Gloom, Doom, or Boom? Finance and Economics

[YMix]

Big deal over here, too. About 50,000 people (I think) took out CHF-denominated loans some years ago when the exchange rate looked really good. Now they and their families are about to lose their shirts.

[noddy]

my whole country is leveraged up to the eyeballs based on low interest rates, strong dollar and a once in a lifetime boom thats just finished.

i couldnt be pessimistic enough, i could make an eastern european look chirpy.

[YMix]

i couldnt be pessimistic enough, i could make an eastern european look chirpy.

[Simple Minded]

i couldnt be pessimistic enough, i could make an eastern european look chirpy.

Perhaps, but our resident far Western, Southern European makes you seem like Pollyanna.

sorry.

[Endovelico]

i couldnt be pessimistic enough, i could make an eastern european look chirpy.

Perhaps, but our resident far Western, Southern European makes you seem like Pollyanna.

sorry.

I'm just being realistic. And in fact I am pretty optimistic...

[Typhoon]

Big deal over here, too. About 50,000 people (I think) took out CHF-denominated loans some years ago when the exchange rate looked really good. Now they and their families are about to lose their shirts.

Ouch.

[Heracleum Persicum]

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Majority of U.S. public school students live in poverty

For the first time in at least 50 years, a majority of U.S. public school students come from low-income families, according to a new analysis of 2013 federal data, a statistic that has profound implications for the nation.

The Southern Education Foundation reports that 51 percent of students in pre-kindergarten through 12th grade were eligible under the federal program for free and reduced-price lunches in the 2012-2013 school year. The lunch program is a rough proxy for poverty, but the explosion in the number of needy children in the nation’s public classrooms is a recent phenomenon that has been gaining attention among educators, public officials and researchers.

“We’ve all known this was the trend, that we would get to a majority, but it’s here sooner rather than later,” said Michael A. Rebell, the executive director of the Campaign for Educational Equity at Columbia University, noting that the poverty rate has been increasing even as the economy has improved. “A lot of people at the top are doing much better, but the people at the bottom are not doing better at all. Those are the people who have the most children and send their children to public school.”

The shift to a majority-poor student population means that in public schools, more than half of the children start kindergarten already trailing their more privileged peers and rarely, if ever, catch up. They are less likely to have support at home to succeed, are less frequently exposed to enriching activities outside of school, and are more likely to drop out and never attend college.

A disgrace for a wealthy nation

In Europe, Public schools have a much higher education standard, much higher quality of students

Same in Japan etc

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[Typhoon]

Big deal over here, too. About 50,000 people (I think) took out CHF-denominated loans some years ago when the exchange rate looked really good. Now they and their families are about to lose their shirts.

Ouch.

Some Perspective on the Swiss Move

chindit13 - Thu, Jan 15, 2015 - 07:42 AM

The markets are rattled, but only with time will the real implications of the SNB move become clear.

Fondue for thought....

The combined assets of Switzerland's two largest banks, Credit Suisse and UBS, are equal to more than 4 times the Swiss GDP. In comparison, the combined assets of the US' five largest banks is only .8 times the US GDP.

Though the Swiss majors have taken their leverage down, they are still levered above 20 to 1, vs US banks which, after the taxpayer-funded recapitalization, are about 10 to 1.

The two big Swiss banks have approximately 25% of their asset base in loans to developing economies, and a good portion of this is in Swiss francs, especially in the form of mortgages to former Eastern bloc homeowners.

The SNB balance sheet is equal to about 90% of Swiss GDP, making it the largest central bank in the world relative to the size of its economy. If Bernanke/Yellen had played SNB, the Fed's balance sheet---which already worries us at $4 trillion---would be about $15 trillion.

Frankly, I have no idea how the "Pigmen" [Central Bankers + Wall Street + the City] are going to clean this up. They are good (as the last 5 years have demonstrated), but not THAT good. Over time, I suspect this is William Tell firing not at his son, but at the SNB. That, in turn, is going to begin to chip away at the credibility and confidence in all central banks. Once that gets started, it will chip away at the credibility and confidence in all sovereign governments.

Right now, investors get 30 pips in JGBs and only 180 pips in 10-year USTs, and for reasons unknown are happy with that. Right now, the debt of heavily indebted governments is viewed as a safe haven, which to me seems like driving a Smartcar on a highway in a snowstorm. This SNB move is the first chip in the credibility of both CBs and sovereign governments, though it will work itself out over a protracted period of time.

There will come a point when money shifts into private assets, because private companies not only own real stuff (land, factories, inventory), but they are ongoing concerns that can charge for their goods and services in whatever the coin of the realm might be, fiat, PMs or Pukka shells. Governments only produce debt.

