Wednesday, February 22, 2012

As US Debt To GDP Passes 101%, The Global Debt Ponzi Enters Its Final Stages

Today, without much fanfare, US debt to GDP hit 101% with the latest issuance of $32 billion in 2 Year Bonds. If the moment when this ratio went from double to triple digits is still fresh in readers minds, is because it is: total debt hit and surpassed the most recently revised Q4 GDP on January 30, or just three weeks ago. Said otherwise, it has taken the US 21 days to add a full percentage point to this most critical of debt sustainability ratios: but fear not, with just under $1 trillion in new debt issuance on deck in the next 9 months, we will be at 110% in no time. Still, this trend made us curious to see who has been buying (and selling) US debt over the past year. The results are somewhat surprising. As the chart below, which highlights some of the biggest and most notable holders of US paper, shows, in the period December 31, 2010 to December 31, 2011, there have been two very distinct shifts: those who are going all in on the ponzi, and those who are gradually shifting away from the greenback, and just as quietly, and without much fanfare of their own, reinvesting their trade surplus in something distinctly other than US paper. The latter two: China and Russia, as we have noted in the past. Yet these are more than offset by... well, we'll let the readers look at the chart below based on TIC data and figure out it.

That the Fed is now actively monetizing US debt is beyond dispute (although some semantic holdouts remain - we are quite happy for them). Alas, with China, which has traditionally been the biggest buyer of US paper, no longer buying Treasurys, we are confident that the Fed will have no choice but to be dragged kicking and screaming once again into the fray, especially since traditional buyers of paper, even when allowing for exponential repo market leveraging (and someone please look at what is going on in the BoNY, State Street sponsored $15 trillion quicksand of repo'ed securities, which is the biggest black hole in the shadow banking system and will be the next pillar of the ponzi system to collapse) will be unable to keep up with US issuance. Especially since Primary Dealers already saw their Treasury holding rise to an all time high in the past week, and are loaded to the gills with US paper. So who is buying? Why Japan and the UK.
Japan and the UK? Hmm, if these two names sound oddly familiar, allow us to refresh one's memory. Behold the pristine leverage condition of both these two countries, in all its glory.

Hint: look at the far left.
So somehow the world's two most indebted countries (recall that Japan is about to in total pass 1 quadrillion debt) are out there and buying up the biggest amount of US debt (after the Fed of course)? Sorry, but while we are amusing by this attempt by the global ponzi regime to keep itself alive (even as Russia and China prudently step aside from the mauling that is sure to follow), whereby the most indebted nations keep buying each other's debt in the most transparent and potentially deadly shell game in history, we are also confident this is unsustainable. Which means the Fed will have no choice but to step in. And since when it comes to the capital markets, the ride up is over since we have now crossed the point where incremental profits are drowned by incremental input costs (thank you $106 WTI), the Fed now has just one mandate: to keep the US fiscal machine well-greased by buying up US debt at zero (and beginning in May negative) rates, through wanton monetization. 2012 may prove to be quite eventful after all.

Germany Sells Israel More Dolphin Subs

In November 2005, reports surfaced that that Germany would sell Israel 2 AIP-equipped Dolphin submarines, to join its existing fleet of 3 conventional diesel-electric Dolphin Class boats. In 2006, the deal for 2 Dolphin AIP boats was finalized at a total of $1.27 billion, with the German government picking up 1/3 of the cost. The new boats are built at the Howaldtswerke-Deutche Werft AG (HDW) shipyard, in the Baltic Sea coastal city of Kiel, with deliveries originally scheduled to begin in 2010. Those have been delayed, and have not begun as of yet.
Reports that an additional sale may be in the offing have now been confirmed, but just absorbing these 3 new boats will be no small challenge for Israel’s “3rd service”:

IEA: China buys more oil from Iran

Frontline Ltd.'s supertanker 'Front Shanghai'.
The International Energy Agency (IEA) says China has bought an additional 200,000 barrels per day of Iran’s oil in recent months.

Didier Houssin, IEA director of energy markets and security, said on Tuesday that Beijing is the world's second-biggest crude consumer and may continue to increase oil imports from Iran.

"China has been buying more crude and may continue to do so," he said at the International Petroleum Week conference.

Earlier this month, the IEA predicted that China’s purchases of Iranian crude would slow in the first three months of the year.

This comes while the IEA’s latest report predicts that China’s oil demand would rise by about 4 percent this year to 9.9 million barrels a day.

The increase in Beijing’s oil purchase from Tehran comes despite the recent Iran’s oil embargo imposed by the European Union.

In January, the European Union imposed unilateral sanctions against Tehran, banning member states from importing Iran's oil as of July 2012.

