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The Debt Monkey On Our Backs

By Ian Mathias

07/06/09 Baltimore, Maryland

We’re scanning markets of the world today and scratching our heads… haven’t we heard this before?

There was a scare at the start of the year — banks were in trouble, the housing market was crashing and unemployment was rising. The S&P fell at a rate unseen in a long, long time. But then, a sucker’s rally! The worst was likely over, they said… stocks were oversold. The U.S. consumer, China and oil companies promised to lead us out of this mess. And of course, the current administration’s new multibillion stimulus plan will kick in any second.

After bottoming in early March, stocks soared well off their lows. With the S&P 500 at break-even for the year, stocks now face an inflection point.

Wait a second… what year is it?

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We need not remind you of what happened in the second half of 2008. But it’s not worth worrying about… it’ll be different this time!

Stocks took quite a tumble Thursday. The worse-than-expected jobs report gave traders more than enough reason to be short into the three-day weekend. The S&P 500 fell nearly 3%. Since reaching its 2009 high in early June, the S&P is down 5%.

Major indexes are in trouble again today. The Dow and S&P opened down 0.75%, mostly thanks to sour moods left over from Thursday.

And just as in 2008, the smart money says there is more pain ahead:

“You may have green shoots, whatever you want to call them,” said market sage and author of The Black Swan Nassim Taleb. “You may have temporary relief, but you are
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Money Tsunami Capsizes the Global Economy

By The Mogambo Guru

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07/06/09 Tampa Bay, Florida

I was surprised that Barron’s reported that the banks show their Total Reserves fell from $896 billion to $848 billion, which is a simple math problem that seems custom-made for my abilities in that regard.

And to prove it, I deftly subtract one from the other and get – voila! – $48 billion, which is not only factually correct, but more than enough to quiet any naysayer saying, “Nay, I say!” as regards my computational skills.

Then, to add that essential touch of surreal whimsy that seems to permeate all things fiscal and monetary these days, I additionally note that not only did Total Reserves go down in the banks by $48 billion to $828 billion, but I will note that Total Reserves one year ago were a miniscule $41 billion! Hahahaha! They fell last week by more than they totaled one year ago! Hahaha!

In fact, Required Reserves are only now starting to rise from “nearly zero” to “slightly more than zero,” and banks are now “required” to have a miniscule $56 billion in reserves against their zillions of dollars in assets and liabilities, while meanwhile, a mere couple of lines up on the same Barron’s page, the Federal Reserve reports that “Reserves F. R. banks” went down by an astonishing $125 billion last week to $692.6 billion! Wow! Big move!

These huge tsunamis of money, joining all the other tsunamis of money sloshing back and forth around the banks and the world, around and around, getting everything all wet, are not only ruining the patio furniture and making a
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Poor Economist Land Predictions

By Joel Bowman

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07/06/09 Taipei, Taiwan

Give a hundred thousand…take a hundred thousand…it’s all in a day’s work for the modern economist. We know of no other line of employment where someone could be so consistently wrong and still have a place to drive to five days a week. Well, no line of employment outside of politics, that is…although we might file politics under “mental condition,” rather than “day job.”

Now, one hundred thousand might not seem like much these days, especially when so many numbers with so many zeros are so regularly bandied about. It might seem a bit distant, almost unreal in a way. Well, it’s certainly very, very real for that many people who weren’t expecting to lose their jobs last month…then did. It will feel very real to the restaurant owner when those people don’t call to make reservations. The struggling car dealer/maker will certainly feel it when they don’t come to test drive any new vehicles. Banks too will get the reality check when that many people can’t pay their loans back. The same goes for the banks’ banks and their banks too.

Gee whizz, one hundred thousand people sure do add up quickly. But the world’s largest consumer didn’t lose one hundred thousand jobs last month…that was only the difference between Economist Land predictions and hometown reality. The real figure, as by now you have surely committed to memory, was much worse.

Before the jobs report shocked green-shoot enthusiasts (into deeper denial, no doubt), Bloomberg had gathered 79 of the brightest economists in the land to hear their forecast.
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