11 January 2011
Farce #1: Japan Can Bail Out… Anything.
First off, Japan, which has a debt to GDP ratio of 200%, is bailing out Europe, which has a smaller, but equally disturbing debt problem. Yes, one broke country (Japan) is now trying to bail out an entire economic union, despite the fact that it HASN'T succeeded in managing its OWN finances or economy in over 20 years.
Indeed, the idea that Japan could bail out ANYONE when it's failed to create any substantial economic growth despite spending TRILLIONS of Yen should give you an idea of just how out of control the entire financial system has become. We are literally in the end game now. Unless martians come down and start bailing out Earth, the great Sovereign Default will be in full effect within the next six months.
Farce #2: Inflation is at 1%
Meanwhile, Ben Bernanke claims that inflation in the US is 1%. President Obama has to maintain that this is a fact with a straight face next week when he meets with French President Nicolas Sarkozy who is witnessing food riots in Algeria due to soaring food prices.
The Fed has claimed inflation is under control for months now, proving that its members must not eat food, drive cars, OR know how to read. Indeed, in order to ignore rising prices in the US, you would literally have to not shop for groceries, not pump gas in your car, not read the newspaper, and not have access to the Internet or any financial news outlet.
I sincerely hope that the Fed is not run by folks who fit this description, but after reading the next farce, I'm not so sure.......read on
Farce #1: Absolutely. Japan is a basket case. Over 44% of government receipts go to debt service (which is funded at 1%). If JPY interest rates ever go up then debt service ability collapses. On the flip side, the JPY is so strong that for Japan to invest in EUR debt that yields 7.14% (whilst funding their own debt at 1% remember)... it is a no brainer.
ReplyDeleteFarce #2: Inflation is no longer a national measure of anything. The fact is that a basket of goods at Wal-Mart has been pretty stable for the past 5 years but this only serves a portion of one sector of the economy. The fuel they expend to drive to Wal-Mart has gone up massively in price, for example. Inflation is a dead measure and the bull case for gold now actually works better in a deflationary outlook (in my opinion). As long as you remember to take profit at some point.
Farce #3: True - yields are on the rise. But this makes it cheaper for the Fed to repurchase their own debt. Are they complaining? No sir!
Farce #4: Rubbish. These guys execute buy orders. To call them "The Folks Managing the Fed's QE Efforts" is akin to saying that a customs officer at the airport manages immigration policy.