Just when you think you've had enough, here comes Italy. The European Central Bank is buying Italian and Spanish government bonds on a massive scale. From the ECB press statement:
The Governing Council of the European Central Bank (ECB) welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.
The Governing Council underlines the importance of the commitment of all Heads of State or Government to adhere strictly to the agreed fiscal targets, as reaffirmed at the euro area summit of 21 July 2011. A key element is also the enhancement of the growth potential of the economy.
The Governing Council considers essential the prompt implementation of all the decisions taken at the euro area summit. In this perspective, the Governing Council welcomes the joint commitment expressed by Germany and France today.
The Governing Council attaches decisive importance to the declaration of the Heads of State or Government of the euro area in the inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.
The New York Times is warning on a second round of financial crises. In Crisis Awaits World’s Banks as Trillions Come Due it is revealed globally banks owe $5 trillion dollars in short terms loans that either must be repaid or rolled over.
Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.
U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.
How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend on to businesses and households.
The article implies the Financial Armageddon can was simply kicked down the road.
The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.
Goldman Sachs is still charging fees on interest rate swaps long after the actual bonds are sold. Nice business model! Fees on underlying assets which no longer exist.
New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds that the state redeemed more than a year ago.
The most-densely populated U.S. state is making the payments under an agreement made during the administration of former Governor James E. McGreevey in 2003, when New Jersey’s Transportation Trust Fund Authority sold $345 million in auction-rate bonds whose yields fluctuated with short-term interest costs. The agency finances road and rail projects.
I am starting to think that everyone and their brother has a magic secret crystal ball, a pack of special stock symbol tarot cards, a smoke machine and voodoo chants mumbling phrases sprinkled with buzzwords recovery, GDP and Q3 .
Bloomberg has an exclusive story on how bond vigilantes are using the markets as a protest trying to play a game of economic chicken with the administration to reduce the deficit.
For the first time since another Democrat occupied the White House, investors from Beijing to Zurich are challenging a president’s attempts to revive the economy with record deficit spending. Fifteen years after forcing Bill Clinton to abandon his own stimulus plans, the so-called bond vigilantes are punishing Barack Obama for quadrupling the budget shortfall to $1.85 trillion. By driving up yields on U.S. debt, they are also threatening to derail Federal Reserve Chairman Ben S. Bernanke’s efforts to cut borrowing costs for businesses and consumers.
The global financial crisis may morph into a second, equally virulent phase where borrowing costs rise again, hobbling an embryonic economic recovery, debilitating cash-strapped banks, and punishing investors all over again.
Deflation, inflation, it really doesn't matter. The price for money, that is interest rates, is going up. You can see it in the back month contracts in the futures market. You can see it in the failed auctions for foreign debentures like the Gilt in the UK. Investors/lenders are demanding a higher rate for loaning out money. The banks may be lending, but it's still a capital desert out there. We were at historical lows, not seen in decades. Folks, it was not always going to stay that way.
at least 500 nonprofits that entered into the derivatives with Wall Street in an effort to cut costs, according to Moody’s Investors Service. Instead of being able to take advantage of the lowest interest rates since Dwight D. Eisenhower was president, tax-exempt groups are getting hit with a double whammy of rising borrowing costs and demands for collateral from financing tools they didn’t understand.
I don't understand this either but it appears financial managers of non-profits bought swaps to hedge on interest rates.
Remember when buying Tech stocks would make you wealthy? Then that bubble burst.
Remember when buying a house would make you wealthy? Then that bubble burst Remember when...
Remember when the present crisis broke in 2007, the reassurances that it would not spread beyond the confines of subprime; when it did spread, the forecasts that Wall Street banks
' losses would amount only to a total of about US$200 billion. Remember when "experts" insisted no widespread credit crunch would result. Remember when they insisted that the crisis was unlikely to spread from Wall Street to the real economy on Main Street?
James West makes the case the USD collapse and, by extension, a bond default.
Critics argue that it just can't happen .... have they crunched the numbers?
Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.
Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.
Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.
I am starting to think that everyone and their brother has a magic secret crystal ball, a pack of special stock symbol tarot cards, a smoke machine and voodoo chants mumbling phrases sprinkled with buzzwords recovery, GDP and Q3 .
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