Marc Faber Warns ‘Massive Wealth Destruction Coming Down The Line’

CNBC’s Squawk Box talked to “Doctor Doom” Marc Faber yesterday morning, and boy did he ever dish out a case of the Mondays. The Swiss-born investment adviser/fund manager told CNBC viewers:

Well, basically, I think that the whole bailout and those with the money printing will not create long lasting wealth, nor will it create healthy economic growth. And I look at the world, then I see well-to-do people that have done unbelievably well, and I see the middle class and the working class that hasn’t done well. And I think somewhere down the line, we will have a massive wealth destruction that usually happens either through very high inflation, or through social unrest, or through war, or a credit market collapse. Maybe all of it will happen but at different times.

(Editor’s note: Italics added for emphasis)

The publisher of the monthly investment newsletter The Gloom Boom & Doom Report was asked to put a number on this destroyed wealth, and Dr. Faber responded:

Well, I would say that well-to-do people may lose up to 50 percent of their total wealth. They’ll still be well-to-do. Instead of a billion, they’ll have, say $500 million. But I think that there is a massive wealth destruction coming down the line. I’m not saying it will happen tomorrow. But I think looking at the bailouts, and the money printing, they basically have postponed the problems, and actually made them larger in the sense that the government debt has increased dramatically, and somewhere a solution will have to be found for this government debt.

(Editor’s note: Italics added for emphasis)

Faber, who became famous for advising clients to get out of the U.S. stock market one week before the October 1987 crash and for predicting the 2008 global financial crisis (among other calls), gave the following investment advice:

Well, I think, in my report I also pointed out there is one asset class that is relatively depressed, and these are properties in the South of the United States. In Georgia, in Arizona, in Florida- I think there, property values will not collapse much more, and stabilize. And so I think to own some land and some property, not necessarily in the financial centers but in the secondary cities, is a desirable investment relatively speaking. And I think people should own some gold, and I think people should own some equities, because before the collapse will happen with Mr. Bernanke at the Fed, they’re going to print money- and print, and print, and print. And so what you can get is a bad economy, but rising equity prices.

(Editor’s note: Italics added for emphasis)

You can watch the entire segment on the CNBC website here.

(Editor’s notes: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein; info added to “Crash Prophets” page)

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Peter Schiff In Rebuttal Lecture To Fed Chair Ben Bernanke

You may have heard that Federal Reserve Chairman Ben Bernanke has been on the lecture trail lately, giving a series of four public lectures at George Washington University that some think is the U.S. central bank’s latest effort to counter negative public sentiment. Truth be told, I haven’t been really following it, but a cursory glance at some of what the Fed Chair’s been saying is “interesting,” to say the least:

I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could’ve had a much worse outcome in the economy

-March 27 lecture

There’s no consensus on this, but the evidence I’ve seen suggests that monetary policy did not play an important role in raising house prices during the upswing

-March 22 lecture

I think, though, that the gold standard would not be feasible for both practical reasons and policy reasons

-March 20 lecture

While surfing the Los Angeles Times website this morning, I came upon a piece that announced “crash prophet” and Euro Pacific Capital CEO Peter Schiff would be giving a rebuttal to Chairman Bernanke’s lectures later today. From a March 26 press release on the website of Washington, D.C.-based non-profit FreedomWorks:

WHAT: FreedomWorks Foundation and Reason will co-host a special lecture by renowned economist Peter Schiff as he responds to Federal Reserve Chairman Ben Bernanke’s four-part College Lecture Series at George Washington University School of Business.

WHEN: Thursday, March 29, 2012 at 3:00pm ET, lasting approximately one hour.

An opportunity for Q&A and a reception will follow the formal response.

WHERE: Reason’s DC Headquarters, 1747 Connecticut Avenue, NW, Washington, DC 20009.

The event will also be live-streamed from the FreedomWorks Facebook page,

WHY: While Chairman Bernanke explains to students how the Federal Reserve “saved the economy,” Peter Schiff will outline the ways in which the Federal Reserve contributed to the housing crisis and current economic recession in the first place.

The Federal Reserve bears significant responsibility for every financial crisis over the past century, including the Great Depression, stagflation in the 1970’s and most recently, the 2008 economic meltdown.

A 2011 audit of the Federal Reserve found $16 trillion in secret bailouts to corporations and banks around the world in less than three years. Documents released in the same year revealed foreign banks to be one of the largest recipients of Federal Reserve money during the 2008 economic downturn.

These secret deals, bailouts, and massive expansion of the Federal Reserve’s balance sheet were all overseen by Ben Bernanke, with almost no Congressional oversight.

You can RSVP to watch the streaming video on the FreedomWorks website here.

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Quote For The Week

Not wanting to sound like Gandhi, but at least we didn’t rape everybody and burn the village down.

