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Barcelona and Real Madrid Exits from Champions League Pale to Exit from EU
The talk is about Greece leaving the Euro, but the bigger concern has always been in Spain. It is a country that is vastly bigger economically than Greece. It has a 22% unemployment rate. Things are so bad there that austerity, if the populace ever agrees to it, will never be big enough to make a dent. As Spain goes, so does Europe, and the world…
U.S. Now Largest Holder of U.S. Debt...Huh?!?
In the past year the Federal Reserve has gone on a spending spree…and no it wasn’t due to some Cyber Monday sale. Over the last year, the Fed has doubled the amount of U.S. Treasury Securities it owns. As of this month it is now official, the Federal Reserve is now the largest holder of U.S. Government Debt!!!!
Federal Reserve: $1.665 trillion
China: $1.1483 trillion
Last year the Chinese owned about $339.9 billion more in U.S. Treasury securities than the Fed owned. Now the Fed owns about $516.7 billion more in U.S. Treasury securities than the Chinese.
American Middle Class now "Les Miserables"
There is growing despair amongst the U.S. population. As a society, we are growing older and growing poorer by the minute. The gap between the rich and poor is constantly increasing as the U.S. economy stagnates. Standard of living for the middle class has plummeted as home prices continue to level off. Every week over 400,000 people file for unemployment benefits. The official unemployment rate stands at over 9%, with over double that number underemployed or so frustrated by the market that they have stopped looking for work. Food price rises over the last few years have invisibly raised inflation where it hits consumers the most, at the grocery store.
What this adds up to is the highest Misery Index recorded since 1983. Les Miserables will only grow more cantankerous. Les Miserables will only grow more frustrated. Les Miserables will only grow more desperate. A cantankerous, frustrated, and desperate middle class is not a recipe for economic growth.
The last thing we need is Helicopter Ben
The last thing the world needs right now is more stimulus. That should be apparent after seeing the recent inflation numbers and witnessing the continuing deterioration of the economy. As we saw with QEII, markets popped for about a year afterwards, but the problems it is creating far outweigh any short-term gains.
In fact, Mark Faber recently made very good comments to this same point. It should be noted that Faber is noted for being one of the most pessimistic commentators on earth, but his comments cannot be dismissed because they have a lot of merit:
In general, I would be using rebounds as a selling opportunity. I think Treasurys are perceived still as a safe haven because everybody knows the U.S. has an endless ability to print money. The interest will be paid. The trouble is that governments can default in two ways. Either they just stop paying the interest and there is a debt restructuring, like Argentina went through; or they just pay the interest and the principle eventually, in a worthless currency. That’s the way the U.S. will likely do it.
By printing money, problems are not solved, but they can be postponed, and they become larger. It’s like the recession in 2001. Had there not been massive money printing, it would have been steeper than what we had, but equally, we would have avoided probably the financial crash in 2008. The next time we have a global economic crisis, it will be much worse than 2008. Before this happens there will be money printing and there will be war. The whole system will collapse.”
In short, there are two schools of thought out there, those like Paul Krugman (NYT writer and Nobel prize winner), who feel government needs to provide more and more stimulus to jumpstart the economy, and those like Faber who feel government stimulus nearly compounds the problems over time. For every person who agrees with us and Faber, there is someone in the financial sphere who agrees with Krugman. This is what makes the times we live in so interesting.
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Single Dip
Talk of a Double Dip is Nonsensical
You are going to hear a lot from the talking heads on tv about a “double dip” recession over the next few weeks. Those that have followed our blog over the last year know that this is nonsense. This is a single dip, because the recession never ended and will go on for years. The world economy, outside of select countries in Asia and Latin America has stagnated, much like Japan during the latter part of the 20th Century. Whether the government posts bogus employment and consumer data that says there isn’t a recession or there is a recession, doesn’t really matter. The recession that started in 2007 is still going on and will go on for at least another 5 years.