Friday, May 29, 2015

Desperate U.S. States Are Turning To
"Getting A New Credit Card
To Pay Off The Old Credit Card"
“When you’re borrowing money for pensions, you’re getting a new credit card to pay off the old one, and you still haven’t paid off the old one.”
"Solving' this problem by issuing bonds is an enticing option but at heart, it amounts to what one might call a 'pension liability-bond arbitrage.' The idea is to borrow the money to plug the pension gap and invest it at a rate of return that's higher than the coupon on the bonds, thus saving money over the long-haul. Of course, much like transferring a balance on a high interest credit card onto a new card with a teaser rate (or refinancing a high interest credit card via a P2P loan) this gimmick only works if you do not max out the original card again, because if you do, all you've done is doubled your debt burden. As it relates to pension liabilities, this means that what you absolutely cannot do is use the cash infusion as an excuse to get lax when it comes to pension funding because after all, that's what caused the problem in the first place."
-  Zero Hedge on  Underfunded U.S. Pension Fund Crisis
LINK HERE to the commentary
"Instead, the deals are typically used to make troubled pension systems seem a little less troubled for a few years, allowing elected officials to celebrate a pension reform without having to make the system sustainable over the long term. The flood of cash from the bonds may also tempt officials into taking a break from their pension-funding schedule — the very action that has caused so much pension distress to begin with. Skipping annual pension contributions produces an off-balance-sheet debt that can start growing exponentially."
- NY Times
LINK HERE to the article
Dr. Paul Craig Roberts* Warns 
Black Swans Will Engulf The World 
“It’s A Perfect Storm”
Former Assistant Secretary of the U.S. Treasury Dr. Paul Craig Roberts* sees several crises all coming at roughly the same time to form a "perfect storm" of "black swans" .. says the U.S. is declining very rapidly & thinks the financial markets have "unsupportable" valuations .. on the geo-political front: "I think we’ve miscalculated in thinking, Eric, that we could have Russia and China as vassal states. They’re not going to be vassal states. Therefore, this realization on the part of Europe could affect Europe’s toleration of their own vassalage to the United States. They (Europeans) could decide: 'Look at all the risk that we’ve been pushed into by Washington: Risk of conflict with Russia, the breakup of our very profitable economic relationships with Russia, and the renewal of the Cold War with Russia, which we suffered under during (virtually) the entire 20th century until Reagan ended it. Now look, the bastards have brought it back. Why did Washington do this?' .. You could see the empire disintegrate. All it takes is one European country to leave the EU and NATO and the American empire ends. That’s all it takes. Now we see who that could be — it could be Greece." ..  on the coming U.S. elections: "The scariest thing about the United States is the complete absence of any competent leadership. There’s not a single competent leader in the political system. And if you look at the people who are announced as contenders for the presidential nomination in the next election, you are looking at a gaggle of maniacs. These are people who haven’t got enough sense to be let out of the house on their own. And this is a superpower — ruled by idiots! This is the danger. And this is why I don’t think the United States has a future."
LINK HERE to the article
Robert Shiller: Greece Issue
is an "Emotional Game"
Are we in a Bond Bubble?
Yale University professor & Nobel prize winning economist Robert Shiller discusses the way forward for Greece & the possibility of a bond market bubble .. 4 minutes
The Euro is Beginning to Suffer A 
Lack Of Credibility As A Form of Money
Alasdair Macleod describes the current dynamics of the euro in the euro zone, why there is a growing risk of a loss of confidence in the purchasing power of the euro .. in particular this risk will escalate if/when Greece defaults on its debt & perhaps exits from the euro zone .. "Rather than risk exposing the ECB as undercapitalized, it seems likely that Greece will be permitted to win its game of chicken against the Eurozone, forcing the other Eurozone states to come up with enough money to pay off maturing debt and cover public sector wages. So will that save the euro? Perhaps it will, but if so maybe not for long .. The next blow for the euro could come from the exchange rate. If the euro continues to lose purchasing power on the foreign exchanges, it is likely to undermine confidence on the ground. And when that happens it will be increasingly difficult for the ECB to retrieve the situation and maintain the euro's credibility as money. It just doesn't seem sensible to take such enormous risks with a currency that has existed for only thirteen years."
