Sunday, August 07, 2011

How Bad Can Things Get? Swami Stogie Explains All.

The news brings blues this week.
  • A U.S. military helicopter was shot down by the barbarians in Afghanistan, killing 31 soldiers.  (Hey idiot General over there, did you ever hear the truism about "putting too many eggs in one basket?")  I'd fire that jerk, drop a few H-bombs and pull out all the troops (not necessarily in that order).
  • The USA's credit rating was downgraded for the first time in history, and the world will change to a different currency for settling debts.  That will damage our economy even further.  Democrats are complete fools, drunken sailors on steroids, 14 year old kids with a credit card at the mall.  We have to boot their rotten asses out of Washington the first chance we get.  Idea for getting rich:  develop a soccer ball with an image of Obama's ass printed on it.   Sales are expected to be brisk for the first year or so, but are expected to drop off precipitously on Wednesday, November 7, 2012. 
  • Black youths are rioting and wilding all over, not just in Wisconsin, but in North London (see here for photos of the devastation) and in Canada.  We must give them more money, welfare, do-rags, rap CD's and then apologize for our racism.  That'll solve the problem.  Actually, blacks are also feeling the pinch of the rotten economy but many do not realize it is of their own making, for voting for Democrats and the idiot-child, Barack Obama.  Of course, drug addiction, crime, violence, school drop-outs, illegitimate children and a really bad attitude probably helped too.  The police should hand out pamphlets to the rioters/looters explaining this before shooting them.
  • Idiotic, moronic and mendacious Democrats are trying to blame the U.S. credit rating downgrade on the Tea Parties.  That is ridiculous of course.  The alcoholic who was forced to go cold turkey is now blaming his delerium tremens on the doctor.  Well the alky has a point:  if he didn't have his booze taken away, his hands wouldn't shake so much and he wouldn't now be retching in the alley.  Hey schmuck, you're the one who is hooked on easy credit, and now you have to pay the price.  Actions have consequences:  live with it.


pjm said...

"world will change to a different currency for settling debts".

And where is the liquidity for this to happen? Clearly the Euro doesn't have the capital markets to back it up.

China bitches and moans, but they keep buying the dollar don't they. China is a decade away from having a viable financial system that the world would trust. And the G20 fired a blow by not allowing the Yuan into the SDR basket. The world is a long ways from trusting the Chinese to have that kind of power.

The Russians have been the big mouths in this argument, but clearly they can't handle it.

So, then you move to the IMF's dream on a basket of currencies, or one central currency (SDR). The dollar is 40% of the basket. But with limited acceptance, the SDR is just a bit player. And if the US backed out, it would die a slow death.

The Dollar is King for one reason.... and it's because we have the liquidity to handle being the world's currency.

This is not to say we don't need to get our house in order.... and there are so many things to be concerned about. But no one is going to stray away from US Treasuries because of the S&P downgrade. The US isn't going to default on their debt.... we will never catch up, but defaulting is not going to happen. (we'll just print more money.... lol)

Historically, we have seen the Debt/GDP ratio much higher than it is now.... but what makes this time so bleak is the lack of growth on the horizon. The fastest way to shrink the debt in relative terms, is to grow the economy.... and that is not looking promising.

Okay, the bell is in 15 minutes... this is going to be fun!

Stogie said...

The world won't switch to a new currency? That sounds a lot like "the USA's credit rating will never be downgraded." If we are so liquid as you state, then what was the raising the debt ceiling fight all about?

pjm said...

I am not disagreeing with your assessment, only the near term reality of it. I agree it would be the logical next step, but the key ingredient for a switch to happen, is having a better alternative. And that better alternative doesn't exist. There isn't a fixed income market outside of the U.S. that can handle the needed liquidity. Yes, the debt ceiling fight was troublesome, but realistically it was going to be raised one way or another. The pressure would have been to great not to. The lack of any real change is also troublesome to the global central banks & markets. And the action of kicking the can down the block, will eventually be our doom.

But quite honestly the markets don't want the debt fight to happen at the moment. They are looking for near term fiscal stimulus, and then long term austerity. The U.S. #1 priority is growth, and the private capital markets are not able to handle the load, so everyone is looking to the Fed to step in. But does the Fed have any more bullets? Unless they are willing to quit the "keep inflation down" fight, I don't see where the stimulus is coming from.

The U.S. CDS market(Credit Default Swap) has been pricing the U.S. credit as a AA credit for some time. Moving down from a AAA. It currently is at 57 basis points or 57k to insure $10M in Treasuries for 5 years. The bond market saw this as handwriting on the wall, and expected this downgrade by S&P, though maybe not this immediate.

Ironically, liquidity has soared in the Treasury Market, as money is fleeing the equities market for a safe haven. There are three Treasury Auctions this week, it will be interesting to watch how they go.

Granted this whole thing is a shell game; and it feels like we are the dutch boy with his finger in the dike. There are two scary truths about the current Treasury market.... it's being supported by global central banks more than legitimate market players and expectations. Showing us that no one globally is willing to bite the bullet.... and they are buying the dollar to feed their own madness. It's like a global kick the can game!

And when politicians take control of the central banks, it basically destroys the currency. So, yes we are slowly destroying the dollar.... and they are slowly destroying the euro.

But other than that it's a great Monday.... :)