-Michael Gasior, Wall Street veteran, investment author, and founder and President of AFS Seminars, contrasting today’s Wall Street and its use of bailout funds with that of the 1980s, in episode 822 of The Survival Podcast (aired January 17, 2012)


Monday, January 30th, 2012 Bailouts, Quote For The Week, Wall Street No Comments

Signs Of The Time, Part 30

Spring 1994. Champaign, Illinois. For some unexplained reason, Stephen King and ABC tried to derail my final exams by airing The Stand television mini-series that same week. Now, I’ve never read the post-apocalyptic horror/fantasy novel, so I can’t tell you if what was shown on TV also happened in the book, but one thing I remember from the mini-series was that the survivors split into two camps- one good, one bad. Everything was ugly after society’s collapse.

Fall 2011. America seems to be growing increasingly polarized as time marches on. Maybe not in a “good versus evil” sense like above, but sharply divided in mindset about wealth, government, religion, and so on. One topic that consistently brings out strong opinions is personal accountability. There are many Americans, perhaps conditioned by constant exposure to all the recent bailouts going on and the emerging Nanny State, that minimize or completely disregard the notion of individual responsibility. From the Associated Press’ Tracie Cone on October 10:

Armando Castillo knew he should not attempt the last treacherous stretch up Half Dome with storm clouds looming. But he felt he had come too far not to accomplish his goal.

So up the side of the slick, granite monolith he went, 400 vertical feet at nearly a 40 percent grade.

“About three-quarters of the way up it started hailing,” he said. “There’s a bunch of people and everybody just stops. Some women started crying because it was slippery and pretty scary. Then it cleared up.”

While others turned back, Castillo pushed on up the park’s iconic feature, making him one of Yosemite National Park’s worst nightmares— the increasing number of wilderness neophytes who mistakenly think the government is obligated to save them.

“People are pushing their luck, trying to beat the weather, and their backup plan is to call for a rescue,” said Mark Marschall, project manager for the Half Dome interim permit program. “They’re not understanding what that means. We can’t fly in that kind of weather. They’re on their own.”

The problem has surfaced in recent weeks on the park’s most inspiring hike, where visitors confronted by unseasonable rains are ignoring warning signs and common sense. With less than a month to go until the Half Dome route is closed, park officials are making a rare appeal for visitors to use discretion on the trail.

“Over the last few weekends we’ve had some lightning and thunderstorms on Half Dome, but people are still going up,” said park spokesman Scott Gediman, who adds that for two weekends in a row people have called 911 for rescue.

Some callers tell the dispatcher they want to use their platinum credit card for the free helicopter ride some companies guarantee in an emergency. Park officials don’t charge for rescues — nearly 1,000 rescues cost more than $2.5 million between 2007 and 2010 — but neither do they fly in dangerous weather.

(Editor’s note: Italics added for emphasis)

Castillo, a salsa dancer by trade, had the following to say after his rescue. Cone wrote:

“After the fact I realized it’s the wilderness and they’re not supposed to do anything, but I did go in expecting a little more of a warning,” said Castillo, who plans to return.

(Editor’s note: Italics added for emphasis)

I’m sure park officials will be overjoyed to see him too.

By the way, Cone added the day after Castillo got in trouble, a group of 20 hikers also called 911.

Then there are those Americans whose views concerning personal accountability swing all the way over to the opposite side of the spectrum. Not only is one responsible for their individual actions, but if someone else happens to be deliberately-harmed by such activity- well, in the words of the American icon Laurence Tureaud, aka Mr. T:


From the Associated Press earlier today:

Saying it’s time to stop letting convicted killers “get off that easy,” a Florida state lawmaker wants to use firing squads or the electric chair for those on death row.

Rep. Brad Drake filed a bill this week that would end the use of lethal injection in Florida executions. Instead, those with a death sentence would choose between electrocution or a firing squad

Lethal injection just allows a person to die in their sleep while a firing squad or electrocution would force death row inmates to think about their punishment “every morning,” Drake said.

“I think if you ask a hundred people, not even talking to criminals, how would you like to die, if you were drowned, if you were shot, and if you say you were put to sleep, 90 percent of some of the people would say I want to be put to sleep,” Drake said. “Let’s put our pants back on the right way.”

(Editor’s note: Italics added for emphasis)

As for those finals in ’94? I did alright from what I remember. Regardless, no University of Illinois professor I knew of back then would have granted me a do-over based on the excuse that my poor grade was the result of too much apocalyptic TV.

These days, who knows?


Cone, Tracie. “Half Dome survivors wish they had taken heed.” Associated Press. 10 Oct. 2011. ( 13 Oct. 2011.

