03 December 2010

QOTD: Soverign Debt Backstop Doesn't Negate Risk

From the Daily Reckoning:
Now, such action [providing sovereign backstop to liquidity] can slow contagion, to be sure, but can it stop it? As the sovereign steps in to provide ever more explicit guarantees for the financial system, this places the sovereign in the front line, facing investors who may still desire to reduce credit risk. Just because credit risk has been assumed by the sovereign does not in any way imply that the risk has disappeared; rather, it has merely changed form, from private to public. Debt which investors previously thought would be serviced via private sector economic activity, such as the generation of corporate cash flows to service corporate debt, or the generation of household incomes to service household debt, now must be serviced by the government, which implies that it must be paid for out of future tax revenue.
The first part of a two part article is a great explanation into just how risk, debt, and default all play an interesting part in navigating freedom, markets, and economics.

Bankers or Us

Late yesterday afternoon, I noticed that "Bankers or Us" was the hottest search on Google.  Seems that a piece by Alex Jones is what fanned the flames up, and while I refuse to repost any of that whack job's work, he makes some interesting points. 

So, consider this your reference to go forth and educate. 

Helo Ben Says "Dollar System Flawed" = "Say Good Bye to Soverignty"

Even though Thanksgiving was last week, we find something to be thankful for every day of the week.  Today, I say that I am thankful for the internet (for as long as it remains free of FCC regulation, which is a story for another day).  It is not hard to find an absurd story (or ten) every day via my Google reader, and thus they turn into blog material for you, the dear reader.  So, yes, I am quite thankful for the internet as a facilitator to why we can better educate one another, chart history, and add in some common man's sense and perspective every now and then.  Ultimately, it means that we the people get our say in what is news and what is not news, instead of being spoon feed the garbage by the cable news networks or the lame stream media. 

As the headline of this post depicts, this is a story that almost no American media outlets reported.  While I've hinted at the US economic leadership engaging in trade wars in prior postings (mainly from Zero Hedge), this is one for the record books.  Helicopter Ben has basically said outright, expect tariffs, quantitative easing / dollar devaluation, and any other radical efforts to get trade to rebalanced through out the world.  If read correctly, and as Robert Morley pointed out, the meaning of Ben's speach is that is China to be blamed for all the trade problems in the entire world. 

Huh?  Did I just read that right?  Bernanke just blamed China for the irrational exuberance in the United States that has persisted for the better half of the last century?  Now, we want to pick a trade war with our largest non-Federal Reserve debt holder?  Seems like a wonderful way to achieve that trade re-balancing now doesn't it?  Of course, while the Fed's printing processors tack on more zeros by the millisecond to the green back's money supply, the Fed's chairman is out shouting from the roof tops that we need a new internationally run money scheme that will help solve the imbalance of trade.
“As currently constituted, the international monetary system has a structural flaw,” said America’s chief banker. The dollar system is broken. “It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances” (emphasis mine throughout).
So, we need a new system, one that would be run by the IMF or potentially the United Nations, which will effectively force United States citizens into the servitude of the international bankers and politicians?  Sorry, not on my watch.  Color me a bit of a gold bug, but isn't that exactly why the United States had the gold standard?  Money at a fixed rate that was mean to prevent the manipulation of the money supply that has led to these "persistent trade imbalances?"  I'll save you from looking if you didn't already know that the answer was yes. 

Look, the short answer to these problems is, start spending less, fix the structural problems in our own economy (over taxation, over regulation, and over indebtedness) and world trade will fix itself.  We are seeing an end to the great world experiment with socialism and welfare and perhaps even fiat money.  Personally, I say, GOOD RIDDANCE!  It's time that we found out what things are really worth, and how the individual can pay for the things he wants and needs.  If that's too hard on people, well, too damned bad. 

Oh, and Helo-Ben, why don't you stop trying to piss of the largest external bond holder in the world?  They can certainly fight this trade war better than you, and I wouldn't put it passed them to be ready to do exactly that! 

Bank of Ireland Art Sale

What happens when a state run bank needs money?  Simple, it sells off its physical assets?  Except, that's not why the art collection is being sold.

Instead of using the proceeds of such a sale to cover operating expenses in the Irish budget or the bank's budget, or as a reduction to the nation's debt, the money will be used to fund art initiatives throughout Ireland.  "So, screw austerity!  We'll just use the proceeds of an art sale as a transfer of wealth." 

Not even the people of Ireland are fooled by this egregious act according to the Telegraph's article.
"The banks have mismanaged everything for the last 12 years. Why should we now entrust them with this collection?" asked Gemma Mastroianni Carroll, one of a group of protesters outside the hotel. "These are valuable assets for our future. The banks will default, and they will leave this country with absolutely nothing."
While she is right in that the banks will default, what is it to say that her government won't do the same?  Considering all signs point towards a sovereign debt default in Ireland coming to a precipitous in 2011, the sale of a few pieces of art into the hands of private collectors is probably the least of the worries by any government officials. 

It certainly makes me wonder just how much fine art and antiques exist inside the halls of the US Federal Reserve, and just how much it is worth and how much us taxpayers have paid for it's procurement.