Our decade from hell will get worse in 2012 - Paul B. Farrell - MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Fasten your seat belts: 2011 was far worse than expected. Our earlier predictions for America’s Worst Decade just got worse. 

As financial historian Niall Ferguson writes in Newsweek: “Double-Dip Depression … We forget that the Great Depression was like a soccer match, there were two halves.” The 1929 crash kicked off the first half. But what “made the depression truly ‘great’ …began with the European banking crisis of 1931.” Sound familiar? 

Yes, huge warnings: But America’s deaf. In denial. When we predicted the 2011-2020 “decade from hell” we didn’t see the big macro events dead ahead: Arab Spring virus that’s now Occupy Wall Street, promising to explode into an even more powerful force in 2012 … war on the middle class … widening inequality gap. … Washington gridlock … the Super Rich’s blind resistance to all new taxes. 

As Ferguson puts it: “To understand what has been happening in our own borderline depression, you need to know this history. But hardly anyone does.” Get it? America’s already in a “borderline depression,” and virtually nobody gets it. American leaders are dummies about history. Worse, nobody may be able to stop our depression from turning “great.” 

Investors beware: Please, protect your assets: “Those who don’t remember history are doomed to repeat it.” We’ve already forgotten the lessons of the 2008 disaster. No wonder we’re doomed to repeat the mistakes of the 1930’s triggering the Second Great Depression. Soccer anyone?

More bad news for 2012: from Gross, Grantham, Shilling and Stiglitz

Ferguson’s in good company with his dark forecast. Pimco’s Bill Gross asks rhetorically: “Where is the euro headed? More than likely down, perhaps significantly.” Gross warns of a “terrifying situation” where “the euro may fall … and take the U.S. recovery with it.” 

Then there’s Jeremy Grantham, whose GMO firm manages $100 billion. He predicted the 2008 crash a couple years in advance. Predicts ‘Seven Lean Years” ahead, till 2016, the end of the next presidential term. Now, in his latest newsletter he feels “sadly … vindicated by my ‘seven lean years’ forecast.” The world “will not easily recover from the current level of debt,” as our self-destructive American and European leaders have “permanently slowed their GDP growth.” 

More bad news: As we close out the first year of the “Worst Decade in American History,” economist and long-time Forbes columnist Gary Shilling just issued his semi-annual outlook: “Global Recession Likely” in 2012. OK, the best he can say is that this one “will be milder than the 2007-2008 nosedive.” Of course, you’ve already forgotten those pains, right? 

And over at Vanity Fair, Nobel Economist Joseph Stiglitz also reexamines the dark history of the Great Depression, warning that in our ignorance of history we’re missing a fundamental economic “shift in the ‘real’ economy,” missing what will generate future jobs, just as we did back in the ‘30s. Yes, we “risk a tragic replay” of the Great Depression.

Read more: Our decade from hell will get worse in 2012 - Paul B. Farrell - MarketWatch

Shenandoah: Liquidity Swap Announcement: A Repeat of 2008

Can you say deja vu all over again........................
 

From the Federal Reserve website, Press Release on Monetary Policy release from September 18, 2008:

Press Release

Release Date: September 18, 2008

For release at 3:00 a.m. EDT

Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.

Federal Reserve Actions

The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks. 

The FOMC has authorized increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion. 

In addition, new swap facilities have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada. 

All of these reciprocal currency arrangements have been authorized through January 30, 2009. 

Sound familiar to this morning’s announcement? Here it is from the Federal Reserve’s website this morning (link to press release here):

Press Release

Release Date: November 30, 2011

For release at 8:00 a.m. EST

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity. 

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points.  This pricing will be applied to all operations conducted from December 5, 2011.  The authorization of these swap arrangements has been extended to February 1, 2013.  In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.  At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise.  These swap lines are authorized through February 1, 2013. 

Federal Reserve Actions

The Federal Open Market Committee has authorized an extension of the existing temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank through February 1, 2013.  The rate on these swap arrangements has been reduced from the U.S. dollar OIS rate plus 100 basis points to the OIS rate plus 50 basis points.  In addition, as a contingency measure, the Federal Open Market Committee has agreed to establish similar temporary swap arrangements with these five central banks to provide liquidity in any of their currencies if necessary.  Further details on the revised arrangements will be available shortly.

U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets.  However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.

