Posts Categorized: USAWatchdog.com

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The most pressing problem on the planet right now is the European sovereign debt crisis.  It is a gigantic highly leveraged mess caused by greedy reckless bankers.  It was nurtured with the help of regulators who turned a blind eye and allowed the problem to mushroom into an uncontrollable financial cancer.  The European Union is struggling to come up with a plan or bailout fund big enough to truly end the crisis, but there is none in sight.  Every time there is a plan, it is shot down or falls apart.  There was talk of Germany backing the EU bailout fund with its gold reserves, but that was rejected by the Germans.  (Germany is the world’s number two holder of gold with 3,412 tonnes.)  Can you blame them?  It is ironic this so-called bailout fund is looking for tangible backing and that world leaders would turn to the yellow metal.  Didn’t they all have a pact to sell gold not so many years back?  This tells me any country with toxic sovereign debt that wants a bailout better be considering putting up its gold reserves.

The first troubled country that comes to mind is Italy.  It has the fourth largest gold reserve in the world with 2,451 tonnes.  Spain is in just as much debt and trouble as Italy, but only has 281 tonnes of gold.  It ranks around 17th on the list.  These two countries have ten times the sour debt of Greece.  I predict Germany will not be the last country to be asked to put up its gold.  I suspect there is not a country on earth that will elect to give up control of its yellow reserves.  What else is there?  I don’t think Italy would put up the island of Sicily for collateral, no more than the U.S. would post the Hawaiian Islands as security for a loan.

They call this a sovereign debt crisis, but it is the banks that are really at the heart of the problem.  This leaves the EU with very limited options.  They can allow the banks holding this sovereign debt to default, or print money to bail them out.  Laws have been passed in Europe that allow the banks to count toxic sovereign debt as an asset.  It is a novel idea–overwhelming debt that doesn’t have a prayer of being fully repaid counted as a store of value.  (Oh wait, what was I thinking, this is the same thing the American government allows U.S. banks to do!)  That means you can also say the sovereign debt crisis is bank solvency crisis.  If you mark all sour debt for what banks can get for it today, many European financial institutions would be insolvent.  End of story.

More…

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

What is going on in the world today is both frightening and historic.  It is frightening because the amount of debt accumulated is orders of magnitude more than ever before.  It is historic because the way this finally shakes out will be considered a major turning point in modern history.  I see this, but most people in the world are either in denial, delusional or just a victim of disinformation by the mainstream media (MSM).  If you read this site often, you know I heavily source what I write about.   I do this because I want people to have solid information and analysis.  For example, just last week, a Morgan Stanley analyst named Joachim Fels sent a research note out to clients that talked about the EU sovereign debt crisis.  Here is part of what Mr. Fels said, “This past week, by raising the possibility that a country might (be forced to) leave the euro, core European governments may have set in motion a sequence of events which could potentially lead to runs on sovereigns and banks in peripheral countries that make everything we have seen so far in this crisis look benign.”  (Click here to read the entire story from Zerohedge.com.)  

This Morgan Stanley analyst is taking about bank runs and is painting a calamitous picture of the EU sovereign debt problem.   I believe that most people haven’t a clue about what is going on and how their lives are going to change for the worse.  If they do, then they just refuse to believe that the government will let anything bad happen.  I got a comment from a reader by the name “In4mayshun” on a post I wrote last week titled “Two Financial Nukes Explode.”  It was about MF Global and Greece.  Both situations are far from over and sorted out.  The comment is below:

“Greg,

While I appreciate the time and research you put into the article, I feel it is a little over dramatic. At first you equate the bankruptcy of MF Global to a financial nuclear explosion, and then you reduce it to a canary in a coal mine. Well which one is it? I think this is why so many main stream individuals dismiss alternative media as dooms-dayers, always claiming the sky is falling. To a point this is accurate. Anyone with a brain can see that our financial system is slowly crumbling, but it could take 10-20 years for this thing to play out. Meanwhile, you have everyone with a blog forecasting the next financial apocalypse. Pretty soon, no one takes any forecast seriously.

More…

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

On Monday, I said at the end of my post, “I think someday we will “grow” our way out of the economic mess we are in but not before a very big fall.”  I didn’t think the fall would come the very next day–but it did.  Two monster nukes exploded on the financial landscape.  They are the surprise MF Global bankruptcy and the equally surprising Greek referendum on the second bailout package.  Kaboom and kaboom!!!  I see not one, but two giant mushroom clouds on the horizon, and destruction is headed our way.  Anyone underselling these two bombs is on some pretty heavy Prozac.  This is a turning point, and the turn is decidedly bad. It’s a global financial crash.

