Daily Digest

Daily Digest 12/17 - EU Leaders Commit to Bail-Out, Ireland Economy May Grow in 2011, China: Anti-Inflation Measures Needed

Friday, December 17, 2010, 11:00 AM
  • EU Leaders Commit To Bail-Out Fund
  • Mauldin: Unintended Consequences
  • Bankers Secretly Meeting to Control the World?!? Yawn…
  • Fake-Out Thursday – Oil Scam Continues Unabated
  • Ireland Economy May Grow 0.9% in 2011 as It Recovers From Crisis, IMF Says
  • China Leader Says Anti-Inflation Measures Needed
  • Brazil Stocks Open Lower As Euro Worries Overshadow Jobs Data

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EU Leaders Commit To Bail-Out Fund

The promise, contained in their summit communiqué after two days of meetings, was the most explicit commitment to date by European Union leaders about their willingness to back a bail-out of even larger eurozone economies such asSpain and Italy, should those countries get cut off from the financial markets.But their unwillingness to enlarge the fund, which had been proposed by some EU finance ministers, was a sign that they believed setting a new, higher limit would only lead bond traders to assume EU leaders believed a Spanish or Italian bail-out was inevitable.

Mauldin: Unintended Consequences (jrb)

Correct me if I’m wrong, but I seem to remember that one of the reasons for QE2 was to lower rates on the longer end of the US yield curve.  Clearly, that has not happened?  Today we look at come of the unintended consequences of monetary policy, turn our eyes briefly to consumer debt, and wonder about deflating incomes.  There are a lot of very interesting things to cover.

Bankers Secretly Meeting to Control the World?!? Yawn… (ilene)

Critics have called these banks the “derivatives dealers club,” and they warn that the club is unlikely to give up ground easily. The Times points out "Perhaps no business in finance is as profitable today as derivatives. Not making loans. Not offering credit cards. Not advising on mergers and acquisitions. Not managing money for the wealthy." The secrecy surrounding derivatives trading is a key factor enabling banks to make such large profits and the banks guard that secrecy very closely.

Fake-Out Thursday – Oil Scam Continues Unabated (llene)

It's not just American Citizens who are paying the extra $60M per day that the $3 pop in oil costs us, the rest of the World consumes another 70M barrels a day and they are stuck with a $210M per day bill as well for each $3 gain in price.  And that, of course, is before the refining mark-ups.  Just the $270M a day they screwed us out of this week is a very nice $98.5Bn annual rip-off of the global population or, what I pointed out last year is a Double Madoff!

Ireland Economy May Grow 0.9% in 2011 as It Recovers From Crisis, IMF Says

Ireland faces “significant” spillover risks from its financial woes that could affect Greece, Portgual, Spain and other euro-area economies, the Washington-based fund said. Financial contagion also could affect countries like the U.K., Germany, France and the U.S that have large portfolio investments in Ireland, the IMF said. European Union leaders grappled this week with how to fix the current crisis and prevent future debt shocks in Brussels talks. German officials, driven by public outcry against propping up fiscally reckless countries, have resisted enlarging a 750 billion euro emergency fund or developing joint bond sales.

China Leader Says Anti-Inflation Measures Needed

One of China’s top leaders said at a government meeting that measures needed to be taken to tamp down inflation in the coming year, according to a report on Friday by Xinhua, the state news agency. The comments were one of the clearest signs yet that Chinese leaders are increasingly concerned about popular resentment arising as a result of soaring living costs. The leader, Li Keqiang, vice premier of China, said in comments made Thursday that “more efforts should be provided to stabilize prices next year.” Over the next five years, economic growth rates should be defined “reasonably,” he added, an indication that leaders could be anxious about an overheated economy.

Brazil Stocks Open Lower As Euro Worries Overshadow Jobs Data

Fresh worries about the state of Europe's finances arose after a five-notch downgrade of Ireland's credit rating by Moody's Investors Service earlier Friday. The rating was cut to Baa1 from Aa2 with a negative outlook. That was enough to make investors dial down their desire to buy riskier assets. At 1356 GMT the Ibovespa index was down 0.4% at 67,073 points. Unemployment was 5.7% in November, lower than the 6.1% rate registered in October, the Brazilian Census Bureau, or IBGE, said Friday. October's figure previously had been the lowest unemployment rate recorded under the IBGE's methodology. The unemployment rate in November 2009 was 7.4%.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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Re: Daily Digest 12/17 - EU Leaders Commit to Bail-Out, ...

"DUBLIN — Moody's on Friday slashed its credit rating on debt-stricken Ireland just days after parliament approved a massive international bailout and as the European Union battled to safeguard the euro.

Moody's Investors Service cut its rating on Ireland by five notches from Aa2 to Baa1, citing increased uncertainties over the country's economy and public finances. Moody's added that the Baa1 rating outlook was negative.

Moody's action makes follows similar but less drastic ratings downgrades by its peers, Standard & Poor's and Fitch, adding to the pressure as investors demand a higher return to buy Irish government bonds.