The last time the world’s central banks agreed to this type of intervention, the S&P reacted positively, as expected on September 18th and 19th of 2008:

(click to enlarge/reduce size of chart)

Meanwhile, reality set in shortly thereafter:

 

11.30 Liquidity Swap Announcement: A Repeat of 2008

Euro Zone: 'Depression' Makes Return to Mainstream Lexicon - CNBC

You know it's grim when the prevailing debate among economists and historians is whether the world economy faces the "Great" depression of the 1930s or the "Long" depression of the 1870s.

Listening to commentary surrounding the seemingly intractable sovereign debt and banking crisis in Europe, the stimulus/austerity battle in the United States and even hard-landing risks in China, gloom is fast becoming the consensus.

Only the shade of gloom, it seems, is in question. It's got so that, depending on your view of big or small government, you can pick your version of the pending depression. 

Harvard professor and economic historian Niall Ferguson, a fan of the British government's austerity drive and skeptic of further stimulus, reckons the world is facing a "slight depression" and favors comparison with the late 19th century rather than 1930s. 

Speaking on Monday at private bank Kleinwort Benson, where he is on the advisory board, Ferguson restated his critique of the fiscal and monetary stimuli from western governments over the past four years and said their modest impact questioned the key lessons most economists took from the Great Depression. 

"They may have stopped another 'Great' depression but not a depression and what for many was the most profound lesson of economic history may turn out to be wrong," he said, adding the fact that government debts and obligations were already so high before the crisis pump priming meant they now risked backfiring.

Euro Zone: 'Depression' Makes Return to Mainstream Lexicon - CNBC

Goldman Takes a Dark View - A Private Note to Hedge-Fund Clients Gives a Strategist's View; Ways to Gain From Global Pain

By SUSAN PULLIAM And LIZ RAPPAPORT

A top Goldman Sachs Group Inc. strategist has provided the firm's hedge-fund clients with a particularly gloomy economic outlook and suggestions for how these traders can take advantage of the financial crisis in Europe.

In a 54-page report sent to hundreds of Goldman's institutional clients dated Aug. 16, Alan Brazil—a Goldman strategist who sits on the firm's trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable.

“Here we go again…solving a debt problem with more debt has not solved the underlying problem. ...Can the US continue to depreciate the world's base currency?” —From a report by Goldman strategist Alan Brazil suggesting how to profit from bad economic news

Among Mr. Brazil's ideas for trading on that downbeat analysis: a fancy option play that offers a way to take a bearish position on the euro, and a bearish bet through an index of insurance contracts on the credit of European financial stocks. The report also includes detailed information about European financial institutions and pointed language about the depth of the problems in Europe, the U.S. and China. 

A Goldman Sachs spokesman said: "As a matter of course, financial institutions publish reports suggesting strategies to fit clients' needs. Whether clients want to hedge existing exposures or take long or short market positions, our goal is to help them meet the challenges the markets present." Through the spokesman, Mr. Brazil, who is 57 years old, declined to comment.

The report comes as Goldman and its major rivals vie for banking and advisory business from the same European nations whose fortunes it is counseling clients to bet against. On Wednesday, Goldman and two other major banks hosted a presentation in London in which the Spanish economics secretary, Jose Manuel Campa, planned to outline Spain's fiscal austerity measures and pitch Spain's case to investors, according to an invitation seen by The Wall Street Journal. Goldman has a leading position among banks in facilitating sales of Spanish sovereign debt.

Wall Street firms have sought to sell hedge funds ideas for trades that would pay off under dire circumstances in the past. Before the financial crisis of 2008, Goldman and other top Wall Street firms pitched their hedge-fund clients on bearish bets on the housing market involving credit default swaps—insurance-like contracts that rise in price if the value of the underlying asset falls—that the banks developed. Goldman sometimes took the bearish end of such trades even as it was selling the bullish end to clients.

The trading ideas in Mr. Brazil's report, however, are different from the mortgage-related products sold by Goldman, because these suggestions involve existing financial products, such as options and indexes. As a "market maker" in the products listed in Mr. Brazil's report, Goldman is offering to put together the trades it describes. When Goldman handles such trades, it pockets bigger fees than when it executes stock trades, which yield just pennies a share. Goldman's own trading positions potentially could benefit if hedge funds and other clients make trades based on the report. Goldman says in bold letters at the top of the report that other Goldman traders, or "Goldman Sachs personnel," may already have acted on the material in the report.