Two weeks ago, I wrote, “When European banks start failing, there is no way U.S. banks will be able to avoid being sucked into a vortex of default.   For anyone who thinks this crisis can be resolved with a pain free plan—forget it.  Welcome to the age of bank failures.”  (Click here for the complete post.)  I didn’t think MF Global, headquartered in New York City, would beat everyone to the punch.

MF Global is bankrupt for dealing in European sovereign debt.  CEO Jon Corzine was trying to make a quick buck with what are reported as “risky trades” and got a bankruptcy pie in the face.  There are allegations of missing money and possible criminal activity.  Considering this is coming from a former Primary Dealer in U.S. Treasuries, the Federal Reserve looks like it was asleep at the wheel of regulation once again.  Don’t forget the SEC and CFTC!  Where were the regulators?  There is no telling the amount of leverage and counterparty risk MF Global has, but we’ll be finding that out in the days and weeks to come.

And get this, for blowing up MF Global (a 200 year old company), Mr. Corzine might get a severance package of $12.1million!!  Let’s hope bankruptcy limits his pay to zero.  Heck, he should be paying money back to the company and its shareholders!   You wonder why the Occupy Wall Street people are protesting greed and corruption?  Even if MF Global does not turn into a Lehman Brothers event, it surely is one giant dead canary in the world’s financial coal mine. (Click here to read more on MF Global.)

More…

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Last week, the government announced the economy (gross domestic product, GDP) grew at a 2.5% rate.  The mainstream media (MSM) hailed this as some significant turnaround.  Businessweek.com reported, “Buoyed by a resurgent consumer and strong business investment, the economy expanded at an annual rate of 2.5 percent in the July-September quarter, the government said Thursday.  The expansion, the strongest quarterly growth in a year, came as a relief after anemic growth in the first half of the year and weeks of wild stock market shifts.”  (Click here for the complete Businessweek.com story.)  Where did this so-called growth come from?  My bet is most of it came via money printing by the Fed, credit card use and inflation that is mistakenly reported as growth.

Economist John Williams of Shadowstats.com says the 2.5% GDP growth rate story is a sham.  In his latest report, he says the economy is not growing but “sinking anew.”  Williams criticized the government numbers the day they came out last week by saying, “. . .the widely-followed gross domestic product (GDP) nonetheless remains the most-heavily-biased, the most-heavily-guessed-at, the most-heavily politicized and the most-worthless major indicator of domestic business activity.  Today’s numbers out of the Bureau of Economic Analysis are outright nonsense.  Consider that latest numbers showed that the level of inflation-adjusted third-quarter 2011 GDP broke above the pre-recession high of fourth-quarter 2007: a full recovery.  That is absurd.  No other major economic indicator, including payrolls, real (inflation-adjusted) retail sales, industrial production, trade deficit or housing starts is showing that.” (Click here to go to the Shadowstats.com home page.)

There are many other signs the economy is not getting better.  The latest data from both Consumer Sentiment and Consumer Confidence surveys have recently plunged right along with home prices.  Business week.com reported last week, “The New York-based Conference Board’s household sentiment index slumped to 39.8 in October, the lowest level since March 2009 and less than the most pessimistic forecast in a Bloomberg News survey, the group’s data showed today. Property values in 20 cities were little changed in August from the prior month and down 3.8 percent from 2010, according to S&P/Case-Shiller.  “The outlook continues to deteriorate,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. “It’s not good for confidence when people see their main asset, their homes, decline in value. Our best-case scenario is we’ll muddle through.”  (Click here to read the complete article.)

To top it off, a nationwide survey of bankers last month revealed that most expect home prices will not recover until the year 2020!  CNBC covered the story and said, “The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21 percent of respondents said they would.  The findings, which authors called “a decidedly pessimistic outlook,” are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.  In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.” (Click here for the complete CNBC story.)  So, don’t hold your breath for the so-called recovery story becoming reality anytime soon.

