Black Monday 2: Economic Boogaloo

[publius]

And back at home:

https://www.fms.treas.gov/fmsweb/vie...e=11111500.pdf

Total public debt hit the $15T mark. The run rate has slowed down a bit. It hit $14T on Dec. 31 2010, so it took a whole 10.5 months to run up another trillion, compared to the 7 months for the run up from 13 to 14.

The Europeans are pikers compared to us in absolute debt levels (well the whole eurozone has whole would be on the same order).

Take Italy. It's going to have to issue E440B, which is about $600B in one year. Look at the DTS tables above and you'll see we've already rolled $660B in just 1.5 months, and issued around $850B in that same 1.5 months since the fiscal year began.

[publius]

Italy Spain........France , that's sure a lot of printing. German bonds including inflation are yielding negative I believe. They could use their bond strength to buy the rest of Europe and make a nice percentage............better than a big hike in the (new) German currency killing the golden goose.

And how long do you think Germany's yields would stay as low as they are if they did that, barring printing?

[publius]

Oh, and meanwhile, the Greek 1yr hit 271% today, increasing 20 percentage points (that's 2000 basis points).

Remember, 300% yield will be the point (ignoring coupon) at which the price of the bond is 25% of face value, a 75% discount rate, 25 cents on the euro.

Or to put yet another way, if Greece were to borrow from the market, it would have to pay 3 euros in interest for every 1 euro it borrowed. That is, borrow 1 euro today, and you must pay back 4 euros in a year.

[profloater]

number crunching: you say public debt 15 trillion; the world now has 7 billion that's 15000/7 dollars each, an irrational number.(!)

[publius]

Here's some cute little visualizations of $15T dollars, which I've attached.

These are in the form of bundles of $100 bills. The graphics are of a billion, a trillion, and 15 trillion

[Solfe]

Could any country get out of a hole like 1 to four? That sounds like losing by design.

[publius]

Note the billion dollar image. At the very front of the pallets, there is a single bundle, which is $10K, 100 $100 bills. The second little pile is 100 of those bundles, which is $1M dollars. You see that a million dollars in a $100 bills is a nice little pile that you could fit in a duffle bag.

One hundred million takes 100 of those piles which requires the pallet. Thus a billion dollars is ten of those $100M pallets.

A trillion is thus 1000 of those 10, or 10,000 pallets of $100M.

15 trillion is thus 150,000 of those pallets.

[publius]

Could any country get out of a hole like 1 to four? That sounds like losing by design.

Oh, not that is well, *well* beyond the point of no return. Those aren't really interest rates, just recovery rates, with the market figuring existing bonds will eventually be worth 1/4 of their face value.

If Greece actually attempted to go to the market and borrow more, the interest rate would essentially go to infinity, as no one would lend them a dime. Greece is utterly depedent on the bailout funding mechanism, which is really just other entities borrowing at their rates and giving it to Greece.

The point of no return varies, but Italy at 7% has probably reached it. Note 7% compared to 270%. When you reach the point of no return, you've reached the debt compound spiral point. The market will realize it, and then accelerate the process by jacking up the yields relatively instantly.

[publius]

And this just in. We now have hard economic proof of aliens:

http://www.economist.com/node/215381.../exportstomars

Planet Earth is running a current account surplus of $331B. Thus it's obvious we're exporting to alien civilizations. Up until 2005, we'd been running a deficit, so we were buying more from the aliens than we were selling, but that turned around and now we're a net exporter to the Galactic Federation or whatever it's called.

So there you go. Proof.






Seriously, what's going on is errors (or some intentional lying) with total imports being understated or exports being overstated or both.

[publius]

Okay, the ECB jumped in massively today, trying to knock down Italian and Spanish bond yields. Again, they say they're sterilizing, at least on a long average, but it looks like today they kicked up the printers a notch. Not into turbo mode, but they did step on the gas a bit.

They got Italian yields below 7%, 10 yr closing at 6.84% from a high of 7.15%. They were also hitting Spanish bonds hard, knocking the 10yr down to 6.49%. But that didn't save the Spanish 10yr auction today which came in at 6.975%-- note this a primary sale, while the ECB is intervening in the secondary markets; direct buying at a primary auction would be direct printing, directing monetary financing of govt debt. That is probably flat out illegal for the ECB, just as it is for the Fed to do it under our law. As I understand it, they were shooting for E4B, but cut it off below that (likely to keep the yield from going over 7%) at E3.6B.

7% is the death spiral point. Any country that goes above that at primary debt sales has gone down the crapper quickly.

The Fed has also ramped up the swap lines again, meaning someone in Euroland is starving for dollars. It also made an unusual annoucement about requiring some margins for certain "cash roll" operations with the primary dealers. Remember back in the old thread a couple of week, I posted about the NY Fed employing the "negative liability" trick to cover a $1.6B loss over the course of one week. This move is likely in response to whatever they lost that on, trying to make sure it doesn't happen again. I'm smelling MF Global there, but I'm not sure.

