We’ll get back to that in a second. First, our regular beat…

Markets went precisely nowhere yesterday. It was as if everyone agreed to stay home…or go fishing…or to become reacquainted with that strange person living in their house and sleeping in their bed. Among other things, investors are waiting to see what happens with Greece. We’ll save them some time. Nothing will happen. Nothing different, anyway. Here’s Bloomberg, with more news on the same old story:

Greek political leaders struck a deal on a package of austerity measures, clearing the way for a swap to cut the nation’s debt and win its second rescue in two years.

Greek Prime Minister Lucas Papademos called European Central Bank President Mario Draghi to tell him “an agreement has been reached,” Draghi said at a press conference today in Frankfurt. An announcement from Papademos’s office is expected shortly, a Greek government official who declined to be identified said today by telephone.

The accord came less than four hours before euro-region finance ministers hold an emergency meeting in Brussels to discuss the 130 billion-euro ($172 billion) lifeline and the swap that will impose a loss of about 70 percent for investors.

Oh, Papademos and Draghi said all’s well. An agreement has been reached. A deal was struck. Phew! We thought that…

…Wait, we’re trusting politicians now? Ex-Goldman Sachs politicians (in Draghi’s case), no less? When did that happen? These are people who couldn’t lie straight in bed. Everybody knows it. Notice, for instance, how these and various other furry-knuckled folk are no longer referred to as “politicians”? That word has been sullied. People have trouble even using it without nailing a “damned” or “thievin’” to the front of it. Now the papers, with embarrassing deference, refer to them as “political leaders.”

Let’s recap what we know about Greece and the euro-situation in general. For brevity’s sake, we’ll stick to its most recent — i.e. current — collapse only.

Back in May of 2010, five short months after receiving its first official credit downgrade, Greece was awarded a €110 billion 3-year “loan.” (We put that word in inverted commas just in case it mistakenly implies repayment.) And what happened? Did the government clean its act up? Did it cut expenses, as promised? Did the economy roar back to life? Of course not. Protesters had barely left their post in Syntagma square when it was time to return for more banner waving and foot stomping. By December that year, the yield on 10-year bonds had spiked to near then record highs over 11%.

Not to worry, said the Feds, who swept in with another €110 billion bailout plan…again negotiated under the strict condition that they rein in spending. But the horse had already bolted. Greece’s outstanding debt is now equal to roughly 160% of GDP. The gears have stalled. Official unemployment has reached over 20%. It’s worse for the youth. Much worse. Half of the nation’s under-24 population is without work. Growth has collapsed. Industrial output in December fell 11.3% from the year-earlier month.

Would you lend these people money? Would you lend these people your money? Only a fool would answer yes to the second question. Only a politician would answer yes to the first.

The Spartans are broke. They have been for a long time. And, as such, they will default. One way or another. All the handshaking, backslapping, hallway dealing, last minute brokering, politicking and brinkmanshipping won’t stop that. It’s just noise, playing like the soundtrack to a movie that’s already been written.

Not that the Greeks area lone sinners. The whole developed world is caught up in a debt funk. The collapse, when it arrives, is going to be truly epic. Which brings us back to our original thought: If you had the choice, would you live your life at any other time?

Take a look back through history. Most of it was a complete bore, save for the workaday melodramas played out in small, social soap operas. In fact, most of history existed before actual soap operas…and before soap…and before operas.

Sure, there were wars and plagues and the miserable collapse of empires. Currencies were debased and their masters beheaded. New lands were found and old cities forgotten. There were events that reshaped the course of history itself, delivering us the present day in which we live.

But mostly these things took many years, centuries even, to fully express themselves. Trends were slow…probably because there was nobody around to drive them. Mankind couldn’t even manage to gather a group of 1 billion people until 1811. How can you expect to get anything done when you’re still counting the global population in “millions?”

These days, contrary to the relative snoozefest of yesteryear, things happen. And when they do, they are fast…and loud…and on a scale that dwarfs any other in history.

Take economic output, for example. According to data compiled by The Economist, more than half (55%) of all the economic output generated over the past 2,000 years was generated in the 20th century. In other words, the last 100 years of the millennium produced more than the preceding 1,900. And this trend — along with the mushrooming population supporting it — is quickening. The first 10 years of this millennium account for roughly one-fifth of the total economic output achieved since BC ticked over to AD.

All this is just a fancy way of saying that big things are happening. Big booms. Big busts. Greece-, Europe-, US- and entire developed-word sized busts. And, lest we fail to mention it, a spectacle like no other in history.

Who would want to miss that?

Joel Bowman
for The Daily Reckoning

Watching the Greek Debt Episode of the Global Soap Opera originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Take for instance yesterday, when I said that thing in Greece were unraveling very quickly… Less than an hour after I hit “send” on the Pfennig, I saw a quote from French President, Sarkozy, who said, “we couldn’t be closer to a deal in Greece”… Hmmm… Seems that there was no reason for me to be so Donnie Downer on Greece! Yeah, and I’ve got some swampland I need to sell you… Hey Disney World was built on swampland, so you’ve got that going for you! HA!

This morning, the euro (EUR) has climbed back above 1.31, on news that the Greek leaders have agreed to meet today (now probably) to put the final touches on structural economic reform, which has been demanded by the Trokia (or Troika — tomato, tomato, it’s all the same) and consists of the IMF, the European Commission and the European Central Bank (ECB). The Trokia had demanded these economic reforms before the next round of bailout funds are released. The Greek leaders need to cut 850 million euros from their spending, which will account for 1.5% of GDP…

This trading range in the euro lately has been as tight as a pair of new shoes on a rainy day… The euro has either bumped up above 1.31, or fallen below it… 1.32 had been a tough row to hoe for the euro, and so, the trading range has been established… And I believe it will remain there as long as the Sword of Damocles is hanging over Greece…

Remember when I kept telling you that the Bank of Japan (BOJ) and the Finance Ministry were saber-rattling and trying to verbally intervene to get the yen (JPY) weaker, but that it wouldn’t be long before they were digging into that treasure chest of yen that has been allocated for intervention? And then nothing? Nada, zilch, zero, a big goose egg!

Ahhh Grasshopper, it only appeared to us that the BOJ was sitting on its hands… Last night the Finance Ministry released a report showing that the BOJ had conducted 1.02 trillion yen ($13 billion) worth of unannounced intervention during the first week of November. So, who knew? Who knew the BOJ could be stealth-like? This way, the markets weren’t aware of the intervention, because the BOJ spread it out, and was quiet about it… And it worked, (as best as intervention can, that is) bringing the yen from its post-WWII high of 75.35 to 76.50… But, that’s not what the BOJ had to have had on their minds… The yen is still too strong for exporters at 76.50, so… Can we expect to find out about more “stealth intervention”? I think so…

The Aussie dollar (AUD) is stronger this morning on a relief trade… The Reserve Bank of Australia (RBA), unexpectedly left rates unchanged, and instead of dire words, signaled optimism that global economic growth will strengthen. The Aussie dollar touched $1.0810 after the rate announcement, but has since fallen back below $1.08… But not far, and still stronger than yesterday!

The New Zealand dollar/kiwi (NZD) really liked the fact that the RBA left rates unchanged, because it has clutched on to the Aussie dollar’s coattails in recent times, and if the Aussie dollar is going to rally on the news, then kiwi gets to rally too!

