throwing white hard-hat liberals under the bus. Oh well. Elections have consequences. Too many people these days want to have their cake and eat it too. Next year in the voting booth, the Union pipefitters will have a clear choice: Their family's livelihood, or the livelihood of the Eastern Hellbender Salamander. I have no doubt they will vote straight "D".

  79. 83 victims, family members seek $750M for 2009 Fort Hood shooting tragedy

    "’I brought this claim because I strongly believe this tragedy was totally preventable and that the Army swept under the rug what they knew about Hasan,’ Munley said in a statement.”

    And, son, the pukes are still sweeping. The major problem faced by the US army is that BS doesn’t sweep all that well.

    Hey, maybe the recently unattached “jenny” can weight in now.

  80. tragedy:

    A drama or literary work in which the main character (US army) is brought to ruin or suffers extreme sorrow [embarrassment], especially as a consequence of a tragic flaw [cowardice], moral weakness [cowardice], or inability to cope with unfavorable circumstances [Islamic norms].

  81. Another day in Idiocracy, one of many, not Ground Hog’s Day, worse, the Mike Judge movie, the US president is at the podium and being booed, but then he reaches back and pulls out a huge machine gun and fires a rapid blast into the ceiling and then says to the stunned silent audience “Right, that’s what I thought”. Ok, so Frog Baseball was worse.

  82. But then I am in a post-punk state of mind.

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  84. There could be improvements made, to the coin minting project, it could be better "aimed", but that is not the point.

    The coinage project is not a hypothetical, it is not a proposal.

    It is the existing law.

    Turn-key or ...

    in the modern idiom ...

    Shovel Ready.

  85. In that regard, it is a less than perfect project.

    It is, though ...

    Good to Go!