And finally, some broker/hedge fund head, a woman turns out, just shut down her whole operation, releasing a scathing rant to her customers that she could no longer in conscience continue to do business because of the corrupt environment exposed by MF Global. She could no longer guarantee the safety of their funds. She went on some rant about how crooked and corrupt the players were, as well as how crooked and corrupt the regulators supposed to be policing them were, saying she would not reopen her business until "our corrupt government has been replaced".

[publius]

And according to AEP's latest, the Japanese and other Asian central banks are dumping German bonds:

http://www.telegraph.co.uk/finance/f...EMU-chaos.html

If that's the case, it's over. According to that, Swedish debt (non-euro) is now yielding under German debt for the first time in modern history.

Again, if true, this means the Asians have decided the leaders can't solve the crisis, and it will bring down Germany when it blows up, meaning German debt is no longer safe.

My spidey sense is tingling that it may indeed soon be time to put on my helmet and go in the bunker.

[HenrikOlsen]

Unless that's just the randomized reaction to the comment

Jean-Claude Juncker, Eurogroup chief, fueled the fire by warning that Germany is no longer a sound credit with debt of 82pc of GDP. "I think the level of German debt is worrying. Germany has higher debts than Spain," he said.

That comment could well be seen as a warning shot to Germany that they should stop undermining the Euro with their talks about pulling out and should instead start to work for a common policy, because "just watch this, you're vulnerable to statements to the media too, and I can hurt you very badly if I want".

[profloater]

oops my old prediction of feb 14th next year maybe way too optimistic?

[PraedSt]

Some amusing/interesting articles I came across:

EU bans claim that water can prevent dehydration
http://www.telegraph.co.uk/news/worl...hydration.html

EU officials concluded that, following a three-year investigation, there was no evidence to prove the previously undisputed fact.

Producers of bottled water are now forbidden by law from making the claim and will face a two-year jail sentence if they defy the edict, which comes into force in the UK next month.

Did watching TV put Americans in debt?
http://www.physorg.com/news/2011-11-...cans-debt.html

The study finds a positive link between mass media advertising and the tendency to take on household debt. The results indicate that television exposure is associated with a higher tendency to borrow to purchase consumer goods and a higher tendency to hold non-mortgage debt. The authors also offer suggestive evidence that markets with early access to television saw higher male labor force participation compared to markets with delayed access to television.

A mathematical model for stability/instability of and within the EU.
http://www.physorg.com/news/2011-11-...ns-stable.html

According to the model, those that are more inclined to pair up would be Austria and Switzerland, Denmark and Norway and France with Great Britain. Spain would be more interested in uniting with France but "this does not necessarily mean that France would be interested in uniting with Spain,"

[Ara Pacis]

Some amusing/interesting articles I came across:

EU bans claim that water can prevent dehydration
http://www.telegraph.co.uk/news/worl...hydration.html

I actually agree with this. And to relate it to the topic, I think such labels are akin to telling homebuyers that homes always appreciate and never go down in price.

[PraedSt]

I actually agree with this. And to relate it to the topic, I think such labels are akin to telling homebuyers that homes always appreciate and never go down in price.

How on earth can you agree with it?

[HenrikOlsen]

Some amusing/interesting articles I came across:

EU bans claim that water can prevent dehydration
http://www.telegraph.co.uk/news/worl...hydration.html

Isn't that a ban on the misleading scare advertisements that make people drink totally unnecessary amounts of overprized tap water.
As if anyone's likely to dehydrate if they don't drink water every 10 minutes.

[PraedSt]

Isn't that a ban on the misleading scare advertisements that make people drink totally unnecessary amounts of overprized tap water.
As if anyone's likely to dehydrate if they don't drink water every 10 minutes.

According to the article, they applied for the right to state that “regular consumption of significant amounts of water can reduce the risk of development of dehydration” as well as preventing a decrease in performance.

The denial of this right was one source of mirth. The other was the bureaucracy. Again from the article:

Ukip MEP Paul Nuttall said the ruling made the “bendy banana law” look “positively sane”.

He said: “I had to read this four or five times before I believed it. It is a perfect example of what Brussels does best. Spend three years, with 20 separate pieces of correspondence before summoning 21 professors to Parma where they decide with great solemnity that drinking water cannot be sold as a way to combat dehydration.

“Then they make this judgment law and make it clear that if anybody dares sell water claiming that it is effective against dehydration they could get into serious legal bother.

[peteshimmon]

If a guy comes up to people with his bottled
water claiming it prevents dehydration, you
have a hustler pure and simple! Most know what
dehydration means but some may think it is an
illness to be prevented.

The EU is just clamping down on hustling.

[HenrikOlsen]

Yep, it's anti-scam legislation.