Following Moody's move, markets pushed up the yield, or rate of return, on Irish benchmark 10-year government bonds to 8.334 percent from 8.279 percent on Thursday. The Dublin stock market was down by 0.27 percent."

.............................1A) Moody Downgrades Ireland By 5 Notches Sending EUR/USD Lower

"Dec 17 (Reuters) - The bad loans ratio for Spanish banks rose to its highest level in almost 15 years in October, the Bank of Spain said on Friday, as a stagnant economy and high unemployment weighed on debt repayments.

The level of unpaid loans as a ratio of total lending by Spain's financial sector -- including banks, financial cooperatives and retail credit cards -- rose to 5.66 percent in October from 5.49 percent a month earlier.

Unpaid loans on Spanish banks' books have been rising steadily since the bursting of a decade-long property bubble sent shock waves through the economy and left around one in five Spaniards out of work."

"The Federal Reserve’s balance sheet grew $3.5 billion to $2.39 trillion as the central bank increased its holdings of Treasury securities faster than its holdings of housing debt declined.

Treasuries held by the Fed increased by $17.9 billion to $967.6 billion as of Dec. 15, according to a weekly release by the central bank today. The Fed’s holdings of mortgage-backed securities fell by $13.8 billion to $1.01 trillion and federal agency debt securities fell by $294 million to $147.9 billion.

The Fed has bought $127.7 billion in Treasuries on its way to purchasing $600 billion of government debt through June 2011."

"Got a spare $5,500 lying around that you want to get rid of? If every single San Franciscan coughed up that amount, we could pay City Hall's retiree health care bill - for now, anyway.

A new report from the controller's office shows the city has an unfunded health care liability of $4.36 billion. That means it'll cost that much to pay the promised health care benefits for every current employee and retiree - and that number will keep growing as health care costs rise. By 2033, the tab will be a whopping $9.7 billion.

Guess how much the city has saved to pay down the costs so far? You guessed it. Nuthin'."

...............................4A) Retiree Care to Cost City $4.4 Billion (SF)

"Atlanta, which runs the world’s busiest airport, may lower the assumed rate of return on pension assets as it confronts a $1.5 billion deficit in the funds.

An advisory board developing the city’s options is basing them on an expected earnings rate of 7.25 percent, down from 8 percent, in calculating the size of contributions needed to pay retirees, said John Mellott, chairman of the Atlanta Pension Panel, at a city hall meeting yesterday."

"The city’s police, fire and general pension funds, with combined assets of $1.9 billion, have promised $3.4 billion in benefits. Reducing the expected return would widen the unfunded liability by about $250 million to almost $1.8 billion, consultants including Deloitte LLP said in a report. "

"Dec. 17 (Bloomberg) -- Portugal risks being frozen out of the bond markets next year amid a wave of auctions from higher- rated governments and agencies that threaten to force the nation into seeking a bailout to pay its debts."


  • Other news, headlines and opinion:

Greece Will Default Says Citigroup

Nevada Switch to 401(k)-Style Pension Adds $1.2 Billion Cost, Study Says

Moody's may cut Greek credit rating, now on review

Rhode Island town faces potential bankruptcy (Central Falls)

Euro rescue summit fails to impress

Roubini Says Spain Risks Bank Run Without More European Support

CalPERS shrinks rate hike by $200 million

Spain Banks Face 2011 Revenue Drain on Funding Costs

Moody's says 2011 double dip damages US banks

S&P: US Healthcare Costs Rise 6.70% Over the 12-Months Ending October 2010

State's pension free ride may end (Virginia)

Doug's picture
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Re: Daily Digest 12/17 - EU Leaders Commit to Bail-Out, ...

Bankers Secretly Meeting to Control the World?!? Yawn…

I have wondered how the derivatives markets works, how they can control so much money (supposedly 20x the world's GDP) and what impact their destruction would have on the world economy.  The above link is kind of a primer on how they work and has a link to this article:



As the recent debate over Wall Street reform demonstrated, the sad reality is that the U.S. Congress is never going to step in and seriously regulate derivatives.

That means that a quadrillion dollar derivatives bubble is going to perpetually hang over the U.S. economy until the day that it inevitably bursts.

Once it does, there will not be enough money in the entire world to fix it.

Meanwhile, the big international banks will continue to run the largest casino that the world has ever seen.  Trillions of dollars will continue to spin around at an increasingly dizzying pace until the day when a disruption to the global economy comes along that is serious enough to crash the entire thing.

The worldwide derivatives market is based primarily on credit and it is approximately ten times larger than it was back in the late 90s.  There has never been anything quite like it in the history of the world.

So what in the world is going to happen when this thing implodes?  Are U.S. taxpayers going to be expected to pick up the pieces once again?  Is the Federal Reserve just going to zap tens of trillions or hundreds of trillions of dollars into existence to bail everyone out?

If you want one sign to watch for that will indicate when an economic collapse is really starting to happen, then watch the derivatives market.  When derivatives implode it will be time to duck and cover.  A really bad derivatives crash would essentially be similar to dropping a nuke on the entire global financial system.  Let us hope that it does not happen any time soon, but let us also be ready for when it does.