China has rejected the calls from the United States and its Western allies to stop buying oil from Iran, saying it will continue its legitimate economic ties with Tehran despite the US-engineered sanctions.

The US and its Western allies are putting more pressure on Iran by imposing sanctions as they accuse Tehran of pursuing military objectives in its nuclear program.

However, the International Atomic Energy Agency (IAEA) has never found any evidence indicating that Tehran's civilian nuclear program has been diverted towards nuclear weapons production.


Turkey, China help Iran evade sanctions: Report

Turkey and China are providing Iran with banking facilities to purchase necessary goods.
A London-based newspaper claims Turkey and China are helping Iran to evade UN sanctions by providing Tehran with banking facilities to purchase necessary commodities through indirect means.

According to an article published by The Telegraph on Tuesday, Iran's central bank is using a number of financial institutions in China and Turkey to fund the purchase of vital goods, thus to blunt the impact of the Western sanctions on the country’s financial sector.

Washington imposed new sanctions against Tehran on the New Year’s Eve to ban other countries from purchasing the country’s crude oil or doing transaction with its central bank.

The European Union also imposed new sanctions against Tehran on January 23, including a ban on importing the Iranian crude by the EU members, a freeze on the country’s central bank assets within the EU states, and a ban on selling diamonds, gold and other precious metals to Iran.

According to Western security officials, China, which is Iran's largest oil trading partner, is playing a major role in helping the country to avoid the sanctions.

Turkey, which maintains good diplomatic relations with Tehran, is particularly useful to Tehran because of its close trading ties with Europe.

The United States, Israel and the European countries claim that Iran's peaceful nuclear program contains a military component and have used that claim as pretext to impose four rounds of international sanctions on the country through the UN Security Council in addition to unilateral sanctions.

Iran insists that as a member of International Atomic Energy Agency and a signatory to the nuclear Non-Proliferation Treaty, it is entitled to peaceful applications of the nuclear energy.


A U.S. Debt Default is Guaranteed

Financial Fascism? 'Greeks should revolt against debt slavery!'

The Hell of Technocratic Prevarication

“…and the will of Zeus was moving toward its end.”
– Homer, The Iliad
Athens’ Burning
The burden of being on top ultimately weighs a civilization down.  Success is overreached.  Advancement becomes unsustainable.  Then, when everyone least expects it, something slips…and the seemingly impossible happens.  The money, the military, and the people’s dignity collapse and fold in short order.
Take Athens, for instance.  It lost its edge over 2,400 years ago.  When the Peloponnesian War began, in 431 BC, Athens was the strongest city-state in Greece.  By the time the war was over, just 27 years later, it was reduced to a state of complete devastation.
Moreover, the close of the Peloponnesian War marked the ignoble end to the golden age of Greece.  Athens was never able to re-gain its pre-war prosperity or preeminence and the populations psyche was forever shattered.  To this day the people of Athens still carry a chip on their shoulder over it.
For example, last week protestors lit buildings in central Athens on fire.  On surface, they’re angry about austerity measures being tied to yet another Greek bailout.  But we think there’s something more that’s flaming their rage.
Perhaps it’s the whole ineptitude of the European Union that has people taking to the streets…
Living In Default
The fabulous thing about the Greeks is that there’s hardly a cockamamie idea out there they haven’t gone for with gusto.  Their early experiments in democracy, oligarchy, conquest and empire have laid the blueprint for all ambitious nations to come.  More recently, they’ve uncovered the illuminati’s peculiar resistance to default in the 21st century.
Since achieving independence from the Ottoman Empire in 1832, the Greeks have excelled at repeatedly defaulting on their debt.  In fact, Greece has spent nearly 50 percent of its modern independent rule in default.  Hardly a politician has come to power that hasn’t overpromised and underdelivered.
Occasionally, after overreaching their obligations, the Greek government has stiffed their creditors or inflated the drachma, and had to start over with limited credit.  Here at the Economic Prism we don’t disregard Greece’s deficient attitude toward debt and contracts.  Nonetheless, we don’t favor a larger central bank bailout of private banks, who issued an endless line of credit to a government with an obvious track record of not being able to handle it.
By doing so, the central bank engenders a world of economic stagnation.  The dead wood’s never cleared out…it’s propped up and prevents the sunlight from reaching and nourishing new sprouts of growth below.
Over the weekend the technocrats gathered in Brussels to put the final touches on their latest Greek rescue package.  Yesterday, their masterpiece was to be revealed…but it was not to be.  The weekend of dithering ended without a deal.
Without the rescue package, reports AP, “An uncontrolled bankruptcy would likely force Greece to leave the 17-country currency union and return to its old currency, the drachma, further shaking its already beaten economy and creating uncertainty across Europe.”
If only the Greeks could be see lucky…
The Hell of Technocratic Prevarication
Greece, were it not in the EU, could humbly default on their debt or simply inflate their currency.  Obviously, there would be consequences for either course of action.  But at least the decision would be in the hands of the Greeks and their own elected government.  More importantly, they could just get on with it.
Yet, because Greece is part of the EU, that decision’s no longer theirs to make.  Instead it is up to a bunch of technocrats in Brussels, who periodically come together with self-important pomp, to announce a solution to the Greek debt problem.  Their solution generally consists of extending more credit in return for increased austerity.
Unfortunately, this does nothing to solve the problem.  It merely pushes it out into the future and exacerbates it.  Then the technocrats come together, celebrate their greatness, and do it again…and again.
Certainly, the man on the streets of Athens can’t be happy his leaders borrowed more money than they could ever pay back.  Still, the fact that his Country is broke is not likely what he finds so maddening.  What must be really provoking his anger is all the dithering ditherers in Brussels.
Thanks to their handiwork, Greece does not get to experience the abrupt pain of default or the disruptive ravages of inflation.  Instead Greece gets to experience the hell of technocratic prevarication.  In other words, Greece gets to experience a slow motion, never ending, technical default, through the dreadful and repeated combination of austerity and more debt.
Only EU elites could achieve such glory.  For those in Greece trying to earn a living, they’ll be making their way in a functionally dead economy for the rest of their lives.  To add additional insult, the big banks get a free pass on the dime of the European taxpayer.

