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Governments will become more desperate as debt piles up
35 minute audio interview or just read the transcript to save bandwidth below.
Click here for transcript
Jim welcomes back Martin Armstrong of Armstrong Economics for a wide-ranging interview covering the possibility of capital controls in the US, stagflation in the near-term, and why gold is likely to head lower before heading much higher.
ArmstrongEconomics.com offers a collection of research from Martin Armstrong, a world renown economist and the creator of the Economic Confidence Model, the author of theGreatest Bull Market in History, and founder of Princeton Economics. This web site is a resource to stay up to date on Martin Armstrong’s business accomplishments, legal battles, and views on the global economy.
Fitch warns of 'cataclysmic' euro collapse
The European Central Bank should ramp up its buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro, David Riley, the head of sovereign ratings for Fitch, has warned.
Speaking to investors as part of a European roadshow, Mr Riley said a collapse of the euro would be disastrous for the global economy, and while it is not Fitch's baseline scenario, it could happen if Italy did not find a way out of its debt problems.
"The end of the euro would be cataclysmic. The euro is a reserve currency," Mr Riley said overnight. "What would that do in terms of financial and political stability?"
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"It is hard to believe the euro will survive if Italy does not make it through," he said, adding that while many saw Italy as too politically and economically important to be allowed to fail, "one might also argue that it is too big to rescue."
The warning pushed the euro down towards a 16-month low versus the US dollar.
Mr Riley urged the European Central Bank to abandon its current reluctance to scaling up its purchases of troubled euro zone debt such as Italy's and drop its resistance to the bloc's bailout fund, the EFSF, borrowing directly from it.
"Can the euro be saved without more active engagement from the ECB? Quite frankly we think no," Mr Riley said, adding that the bank had plenty of scope to expand its balance sheet without unleashing a wave of inflation across the euro zone.
"Why not have the ECB come out and say 'We are going to cap interest rates', say 'We are not going to allow interest rates to exceed 7 per cent' or whatever level they see is the limit?.. Why not turn the EFSF into a bank so it can borrow from the ECB so it doesn't have to go to the market?"
Greece the joker in the pack
By Matt Taibbi
While America focused on New Hampshire, a classic example of revolving-door politics took place in Washington, going almost completely unnoticed. It’s a move that ranks up there with the hire of Louisiana congressman Billy Tauzin to head the pharmaceutical lobbying conglomerate PhRMA -- at a salary of over $2 million a year -- immediately after Tauzin helped ram through the Medicare Prescription Drug Bill, a huge handout to the pharmaceutical industry.
In this case, the hire involves Walter Lukken, who toward the end of the Bush years was the acting head of the Commodity Futures Trading Commission. As the chief regulator of the commodities markets, it was Lukken’s job to spot and combat speculative abuses and manipulations that might have led to artificial price hikes and other disruptions.
In 2008, the last full year of his tenure, Lukken presided over some of the worst chaos in the commodities markets in recent history, with major disruptions in the markets for food products like wheat, cotton, soybeans, and rice, and energy commodities like oil.
Most notoriously, 2008 saw a historic spike in the price of oil futures, an enormously destructive speculative bubble that peaked in July of that year at the lunatic high price of $146 per barrel (Goldman, Sachs at the height of the mania was telling investors oil might go to $200 a barrel).
It was Lukken’s job to spot the speculative abuses leading to disruptions like that bubble, but he didn’t do it. Instead, he repeatedly insisted that there was nothing untoward going on, most notoriously through testimony before the House and the Senate at the height of the oil boom.
In testimony that summer, Lukken continually insisted that the price surge was due to normal supply-and-demand forces, ignoring the far more obvious explanation of a massive inflow of cash from commodity index speculators.
Despite data showing that the amount of commodity index speculation had grown from $13 billion in 2003 to more than $260 billion as of March 2008 -- in other words, the amount of money betting on a rise in commodity prices had risen by a factor of twenty during that time -- Lukken on May 7, 2008 told the Senate that a more likely explanation for the surge could be found in the growth of industrial demand from places like China, and also, get this, in changes in the weather:
Read more: http://www.rollingstone.com/politics/blogs/taibblog/revolving-door-from-top-futures-regulator-to-top-futures-lobbyist-20120111#ixzz1jFmu9jbK 
26 comments:
GAW I am in the auction Monday night 8pm eastern time with H. Seigel. I probably won't buy anything, but it is exciting to have something else in invest in. The prices are really high for colored diamonds. I may be able to afford a small one. Like CL I love Ruby's, Emeralds and Sapphires, but I think resale of diamonds will be easier and the hold time for any return will be 3-5 years.
I would think that if the Euro does collapse the CDS exposure will be massive. I have said this 100 times if there is still gas at the pumps and food in the grocery store there will be no panic and no riots and life will continue on as normal. The less you have the less you have to worry about.
