Greek interest rate update

Just a note to record progress on Greek interest rates, since at the end of last week I noted they were having to pay over 10% on their 2 year bonds, and I was asking what will happen this week -- would they be paying 12% on Monday, or even not being able to sell them at any price by the end of the week? Here

Today the 2 year bond rate went over 17% according to Bloomberg (and in fact went on after the Bloomberg article to top 18%). So I was too conservative so far with the suggestion they might be paying 12% on Monday -- it's Tuesday, and it did come to pass and worse besides. I sincerely hope my other question, whether they might find they cannot sell their bonds at any price by the end of this week, doesn't come back in the affirmative...

Again, are you a better credit risk than the Greek government? Or for that matter, is even your government a much better credit risk than them?

Let's be careful out there.

Greece gives up hope of bond markets regaining confidence in them

And they reluctantly make the call to take up the IMF/EU bail-out offer.

It remains to be seen what the exact terms of the agreement are, but given their reluctance to call on the offer you can imagine they are far from ideal from the Greek point of view.

It'll be interesting to know now whether the EU part of the bargain is really on offer, or if that was all said just in the hope markets would believe the bazooka in their pocket was loaded, but it isn't. I guess we get to find out imminently...

It's going to cost us all across Europe an awful lot of money (yes, including the UK) if this bail-out does indeed go ahead. Anyone got a hat we can pass around? It better be a big and sturdy one, because it'll be needed more than once and it'll need to be able to cope with the demands of bigger countries than Greece.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7624152/Greece-triggers-EU-IMF-rescue-loans.html

Who's right over pound, Ken Clarke or Goldman Sachs?

The Telegraph have an article up by the same title as this post. Here

Earlier this week Gordon Brown said he was going to follow the US Securities Exchange Commission (SEC) in calling the legal dogs on Goldman Sachs over perceived fraudulent activities.

Yesterday Goldman Sachs put out a recommendation to their clients that they should buy the Pound because it is heading up from here. (It should be noted here that Goldman are not exactly unknown for recommending one thing to their clients, and actually putting on the opposite trade themselves -- and coming out with a lot of money. See aforementioned allegations of fraudulent activity.)

Now, to me the above two items feel like an awfully big coincidence in the same week. Perhaps you agree? Do you think, just maybe, if Goldman were to agree to help prop up the Pound (and by extention the sitting UK government, just ahead of an election...) then some dogs might get put back on a leash?

Ken Clarke of the Conservatives, a man who has been around the block a few times, thinks the Pound is very precariously balanced and that a hung parliament outcome from the election will sink it, quite possibly bringing on a call to the IMF of Britain's very own, not unlike Greece's.

Given that I have a number of posts up here over the last couple of months calling for a fall in the Pound on chart technical grounds, and that our national debts are accellerating at an unsustainable (but to-be-sustained) rate. I have to agree with the right honourable Mr Clarke.

Buckle up.

Greece now paying over 10% for 2 year bonds

If you have a mortgage, you too ought to be concerned about the future direction of interest rates by now. Again I say, do you think you are a better credit risk than the Greek government?

Today I am reading that they are being forced to pay over 10% interest for 2 year loans (here). You, as just a regular person in the UK, can still fix your mortgage at about half that level for 5 years at the moment. It was only yesterday (here) that I was concerned at reading they were having to pay "only" 8%+ for 10 year loans. Will it be 12%+ on Monday? Will it be "not at any price" by the end of next week..?

Debt problems are starting to get out of control now. With the bond market beginning to seriously looking around at other countries with big deficits at this point, you should be aware that nobody has a faster growing budget deficit than us in the UK. Gordon Brown and Alastair Darling don't think it matters, but do you think the bond market agrees with them? The bond market is going to be the one deciding whether the debt is bought from the UK government at the end of the day, and I am confident they are increasingly going to say No Way Jose. There simply isn't enough money in the world for everyone's debt requirements to be satisfied at this point, only those with the very best credit rating and the most moderate deficits are going to get the cash they need going forward. Everybody else will just have to go and whistle.

If the bond market dries up for the UK, the alternatives are either that truly massive budget cuts must be implemented immediately (which will be politically unacceptable, so you can count this out already), or the Bank of England will restart the printing presses to buy the bonds (which will tank the value of the Pound again in the process). I think you know which of these outcomes is going to be the most likely.

There is no pain-free solution to this issue. Thirteen years of profligate social spending by the Labour government on the nation's creditcard has to be repaid now somehow, once again. When are the UK population going to understand that Labour = spending money the nation doesn't have, and eventual bankruptcy?

Update on exponential money supply growth

In a post a few days ago, I showed what I consider to be an exponential rate of growth in the UK M4 money supply ("money" defined as "cash and credit").

