Rates: When Zero Is Way Too High - BusinessWeek

Rates: When Zero Is Way Too High - BusinessWeek

U.S. stimulus not enough, TARP bailout misused: Soros | Reuters

U.S. stimulus not enough, TARP bailout misused: Soros | Reuters: "The bursting housing bubble 'acted like a detonator that exploded a much larger bubble,' he said."

Sterling is finished

Bloomberg.com: Worldwide

Obama's Stimulus - great effects

Thanks again to my friend Tibor for this contribution!

Sponsor an executive

This is really funny and so true...

The outlook for emerging markets | Stumble or fall? | The Economist

The outlook for emerging markets | Stumble or fall? | The Economist

This is to support the earlier note on the trouble in emerging economies. It seems that Eastern European countries will be particularly hard hit by the global recession. Difficulties to repay EUR and USD denominated loans with depreciating domestic currencies will pose a significant threat to EU banks, particularly Austrian banks. Exposure of Austrian banks to Eastern Europe is 85% of its GDP and 4 times the exposure of German banks.

Crowding Out

Crowding out

As outlined in an earlier article everything is pointing to a bubble in US Treasuries. Despite record issuance yields remain at record lows with 3 months bonds currently yielding 0.06%.

Meanwhile other top rated countries like Germany find it difficult to complete an auction for EUR 6bn.

German bond sale’s fate signals trouble ahead

The UK which is further along in the recession will have to refinance GBP 146bn this year, which will likely increase to provide for additional fiscal stimulus. With the lowest interest rates since inception of the Bank of England in 1694 and the GBP at an all time low this might prove to be difficult as well.

Oil and commodity dependent emerging economies will be faced with widening trade deficits with no way to finance. They (along with top creditor nations) will be crowded out by sufficient availability of US treasuries. This will keep the USD afloat vs. the Euro well into 2009.

However at some point there will be a move away from USD as there will simply not be endless demand as trade surpluses in USD creditor nations will be eliminated as the recession worsens.

U.S. debt is losing its appeal in China

What then? Where will all the money come from?

And the answer is, Helicopter Ben.

The Treasury will issue bonds and Ben will buy with freshly printed USD and everybody will pay for it through inflation. The economy has to be jump started through fiscal stimulus We are all Keynesians now, “We owe it to ourselves.”

My naïve point of view is that if someone fights fire with oil (further credit expansion, now on the balance sheet of the fed) this will not change the fundamental problems. Simply, there will have to be pain to purge the excesses which were forced upon us through Greenspan et al. Please see Austrian business cycle theory.