Of course, Mr. Brazil isn't alone in his dark view on Europe: Bearishness on Europe abounds these days on Wall Street. Neither does Mr. Brazil have a lock on the financial instruments in the report. For instance, the Global Economics, Commodities and Strategy Research unit at Goldman put out a foreign-exchange report in July that mentions the prospects of bearish bets against the euro versus both the U.S. dollar and the Swiss franc. Other investment banks have strategists who provide hedge funds with trading ideas, as well.

The report, released by the Hedge Fund Strategies group in Goldman's securities division, provides a glimpse into the trading ideas that are generated for hedge funds through strategists, such as Mr. Brazil, who are part of Goldman's trading operation rather than its research group. 

Such strategists sit alongside the traders who are executing trades for their clients. Unlike analysts in firms' research divisions—who are supposed to be walled off from information about the activity of the firm's clients—these desk strategists have a front-row seat for viewing the ebb and flow of clients' investment plays. 

They can see if there is a groundswell of interest among hedge funds in taking bearish bets in a certain sector, and they watch trading volumes dry up or explode. Their point of view is informed by more, and often confidential, information about clients than analysts' opinions, making their research and ideas highly prized by traders.

The report itself makes note that the information included isn't considered research by Goldman. "This material is not independent advice and is not a product of Global Investment Research," the report notes. Hedge-fund managers are discouraged from circulating Mr. Brazil's reports, and each page bears the name of the hedge-fund client on it. It isn't clear whether any clients made trades based on the advice the report offered.

Mr. Brazil's report carries language and details about the markets' problems that normally don't appear in research for public consumption. Hedge funds should batten down the hatches, he suggests.

"Here we go again," he says in the report, amid a number of charts displaying negative statistics similar to those that portended problems before the 2008 financial panic. Mr. Brazil writes: "Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world's base currency?" he asks.

Mr. Brazil spells out in detail the borrowing by 77 European financial institutions, identifying some that are especially highly leveraged. Such details are valuable for investors who are looking to make bearish bets through credit default swaps on individual European banks, hedge-fund managers say.

For investors who want to make a broader bet against European financial institutions, Mr. Brazil suggests buying a five-year credit default swap on an index, which reflects the credit of a number of European companies. About 20% of the members of the index, the "iTraxx Europe series 9," are banks and insurance companies, Mr. Brazil writes. 

He also suggests a six-month "put option" giving investors the right to bet against the euro versus the Swiss franc. The euro, "may weaken if additional financial support packages or stimulus measures are passed by European governments," he writes.

—Sara Schaefer Muñoz contributed to this article.

Taxpayers On The Hook for $23.7 Trillion in Bailouts

From Bloomberg "U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program." http://www.bloomberg.com/apps/news?pid=20601087&sid=aY0tX8UysIaM

Wake up America we are broke!!! Now is the time for action. Whether you are a Democrat, Republican, or Independent it's time to throw those bums in Washington out on their collective asses. With the exception of Ron Paul I don't think there is an honest person left in Washington that cares about America.

White House Holds a Luau While Americans Lose Their Jobs

The White House held its annual picnic this year for the press and Congress. It looks like everyone had a great time even though they weren't able to have a traditional pig roast because of environmental concerns. They even were able to raise some money for charity. http://www.youtube.com/watch?v=g_7b0GqKglE


Its no wonder that Americans disapprove of the job Congress has been doing. http://www.pollingreport.com/CongJob.htm While many hard working Americans are struggling to keep their homes, find new jobs or to simply put food on the table the elites in Washington are enjoying themselves at our expense. It must be nice to have a virtually limitless checking account (the American taxpayer) to fund these types of activities. Look even in the best of times these types of events are ridiculous. This is not an event to meet other heads of state, which are necessary although one could argue extravagant, but rather a party for our elected representatives. Most of these people are millionaires, including the President, it would have been nice if they opened their own wallets and paid for it since we are in the biggest recession since the Great Depression. But who am I kidding with budgets of between $2-4 million for each member in Congress plus a salary of $170k and the best medical care and pension plan money can buy these guys have it really tough. I mean when you compare the perks Congress has to what our soldiers serving in Iraq and Afghanistan get, an average annual salary of between $12-30k including combat pay plus three meals, a cot and the daily fear that today could be your last day on earth, its equal right!?