 [MN Gordon (send him email) is the editor of the Economic Prism.  Visit Economic Prism.  The Economic Prism is published by Direct Expressions LLC.  Subscribe Today to the Economic Prism E-Newsletter at]

Spain barter economy wins followers in grip of crisis

MADRID (Reuters) - It's 10.30 on a chilly winter's morning in central Madrid and retailer Emanuela Scena is opening up for business.
Her shop is one of several offering second-hand goods that have sprung up in Spain's capital during the economic crisis and is packed to the rafters with clothes, books, CDs and electrical equipment.
But unlike the others, it doesn't take cash. It's part of a barter economy in goods and services that is gaining ground as the country tips into recession and already sky-high unemployment rates inch up.
Finding different ways of generating business has also inspired stores in two towns to start accepting the peseta again, encouraging customers more than a hour's drive away to root through cupboards and drawers for a currency they thought they'd surrendered for good in 2002.
"When we started (in December 2010), Spain was already in crisis. At first people didn't like the fact that everything we were exchanging was second-hand, but now they understand," Scena said.
'Abrete Sesamo' (Open Sesame) - "we liked the idea of a name suggesting Ali Baba's cave of treasures" - now gets up to 20 customers a day swapping goods for points they earn by bringing in items of their own and paying a small subscription fee.
People can also buy points just with euros, "but they're more expensive that way because we want to encourage bartering."
As a storeholder, Scena is an exception in a small but growing parallel economy that is being fuelled mainly by a clutch of websites, paid for by advertising and offering platforms for the cash-free exchange of everything from language classes and dog-walking to furniture and cars.
It has also encouraged discounting in Spain's residential property market, which collapsed in 2007 when an asset bubble burst, saddling banks with a mountain of toxic loans and making them less inclined to issue mortgages to new customers.
Sabino Liebana, whose company atodatinta sells printers and accessories via the web, is part of the expanding business-to-business barter community.
During 2010 he paid the 600-euro-per-month rent on his Madrid office with goods instead of money.
"It was mostly printers and inks, and a few computers," he said. "The landlord rented at the same price to me as to his other tenants. I gave my products to him at a discount, but never below the cost price."
He was happy to take the hit, he says, because it meant he could protect his cashflow better.
"Because of liquidity problems I think it (bartering) is something that will be used by more and more firms, especially in the service industry," he said, adding he'd "rather not say" how much profit he made last year on sales of 500,000 euros.
He has made around a dozen cash-free transactions in the past six months, mostly for advertising and web design work and often via Barcelona-based exchange portal
Founded in Spain in 2001, the site covers most of the Spanish-speaking world plus Italy and Portugal.
Worldwide it has 310,000 clients, mostly small firms or professionals from across the business spectrum, and 2-3,000 more are signing up every month, director Jaime Martinez said.
The 67,000 Spain-based users seal around half a dozen either pure barter or part-cash deals daily worth some 5,000 euros each on average, or close to 10 million euros of business per year.
The site expanded rapidly when the financial crisis hit in 2008 and is now experiencing another growth spurt that Martinez expects to extend through the slump as more firms look to focus their cash outgoings on keeping themselves in business.
"We are seeing a lot more activity in Spain than in previous years," he said. "Bartering is another way of financing your purchases if you have liquidity problems, which means you can save your cash for more urgent matters."
One obvious issue for the government is how to keep track of barter transactions. Spain's tax office could not shed much light on how taxes were assessed but confirmed all barter transactions were liable for tax.
"The key issue is how the barter exchange is valued. Tax legislation contains very specific guidelines for the fiscal valuation of goods and services, and this is mostly based on market price," said tax office spokesman Luis Gonzalez, declining to elaborate further.'s Martinez said in his business, both domestic and international transactions were taxed just as they would be if they were cash-based.
