debt – Page 14 – The Burning Platform

Financial Nonsense Overload

Guest Post by Dmitry Orlov

Kelly Hensing

“Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.

As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece’s potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.

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However, Greece’s creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

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MONDAY COULD BE INTERESTING

Grandma Yellen and her fellow central banker minions are probably burning up the phone lines this weekend. Greece is throwing a monkey wrench into their monetary fiat machine. Their extend and pretend solution to un-payable debt has been to create more debt and pretend that it would eventually be paid off. Well, it can’t and it won’t be repaid. The dominoes are lined up and once they begin to fall, nothing will be able to stop the consequences of corruption, delusion, and debt. Will the Plunge Protection Team successfully avoid a Meltdown Monday? Maybe. Can they avoid a meltdown forever? No.

Eurozone Rejects Greek Bailout Extension: All Bailout Programs Expire On June 30, Referendum Moot

Submitted by Tyler Durden on 06/27/2015 10:58 -0400

First thing this morning, when summarizing the flurry of overnight events, we focused on today’s final gambit by Greece:

“… moments ago Varoufakis was quoted as saying he would ask the Eurogroup for a bailout extension of a few weeks to accommodate the referendum.

And the punchline: if the Eurogroup says “Oxi”, then the entire Greek gambit, which has been a bet that to Europe the opportunity cost of a Grexit is higher than folding to Greek demands, collapses.

If the Eurogroup declines Varoufakis’ request, there simply can not be a referendum, as the “institutions proposal” will no longer be on the table. As such, the only question is whether the ECB will also end the ELA at midnight on June 30, adding insult to injury, and causing the collapse of the Greek banking system days ahead of a referendum whose purpose would now be moot.”

And, as expected, with the Eurozone meeting on Greece having just ended after a brief hour of deliberations, AFP reports that the answer, was indeed, no.

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Back in the day

Guest Post by Angel from Lonely Libertarian

When I went to school, we had the option to take “electives” including Home Economics (cooking, sewing, budgeting, finances, etc.), auto mechanics (basics of car maintenance), building trades (seriously, if you own a home, you need this), agriculture (care and processing of farm animals and crops). We were all encouraged to take advantage of “real life education”. I took a semester of auto mechanics, a semester of building trades and a semester of home Ec. I can do most auto repairs, run basic wiring and plumbing, replace lighting and plumbing fixtures, frame, drywall, cook, can, budget, and figure taxes (I’ve never paid to have my taxes done and I’ve never been audited…yet.)

While I had a pretty well-rounded high school education, most of the credit goes to my folks. Mom and Poppy never discouraged me from seeking knowledge, especially if it was useful. And much of my practical education came from my parents and grandmas. I’ve told the story of my first car, I worked years of odd jobs and saved every penny I earned. I paid $2500 cash for my 1965 Mustang. And Poppy took the keys until we went over every inch of it, engine and transmission, and he was satisfied I knew how to take care of it. I rotated my own tires, changed my own oil, belts and hoses. I still do all of my own vehicle maintenance.

Every house I lived in growing up was a “handyman special”. We were very very low income blue collar, but always owned instead of rented. The first house was purchased from an old farmer for $1000 cash and a $10,000 builder’s loan. Two bedroom, one bath, less than 1000 sq ft. Poppy later added a master suite, increasing the square footage to 1200. Total investment was $35,000, they sold it a few years ago after 20 years of being rental property for $98,000. I was too young to do much on that one but fetch tools and carry trash, but the next one was different.

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Fragility: What Has the Watchers Worried In the US Debt Markets

Guest Post by Jesse

As you know I am on the lookout for a ‘trigger event’ that might spark another financial crisis, given the composition of the economy and the financial markets.

In the last financial crisis 2008, it was the failure of the two Bear Stearns hedge funds that exposed the grossly mispriced risks in mortgage backed financial assets, and the generally flawed nature of the market’s collateralized debt obligations. This led to a cascade of failures in fraudulently priced assets, and resulted in increasingly large institutional failures, including the collapse of Lehman Brothers.

One can draw some parallels with the financial crisis before that, which was the gross mispricing of risk and inflated values of internet-related tech companies that had grown to obviously epic proportions by 2000. A failure of several key tech bellwethers to make their numbers, and some negative results in the economy, showed the flaws in the underlying assumptions in what was clearly an asset bubble. And once the selling started, it was Katy-bar-the-door.

The failure of two relatively minor hedge funds was not a great event. The failure of a tech bellwether to make its quarterly numbers is not either. But their interconnectedness to the other portions of the world markets through the financial institutions on Wall Street, and more importantly, the fragile nature of the entire pyramid scheme of fraudulently constructed and mispriced risk of financial assets, caused an inherently shaky system to fall apart. What was most shocking was how quickly it happened once the dominos started falling.