[flynjack1]

Sounds to me like, what here in the states we call, "legislating common sense". Something our leaders excell at IMHO.

[HenrikOlsen]

Actually, it's legislating against false or misleading advertising.

There's a not very subtle difference.

It's the same principle that would forbid the sale of "I Can't Believe It's Not Butter" in Denmark on the grounds that since it isn't butter, the word "butter" can't be used on the package.

[Solfe]

I find it amusing that in the US we can have the words "non-toxic" on a product, but other places you can't do that as it implies the product sitting next to it may be toxic.

Until someone explained it to me, I understood the "non-toxic" marking to be reassuring, clearly it isn't meant to be. It's pure marketing.

[Ara Pacis]

How on earth can you agree with it?

Well, like others have said, it's misleading. It's the hidden use of "the exception proves the rule" meaning that stating that one product does prevent something (the exception) means other competing products (water) or other related products (carbonated sugar water) don't (the rule). More over, it invokes a quasi-medical understanding and when it comes right down to it, hydration isn't just about water but about multiple chemicals that balance hydration including salt and potassium etc. IIRC, actual anti-dehydration used in medicine include electrolytes. The crazy part isn't the denial/disallowance of the claim, but that the marketers wanted to put the claim on the bottles in the first place. Maybe they should be forced to also include the label "Contains DHMO, which in large quantities can cause hyponatremia and death."

[HenrikOlsen]

IIRC, actual anti-dehydration used in medicine include electrolytes.

Basic improvised rehydration solution is 6 level teaspoons of sugar, ½ level teaspoon of salt to 1 liter of clean water.

The official standard formulation has potassium cloride and trisodium citrate as well.

Water's actually very bad for treating dehydration, so it's not just misleading advertisement, it's directly dangerous medical advice and Paul Nuttall is an idiot.

[PraedSt]

Most know what
dehydration means but some may think it is an
illness to be prevented.

The EU is just clamping down on hustling.

If most know, but a few don't, that's ample reason for society to take care of it on their own. If you're going to spend 3 years and a commensurate amount of money making a decision, better to save it for those cases that a few know, but most don't.

As for the EU clamping down on hustling, that's an admirable goal. If the EU shut itself down, the amount of hustling in Europe would decrease by a magnitude. Of course that won't happen, because when bureaucrats do it, its negotiation, but if a private individual does it, its fraud.

[PraedSt]

Yep, it's anti-scam legislation.

We have that already.

[PraedSt]

Well, like others have said, it's misleading. It's the hidden use of "the exception proves the rule" meaning that stating that one product does prevent something (the exception) means other competing products (water) or other related products (carbonated sugar water) don't (the rule).

No it isn't misleading. Drinking water prevents dehydration just as much as eating prevents starvation. As for "the exception proves the rule" statement, that is a totally left-field argument. If eating a pizza stops you from feeling hungry does that mean eating a burger doesn't?

More over, it invokes a quasi-medical understanding and when it comes right down to it, hydration isn't just about water but about multiple chemicals that balance hydration including salt and potassium etc. IIRC, actual anti-dehydration used in medicine include electrolytes.

Hydration is continuous spectrum between adequately hydrated and severely dehydrated. And there are three types of dehydration, naturally of course- hyop, iso and hypertonic. But water is the common denominator- it does you no good to eat table salt if you don't drink water as well. Regardless, mild dehydration is by far the most common because all of us get into that state a few times every day, we feel thirsty. So certainly water can reverse mild dehydration- by definition.

The crazy part isn't the denial/disallowance of the claim, but that the marketers wanted to put the claim on the bottles in the first place. Maybe they should be forced to also include the label "Contains DHMO, which in large quantities can cause hyponatremia and death."

The DHMO trope was invented to illustrate the absurdity of bureaucracy and highlight a safety culture gone mad. So it's quite amusing to see you use it.

[PraedSt]

It's the same principle that would forbid the sale of "I Can't Believe It's Not Butter" in Denmark on the grounds that since it isn't butter, the word "butter" can't be used on the package.

And that's (a) and acceptable principle and (b) an acceptable use of that principle, to you? Seriously? The margarine isn't a person, or a can, or a belief either. Let's advertise it as "Not", shall we?

[PraedSt]

Basic improvised rehydration solution is 6 level teaspoons of sugar, ½ level teaspoon of salt to 1 liter of clean water.
The official standard formulation has potassium cloride and trisodium citrate as well.

So...you only drink Gatorade when you're thirsty? Probably not..you probably have a have a problem with their advertising too.[/QUOTE]

Water's actually very bad for treating dehydration

That's a phrase that needs framing.

so it's not just misleading advertisement, it's directly dangerous medical advice

My mum told me to "drink lots of water". Should I sue her? Report her to the police?

and Paul Nuttall is an idiot.

Apart from the fact the article says UKIP, MEP, I have no idea who he is. Why is he an idiot? And how is this relevant?