More…

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The U.S. stock market surged yesterday on news the European Union (EU) would deploy a two trillion euro rescue fund to help get its sovereign debt crisis under control.  This news was so good even battered Bank of America stock jumped more than 10%.  Crisis averted?  Hold on, not so fast.  Some big French banks are in trouble because they are up to their necks with sovereign debt.  Naturally, President Nicolas Sarkozy wants action now.  Yesterday, the Financial Times (FT.com) reported the French leader said, “. . . an unprecedented financial crisis will lead us to take important, very important decisions in the coming days.”  Raising the sense of urgency, the French president added: “Allowing the destruction of the euro is to take the risk of the destruction of Europe. Those who destroy Europe and the euro will bear responsibility for resurgence of conflict and division on our continent.” (Click here to read the complete FT.com story.) 

Jim Rickards of Tangent Capital says you have to distinguish between the bonds, banks and the euro.  He said recently in an interview on King World News, “The bonds are definitely going to crash and burn.  The bonds are toast. . . . The banks own the bonds, and if the bonds are toast, the banks are toast. . . . But that doesn’t mean the currency is toast.”  (Click here for the complete King World News interview with Mr. Rickards.)  Rickards expects the euro currency will survive, but many banks will not. 

Reggie Middleton of Boombustblog.com says the reason for the coming bank failures is simple—high debt loads.  Middleton says many European banks have 40 to 1 leverage.  He recently explained how dangerous this was by saying, “I take a dollar and I borrow $39, and I go out and buy something with it.  All you need is a 2% move to totally wipe you out—100%.  And we all know a lot of sovereign bonds have moved a whole lot more than 2%.” (Click here to see more of Middleton on the Boombustblog.com.)  Middleton is expecting more European bank runs as the crisis picks up speed.  

More…

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The meeting yesterday in Europe to come up with a plan to stem the sovereign debt crisis turned sour.  Zero was accomplished, except to put even more fear into the world over an impending financial meltdown that will likely be worse than the 2008 mushroom cloud.  The Telegraph UK is reporting, “During two hours of bitter exchanges during a meeting of all 27 EU leaders before a crisis summit of the Eurozone’s 17 members on Wednesday, President Sarkozy fought hard to get the Prime Minister barred from talks that would finalise a 100 billion euros cash injection into banks.  ”We’re sick of you criticising us and telling us what to do. You say you hate the euro, you didn’t want to join and now you want to interfere in our meetings,” the French leader told Mr. Cameron, according to diplomats.”  (Click here to read the complete Telegraph UK article.) It appears members of the EU are having a hard time coming up with a plan which will, no doubt, be some sort of combination of bank failure, steep haircuts in sour sovereign debt, and money printing to pick winners. 

So, what does Europe have to do with global inflation?  I figure if there is no plan soon, things may get out of control.  In this scenario, the ECB may be forced to print euros like crazy.  Meanwhile, the Fed would rev up its printing press at the same time to help fight off another out-of-control systemic failure.  This latest possible money dump falls against a backdrop of accelerating global inflation caused by multiple rounds of currency creation since 2008.

How bad is inflation around the world right now?  In Asia, Bloomberg recently reported, “Singapore’s decision to slow its currency’s advance rather than halt gains shows the dilemma facing Asian nations trying to tame inflation while protecting exporters from faltering economies in Europe and the U.S. . . . Singapore’s inflation will average about 5 percent this year and 2.5 percent to 3.5 percent in 2012, the central bank said yesterday. Consumer prices rose 5.7 percent in August from a year earlier.”  (Click here to read the complete Bloomberg report.)

In the Middle East, Business Intelligence reported last week, “Saudi Arabian inflation accelerated to 5.3% last month, its fastest pace since January . . . the Saudi Press Agency reported today, compared with 4.8% in the previous month. The cost of living index increased 0.9% in September from August, the report said. Annual inflation in January was also 5.3%.” (Click here to real the complete BI-ME.com report.)

More…

Posted by & filed under USAWatchdog.com.

Greg Hunter’s USAWatchdog.com

Dear CIGAs,

I, and many others, have said when it comes to the economy, nothing has been fixed.  I thought Federal Reserve Chief Ben Bernanke underscored that fact when he spoke yesterday in Washington D.C. for the Joint Economic Committee.  Mr. Bernanke said in prepared remarks, “There have been some positive developments: The functioning of financial markets and the banking system in the United States has improved significantly.”   Of course, there was not a word about the recent credit downgrades for three big U.S. banks.  I also don’t see how the banks are in so much better shape with many of their stock prices tumbling.  Bernanke also admitted, “Nevertheless, it is clear that, overall, the recovery from the crisis has been much less robust than we had hoped.”  (Click here to read the complete text from Bernanke’s prepared remarks.)  Maybe that’s why the Fed recently froze a key interest rate at near 0% for at least the next two years.