Short term this might be bad for equities, but since money has to go somewhere, and PMs are way too small to absorb any meaningful amount of the money that exists, it should be long term plus for equities. That might seem counterintuitive, but it is not.

I will look for indications that this shift away from governments is happening when AA corporate paper, and then A paper, begins to trade better than equivalent term USTs/Bunds/JGBs etc. This has occured already, from time to time, on a small scale, but when it becomes a trend, that will be the signal that the sh*t is about to hit the fan.

Ras [an articulate and entertaining permadoomer] will kid me and say "This Can't Go On!", despite the fact that it has been going on for nearly forever, but I will answer with another cliche, which is "This time is different". A few years ago I posted about Switzerland and how the SNB's cap had to fail eventually. Yes, I screamed "this can't go on!". Well, now it can't. (So Ras, feel free to scream your favorite scream, because your long suffering days of being "early" are coming to an end. Any second now....now.....now....okay, soon.)

Right now this is like a mediocre boxer who has a losing record and has taken too many shots to the head over his career. He might hang up his gloves with only a pug nose and a few scars, but later in life the Parkinsonian symptoms or early onset dementia sets in.

For the time being, let it breathe, but I'm going to look at the corporate vs sovereign spread.

I do recall this character, chindit13, going on about the SNB [Swiss Natl Bank] and the Swiss banks several years ago.

[Typhoon]

If One "Peg" Failed, Can This One be Far Behind?

chindit13 - Fri, Jan 16, 2015 - 07:17 AM

Euro sovereigns are pegged to Eurobanks, which are pegged to Euro sovereigns.

That peg allowed the EU to kick the can, and set the stage for several years of Draghi jawboning. Can it continue?

To answer that question, one needs to look at how this mutual admiration society works in favor of both banks and sovereigns.

A few years ago, when attention first turned to the EU periphery, sovereign rates were soaring. At the same time, bank assets were falling in value, and given the size and leverage of the EU banking system (at that time it was $55 trillion of assets in a $14 trillion economy, vs. $13 trillion of US bank assets in a $15 trillion economy), the EU was about to spiral out of control.

The EU adopted the Tautological Solution, which was to bring down sovereign interest rates by allowing banks to load up on this "quality asset", and bank asset problems were ameliorated by their "gains" on the very sovereign debt holdings they were buying.

Further, bank capital ratios were automatically improved because of self-serving rules that allow generous capital accounting for sovereign debt that is being serviced. Even Greek debt held by banks was viewed as Good Assets, and thus requiring little to no reserve set aside, because the ECB was making new loans to Greece which were immediately used to service Greece's sovereign debt. Greece never saw nor touched the majority of its "bailout funds", which were actually Eurobank bailouts.

The end result was the banks were instantly "stronger" because the value of their sovereign bond holdings soared enough to make up for declines in the value of its other assets, and sovereign governments were better off because they could issue yet more debt at near-zero rates as EU banks had a constant appetite for more of it.

The problem, one can say obvious problem, is that just as both partners in this dance support each other, it only takes a new problem in one side to create an immediate problem in the other side. EU institutions---sovereigns and banks---cannot clap with one hand.

This Euro reacharound isn't a problem until it is. Two things can make it a problem. The first is a continued decline in bank asset values. The second is a decline in tax revenues that allow sovereigns to service their ever-increasing debt.

Both of these problems arise from the same thing: a weak economy.

Enter the peripheral damage of the SNB peg. Of the many problems the peg created, one was that many EU borrowers took on SFr debt. The mortgage markets of some former East Bloc countries were built on SFr borrowings. Now those who borrowed in SFr are hamstrung. That will put pressure on the entire housing market in these countries, which means that it will impact the value of assets held by EU banks even if the asset is euro-based. Thus, eurobanks capital structure is going to take another hit.

At the same time this is occurring, the EU economy continues to remain stagnant. That will impact sovereign tax revenues, which in turn impacts their ability to service the debt that now sits as the "good assets" on eurobanks' balance sheets.

There is thus only one way to further kick the can, and that is to make sovereign debt more valuable, and the absolutely only way this can happen is for Draghi to stop jawboning and initiate QE(U). QE(U) will most certainly involve sovereign paper, probably in a ratio that matches individual member contributions to the EU machine. Because of the SNB peg removal and the subsequent nascent EU mortgage problem, the ECB may add mortgages to the mix.

Draghi has no choice. Ultimately this, too, fails, but since the only policy any central bank anywhere has is can kicking, QE(U) is a virtual certainty.

