Time for a Haircut

Tis the season to be jolly but the recent cascade of  not so jolly events suggests that financial delamination not to mention social delamination is starting to take hold. The past 4 months have seen most the action in Europe with multiple attempts by the ECB and IMF to plug holes in the dike by saddling the PIGS with more debt than can ever be paid back. These bailouts are more of the same manure being shoveled out of Europe’s money barn purportedly to bail out nations but as anyone with an IQ over 81 knows are bailouts of imprudent and insolvent bankers.  It is the system that is imploding as it tries to save itself and all the big players. The world bond markets are starting to get a wee bit restive. The financial markets are awash with rumors and statements from a variety of corners. Angela Merkel says that it may be time in a year or two for senior bondholders taking on a little more risk and that is angrily denounced by ECB finance ministers and  outcry from the other usual suspects denouncing such heresy. The fact of the matter from my unsophisticated perspective is that forcing insolvent countries to borrow their way out of debt is foolish and pointless and does nothing to start to solve the European and worldwide financial crisis. The situation is bankers trying to save bankers and banks by forcing debt onto citizens.  Citizens can and should push back against the austerity measures imposed by legislators owned lock stock and barrel by their financial cartels.  What needs to be done is for citizens to either vote to denounce and remove these governments or find other ways to bring down the governments. There is no way to begin to solve  these debt issues without rescheduling or repudiating the debt and that means telling senior bondholders they will not be getting 100 cents on the dollar which is what AIG and Goldman Sachs and a multitude of other European banks received from the US taxpayer not so long ago.  These bondholders do not intend to see this happen but unless and until they are taken down and given marine corps haircuts, there will be no way to even begin to rebuild the world economy. Some countries like Greece are skating perilously close to the edge and the riots are ratcheting up in severity with Molotov cocktails being thrown. The next riot may involve real bloodshed which will either result in bringing down the government or the government imposing a police state.
     The situation is Ireland is hardly less dire as Mr Lenihan keeps insisting that the Irish have an agreement to pay back bank debt and those bondholders and that anyone who thinks that not paying the bondholders 100 cents on the dollar “is living in a fantasy world.” The elections coming up in Dublin in the next few months may determine who is living in a fantasy world.As I have written repeatedly, the Irish citizenry should throw out the bums and tell the European banking establishment that they will not pay.  It worked in Iceland. If they do, there will be a lot of unhappy banks. Look at the different country exposure to PIGS debt which I pulled from Mish’s website:

Exposure to Spain
Germany – $216.6 billion
France – $201.3 billion
Great Britain – $136.5 billion
US – $172.8 billion

Exposure to Ireland
Germany – $186.4 billion
France – $77.3 billion
Great Britain – $187.5 billion
US – $108.3 billion
Spain – $17.7 billion

Exposure to Portugal
Germany – $44.3 billion
France – $48.5 billion
US – $35.6 billion
Spain – $98.3 billion

Exposure to Greece
Germany – $65.4 billion
France – $83.1 billion
US – $36.2 billion

Germany’s exposure is over half a trillion and what I found surprising was that US bank exposure was around $350 billion. IF Ireland defaults, a lot of rich people will be less rich  and the Euro will be endangered and almost certainly lose value. I have a feeling that the impact of these events will hit the US pretty hard as well.
Bumbling Ben is under assault from all sides for continuing the tradition established by his predecessor of clueless incompetence. Bernanke  has no idea what is going on or what to do but his imprudent actions are destroying the currency and world wide confidence in the US dollar. My best trade in the markets has been shorting  treasuries. My double short has been twice as good. The yield on the 10 year treasury is up 1% in the last month or so. Muni bonds are in free fall and the traitor Iraq Obama has joined the Republican Party .
    If you look at economic historical events and the time frame within which significant events occur, what you see time after time is how long things lurch and limp along until WHAM-O!!. The manure hits the fan and chaos ensues. Bond market, step right up. It’s time for your haircut.

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About cal48koho

I was born in Montana and raised in a dozen Air Force SAC bases. I attended Holy Cross,West Point and UNC in Chapel Hill(MD"71). Army doc in the last years of the Viet Nam fiasco. My wife and I live in a log cabin I built in Jackson Hole in 1975 when we aren't on our Cal 48 yawl. I've done a dozen different jobs and retired from ER and Anesthesia in 2004. I've written magazine articles and am writing a Kunstleresque novel about life in a past Peak Oil world. We are living in a beautiful alpine setting where we hike and ski when we're not thinking about economics and spreading the implications of PO to anyone who will listen.
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