LINK HERE to the essay
Federal Reserve
Interest Rate Policy
Boom Bu$t .. discussion with Lenore Hawkins, founding partner of Meritas Advisors on why she believes the Federal Reserve will continue to hold off on raising rates. Much of her analysis rests on the weakness of incoming data. Hawkins also gives us her take on what’s going on in Greece right now, explaining in particular why people in Greece, who work long hours, are still struggling so much. Elle also takes on the related situation in Italy, where she lives . 1/2 hour total program
China Debt - When Will It Burst?  
Blows Bigger Beastlier Badder Bubble 
Bloomberg posted essay considers China's massive debt bubble as being a potential big risk to the international economy .. this week China lowered its short-term interest rates to its lowest level since the financial crisis - "by manipulating this rate, the People's Bank of China is helping regional leaders to accelerate their unsustainable borrowing .. the encouragement of local government borrowing is especially alarming .. local government obligations now exceed the entire German economy" .. the Chinese government is also urging banks to increase lending to borrowers with liquidity troubles .. "China's debt bubble is expanding, not contracting. Rather than absorbing the pain of wayward local governments, the Chinese government should be policing them more closely. Here, Japan's cautionary tale is worth heeding .. The only way China can avoid Japan's fate a few years from now is by accepting slower growth and less borrowing today .. Judging from their rhetoric, officials in Beijing understand the scale of the country's debt problems. It's too bad that, when it comes to designing policies, they lack the courage of their convictions."
LINK HERE to the essay
Is U.S. Healthcare 
Dooming The U.S. Economy?
Charles Hugh Smith* sees the runaway U.S. healthcare as dooming the U.S. economy .. presents the 3 charts above to understand why .. One chart depicts the runaway growth of healthcare costs--a rapid expansion that is a permanent feature of U.S. healthcare, regardless of which party is in office or what reforms are instituted .. U.S. healthcare costs are consuming 25+% of the GDP! .. "The majority of U.S. healthcare spending is not productive; it is a drag on productivity. Subtract the fraud, overbilling, defensive medicine, marginal/ineffective overtreatments and tests and the extreme concentration of costs in 5% of the populace, and we'd have a system that we could afford, i.e. one that cost less than 10% of GDP, in line with our advanced-economy competitors. As it stands now, U.S. healthcare will bankrupt the nation and doom it to permanent stagnation and recession. It's our choice: live with a bankrupt system built almost entirely of perverse incentives, or begin an adult discussion about a system that delivers responsible care to the elderly in line with other advanced nations, but at a fraction of the current cost." 
LINK HERE to the essay
Record Amount of Money 
Fleeing Greece
Mish Shedlock* sees massive capital flight out of Greece now .. reports there is a 60%-70% chance of Greece defaulting on their debt .. the big question is what this means for the euro zone .. emphasizes Greece is not taking positive change on its bloated public sector spending .. 11 minutes
Why This Gold Bear Market 
Is Different
Frank Holmes* shares his thoughts taken from a recent discussion with Financial Sense's Jim Puplava .. 2 factors drive gold: the Love Trade & the Fear Trade .. sees the recent bear market correction in gold as having to do more with central bankers trying to discredit gold as an asset class & at the same time trying to keep interest rates low .. why this time is different? - "The shift of gold from North America to Switzerland to China. The Chinese have a strategy for the renminbi. Not only do they have 200 million people buying gold on a monthly program throughout their banking system, but the government is buying gold because it needs to back the renminbi to make it a world-class currency of trade." .. concluding remarks: "I’ve always looked at gold as being a hedge from the imbalance of government policies. Having that 10-percent weighting and rebalancing every year might help protect your overall portfolio. There are many studies going back 30 years that show that rebalancing helps."
LINK HERE to the article
Sam Zell:
'The Ticking Time 
Bomb Continues'
Maria Bartiromo with Sam Zell .. "The ticking time bomb of compounded interest and unrealistic pension fund expectations of income continue to go whether you talk about it or not, and the scale of the problem continues to increase whether you talk about it or not." .. 5 minutes

