Europe on course to crash?

Economic Crisis: Europe on the brink – The Week
How a debt problem that began with Greece now endangers the entire Eurozone & US.

It's so bad that it could drag down the global economy, and tip the U.S. back into recession. It might also mean the beginning of the end for the euro, the common currency of 17 countries and 330 million people. The debt crisis began in one corner of the continent — Greece — and has spread like an epidemic, threatening banks and investors and undermining the creditworthiness of other European countries. Bailed out last year by the EU to the tune of $140 billion, Greece enacted tax increases and deep public-sector cuts, outraging much of its population. But the cuts didn't end the crisis, and in some respects backfired. Greece's unemployment rate has soared to 16 percent, and its economy is on track to shrink 6 percent this year. As a result, the country's government has falling revenues, and less money with which to pay off its debt, which stands at 160 percent of GDP and climbing. (In comparison, U.S. debt is 100 percent of GDP.) So in July, Greece went back to the EU for a second bailout, of $157 billion. But the fed up EU now says it won't put up more money unless Greece makes more radical cuts to government spending.

Can Europe's debt crisis be contained ? - TheLookout, Zachary Roth 27 Sep 2011

Trader warns Eurozone will crash

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BBC interviews Alessio Rastani – YouTube 26 Sep 2011 
"Market is toast". Governments cannot save economies; Goldman-Sachs rules the world.

Max Keiser: Alessio Rastani telling the truth; Bankers don't care about Economy – RT 29 Sep 2011

IMF: insufficient funds to bail out all if debt crisis worsens

IMF warns on funding levels if crisis worsens – BBC

The International Monetary Fund (IMF) has warned it may not have enough money to bail out larger eurozone countries if the debt crisis were to spread.

IMF: US economy will be weak for years

IMF : US Economy may be weak for years to come - Andrew Beatty, AFP
WASHINGTON — The International Monetary Fund on Tuesday warned the US economy could remain weak for years to come, describing a recovery stalled amid unrelenting headwinds and in dire need of a push from government.

The Washington-based fund slashed its US growth forecasts for this year and next, while warning of the need for more government stimulus in the short-term as well as a credible longer-term plan to cut spending.

Economic Armageddon and you

This animated video explains inflation, stagflation, recession and more. (uploaded YouTube Jul 1, 2011)

Greece on path to default & leaving Euro

After contracting in 2009 & 2010, Greece’s GDP fell another 7% in Q2 2011. Unemployment is near 900,000 and projected to exceed 1.2 million, in a population of 11 million – that’s about 10.9%.

The austerity program has failed to meet its own targets for budget deficits : the target for 2011 was about 7% of GDP, but instead is likely to hit 10%. The Debt/GDP ratio could reach 200% in 2013, up from 115% in 2009.

Measures proposed by the government are not likely to succeed & probably will intensify the recession instead – and spark stiff political opposition.

Greece must default & quit Euro : The real debate is how – Costas Lapavitsas, Guardian
Desperate bid to keep EU corpse alive - Mail online

Banks cause rise in food prices

How Banks cause World Hunger – HuffPost

Banks and other financial speculators are increasingly “betting on food prices in financial markets,” according to this infographic from the World Development Movement. Food prices now account for 70 percent of total expenses in some of the world’s poorer households, hitting a record high in February. Looking forward, the OECD estimates that over the next decade cereal prices will rise 20 percent. That’s still less than meat prices, which are expected to jump by nearly a third. 

China cannot grow in isolation

Chinese Premier says country cannot grow in isolation – BBC

Chinese Premier Wen Jiabao has said the country cannot grow in an isolated way, and it will look to develop global and domestic growth.

… Wen said that China would now focus on boosting its domestic demand, and this in turn would help the global economy.

Most Livable Cities

Global Livability Survey 2011 – findings by EIU

1. Melbourne, Australia
2. Vienna, Austria
3. Vancouver, Canada
4. Toronto, Canada
5. Calgary, Canada
6. Sydney, Australia
7. Helsinki, Finland
8. Perth, Australia
9. Adelaide, Australia
10. Auckland, New Zealand

Top US city is Honolulu (rank 26).

Student Loans may be next bubble to burst

Moody’s warns Student Loans may be next bubble to burst – HuffPost

Best cities in US

10 best places to live in US – MarketWatch
Job growth, cultural attractions help push cities onto Top 10 list by RelocateAmerica - based on local housing market, economy, cultural & recreational opportunities, safety, & feedback from residents.

1. Austin, TX
2. Grand Rapids, MI
3. Boulder, CO
4. Raleigh, NC
5. Dallas, TX
6. Greenville, SC
7. Augusta, GA
8. Boise, Idaho
9. Omaha, NB
10. Oklahoma City, OK

Why China buys US Debt

Why China keeps buying US Debt

Why China can't collect its US Debt

US Federal expenditure

Approximate US Federal expenditure 2010 :

Entitlement	Social Security	$701b	20.28%
	Medicare & Medicaid	$793b	22.95%
	Other mandatory	$416b	12.04%
	(Sum of above)			55.27%
Discretionary	Defense	$689b	19.94%
	Non-Defense	$660b	19.10%
	(Sum of above)			39.03%
Interest	on National Debt	$197b	5.70%	5.70%
Total		$3,456b		100%

US could suffer credit downgrade despite deal

US credit rating downgrade likely even if debt ceiling deal is reached – HuffPost

US Debt saga brinksmanship

Boehner debt plan falters as Obama considers veto – BBC

Debt crisis options for Obama :

1. Make a deal
2. Buy time
3. Brinksmanship

US won’t default

The US will not default on Aug 2 – Zachary Karabell, Time

World financial fate in hands of Credit Rating Agencies

Credit Rating Agencies, not honest brokers, now hold world’s fate – Peter Goodman, HuffPost

If the agencies downgrade American debt to a notch below AAA, that could trigger panic in the global market. Some pension funds and other pools of money may be forced to sell their Treasury bonds, owing to obligations that they stick to investments that have the full seal of approval from the credit rating agencies. If the pension funds sell, that should push down the value of the dollar, which would force the Treasury to hand out higher rates of interest to find takers for its debt, which would eventually filter through the broader economy as higher interest rates, making it harder for people to finance homes and cars and stay current on their credit card balances.

