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Global Military Expenditure

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Thursday, April 28, 2011

Global Military Expenditure

Updated graph on global military expenditure, USA is still the top gun with a gigantic 46.5%.

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Long Term Unemployment

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Thursday, April 28, 2011

Long Term Unemployment

This is an excellent new paper from the OECD on the crisis of sustained, high long-term unemployment.  Previous deep downturns were characterised by a straightforward pattern of joblessness: lots in, then lots out. This time around lots went in, and inflow to unemployment then returned to (near) normal levels. But almost no one is getting out.

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Greece default being invoked by the IMF

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Wednesday, April 20, 2011

Greece default being invoked by the IMF

The International Monetary Fund believes Greece’s debt is unsustainable and that the country’s government should consider a restructuring as early as next year, the Wall Street Journal said, citing three unidentified people familiar with the situation. Senior IMF officials have told European Commission and euro-zone governments that a restructuring should be considered, the paper said. IMF, which hasn’t recommended a restructuring of all the country’s debt, has considered extending its loan repayment schedule, IMF spokesman William Murray told the paper.

Euro-zone officials, including finance ministers, have said it is necessary to restructure Greece’s debt and the European Central Bank responded by saying it didn’t want a public discussion, an unidentified official familiar with the situation told WSJ. A first step would be to substantially extend Greek bond maturities, another unidentified official said, according to the paper. That may include extending debt repayments by as much as 30 years, the official said.

Greece’s central bank chief said Monday that a restructuring of the country’s giant public debt would have “disastrous consequences,” and called on the government to step up the pace of its reform program. “[A debt restructuring] is neither necessary nor desirable,” Bank of Greece governor George Provopoulos said. “It would have disastrous consequences for the access of the government and of Greek enterprises to international financial markets, as well as very negative effects on the assets of pension funds, banks and individuals holding Greek government securities.”

In May last year, Greece narrowly avoided default with the help of a €110 billion bailout from the European Union and International Monetary Fund. In exchange for that loan, Greece has committed to a multiyear austerity program to fix its public finances and overhaul its economy. Since then the country has narrowed its budget gap by about a third, to around 10.6% of gross domestic product last year and is aiming to reduce it to 1% of GDP by 2015.

But many analysts say Greece’s fiscal reforms aren’t enough to tackle a debt burden expected to reach nearly 160% of GDP in 2013. In recent weeks, there has been growing speculation that Greece will need to proceed with some sort of debt restructuring to ease that burden. The central bank also sees inflation slowing to around 3.25% this year—down from an average rate of about 4.6% in 2010—but well above the government’s 2.2% forecast for 2011.

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FED’s money printing bonanza

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Wednesday, April 20, 2011

FED’s money printing bonanza

This is a chart of the adjusted US Monetary Base. It’s essentially a very simple means of charting how much money the US Federal Reserve is pumping into the system (on top of QE 2 which is providing another $100 billion in liquidity per month).
As you can see, starting in January 2011, the Fed left a paperweight on the “print” button. Since that time, it’s put $500 billion into the system. When you combine the $100 billion in liquidity provided by QE 2, we’re talking about $800-900 billion entering the financial system in 2011 alone.
There is only one period in which the Fed engaged in a similar amount of money pumps. And that was during the depth of the 2008 Crisis from October- December 2008.
This of course leads one to ask, “what is the Fed combating now?” And it’s not just Japan (the adjusted monetary base went vertical back in January). So what is requiring $200 billion per month?

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How Italy tricked entry into the Euro

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Wednesday, April 20, 2011

How Italy tricked its entry into the Euro

The euro sign
The recent gold price escalation and the possible manipulation of the gold market has some interesting similarities with the LTCM collapse which risked in 1998 to derail Italy’s qualification for the Euro.

LTCM was a hedge fund founded by bond guru John Meriwether which suffered a spectacular collapse in 1998 and was subsequently bailed out by consortium of banks at the behest of the U.S. Treasury and Federal Reserve. Fed and Treasury officials argued at the time that the bailout was necessary because the collapse of LTCM posed systemic implications for the global financial system. Here’s why:

When sovereign gold is lent / leased – it is generally sold into the market to raise cash balances.

The Italians were lending / leasing their sovereign gold and investing the proceeds with LTCM. Italy was no doubt attempting to reverse their sagging fortunes with their substantial sovereign gold holdings due to the reality that their gold holdings were only losing value over that time frame.

The declining gold price was effectively preventing Italy from qualyfing for the Euro by negatively impacting the value of their reserves.

This would have made the Italians highly agreeable to any proposal to help reverse or alleviate that reality.

Thinking that LTCM was infallible – owing to them having a couple of Nobel laureates on staff and also being predisposed to playing fast-and-easy with their gold accounts – Italy still wasn’t done. Next up was a gold loan / lease – arranged by bullion bankers [like Goldman Sachs]. The proceeds were invested in LTCM in the belief they would earn the ‘magical gains’ that LTCM had been delivering to their investors.

When LTCM failed, they had to be bailed out because a public bankruptcy would have:

A] exposed the Italian manipulation of their sovereign gold [which did aid and abet in a wider – globally coordinated – gold price suppression]

B] that Italy was playing “financial accounting tricks” to qualify for the Euro

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Top 25 holders of derivatives

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Wednesday, April 20, 2011

Top 25 holders of derivatives total up to 300 Trillion dollars

Interesting charts from the OCC on the institutions holding derivatives and their exposure. Staggering risks that could blow off any day, the worst case is JP Morgan with an incredible 78.6 Trillion Dollar derivatives book [446 dollars in bets for every one dollar in equity] which means that the most they could expect to lose in any given day is $ 71 million only.