“Florida Lawmaker Proposes Bringing Back Firing Squads.” Associated Press. 13 Oct. 2011. ( 13 Oct. 2011.

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Thursday, October 13th, 2011 Bailouts, Crime, Government, Signs Of The Time No Comments

Nouriel Roubini : Another Severe Recession Might Be Impossible To Avoid

Yesterday I checked-in with one “Dr. Doom,” Marc Faber, to find out his thoughts about the recent financial turmoil. Today, I’ll be looking at the other one. Nouriel Roubini, the former Treasury official under the Clinton administration who, like Faber, also correctly-predicted the global economic crisis, wrote an article in the Financial Times (UK) on Monday. While the chairman of Roubini Global Economics focused his attention on the “West” in his opinion piece, he spoke enough about the United States to give us a pretty good picture of where he thinks we’re at…

The first half of 2011 showed a slowdown of growth – if not outright contraction – in most advanced economies. Optimists said this was a temporary soft patch. This delusion has been dashed. Even before last week’s panic, the US and other advanced economies were odds-on for a second severe recession.

America’s recent data have been lousy: there has been little job creation, weak growth and flat consumption and manufacturing production. Housing remains depressed. Consumer, business and investor confidence has been falling, and will now fall further

Until last year policymakers could always produce a new rabbit from their hat to trigger asset reflation and economic recovery. Zero policy rates, QE1, QE2, credit easing, fiscal stimulus, ring-fencing, liquidity provision to the tune of trillions of dollars and bailing out banks and financial institutions – all have been tried. But now we have run out of rabbits to reveal.

(Editor’s note: Italics added for emphasis)

And where the United States may be heading…

The misguided decision by Standard & Poor’s to downgrade the US at a time of such severe market turmoil and economic weakness only increases the chances of a double dip and even larger fiscal deficits. Paradoxically, however, US Treasuries will probably remain the world’s least ugly safe asset: risk aversion, equity declines and a looming slump could even see treasury yields fall rather than rise…

Hopes for quantitative easing will be constrained by inflation that is well above target levels across the west. The Federal Reserve will probably start a third round of QE, but it will be too little too late. Last year’s $600bn QE2 (along with $1,000bn of tax cuts and transfers) produced a growth bump of barely 3 per cent, for one quarter. QE3 will be much smaller, and will do much less.

(Editor’s note: Italics added for emphasis)

Dr. Roubini, who’s also a professor at the Stern School, NYU, isn’t sure if the United States can avoid another significant economic downturn. He concluded in his opinion piece:

So can we avoid another severe recession? It might simply be mission impossible. The best bet is for those countries that have not lost market access – the US, UK, Japan, and Germany – to introduce new short-term fiscal stimulus while committing to medium-term fiscal austerity. The US downgrade will hasten demands for fiscal reduction, but America in particular should commit to look for significant cuts in the medium term, not an immediate fiscal drag that will worsen growth and deficits…

Finally, since this is a crisis of solvency as well as liquidity, orderly debt restructuring must begin. This means across the board reduction on the mortgage debt for the roughly half of America’s households that are underwater, and bail-ins for creditors of banks in distress.

(Editor’s note: Italics added for emphasis)

Not quite sure if that last part about more housing and bank bailouts will go over very well with a large segment of the American public these days. It’s that same question that was being asked with increasing frequency back in 2008- why should I and my hard-earned money have to pay for your failed bet, bad judgment, and/or misfortune?


Roubini, Nouriel. “Mission impossible: stop another recession.” Financial Times. 8 Aug. 2011.( 10 Aug. 2011.

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European Central Bank Attempts To Shield Spain And Italy From Debt Contagion

I’d be willing to bet most Americans thought Monday’s carnage on Wall Street was the direct result of Standard & Poor’s downgrade of the United States’ credit rating. However, developments across the pond related to the lingering sovereign debt crisis may have contributed to the sell-off as well. From the Wall Street Journal’s Brian Blackstone and Charles Forelle today:

The European Central Bank delivered on its promise to purchase Italian and Spanish bonds on a large scale, calming investors who had grown increasingly worried that euro-zone leaders might sit idly by while the debt crisis engulfed Spain and Italy.

Government bond yields of Spain and Italy plunged Monday, as did their yield spreads over safe German bonds. Italy’s 10-year bond yield fell to around 5.3% from just over 6%. Spain’s fell even further, to 5.15%.

The ECB bought those countries’ bonds for the first time since creating its debt-purchase program 15 months ago, said traders. The ECB didn’t say how much it bought or confirm what bonds it purchased, but estimates range from around €3.5 billion ($5 billion) to as high as €5 billion. In an interview with German broadcaster ZDF on Monday, ECB President Jean-Claude Trichet said the central bank’s actions “undoubtedly were significant,” and necessary to ensure that its interest-rate policies functioned smoothly…

The ECB’s purchases of Italian and Spanish bonds were no help to European equities, which tumbled along with the rest of the global markets Monday. Bourses in London, Paris and Frankfurt all traded lower; German and French indexes each shed more than 4%.