And if United States debt no longer looks as solid, that is likely to cast a shadow on other debt in the global financial system, likely jacking up the rates that strapped governments in Ireland and Portugal and elsewhere must pay to find takers for their bonds, intensifying the pressure in Europe.

Gold's run is almost over - Mark Hulbert, MarketWatch

Bullion’s extraordinary run is fast running out of steam. Don’t be surprised if gold pulls back in coming sessions.

At a minimum, such a pullback would be a health-restoring event for the bull. However, such a pullback could also be the start of something more serious. We’ll know soon after it begins.

US Recovery in doubt

Nine signs the US recovery might be losing momentum – HuffPost

1. Consumers feeling strained
2. Unemployment numbers bad
3. Wage growth stagnates
4. Households say incomes will fall
5. Slow employment growth
6. Prices likely to flatten
7. Large gap between Actual and Natural rate of Unemployment
8. Rising length of unemployment
9. Steep decline in percentage of population employed

If the economy isn’t on the decline, there’s good reason to think it’s at least stalled.

Unsustainable debt will kill US economy

Bixby says unsustainable debt will ‘kill’ US economy – Bloomberg

July 18 (Bloomberg) -- Robert Bixby, executive director of the Concord Coalition, talks about congressional negotiations over raising the U.S. debt limit and reducing the federal deficit. Bixby, speaking with Mark Crumpton on Bloomberg Television's "Bottom Line," also discusses prospects for a balanced budget amendment to the U.S. constitution.

Future tax may be 70%

Get ready for a 70% marginal tax rate – Michael Boskin, WSJ

… teacher in California earning $60,000 : A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%.
… Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages.
At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.

M.Boskin : Professor of Economics, Stanford University. Senior Fellow, Hoover Institution.
Chaired Council of Economic Advisers under President George W Bush.

US Default’s effects

US Default would likely cause Stocks, Bonds, Dollar to collapse – Matthew Craft, HuffPost

There is wide agreement among economists that a default would drive up borrowing costs for everybody. US Treasury yields act like a floor for other lending rates, so raising them makes it more expensive for Americans to take out mortgages, for corporations to finance new spending and for local governments to borrow.

But analysts say predicting exactly how a default would play out in stocks, bonds and currency in the hours and days following the Aug 2 debt ceiling deadline is practically impossible.

Traders are still banking on a deal to increase the borrowing limit before the Aug 2 deadline. That’s one reason stocks and bonds have remained relatively stable thus far, even after Moody’s and Standard & Poor’s warned they may soon take away the country’s top credit rating.

Italy and the Euro

On the edge – Economist 14 Jul

By engulfing Italy, the euro crisis has entered a perilous new phase – with the single currency itself now at risk

Europe’s economies : Strong core, pain on the periphery – Economist 17 May

Moody’s warns of possible US rating downgrade

Moody’s puts US ratings on review for possible downgrade – Reuters
Moody’s statement : 
Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.

In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.

Fed mulls further easing

Fed weighing further easing, Bernanke says – MarketWatch

Bernanke discussed three approaches to further easing :

1. Fed to provide more “explicit guidance” to pledge that rates will stay low for “an extended period”.
2. Another round of asset purchases (or Quantitative Easing), or for Fed to “increase the average maturity of our holdings”.
3. Fed could reduce the 0.25% interest rate it pays to banks on their reserves – “thereby putting downward pressure on short-term rates more generally”.

Bernanke pushed Congress to increase the debt ceiling, saying failure to act would spark a “major crisis” and roil the global economy. He said that the US economy would certainly shed more jobs if the debt ceiling is not increased.

Treasury will not default

The US Treasury will not default – Kurt Brower, MarketWatch

Best cities to invest in rental homes

Best cities to invest in rental homes – Amy Hooks, MarketWatch

In Las Vegas, investors willing to to take a gamble could win big

Top 10 markets :

1. Las Vegas
2. Detroit
3. Warren, MI
4. Orlando, FL
5. Bakersfield, CA
6. Tampa-St.Petersburg, FL
7. Phoenix
8. Ft.Lauderdale, FL
9. Rochester, NY
10. Stockton, CA

US Debt Ceiling saga

IMF chief asks US to raise Borrowing Limit – HuffPost
The IMF’s new chief foresees “real nasty consequences” for the US and global economies if the US fails to raise its borrowing limit.
Christine Lagarde said in an interview broadcast Sunday that it would cause interest rates to rise and stock markets to fall. That would threaten an important IMF goal, which is preserving stability in the world economy.

US Default would be catastrophic but it won’t happen, Geithner says – FoxNews
Treasury Secretary Timothy Geithner said Sunday that a failure to raise the debt ceiling by Aug 2 would be “catastrophic” to the economy, though he and other top officials expressed confidence that lawmakers would ultimately vote to lift the $14.3 trillion cap in time.
He said interest rates could rise the closer the country gets to Aug 2 without a deal and that if the debt ceiling is not raised by then, credit rating agencies could follow through on threats to downgrade the US’ sterling credit rating.
“If that happens, you’re going to see catastrophic damage across the American economy and across the global economy,” Geithner said.
He said Congress has no choice but to act.