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The Coming Cashless Society/Greek Tragedy

Guest Post by Martin Armstrong

Now you are watching newspaper and TV shows all preparing the public for the coming cashless society. This is a marketing campaign and this may be indeed what October 1st, 2015 is all about – 2015.75. I doubt that the USA will be able to move to a cashless society as easily as Europe. The dollar is used around the world and cancelling that outstanding money supply would bring tremendous international unrest. Additionally, the USA is not in crisis financially as is the case in Europe.

Europe, on the other hand, has an entirely different problem. The failure to have consolidated the debts of member states meant the reserves of the banks were constituted of a politically-correct mixture of debt. Instead of fixing the problem, politicians who are lawyers always move one step forward with laws. To them the logical solution is to eliminate cash to protect banks from a panic run that would collapse Europe and take Brussels with it.

This is a deliberate marketing campaign now. I know who these things work and just pay attention. They are selling this idea everywhere and that is the preparation for the inevitable action. With the speed at which they are moving, it certainly appears they are gearing up for October 1st on out model. It is also interesting that some German press misquoted our date as October 17th. I was not sure why they would do that, but perhaps that was intentional as well. This is very curious for when they take that final step, it will most likely be sudden and overnight. This would announce it and give everyone some time period to take your paper currency and deposit it into you bank account.

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America’s Second Greatest Generation

Guest Post by Bill Bonner

Dream On

Fed chief Janet Yellen is talking about raising rates. From USA Today:

“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” Yellen said in a speech at the Providence Chamber of Commerce in Rhode Island.

She added, however, that after the first hike, “I anticipate that the pace [of subsequent increases] is likely to be gradual. […]

Yellen said that “it will be several years” before the Fed’s benchmark rate is back to normal – which is close to 4% in an economy that’s performing well.”

Janet Yellen levels her rate-hike gaze at us …

Photo credit: Kevin Lamarque / Reuters

No Real Recovery

We have proven – beyond reasonable doubt – that if anyone can predict the market’s movements, he doesn’t work at the Diary.

But when it comes to the economy, we claim a little credibility. We saw the debt crisis of 2008 coming. Addison Wiggin and I wrote about how America was due a debt collapse in our 2006 book, The Empire of Debt.

It was so big … so obvious … and so in your face, who could have missed it? And after the worst of the crisis subsided, we saw not only that there was no genuine economic recovery, but also that the economy couldn’t recover.

Genuine economic growth is something you can allow, but you cannot force. If you try to trick your way to it – with phony interest rates, more debt, and cockamamie inflation targets – you will retard the growth, not speed it up.

This is obvious, too. But Ms. Yellen is paid not to see it. And in the absence of real growth, the Dow at 18,000 looks vulnerable. It wouldn’t be at all surprising to see a rolling top take shape… with a sharp break in the fall.

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Are You Guilty of Crimes Against the Young?

Guest Post by Bill Bonner

The New Land of Opportunity

“This city is great. It’s beautiful. It’s cheap. The climate is agreeable. And it’s becoming a haven for Internet savvy marketers.

“I think they’re coming partly because it’s a great place to live. And I think young people want to get away from the U.S., too. It’s just not the land of opportunity that it used to be.”

So sayeth our dinner companion last night. He was the second young man in the last 24 hours to make the case that Medellín is a “buy.”

“It just seems to be catching on with people who work on the Internet. I guess because it is such a great place to live. People are helpful and nice here. And everything is unbelievably cheap.”

We can back him up on both points: Our taxi driver went far out of his way to help us find our hotel. (We had the wrong name.) And after driving us around for a half an hour, he was delighted to take the equivalent of $8 for the fare.

Medellín – city of the future

Photo via turismoenmedellin.com

A Country for Old Men

Several readers have commented on the coming generational storm in the U.S., which was the theme in last week’s Diary. (You can catch up here, here, and here.)

“Billie Boy, I don’t like where your head is lately. Your writing depicts our debt situation as being caused by baby boomers when it is the Fed and the government who never listen or do what the public desires…”

Here’s another:

“You are beginning to sound like “Obuma” in his class warfare dialogue. I am one of those old people who is not benefiting from the greed and lack of morals evident on Wall Street and in particular in Washington, DC. Leave me out of it and do not blame all old people for the actions of the elites in DC and state governments…”

To clarify, we are not blaming innocent beneficiaries… or innocent victims. And we readily admit we couldn’t get a conviction for willful larceny. Most of the people involved stole unwittingly. They were just playing the piano; how could they know what was going on in the back room?

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