Daily Digest

Daily Digest 8/25 - Fed Behaving Dangerously, Keynesian Solutions, China's Ghost Cities

Thursday, August 25, 2011, 9:43 AM
  • The Friday Podcast: Fed Behaving Dangerously, Fed President Says
  • Are You Ready? The Government Doesn't Give A Damn
  • Fruitful gains for farmers markets
  • Keynesian Solutions
  • Mint awards firm contract to research alternative coinage metals
  • Much Ado About Debt: Dollar vs. Euro
  • U.S. Banks Facing Main Street Squeeze as Economy Saps Earnings
  • Was the CIA behind the Gaddafi oust?
  • Germany fires cannon shot across Europe's bows
  • Greece: It’s the corruption, stupid!
  • China's Ghost Cities
  • The upside for gold and silver will knock your socks off - Embry

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The Friday Podcast: Fed Behaving Dangerously, Fed President Says (Brock H.)

On today's Planet Money, we talk to the one guy who, meeting after meeting, cast the lone "no" vote: Thomas Hoenig, president of the Kansas City Fed.

Are You Ready? The Government Doesn't Give A Damn (Phil H.)

There is no way to avoid what's coming. We have added roughly $4.5 trillion in debt to the Federal balance sheet trying to paper it over and have failed. Even the "good" banks like JP Morgan and Goldman are failing to make progress. The poorer ones such as Citibank, Morgan Stanley and Bank of America are seeing their market prices collapse. The XLF, the composite of the large banks, is back to where it was in the summer of 2009. Should it break below these levels it is likely going for the spring 2009 lows.

Fruitful gains for farmers markets (Mike K.)

More Americans are buying locally grown food and new farmers markets are sprouting throughout the country,

During the past year more than 1,000 markets opened, for a total of 7,175, according to figures released by the United States Department of Agriculture (USDA).

Keynesian Solutions (JimQ)

The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up. These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis.

Mint awards firm contract to research alternative coinage metals (Jamie D.)

The firm states in the press release: “In its recommendations to the United States Mint, CTC will address various factors, such as the effect of new metallic coinage materials on the current suppliers of coinage materials; the acceptability of new metallic materials; costs of metallic material, fabrication, minting, and distribution; metallic material availability and sources of raw metals; coinability; durability; effect on sorting, handling, packaging and vending machines; appearance; risks to the environment or public safety; resistance to counterfeiting; and commercial and public acceptance.”

Much Ado About Debt: Dollar vs. Euro (Joe P.)

A key reason for recent market turmoil may be the long overdue untangling of important debt-driven interdependencies between the U.S. and Europe. In our analysis, not only has the Federal Reserve’s (Fed’s) ultra-low monetary policy taken away any incentive to engage in meaningful reform in the U.S., but the easy money also spilled far beyond U.S. shores, providing European banks with hundreds of billions of reasons not to shore up their capital bases. With volatility riding high, investors appear to be chasing emotions rather than facts; let’s take a step back, and in an effort to understand where the Fed, the U.S. dollar and the euro might be heading next, let’s focus on facts rather than emotion.

U.S. Banks Facing Main Street Squeeze as Economy Saps Earnings (JLA)

Right now, if there is a bank that’s successful it’s more that they’ve been taking market share away from their peers,” said Peter Kovalski, a portfolio manager and bank industry analyst at Alpine Woods Capital Investors LLC in Purchase, New York, who manages about $6 billion. “The overall pie hasn’t increased yet. We need to see some sustained economic growth before that happens.

Was the CIA behind the Gaddafi oust? (Johnny Oxygen)

Congressman Dennis Kucinch has suggested that the CIA has had a role in the start-up of the Arab Spring this year. Jack Rice, a journalist and former officer at the CIA himself, says it is not that unlikely at all.

“Let’s be honest,” Rice said to RT. “The CIA is involved in every place that they try to get involved in. They try to be on the ground in every major country in the region.”

Germany fires cannon shot across Europe's bows (pinecarr)

Link: Title: Quote: German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds.