What if US defaults

US default would be ‘disastrous’ to struggling economy, analysts say – Boston Globe

“It’s the type of thing that could trigger another recession” – Nariman Behravesh, chief economist HIS Inc.
“There would be an almost crisis of confidence, throwing the financial markets into turmoil.”

If the worst-case scenario does unfold, and lawmakers fail to reach a debt agreement, the Treasury would have a number of options to keep paying bills, none of them attractive.
The Treasury has signaled it will do everything possible to maintain payments to investors holding trillions of dollars in US bonds, technically averting a default by using revenue from regular tax collections to pay off debt holders.
But since it legally couldn’t borrow money to pay other government bills, Treasury might have to reduce or temporarily halt expenditures on Social Security, Medisave, and other popular federal programs.

“Bond investors … would start asking ‘How long will it be before Treasury feels pressure to pay off Social Security and other programs and cut our bond payments?’”

“We’re moving into a new phase of American economic history when international markets will be increasingly scrutinizing our finances”

States face budget woes

Weak economy poses more budget problems for cash-hungry states ... – FoxNews

The 5 states facing the darkest economic outlook are :
(50)  New York     (49)  Vermont     (48)  Maine     (47)  California     (46)  Hawaii

The 5 states with the brightest outlook : Utah, South Dakota, Virginia, Wyoming, Idaho.

[4th edition] Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index based its economic outlook ranking on 15 policy variables : including tax burdens, legislated tax changes, regulatory burdens and labor policy.

The 5 best-performing states : Wyoming, Texas, Montana, North Dakota & New Mexico.
– what these have in common are low or no income taxes & strong population growth.

Cities with expected home price rises

5 cities where home prices will rise this year – Amy Hoak, MarketWatch
Despite recent price improvements nationally, only five markets in the country are expected to see home-price gains for the remainder of 2011:

Washington, New York, Orlando, Dallas & San Francisco.

What if debt limit isn’t raised

If the debt limit isn’t raised … what’s next? – Robert Schroeder, MarketWatch

What major players are saying about possible scenarios :

• The sky will fall
• Picking and choosing
• A constitutional question

Doomed to repeat 2008 ?

The next, worse financial crisis – Brett Arends, MarketWatch

10 reasons why we are doomed to repeat 2008

1. We are learning the wrong lessons from the last one
2. No one has been punished
3. The incentives remain crooked
4. The referees are corrupt
5. Stocks are skyrocketing again
6. The derivatives time bomb is bigger than ever – and ticking away
7. The ancient regime is in the saddle
8. Ben Bernanke doesn’t understand his job
9. We are levering up like crazy
10. The real economy remains in the tank

College not worth the cost

The College Scam – John Stossel, FoxNews

What do Michael Dell, Mark Zuckerberg, Bill Gates and Mark Cuban have in common?

They’re all college dropouts.

Richard Branson, Simon Cowell and Peter Jennings have in common?

They never went to college at all.

But today all kids are told: To succeed, you must go to college.

Risks to economy

The scariest risks to the economy – CNN Money

“A Europe debt default could cause financial crises as large as the 2008 one due to financial system interconnections,” – Bill Watkins, executive director of Center for Economic Research & Forecasting.

“Oil prices sustained above $125 a barrel for six months or longer would guarantee another recession in 2012” – James Smith, chief economist Parsec Financial Management.

Though economists do see major risk from a possible US default in the event that Congress does not raise the debt ceiling, they did not view that as being very likely.

Survey: Where the economy is headed

Economy torn two ways

For the economy, it’s a tug of war – Irwin Kellner, MarketWatch
Political paralysis means only rich can save economy

The business and financial outlook for the second half of 2011 and beyond will be determined by which of two important economic concepts prevails: the wealth effect or the income effect.

China banks to need bailout ?

China debt woes point to bank bailout - MarketWatch

Entrepreneurship makes America Great

Let’s remember that Entrepreneurship helps makes America Great – John Stossel, FoxNews

Tax-friendly states for Retirees

5 Tax-friendly states for Retirees 2011 – Mary Beth Franklin
          I = State Income Tax,      S = Sales Tax,      E = Estate Tax,      I = Inheritance Tax

1. Wyoming :        I 0%,      S 0%,      E No,      I No
2. Mississippi :    I 3-5%,   S 7%,      E No,      I No
3. Pennsylvania : I 3.07%, S 6%,      E Yes,      I Yes
4. Kentucky :         I 2-6%,   S 6%,      E No,      I Yes
5. Alabama :         I 2-5%,   S 4%,      E No,     I No

QE2 End already priced in ?

10 Reasons QE2’s End should be priced into the markets – 24/7 Wall St

1. Bond buying competition
2. Banks and higher reserves
3. Greece and other rotten PIIGS
4. China & India
5. Commodity prices & Inflation
6. PIMCO & Bill Gross
7. Ratings Agencies
8. US demographics & austerity
9. Employment situation
10. Debt ceiling

Stock market holding above 200-day average

Stocks suffering, but crash fears recede – Peter Brimelow, MarketWatch

JPM chief: global markets can survive Greece

Mighty US can shake off the gloom, says JPMorgan chief - TheAustralian
Global markets can survive Greece default, says JPMorgan Chase chief - TheAustralian

World economy not stabilised

IMF warns of increased risks to world economy – BBC

The fund said it was concerned about the continuing Greek debt crisis, the arguments over US deficit plans and the need to curb growth in Asia.

