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Posts tagged ‘The PIIGS’

The IMF is blowing smoke – Big Time!


Submitted by Mike Endres on Sat, 4 Sep 2010

Debt is good!

The IMF is telling jokes again. Too bad they aren’t funny and are, in fact, dumping gasoline on the problem of debt resolution around the world.

This week’s Economist (one of my two favorite news magazines – the other being The Week) published what I first took to be an ironic snicker at a recent IMF paper. Turned out, it wasn’t a joke at all except for those who can deflect the powerful misinformation that economists of most stripes put out. Turned out The Economist wasn’t greatly impressed either.

The IMF essentially says that government debt doesn’t matter. Believe it or not, with some magically idiotic calculations, they issued a graph that shows the PIIGS and other countries have not, as yet, pushed the debt problem anywhere near disastrous levels (or as the IMF calls it, the “theoretical limit”).


Source: IMF and The Economist 9/4/10

The IMF “calculates”, although the formulae are not specified, that exceeding 100% of GDP in government debt is not to cause ulcers. As you can see from the graph above, even Greece, currently at slightly more than 150% debt/GDP ration can still borrow up to “a theoretical maximum” of 200% debt/GDP without the world coming to an end. What happens when the “theoretical limit” is punctured is not specified.

They do admit, however, that before that point is reached, selling bonds might become problematical in that those buyers of bonds may not behave like the IMF’s formulae and stop buying them.

For some reason, Ireland, which is currents just under100% of GDP could continue to borrow up to 250% of debt/GDP ratio before the aforesaid theoretical limit is reached.???***%”$£$%****???

The good old USA can keep up the money printing to 185% of GDP before the world comes to an end.

Why each county is different is not fully nor factually explained except by saying “each country is different” in the way it reduces (or not) its debt. Big insight, that.

What the IMF is basing their calculations on (whatever they may be) is government debt. It does not include private debt, unfunded liabilities and unsecured (and mostly worthless) assets now on the books of the central banks.

Add all those up and for the USA, some $206 trillion, and our current situation only jumps to a debt/GDP ratio of 16/1 or almost 900% of debt/GDP ratio over the IMF mystery math theoretical limit.

That means we are so far off the chart to the right hand side, we can never find our way back onto the chart again. To me, debt is debt. It matters not a whit whether it is government, private or public. Debt will be repaid by one of three ways; pay it back in real money that’s worth more than the paper it’s printed on; barter it away by trading assets of real worth to retire it; or defaulting on the the whole debt. It will be paid, in our case, sooner than later.

The real problem is that Governments the world over will use these IMF bogus theoretical figures to continue justifying more of the same old BS, just digging us in deeper and deeper until the game comes to a shuddering halt with all of us left hanging out to dry in a rain storm.

These IMF “calculations” are not worth the ink the reports are printed on and neither is the economics behind them.

Source link http://www.financialsense.com/contributors/mike-endres/the-imf-is-blowing-smoke-big-time%21

Alert that Euro on verge of real crisis

Something big is up, and it’s possible the Euro is going into a real crisis within two months…Is this the next big market surprise ala Lehman? Not exactly like Lehman, but of the scale of that crisis that shook the entire world and almost caused worldwide bank shutdowns in Fall 2008? I am beginning to think so, and have been discussing this looming new worry for subscribers, IE we are right at the cusp of something big for the Euro and the European Union, not only financially but very much so politically. Imagine what a real Euro crisis would do to – everything!

Alert that Euro on verge of real crisis

We are so concerned by recent developments with Greece as a canary in the coal mine for the Euro that we just issued an alert to subscribers that we foresee a big blow up for the Euro in about roughly one month’s time. That is USD bullish and gold bullish, and bearish for about everything else out there. And this has many other implications for US Treasury bonds, the China Yuan revaluation issue and many others. This Euro situation is a huge potential bombshell, possibly outgunning all previous huge crises we faced over the last 2.5 years. That’s right, the Euro situation can outgun all the worst financial chaos we have seen so far, and lead to massive currency instability worldwide. This is a big deal if it happens as we foresee.

