Defaults

Peter Schiff: ‘We Have An Entire Economy That Is Supported On A Foundation Of Bubbles’

Tonight I watched Peter Schiff’s presentation at the MoneyShow Las Vegas back on May 12, 2014. The CEO and Chief Global Strategist of Euro Pacific Capital shared his current assessment of the U.S. financial landscape in “Too Big to Bail: Why the Next Financial Crisis Will Be Worse Than the Last”- as well as where he thinks we’re heading. Schiff warned attendees:

There is no economic recovery in the United States at all. There is no evidence of an economic recovery. The U.S. economy is in far worse shape than it was on the eve of the 2008 financial crisis. We have never been in as worse shape as we are right now. But they say, “Whoa! But the stock market went up.” Yeah, of course the stock market went up. You print enough money, you can make the stock market go up. Yes, the Federal Reserve succeeded in reflating the stock market bubble. But that’s all that it did. That isn’t evidence of a strong economy. Stock prices went up from 2002 to 2007. Does that mean we had a sound economy? No. We were on the verge of a complete implosion. The main difference though between the stock market bubble that we have today and the one that blew up, let’s say, in 2000, is that fewer individuals are participating. This is the bubble for the 1 percent. This is for the hedge funds, the private equity guys… The overwhelming concentration of buyers are very wealthy people. The average American is not participating in the stock market to the extent that he was in the 1990s. And so the Fed is not getting the boost to consumption that you would normally have from the wealth effect because a lot of people aren’t feeling the effects of the wealth because they don’t own stocks.

The same thing is happening in the real estate bubble, which the Fed has managed to reflate. The difference again between the real estate bubble we have now and the real estate bubble that popped in 2007 is again- the average American isn’t participating. Home ownership rates are at 19-year lows. You have hedge funds and private equity companies that are buying up real estate. Last month, I think 43 percent of all the properties purchased in America were purchased for cash. These are not typical Americans buying houses to live in. These are investors buying houses to flip, buying houses to rent out. This is not a healthy market. It is an extremely speculative real estate market thanks to the Federal Reserve.

So the Federal Reserve has managed to reflate two bubbles simultaneously.

And of course, the biggest bubble of them all is the bubble in the bond market.

So we have an entire economy that is supported on a foundation of bubbles…


“Peter Schiff at Las Vegas Moneyshow 2014”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; 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.)

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Pandemic Tops Global Insurance Executive Rankings Of ‘Extreme’ Risks To Their Industry

Here’s an interesting piece I stumbled upon this morning while searching for some pandemic-related material out in cyberspace. Caitlin Bronson reported on the website of Insurance Business (America) this morning:

A global pandemic, a widespread natural disaster and a food/water/energy crisis are the top three extreme risks threatening the insurance industry in the near future, a Towers Watson survey of global insurance industry executives reveals.

The survey—part of Towers Watson’s biennial analysis Extreme Risks—asked more than 30,000 top executives to rate very rare events that would have a large impact on global economic growth and the insurance sector.

In addition to health, weather and technological risks, the insurance executives also saw financial disasters as having a large role to play in the future of the insurance industry. An economic depression, a banking crisis and a default by a major sovereign borrower were all listed in the executives’ top 10 concerns…

It’s a short, insightful read (I wonder if the insurance industry is any good at forecasting major crises/disasters?), and the article can be viewed in its entirety on the Insurance Business (America) website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Peter Schiff: U.S. Will Become Either Greece Or Weimar Germany

“It’s hard to imagine what the country will look like when the dollar crashes. But one thing is certain; it will bear little resemblance to the America we know today.”

-Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, in an interview posted on The Daily Caller website, October 17, 2013

Yesterday we heard from two “crash prophets”- Dr. Marc Faber and Jim Rogers on finance and investing. Today, I want to bring up a third “prophet”- Euro Pacific Capital’s Peter Schiff- and talk about an interview he just did with Faith Braverman over at The Daily Caller website. Posted last Thursday, Braverman asked Schiff- who correctly predicted the U.S. housing crash and “Panic of ’08″- about what Americans should be on the lookout for as the real U.S. financial crash draws closer. Schiff advised:

You gotta follow the foreign exchange market, the value of the dollar vs. foreign currencies. The Federal Reserve keeps buying bonds to keep interest rates from rising. We have no choice but to default if creditors want their money back. If interest rates go up, we can’t afford that. That is why the Fed feels that it has to keep interest rates down at all costs. So the Federal Reserve prints more money to buy up bonds. That puts pressure on the dollar. Foreign central banks than buy those dollars to prevent their currencies form rising, which imposes costs on their own population, as they are forced to absorb our inflation.