As Greece becomes more likely to default, American economic recovery is at stake – Bonnie Kavoussi, HuffPost

Not a replay of 2008 crisis

Repurchases running at near record levels – Mark Hulbert, MarketWatch

Companies don’t appear worried about a credit crunch

Stocks still to crash more?

Stock collapse & $12,000 gold? – Peter Brimelow, MarketWatch

“Many respected analysts are warning that another financial crisis could be on the horizon similar to the one in 2008. They claim that since the 2008 meltdown was not allowed to end naturally, the conclusion is still coming. This is a real possibility since the fundamental, underlying factors that triggered the crisis to begin with still persist. Another possibility is just a renewed recession.”

Stocks to rebound ?

11 reasons stocks will storm back soon – Jeff Reeves, MarketWatch

1. Companies flush with cash
2. Corporate bonds are free money for stocks
3. ‘High yield’ savings accounts aren’t
4. Treasury rates stink
5. Big dividends in stocks
6. Bargain valuations for blue chips
7. IPO boom
8. Steep market declines signal a buying opportunity
9. Floods, tornadoes & tsunamis aren’t permanent
10. US is still growing
11. World is growing too

Trading after QE2 ends

3 ways to trade stocks in a volatile market – Michael Sincere’s Rookie Trader

Trading in advance of the end of QE2 is like playing poker with Ben Bernanke. At the moment, at least, the Fed isn’t revealing its hand. Accordingly, traders should brace for more volatility as June 30 approaches, given the state of confusion many market participants are in.

1. Stay on sidelines
2. Fade the gap
3. Use options

Foreclosure rates

Top 10 cities with highest foreclosure rates – MarketWatch Jan 27, 2011
Highest Foreclosure filings 2010 (beginning with highest) :

1. Las Vegas-Paradise NV
   
2. Cape Coral-Fort Meyers FL
   
3. Modesto CA
   
4. Phoenix-Mesa-Scottsdale AZ
   
5. Miami-Fort Lauderdale-Pompano Beach FL
   
6. Riverside-San Bernardino-Ontario CA
   
7. Stockton CA
   
8. Merced CA
   
9. Orlando-Kissimmee FL
   
10. Vallejo-Fairfield CA

Lowest Foreclosure filings 2010 (beginning with lowest) :

1. Utica-Rome NY
   
2. Burlington-South Burlington VT
   
3. Charleston WV
   
4. College Station-Bryan TX
   
5. Syracuse NY
   
6. Tuscaloosa AL
   
7. Lincoln NB
   
8. Albany-Schenectady-Troy NY
   
9. Buffalo-Niagara Falls NY
   
10. Lubbock TX

US home prices hit by weak economy

10 most affordable US home markets – MarketWatch
Listing price of 4-bedroom, 2-bathroom home

1. Niagara Falls NY $60,820
2. Riverdale GA $61,618
3. Coolidge AZ $69,083
4. College Park GA $72,477
5. Detroit MI $73,363
6. Hastings FL $74,910
7. Cleveland OH $76,042
8. Lithonia GA $77,385
9. Trotwood OH $77,445
10. Sioux City IO $80,152

10 most expensive US cities to buy a home – MarketWatch
Listing price of 4-bedroom, 2-bathroom home

1. Newport Beach CA $2.5m
2. Pacific Palisades CA $1.6m
3. Stone Harbor NJ $1.34m
4. Rancho Palos Verdes CA $1.31m
5. Saratoga CA $1.28m
6. Los Gatos CA $1.26m
7. Weston MA $1.23m
8. Greenwich CT $1.15m
9. Mercer Island WA $1.14m
10. Cupertino CA $1.14m

US national average price for 4-bedroom, 2-bathroom house : $293,000

Stagflation for US

Fed boxed in as US slouches toward stagflation – MarketWatch 
Slow growth and high inflation is putting the Fed into an extremely uncomfortable place, with few good options. Raising interest rates could keep prices from rising faster, but at the cost of putting the brakes on growth.

Bernanke warns politicians not to use debt limit for political games

Bernanke: Don’t play politics with debt limit – MarketWatch
Not raising debt ceiling would be self-defeating

Investing ideas for Greek default

How to profit from the coming Greek default – Matthew Lynn, MarketWatch

1. Buy German bunds & sell DAX
2. Sell Swiss Franc
3. Sell Belgium index
4. Buy european travel companies
5. Sell US banks, buy Dollar

Altucher sees Dow 20,000

Next stop: Dow 20,000 - James Altucher, MarketWatch

10 reasons why the market will soar

1. QE2 has not started
2. Tax cuts from Bush
3. Multiplier effect
4. Non-financial companies sitting on huge cash pile
5. Stock buy-backs
6. Companies hiring temp workers may switch to permanent staff
7. Corporate profits at highest levels
8. Major stocks are dirt cheap  (Forward P/E : AAPL 12x, MSFT 10x, INTC 8x)
9. Innovation
10. Major demographic changes

Consequence of not raising Debt Limit

Moody’s warns US on consequences of not raising debt limit – Reuters

Moody’s warned Thursday it would consider cutting the United State’s coveted top-notch credit rating if the White House and Congress do not make progress by mid-July in talks to raise the US debt limit.

A US default would roil global financial markets, but few investors are rattled just yet. Wall Street, in large part, expects the debt and deficit negotiations to go down to the wire, as did talks over tax cuts and the 2011 budget.

Volatility after QE2 ends

Best post-QE2 bet: a play on volatility index – Mark Hulbert, MarketWatch
QE2’s end is likely to lead to more market volatility

Stock market set to crash?