I see where The Washington Post, (WP) must have a Pfennig reader… For they ran a report last night about how the unemployment rate here in the US is falling because of the millions of workers who have given up looking for work… The Washington Post writer believes that if all 2.8 million people who have given up looking for work were actually counted as “unemployed” that the Unemployment Rate would be 9.9%, not 8.3%…

Of course, the WP writer would do a better job if they dug even deeper into the phony, trumped up BLS labor report, to find how John Williams at Shadow Stats thinks the unemployment rate is really 22%…

While I’m here in the US, St. Louis Fed Head, James Bullard was speaking in Chicago yesterday, and had this to say about the Fed keeping interest rates near zero to counteract a high degree of slack in the US economy… “If we continue using this interpretation of events, it may be very difficult for the US to ever move off of the zero lower bound on nominal interest rates. This could be a looming disaster for the United States.” — James Bullard.

Fed Head Bullard is telling you all and anyone who will listen that we are all turning Japanese! He didn’t say it, but the scenario he described is exactly what has happened to Japan… I sure hope someone is listening in the Fed Head circles…

Today, the data cupboard will print Consumer Credit for December… You may recall how this number exploded in November by $20 billion… Well, December credit is expected to hit $7 billion… This data is covered little, and I wonder why… It’s very telling about what’s going on, don’t you think?

Over in Germany this morning, the December print of Industrial Production (IP) was very weak, as it decreased 2.9% from November. There could be two things at work here… First, there’s not much work that gets done as Christmas closes in for German workers… And second, the German economy softened… But none of the other data we saw from this time period indicated that, so I’m going to go with what’s behind door number 1!

Today, Big Ben Bernanke will testify before the Senate on the economic outlook and the Federal Budget situation… Last week, when Big Ben talked to the House, the lawmakers tried like all get out to get Bernanke to fess up to messing up the economy, but as I reported here on Friday, he redirected the lawmakers questions to him talking about what he wanted to talk about, which was how he wants the lawmakers to get deficit spending under control.

It will be interesting to see how Big Ben is treated in the Senate… Either way, he’s a master of redirecting, and the talk will all come back to lawmakers getting deficit spending under control! Which is a good subject to talk about, but I’m sure what the lawmakers have to say about what Bernanke is doing to the dollar is also a good subject to talk about!

Last week I told you how the Swiss franc/euro cross rate was nearing the floor of 1.20 that the Swiss National Bank (SNB) set last fall. I said then that it would be interesting to see the SNB’s resolve in defending this cross level… New SNB Chairman, Thomas Jordan, is setting the markets straight on his resolve. Jordan said, “We remain firmly committed to defending the minimum exchange rate of 1.20 francs per euro. This commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday. We will not tolerate any trading below the minimum rate.”

Well… I guess he told the markets where he stand, eh? But… As I’ve said before, money talks and bulldookie walks… It’s now up to the markets to see if the SNB is really going to defend the cross or not… Which, by the way, this morning is weaker than it was last week at 1.2070…

One of the things that I look at periodically is the “misery index”, which is comprised of the Unemployment Rate and the inflation rate… I like to see where the US is compared to other countries like Norway and Australia or Canada, etc.

Well, my most recent look at the Misery Index showed the following recent results…

US 11.30% up from 2011’s 10.60%
Canada 9.9% down from 2011’s 10.10%
Norway 3.0% down from 2011’s 5.9%
Australia 8.3% up from 2011’s 7.60%

I think it is important to a country’s psyche to have a lower misery index number…

So… If that’s as interesting to you as it is to me, I’ll keep this up-to-date going forward.

I see where the 3.6 million workers in the German metal and electrical industries union are demanding 6.5% wage increases. This is going to be a very heated negotiation, because in 2010, German companies did quite well, but… Most economists believe that the German economy will slip this year, along with the rest of the Eurozone, into a recession…

And in the UK it appears that the Bank of England (BOE) will extend their bond purchase program (quantitative easing)… And remember what I’ve told you now for a couple of years… What happens in the UK usually comes ashore here within 6 months… So, if the BOE is extending QE, then the Fed will be doing it soon enough…

And gold is still trying to find traction to move higher, as it slips on the overall better feeling about what’s going on in the global economies… I find this to be temporary… So, could be a good time to pick up some gold at cheaper prices, eh? I said could be…

Then there was this… From The Economist… First, I’ll give you the snippet of the Economist story and then tie it all together in a neat bow… OK… Here’s The Economist… “China and the US might be laying the foundation for another Cold War over China’s territorial claim for the South China Sea, The Economist’s Banyan columnist writes. None of the nations with interests in the South China Sea is making progress toward settling disputes. “So the chances are that America, with its mighty Navy and abiding interest in the freedom of navigation and commerce, will become still more involved.” — The Economist

Chuck again… Remember Rome? Remember how the Roman army got too extended putting out fires everywhere? Hmmm… Iraq, Afghanistan, Iran, South China Sea, doesn’t this scare anyone else?

To recap… The RBA left rates unchanged, and surprised the markets last night, sending the Aussie dollar over $1.08. It has slipped back below the figure this morning, but still stronger than yesterday! Japan has been doing stealth intervention to keep a lid on yen, going back to November, and The Washington Post figures out the funny bookkeeping at the BLS…

Chuck Butler
for The Daily Reckoning

RBA Sounds Upbeat About Global Economic Growth originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Well… Speaking of things that probably aren’t safe to do… Jumping on the government’s “strong data bandwagon” probably qualifies… But that’s not stopping the lemmings — or as my friend, Bill Bonner, calls these people the “sheeples” — from jumping on the bandwagon… That’s why I back off and say, “something smells strange here”… And so I begin to dig into the numbers…

Now, let me first tell you that the current government/administration isn’t the first one to cook the books in an election year, so, I’m not just picking on the current administration. I’ve always maintained that the books were cooked, and get extra burnt during an election year. Yes, wouldn’t you do the same thing? Get reelected is the call to order, and there’s no better way to do that, than to show the sheeples how much better they are today than four years or whenever ago…

You know this is all leading to the major story from Friday… The Jobs Jamboree… Where the Bureau of Labor Statistics, (BLS) told us that 243,000 net jobs were created in January, and that the Unemployment Rate fell to 8.3% from 8.5%… OK… Maybe, just maybe, the net jobs are close to being correct… The thing that the government doesn’t tell us is that the employment to population ratio isn’t keeping up with the unemployment rate.

And, the unemployment rate is a joke… I’ve gone over this so many times in the past, so, here’s the Reader’s Digest version of this explanation… As people give up looking for work, they are no longer counted as “unemployed”… Well… In January 1.2 million people dropped out of the labor force… Yes, that’s right, in one month, 1.2 million people dropped out of the labor force, so… The unemployment rate drops… And this will continue to occur the rest of this year, folks… So, now you know!

Look… I’m not saying this report wasn’t a good sign for jobs… All I’m saying is that we shouldn’t be holding any ticker-tape parades for the labor picture in this country…

So… Why am I all in a fuss about this, today? Well… To watch the reaction to the jobs data was like watching everyone rush out to buy a Milli-Vanilli record… Boy are they going to be really disappointed when they find out it was all a sham…

OK… So, on Friday, the sheeples ran to stocks, and bought them like they were funnel cakes at a state fair. Bonds got whacked, but that’s fine with me, because they should get whacked… But currencies, save for the true commodity currencies of Australia (AUD) and New Zealand (NZD), got whacked… But the real trip to the woodshed was for gold (& silver)… And that hasn’t stopped this morning, as gold has lost over $50 of its price since the Jobs Jamboree on Friday!