Well, if anyone still believed Spain and Italy were strong enough economically so as to be somehow immune to the debt contagion that’s already claimed Greece, Ireland, and Portugal, these actions by the European Central Bank demonstrate otherwise. And due to the size of their economies, such a condition is worrisome. Blackstone and Forelle noted:

Italy and Spain, the region’s third- and fourth-largest economies, have a combined gross domestic product of nearly €2.7 trillion, almost 30% of the euro zone total. Royal Bank of Scotland economists estimate the ECB and Europe’s bailout fund will eventually have to own €850 billion of Spanish and Italian bonds to safeguard those countries.

It might be a good idea to keep monitoring the sovereign debt situation over in Europe. Investors may be easing up after the ECB’s actions, but keep in mind that no intervention would have been necessary if the rosy pictures that had been painted recently of these two major European players were really true.


Blackstone, Brian and Forelle, Charles. “Italian, Spanish Bond Yields Decline.” Wall Street Journal. 9 Aug. 2011. ( 8 Aug. 2011.

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Observing The Belarus Financial Crisis

Anyone been paying attention to the economic crisis unfolding in Belarus (former Soviet republic of Belorussia)? Some really depressing stuff going on. From the BBC News website yesterday:

Belarus has asked the International Monetary Fund (IMF) for an emergency loan of up to $8bn (£5bn; 5.6bn euros).

It comes a day after the government announced it was raising its main interest rate from 14% to 16%, and that it was freezing prices on a number of staple foods until 1 July.

Last week Belarus cut the value of the rouble against the US dollar by 36%.

The country faces high inflation and its most severe financial crisis since the collapse of the Soviet Union.

Reports of empty store shelves and food being hoarded are coming out of the Belarus capital of Minsk and elsewhere in the country. Apparently, the latest financial crisis stems from a sharp fall in the ex-Soviet republic’s foreign exchange reserves caused by populist social spending increases designed to support last year’s presidential campaign of long-time president Alexander Lukashenko. The Wall Street Journal’s Richard Barley talked about how Belarus got to this point on Wednesday:

Belarus is a repeat customer at the IMF. In 2009-2010, hit by a plunge in energy revenue, it borrowed $3.4 billion accompanied by a 15-month program of overhauls under which it managed to tighten monetary and fiscal policy, sustain growth and keep unemployment low. But structural problems remain. The state accounts for 70% of the economy, growth remains driven by rapid credit expansion, and there is a heavy reliance on imports.

Since the IMF program ended in March 2010, Belarus has gone backward. December’s elections saw state spending ramped up, while rival candidates, activists and journalists were detained. Officially, Mr. Lukashenko won 80% of the vote. The spending surge has contributed to the crisis, with the current account deficit widening to 16% of gross domestic product in 2010. Foreign-currency reserves have dwindled to just $1.4 billion. Moody’s pegs the country’s external financing needs for 2011 at $8 billion to $10 billion.

As some might expect, President Lukashenko, who has served in that role since 1994, first sought financial support from Russia to deal with this latest crisis. However, Belarus’ neighbor to the northeast wants some significant concessions. From the Financial Times’ (UK) Neil Buckley yesterday:

Some analysts cautioned that talk of turning to the IMF could be a tactic to strengthen Mr Lukashenko’s hand in talks with Moscow, which demanded tough conditions for any loan…

Mr Lukashenko has sought financial support from Russia and former Soviet allies, but Moscow demanded privatisation of strategic state assets, including a stake in Beltransgaz, the national gas pipeline operator – seen as a way of enabling Russian companies to buy control of key parts of the Belarusian economy on the cheap.

Nothing’s for free, right?

Consider some of Belarus’ actions that have brought them to this point:

• Unsustainable social spending for political gain
• Government interference/dominance of the economy
• Excessive reliance on credit
• Too much of a dependence on imports

Remind anyone of another country to a certain degree?


“Belarus seeks IMF loan.” BBC News. 1 June 2011. ( 1 June 2011.

Barley, Richard. “IMF Must Be Tough on Belarus.” Wall Street Journal. 1 June 2011. ( 1 June 2011.

Buckley, Neil. “Belarus to seek IMF bail-out.” Financial Times (UK). 1 June 2011. ( 1 June 2011.

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What Would A Greece Debt Default Mean For The United States?