The trouble is, QB, that in complex systems, there is a fine balance between working OK and not working at all. It just takes a little thing to throw stuff way out of kilter. Same as with how leverage makes people like Jon Corzine vulnerable to disaster with only small changes. If there's a catastrophic collapse of the euro, it may put a wobble into some things, which will put a lurching into many other things, which will put a complete crashing into almost everything. You can't dick around with the pocket money of hundreds of millions of people who are connected with the rest of the advanced world in uncountable ways without unforeseen consequences. And since when have "unforeseen consequences" turned out to be good ones?
Warning a lot of gloom and doom
Listen to the most recent audio file #482 on HES radio
Bukko I agree the unexpected is usually not good news. That the whole world economy is a potential house of cards. I am just saying that the average Joe in the US will not wake up until it is too late.
Super Mario Monte Italian Technorat finds where money's been hiding http://www.telegraph.co.uk/finance/financialcrisis/8995142/Italian-ski-resort-lays-bare-tax-evasion.html & Italian 10 yr bonds rally 5% http://www.bloomberg.com/quote/GBTPGR10:IND Show me the $$ !
NEW MATH--
If Sally needs to buy a new mattress but only has half the money SAVED and would need to borrow the other half, should she buy NOW or wait? Thinking upon deflation, the euro crisis, etc. how do you logically support your answer?
See, I've been thinking that we need to start conceiving problems for youngsters to actually TEACH them. So if you gave that problem to all our LEADERS (cough, cough) how do you think they would answer?
I would welcome comments about various world leaders, American politicians, economists,etc.
(I'm tired of bad news. I want some FUN...or, at least something to make us think).
Can you imagine Bernanke's answer? Krugman? Austrian vs Keynesian? Heck, Liesmann vs. Santelli?
Okay, guys, have at it and make me laugh ;-)
I am just saying that the average Joe in the US will not wake up until it is too late.
I have said the same thing so many times... And it applies to my own child. My daughter, who's graduating with a double degree in Religion and Anthropology from USF in Tampa at the end of this semester, is staking her hopes for a post-college job on teaching English in Japan. (First she has to fly to Toronto, at her expense, to have a job interview with the company that she and her boyfriend are hoping to get hired by.)
I told her if that doesn't pan out, it's a national election year, and she could get some valuable experience/make connections for the future if she went to work on some politician's campaign. They always need moving bodies to put campaign signs on roadsides, knock on doors, make calls, etc. Sometimes you can even get paid for doing that! If she didn't want to work for Hopey, I suggested her chances would be better with a Florida statewide campaign, and isn't this the year that Marco Rubio runs for re-election to the U.S. Senate? She didn't even know (and after Oogling, I see that it's Bill Nelson's turn) and didn't much care. Here I am in another country and I have more interest in her state's U.S. Senator than she does.
The whole idea of working on a political campaign is boring to her. Not because she's as cynical about politics as I am, but just because she's uninterested in anything involving current events. She used to be politically aware when she was in her late teens, but now there's just this disconnect between her and the way the real world is going. When we talk, she never brings up news events, and when I do, I can see her eyes glazing over. (We usually video chat on Skype.)
It's amazing to me how many Americans, including young ones who are going to have to live in the world that's falling apart, can't be bothered to pay attention. When the cell phones stop IM'ing and the large parts of the Internet are strangled because of this SOPA bill that's being jammed through, will they wake up then? Or will just enough meaningless diversionary activity be permitted to keep the sheep distracted as the grass they graze upon gets thinner and browner?
Bernanke's answer to CL's question: Enlist Goldman to arrange a leveraged buyout of the last American mattress company, with debt secured by liens on the company's equipment and workers' pension funds. Pay Goldman big fees. After buyout completed, move entire plant and equipment to China with help of outsourcing companies. Pay outsourcing companies big fees. Lobby Congress to eliminate taxes and tariffs on your company's products. Pay lobbyists big fees. Declare bankruptcy after no one can afford to buy mattresses because they don't have jobs. Get a bailout for that some damned way that I cannot even begin to imagine.
Oh, for the mattress buyer? The BenBernank wouldn't give advice to someone that meaningless.
Krugman? He'd just tell a person to borrow 75% of the cost, pay 25% down and keep the other 25% in the bank because there will be SUCH an economic boom when everyone else buys mattresses too that it will be happy days.
An Austrian? He'd say "Don't buy a new mattress. Sleep on the floor. The coldness and hardness will make you just like ME."
Bukko-Interesting talk at funeral yesterday with 6th grade American teacher on how our total addiction to net, phones, tv, etc. is rewiring brains. Showing up in the wee ones now. They can't CONCENTRATE. They can't think LOGICALLY.