Why the Bulls are set up for a fall in June – Thomas Kee, MarketWatch
The end of quantitative easing matters a lot

Data suggest sluggish US economy

3 weak data point to sluggish US economy – Reuters

1. Case-Schiller 20-city home price index falls in March
2. Consumer confidence declines in May
3. Chicago PMI falls in May

ITG’s Blitz : Economy lacks impetus to grow

Oxfam : Food prices will double by 2030

Food prices ‘will double by 2030’, Oxfam warns – BBC
The prices of staple foods will more than double in 20 years unless world leaders take action to reform the global food system, Oxfam has warned.

QE2 did not ignite economy

QE2 was a bust - Brett Arends, MarketWatch
Economic data is worse than before

QE3 coming?

Bernanke will be forced to do QE3 - Jeff Harding, The Daily Capitalist
The effects of freezing the balance sheet - Frank Shostak, Mises Institute

We suggest that once Fed policy makers freeze the balance sheet of the US central bank, the growth momentum of the money supply will slow down. As a result various bubble activities that emerged on the back of the rising growth momentum of the money supply will come under pressure. A visible strengthening in the growth momentum of the CPI may prevent Fed officials from introducing QE3 as suggested by some experts.

JPM-Chase warns on economy

If the United States fails to get its fiscal house in order it will trigger financial consequences that will “dwarf Lehman Brothers” and seriously diminish the nation’s role as a world economic leader, the CEO and chairman of JPMorgan Chase & Co, Jamie Dimon told a Denver audience Thursday night.

JPMorgan Chase CEO issues warning on economy – Dayton Business Journal

Chances of US economic slowdown

The world is headed for an economic slowdown, according to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth. Lakshman Achuthan, founder and managing director of the research center, said the US economy will not escape the downturn, but will “participate in it … and in one way, shape or form, it is going to impact this recovery.”
Prieur du Plessis, Seeking Alpha : Assessing the Chances of a Severe US Economic Slowdown
[Interview with Achuthan]

Andy Xie: Hard landing for global economy

In a tight spot - Andy Xie
Desultory efforts to check easy money won't stop the global economy from suffering a hard landing.

What happens when US Debt Ceiling is hit

The Debt Crisis & Mortgage Rates - Diana Olick, CNBC

Michael Barr/Fmr. Asst. Treasury Secretary for Financial Institutions

"If the US continues to bump up against the debt limit but Treasury uses "extraordinary measures" to keep the US from exceeding the limit, then the damage is likely to be modest and short-term. I would expect rates to rise, temporarily, by up to low single-digit basis points.

It is a bit hard to forecast exactly what the effect will be. Prior experience suggests low single digit bps, but there are a number of factors in play today that were not present in previous debt ceiling crises: fragile economy, fragile housing finance sector, fragile home prices and sales, F/F in conservatorship, no securitization to speak of, higher debt to GDP ratio, turmoil in Europe (exacerbated by DSK's arrest), extremely high levels of US dollar reserves already in China, extremely low Treasury rates.

Long term, if we actually default, it is simply devastating, and permanent."

Peter Boockvar/Miller Tabak:

"I think the market has spoken and the almost 50 bps drop in the 10 year note yield since mid April is clear evidence that the debt ceiling debate has had zero impact on market psychology. Everyone assumes that a deal of some sort will occur and the market impact will be nothing. More impactful in the direction of lower yields has been concerns with growth and a flight to safety due to renewed concerns with Europe." 

Glenn Kelman, CEO Redfin

"We see people being very sensitive to the cost of money; they're very concerned about the debt crisis, they're very concerned about all these rumors that the US could have a money supply problem, so we think that interest rates are the real X factor to watch." 

Treasury Secretary Timothy Geithner made it clear what would happen should the U.S. ultimately default:

"Because Treasurys represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale." 

Related Links

1. Debt Limit D-Day Spells Tough Choices for Obama
2. Boehner Says Ready to Cut US Budget Deal Today
3. Medicare, Social Security Will Go Bust Sooner: Report

Grantham: Exit riskiest investments now

Sell riskiest investments now, Grantham urges - MarketWatch

Jeremy Grantham's advice to investors in GMO Quarterly Letter :
Time to be serious (and probably too early) once again - May 2011
Time to wake up: days of abundant resources & falling prices are over forever - April 2011

Housing continue to crash

Housing crash is getting worse - Brett Arends, MarketWatch

Andy Xie: Stagflation to come

Chimerica's slippery slope to Stagflation - Andy Xie
Watch for more Fed quantitavie easing, slower growth and policy traps in coming quarters

The global economy is heading toward another double-dip scare, possibly in the third quarter, in what could be a repeat of summer 2010.

Financial markets may stumble in a few months, and that could prompt the U.S. Federal Reserve to introduce a third round of quantitative easing or an equivalent, which would be another step down the path toward stagflation. In this scenario, China’s current monetary tightening policy would be difficult to sustain.

MS & GS drop bets against Treasuries

Morgan Stanley, Goldman Sachs counter bearish Gross on US Debt – Wes Goodman, Bloomberg

Morgan Stanley and Goldman Sachs Group Inc. are dropping bets against Treasuries.

Economic growth is falling short of forecasts, and market participants may need to reduce their yield predictions, Jim Caron, the New York-based global head of interest-rate strategy at Morgan Stanley, wrote in a report yesterday. Goldman Sachs cited Fed comments and the pace of inflation in a report the same day.

China dumping US Treasuries won’t be disastrous

What would happen if China sells US Treasurys ? – MarketWatch video

Neither the Dollar nor the US Economy would collapse if China were to dump Treasury securities, since the Fed owns more of them, and also because the Chinese need to stock dollars somewhere – according to Fundmastery blogger Kurt Brouwer.

