Monday, September 19, 2011

Not Mincing Words On Greece

I have long since stated that Greece will default.

I didn't mince words back then and I am not mincing them now.

Greece has really three options to cut their debt.

1-Pay it off
2-The Kramer Method - Write It Off
3-The British/US Method - Inflate it away

Option 1 would be the best method for autocrats/technocrats/policymakers everywhere. The Cubs would win the World Series before this happens however. This on the surface looks to be the most healthiest form of paying it off for market participants. But its not happening for Greece as the debt load plus austerity is crushing.

Option 2 would be to write it off. This looks to be the most efficient plan for the Greeks. This is a default. Pure and simple. We will have to figure how the market reacts to this. How would bilateral CDS contracts be settled, etc. This would be incredibly painful but would be a cathartic revelation. How they handle the haircuts and what that amounts to will be important.

Option 3 would be in my opinion the most dangerous. The Greeks would have to exit the Euro and then reissue Drachmas. The currency would immediately drop, this would allow the Greeks to export more Gyro's but inflation and falling output would create problems.

All things aside, the markets are weak again this morning. Its become a broken record. The failure of European Policymakers to deal with this issue is flabbergasting. They will continue to muddle through this crisis, making the crisis more and more of a problem. Bailouts, USD Swaps, EFSF talks are all about kicking the can down the road. The current policy is extend and pretend till Wile E. Coyote stays in suspended animation. If and only when the Euro is about to totally collapse and it threatens the entire European Continent will the European Autocrats do the right things and demand 50-60% haircuts and fiscal consolidation.

Yes. Eurobonds. It wont be pretty and it wont be easy. Europe needs a common treasury. This needs to be done first. I understand that Eurobonds have some inherent problems, most notably the lack of a political union but a Brady Bond mechanism needs to be installed.

The markets are again weak coming off additional negative news flow out of Greece, but I fully expect the EU, ECB, and IMF to come up with the money for Greece. I might as well toss in the Fed as well. I fully expect Greece will get her money in a few weeks. The EFSF will then be passed by all European parliaments. Markets will cheer leading into these actions, but then I also expect an orderly Greek restructuring in the area of 50% haircuts which in the grander scheme of things is not enough.

Sunday, September 4, 2011

Left/Right = Wrong

For the longest time American politics has been about Democrats Vs. Republicans. The Left Vs. the Right. Liberals Vs. Conservatives. The major economic, social, political, and economical issues have all been defined by these paradigms. For the last hand full of generations this has been the prevailing structural dynamic of how the major issues of the day were discussed not just in this country but on planet Earth.  Look at every industry and you can point to this idea of which side of the fence you would reside on.  This has changed.  Let me tell you that its not a Left/Right issue anymore and it stopped being an issue some 20-25 years ago. The joke is on the electorate who are fighting over these ancient arguments. Its like throwing stones when machine guns are the weapon of choice. 

There is a huge structural shift that has happened over the last 25 years or so that is changed the underlying dynamic. Again while most Americans continue to argue over abortion, welfare, taxes, war policy, education, immigration, etc,  the country is being taken/stolen away from them. Both leftists and right wingers can't see through their mutual hatred for one another. This is what policymakers and politicians want as they give the country away to Wall Street and big business. The media and talk radio continue to make every issue a Left/Right debate because guess who owns them? This is why Rush Limbaugh, Ann Coulter, Laura Ingraham, Ed Shultz, and Olbermann are extremely well paid by the media machine. They specifically come on line and make their constituencies think that it is us against them as in Democrats/Left/Liberals Vs. GOP/Right/Conservatives. This is on every issue. Whilst the country gets taken away from them and handed to the corporations. 

Turn on the TV, listen to CSPAN, read the papers and its always about the following: 

1-Pro Choice Vs. Pro Life
2-Pro Union Vs. Anti Union 
3-Free Markets Vs. Regulation
4-Pro War Vs. Anti War
5-Pro Immigration Vs. Fence Builders
6-Gay Marriage Vs. Family Values
7-Public Schools Vs. School Choice

I can go on forever. On and On.

What we have seen since the near collapse of the global economy is how the Corporation has swayed the argument into actions that screw the taxpayer for the benefit of Big Business. The increase of Corporate influence over the last 25 years is the biggest geopolitical event that no one is talking about. Why would they? Rush Limbaugh and Olbermann are not talking about it so why fight over it? Its not the fall of Communism or the rise of Islamic fundamentalism, or even the rise of China and India to the global economic landscape but the rise, power, and influence of Corporations over  the individual. It is the taxpayer/individual Vs. Big Business/Wall Street/Corporations and we the Taxpayer/Individual is getting slaughtered. 

This is not new ground for the well informed. Its been simmering since the Reagan Revolution. Over the last 25 years the disintegration of tax payer rights was slow and measured. It took on a Tsunami like existence when the US Government bailed out Wall Street. The power and influence that Banks have over the electorate is absurd. Banks have lots of money and power and they spread it around policy circles which filter into the policy making areas.This is why we continue to have bailouts. When we have such a vulgar concentration of power, influence, and money we are assured to have an abuse of that power. 

Money has supplanted tax payer rights. The political process has been twisted and perversed by lobbyists and now the Supreme Court has made it that Corporations are just like individuals. 

Again, the tax payer is losing. The individual is losing out to Big Business. You have to consider that every single piece of legislation that policy makers make is on behalf of corporations. 

So the next time you have a conversation about abortion or taxes or even immigration, remember you are missing the bigger picture. When the bailouts  via TARP was rolled out, it was a Republican Right Winger (Paulson) that started that but today the bailouts continue with a Democratic Liberal (Obama). They are all in on it. They smell the money. There is no left/right function in politics. Its all about PAC's, Lobbyists, and Corporate influence. We had Bush Jr, push through two unfunded tax cuts, Medicare Part B, and two wars. We have Obama who pushed through Obamacare, extended the tax cuts and continues to fight two wars. Two guys who are at separate ends of the political divide but both are acting to the benefit of Big Business. Wall Street got bailed out under a GOP administration and to every one's surprise is getting bailed out daily under Obama, yet we continue to argue about gay marriage? 

There is some light at the end of the tunnel. Many have stopped reading print newspapers. Many have stopped watching the MSM. They go like myself to blogs and other user generated content sites like YouTube to get a proper idea of what is going on in the world. 

Just today I was having a conversation with someone at the coffee shop about Keynes Vs. Hayek and it suddenly dawned on me that its not about Keynes Vs. Hayek, but Goldman Sachs Vs. Me and I am losing. If Americans continue to travel down this road Serfdom is the final destination.