Thursday, November 17, 2011
This Isn't Bad; It's Ugly
Addison Wiggin in Forbes:
"There is definitely going to be another financial crisis around the corner," says hedge fund legend Mark Mobius, "because we haven't solved any of the things that caused the previous crisis."
We're raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out.
....What worldwide mayhem would ensue if Greece didn't pay back 100 centimes on the euro?
That's a rhetorical question, since the balance sheets of European banks are even more opaque than American ones. Whatever the actual answer, it's scary enough that the European Central Bank has refused to entertain any talk about the holders of Greek sovereign debt taking a haircut, even in the form of Greece stretching out its payments.
That was the preferred solution among German leaders. But it seems the ECB is about to get its way. Greece will likely get another bailout — 30 billion euros on top of the 110 billion euro bailout it got a year ago.
Nope, that's not all. That's just Europe.
Wiggin then mentions the nuke-device in D.C.
...The Fed's entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone, junk that the banks needed to clear off their own balance sheets.
"As the size of the Fed's balance sheet ballooned," continues Mr. Pento, "the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.
As he states, that's a 51-to-1 ratio.
The Fed could recapitalize, of course, by 1) printing money, or 2) getting some sort of T-Bond--meaning that Congress would 'print the money'. So you get a choice: tax by inflation, or tax by taxation.
The Fed sure as Hell is not going to sell shares to Saudi Arabia, nor any other foreign country.
Or will they?