Heading for Hyperinflation & double-dip Recession

John Williams: Hyperinflation & Double-dip Recession ahead – The Gold Report

Economic recovery? What economic recovery? Contrary to popular media reports, government economic reporting specialist and ShadowStats Editor John Williams reads between the government-economic-data lines. "The U.S. is really in the worst condition of any major economy or country in the world," he says. In this exclusive interview with The Gold Report, John concludes the nation is in the midst of a multiple-dip recession and headed for hyperinflation. (possibly as soon as 2014)

Is economic recovery for real ?

Fake Recovery: 29% of Americans say 2011 economy in depression – Michael Snyder 
Despite official claims of an improving economy, Michael Snyder writes that more and more Americans hold a contrary view.

Stagflation is coming

Here Comes Stagflation!
 - Sy Harding, Asset Management Research Corp, April 28, 2011. Reported in Forbes 

It’s official. The U.S. economic recovery is stumbling again, as indicated by Thursday’s report that GDP growth plunged to only 1.8% in the 1st quarter (from 3.1% growth in the previous quarter). And spiking oil, food, and other commodity prices have inflation on the rise.

Fed’s dirty little secret

Former official reveals the Fed’s “dirty little secret” – Aaron Task, Daily Ticker

The dollar hit its lowest level since July 2008 Thursday, putting more pressure on savers, people living on a fixed-income and all consumers facing soaring commodity prices, most notably in energy.

Somewhere, Ben Bernanke is probably smiling.

Yes, Bernanke — and Treasury Secretary Tim Geithner — talked tough about the dollar this week but "currency depreciation is always a central bankers dirty little secret," says Vincent Reinhart, a former director of the Fed's Division of Monetary Affairs. "They don't mind some depreciation at time…The trick is to generate some depreciation but not a lot."

Bernanke in denial about economy

Bernanke in denial about economy’s fate, Vincent Reinhart says – Stacy Curtin, Daily Ticker

Gross domestic product slowed to a meager 1.8% for the first quarter of 2011, just as Fed Chairman Ben Bernanke (among others) predicted.

"We have not seen the GDP number yet but we are expecting a relatively weak number for the first quarter, something a little under 2 percent," he said during his first-ever press conference yesterday. (See: Bernanke Speaks! Fed Chair Defends QE2, Says Inflation Not His Fault)

Bernanke plays with economy

10 ways Ben Bernanke is endangering the US economy – Lincoln Ellis, Strategic Financial Group

1. Banks are still insolvent – he tells you they are not.
2. Continued suspension of FASB & other accounting gimmicks have allowed large financial institutions to sit around with loan portfolios that we believe would render 3 or 4 of the big 5 banks insolvent – that’s great for transparency for shareholder, eh?
3. Bernanke is concerned that without the steep yield curve the financial system runs the risk of shutting down.
4. He will keep monetary policy as loose as possible to keep the yield curve & recapitalize the banks.
5. The chairman doesn’t actually care if the banks lend or not, in fact, better if they don’t then he can claim that they need lower rates.
6. The only way banks lend is in yield curve flattens taking away their spread.
7. Passing off the USD weakness question to Tiny Tim was disingenuous and or further evidence of a lack of understanding of how yield differentials effect capital flows.
8. A weak dollar policy – as the one being currently pursued by the Fed is a dangerous game of global chicken and the EMs along with China might take us up on dumping $s.. Then what… we compete with China to manufacture items and create more $5 an hour jobs?
9. The Chairman was complicit in two early bubbles and bursts.
10. The hubris of his ability to control inflation was crushed when he passed it off on real demand coming from EMs, which simply suggests a normalized recovering economy which would mean he should normalize policy…

China won’t be top economy within 5 years

China No.1 in 5 years? Not so soon – Andreas Oppenheimer, Miami Herald
A forecast by the International Monetary Fund (IMF) that China will surpass the U.S. economy in five years — much sooner than previously expected — is creating a big buzz on the Internet. But is it true?

Food prices soar in asia

Soaring food prices a threat across Asia: ADB

MANILA: Soaring global food prices threaten to push tens of millions of Asians into extreme poverty and cut the region’s economic growth this year, the Asian Development Bank warned in a Coupled with skyrocketing oil prices, the spike poses a serious setback for developing Asia after having rebounded rapidly and strongly from the 2008 global economic crisis, said chief ADB economist Rhee Changyong.

“Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia,” Rhee said in a statement.

Domestic food inflation in developing Asian nations hit 10 percent at the start of this year, with double-digit rises in the price of wheat, corn, sugar, edible oils, dairy products and meat, the Manila-based institution said.

If this rate continues, as is likely, 64 million people in developing Asia could be pushed into extreme poverty and economic growth could be reduced by up to 1.5 percentage points this year, the bank warned.

Issues for the Fed

5 tough questions for Ben Bernanke - Richard Band

No central bank has been more reckless 

LONDONDERRY, N.H. (MarketWatch) — The clock is ticking on “Bubbles” Bernanke. Come June 30, his latest quantitative easing program (QE2) is scheduled to end. The big question on everyone’s mind is: what happens after June 30? Will government bond yields explode?

1) How much quantitative easing is enough? 

2) What do gold at $1,500 and oil at $112 say about confidence in the Fed?

3) Are near-zero interest rates are fair to savers and retired folks on fixed incomes? 

4) What would you do if, one of these days, the Chinese placed a $100 billion order to sell their U.S. Treasury bonds? 

5) With so many regional Fed presidents voicing dissent, is the Fed’s renowned “collegial” decision-making process breaking down?  