Now me, I was always trying to bury the survivors between Canada and the US (old joke), BUT I say that to make a point. There was an excellent critical thinking joke that told of a dr. with his first yr. med students at an autopsy. He stuck a finger in the anus of the cadaver and then sucked on a finger. The students (as expected) went bonkers, until he explained that he'd used his middle finger for one and another finger for the other. The resulting lesson that YOU MUST PAY ATTENTION TO DETAIL.
This is the loss we are seeing in society in general. We have the foxes in the chicken house because we have failed to pay attention to our loss of liberty!
CL, I'm 53 years old and I have the same problem as those 6th-graders.
After a decade of being so focused on the Internet, pinging from one page to the other, feeling like I have an electric line of information feeding straight into my brain, I notice that I'm more easily distractible and irritable. I have great ability to concentrate -- no ADD for me! -- but I have to overcome the temptation for fleeting mental stimulation. I'm shorter with people in the real world, often wishing that they'd just hyperlink onto something else when they're talking at me slowly.
And that's after having grown up in a world with a more sedentary pace, where info moved at the speed of the daily paper and the evening network news. Even when I was a newspaper reporter, we depended on the Teletype machine to physically clatter out the AP stories on rolls of real newsprint. Even at my last reporter job, which ended in 1991, I was at a far-flung bureau office that didn't have a computer terminal where there was an on-screen news feed. (Like all of the Tampa Tribune's bigger offices had even then.) I never would have gotten anything done if I had been able to scan the news every five seconds.
The more we learn about the brain, the more we see it CAN change the way it operates, even as adults. This can be good or bad. I pity the children who are growing up today awash in meaningless oversaturation of stimulation.
Bukko. I LOVED your answers. Great conclusions (especially Bernanke!)
Will raise you one journalism story for another. I used to do the Teletype at paper where hubby worked. You know the sort of braille type paper typing? WE even had some old typeset lead stuff here (probably still do!)
As for the AP machine, love that CLANG, CLANG when an IMPORTANT news story broke. You know, one like where Nixon resigned rather than Beyonce having a baby ;-)
We were small town paper, however. Hubby would do Sports, Business editor, layout, run out to take photos if need be. Ah the smell of chemicals for 'fixing' the B&W photos. So much more SATISFYING than click and 'fix' shots in Photoshop.
DESPERATION-
2 major things happened today that show me desperation is creeping into 'normalcy'.
1) the owner of the used bookstore where I go signed a 2 year lease (WHY???) and has found she has had little business since 1/1. Business is slowing rapidly for things that are discretionary, AND, while customers have said they got Kindles for Christmas, they will still pay MORE for buying those books than hers.
2) Doorbell rings. Man says, "2 years ago I trimmed your tree out back and wondered if you needed it done again as I noticed some loose branches." He is walking. He NEVER trimmed our tree and I know it. (I check out EVERY person who does work at my home, making them prove workers comp., getting recommendations from others, checking with Better Business, etc.
To ME, this proves a heightened degree of fear. But, then I just put in $17 of gas (cash), picked up a few things for dinner (cash), bought a book for hubby (cash $.75 USED) and will spend my afternoon making dinner and dessert together with tuna for lunch. We eat out infrequently. We don't rent movies. We still READ books.
What's more, I'm turning the tv off more and more for relaxing CD music to soothe my soul and drown out the CHICKEN LITTLE'S, POLITICIANS, PUNDITS, and ECONOMISTS.
Check out the commentator on the right. Sure he knows a thing or two
http://mediacdn.disqus.com/uploads/mediaembed/images/196/4396/original.jpg
Content, content and content. I lose interest in conversations as most of them are meaningless drivel and gossip. I think that is why my circle of friends is so small. I just don't care to hear about their personal lives.
I don't watch politicians as it all just sounds like blah blah blah vote for me and I will fix everything. No real content at all. Hopey is a major disappointment so he will not get my vote. Romney is a multimillionaire who made his money downsizing companies and tossing people out to UE. Ron Paul would only with if he ran unopposed.
Bukko in regards to your daughter, I took a Religion course in college for a humanities credit, but didn't know you could get a degree in religion. Antropology is a course I guess you can teach or be in research, but that doesn't sound like a career. Maybe I am just out of touch.
CL have your friend put the mattress on layaway. Then she can "layaway at night" trying to figure out how to pay the rest. After that awful pun why doesn't she just put it on a credit card and pay the minimum balance. She might have it paid for by the time she needs a new one. I don't think most people ever pay off their cars any more.
CL if I may point out the obvious - this so-called tree trimmer was likely scoping the neighborhood for homes to rob. Feel to write a description of this person just for the record.
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QB we bought a car last year (cash). No, it was not brand-new, but it did cost quite a bit.