However, having blinders on right now is probably not a very safe thing to do… And stocks look pretty shaky when you consider that profit margins are circling the bowl, having suffered their biggest quarter-to-quarter drop in the 4th QTR of 2011, since the financial meltdown in 2008… I’m not a stock jockey, so I’ll just leave that at that…

The Aussie dollar pushed the envelope very close to $1.08 on Friday, and the New Zealand dollar/kiwi, traded through 0.83-cents… But, those lofty figures from Friday have been wiped out this morning. The Aussie dollar saw their latest retail spending data weaken, which is probably that last nail in the coffin as far as whether the Reserve Bank of Australia (RBA) will cut rates tomorrow or not… At this point, I would say, why not? Everyone else is cutting rates to promote growth, and it doesn’t hurt their currency…

OK… For new readers… I’m not into countries that debase their respective currencies… But, the markets have turned to a “promote growth at all costs” mentality… So we have to play along… Yes, the “plays along with others” is important in our grades!

I do believe that after this weak retail spending data in Australia, and the price action since, that the rate cut has now been priced in… So, sell on the rumor, buy on the fact is probably in play here.

Look how long I’ve gone this morning without a mention of the euro (EUR)! Not that I was saving the best for last! Another week has gone by without an agreement in Greece with private creditors… And now this past weekend, the Trokia (which is a slang term for the three organizations that have the most power in Greece. And consists of: The European Commission, The IMF, and the European Central Bank (ECB) saw their plans for new austerity measures in Greece rejected by Greek party leaders… So, this is all unraveling very quickly, folks… The Greeks can’t come to an agreement with private creditors, nor can they agree with the Trokia…

Things are pretty dire in Greece… And yet the euro remains above 1.30… Doesn’t that give you any indication of what the markets think of dollars right now? Not that it will always remain that way… Remember, when the year began, I told you that I wouldn’t be surprised to see the euro fall to 1.18, or rise to 1.40…

I would also remind you that I tell you all the time that when picking currencies to own, you want to find countries with sound fundamentals, good fiscal positions, something that the rest of the world wants, or has ties to China…

Friday, we also heard St. Louis, Fed Head, James Bullard, say that the Jobs Jamboree probably removes the need for additional quantitative easing (QE)… Of course he called it “bond buying” as QE is now a dirty word, in Fed Head circles…

OK… One of my chartist friends (whom I’ve talked about before), Scot Pluschau, sent me a note on Friday about how the volume indicators are screaming bearish in the Dollar Index… Here’s a snippet from his post:

“As for this week’s Commitments of Traders Report in the Dollar Index, the Commercials got to bang the register a little liquidating 9,703 short contracts that they were piling on near the highs. As of this report they are short 47,734 contracts and long 3,302, which is greater than a fourteen to one NET short position. This is still a very bearish structure of the COT report as far as I’m concerned.”

Then there was this… Did you see what David Stockman, the former Budget Director under Ronald Reagan, had to say last week regarding Big Ben Bernanke’s testimony before lawmakers? Well… Stockman was full of you-know-what and vinegar, when asked about Bernanke, and he let loose… Remember this is David Stockman talking, not me! (For the legal beagles.)

Bernanke giving politicians advice about fiscal stability is “about as useful as an arsonist’s lecture on fire prevention. His radical zero interest rate policy has destroyed the bond market, crushed the yield curve and eviscerated any resolve to address the deficit on Capitol Hill.”

He went on to say this about the debt… “Basically, they’re going to be facing down a $7 trillion decision and it’s going to hit [the] economy like a ton of bricks if you let the everything expire. And if you don’t you’re going to be borrowing $1 trillion a year and wondering how long Bernanke can keep printing the money. It’s a giant trap that’s been created.”

But when the government can cook the books and print a strong jobs report, everyone takes their eyes off the ball… We need to remain focused on the ball!

To recap… The Jobs Jamboree had the stock jockeys planning a ticker tape parade on Friday… 243,000 net jobs were created in January, with the Unemployment Rate falling to 8.3%… Chuck digs deeper into these numbers and shows that the ticker tape parade should be saved for the NY Giants! Looks like the RBA will cut rates tonight (tomorrow for them) but maybe the rate cut is already priced in. And Greece seems to be unraveling quickly here, folks…

Chuck Butler
for The Daily Reckoning

Jobs Data Sends Currencies and Gold Lower originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

I think the currencies are well bid this morning, because most economists and analysts believe the US Jobs Jamboree this morning will be strong, thus fueling the global growth thoughts. So, the Jobs Jamboree is the 500 lb. elephant in the room, today, so we might as well go right to it!

January’s Jobs Jamboree is expected to show job creation of 140,000… You may recall that December’s trumped up figure was 200,000, but as I pointed out then, I’m sure a lot of that was seasonal part-time workers. So, while 140,000 isn’t going to give our economy a strong push, it’s better than what we saw all of last year. The Unemployment Rate will remain at 8.5% according to the Bureau of Labor Statistics (BLS)… Of course, long time readers know that I don’t believe anything that the BLS prints, and prefer to use the numbers that John Williams prints over at Shadow Stats, where he believes that unemployment is really around 23%…

The thing to really watch in this report, though, is the Average Hourly Earnings, and Average Weekly Hours… This is where wage inflation shows up before most people know what’s going on… I would bet that wage inflation is nowhere to be found in this report, and that’s the kind of thing that the Fed wants to hear, so they can point to deflation when they implement their next round of quantitative easing! OK… That’s just me forecasting that the Fed will do that, I don’t have any inside information of the Fed Heads’ thoughts… Just what I read…

So… The way the market has been dealing with the Jobs reports is that a strong report is bad for the dollar and vice versa… We’ll just have to wait-n-see, but the price action of the currencies this morning indicates to me that the markets will keep that strange perverted way of reacting to the Jobs Jamboree…

Yesterday, I found myself watching news headlines go across the screens throughout the day, and each time I looked up from what I was doing, a different headline would catch my eye. Here’s a snippet of the ones that caught my eye yesterday.

1. Bernanke urges Congress to put US fiscal policy on a sustainable path

2. Bernanke warns that the nation risks the possibility of a sudden financial crisis unless action is taken

3. Bernanke says discretionary spending cuts will not fill gap

4. Fed Chicago President Evans said the central bank needs a clear low-rate commitment or a third round of purchases of Treasuries and Mortgage bonds to further stimulate a still struggling economy.

5.  US debt balloons to $15,356,140,000,000

6. Weekly Initial Jobless Claims drop from 379,000 to 367,000 last week.

OK… Let’s address these and why they are important to the value of the dollar…

1. This isn’t anything new here, folks… Even Big Al Greenspan warned lawmakers of their addiction to deficit spending… What I do believe Bernanke was doing here though, was deflecting blame. The lawmakers wanted to chastise him for his low rate policy to 2014, and Bernanke was quick to deflect it to the lawmakers’ problems.

2. Again, Bernanke is deflecting… However, he’s absolutely correct here. But then he wouldn’t be if there hadn’t been deficit spending going on for a decade!

3. Yes, the discretionary spending cuts will not bring us back to a sustainable path, but at least they are a start! And if we continue to go along without any cuts at all, our debt will be around 140% of GDP in 2015… When we reach the point of no return, only the shadow knows, but without real spending cuts, we’ll get there faster than even “doom and gloomers” think…

4. This is simply laying more groundwork for QE3. And another round of QE will deep-six the dollar once again!

5. When you put down all the zeroes, and all the commas, and the numbers, it’s pretty daunting, don’t you think?

6. Long ago, I told you that eventually, companies run out of people to cut…that is without closing their doors, so eventually the 400,000 per week figures for new claims was bound to come down… But if you did it as a percentage of the working force, I would think the number would not look so good… As if 367,000 new claims last week was a “good number”…

OK… That was fun, eh? This morning, the euro is holding its own around 1.3160, and that’s in the face of a weak Eurozone Retail Sales for December, report that printed this morning.