 

Critics say Fed policies devalue the US Dollar - Doug McKelway

US Debt about to sink economy

Debt Monster Set to Devour U.S. Economy - Eric Margolis, HuffPost
The U.S. National Priorities Project estimates that in 2011, out of one dollar of U.S. federal spending, 27.4% is military; 21.5% health; 13.8% interest on the debt; 10.9% social security; benefits; 3.5% education; and 23% on everything else. The U.S. spends $450 billion annually to finance its ever-growing deficits.

Another crash coming

2008 crash deja vu: we’ll relive it, and soon – Paul Farrell
New bubble is hotter, bigger than last one

Easter

US debt default could destroy economy

Default on debt could be Doomsday scenario for economy - Huffington Post

The US government borrows 42% of each dollar it spends. When the debt ceiling is hit (forecast around 16 May), and the government does not have enough money to pay all its bills - it will have to decide which bills to pay & which to say no to. 

Default on repaying government bonds - either on interest or principal - would affect the credit-worthiness of the US Government & raise its subsequent borrowing costs. Future lenders would demand higher interest rates from US Bonds - costing taxpayers more, & also driving up interest rates across the entire economy. Costlier credit for consumers would dampen demand and crimp the economy.

With the government having to spend more on interest payments, it will have to cut down expenditure on other areas - downsizing or shelving projects altogether. This affects directly employees of the government or contractors doing government business. Reduced income of those directly affected then ripples through the rest of the economy as that means they can't spend.

Central Banks ignore inflation they created

All the major central banks are so preoccupied with attempting to rescue their drowning economies by creating money that they are brushing aside the consequent inflation warned by many economists months ago.

As Inflation surges, Central Banks run amok – Andy Xie
Inflation is rising around the world, and none of the major central banks have shown serious interest in containing it...

The Bank of England has the thickest skin of all: It no longer gives excuses for ignoring inflation. The U.S. Federal Reserve is constantly inventing new theories while trying to explain away inflation, and while trying to justify its QE2 quantitative easing project despite inflationary signs aplenty.

The European Central Bank has the thinnest skin of all, and recently raised interest rates to defend its credibility in targeting price stability even though, unfortunately, the ECB won’t be able to maintain this stance. The Bank of Japan is still shy, but it will have to out-QE the Fed to help its government pay for post-earthquake reconstruction.

Price stability is supposed to be central banking’s main goal. But these days, central bankers think they’re super heroes who should rescue the world and make everyone happy.

Inflation, since its negative effects are spread thin and take time to materialize, is ignored. Today’s central banking is about so many things except inflation. This is why inflation will worsen for a long time to come. Indeed, inflation is the main theme for the current decade. A change will occur only when the current generation of central bankers is replaced.

Inflation’s Hold

When western governments decided to bail out their bankrupt financial institutions in 2008, I foresaw inflation ahead. I argued it would start with commodities and in emerging economies, and then spread to developed economies. But now it seems inflation has already taken hold in developed economies. Read rest of article on Andy Xie's blog

America's economic decline

24 Signs of Economic Decline in America - Michael Snyder

US debt rating downgraded

S&P cuts US rating outlook to negative

Moody's says latest budget plans a turning point

Text of S&P downgrade

Peter Schiff: S&P late to the party (YouTube)

Why Gold will skyrocket in 2011

 11 Reasons why Gold will shoot up in 2011 - Richard Young / InvestorPlace.com

1. Euro is dead : Sovereign defaults from Ireland to Slovakia - driving panicked investors into gold.
2. Asia can't feed itself : Food shortages lead to huge social unrest & panic gold hoarding.
3. China will shake Dollar : China remains unable to supplant Dollar's role as reserve currency, but will flex its muscle - sending investors skittering for gold.
4. So debased is Dollar, only gold left as viable currency : Central Banks alredy reversing dump-gold policy & becoming net buyers.
5. Us or Them : Fiscally healthy countries, fed up with supporting sick ones, & sick ones fed up with onerous repayment terms, split the world - sending gold sky high.
6. No one trusts the Swiss - not even the Swiss !
7. 10 million homes & $1.5 trillion potential loss facing Banks : massive new bankquake threatening to rock America.
8. 11 States technically bankrupt : & must acknowledge fact in next few weeks - or cease to function as independent entities.
9. No evidence of budgeting restraint in Washington
10. Forced to beg from foreign creditors to keep afloat - yields will skyrocket drastically in 2011.
11. Massive Inflation - becomes only course open to Fed. Expect 10%,20%,50%,or higher ...

Rising food prices drive millions into poverty

Food prices: World Bank warns millions face poverty - BBC 14 Apr 2011
The World Bank has warned that rising food prices, driven partly by rising fuel costs, are pushing millions of people into extreme poverty.

World food prices are 36% above levels of a year ago, driven by problems in the Middle East and North Africa, and remain volatile, the bank said.

That has pushed 44 million people into poverty since last June.

A further 10% rise would push 10m more below the extreme poverty line of $1.25 (76p) a day, the bank said.

And it warned that a 30% cost hike in the price of staples could lead to 34 million more poor.

Inflationary Depression is here

The Inflationary Depression - Bob Chapman: The International Forecaster
April 9 2011: Management squeezes the worker to the end, the reality of an inflationary depression, the gold and silver bull, we remain haunted by lost opportunities to purge the excess and failures in the stock market.

We see signs that American workers are getting worn out. Management may have squeezed the last drops of extra work that they can out of them. That has been reflected in the latest worker productivity. Since WWII the average increase has been 2-1/2% year after year, but last week’s numbers were terrible, up only 0.2% per year. Europe and the US have been able in part to offset advantages of foreign producers by consistently getting better productivity results. For those of you that are new to these statistics, they are a reflection of labor productivity, or advances in the way work is done. Such previous success have allowed companies to get the job done with fewer employees and in instances to offshore some work to take advantage of cheap foreign labor. If you use a combination of labor and investment funds, recent results are only up 0.1% for 2009. Those numbers are usually about half of regular productivity numbers. What low overall numbers mean is that throwing money at manufacturing problems is not working as well as it has in the past.

