Thud

That is my hope turning to despair as Bill Bonner’s prose comes back to haunt me with… with … raw truth:

Memories take time. Like history. Or wine. Or cement.

At first, they are loose, fluid…and watery. Then, over time, they dry up…and  develop more body…more shape…more substance.

Our recollections from our trip to Argentina are still congealing…setting up  like a stone wall. We’ll show it to you in the days ahead.

But today, let’s turn from the pampas to the developed world…to the world of  money. That is, let us turn our attention from the vivid world of real things  and real people…to the absurd blah blah world of economics.

What happened in the 2 months we were gone? Anything important? Not that we  can tell from the papers. The headlines are almost the same as they were when we  left.

The Great Correction, for example, hasn’t gone away. Instead, it seems to be  intensifying.

In America, 11 million homeowners are still ‘underwater.’ Every one of these  houses is a candidate for foreclosure…and every one puts downward pressure on  the housing market, which has been falling for the last 5 years with hardly a  let-up.

Yes, Dear Reader, this month marks the 5th anniversary of the Great  Correction. It began in April ’07, when its weakest link — subprime mortgage  debt — snapped. Since then housing has been losing value. And with 11 million  houses still priced below the amount of their mortgages, this housing bear  market could last for another 5 years before it finally comes to an end.

When housing goes down so do the balance sheets of America’s households. And  without improving balance sheets it is very unlikely that households will  substantially increase spending. This will leave the economy hobbling along  about as it is now…with the lowest growth rate of any post-war ‘recovery’…and  completely dependent on more loose change from the feds.

No, that hasn’t changed either. When we left the feds were still trying to  sort out a debt crisis by adding more debt. Nothing has changed since. America’s  feds keep lending money they don’t have to borrowers who can’t pay it back.

This time, students are the subprime borrowers. Can you imagine a more  subprime group? Students don’t have jobs. They’ve never proven they can earn  money. Their credit histories are as thin as their resumes. And yet the feds  have extended $1 trillion to this group. How long will be before that blows up?  Probably not too long.

Meanwhile, in Europe, subprime debt is concentrated at the government level.  The subprime borrowers were the countries at the periphery of Europe — Ireland,  Portugal, Greece and Spain — who would have a very hard time paying their bills  when the lending stopped. When we left, Greece was struggling. Now, it’s  Spain.

Seems Spain was able to borrow more money this weekend. But its costs rose;  Spanish debt now yields over 6%.

At 6%, according to the experts, European nations can still keep going. If  the debt rises to 7%, on the other hand, their goose is  cooked…cuit…cocinado…

It’s amazing to us that Spanish debt isn’t already at 7% or more. These  countries should have gone broke years ago. The only way they avoid it now is by  promising to do things they can’t do. Cutbacks — austerity measures — are  solemnly put into budgets. They lower GDP, lower employment, and raise  opposition parties to new levels of absurdity and notoriety. And never quite  reach their objectives.

But thanks to central banks…they never go broke.

In America, the deal is pretty straightforward. The Fed prints. The feds  borrow the counterfeit money and spend it.

In Europe, the central bank prints up money too. It lends it to the banks.  The banks lend to the marginal governments around the periphery. This puts the  banks in a bad situation. They’re holding a lot of subprime government debt. But  the central bank keeps lending them money to buy more!

Bloomberg has the story:

April 18 (Bloomberg) — Spanish, Italian and  Portuguese banks are loading up on bonds issued by their own governments, a move  that shifts more of the risk of sovereign default to European taxpayers from  private creditors.

Holdings of Spanish government debt by lenders  based in the country jumped 26 percent in two months, to 220 billion euros ($289  billion) at the end of January, data from Spain’s treasury show. Italian banks  increased ownership of their nation’s sovereign bonds by 31 percent to 267  billion euros in the three months ended in February, according to Bank of Italy  data.

German and French banks, meanwhile, have cut  holdings of those countries’ bonds, as well as Irish and Greek debt, by as much  as 50 percent since 2010 in some cases. That leaves domestic firms on the hook  for a restructuring such as Greece’s last month and their main financier, the  European Central Bank, facing losses. Like Greece, governments would have to  rescue their lenders with funds borrowed from the European Union.

The jump in sovereign-debt holdings by Spanish  and Italian banks has been fueled by the ECB’s 1 trillion-euro long-term  refinancing operation, or LTRO, initiated in December, to provide liquidity to  the region’s lenders. Encouraged by their governments to take the money and buy  bonds, banks borrowed 489 billion euros on Dec. 21 and 530 billion euros on Feb.  29.

For lenders in so-called peripheral countries — Spain, Portugal, Ireland, Greece and Italy — profit also was an inducement: They  could borrow at 1 percent to buy government bonds yielding between 6 percent and  13 percent.

In Europe as in America, nobody goes broke…until they all go broke.

Meanwhile, in Greece, farmers are organizing special “food relief” programs  to help children in the cities who are said to be almost starving. The  government, meanwhile, is preparing to head off “food riots.”

In France, the communist party, which was practically dead a few years ago,  is coming back to life…like the zombie it is…under the leadership of Jean-Luc  Melenchon. Unlike the ‘responsible’ politicians in Europe, Melenchon wants no  cutbacks in government spending. Just the contrary. He wants to increase it. For  example, the minimum wage would go up from about $1,600 per month to $2,300 per  month. And the top marginal income tax on rich people, those who earn more than  about $500,000 per year, would go to 100%.

Melenchon’s star is rising. His left coalition could get 12% or more of the  vote on Sunday. Which is only natural. Promise the mob that you will give them  free money; few will resist it.

*** Alone among the developed nations…America has something the others don’t  have…and by the look of things, something they don’t want. The US population is  growing!

Yes, dear reader, when it comes to having babies…or importing babies from  other countries…America still has what it takes. The UN says that US population  will increase by nearly 27 million people by 2020.

Twenty-seven million people is about 40 cities the size of Baltimore. If each  one of these people lives in a household of four people, it’s more than 6  million new houses…and, assuming they are all two-car families, about 12 million  autos. And, of course, each family needs a dishwasher, a toaster oven, a  refrigerator, and so forth. A lot of stuff, in other words.

Compared to the rest of the developed world, America is still enjoying a  major population boom. After all, Japan’s population is shrinking. So is  Germany’s. Europe as a whole is still growing, but not by much. And after 2020,  it begins to shrivel up too.

But American population growth may not be as strong as it is advertised. Why?  Because more and more people are sneaking out.

As we reported yesterday, illegal immigrants are going home…as well as the  children of legal immigrants. And now comes word that native-born Americans are  slipping away too. Yes, according to our sources, 742 US citizens leave the  country every hour — and don’t come back.

So many are leaving that Sen. Barbara Boxer has proposed legislation — a law  that would make it impossible for Americas to cross the border until they settle  up with the IRS.

The noose tightens…

 

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Categories: Miscellaneous Musings
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