I think that given the ongoing Greek saga, and this weak retail sales figure, the euro would be getting taken to the woodshed… However, that’s not happening, and there are two reasons that I believe outweigh the bad reasons… First and foremost… The euro is the offset currency to the dollar… If the lemmings aren’t flocking to the dollar for so-called safe haven reasons, the euro gets to add to its value… And second… The news coming out of China regarding the Eurozone is promising…

Chinese Premier Wen Jiabao, who has been meeting with German Chancellor, Angela Merkel, told Ms. Merkel, “China may be prepared to assist in resolving the Eurozone debt crisis.” The markets are fixated on the thought that “may” is a “will”… It remains to be seen if China does find a way to participate in helping the Eurozone… As I said yesterday, China will find a way, for they understand that they need to be the world’s financier, if they want to have the reserve currency of the world!

Gold and silver had very good price action yesterday, and are struggling to gain traction this morning ahead of the Jobs Jamboree… In keeping with my thoughts on the direction of gold… I saw this in the UK Telegraph… “Troy Asset Management began buying gold at $450 an ounce in 2005 and now has 16pc of its £60m Troy Spectrum fund invested in the precious metal. Troy’s co-manager Francis Brooke tells Robert Miller why he believes the value of gold will continue to rise. Gold will rise against heavily debased currencies.”

The Swiss National Bank (SNB) is going to have to show how strong their resolve is regarding the “floor” that was established for the euro/franc cross at 1.20… The cross currently stands at 1.2045… So, it’s getting close to the level that the SNB will have to do something or suffer the consequences of having the franc rise to bloated, overvalued levels once again. This will be “the test” for the SNB… It will be interesting to see how the SNB reacts now that former Governor Hildebrand is gone…

And there was a story that I read last night regarding the Chinese renminbi (CNY)… The Chief Executive of Fosun International Ltd., told reporters yesterday that he believes the “yuan (renminbi) will likely depreciate against both the US dollar, and the euro this year, especially before the Eurozone debt crisis is resolved.” He bases this thought on the “flight to safety of dollars that will occur this year due to the Eurozone problems”…

OK… This is the first thought I’ve seen on the renminbi that goes that way… But, being fair, I printed it even though I don’t believe in it…

Then there was this… From The Wall Street Journal…

After years of delay, Congress took a big step toward approving new rules to ban lawmakers from trading stocks based on information they pick up in the halls of Capitol Hill — a move aimed in part at helping repair the institution’s low approval ratings.

The US Senate was poised to pass legislation Thursday that would ban insider trading by lawmakers, after senators reached an agreement to vote on a series of 20 amendments to the bill. Brody Mullins has details on The News Hub.

The Senate voted overwhelmingly, 96-3, to pass the legislation, called the Stop Trading On Congressional Knowledge Act, or Stock Act. The bill now moves to the House, where Republican leaders said they would vote on it next week.

OK… Who are the low-lifes that voted against this? Just shows to go you that there’s always people who think they are above the law…

To recap… It’s a Jobs Jamboree Friday, and the markets are all expecting 140,000 new jobs created in January, not the stuff that strong economies are made of, nor what December produced, but still better than nothing! But if the markets like it, the currencies should be good today, after holding their gains yesterday… China’s premier is giving signs that he will allow China to participate in the Eurozone… And the SNB is going to have to show their resolve soon…

Chuck Butler
for The Daily Reckoning

Currencies Hold Ground Ahead of Jobs Jamboree originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

The Great Correction seems to be going along just as you’d expect. Or, just as we’d expect.

Here’s the latest from Reuters:

Home prices fell more steeply than expected in November, and consumers turned less optimistic in January, highlighting the hurdles still facing the bumpy economic recovery.

The S&P/Case-Shiller composite index of single-family home prices in 20 metropolitan areas, released on Tuesday, declined 0.7 percent on a seasonally adjusted basis, a bigger drop than the 0.5 percent economists expected.

Separately, an index of consumer attitudes fell to 61.1 in January from 64.8 the month before, as Americans turned gloomy about the job market and income prospects, said the Conference Board, representing private companies.

Some improving housing data in late 2011 had raised hopes the recovery was finding its footing. But weaker numbers this month have underscored how lengthy the healing process will be.

US housing prices have plunged by about a third from their peak before the financial crisis, and a combination of high unemployment, tight mortgage lending conditions and more foreclosures in the pipeline are holding back a recovery.

A report released on Monday showed spending was flat in December as Americans focused more on saving.

Once a key pillar of the US economy, Americans have taken a more frugal tack as many struggle with hefty debt burdens.

And guess what? The Great Correction is having the same effect in Europe. Here’s The Wall Street Journal:

LONDON — UK households made a record repayment of personal loans and credit card bills in December, Bank of England data showed Tuesday, underscoring households’ limited appetite for spending and heightening fears the UK may slip back into recession.

BOE figures showed UK consumers made a net repayment on unsecured loans of £377 million ($592.3 million) in December, the highest figure since records began in 1993. It was also the first time since last January that repayments exceeded new borrowings…

In some ways the situation in Europe is worse than in the US, depending on where you are. Youth unemployment is up as high as 50% in some areas. Even in supposedly strong economies it is around 20%.

And, oh yes, you want yield? How about a 10-year note from Portugal? It comes with a yield of 17%.

Portugal’s economy is shrinking at a 5% annual rate. Italy, Spain, Greece and Ireland are not in much better shape.

So what do the euro-crats do? Same thing as the US-crats. They give the banks money, hoping the nice bankers will spread it around.

Last month, the European Central Bank provided 489 billion euros in 3-year loans. “Super Mario” Draghi — formerly head of the bank of Italy, now head of the ECB — keeps the banks from going bust…and begs them to keep the governments from going bust.

The banks needed about 230 billion to refinance loans coming due in the first quarter of this year. They got the money from the ECB.

What a show! Draghi, Monti, Papademos and all the other ‘technocrats’ now managing the crisis are the very same guys who created the crisis. They worked for Goldman, ran central banks, and helped organizations such as the IMF and the World Bank make a mess of the world’s financial system.

Now, they’re solving the crisis the same way they caused it — by creating more debt. The banks can’t pay their bills so the central bank lends them money. Governments can’t pay their bills either, so the central bank lends them money so they can lend it to the government.

The ECB says it will give away more money on February 28th. Goldman Sachs is advising other banks to take the loot. As much as $1 trillion could be given out.

Let’s see, how does this work? You are deeply in debt. So, the bankers lend you money so you can continue making payments. You go even deeper in debt…and the bankers lend you more money so you can keep making payments…

…and so on…

Where does this end? We don’t know.

Whee!

Bill Bonner
for The Daily Reckoning

Creating More Debt to Solve the Crisis originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

OK… The Fed announced yesterday that they “expect short-term interest rates to stay close to zero at least through late 2014.” So much for the previous statement that rates would remain at current levels through mid-2013… But, 2014? And late at that! That’s just crazy, folks… But, as I expressed here many times over the years… We’re turning Japanese, yes, I really think so! Didn’t the Japanese cut rates to zero, pass stimulus after stimulus, and keep rates near zero for over a decade? Yes, they did… And… Haven’t we done close to the same thing, with our zero rates running for 6 years if they end in late 2014? Why, yes we have!