Today a friend who actually knows what they are talking about kindly directed me to the official M4 money stock data (many thanks ;-) ). This statistic is called "AUYM" by the Bank of England and they publish it monthly. This data is available for as far back as the end of the third quarter 1998, if you can be bothered to piece it together from their old reports.

Apparently a Mr G. Brown changed the methodolgy of how this statistic is compiled around that time (can't think why...) so it is impossible to meaningfully go back any further than this. Thanks again to you also then, Gordon - nothing quite like a nice spot of goalpost-moving to prevent people tracking reality is there? :-\

Anyway, this all means that I can now present an updated graph of UK M4 (broad money) growth with offical data in it, albeit over a shorter duration than previously used. The bad news is it turned out the growth was actually quite a lot larger than I had previously computed from the combination of National Statistics and Bank of England data. Bummer! :-(

Since this data only covers about ten years or so, I have also accordingly reduced the exponential trend line projection to 10 years rather than 25 previously. You can see that at the current rate of accelleration your money will be worth less than half what it is now in ten years time, unless something changes lickety-split. To spell it out, this is how your beloved government and the banks between them take the bulk of your wealth from you, without you even realising it is happening.



As before, I am entirely happy to provide you with a copy of the Excel file containing this data and the graph, here, in case you want to play around with it.

Precarious economic times

German voters are not keen to pay for Greece's past excesses. So they must be convinced immediately that not doing so could be much, much worse for them.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7615882/IMF-and-Bundesbank-fear-contagion-from-Greece-as-bond-spreads-soar-to-fresh-records.html

These are approximately the same circumstances that triggered the fall into Depression in the early 30's, after the 1929 stock market crash gave everyone the jitters. The good news is we have a different monetary system and it is possible our leaders will find a way to avoid the same circumstances (via monetary inflation, which was almost impossible in the 30's due to the Gold Standard), but the danger is that they get it "a bit too right" and inflation rages out of control.

Let's be careful out there.

The Greek government is having to pay 8.3% interest on its 10 year bond issues currently. Do you have a mortgage? Do you think you are a better credit risk than the Greek government? Can you afford to pay over 8% interest?

An alternative point of view on corporal punishment and the American justice system, by someone who has seen it from the other side of the bars

http://www.scribd.com/doc/29978086/From-the-Hole-14-a-Nations-Humanity-Cannot-Be-Judged-by-the-Death-Penalty-4-11-10

Exponential growth in UK M4 broad money

This is "inflation", not the rise in prices which follows it as you are made to believe.

I tried and failed to locate a long term historical data series of UK M4 (broad money) stock. The BoE does publish a historical series of quarterly Year-over-Year percentage rate of change data in their inflation report though, so I decided in the absence of anything more accurate I would have to take a recent baseline value for M4 money stock (2009Q4, highlighted in bold in the worksheet) from National Statistics and then compute the preceding 25 years worth of quarters backwards from that, using the BoE's quarterly Y-o-Y rate of change number to get the (rough) back data set.

Then I asked Excel to graph those numbers, and finally added an exponent trendline to project forward the data 25 years (the same period as I now have, rough, computed data for). To anticipate the question "why would you use an exponential trend line?", please observe how the trend line extremely closely matches the path of the blue data set line on the graph.



Bear in mind the Bank of England was set up in 1694, so it took 291 years to go from approximately nothing to the value you see at the start of this data, in 1985. Mentally project the line back on this basis and you can see the trajectory of the exponential curve would very likely pretty much match the data here too. You might consider it to be further confirmation that a gold sovereign coin originally was valued at £1, but today it will cost you upwards of £180 (and counting) to buy one.

I do have to concede that the data is not 100% accurate, but this is as close as I have been able to get to so far. If you happen to have the accurate historical set of M4 for a long time period such as this, please get in touch with me because I would appreciate it.

In the absence of a meaningful change in the monetary system, you can see why I might prefer to move any available capital from £'s into any asset class that benefits from inflation rather than being eroded by it. Bonds would qualify for the diametrically opposed category, but watch as the government attempts to forcibly corral as much money as possible into bonds, perhaps by stipulating that pension savings must be at least partially invested in bonds ("for your own safety" :-\ ). This is because any reduction in the demand for bonds will force up interest rates, which is incompatible with their idea to spend money they don't have on nice social policies through massive budget deficits, and also keeping property prices inflated which is good for voter morale as well as helping keep the wheels on the spendthrift consumer economy we enjoy these days.

Let's hope that someone can do something meaningful to change the trajectory of that data, and stop us buying rubbish from the Chinese that we don't need, with money they lend us. But in the meantime, caveat emptor.



You can have a copy of this Excel file if you think it would be useful, from here.