There will be big spikes in commodity prices, like energy and food. Ultimately, we will be forced to make even bigger cuts than the ones we would have made now had the debt ceiling not been raised. Then we’ll be Greece, essentially. If we refuse, and keep spending, and the Fed prints even more money to buy the bonds no one else will buy, we’ll destroy the dollar and then we’ll be Weimar Germany. When the dollar collapses, what does that mean? Hyperinflation means you will have nothing. Your life savings will be worth nothing. We’re celebrating solving the debt ceiling, but we’ve only kicked the can down the road and removed the barrier between us and fiscal responsibility.

Later on in the exchange, the former U.S. Senate candidate suggested Americans should “get gold, silver, foreign assets, and buy up things that will have value after the dollar crashes.”

Braverman did a nice job on this interview, which can be read in its entirety on The Daily Caller website here.

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; 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.)

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Back To Blogging

It’s back to work over here at Survival And Prosperity this dreary Wednesday morning in the Chicagoland area. I had planned on publishing new material Monday, but decided to extend my “vacation” out a little bit longer. I apologize if you were checking for new posts earlier this week.

During my time away from the blog, I was able to attend to a number of tasks that needed my immediate attention. But it wasn’t “all work and no play.” I got the chance to spend a couple of days at my family’s place in southeast Wisconsin near the end of the break. The weather was terrific, the locally-brewed beer plentiful, and the Northern Pike and Largemouth Bass were biting. My cousin and I managed to haul in some really nice-sized fish. Which is why I extended my stay longer than originally planned.

Two things come to mind now when thinking about that long weekend in Wisconsin:

First, I noticed the gun section at the local hardware store had a lot more ammunition on the shelves from the last time I was there. Another sign the ammo shortage is easing up?

Second, it was nice to “Escape to Wisconsin” and breathe in some “freedom.” In my opinion, Wisconsin is heading in the right direction. Illinois… not so much. As each day goes by, the “Land of Lincoln” continues to be transformed into a Big Government Nanny State, highlighted by more/higher taxes, more/higher fees, and increasing controls forced upon the populace. Sadly enough, many of my neighbors seem to be okay with this. Especially here in the Chicago area.

Coupled with the huge financial woes facing the City of Chicago, Cook County, and State of Illinois- an ugly ending looks to be in store for us. At the very least, Illinoisans will be busting their wallets out en masse to deal with the debt debacle.

And while our nice new house in the Chicago suburbs that I worked on quite a bit the last two weeks is fine and all, I continue to warn my girlfriend that our future permanent residence looks to be outside of the state.

It’s a real shame it might have to come to that.

Back to our regularly-scheduled blogging. And wondering if incompetency trumps political theater in causing a national debt default in the coming hours.

Christopher E. Hill
Editor

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U.S. Treasury: Debt Limit Reached By Mid-October

U.S. Treasury Secretary Jacob Lew warned Congress yesterday that the United States will hit its $16.7 trillion debt ceiling in mid-October. Lew wrote in a letter addressed to Speaker of the House John Boehner:

I am writing to provide additional information regarding the Treasury Department’s ability to continue to finance the government, and the extraordinary measures we have undertaken in order to avoid default. On May 17, I wrote to inform you that the U.S. government has reached the statutory debt limit and had begun to implement extraordinary measures. As I stated in that letter, Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent.

Based on our latest estimates, extraordinary measures are projected to be exhausted in the middle of October. At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day. The cash balance at that time is currently forecasted to be approximately $50 billion…

You can read Secretary Lew’s entire letter on the Treasury Department’s website here (.pdf file).

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

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U.S. Reaches $16.4 Trillion Debt Limit

You may have been distracted by events related to New Year’s Day and negotiations over the “fiscal cliff” to notice that the United States reached its authorized debt ceiling of $16.394 trillion on New Year’s Eve. Rich Barbieri and Jeanne Sahadi reported on the CNN Money website Monday morning:

It’s official: U.S. debt reached its legal borrowing limit Monday, giving Congress about two months before it must raise the debt ceiling or risk causing the government to default on its bills and financial obligations.

“I can confirm we will reach the statutory debt limit today, Dec. 31,” a Treasury Department official said Monday.