As much as Europe would like to, it can’t seem to shake the ongoing sovereign debt crisis. In recent weeks, a lot of attention has focused on Portugal. Now, it’s shifting back to Greece. And just because the United States is across the pond from Europe, it may not be immune from the repercussions of a Greek debt default should it get to that point. From Maria Petrakis on this morning:

Greece’s local and foreign currency bond ratings were cut to Caa1 from B1 by Moody’s Investors Service, which cited a growing risk that the country will default on its debt.

Moody’s said the outlook on Greek debt is negative, meaning that the rating could be reduced further. The rating is seven steps below investment grade and puts Greece below Montenegro as the lowest-ranked European nation.

“Greece is increasingly likely to fail to stabilize its debt ratios within the timeframe set by previously announced fiscal consolidation plans,” Moody’s said today in a statement. The country is also unlikely to meet its previously announced budget targets for 2011, it said.

European officials readying Greece’s second bailout in two years are preparing to ask investors to reinvest in new debt when existing bonds mature, overcoming central bankers’ objections to any restructuring. European leaders are trying to prevent the euro area’s first sovereign default after last year’s 110 billion-euro ($158 billion) rescue failed to prevent an investor exodus from Greece.

(Editor’s note: Italics added for emphasis)’s Forrest Jones pointed on May 29th that serious concerns exist over what a Greek default may mean for the United States:

Any default in Greece would pummel not only the economy there but spread across Europe and eventually to the United States, inflicting economic damage similar in speed to the subprime housing crisis from just a few years ago, says financial expert and author John Mauldin.

The problem, Mauldin tells Yahoo! Daily Ticker, is that banks all across Europe are exposed to Greece.

Should Greece default on its debt, the country would likely convert back to the drachma.

Immediately, all bank depositors would default on their debts due to the sudden weakening of their currency.

French and German banks would then write down their Greek exposure, and so would the European Central Bank (ECB).

On top of that, U.S. banks have been taking on risk in Europe via writing credit default swaps, instruments made famous during the U.S. housing meltdown that are basically insurance policies against defaults.

The result: everyone takes a hit.

Mauldin went on to add:

I’m worried that this one has a lot of contagion and it will infect the world.

(Editor’s note: Italics added for emphasis)

The sovereign debt crisis doesn’t seem to be going away any time soon. Stay tuned…


Petrakis, Maria. “Greek Debt Rating Is Cut to Caa1 From B1 by Moody’s.” 2 June 2011. ( 2 June 2011.

Jones, Forrest. “John Mauldin: Greek Default Would Threaten US.” 29 May 2011. ( 2 June 2011.

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Thursday, June 2nd, 2011 Bailouts, Banking, Bonds, Debt Crisis, Defaults, Europe No Comments

U.S. Taxpayers On The Hook For Portugal Bailout?

The bailouts keep coming in Europe. Greece, Ireland, and now Portugal, it seems. From Reuters’s Shrikesh Laxmidas this morning:

Portugal has reached a deal with the European Union and the IMF on a 78 billion euro 3-year bailout, although it is yet to be backed by the opposition and agreed by euro zone finance ministers in mid-May.

Below are some of the main terms of the bailout package, according to a copy of the memorandum of understanding obtained by Reuters:


* Portugal to receive 78 billion euros [$115.7 billion] in loans, including up to 12 billion euros for the banking sector.

* The loans will span until 2013, after which Portugal is expected return to markets to finance itself.

* The interest rate Portugal will pay on the loans will be set by euro zone finance ministers at a meeting in mid-May.

(Editor’s note: Italics added for emphasis)

While that 78 billion euro figure is being tossed around publicly, it’s being reported that the bailout might end up costing more. Reuters’ Luke Baker wrote this morning:

Portuguese government officials said the aid would total 78 billion euros, with 12 billion of that going to Portugal’s banks. But a senior euro zone source said the range EU officials were working with was still 75-90 billion euros, depending on how much the banks ended up needing.

The figures are expected to be finalized in talks in the coming days, the source said.

Factoring in Portugal, the total cost of European bailouts to date could be close to 285 billion euros ($423.4 billion). Baker added:

The bailout means three of the euro zone’s 17 countries are now effectively in financial intensive care — Greece accepted 110 billion euros of bilateral loans a year ago and Ireland signed an 85 billion euro bailout last November — with the long-term fiscal and economic prognosis for all three clouded.

And here’s the kicker. According to one U.S. congresswoman, through it’s obligations to the International Monetary Fund, American taxpayers are helping pick up a portion of the bill for these bailouts. Representative Cathy McMorris Rodgers (R-WA) explained on the website back on April 18:

Recently, Portugal officially requested a $116 billion bailout from the European Union and the International Monetary Fund. This makes Portugal the third European nation to seek such a bailout in the past year (Greece got $157 billion; Ireland $122 billion). What most people don’t realize is that the U.S. is the largest contributor to the IMF.