How much time can it buy? Hopefully just enough for cynics to get their affairs in order.

[Simple Minded]

I'm just being realistic. And in fact I am pretty optimistic...

The Optimist: "Things just can't get any better than right now!"
The Pessimist: "I'm afraid you're right!"

The good & the bad: We're always been both on the morning of the Age of Aquarius and the eve of Armageddon!

I might be de-sensitized, I grew up in the 60's:

https://www.youtube.com/watch?v=IFZUDQ85bFU

[Heracleum Persicum]

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Folks, a strange things happening, happening "stealth", nobody talks about it, but behind the scene, a tsunami


Last 3 months, Oil dropped from from 110 $/b to now 45 $/b .. that wiped off Trillion Dollars of market capitalization of Oil companies worldwide, add to that all Oil service companies stocks dropping @least 60%, all drillers, on & off shore (specially deep & Ultra deep water drillers) pretty much ruined

Commodities, copper, Iron ore etc, dropping like a rock, dropin and dropin .. all mining, machinery, ore shipping, pretty much ruined or on the way to

Now, comes this Swiss taking off the peg SF/EU .. Swiss stock market dropped 14% within 30 minutes, SF up 15% against U$ .. result was 100s of Billion Dollars loss for Goldman Sachs and the big boys .. biggest New Zealand financial trader fell into negative net asset, a Tsunami coming

Russia-Ukraine game played hitting Germany and France and East Europe hard .. Europe dropping for the 3rd time within few yrs into recession


All the above "destroys wealth" in Trillion of Dollars .. consequences will hit Joe soon, layoff coming and this time there will be no bail out

Question is, whether this accidental, fate .. or .. plan and intentional

My guess is, intentional and planned

There are many reasons governments wanting the above

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[noddy]

no conspiracy, this has all been out in the open for a long time now and we have been discussing it for years.

you can only pretend things are growing with zero interest rate policy and government stimulus for so long, everyone knows its going to crash, all the arguments are around the consequences, be it an orderly recession like japan or mad max chaos like some of the americans believe.

i say, why not both!

most westerners are ignorant about how china has been propping up whats left of the world economy post gfc with primary produce purchasing to modernise all their cities and now they have backed off on that well.... get ready for the real state of the world economy to show its face.

the ponzi debt system demands growth, it cant function without it.

[Endovelico]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

[Parodite]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

Maybe. But the right question to answer first is: why do banks take (and create!) risks that a normal human being doesn't? Answer: when the bank is in serious pain..their CEOs aren't and make even more money. This can be changed with a few simple new rules of the game.

[Nonc Hilaire]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

Pension funds are holders of these securitized loans, so you should expect to see a lot of people lose their retirement in a loan forgiveness program.

[Endovelico]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

Maybe. But the right question to answer first is: why do banks take (and create!) risks that a normal human being doesn't? Answer: when the bank is in serious pain..their CEOs aren't and make even more money. This can be changed with a few simple new rules of the game.

Bankers are more powerful than politicians, so those rules would never be approved or implemented. You must remove the source of bankers' power - their control over huge amounts of money - in order to change things in any significant way.

[Parodite]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

Maybe. But the right question to answer first is: why do banks take (and create!) risks that a normal human being doesn't? Answer: when the bank is in serious pain..their CEOs aren't and make even more money. This can be changed with a few simple new rules of the game.

Bankers are more powerful than politicians, so those rules would never be approved or implemented. You must remove the source of bankers' power - their control over huge amounts of money - in order to change things in any significant way.

That would be a political decision too. So you always end up with politicans making decisions. They are mandated by us.. the ones who voted them into power.

It just that where bankers and politicans have shared interests they will do everything to divert the attention from the voters from what would be good for voters. So instead of yelling and barking it is better to figure out exactly what change of rules in the financial industry would be better for us. If enough voters demand certain changes democracy is able to kill the beast and have a gvt that does what it is supposed to; our majority will.

[Heracleum Persicum]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

Banks in reality a substitute of your money

Banks take your money (your deposit) and lend to Joe as a mortgage

If all mortgages are wiped out, the central bank must print money and give to the banks, called "nationalization" .. meaning the whole society in reality paying the mortgages of those who took mortgages buying houses .. everybody becomes poorer (as central bank printing more money makes that money worth less), those owners with no mortgage become richer

Does the society want that ?