But Jose Maria Mollinedo, vice president of Spain's Gestha union of tax inspectors, admitted the barter economy was a "totally opaque market (that is) ... impossible to monitor."
In Spain, signs of funding strains are hard to miss.
Since mid-January, around half a dozen listed firms have said they are seeking to refinance their debt or secure new repayment terms.
The latter include commercial property developer Inmobiliaria Colonial and real estate manager and developer Quabit, both survivors of a crash that has seen average prices of existing property fall by 29 percent in just over four years, industry data shows.
With mortgage lending down even more sharply, dropping a third in the year to November according to official figures, conditions are ripe for a surge in barter transactions in the real estate market too.
"We have grown tremendously fast just via word of mouth," said Eneka Tamayo of sepermuta, the residential property exchange website he runs in the Basque city of San Sebastian.
Founded in 2008, it has some 6,900 homes posted and gets around 40,000-50,000 hits per month. Sellers give guide prices for their property and a wish list of what they are seeking in exchange at the same value.
Tamayo expects the number of posts to keep rising until the market recovers, "and I can't see that happening any time soon."
"Lots of people want to buy and don't know how, if they don't have work ... and if the banks aren't lending," he said. "If you already have a house, this way you don't need to raise a lot of extra (money)."
Tax is levied on barter transactions at 7 percent, the same as on cash-based property sales. But Tamayo argues that using property exchange works out cheaper.
"If you sell a home for money, you look for the highest possible price. If you exchange you hold the price as low as possible and so pay less tax," he said.
Comparisons bear the argument out.
A user of the website looking to move to Valencia has valued his four-bed flat in Leganes, part of Madrid's commuter belt, at 240,000 euros. An estate agent is selling a slightly larger flat in the same street for 435,000.
A three-bed flat in Denia, a town on the Costa Blanca north of Alicante, carries a barter valuation of 145,000 euros. In the cash market, a smaller flat three doors down is on offer for 180,000.
Internet-based platforms for bartering services such as English tutoring or Spanish cooking classes, known as time banks, include depersonaapersona, launched last September in Madrid by Ignacio Cristobal Martin.
"It's a bit more complicated (than exchanging goods). You have to have confidence in the other person, that they are of good faith," he said.
Martin believes that is one reason why, in a country where close to one in four of the economically active population are unemployed, his website has not attracted more than around 800 users and 5,000 hits per month.
In an effort to expand more quickly, he plans a relaunch with a tighter code of behaviour for users and the capacity to blacklist those who fail to provide the services offered.
Salvaterra de Mino, in northwest Spain, has had no trouble drumming up custom for its innovative contribution to the economy, drawing shoppers from up to 100 km (60 miles) away since it launched 'operation peseta' in October.
Nearly 50 local businesses signed up for the initiative, and the town has collected the equivalent of 12,000 euros in Spain's old currency, which it swaps with banking authorities at the euro-entry conversion rate of just over 166 pesetas per euro.
"We didn't think there'd be such a big response," said Pablo Pino, who heads the local trade association. "It's also a way of putting Salvaterra on the map."
Consumers in the Madrid catchment area have managed to cash in, too. The town of Villamayor de Santiago, southeast of the capital, ran an identical scheme that ended on February 17 - though not for want of pesetas.
Some 1.7 billion euros worth of the currency remains in circulation, according to the country's central bank, which says it has no plans to place limits on the peseta's validity. Around 14 million euros worth was exchanged directly at the bank last year.
A central bank spokesman declined to comment on whether similar initiatives might take off in other parts of the euro zone, which like Spain are sinking into recession.
Some consumers look to have missed the boat, however. France discontinued exchange facilities for the franc on February 17 and Finland will do likewise for the markka later this month.
(Editing by Sonya Hepinstall)

Pat Buchanan: 300 nukes in Israel yet Iran a threat?