Therefore, U.S. taxpayers are paying for Portugal’s bailout which– like the earlier bailouts of Greece and Ireland – was caused by too much government spending and borrowing…

While the IMF refuses to provide a reliable number, we estimate that America’s contribution to a Portuguese bailout is equal to writing a check worth $600 for every man and woman in Portugal. This largesse makes it more likely that larger counties – particularly, Spain and Italy – will be standing in line for U.S. tax dollars tomorrow. That is unacceptable. We cannot take the “too big to fail” philosophy to a global level. The only thing “too big to fail’ is America itself.

(Editor’s note: Italics added for emphasis)


Laxmidas, Shrikesh. “Factbox: Main terms of EU/IMF bailout deal for Portugal.” Reuters. 4 May 2011. ( 4 May 2011.

Baker, Luke. “ Euro zone takes third debt crisis patient into care.” Reuters. 4 May. 2011. ( 4 May 2011.

McMorris Rodgers, Cathy. “U.S. Taxpayers on the Hook for Portugal Bailout.” 18 Apr. 2011. ( 4 May 2011.

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Portugal Keeps Getting Downgraded

Last week, Standard & Poor’s cut Portugal’s bond rating to BBB-minus- just above junk status. Then, Fitch Ratings downgraded Portuguese debt from AAA-minus to BBB-minus last Friday. Now, Moody’s has trimmed the Iberian nation’s bonds from A3 to Baa1- and placed it under scrutiny for further cuts. MarketWatch’s William Watts wrote this morning:

Moody’s Investors Service on Tuesday delivered the latest in a series of ratings-agency downgrades to Portugal’s government bonds, citing fears the country will have difficulty meeting its deficit-reduction goals and underlining expectations the country will be forced to seek a bailout.

Moody’s said it sees increased political, budgetary and economic uncertainty in Portugal. The country’s minority government recently fell apart after failing to win support in parliament for a fourth round of austerity measures, setting the stage for a June 5 general election.

Moody’s cut Portugal’s rating by one notch to Baa1 from A3 and put the rating on review for a possible further cut. The move comes after Moody’s cut Portugal’s rating by two notches last month.

“Moody’s believes that the government’s current cost of funding is nearing a level that is unsustainable, even in the short term. A critical part of the review will focus on the ability of the government to secure financing at a less elevated level, either through the capital markets or through [European Union] support,” Moody’s said.

If Portugal seeks a bailout, it will be the third European nation, behind Greece and Ireland, to do so in recent months. A deteriorating economic situation in Europe could have major implications for the United States. Among them, should the Euro fall and U.S. dollar strengthen significantly, American exports may not be as attractive overseas- hampering a recovery.


Watts, William L. “Moody’s downgrades Portugal on bailout fears.” MarketWatch. 5 Apr. 2011. ( 5 Apr. 2011.

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Portugal Next To Request Bailout After Greece, Ireland?

Portugal looks like it could be the next country of the notorious PIGS (Portugal, Ireland, Greece, and Spain) to request a bailout for their troubled economy. MarketWatch’s Polya Lesova and William L. Watts wrote yesterday afternoon:

The specter of an international bailout loomed over Portugal on Thursday, after additional austerity measures were rejected by parliament and the nation’s prime minister submitted his resignation.

The deepening political crisis in Lisbon will put Portugal at the top of the agenda as European leaders prepare to meet in Brussels for a much awaited summit that will take place on Thursday and Friday. If Portugal ends up requesting a bailout, it will be the third euro-zone country to do so after Greece and Ireland.

“The likelihood of Portugal soon needing external help is now very high,” said Christoph Weil, an analyst at Commerzbank, in a note…

“Portugal moved another step closer to needing a bailout yesterday,” said Gary Jenkins, head of fixed-income research at Evolution Securities.

“Even with complete political harmony, it was always going to be difficult for Portugal to persuade investors to continue to fund them and thus yields are likely to rise further from what has already been described as unsustainable levels by Portuguese officials,” Jenkins said in a note to clients.

Portugal’s “political situation will complicate any EU/IMF negotiations, and with over 4 billion euros [$5.6 billion] of bond redemptions in mid-April, the need for support is fairly urgent,” Jenkins said.

This morning, yields on Portugal’s 10-year bonds pushed above 7.8% from below 7.7% at yesterday’s close. Portugal’s five-year bonds now yield over 8.3%.

Fitch Ratings downgraded Portugal’s credit rating to A- from A+ on Thursday afternoon. Fitch also placed Portugal’s ratings on “ratings watch negative,” indicating the probability of a further downgrade in the next three to six months. Standard & Poor’s downgraded Portugal to triple-B from single-A-minus- two notches closer to junk- and kept the country on watch for a further downgrade. The Wall Street Journal’s Mark Brown and Neelabh Chaturvedi wrote this morning:

S&P’s rating is now two notches below that of Fitch and Moody’s Investors Service, “increasing the risk of both the other ratings agencies following suit and, more importantly, clearing houses raising their margin requirements for investors in Portuguese debt,” said Richard McGuire, senior fixed income strategist at Rabobank.

