Skip to comments.An unstable recovery built on debt
Posted on 07/25/2013 10:27:49 AM PDT by SeekAndFind
Don't be fooled by the huge run in the US stock market and the rebound in the housing market. The financial crisis never really ended, and its effects continue to roil the global economy.
This is the financial crisis that keeps on giving.
Right now, I find myself asking many of the same questions about debt, risk and collateral that investors were asking in the run-up to the bankruptcy filing of Lehman Brothers in September 2008.
The two big questions I have at the moment: Where's the collateral for all this debt -- private, corporate and governmental -- that has been issued in efforts to prop up global growth? And what's that collateral worth?
Here's a brief survey of some recent high (or low) points. Please note that the examples are from pretty much everywhere.
* On July 19, the European Central Bank announced it would accept lower-rated assets, including asset-backed securities, as collateral from banks. The asset-backed securities would have to be simple, plain-vanilla instruments, the bank said, and in exchange, the eurozone central bank would accept assets rated as low as A instead of the current AAA. Reminds me of the good old days when Wall Street added a thin dose of AAA credits to a bundle of risky subprime mortgages and called the whole thing an AAA credit.
* Fitch Ratings and other credit analysts have warned that many of the wealth management products being sold to Chinese savers anxious to earn more on their deposits than the 3% that banks are allowed to pay are invested in loans backed by inadequate or shaky collateral. In the worst cases, no one can identify exactly what collateral stands behind a loans.
(Excerpt) Read more at money.msn.com ...
collateral = toilet paper.
Collateral? We don’t need no stinking collateral!
recovery built on debt with NO JOBS = NO RECOVERY AT ALL!!!
There is no recovery. None, nada, zero, zilch.
Pretty soon we will reach the point where the Federal Reserve buys billions of questionable mortgage backed securities every month and also buys a lot of Treasury notes. Wait a minute....
How can there be any collateral?
The Government is buying up 45 billion in Treasury Notes each month (using electronic scrip) and pumping another 40 billion in the stock market. This is the 85 Billion per month the government has been spending for two-three years now, maybe more.
The stock market is ecstatic because it’s 40 billion they get to use and count as activity (want,need,desire)and the government has ‘legitimized’ its debt by purchaser-backed T-bills - no matter that the customer IS the government.
One big scam. One month of it is equal to the 85 billion the Democrats’ sequester they keep blaming all our troubles on. I call a big BS.
Remove the $3+ trillion the fed has put into the financial markets and lets see where the DOW sits after that. Fox Biz had a guy on that claimed the DOW would be at 5,000 right now if not for the money laundering going on by the fed.
The one interesting factual number is that companies have about $19 trillion in cash combined; a rise from $12 trillion a few years ago. That’s about $65,000 per person in total or $23,000 with the rise alone. Is that real? Have we all spent that much money per person in the last few years and have companies saved that much back? I believe the value of $19 T is real but where did it come from?
-——where did it come from?——
It is cash rather than other balance sheet asset entries. The cash came from earnings.
When cash is hoarded, there is no growth. Business has plateaued. That is, a comfortable and profitable level of static operations has been achieved. The profits are maintained as cash and not reinvested as growth
-——Where’s the collateral for all this debt-——
The full faith and credit of the United States of America