Brazil loses currency war

According to WSJ, Brazil appears to be waving the white flag in the currency war. After months of tough talk to speculators and other governments driving up the Brazilian real, Finance Minister Guido Mantega seems resigned to the fact that there is little he can do to contain the currency's meteoric rise.

The currency climbed through a key barrier of 1.60 per dollar Thursday, a day after Mr. Mantega unveiled the latest in a string of controls designed to slow the real's climb. It was trading at 1.59 to the dollar late in the day, up more than 40% since late 2008.

Brazil imposed a tax on capital inflow last year. But that seemed not working very well. Capital continues to flow in due to the very large interest rate differential and a robust economic growth partially driven by the commodity boom worldwide.

When one country raises interest rate to contain inflation, while capital control is absent, it simply invites more capital inflows, which could drive up inflation further. This is why Brazil is giving up.

IMF has long been an opponent of capital controls. But it reversed its position recently and is more willing to consider capital control as a policy option.

Financial System designed to self-destruct

The Financial System designed to self-destruct - Bob Chapman: The International Forecaster
April 6 2011: The US dollar continues to lose its status, a planned failure for the economy, USA a banana republic, financially, Fed member banks prepare for next move, a debt that must be serviced, the insolvency of the banking system, a chain of incompetent mistakes.

Middle Class to pay price for America’s Debt

Our Debt Binge is Ending – and the Middle Class will get clobbered – Henry Blodget, Daily Ticker

The world is coming to the end of a 50-year debt supercycle, John Mauldin says, and the austerity required to put us back on solid financial footing will hammer ordinary Americans.

Mauldin, a financial analyst and the author of ENDGAME: The End Of The Debt Supercycle And How It Changes Everything, thinks that the the US will soon be forced to confront the fact that it has borrowed way too much in the past few decades and must severely cut back.

The US's $1.6 trillion-a-year deficit, Mauldin believes, must quickly be cut to about $300 billion a year, or the US will face a debt crisis. And given that our current government can barely find ways to chop $30 billion of spending from the 2011 budget, these cuts are going to be painful.

What will the forced austerity mean for ordinary Americans?

Higher taxes and significantly reduced Medicare and Medicaid spending, for starters, Mauldin says. And then cuts to almost everything else in the budget, including military spending and education.

In other words, as has so often been the case in the past couple of decades, the middle class will bear the brunt of the impact.

See Also: Budget Battle Will Likely Lead to Crisis and Recession, Says John Mauldin

Monetary system created by Bretton Woods

Reaping what Bretton Woods has sown 
- Bob Chapman's The International Forecaster     (Excerpt - click link to read full article)
April 2, 2011: The Bretton Woods agreement in 1944, a license to steal under the Federal Reserve Act, a model for finance that no longer works well, tax breaks for the wealthy and budget cuts for the rest of us, the possible re-monetization of silver, Fed discloses its discount borrowers for the first time ever, bailed out banks dump US workers in favor of offshore labor, Cal teachers pension system exposed, notes on the TARP bailout.

The seeds of today’s monetary problems were laid at Bretton Woods, NH in 1944, as a combination of socialists, communists and fascists laid the groundwork for the IMF, the World Bank and the eventual elimination of gold from the monetary world. The Federal Reserve’s role was to bring that about from behind the scenes.

Aden on Gold & Silver

VOLATILE TIMES AHEAD - by Mary Anne & Pamela Aden

Gold nearing $1500, silver nearing $40, oil well above $100! What a week... what a month... what a year!

Escalating violence in Libya is adding fuel to the already strong bull markets, especially with concern growing that turmoil could spread into even more countries.

The threat of possible supply disruptions is providing the real fire under oil, while demand continues to grow. Gold and silver, in turn, are the safe havens as inflation concerns and uncertainty prevail.

But from another angle, gold and silver are also being driven higher by the same force that is driving the unrest - namely, a sea of liquidity introduced by the Federal Reserve. Since the Fed has shown no sign of changing course, we expect much more volatility to come.

Dent predicts stock crash

Harry Dent: “Major Crash” coming for stocks, Commodities already topping out – Aaron Task, Daily Ticker

The first quarter comes to a close today with major averages at or near multi-year highs. Expect "substantial" further gains for stocks before a "major top" occurs in late summer, says noted forecaster Harry Dent, founder of HS Dent and The Dent Method.

The good news, for those long, is Dent predicts the Dow will trade as high as 13,200 by mid-summer and the S&P 500 as high as 1430, or more-than 7% above current levels. The bad news is "then we could see another major crash," Dent says, forecasting the Dow could trade as low as 3300 in a worst-case scenario. "Bubbles go back to where they started or a little lower," he says. "The stock market bubble started at (Dow) 3800 in late 1994."

Marc Faber: QE3 eventually but not immediately

Faber Expects QE3 From Fed 'But Not Right Away'
Bloomberg   Mar. 30, 2011. 06:29 PM EST

Factors driving food prices

Global food prices pushed by three-factor engine    - Steve Leer, Purdue University

1. Grain shortages, Middle East turmoil and extreme weather in critical crop-producing regions have combined to send retail food prices higher this year.
2. American consumers can expect to spend about 4 percent more for food this year than in 2010. Beef, pork and poultry products likely will see even greater price hikes, she said.
3. U.S. food price inflation reached 7.5 percent in September 2008 before falling 10.5 percent by November 2009. It's been moving back up ever since.