But, as I’ve always pointed out… The US consumer is different than the Japanese consumer… The Japanese are savers… We are spenders… But… As I pointed out to a group of “big guys” last week, where someone thought deflation for that long a time was OK… Yes, it does keep prices down, but you, me and the guy down the street know that prices aren’t going anywhere. And if that happens, no spending will occur, and that will shut down the economy, just like it has in Japan!

So… You should have seen the euro (EUR) lead the currencies higher along with gold and silver when the Fed made that announcement yesterday… The overnight markets also decided that the Fed is going in the wrong direction, and to the woodshed.

The other thing that gives me reason to pound on my chest this morning, is that Bernanke said that he was laying the groundwork for a third round of large-scale asset purchases (I told you they wouldn’t call it quantitative easing) should unemployment remain higher than the Fed Reserve would like, while inflation falls below a newly-established “target”… He went on to say, “The FOMC recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation.”

Currencies and gold (and silver) weren’t the only beneficiaries of this statement… US stocks rallied too.

So… Once again, my confusion gets some clarity, for I had said originally that the next round of QE would come last fall, but the Fed decided that it wasn’t time yet… So, then I said it would come about the time I get back from spring training… And it looks like I’ll be bang on that…

Not that I want any accolades. This is bad stuff, folks… This Quantitative Easing or QE… Not bad for stocks, bonds, currencies, and metals… But bad for us, and US citizens… One day, all the money supply that the first two rounds of QE generated ($2.4 trillion) and the next round of “X”, are going to be unleashed on the economy… And you want to talk about the velocity of money? This will be warp speed!

Now… Onto other things… You know the baby steps of stabilization that I’ve talked about for the Eurozone lately? Well… What if I told you that it just so happens to have coincided with a HUGE increase in the money supply here in the US? And what if I told you that $103 billion seems to have been sent in swaps to the Eurozone? Well… I do believe that’s what’s happened… So, when it comes down to it, you and I are bailing out the Eurozone… And, I can’t imagine that $103 billion is going to be “it”… More dollars will be printed, and shipped…

And, now I want to talk about something that I found on the BLS website the other day… Read it first, and then I’ll have comments…

Effective with the release of The Employment Situation for January 2012 scheduled for February 3, 2012, population controls that reflect the results of Census 2010 will be used in the monthly household survey estimation process. Historical data will not be revised to incorporate the new controls; consequently, household survey data for January 2012 will not be directly comparable with that for December 2011 or earlier periods. A table showing the effects of the new controls on the major labor force series will be included in the January 2012 release.

OK… Clear as mud, right? Well… More confusion is in store for us, folks… From here on out, we won’t have a previous reading to compare the data with… Reading my friend, Bill Bonner, in The Daily Reckoning yesterday, he addressed what’s going on with data here in the US. Here’s a snippet of Bill, first quoting Bloomberg…

“The adjustment process ‘has been knocked out of whack by the financial crisis,’ Ellen Zentner, a senior US economist at Nomura in New York, said in a telephone interview. “The model ends up adjusting for a growth pattern that isn’t there. The sudden drop-off in economic activity in late 2008 is not a pattern, it doesn’t happen late every year. It was a one-off event.”

In effect, the models are over-compensating…trying to make sense of the big collapse of ’08-’09 by treating it as though it were a seasonal adjustment issue. If the winter weather were so severe as to cause such a big drop-off, the machines reason, we must move the bar lower next year. Then, even a modest improvement will look spectacular.

But Goldman’s economists estimate that unemployment will average 8.5% this year — almost unchanged from last year. That is not a recovery.

Thanks Bill!

Now back to the Fed… O’ brother where art thou? Remember all last year, the Fed kept saying that they expected stronger growth in the fourth quarter? I wonder where that thought went… Now “The Federal Reserve downgraded its outlook for economic growth this year”… Really?

Remember what I said at the top of the year? I said that the year had already started with glowing forecasts for the economy in 2012, but by the time I headed to spring training, those glowing forecasts would be fading… Well, the Fed didn’t even wait until pitchers and catchers report next month to begin downgrading those forecasts…

OK… The Greek talks with private creditors resumed this morning, after being suspended yesterday… I can’t believe an agreement hasn’t been ironed out by now (recall I thought it would be done last weekend)… Just goes to show you that when you have debt, you are not in a position to negotiate… I hope US lawmakers are paying attention here, because if they don’t, this is the same thing we’ll be going through at some time in the future.

The Aussie dollar (AUD) has pushed back above $1.06… I’m told by my charts friend that the next resistance level in Aussie dollars isn’t until $1.0760… So at $1.0675, where it is right now, it’s still got room to run without resistance… The Aussie dollar, even with the RBA doing their best imitation of Alan Greenspan, still enjoys a very strong positive interest rate differential and, with the Fed’s latest announcement, that rate differential will remain for some time, eh?

But… More than the positive interest rate differential, what the Fed’s announcement does is open the playing field for the low rate currencies around the world. Specifically, the Asian currencies. I’ve said for some time now that the Asian currencies were the place to be this year, and as long as interest rates don’t in the way of comparisons, the Asian currencies should be able to win a comparison to the dollar…

And, when the euro goes on a rally like yesterday and overnight, the currencies like Norway and Sweden get to have moon shot rallies!

And then gold… OMG! What a rally! And then push that further, with the rally that silver had too! Gold and silver are both up this morning, too… Not like yesterday when gold added nearly $40 and silver $1.20… But still up, good to see that profit taking or price manipulators haven’t entered the market. Speaking of the price manipulators… A reader asked me yesterday about if the new commodities exchange that’s starting in Asia is going to help gold and silver; and I said that as long as the price manipulators aren’t allowed there, yes!

A friend of mine, (thanks, Dennis) sent me a note from a guy that does numbers, and I found one of the items to play well with the Fed announcement yesterday… OK, let me set this up for you… The Fed announces that interest rates will remain near zero for more than two more years… It’s more than inflation they want, folks… Consider this:

The average interest rate paid on the $15.2 trillion of debt that the USA has outstanding is 2.826% as of 12/31/11. Every 1% increase in the average interest rate paid by the US government would add $152 billion of additional cost per year, equal to $4,820 of additional interest expense per second for the entire year (source: Treasury Department)

So… Now you know the rest of the story…

Then there was this… I’ve quoted James Turk many times over the years… Mr. Turk is the foremost expert on the history of money and the role of gold in our economy. James thinks that hyper-inflation is coming down the road. This leads him to forecast an eventual price for gold of $8,000 or more. He sees mining companies as a good option now, as costs are down relative to revenues that can be realized (given the price of gold at $1,600 and growing).

A Bull Market on most mining stocks in 2012 will create great profit opportunities. Silver could likely outperform gold in 2012 as the historical silver/gold ratio is 16:1 and this ratio is currently out-of-line at its current ratio of 50:1. This ratio is likely to be closer to 30:1 by the end of 2012. Gold is money as it was chosen by the people some 5000 years ago as money.

Yes… All good thoughts, and the hyperinflation he’s talking about is the warp speed velocity of money, when the (to be) 3 rounds of QE/money printing are unleashed on the economy… When that is… Is the question of the day, but, when it hits, I don’t think anyone will have time to react, which is why I truly believe you have inflation fighters, like gold and silver, in your portfolio now! That way, you won’t have to be the guy that remembers he needs new tires before the winter snow begins, but keeps putting buying the tires off, and then one day he wakes up to a foot of snow on the ground… Now, he has to try to get to a tire store, with every other procrastinator that put off buying new tires, and now he’ll have to pay whatever price the tire dealer chooses to charge him… Don’t be that guy!