"Wealth redistribution going one way, growth going the other way. The more the focus is on wealth redistribution, the slower the growth rate. There is no solution, short of growth." .. 5 minutes
click to enlarge
Coming to America!
Cuba's Lung Cancer Vaccine
The thawing of the 50-year chill in the relations between the U.S. & Cuba .. "Plans are in motion to import a Cuban-developed lung cancer vaccine for American clinical trials. Though the small Caribbean country has struggled economically since the U.S. embargo began in the 1960s, Cuba has managed to maintain a high life expectancy and low infant mortality rates (better than the U.S., according to the stats). The country has devoted resources and homegrown talent to medical research, investing more than U.S.$1 billion in biotech over the past 20 years, according to a World Health Organization (WHO) report."
LINK HERE to the article
LINK HERE to slides

Why the U.S. Needs 
to Listen to China
& Vice Versa
The Atlantic essay on how the economic interests of both China & U.S. are intimately tied to each other, & that mutual cooperation, communications & understanding are required .. "The greatest American threat to China’s economic future is the possibility that America’s economic success could come to an end; the greatest economic danger China poses to the U.S. is the chance that China’s economy fails to grow. By contrast, if each country gets its own house in order and thus succeeds economically, that should diminish economic insecurity, which generates friction, and increase confidence about the future, which fosters a constructive relationship. As former U.S. Treasury secretaries with long experience working with China, we believe each country should undertake significant reforms. Seriously considering each other’s criticisms is a good way to begin."
LINK HERE to the essay

From Our Archives:
December 4. 2014 
U.S. Government Is Extracting
Legal Fines From Banks
The Boston Consulting Group has a new report on the banking industry .. highlights how the U.S. is extracting a considerable level of legal fines from banks in the U.S. & in Europe .. "The new era in banking is characterized by a rigorous enforcement of sanctions. As of September 2014, the cumulative litigation costs for EU and U.S. banks since the onset of the financial crisis has reached some $178 billion." .. [Cliff Note: What is interesting to understand is the level of these fines relative to the level of revenues - see essay below by Gordon T Long* for insight into this.]
LINK HERE to get the report in PDF

From Our Archives:
November 6, 2014
Crony Tribute System
click to enlarge
Essay by Gordon T Long* explores the linkages between lobbying, political influence & campaign contributions in the economy & financial system .. A tribute (from Latin tributum, contribution) is wealth, often in kind, that one party gives to another as a sign of respect or, as was often the case in historical contexts, of submission or allegiance. Various ancient states exacted tribute from the rulers of land which the state conquered or otherwise threatened to conquer. In case of alliances, lesser parties may pay tribute to more powerful parties as a sign of allegiance and often in order to finance projects that benefited both parties. .. traces the roots of the "tribute system" back to the Roman era .. the essay starts off with one big example - the total settlements on mortgage penalties (at the root of the Financial Crisis) paid by the banks adds up to about $106 Billion. About $32 Billion of that may go to actually help borrowers. However, foreclosure actions totaled $2.8 TRILLION! Bank penalties were less than 4% of the foreclosure actions. Bank profits .. are miniscule in comparison to the size of profits earned."
LINK HERE to the essay
Permission for the below courtesy of Gordon T Long
Corporate Media 
is set to win the election cycle
RT America focus piece on the 2016 U.S> election cycle .. many in the mainstream media are preparing for the barrage of (& money for) political advertisements thanks to SuperPACs & similar institutions .. a look at how the mainstream media takes advantage of the political season .. 5 minutes
Infrastructure Programs
Coming Soon to America
"The Federal Reserve will not tolerate deflation, and  it will do whatever it takes to keep the U.S. economy from deflating. On this basis I do not expect the Federal Reserve to raise rates this year or next, and it would not surprise me to see the Federal Reserve bring in QE4 or something like it. In its effort to ward off deflation, I expect one of the following to occur: the government will announce make work programs as per the 1930s, where millions of men were put to work under the auspices of government programs to build post offices and freeways and bridges as they sought to build America’s infrastructure. The second program I expect is an all-out multi-trillion dollar program to build up America’s military, including its Navy and Air Force. The Great Depression of the 1930s ended with the lend lease program and the military buildup prior to World War II."
- Richard Russell*
link here to the article
Bill Murphy of GATA
GoldSeek Radio's Chris Waltzek talks to Bill Murphy of the Gold Anti-Trust Action Committee .. 11 minutes