If you noticed in the last week or so of trading days, the USD and gold often went up together. Gold and the USD are fundamentally inverse, the USD pricing most commodities, even gold if you will – especially gold. That particular gold / USD inverse is tied to the fact that the USD is still the world’s paper reserve currency still and is not losing that status yet – and gold is the world’s precious metal reserve currency.

When the USD and gold rise together, trouble is near

Now, when both rise together, you can be assured that flight to safety and liquidity/cash is in effect…

The biggest reason for the USD rising at this time is flight to safety due to concerns about the Euro. And money coming out of emerging markets that are peaked out and falling. The Euro makes up over half of the US Dollar index currency basket. So, when the Euro has trouble, the USD is the biggest beneficiary along with gold.

‘This Ain’t happening.’

It became clear last week that the EU bailout with the IMF for Greece was basically hot air. Greek bond spreads rose last week to their highest level versus Germany last week; the bond markets saying the proposed Greek bailout deal was just smoke and mirrors. Since this Greece story has been out for months, it became clear that all the Club med states and the so called PIIGS (I don’t like that term but everyone is using it to refer to those states, Portugal, Ireland, Italy, Greece and Spain) are even larger versions of the looming Greek tragedy, with even larger debt problems. And their time is running out this year too.

Must have $20 billion within two months

Why is Greece causing such a stir, its economy is small compared to say Spain, who is next in line in this crisis…? Because Greece has to refinance about $50 billion worth of bonds over the next number of months, a big $20 billion chunk due to roll over in two months. Greece is now at the door of insolvency.

The fact that the EU cannot come to terms with a relatively small bailout of $50 billion for Greece shows the internal dissention in the EU over the bailouts of the Club Med guys (PIIGS), with Germany finding it politically impossible to sign a deal. Greece is being left to its own devices. That ain’t good. Not good at all.

IMF solves nothing

Getting the IMF involved is viewed by markets as a last ditch effort, and reflects terribly on the EU monetary union and political union. It is said that using the IMF here merely confirms the political paralysis in the EU over this situation, and reflects terribly on the EU and the Euro. Major political paralysis is not something a major potential reserve currency can tolerate. Calls in Germany and elsewhere to kick out repeat EMU (European monetary union) offenders with huge financial deficits, Greece running something like a 13 pct of GDP deficit yearly. It’s going bankrupt.

Money is fleeing the country. A big surge of money flight to international banks in Switzerland, UK, Cyprus in the last week or so. In short, Greece is rapidly developing a sovereign bond crisis. That is nothing new, but the timing is, in light of the fact they need about $20 billion over the next two months. And money fleeing the country…is particularly worrisome.

There are many facets to this EU situation and they are bleak as hell for the Euro. This appears to be the next looming ‘big one’ crisis. We have kept subscribers well informed of potential outcomes for the Euro, and we also called the USD rally at end of Nov 2009, and a gold bottom in Dec 2008. We have made a lot of great currency calls way ahead (by months) of anyone I know of. We also called the 2008 summer commodity peak in April 08 warning the USD would rally, again months ahead of anyone I know of.

We have some basic defensive strategies to cover these potential events – a market crash and a possible Yuan revaluation. In any case, we have made some incredible calls for the last two years on the overall markets, calling huge swings in the USD, currencies, gold and commodity markets at key times, predicting trends that lasted 6 or more months out from our calls. There is a chart showing several of the major ones we called in the last 2 years on our site. Our newsletter is 44 issues a year with mid week email alerts.

Even though our newsletter is named PrudentSquirrel, it is probably one of the best currency newsletters for big currency calls you will find out there. The name reflects our ultra conservatism.

Copyright © 2010 Christopher Laird
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