To recap… The FOMC meeting threw a cat among the pigeons yesterday, by not only announcing that the Fed Funds rate would remain near zero until late 2014, but also that more QE is coming should unemployment remain sticky… So, you might as well oil up the printing press, Ben, unemployment is going to remain sticky! The currencies, metals and stocks all rallied on the news, and have continued those rallies in the overnight markets.

Chuck Butler
for The Daily Reckoning

Big Ben Discusses Another Round of Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

At least, that is what you might think from reading the newspapers. Unemployment is going down. Consumer debt is going up. Even the housing market is showing signs of improvement.

Gold is rising — investors seem to think inflationary pressures are building. The 10-year T-note yield is back over 2%. And stocks are having their best January in 15 years…

And now, once again, the commentariat is talking about a ‘recovery’ from the Great Recession.

But we’ll give it to you straight, dear reader. There wasn’t any Great Recession and there won’t be a recovery. You don’t recover from what ails the US economy. You die. Then, a new economy can be born.

Still, there are many recovery sightings. But so far, the recovery itself remains as elusive as Bigfoot.

Here’s Bloomberg, with more details:

A decline in unemployment and pickup in manufacturing point to accelerating US growth. Some economists say the numbers may not be as good as they look.

One reason: the severity of the economy’s plunge in late 2008 and early 2009 after Lehman Brothers Holdings Inc. collapsed threw a wrench into models used to smooth the data for seasonal changes, according to analysts at Goldman Sachs Group Inc. and Nomura Securities International Inc.

“The impact of the financial crisis does seem to have affected seasonal factors for several indicators,” Andrew Tilton, a senior economist at Goldman Sachs, said in a telephone interview from New York. It “might tend to make things look a little better in the early winter and look a little worse in the spring time.”

Most economic data are adjusted for seasonal changes to facilitate month-to-month comparisons. Without those changes, for example, construction would always pick up in the summer, when the weather is milder, and decline in the winter.

The adjustment process is unable to distinguish between a one-time shock, like Lehman’s demise, and a recurring issue that would need to be smoothed away. For that reason, the mechanism gives some data a leg up from about September through about March before turning negative the rest of the year.

The economy contracted at an average 7.8 percent annual pace from October 2008 through March 2009, the worst back-to-back quarters in the post World War II era. The 18-month recession ended in June 2009.

The adjustment process “has been knocked out of whack by the financial crisis,” Ellen Zentner, a senior US economist at Nomura in New York, said in a telephone interview. “The model ends up adjusting for a growth pattern that isn’t there. The sudden drop-off in economic activity in late 2008 is not a pattern, it doesn’t happen late every year. It was a one-off event.”

In effect, the models are over-compensating…trying to make sense of the big collapse of ’08-’09 by treating it as though it were a seasonal adjustment issue. If the winter weather were so severe as to cause such a big drop-off, the machines reason, we must move the bar lower next year. Then, even a modest improvement will look spectacular.

But Goldman’s economists estimate that unemployment will average 8.5% this year — almost unchanged from last year. That is not a recovery. And we have to wonder…what will power the ‘recovery’ analysts believe they seem coming?

Not household spending. Households don’t have any money to spend. What then?

Nothing. There will be no recovery. Instead, the US economy is in the process of zombification and ossification…which is what happens when the feds refuse to allow dead-men industries to die.

Ottmar Issing, of the European Central Bank, is on the case:

“The problem of ‘too big to fail’ is that it has made society — more precisely, the taxpayer — hostage to the survival of individual financial institutions…the taxpayers’ billions committed to rescue supposedly systemic institutions has dealt a big blow to confidence in the free market system…and has in turn become a threat to free societies.”

Well, yes. Now, the game is rigged. The fix is in. The zombies are dealt the aces. The rest of us get a bum hand.

But wait…didn’t the US government make a profit from its loans to the banks? Didn’t the banks pay back the money? Didn’t taxpayers come out ahead?

Oh dear reader, please stop…we can’t stop laughing. We’re afraid we might pull a muscle.

Imagine a bartender. He realizes that his customers have been handing out IOUs all over town — including to him. And he also knows his customers can’t pay. People are beginning to wonder…they’re beginning to discount the IOUs. A crisis is coming…

What does he do? He lends the customers more money and buys the IOUs from the other merchants! Naturally, the value of the IOUs goes back up. Because now, holders know they’ll get their money. Even the value of the IOUs owned by the bartender go up. Wonder of wonders, he has even made a profit on the deal!

Happy days are here again.

Which reminds us of Hemingway’s conversation between Bill Gorton and Mike Campbell.

Bill asks; “How did you go bankrupt?”

Mike answers: “Two ways. Gradually. Then, suddenly.”

We’re still in the ‘gradually’ phase. Stay tuned…

Bill Bonner
for The Daily Reckoning

Confusing Gradual Bankruptcy with Economic Recovery originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

One of the worst-performing currencies overnight is the Chinese Renminbi (CNY)… The Chinese have weakened the renminbi in response to some weak manufacturing data… For the third consecutive month, it looks like China’s manufacturing index will weaken, according to HSBC. In addition, the Chinese central bank injected funds into the banking system last night, which tells me that another reduction of the reserve requirements is on the way, which is like a rate cut for banks…

I had an adviser guy send me a note yesterday telling me how wrong I am about China, and that their whole system is about to collapse… I tell you this so that you see I don’t just write about stuff that agrees with what I say! However, in this case, I’ll just point to the scoreboard, and point out that economists have been saying this same thing for over three years… and there’s been no collapse yet. And that’s because I don’t think the Chinese will allow that to happen. Remember, they are still at root a communist country, and they control the purse strings…

The Chinese Lunar New Year, the Year of the Dragon, will begin on Monday, Jan. 23… Last year was the Year of the Rabbit, which was supposed to signal peacefulness and recuperation. Failed miserably at that, eh? So if we had all that volatility and craziness in the Year of the Rabbit, imagine what the Year of the Dragon holds for us! YIKES!

But then, I told you right out of the starting blocks this year would be even more volatile than last, so we have that going for us!

The price of oil slipped back below $100 yesterday, and the thoughts of the Canadian dollar/loonie (CAD) had of climbing back to parity were wiped out. To show you just how strong the pull on the loonie that oil has… yesterday, we saw that Canadian manufacturing sales rose a solid 2% in November, rebounding nicely from the 0.6% drop in October. One would think that this kind of strong data would have underpinned the loonie, as it climbed well into the 99-cent handle, but then the price of oil slipped, as did the loonie…

With the Bank of Canada (BOC) experiencing a bout of “bunker mentality” (I’ve explained this before), keeping the dust covers on any rate hikes, oil is the only crutch for the loonie. So if you believe that the price of oil is going to slip further, then loonies won’t be your bag. But if you think oil is going to go higher and higher, then loonies are your bag!

On a sidebar… last May, at the EverBank/Sovereign Society global currency summit conference, one of the speakers there — and I won’t name names — said that the price of oil was going to plummet to $45. So you see, people have all kinds of ideas about the price of oil… I just say that should all things remain as is, the demand for oil will continue to increase. And we all know what demand does to the price of an asset… (except when we are talking about the price manipulators in gold and silver!). However, should the center not hold in Europe and they crash and burn, one of China’s main markets (they export more to the eurozone than the U.S.) would be gone, and the whole global thing would unravel… Then demand would have already circled the bowl…

And then another thing that will weigh in on the oil price direction… what’s going on with Iran… I told you yesterday that I just finished the book by James Rickards, Currency Wars. Well, then my friend Dennis sent me a note from Rickards, who says, “The war with Iran has begun.”