The discussion following this article is also interesting.  An example:

David Robertson

Derivatives are a development in the financial field from the futures markets based upon commodities. The latter are traded on regulated exchanges while the former are traded OTC by the major investment banks.

Commodity futures markets serve a real economic purpose. Financial derivatives, even the financial futures markets, serve no economic purpose other than to increase the wealth of the major investment banks.

It is inaccurate to say that these financial derivatives are based upon credit if you mean that one has to borrow in order to leverage against the underlying value of a contract.

The underlying security is a debt instrument, such as a mortgage, but in order to bet on the movement in the price of the security one does not need to put up more than the required margin which could be just 1% or less of the underlying value of the security. There is no requirement to borrow the balance as one has to do in the stock market.

Of course if the price moves against your position then you would have to come up with more margin. Usually one may post debt securities such as T-Bills as margin and therefore earn interest on them while making one’s bets on the price of the security.

The critical consideration in these markets is their depth and liquidity. The major investment banks create this liquidity as market makers. It is within their power to freeze the markets at any time. They know who is holding what positions. This gives them the ability to target any firm they wish to bring down for any reason. No doubt this is the subject at these meetings in Mid-Manhattan.

In other words these markets give the banking elites complete control over the world economy and they can take it down at any time they wish, as they have always done. Today their methods are more sophisticated but their objectives are the same.

It may just be me, but this is an entire subject matter area I was oblivious to until recently.  It's scary stuff.  Perhaps those better versed in this area would care to chime in.


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UK Heating Oil Crisis

Big heating oil problems in the UK...


Thousands of homes could run out of heating oil over Christmas and rationing will be introduced if the freezing weather continues, the government has warned.


pinecarr's picture
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Posts: 2266
Re: Daily Digest 12/17 - EU Leaders Commit to Bail-Out, ...

The GlobalEurope Anticipation Bulletin, LEAP 2020, has come out with its December issue, "Global systemic crisis: Second half of 2011 - European context and US catalyst - Explosion of the Western public debt bubble".  Here's a link to th publicly available portion: http://www.leap2020.eu/GEAB-N-50-is-available-Global-systemic-crisis-Second-half-of-2011-European-context-and-US-catalyst-Explosion-of-the_a5625.html . 


The second half of 2011 will mark the point in time when all the world’s financial operators will finally understand that the West will not repay in full a significant portion of the loans advanced over the last two decades.

-Being in the US, I find it interesting to read analyses from others outside the US, to get their (potentially different) perspectives on what's going on.

SagerXX's picture
Status: Diamond Member (Offline)
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Posts: 2265
Re: UK Heating Oil Crisis
joemanc wrote:

Big heating oil problems in the UK...


Thousands of homes could run out of heating oil over Christmas and rationing will be introduced if the freezing weather continues, the government has warned.


(loving the low hum/whistle my woodstove is making right now...)

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Posts: 71
Six more banks (at least) closed today.

From the FDIC web site, 6 more banks were closed as of 10:45 Eastern time today.


Damnthematrix's picture
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Re: Daily Digest 12/17 - EU Leaders Commit to Bail-Out, ...

Re :

Fake-Out Thursday – Oil Scam Continues Unabated

It's not just American Citizens who are paying the extra $60M per day that the $3 pop in oil costs us, the rest of the World consumes another 70M barrels a day and they are stuck with a $210M per day bill as well for each $3 gain in price.  And that, of course, is before the refining mark-ups.  Just the $270M a day they screwed us out of this week is a very nice $98.5Bn annual rip-off of the global population or, what I pointed out last year is a Double Madoff!

This is what a friend of mine, whose opinion and knowledge I really respect, thought of this.......

This article is a complete load of crap.

For starters, although the NYMEX Futures contracts do specify delivery to Cushing, Oklahoma,
the oil isn't necessarily actually delivered there - the imports are delivered to places like on the Texas coast and stored there and sold to refineries there with a price adjustment because the refineries don't then have to pay to have the oil transferred from Cushing to Houston. So the argument that the oil must be fake because there are more oil contracts than Cushing can take is completely wrong.
Secondly the initiator of a contract is someone who has real oil to sell, and the final holder of the contract is a refiner who really will take delivery. There are many middlemen who hold the contracts in between times, but if they make any money, it is only off each other.
As a middleman you cannot rollover a contract to the next month - you have to sell the old contract to a refiner and buy a new contract from a supplier.
In the final few days before the contract closes, the holders have to sell the contracts to refiners (or real stockpilers with spare capacity), and the refiners won't pay any more than they have to, so the middlemen often get stung if they have forced prices up too high. You can confirm this by watching the hourly price of spot crude and the NYMEX Futures price as the contract time nears (usually 2 pm on the 25th of the month),
when the two prices rapidly converge.
> "the real price of oil, when measured as global output vs. global demand on a historic basis should be closer to $60 a barrel than $90"
This is completely spurious as the pricing mechanism is an auction system and Demand only has to get a tiny bit ahead of Supply and the price spirals up until someone drops out.
It is really scary that this d%^&head reckons himself to be an expert.

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