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There are likely to be more banking issues through emerging markets, which will roil US financial markets, increasing volatility.

Some are calling for another crash, similar to 2008.



Financial markets have been restructuring debt for many centuries, and they’ve gotten pretty good at it. From the discussion regarding T-bills, you’d think no one had ever heard of default-risk premiums before. (Interestingly, this seems to be a case of American exceptionalism: people aren’t particularly happy about Greek, Irish, and Portuguese defaults, but no one thinks the world will end because of them.)

A T-bill is a bond just like any other bond. Corporations, municipalities, and other issuers default on bonds all the time, and the results are hardly catastrophic.

While the first statement is true, it does not follow as a matter of logic that the second will also be true. The former were for a couple of billions of dollars. The US economy is $15 Trillion. A default of that size, while it may be absorbed in time [quite some time] the immediate effect however could be quite nasty for financial markets.


President Barack Obama says he absolutely won’t forfeit anything in return for an increased borrowing limit. House Speaker John Boehner (R-Ohio) says he won’t permit an increased borrowing limit unless spending is sliced by the same amount. Republicans won’t raise taxes any further, even as the president insists that any package is divided equally between cuts and revenue. And congressional Democrats are still hoping Obama acts unilaterally to resolve the debt standoff

When all else fails, Washington opts for short-term fixes.
So it’s not surprising that Boehner’s chief of staff told a gathering last week at the Republican National Committee headquarters that Congress may end up raising the debt ceiling every month or every three months.
The idea is gaining ground among Republicans as a tactic to wear down Obama and force him to cut spending, repeatedly and deeply.

But Democrats won’t go for it, unless they are convinced Republicans are ready to throw the country into default. The West Wing truly believes that Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) will never allow that to happen, so Republicans have no leverage, according to a source familiar with White House thinking.

If Congress doesn’t raise the debt ceiling, Obama would have to prioritize who gets paid first. The debt would jump ahead of other obligations, which is why some Republicans argue that the country wouldn’t technically go into default if borrowing authority isn’t extended.

Enough money would be left over to fund about 60 percent of the government’s functions. Social Security payments, military salaries and Medicare may continue while other services — tax refunds, air traffic control, road construction, federal courts, defense contracts — are suspended. There wouldn’t be enough money coming in each day to fund everything.
Republicans despondent over the $16 trillion debt say that isn’t a bad thing.

In private meetings and conversations over the past week, Republican leadership officials warned that the White House, much less the broader public, doesn’t understand how hard it will be to persuade conservatives to retreat. Many House Republicans believe it’s far riskier to pile up new debt than it is to risk default or shuttering the government.

So prepare yourself for more endless nonsense to come. The question is this: when it really boils down to it do the politicians really have the bollocks to cut funding to themselves?

The answer is of course…no.

They will ultimately see that a debt default, would ultimately curtail their power. As politicians only hold office for a period of time, the time that they can get voted in and re-elected, that is the time limit that they have to steal as much wealth from others [producers] for themselves [parasites] and they won’t allow the default.

Their shenanigans however promises increased volatility ahead, which ultimately is a profit opportunity for us in trading the market.

These two links both refer to looming financial stresses within the system. Both are “shadow” in that they are simply not in the forefront of people when they look for problems that can blow-up in their faces. Part of the problem of course is that they are not immediate, they are potential problems down the road, that, might [one hopes] never actually eventuate. Well, they will, at some point, that unfortunately is the dangerous truth.

China and their banking system

The Grexit, short for Greece finally giving up on the single currency, has been trending for the last few weeks. And coming up next: the Spexit.

In Greece, people have just about put up with it — until now. So have the Irish, the Portuguese, and the Italians. The Spanish won’t. Here’s why.

One: Spain is too big too rescue.

Two: Spain has tired of austerity already. Remember, the protests against cuts began in Madrid a year ago with the “indignados” movement, which started sit-ins across major cities in 2011. The protests spread from there to Greece, and other euro-zone countries. The austerity had hardly even begun, yet already it has provoked strong opposition.

Three: Spain has a real economy. The Greeks understandably feel nervous about life outside the euro zone. They don’t really make anything. Spain is a successful economy with a perfectly respectable industrial base – its export to GDP ratio is 26%, similar to the U.K., France or Italy. Only last week the Japanese car-maker Nissan announced a major new investment there.

Four: Spain is politically secure. For many countries, euro membership is more about politics than economics. The Greeks stay in because it locks them into Europe (rather than being part of the Turkish sphere of influence). Latvia wanted in because it made it part of the EU rather than being dominated by Russia. For the Irish, it is about separating themselves from Britain. The Germans stick with the euro because the EU still represents a break with its troubled past.

Five: Spain has bigger horizons. The Spanish economy looks partly to Europe. But it looks just as much to the booming Spanish-speaking economies of Latin America (and indeed the huge Hispanic market in the U.S.). Rather like the U.K., Spanish business has always looked to the global rather than the European market. Why tie yourself to a failing project when there are much bigger opportunities out there?

Six: The debate has already started. There is already a serious discussion underway in Spain about the future of the currency. Plenty of mainstream economists and pundits are arguing that the real problem is the euro, and Spain will only recover once it gets the peseta back. The taboo has been broken. That isn’t true in Greece, where even the far-left Syriza party still clings to the idea that it should stay in the euro.

Spanish govt 2yr yields are blowing out at the moment in response to the bankruptcy/bailout of one of their larger banks. With Greece now saved, the problems have emigrated. The truth is that Europe is essentially bankrupt, as is America, as is China. The money printing can delay the issues at any given specific point, but, it just moves somewhere else. This will result in some large scale defaults somewhere, sometime.

From the Financial Times a series of bubbles.

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