OK… I’m not going to talk about whether we should go to war with Iran or not… my point here is that any type of problem like that is going to weigh in on the price of oil…

Other assets that a problem like that is going to weigh in on are the prices of gold and silver)… I say that and then look over at one the four screens I have on my desk and see that gold is down $11 this morning… So apparently, the war is still a thought… Whew!

Enough of that! See how things just get in my head and the next thing you know I’m typing them!

The Aussie dollar (AUD) held the $1.04 level most of the day yesterday, slipping below it briefly a couple of times throughout the trading session. Barring any unforeseen craziness in the currencies this morning… The A$ is set to post its fifth weekly gain versus the U.S. dollar. The eurozone problems, which on the outside would seem to be far removed from the goings-on in Australia, continue to dictate how well or badly the A$ performs. But as I’ve said here, and in the monthly newsletter (Review & Focus), I truly believe the eurozone will stabilize a bit in 2012, and with the A$ posting five consecutive weeks of gains versus the dollar, one would think that the eurozone stabilization just might be beginning…

But then the struggles of Greece this week and their ability to work a deal with private creditors could throw these baby steps of stabilization into reverse in a heartbeat! So once again with the well-made plans of mice and men…

If I were a betting man, I would bet a Krispy Kreme to a dollar that the Greek things gets all buttoned up this weekend or early Monday ahead of next week’s eurozone ECOFIN (Economic and Financial Affairs Council) meeting.

Someone asked me yesterday if I had any thoughts on the weakness seen recently in the Japanese yen (JPY)… I replied that eurozone stability removes the need for the so-called safe haven of yen… Same reason we’ve seen some weakness in gold the past two days.

And here’s something to think about before I get to the data, and then the Big Finish… The sovereign debt crisis of the eurozone hasn’t caused a panic of capital flight from the region… According to JPMorgan Chase, the eurozone saw net portfolio inflows of 2.4 billion euros during November.

Knowing this data now, it tells the guys at JPMorgan Chase that the euro’s decline in November wasn’t due strictly to outright selling of the euro, but instead to investors selling euros to hedge their positions… Knowing that investors didn’t rush out of the currency and instead saw net positive flows into the region is a very good sign…

The stupid CPI data printed yesterday showed we had no inflation in December… and that the year-on-year inflation increased 3%. Hmmm… I had this argument — well, not an argument, a disagreement — with one of my favorite economists about CPI… I just don’t understand why the Fed uses this data… it has been so cooked and massaged for years now that no one even recognizes it. Here’s an example of what I’m talking about… Do the CPI people even take into consideration that while a box of cereal costs the same today as last year, the actual size of the box of cereal has decreased? So you get less for the price… There’s a laundry list of things wrong with CPI, folks. But the Fed uses it… doesn’t that tell you something? Ha!

The initial jobless claims, which were revised upward to 402,000 the previous week, saw only 352,000 claims filed (or so they say) last week. That’s the lowest number in about the time it takes to go through high school! I would say college, but so many kids, mine included, have decided to stretch it out to five years. That’s OK… they got a good education and have good jobs doing what they wanted to do… not many kids can say that…

So maybe the jobs data is about to get better? I’m from Missouri, so you’ll have to show me…

The Philly Fed Index (business outlook pulse) was much weaker than expected in December. The index printed at 7.3, when 10.3 was expected.

And today, we get existing home sales, which are expected to be good, given the reduced prices…

Then there was this… I realized — too late yesterday morning — that I had really left a huge piece out of the Pfennig… UGH! You see, sometimes I get a chance in the afternoon or evening to read and put down some thoughts on the activities of the day. That way, I don’t forget the next day… But then I forgot to go back and get my notes! UGH! So here’s what I was going to say yesterday, but am saying it today!

Don’t look now, but the U.S. Treasury is dipping into the federal pension fund in an attempt to make an end run around the debt limit… Hmmm… Well, we shouldn’t be too alarmed by this. The last thing the government wants in an election year is another debt ceiling debacle like we had last summer… So by dipping into the pension fund, the government is able to keep from hitting the ceiling. Now, this isn’t the first time the government has done this. The fund has seen the government’s hands in the cookie jar six times in the past 20 years…

And this isn’t the only fund that is seeing the government tap to avoid the debt ceiling… This is all creative accounting, eh? I know the pensions get paid back, with borrowed dollars when the debt ceiling is raised… But what happens one day when the debt ceiling can’t get raised? Uh-oh!

To recap… the currencies remained bid yesterday throughout most of the trading session, and have carried over to this morning. The A$ could be posting a fifth week of gains versus the dollar, and Japanese yen has weakened a bit on the feeling that a so-called safe-haven currency is no longer needed. Manufacturing could be posting another month of weakness in China, and the Chinese respond by weakening the renminbi by a large margin.

Chuck Butler
for The Daily Reckoning

China to Show More Manufacturing Weakness? originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

“Well, you can unify all you want…it won’t make your debts go away,” we replied. We always try to be a cheery presence at dinner parties…especially in Washington.

“No…but it will make it easier for us to manage them, just as you do here. And by the way, the US has about the same amount of debt as Europe. The latest figures show the average of all OECD countries is about 100% of government debt to GDP. The US is right in the center…right at the average.”

“Oh, don’t think I’m holding the US up as a superior example. Not at all. To the contrary, I’m just pointing out that if Europe follows the US model, it will go broke just like the US.”

“Actually, there is some very intelligent and sophisticated thinking going on in Europe. I think you’d approve of it. We don’t talk about it publicly, of course. Most people wouldn’t understand. But we know that something very important has changed…and we are not at all sure how to respond to it.

“No country has ever been able to work its way out of such high levels of debt without exceptionally strong rates of growth…and an exceptionally good set of circumstances that make it possible — such as very agreeable creditors who essentially forgive debt, as the US did after WWI and WWII.

“And I don’t see either of those things happening. The creditors can’t forgive the debt…because they owe money too. They’d be broke too. And growth levels seem to have come down to negligible levels. If this continues, all our planning and all our efforts to ‘build a more perfect union’ will probably be for nothing.”

“I’m glad to see you thinking along those lines. But you’re aware that this is not a problem that just appeared in the credit crisis of ’08?”

“Yes…we know it has been a long time coming. Ever since the end of the ‘30 glorious years’ following WWII, real growth has been hard to get.”

“Exactly. In the US, the average man of working age earns about 20% less, in real terms, than he did in 1972. If he only went to high school and not college, he earns nearly 50% less.”

“In Europe, outside of Germany, the figures are similar…though not as bad, I believe.”

“Yes, it was possible for the US to reduce its WWII debt because it ran very high rates of real growth up until the ’70s. Same thing in Europe. Since then, most of the improvement in living standards has been smoke and mirrors. In America, women went to work. More people working more hours. They were able to increase household income…while the quality of life at home generally went to Hell. Then, when they couldn’t work any more hours, they began borrowing money. Then, their balance sheets went to Hell. That is the reason, and the only reason, for the boom of the Clinton…and later, Bush…years. It was a phony, unsustainable boom…with phony, unsustainable growth.”