And

If so

One would borrow and spend, as, at some point and time, Sanata pays what you owe

Things must be earned the old fashion way

There is no substitute to creating wealth for a nation to become more Prosperous

Issue with western capitalism is not capitalism, but the crooks have rigged the system .. this no capitalism but "crookism" .. Special Groups lobby


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[Typhoon]

I have long been in favour of a global debt wipe out. Since all real assets would be preserved, things could start afresh without any major problems. There would be some losers, like banks, which would have to be nationalized in order to survive, but that would be it.

Maybe. But the right question to answer first is: why do banks take (and create!) risks that a normal human being doesn't? Answer: when the bank is in serious pain..their CEOs aren't and make even more money. This can be changed with a few simple new rules of the game.

Bankers are more powerful than politicians, so those rules would never be approved or implemented. You must remove the source of bankers' power - their control over huge amounts of money - in order to change things in any significant way.

That would be a political decision too. So you always end up with politicans making decisions. They are mandated by us.. the ones who voted them into power.

It just that where bankers and politicans have shared interests they will do everything to divert the attention from the voters from what would be good for voters. So instead of yelling and barking it is better to figure out exactly what change of rules in the financial industry would be better for us. If enough voters demand certain changes democracy is able to kill the beast and have a gvt that does what it is supposed to; our majority will.

One of the remarkable achievements of contemporary democracy is convincing people to vote against their own interests.

[YMix]

So instead of yelling and barking it is better to figure out exactly what change of rules in the financial industry would be better for us. If enough voters demand certain changes democracy is able to kill the beast and have a gvt that does what it is supposed to; our majority will.

It depends on a lot of things. The system is designed to intimidate lone or weak players. What the bankers, used here as a loose term, can bring to bear is the threat of poverty. The politicians operating at the highest levels work hand in hand with them. "Sure, you can democratically decide to mess with the financial and banking sector, but we will tell all investors to stay away from your country. We will lower your ratings. We will drive up your borrowing costs. Our political friends will declare your country destabilized by populism and denounce you in the media. You are free... to be poor."

Maybe Netherlands can pull this off alone. Maybe. My country would just be steamrolled.

[YMix]

One of the remarkable achievements of contemporary democracy is convincing people to vote against their own interests.

"It’s a big club and you ain't in it. You and I are not in The Big Club. By the way, it’s the same big club they use to beat you over the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy." - George Carlin

All day long indeed. Experts, think tanks, institutes, foundations, columnists and other journalists telling us all the time: don't rock the boat, don't try populism*, don't rebel in any meaningful way, are you some kind of communist?

*not used in any well-defined sense and not even in an honest way. Much the way around a century ago "communist/red" was used in the USA to describe just about anybody who opposed the federal and local governments.

[Endovelico]

So instead of yelling and barking it is better to figure out exactly what change of rules in the financial industry would be better for us. If enough voters demand certain changes democracy is able to kill the beast and have a gvt that does what it is supposed to; our majority will.

It depends on a lot of things. The system is designed to intimidate lone or weak players. What the bankers, used here as a loose term, can bring to bear is the threat of poverty. The politicians operating at the highest levels work hand in hand with them. "Sure, you can democratically decide to mess with the financial and banking sector, but we will tell all investors to stay away from your country. We will lower your ratings. We will drive up your borrowing costs. Our political friends will declare your country destabilized by populism and denounce you in the media. You are free... to be poor."

Maybe Netherlands can pull this off alone. Maybe. My country would just be steamrolled.

My feeling, too.

[noddy]

no conspiracy in any of that, you would have to be a charity to lend money to someone who pardons the debt and you would be be an even bigger charity to invest in someone who nationalizes those investments.

i dont tend to look to multinational big boys as religious institutions.

[Parodite]

It depends on a lot of things. The system is designed to intimidate lone or weak players. What the bankers, used here as a loose term, can bring to bear is the threat of poverty. The politicians operating at the highest levels work hand in hand with them. "Sure, you can democratically decide to mess with the financial and banking sector, but we will tell all investors to stay away from your country. We will lower your ratings. We will drive up your borrowing costs. Our political friends will declare your country destabilized by populism and denounce you in the media. You are free... to be poor."

Maybe Netherlands can pull this off alone. Maybe. My country would just be steamrolled.

My feeling, too.

Our votes, democracy is the only weapon we have. If we are legion, many...and in many countries, it is an unstoppable force. There is no oligarchic nut that cannot be cracked.

[YMix]

no conspiracy in any of that, you would have to be a charity to lend money to someone who pardons the debt and you would be be an even bigger charity to invest in someone who nationalizes those investments.

i dont tend to look to multinational big boys as religious institutions.

I was thinking along the same lines, but from the opposite angle. Society is not a charity for big business.