Brown and Chaturvedi added:

As of last night, Portugal had not asked for a bailout, but one senior euro-zone official said Thursday that Portugal will soon have to seek a bailout loan and that the amount could be about €80 billion.


Lesova, Polya and Watts, William L. “Portugal turmoil intensifies bailout talk.” MarketWatch. 24 Mar. 2011. ( 25 Mar. 2011.

Brown, Mark and Chaturvedi, Neelabh. “Portugal Bonds Fall, Spain Dodges Contagion .” Wall Street Journal. 25 Mar. 2011. ( 25 Mar. 2011.

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Friday, March 25th, 2011 Bailouts, Debt Crisis, Europe 2 Comments

Will States Be Allowed To Declare Bankruptcy?

Here’s something I thought I’d never be discussing in a million years. At least, if this was before 2004. From the New York Times’ Mary Williams Walsh last week:

Policymakers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

So where does this all stand right now? Walsh noted:

No draft bill is in circulation yet, and no member of Congress has come forward as a sponsor, although Senator John Cornyn, a Texas Republican, asked the Federal Reserve chairman, Ben S. Bernanke, about the possibility in a hearing this month.

House Republicans, and Senators from both parties, have taken an interest in the issue, with nudging from bankruptcy lawyers and a former House speaker, Newt Gingrich, who could be a Republican presidential candidate. It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.

Lawmakers might decide to stop short of a full-blown bankruptcy proposal and establish instead some sort of oversight panel for distressed states, akin to the Municipal Assistance Corporation, which helped New York City during its fiscal crisis of 1975.

I hope current and retired state employees with pension plans aren’t freaking out too much right now.


Walsh, Mary Williams. “A Path Is Sought for States to Escape Their Debt Burdens.” New York Times. 20 Jan. 2011. ( 26 Jan. 2011.

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Wednesday, January 26th, 2011 Bailouts, Debt Crisis, Defaults, Entitlements, Government No Comments

A Message For Those Who Can’t

Have you ever wondered how some people have gotten as far as they have in life?

The world is populated by “those who can”- and “those who can’t.” “Those who can” are not only able but willing to tackle whatever life throws at them head-on. Failure for this group is merely a hurdle in their quest to succeed at whatever it is they’re doing, and blame-throwing isn’t an option for these individuals.

“Those who can’t” require others (“those who can,” go figure) to carry them through life (by the way, in this post I’m referring to individuals who consciously choose this approach, not the mentally/physically-impaired- God bless them). “Fix it!” is their battle cry. Regrettably, their numbers seem to have grown through the years. I guess it was only inevitable, as comfortable times during the closing years of the American Century only perpetuated this terribly-misguided mentality. Economy got you down? No worry- Washington will fix it for you (at least, that’s the impression they wanted to give). Depressed about the value of your stocks? Don’t fret, the Fed will cut interest rates and subvert the economic cycle for you. Happy now?

Washington only made matters worse in the last decade, sending the wrong message with bailouts, modifications, and neglect in holding certain parties responsible for the problems the nation now faces.

But for the “those who can’t” crowd, the message couldn’t have been any clearer. Not only was their counterproductive mentality seemingly-condoned by those in power, but a Nanny State was possible in their minds, and it was their job to elect those supporting Big Government to bring about such change.

Hope and change, that is.

While some politicians latched onto the idea of a Nanny State because of some impossible utopian dream, others pushed Big Government to perpetuate their political careers:

Sell the idea of the Nanny State to “those who can’t,” and it’s state dinners, lear jets, and none of that crappy ObamaCare for you!

Or so both parties thought. Going forward, I have some bad news for the “those who can’t” crowd- they’re toast. The numbers don’t lie- the nation’s financial health is in really bad shape. Astronomical national debt, unsustainable deficits, deteriorating infrastructure, entitlement bills coming due, local governments going broke, the list goes on. Seriously, does anyone actually believe we’ll ever be able to come up with the funds to pay for all this stuff? We’ve managed to kick the can down the road this far. But when you take into account an economic “recovery” that’s on artificial life support (trillions of stimulus dollars) and a Federal Reserve that’s running out of bullets, you might understand why I believe a financial crash will take place. As I’ve mentioned before- this is not the end of the world or anything like that. Economic crashes have occurred throughout history. However, I anticipate things will get a whole lot worse before they get better, and in such a scenario, the “those who can’t” crowd won’t do very well.

