Hmm… we’re either onto something with our new financial crisis thesis… or way, way off the mark: Both Barack Obama and Ben Bernanke issued warnings of their own yesterday. Seriously.
“We could actually have a reprise of a financial crisis,” the president told Ann Curry on the Today show. Mr. Bernanke warned Congress that “severe disruptions in financial markets and the payments system” are possible.
How often do we agree with these two guys? Well, rarely, would be the kind way to say it. It wrankles our contrarian bones… but we’re not ready to revoke our thesis.
We’ve been trying to isolate a catalyst for the new crisis since May 31. We’ve identified a few potential triggers. But the one Obama and Bernanke cited is decidedly not on our list. They both pointed to the Aug. 2 debt-ceiling deadline.
As serious as the amount of the debt is, the taffy pull in Washington over the debt ceiling is political theater. And as theater goes, it has all the snafus of Spider-Man on Broadway, with none of the entertainment value.
If the debt ceiling were a truly serious matter, the bond vigilantes would have shown up in droves already. Instead, they’ve been in severe retreat for more than two months now. The yield on a two-year Treasury note sank this morning to a record low of 0.3%.
One all-too-obvious catalyst we identified for the next financial crisis is simmering down a bit today. The streets in Greece are calmer, but the financial situation there is actually more dire.
The prime minister is revamping his cabinet in an effort to force tax increases and spending cuts through parliament. If they don’t pass, Greece doesn’t get its next bailout and defaults next month.
Greece’s probability of default — pegged at a staggering 74% only two days ago in the credit default swap market — is up to nearly 79% today.
Not surprisingly, hot money is fleeing the euro, which is down to $1.413 this morning. The dollar index, which broke below 74 only 10 days ago, is back to 75.8.
The yield on a 10-year Treasury note, while not setting records like the 2-year, is still a rock-bottom 2.95%.
As hot money flees to the dollar and Treasuries, gold and silver aren’t suffering too badly. The spot price of gold is hanging in there at $1,528, while silver stands at $35.63.
Addison Wiggin,For The Daily Reckoning
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
some weeks ago I read a euro trader bitterly commenting that “the only thing holding up the euro is everyone’s grim determination to divest out of dollars.” now it says here that “hot money is fleeing the euro” for dollars. poor infestors, one can almost feel sorry for them as they run back and forth on the sinking ship trying to buy a hot lifeboat with their hot money. gee, I wonder why the ship is sinking ….
apparently few are infesting into the yuan. is that because they don’t trust that lifeboat or simply because it still doesn’t have the weight to carry all the infestors and is already full? personally I wouldn’t trust it because when things get serious the chicoms will simply nationalize all external infestments. hey, they murdered their own peasant class and poison their own kids for profit, why should they respect the rights of yí?
bernanke should run advertisements advising infesting in the dollar. “no matter how bad we are, we’re still better than you.” I guess that says some things about americans ….
I was a little melancholy reading your article. I appreciate your expertise but considering the brink we are teetering on, I guess I was expecting at least a few acronyms or something. Anyway, after seven years of conservative silver watching I feel sure we are nearly about to see the train actually leave the tracks.
Imagine for a moment, if you will, that next year alarmingly huge numbers of US voters suffer coronaries or strokes as they comprehend that Ron Paul might actually win.
Germany just couldn’t hold up the Eurozone any longer – so the Eurozone would almost immediately follow into crash-dom and widespread, real poverty.
Poverty in the USA? Guns. Bang.
Poverty in Europe? ‘Dictators’. Nationalism.
Poverty in Russia, China, India & Japan? I think they can cope.
The scope & magnitude of the current risks to the social status quo cannot be underestimated. If – and dare I say it when – it happens, the effects of the failure of the US economy will be massive and lasting. Real poverty will enter the Oxford dictionary.
Social geography is such a wonderful field. It is very compatable with Austrian economics because it is also based in reality. I used to highly recommend a BA in Geography, but these days would suggest something much more practical like medicine, electrical engineering or agriculture, as in the long run these will surely save the day.
Should Greece default on its sovereign debt, it would barely be noticed by the world’s bond when compared to what could happen should the United States default. Mounting debt levels in the United States have some economists calculating the odds that, at some point in time, the Americans could be forced to default, an action that would cause massive disruption to the world’s economy.
Here is an article showing the time frame for a potential default on United States federal debt and what could trigger a debt crisis:
How long must we punish the savers?
Given a choice, Bernanke will likely strangle the currency (your money)... in favor of “strengthening” the economy.
Eventually, economic reality and markets will collide -- unfortunately, the higher the market, the harder the fall.
How certain business practices wind up jacking up costs before sticking you with the bill.
The Japanese Nikkei fell flat on its face overnight.
While Bernanke Runs Wild, Let’s Talk Ponies