Here’s how the U.S. Office of the Comptroller of the Currency [OCC] states how large institutions manage their risk [pg. 8]:

“Banks control market risk in trading operations primarily by establishing limits against potential losses. Value at Risk (VaR) is a statistical measure that banks use to quantify the maximum expected loss, over a specified horizon and at a certain confidence level, in normal markets. It is important to emphasize that VaR is not the maximum potential loss; it provides a loss estimate at a specified confidence level. A VaR of $50 million at 99% confidence measured over one trading day, for example, indicates that a trading loss of greater than $50 million in the next day on that portfolio should occur only once in every 100 trading days under normal market conditions. Since VaR does not measure the maximum potential loss, banks stress test trading portfolios to assess the potential for loss beyond the VaR measure. Banks and supervisors have been working to expand the use of stress analyses to complement the VaR risk measurement process that is typically used when assessing a bank’s exposure to market risk……..[more]”

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Eurozone crisis update

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Monday, April 18, 2011

Eurozone crisis update

Euro coins
More bad news from Europe today:

Ireland’s banks are now officially junk following a downgrading of the long-term deposit ratings of the four surviving banks by the ratings agency Moody’s.
The decision to downgrade Bank of Ireland (BoI), Allied Irish Banks (AIB), EBS Building Society and Irish Life & Permanent (IL&P) follows the move to cut Ireland’s own ratings status to one level above junk status last week.
In the meanwhile Athens repeated today it has no plans to restructure its debt, denying a Greek media report it had already requested talks with its lenders. Greek daily Eleftherotypia  said today Greece had told the International Monetary Fund and the European Union earlier this month at a meeting of European finance ministers that it wanted to restructure its debt. Discussions on the issue were expected to start in June, the newspaper said, citing a senior IMF official. US treasury secretary Timothy Geithner had also told Greek finance minister George Papaconstantinou a restructuring would be needed, the paper said.
A further addition to the Portuguese’s woes is the recent Finnish election where the party True Finns quadrupled its share of vote in Finland elections, and its party leader says he expects EU to change Portuguese bailout plans.
Unlike others in the eurozone, Finland’s parliament has the right to vote on EU requests for bailout funds, meaning it could hold up costly plans to shore up Portugal and bring stability to debt markets.
The strong showing for the populist True Finns reflects growing public frustration in some EU states about footing the bill for weaker economies such as Greece, Ireland and Portugal.

Portuguese five-year credit default swaps climbed 26 basis points to 625bps this morning, according to data monitor Markit.
And this euro mess is bringing back the 2 elephants Italy and Spain in the arena with spreads reaching new highs:

  • Portugal 625 (+26) – officially insolvent
  • Italy 156 (+13)
  • Ireland 588 (+21) – officially insolvent
  • Greece 1225bp (+89) – officially insolvent
  • Spain 250 (+16)

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Laurie Santos: A monkey economy…

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Sunday, April 17, 2011

Best of Ted – Laurie Santos: A monkey economy as irrational as ours

A must see for Wall Street bankers:

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William Ury: The walk from “no” to “yes”

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Sunday, April 17, 2011

Best of Ted – William Ury: The walk from “no” to “yes”

How to create agreement in even the most difficult situations very interesting lecture on conflict resolution.

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Fukushima radiation levels update

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Monday, April 11, 2011

Fukushima radiation levels 4 times those of Chernobyl

INES/International Nuclear Event Scale (Triang...
The situation at Fukushima is no longer top news but reports from reliable sources are being published stating that radiation level are 4 times those of Chernobyl:

[A] study conducted by a team of experts from Kyoto University and Hiroshima University … found cesium-137 at levels between about 590,000 and 2.19 million becquerels per cubic meter [outside the 30 kilometer evacuation zone].

After the Chernobyl nuclear accident in the former Soviet Union in 1986, residents who lived in areas where cesium-137 levels exceeded 555,000 becquerels were forced to move elsewhere.

The amounts of cesium-137 found in Iitate were at most four times the figure from Chernobyl.

If more radioactive materials are emitted from the crippled Fukushima plant, the level of cesium-137 could rise even further.

Today, Kyodo News is reporting that – due to extremely high radiation levels – the Japanese government is considering raising the nuclear crisis from a 5 to a 7 – the highest possible level of disaster:

The Nuclear Safety Commission of Japan released a preliminary calculation Monday saying that the crippled Fukushima Daiichi nuclear plant had been releasing up to 10,000 terabecquerels of radioactive materials per hour at some point after a massive quake and tsunami hit northeastern Japan on March 11.

The disclosure prompted the government to consider raising the accident’s severity level to 7, the worst on an international scale, from the current 5, government sources said. The level 7 on the International Nuclear Event Scale has only been applied to the 1986 Chernobyl catastrophe.

***

According to an evaluation by the INES, level 7 accidents correspond with a release into the external environment radioactive materials equal to more than tens of thousands terabecquerels of radioactive iodine 131. One terabecquerel equals 1 trillion becquerels.

Haruki Madarame, chairman of the commission, which is a government panel, said it has estimated that the release of 10,000 terabecquerels of radioactive materials per hour continued for several hours.

The commission says the release has since come down to under 1 terabecquerel
per hour and said that it is still examining the total amount of radioactive materials released.

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