Yet, history has shown some well-spoken strongman, not unlike a Hitler or Mussolini, could take advantage of terrible socioeconomic conditions to run for political office on the promise of stability and the establishment of a Nanny State. The “those who can’t” crowd may actually see their wish come true- while losing their freedom in the process.

Obviously, they stand to lose either way.

My advice to “those who can’t” is this- be someone who can. Before it’s too late. For you and god forbid any of your loved ones who are forced to depend on you.

“I’m a Dog”
You Tube Video Link

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WSJ: Nearly 100 Bailed-Out Banks Could Fail

During the early days of the financial crisis, the Capital Purchase Program, or CPP, was established under the Troubled Asset Relief Program (TARP) to provide U.S. banks access to bailout funds. From the “Factsheet on Capital Purchase Program” at (a U.S. Treasury website):

The Capital Purchase Program (CPP) was a voluntary program in which the U.S. Government, through the Department of Treasury, invested in preferred equity securities issued by qualified financial institutions. The CPP is now closed. Participation was reserved for healthy, viable financial institutions that were recommended by their applicable federal banking regulator… A necessary precursor to lending and economic recovery is a stable, healthy financial system. Healthy banks, not weak banks, lend to their communities and the CPP was a program for healthy banks.

I love how the word “voluntary” is emphasized in light of all that talk about the banks being forced into accepting bailout funds. Anyway, while Americans were told that their hard-earned taxes would be assisting healthy banks, the Wall Street Journal has revealed this might not have been the case. On December 26, Michael Rapoport wrote on their website:

Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.

The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.

When TARP was created in the heat of the financial crisis, government officials said it would help only healthy banks. The depth of today’s problems for some of the institutions, however, suggests that a number of them were in parlous shape from the beginning.

Seven TARP recipients have already failed, resulting in more than $2.7 billion in lost TARP funds. Most of the troubled TARP recipients are small, plagued by wayward lending programs from which they might not recover. The median size of the 98 banks was $439 million in assets as of Sept. 30. The median TARP infusion for each was $10 million, federal filings show.

“We certainly understand and recognize that some of the smaller institutions are experiencing stress,” said David Miller, chief investment officer at the Treasury Department’s Office of Financial Stability, which runs TARP. He noted that Congress mandated that banks of all sizes be eligible for TARP, adding that the government’s TARP investment as a whole is performing well.

This year has seen the highest number of bank failures since 1992 according to figures released by the Federal Deposit Insurance Corp. (FDIC). To date, 157 banks have failed over the past 12 months, up from 140 in 2009. Furthermore, 860 institutions were on the FDIC’s “problem” banks list as of September 30- the highest number since 1993.


“Factsheet on Capital Purchase Program.” (U.S. Treasury). 3 Oct. 2010. ( 29 Dec. 2010.

Rapoport, Michael. “Bailed-Out Banks Slip Toward Failure.” Wall Street Journal. 26 Dec. 2010. ( 29 Dec. 2010.

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Wednesday, December 29th, 2010 Bailouts, Banking, Government No Comments

Stimulus At $2.8 Trillion And Counting

“California Transit Agencies Need Stimulus Too”, January 29, 2009

“Clean-Tech Start-Ups Need Stimulus, Too”
New York Times, February 25, 2009

“Seniors need stimulus too”
Sun Sentinel, April 8, 2009

“Need Stimulus Spending Ideas? Think Early Childhood”
Education Week, April 8, 2009

“Cyber Stimulus: Blogging Is Shovel-Ready, Too”
Wall Street Journal, October 2, 2010

Yesterday, CNN Money ran a “stimulating” piece on its website about the cost of the federal government’s stimulus efforts to-date. Chris Isidore wrote:

Since the recession began three years ago, Congress has poured a total of $2.8 trillion into the economy in an effort to spur hiring, get people spending again and prop up industries struggling to stay afloat.

While the $858 billion package of tax cuts passed last week was the biggest slice of stimulus yet, it accounts for less than a third of all the money spent since the start of 2008, according to multiple cost estimates prepared by the nonpartisan Congressional Budget Office over the last three years.

The rest came from a combination of the $700 billion Troubled Asset Relief Program, the $787 billion stimulus bill passed in the early days of the Obama administration, and various smaller stimulus programs.

$2.8 trillion? The following graphic puts this figure into perspective:

To put that $2.8 trillion number into further perspective, World War II cost the United States $288 billion, or $3.6 trillion when adjusted for inflation.


Isidore, Chris. “Stimulus price tag: $2.8 trillion.” CNN Money. 20 Dec. 2010. ( 21 Dec. 2010.

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Tuesday, December 21st, 2010 Bailouts, Government, Spending, Stimulus, Taxes No Comments

Survival And Prosperity
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