Bernanke is still saying that lethargic growth of the economy is due to “temporary factors.”  And, yet, he also told the Congressional Committee the so-called economic recovery “is close to faltering.”  I don’t see how these kinds of back and forth contradictions are not the sign of a Fed Chief with a clear view of the economy, let alone with a plan to fix it.  The fact is the Fed’s lax regulations, easy money policies and massive bailouts are a big part of why the economy is in the shape it is in.  To be fair, it is not all Bernanke’s fault.  First of all, Alan Greenspan was no “maestro.”  The last Fed Chief who could call himself that was Paul Volcker.  He raised interest rates to the moon to kill inflation, and Wall Street hated him for it.  In the years leading up to Mr. Bernanke’s appointment, Greenspan was quick with his own bailouts and never saw a regulation he couldn’t bend or cut.  It was Greenspan that pushed to get rid of Glass-Steagall, and from that point in 1999, it was all downhill.      

Congress was basically taken over by Wall Street years ago, and instead of statesmen, all we have now are mostly bagmen.  Nobody has the spine or political will to do what is necessary to right the ship of state.  Congress cannot agree on anything resembling a financial plan to get America back on track.  Congress is so divided that it has flirted with shutting down the government several times—this year.  Now, the so-called “super committee” is supposed to cut $1.5 trillion from federal deficits by the end of next month.  (By the way, this is not really a cut; it just slows the growth of government spending.)  Yesterday, Bernanke warned Congress about this “crucial objective” by saying, “The federal budget is clearly not on a sustainable path at present. The Joint Select Committee on Deficit Reduction, formed as part of the Budget Control Act, is charged with achieving $1.5 trillion in additional deficit reduction over the next 10 years on top of the spending caps enacted this summer. Accomplishing that goal would be a substantial step; however, more will be needed to achieve fiscal sustainability.” 

More…

Posted by & filed under USAWatchdog.com.

By Greg hunter’s USAWatchdog.com

Dear CIGAs,

I keep hammering away at the fact the Fed doled out $16 trillion in the wake of the credit crisis of 2008.  This is an enormous sum that is greater than the all goods and services produced in the U.S. in a single year.  Domestic banks and companies got the money, right along with foreign banks and companies.  In effect, the Federal Reserve bailed out the world financial system.  Now, we are right back to square one facing another financial meltdown with European banks and sovereign debt.  If the Fed spent $16 trillion, why in the heck is this problem not fixed and why isn’t the world economy taking off like a rocket?”  The simple answer is it wasn’t enough money. 

The Bank of International Settlements pegs the total world over-the-counter (OTC) derivative exposure at around $600 trillion, but many experts say the real figure is more than twice that amount.  No matter which figure you use, it is a gargantuan sum.  OTC derivatives are an unregulated dark pool of money with no public market.  These are basically debt bets between two entities on things such as credit risk, currencies, interest rates and commodities.  According to the latest report from the Comptroller of the Currency, just four U.S. banks have an eye popping $235 trillion of OTC derivative leverage. (Click here for the complete Comptroller of the Currency report.)  As a nation, U.S. banks have a total OTC derivative exposure of $250 trillion. So, the fact that just four U.S. banks have this much leverage and risk is astounding!  The banks are listed below in order of size and approximate OTC exposure:

1.)     JP MORGAN CHASE BANK NA OH

           $78.1 trillion OTC derivatives

2.)    CITIBANK NATIONAL ASSN

           $56.1 trillion OTC derivatives

3.)    BANK OF AMERICA NA NC

           $53.15 trillion OTC derivatives

4.)    GOLDMAN SACHS BANK USA NY

           $47.7 trillion OTC derivatives

Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion!  This is nearly 50 to 1 leverage.  On top of that, assets such as real estate or mortgage-backed securities can be held on the books at whatever value the banks think they can sell them for in the future.  I call this government sanctioned accounting fraud, or mark to fantasy accounting.  Who knows what the true value of the banks “assets” really are.

More…