03/11/11 Baltimore, Maryland – And the latest installment…
The Dow dropped 228 points yesterday. Everybody blamed a different part of the world. Some blamed a developing civil war in Libya. Some blamed China’s big trade deficit (China imports beaucoup energy and raw materials). And some blamed rising interest rates in Europe.
“Borrowing costs soar on Eurozone periphery,” says a headline in The Financial Times.
Remember, Japan, Europe and America all depend on low interest rates. They’re all addicted to cheap money. Take away the stimulants and their economies slump.
Ten year yields on Greek debt rose to over 12%. The Portuguese government paid 6% for its latest 2-year funding. A Portuguese debt trader:
“We are not at bailout levels yet, but we are moving in that direction.”
Why not just let rates rise to market levels…and force everyone to kick the debt habit?
No…no…no… You don’t understand, dear reader. Since a slump is just the thing the financial stimulants were designed to avoid, governments are very reluctant to give them up. Instead, they bailout, prop up, and tide over every bank and sovereign debtor who threatens to go into rehab.
But as we’ve seen on the mean streets of Baltimore, it takes bigger and bigger doses to keep the junkies happy. You cover one bad debt by adding another. And then you have two bad debts to worry about. In Europe, Japan and America, bad debt held by the banks has effectively taken over the public sector. Now, government debt is going bad too.
Meanwhile, on the streets of Japan, we see what the government’s 2-decade-long methadone finance program has wrought.
Bloomberg reports:
Japan’s economy contracted more than the government initially estimated in the fourth quarter because of a downward revision to capital investment and consumer spending.
Gross domestic product shrank at an annualized 1.3 percent rate in the three months ended Dec. 31, more than the 1.1 percent contraction reported last month, the Cabinet Office said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 1.2 percent contraction.
Private consumption fell 0.8 percent drove GDP lower in the fourth quarter after the government ended a subsidy program to buy fuel-efficient cars in September and reduced incentives to purchase electronic home appliances in December, a program that will end in March. Capital spending rose 0.5 percent, compared with the initial estimate of a 0.9 percent increase.
Take away the juice; the juice junkies slow down.
Back in the US, the Republicans proposed to take away a little bit of the deficit. The Democrats proposed to take away less. The Senate rejected both proposals.
The Fed has no intention of taking away anything. There is some talk of “exiting” the zero interest rate/QE programs. But it is an empty bluff, in our opinion. They won’t give up their fix until they have to.
The economy is too weak. Households are too fragile. And the recovery is a sham.
In the news yesterday was a discussion of how much the hike in oil prices will cost the typical family. Gasoline prices have gained about 30% in the last year. April crude traded yesterday at over $100, for the first time in 2 years. This will cost the typical family about $700 per year. That money will have to come from somewhere. Taking it away is sure to cause pain somewhere else. Bloomberg continues:
Nouriel Roubini, the New York University economist who became known for his pessimistic forecasts before the financial crisis, told reporters in Dubai on Tuesday that an increase in oil prices to $140 a barrel could even cause some advanced economies to dip back into recession.
The rising price of gas – which averaged $3.57 a gallon nationwide on Monday, according to the government – is already prompting some people to change their habits.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Bill,
The sooner we all change our habits the better, I suppose. The president stated that he would dip into US reserves if needed at his press conference today. Like everything else his administration has done, this will come to little to late. It sounds like more saber rattling toward the Saudis. “Bring your price per barrel under control, or else” One more empty threat, in a series of empty words going back to the day he took office. It is unbeliveable people swallow his tripe. Time is getting short and I know I have a plan, I only hope the rest of my fellow readers do as well. Enough of my rant, for now.
Sadly, nobody blamed the billionaires here in the USA for the economic mess. I wonder if they feel neglected. The top 400 families own as much as the bottom 50% of the US population.
It would be easy to close the deficit. Stop giving tax breaks to billionaires, and start taxing them. Problem solved.
Better yet, just confiscate all the wealth with a 100% tax! Start with George Soros.
Then, the neo-comms can redistribute it – to each, according to his need.
Of course, when it’s all gone, they’ll have to start confiscating it from abroad.
What do you think about the Federal Reserve using the threat of $150 dollar-a-barrel-oil to institute QE III. There has been talk of this lately (see my post from 10 March). Personally, I think it is likely. I’m starting to wonder if the Fed is devaluing the dollar like this in order to out-manipulate its currency in relation to China. The dollar has lost so much respectability, yet, it is still the backbone of foreign exchange. For this reason, I wonder if the Fed sees increased oil prices from Libya and other middle east turmoil as a double-edged sword against China: higher production costs driving up the won and an excuse for QE III. Your thoughts on this???
Gentlemen: QEII should be renamed “Titanic II”. Obama should follow the soviet model and come up with a series of 5 year plans-you know, pull out Uncle Joe Stalin’s old economic playbook and add 10 or fifteen zeros to the numbers to make them seem new. Workers of the World unite. All hail the Feds.
You could wipe out the billionaires.
Elites are self-regenerating, therefore they are infinitely expendable. Liquidate them as needed.
“The rising price of gas – which averaged $3.57 a gallon nationwide on Monday, according to the government – is already prompting some people to change their habits.”
Just not their driving habits. As I meander down the highway at 60 mph, I feel like the coyote being spun around in a circle by the roadrunner blazing past. People seem to be driving even FASTER this time around – no one cares about $3.57 gas where I live.
About a year ago in an article by Bill about the Trade of the Decade and Japan, I wrote in these comments that Japan will be destroyed by an earthquake.
Although it appeared on the board it was later removed. I can’t say I blame Bill because that’s the kind of thing crazy people say, right?
I had confidence that it would happen however becuase of a seer in Brazil named Pedro regis who had accurately made numerous predictions WEEKS or DAYS before they occured.
Last year, this guy, who claims to have locutions with the Blessed Virgin Mary, predicted the Haitian earthquake, the Chilean earthquake, the explosion of the rig in the Gulf, The flood in Madiera Portugal and many other incidents weeks BEFORE they happened.
It got to the point that reading his messages was like reading the newspaper accounts of events BEFORE they happened.
This is another “hit” for him. This guy is apparently for real.
Lest you doubt, I’m TELLING you I was checking his messages daily and these events happened a couple of weeks or a few days after I read them. The messages are time stamped and you can check them out for yourself.
It appears we are in fact in the last days of this age as predicted by Christ.
You may be interested to know that he also predicts devestation in Washington DC and a ‘poisoning’ in Philadelphia.
Type ‘predictions of pedro regis’ in a google search and you’ll see what I’m talking about.
I shall find a way to blame the teacher’s unions for all these Japanese earthquakes. Watch me and learn.
Teachers should be made to plant rice from dawn to dusk to renew the glorious people’s republic and to nourish growing young minds.