Greece: It’s the corruption, stupid! (pinecarr)

Jason Manolopoulos, author of Greece’s 'Odious’ Debt, says the state has become a hydra with seven heads: cronyism, statism, nepotism, clientelism, corruption, closed shops and waste. Kleptocrats have been running the show and their predilection for thieving and bribery has poisoned the nation.

China's Ghost Cities (adam)

Video journalist Adrian Brown wanders through malls of vacant shops, and roads lined with empty apartment buildings… 64 million apartments are said to be empty across the country and one of the few shop owners says he once didn’t sell anything for four or five days.

So are the efforts to boost the economy going to end up having the opposite effect and creating a financial crisis for China?

The upside for gold and silver will knock your socks off - Embry (pinecarr)

With no easy solutions to the globe's debt problems visible, Sprott Asset Management's John Embry expects gold and silver to be significant beneficiaries but the road ahead will not be easy.

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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John Williams on Goldseek Radio

His message is unchanged, but his timeline for hyperinflation is now described as up to 2 years away.  The last estimate I heard form him was 2012, so it appears that he is not as sure today as he was 6 months ago.

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Is Deepwater Horizon leaking? Oil spotted over capped well

Something to keep an eye on....


Deepwater trouble on the horizon: oil discovered floating near source of Gulf of Mexico spill


Samples collected by the newspaper Tuesday were provided to Scott Miles, a chemist at LSU. Together with oil chemist Ed Overton, Miles conducted the chemical analysis that federal officials used to fingerprint the Deepwater Horizon oil — known as MC252.

“Looking at the fingerprinting, the samples were low concentration, so it is not giving a real good picture. It is possible it could be MC252. It’s south Louisiana crude for sure,” said Miles. “You can’t say 100 percent that it is from the spill itself, but they do need to get somebody out there to investigate further.”

Miles said he could smell the oil in the samples as soon as he opened the jars.

“The fact that it is right over the Macondo well site is pretty tantalizing,” said Overton, who was one of the first people contacted by the National Oceanic and Atmospheric Administration after the spill began in April 2010.

“There is no way to say for sure whether the well is leaking, based on what is on the surface,” he said. “Of course it is suspicious.”




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Market Crash 'Could Hit Within Weeks'

Market Crash 'Could Hit Within Weeks', Warn Bankers

A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.

By Harry Wilson, and Philip Aldrick

August 25, 2011 "The Guardian" - -Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group's implosion nearly three years ago.

Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender's bonds against default is now £343,540.

The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.

"The problem is a shortage of liquidity – that is what is causing the problems with the banks. It feels exactly as it felt in 2008," said one senior London-based bank executive.

"I think we are heading for a market shock in September or October that will match anything we have ever seen before," said a senior credit banker at a major European bank.

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Greece Quietly Activates Emergency Liquidity Measures


Greece Quietly Activates Emergency Liquidity Measures

Greek default might not be that far away.

As yields on Greek bonds skyrocket and questions about collateral threaten to undermine the bailout, Greece's central bank has quietly activated the Emergency Liquidity Assistance (ELA) program to help banks struggling to stay afloat, according to Greek newspaper Imerisia (via Reuters).

The ELA is supposed to provide cash in "exceptional circumstances and on a case-by-case basis to temporarily illiquid institutions and markets," according to the European Central Bank's definition. Although the ECB has to approve such transactions, it allows the Greek central bank to provide funds even after interbank and ECB outlets are closed.

Everyone knew that Greek banks were not in good shape right now, but just how close are they to dragging the country over the edge?

Too close for comfort, particularly with all the collateral drama going on right now. BTIG estimates that Greece will need $144 billion to meet its goals and obligations in 2011. The July 21 bailout agreement will include roughly $157 billion in financing if implemented.

Squabbling over collateral has escalated since last week, when Finland and Greece secured a bilateral agreement. "It seems that a possible outcome is either collateral for all member states or no country will get it," a source close to the negotiations was quoted as saying in WSJ.

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