Right on track, the wrong track

Famous economist Art Laffer "2011 Budget is perfect plan for catastrophe."

Comments I like by Dr. Martin Weiss (investment guru)

"...Bailouts, previously reserved strictly for unique emergencies, soon became the norm.

Yes, each successive bailout deal was typically larger than the previous. And yes, each was hailed as the “end-all solution” to the crisis.

But in reality, the deals did little more than spread the toxic material up the food chain — from niche players to Wall Street giants … and from Wall Street giants to sovereign governments.

Ultimately, however, as Mike Larson eloquently explained, ALL of the bailouts fail the most basic of smell tests.

Reason: The debts stink up the joint. Investors hear rumors of big blunders. And they feel it in the gut when numbers don’t add up. That’s why they dumped tech stocks in 2000; that’s why they dumped bank stocks in 2008.

The most important pattern of all: Until and unless excess debts are liquidated, the disease cannot be subdued. It will merely return at a different time, in a different form. Next to feel the pain: Sovereign nations!

After nearly three years of escalating government bailouts, it should come as no surprise that the biggest debtors of all — and the biggest warehouses of bad debts — are now sovereign governments..."

Commercial real estate is one of the next time bombs. Duh! But they claim it hits in 2011. What have they been smoking? It starts in about a month. Snap out of it.

Demand for US Treasury debt is failing. Another duh. I have been predicting this for months. It is actually much worse than they make it sound. A lot of that "demand" is our own Fed doing all kinds of shenanigans. Also in the "demand" is foreigners fleeing from Fannie and Freddie garbage by being allowed to swap for treasuries as if the Fannie and Freddie stuff was worth something. Also in the "demand" is the fact that all last year foreign governments were running away from our long term debt and getting the shortest stuff they could. In other words, they are standing by the exit.

Really good article explaining the almost failed Treasury auction

Notice the chart above. The perception that the US may default on its debt is rising, as reflected in the default insurance rates. People are getting worried about sovereign debt in general. This problem could very well come across the Atlantic. This is a confidence problem. Confidence is fragile.

If you keep moving the bad debts around, do they go away? We're looking at the bankruptcy of a number of whole countries based on this, "shuffle the debt around" idea. How long until people realize it's idiotic and lose confidence in the whole idea?

Remember, I predicted this pattern of events. We're right on track. Unfortunately, the track goes right through the gates of hell. My predictions for 2010

If Greece isn't on your radar, check it out before it harms you

www.marketoracle.co.uk/Article17114.html Gold and “recovery”, sovereign debt

www.marketoracle.co.uk/Article17113.htmlGermany’s new position because of debts

www.forbes.com/2010/01/13/sovereign-debt-crisis-opinions-colummnists-nouriel-roubini-arpitha-bykere.html

www.marketoracle.co.uk/Article17112.html Greek debt crisis

www.marketoracle.co.uk/Article17059.html Sovereign debt crisis

www.telegraph.co.uk/finance/financetopics/financialcrisis/7159456/Fears-of-Lehman-style-tsunami-as-crisis-hits-Spain-and-Portugal.html European debt crisis

www.marketoracle.co.uk/Article17147.html

www.marketoracle.co.uk/Article17131.html

The potential for Greece's problems to infect the bond market and drag Europe then America into depression is very real. It is a highly likely scenario. The alternatives involve, among other things, a crisis that drags on for years combined with high inflation.

More on unemployment, sovereign debt crisis

David Rosenberg:

"While there will be many economists touting today's report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint.

"Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009."

Finally, a very sad chart, courtesy of David. Those in the 25-54 year-old male category have seen their total number of jobs fall back to the level it was in 1996. Fourteen years later, and the "breadwinners" who are supposedly in their prime have seen an almost 10% drop in employment.

Excellent article explaining the sovereign debt default situation and importance of the impending Greek debt default.

Can more debt fix too much debt? World outlook

This guy has said this better than I could, so I'll let him say it. He is a UK finance expert who writes a blog.

“The world economy is being kept alive by the constant infusion of massive doses liquidity by the central banks at abnormally low costs alongwith stimulus packages aimed at revival of certain selective industries like housing, auto etc. The effects of these are being seen in the form of huge fiscal deficits in most of the countries or drawdown on reserves in some countries like China. The effects of these actions on Governments, Banks, Businesses and Consumers are discussed below and an attempt is made to outline the future path of the world economy.

The Governments around the world this year have given unprecedented stimulus packages to try to stabilize their economies and capital markets from the effects of bursting of the Biggest Credit Bubble worldwide in 2008. Their main aim appears to be postponing the effects of the same without initiating any cure for the root cause of the problem i.e. excessive debt and leverage which led the whole world to the brink of failure of the financial markets. They are experimenting with the idea that a problem of excessive debt in comparison to the earning potential of a household / business / government can be solved by taking up more debt and leverage…

The costs of maintaining and running the governments have gone up substantially worldwide due to their increase in size and the tax revenue collections have fallen sharply due to the recession or deflation in the asset prices. This has resulted in a loop whereby the government has to increase its borrowing or money printing in order to sustain itself or in other words living beyond its means to a great extent something that the consumers were doing for last so many years. The government has picked up the baton of living the life of financial irresponsibility from the consumers which had landed them in such a mess in the first place…

The world governments are basically running a Ponzi Scheme whereby they take up new debt and pay back the old debt with it, something that Madoff did but on a much larger scale. As long as they are able to raise new debt or get investors to invest in their sovereign bonds things will keep on rolling, the moment the ability to raise new debt goes below the amount of old debt and the interest on the same, a domino effect of defaults gets unleashed.

Problems of countries like Dubai, Greece, Iceland, Ireland and some other countries in the Baltic states are now very much discussed in the media. There are other countries in queue who are living way beyond their means like Ukraine, Venezuela, Argentina, Spain, U.K., Japan to name a few. The problem is that if one country defaults on its debt it triggers off a chain of defaults across the world sending ripple waves all around the financial markets and currencies because of the linkages in global finances. The problems so far have been contained but its only a question of time when a default occurs, which is unavoidable and all hell will break loose...”

Akhil Khanna

I could add about ten more countries to this list, mainly in Europe. Many are teetering on the brink.