“In Europe, it was a little different. People didn’t want to work more. They wanted to work less. So they emphasized high wages….but fewer people had jobs. We learned to live with high unemployment. And governments borrowed to boost living standards for everyone — including those who didn’t work.”

“But those days are over. Nobody — household or government — can continue to borrow to raise living standards. And without more real demand…and real spending…and real wealth…it’s not possible to work your way out of so much debt.”

“Yes, this time capitalism really does seem to have failed us,” our diplomat friend concluded.

“Well, it looks that way. You have to ask… How is it possible that the most dynamic, best capitalized, most high-tech economy in world history could not add a single dollar to the real wealth of the average working man over a 40 year period?”

More to come…

Regards,

Bill Bonner,
for The Daily Reckoning

Has Capitalism Failed Us? originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

The unemployment rate dropped to 8.5%, the lowest it has been since February 2009, and marks 6 consecutive months of at least 100,000 jobs — the first time that has happened since April 2006!

OK… Is it just me, being me that I smell a rat? Here we are in an election year, and suddenly the BLS says jobs are being created, when the weekly job cuts remain near 400,000 each and every week… 1.6 million jobs were created last year (per the BLS), so at least we’re heading in the right direction, eh? Whether the jobs are there are not. Whether they are full-time, or not. Whether they are minimum wage or not. All these things don’t matter, right now… The BLS has created a perception that the jobs market is rebounding… And, you are what you are perceived to be, right?

Well… Like I said, the dollar responded favorably to the jobs report, which could be an indication that maybe, just maybe, ’cause we never know, fundamentals are returning to the markets… Because the dollar should rally when the jobs report is stronger than previous reports.

The euro (EUR), being the offset to the dollar, was therefore weaker… The single unit is attempting to mount a rally, this morning, as German Chancellor Angela Merkel and French President Sarkozy are meeting, as I write, to discuss measures to rescue the euro over the next three months. Hmmm… They might want to get European Central Bank President, (ECB) Draghi, in a room, under a bright light, and attempt to get him to say “uncle” with regards to rate cuts! Because he cut rates at his first two meetings, and looks dead set on cutting them more!

I wrote about this last week, that given rates in the Eurozone are going lower… I say that, because of Draghi… He’s no Trichet, or Duisenberg… He’s more of a Bernanke and Greenspan. So, you can expect to see Eurozone rates dropping below 1% for the first time this year… It’s sad, I know… But I can tell you that Draghi and his fellow-Euroheads don’t care about the ECB’s credibility… And they don’t believe it will be damaged, as the markets will see the rate cuts as needed to help the Eurozone economy, which appears to be heading to recession.

Now… When I was a foreign bond trader, I would have looked at this and thought to myself… “This looks like a great time to be long bonds in a country that was getting ready to cut rates by at least 50 Basis Points (1/2%)”… But back then we would be talking about rates dropping from 5% to 4.5%… With rates starting from such a low point, I’m not sure there’s much to get excited about…

Speaking of the ECB… They will meet this Thursday, but after all my talking about Draghi cutting rates, I don’t think he’ll cut rates at this meeting, after having cut rates at his first two meetings…

To be fair and equal to different ideas… Last week I told you about three different analysts who called for the price of gold to be much stronger in 2012 and beyond… So, to give you the “two-way market”, my friend, and writer extraordinaire, Bill Bonner, is calling for the price of gold to be flat in 2012… Let me explain Bill’s thoughts… He believes that the markets are going to be circling the bowl again in 2012. Bill said, “What we learned in 2011 was that when a Great Correction pinches, the dollar is the salve of choice — not Gold. When investors fear losses they turn to the dollar for protection. They will continue to do so a while longer. We’ll probably see a further correction in the gold price… perhaps down to $1,200. Or perhaps it will stop at $1,400.”

OK… So, now you have two sides to the story, and you can make your decision, balancing the two thoughts on gold. Me? I’m not selling… And I’ll be happy to buy gold at cheaper prices!

I’ve been pretty tough on the Indian government and central bank, the Reserve Bank of India (RBI), and their inability to recognize inflation and act accordingly. This resulted in economic stagnation, and with high inflation, it appeared the economy would take a deep dive into recession… This is the reason the Indian rupee (INR) has been one of the worst performing currencies around in the past year. But… I read a good story in The Economist that talks about how the Indian economic miracle is not over… Well, I was all eye and ears for this, since I had written India off…

Indian economic growth is thought to grow at 7% this year, and will pick up from there… The savings rate continues to rise, which allows more investment, and that should be enough to keep the capital expenditure above 30% of GDP, which is quite good…

Does this mean the rupee will rebound? I think there are a lot of variables here… The Eurozone… The US and China… If all’s well in those three corners of the world, the rupee should be able to mount a rally.

Speaking of China… The Chinese renminbi (CNY) has been sliding weaker in the past week, which is something we don’t see a lot of, but it is happening, right here, right now… I think the Chinese government is very fearful of a slowdown from the Eurozone, and that demand in the US will not pick up, which would be a shot to both sides of the Chinese bow… So, the Chinese government is lowering interest rates, increasing money supply, and allowing the renminbi to get weaker, in hopes of all these things helping to offset the problems in the Eurozone and US.

How much weaker will they allow it get? Good question, Chuck! Well, I can’t put a number or percentage on it, but it could be significant, and then… It might just be a tempest in a teacup… I’m thinking that it might be the latter of the two…

OK… Back to the euro for a minute… The single unit fell to 1.2666 overnight, but it is being reported that the market got too short the euro, and a “short squeeze” was on, thus allowing the euro to rebound to 1.2750, which is where it is right now…

Elsewhere… Australian Retail Sales for November were flat, which was a disappointing result, and pushed the Aussie dollar (AUD) weaker this morning.

Canadian Consumer Confidence rose in the fourth quarter (the index rose to 107.4 from 105.1 the previous quarter). I keep reporting strong data from Canada, and the Bank of Canada (BOC) continues to sit on its hands… Maybe the stronger-than-expected US jobs report will give the BOC reason to get off their hands… But probably not…

Then there was this… Well, the BLS doesn’t give us a breakdown of the jobs created, so there are private companies that do that… And Adivsorone.com reported one such company. ITG Investment Research… Their chief economist, Steve Blitz, said, “The good news is that employment is up. The bad news is that the higher paying jobs have yet to return.” Blitz pointed out that the average hourly earnings were unchanged, and that 20% of the increase in private payrolls was for messengers and couriers. Net hires at restaurants and retailers (Christmas) and the aforementioned messengers made up 44% of the jobs added in December.

Yes, this is exactly what I thought would be the case… As I’ve always told you, and longtime readers will have grown tired of hearing this… The Jobs Jamboree is just a number… To get the real story… Look to the Average hourly earnings and the Average Work week hours… I thought on Friday that something didn’t look right, and there it was right there… 200,000 jobs created, according to the BLS, and no change in the average hourly earnings? Tells you a lot!

To recap… The Jobs Jamboree printed stronger than expected at 200,000, jobs created in December, and the dollar rallied on the data! This was the first time the dollar had rallied on a stronger jobs report in some time, and could indicate that we are returning to assets trading on fundamentals! The Chinese renminbi has taken a ride on the slippery slope of weakness this past week… One has to wonder if the Chinese are willing to absorb the critics of a weaker renminbi… The ECB meets this week, and while rates are going to go lower in the Eurozone in 2012, they won’t at this meeting, or so Chuck thinks…

Chuck Butler
for The Daily Reckoning

Euro Reverses Slide in Short Squeeze originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.