Looks to me like the Greece "solution" hasn't gone very well

http://news.bbc.co.uk/1/hi/business/8622835.stm

Previously I said I saw there being a temporary calm, but the situation would be back to unstable again before a few months. I should have said a few days I guess.

Why do I bang on, and on, and on about fiat money and Fractional Reserve Banking?

When the global economy collapsed in 2008, governments rescued the banks, the very ones responsible for the collapse. This is because without the banks’ debt-based paper money, governments could not spend the vast amounts they do not really have.

Politicians seek power and bankers seek profit and their collusion is responsible for the present crisis. Do not be surprised at the current state of affairs, the motives of the participants are clear and so are the consequences.

These are exceptional times and while we are helpless to prevent what is about to happen, so, too, are bankers and politicians. They have brought this state of affairs upon themselves and for this we should be grateful—for without their demise we would be enslaved forever.

Read much more at http://www.marketoracle.co.uk/Article18608.html

The great big dirty secret of financial innovation

What caused the Crisis?

Derivatives.

You’ve probably heard this term before, or have some vague understanding of what it means. But the actual reality of derivatives and what they mean for the financial markets remains a topic no one in the mainstream media (or the regulators for that matter) wants to touch.

Why?

The above is snipped from this article. Read it to find out the answer to this question, plus what you can realistically do about it to protect yourself to some extent.

Beginning of the end for China's economic miracle?

Is that a bell I hear? A bell for the start of the End Game perhaps?

Can you say "blow-off top"?

http://www.telegraph.co.uk/finance/china-business/7588579/Chinese-property-prices-jump-at-a-record-pace.html

Even an End Game can run for years of course, but let's see.

IMF publishes the New World Order data

Today, via the MarketTicker blog, I saw the IMF revised SDR (Special Drawing Rights) allocation data. This tells us ultimately how much say in world events each participating country wields. Where is your country on this list?



Download the Excel file if you want to compare the old and new data. (First sheet in the book contains a copy of the data from the IMF release itself, which is augmented with some computed %age columns, and the second and third sheets are added by yours truly to sort and show previous/current world ranking based on that data in sheet 1.)

Just for once, saying Go Green has real economic merit

http://lastditch.typepad.com/lastditch/2010/04/map-of-the-day-awesome-visualization-of-global-debt-levels.html

Interesting and surprising to see the USA is (roughly) it's correct size.

Entirely unsurprising to see the UK is so massively out of proportion to its real place in the world.

The Mogambo Guru on how Democrats/Labour see to it that the rich get richer through the wonder of fraudulent money

"Apparently, though, Senator Baucus is kind of stupid, as he does not understand that when a government deficit-spends, it does so by borrowing the money, but since the poor don’t have any money to loan to the government, the rich end up borrowing the money to loan to the government, whereupon the rich, over time, get all their money back, plus interest, making them richer, while, unfortunately, the poor get poorer because prices have risen."

He has much more to say, and as is customary for him he may or may not make you laugh, or cry, along the way.

http://dailyreckoning.com/stable-money-supply-the-real-way-to-help-the-poor

On exactly why Labour have killed our economy. Again.

Just one snippet from this linked blog post article tells you already all you need to know: "With government spending going over 50% of GDP, and approaching 52%, with more people taking from the pot than people being forced to fill the pot, then it soon becomes clear why we are on a desperate socialist road to nowhere."

But why not go and read the whole thing, it's not a long post.

http://angloaustria.blogspot.com/2010/04/up-in-flames.html

Greece situation

Germany has ensured that the IMF are involved in the bail-out plans for Greece (a) so that it will share the burden with non-European countries, and (b) so that its interest rate is lower than that required from the free market for purchase of Greek bonds, but it is also higher than the IMF-set rate which makes it almost-acceptable to its domestic voters and perhaps even not quite unconstitutional since some other party was offering assistance at a lower rate so their offer must therefore be anything but a free ride to the Greeks.

The hope is that this offer of 5% or so rates for Greek bonds will be enough to strong-arm the free market rate down into that vicinity and this will be bearable for the Greeks so the EU/IMF bail-out will not need to be called upon after all.

Me? I think there will be a brief period of calm as this is digested, in fact today I can see the Euro is up strongly against the Dollar. I don't see this lasting more than a few months at best before the fundamental insolvency of Greece (as many other places) comes back to the forefront though, but what would I know?

Investors seek 'traditional art' as prices rise

There were increases in prices reported in the silver and jewellery sectors, which have often been seen as havens for investments. Much of this was the result of the high scrappage values of precious metals, the survey said.

http://news.bbc.co.uk/1/hi/business/8610013.stm

As predicted previously, the IMF pay Athens a visit

http://news.bbc.co.uk/1/hi/business/8607213.stm