Saturday, October 6, 2012

Today's links

1--Self-defeating fiscal austerity (in Greece), IFR
2--Consumer Credit Soars As Uncle Sam Resumes Handing Out Billions In Student Loans With Reckless Abandon, zero hedge
3--Running from stocks, The Big Picture (Graph)
4--World food prices near crisis levels, Reuters
Prices driven higher by US drought along with production problems in Russia and other exporting countries
5--On This Day In History, Gas Prices Have Never Been Higher, zero hedge
6--U.S. Food-Stamp Use at Record 46.68 Million in July, USDA Says, Bloomberg
7--Banks Make Huge Profits From Central Banks, But Who Will Bail Out Central Banks?, TrimTabs

Would you be shocked to learn that the big banks over the past 12 months had their biggest profits since the 2006 peak?

But this free money isn’t helping to stimulate economic growth. Which is what quantitative easing allegedly was supposed to do. Why take risks with that virtually free money by making loans that would stimulate economic growth? Instead the banks are making those huge profits from re-investing the Central Banks’ largesse in longer-term government loans that pay higher interest rates. Even US banks are chock full of European government debt yielding well over 2%...

The first thing the world’s Central Banks did at the start of each regions’ financial crisis was to buy all the big banks’ bad loans — loans that should never have been made because there was little chance of repayment. Don’t you think that was very nice of the Fed and the ECB to save the banks from the consequences of their own stupidity? If all the bad loans were marked to market, all those big banks would have been toast.

So to save the banks, the Centrals Banks printed money and used that new money to buy and park away all the toxic crap loans created by the big banks. What’s particularly galling and mystifying is that after saving the banks by relieving them of their toxic loans, the Central Banks said why stop there? Why not give all the big banks lots of newly printed cash with a virtually zero interest rate? And we will call it quantitative easing.

So no longer having to worry about suffering the consequences of their short term greed, the big banks are now full of cash given to them by the government. What have the grateful banks done with that cash? Forget opening up their loan windows. The biggest use of all the newly printed short-term money was to buy longer term government loans

The bottom line here is that the big banks are making so much money, borrowing short from the government and buying longer term government debt, that they do not need to bother making loans. That is why loans and mortgages are only available to those who can prove they don’t need them. The banks have learned they can make lots more money with no risk taking government money and then giving it back to the government.

8--Experts Predict Taliban Victory After 2014 Drawdown, antiwar

9--The High Cost of Energy is Leading the Economy into Recession, oil price

If you look at the recent economic history of the United States, every time there is an oil price spike there is a recession that follows. Now we have had recessions in the post-war period that were not linked to high oil prices, but we haven't had a single oil price hike that wasn't correlated with a recession. We have found from experience that high oil prices have an economic cost.

This is the situation we're in right now. The price that's needed - about $100 - to develop new oil sources is the price that brings on recession. This doesn't mean that the price of oil can never go down again. Indeed, I think it will go down substantially by several tens of dollars but what will cause that to happen is weakness in the global economy and declining demand for oil. When it happens, oil producers will stop going after that incremental barrel and oil production will go down. The scenario that is extremely unlikely is to have low oil prices and demand being satisfied and economic growth continuing to happen. That's not going to happen. Oil, by itself, right now, is capable of undermining world economic growth.

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