Mugabe thanks for making me laugh. I am sure he knows more than the other two combined. My Dr. Allows me to watch CNBC once a month for about 5-10. Then my blood pressure goes too high and I have to turn it off. He also said I cannot watch Faux News at all and MSNBC only when the sound is on mute. When I used to would watch Bush do a speech on TV I would throw socks at the screen to relieve my frustration.
Mammoth I would never consider you and the Mrs "most people." I am considering buying a used van with a wheelchair ramp, but they are damned expensive and Yvonne seems to be improving. Woohoo!
CL just keep a loaded shotgun behind the door and when they see you whip it out and aim it at them they will leave pdq. You needn't say a word. The gun will do all the talking.
The answer to the mattress question:
Buy a hammock. Stuff old mattress full of the money left over after buying said hammock.
Buy mattress on credit 12 months same as cash. In a year pay it off and give it away to a charity next year, write off on taxes and buy another one. Then rinse and repeat. Stimulates the economy and makes you feel good donating.
what clever readers we have on THE HIVE. It's been fun reading all the ideas.
A change from gloom and doom!
Hubby just got insurance mailer. They had HIM going for a mammogram (it was mine!) VA gave him a flu shot and charged $241. YOU CAN GET IT ALL WALGREENS FOR $25.
And these are the people who want to run healthcare? What part of $300 toilet seats don't you understand? Also charged $541 for a PHYSICIAN'S ASST. to see him for a VA RELATED SERVICE INJURY which shouldn't generate a fee. Our regular dr. only charges $194.
YOU PEOPLE ARE PAYING for this INCOMPETENCE. Unbelievable.
Now I'm not going to be able to open mail as it 'excites' me too much! Sheesh
Hi all, great comments as usual.
I would avoid sapphires/rubies etc, as they are simply not rare enough, I've heard stories of people traveling in Asia or Africa buying them for a tiny fraction of what they sell for here.
The colored diamonds are extremely rare, and getting rarer, hence their value. The big Aussie mine that produces most of the world's supply is closing soon, and new supply will be almost non-existent.
They yellow ones are the only color that has not sky-rocketed in value, so far, the blues, reds and pinks are very very expensive and getting more so each year.
So if you want to buy one, now is probably not a bad time, or before that mine closes, because supply and demand should ensure they will go up a lot in the future. You have to hold it for 5-10 years to really make money, but it is an extreme form of value concentrated in a small package.
There is risk of course, what doesn't have some, but the track record of the colored diamonds so far is rather impressive, over 30 years of rising value. Certainly some very wealthy people see it that way too, as the prices continue to rise, and the auctions are getting strong bids (I mean like Sotheby's etc), almost every time a colored diamond is sold there it sets a new price record in the last few years.
I too have noticed our younger generation have the attention spans of gnats, or maybe less, these days.
If they didn't have 'smartphones' they would be rendered totally useless, as how else could they keep up with their Facebook pages etc
I see it as an opportunity for older people, as they are simply more competent and able to get the job done, while the average 18 year old is still texting his girlfriend for the 50th time that day.
If I was running a business these days, I would not hire the younger set, as they are unable to concentrate for long, dislike complex tasks, can't stand repetition, and have very short attention spans.
Before you accuse me of being ageist, I work with a large bunch of under 25s, and while they may be friendly and personable, they are simply not very good workers. And smartphones etc are totally banned at my work, so they all complain about that very day. If they were not banned, the company would not be able to get any work at all out of most of them, as they would have their face in the phone all day long, totally oblivious to things around them, like dangerous machinery, forklifts etc - they are actually hazardous to themselves and others who have to work with them, and should be banned at our work, but this drives the younger workers absolutely crazy, like junkies who can't get their fix.
I guess I am lucky, living far out in the sticks, never had anyone "come to the door" here, except a couple lost tourists and or 2 Bible thumpers trying to get to me read the Watchtower magazines they shove at you.
But I'm with Mammoth, that "tree trimmer" was probably just casing the joint, and he would likely rather you did not answer the door, giving him the green light to break in.
That's where having large menacing dogs would be good, no self-respecting burglar would want to risk getting his posterior chewed off, when he can move on down the road to another house that does not have one.
The shotgun at the door is good too, but they might call the cops and say you threatened them with it, and you would get arrested. A barking dog has no such risk.
Thank you for the input on the diamonds. A pink Diamond was what I had in mind. I will watch the auction more likely than bid. I have two dogs who go bananas when the doorbell rings or someone knocks on the door so I think I am safe without the shotgun. I find in Orlando that tree cutters looking for a quick buck are common and not casing the joint.
Jehovah's Witness are like a stray cat. If you give them attention and are polite they will target you and continually come back. I was nice to them a few times and then I got annoyed. One even wrote me a letter after I didn't answer the door twice. I just didn't want to be bothered any more and I cannot be converted or convinced. Is it a coincidence that 99% are black?
As for the kids and their cell phones you are spot on. I need say no more.
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