As for increasing the nation’s debt ceiling yet again, U.S. President Barack Obama doesn’t want debate from Congress on the subject. From Reuters this morning:

President Barack Obama vowed on Tuesday to avoid a repeat of last year’s divisive fight with Congress over an extension of the nation’s borrowing authority.

“While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up,” Obama said in remarks in the White House.

“I will not have another debate.” Hmm. Back on December 5, Zachary Goldfarb wrote on the Post Politics blog on the Washington Post website:

As part of the fiscal cliff negotiations, Obama has proposed effectively ending the need for Congress to periodically raise the debt limit, which Republicans have rejected.

I wonder if this proposal won’t be pushed again in the near future?

By Christopher E. Hill, Editor
Survival And Prosperity (http://www.survivalandprosperity.com)

Sources:

Barbieri, Rich and Sahadi, Jeanne. “It’s official: U.S. hits debt ceiling.” CNN Money. 31 Dec. 2012. (http://money.cnn.com/2012/12/31/news/economy/debt-ceiling/) 2 Jan. 2013.

“Obama Debt Ceiling Statement: Limit Increase Not Up For Debate After Fiscal Cliff Showdown.” Reuters. 2 Jan. 2013. (http://www.huffingtonpost.com/2013/01/02/obama-debt-ceiling-fiscal-cliff_n_2394164.html). 2 Jan. 2013.

Goldfarb, Zachary A. “Obama on debt ceiling fight: ‘I will not play that game.’” Post Politics. 5 Dec. 2012. (http://www.washingtonpost.com/blogs/post-politics/wp/2012/12/05/obama-on-debt-ceiling-i-will-not-play-that-game/). 2 Jan. 2013.

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Michigan Lawmaker: ‘We’re Going To Have To Seriously Consider Dissolving The City Of Detroit’

As I’ve said before, once in a while I hear chatter about Chicago being on the path to becoming the next Detroit. Not the hub of America’s auto industry that “old” Detroit once was, but rather “this” Detroit:


“Scary Movie 4 – Detroit: Before & After the Attack”
YouTube Video

I guess conditions in the “Motor City” are getting so bad one Michigan state senator has gone so far as to say the legislature is going to have to “seriously consider dissolving” the city. From The Detroit News website this morning:

State Sen. Rick Jones has a solution for fixing Detroit’s ongoing political and financial problems: Get rid of the city.

“At some point we’re going to have to seriously consider dissolving the City of Detroit,” Jones told Insider.

You read that right.

Jones, R-Grand Ledge, is proposing the Legislature, which has the power to establish municipalities, should make the city part of unincorporated Wayne County.

Jones was unclear about what good it would to do to turn the city and its services for 700,000 residents over to a county with it’s owns financial and political problems.

But he said outstate lawmakers like himself are growing tired of the City Council delaying implementation of the financial consent agreement state and city leaders signed in April, inching perilously closer to payless paydays and bankruptcy.

(Editor’s note: Italics added for emphasis)

Detroit’s finances appear pretty bleak. According to Reuters last night, not only did Moody’s Investors Service lower the city’s debt ratings deeper in the junk category Wednesday, but:

Moody’s also placed a negative outlook on the lowered ratings, citing in part “the rising possibility that the city could file for bankruptcy or default on an obligation over the next 12 to 24 months.”

(Editor’s note: Italics added for emphasis)

Here’s hoping Detroit can find a way out of their serious financial and political mess.

And that chatter about Chicago becoming the next Detroit doesn’t pan out.

Sources:

“Political insider: Senator says to dissolve Detroit if it can’t fix its problems.” The Detroit News. 29 Nov. 2012. (http://www.detroitnews.com/article/20121129/POLITICS02/211290357/Political-insider?odyssey=mod|newswell|text|FRONTPAGE|s). 29 Nov. 2012.

“Moody’s cuts Detroit debt ratings deeper into junk.” Reuters. 28 Nov. 2012. (http://www.reuters.com/article/2012/11/28/detroit-moodys-downgrade-idUSL1E8MSDCJ20121128). 29 Nov. 2012.

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Thursday, November 29th, 2012 Bankruptcy, Bonds, Credit, Defaults, Fiscal Policy, Government No Comments

Three California Cities File For Bankruptcy In Less Than Two Weeks

Stockton, Mammoth Lakes, now San Bernardino.

Three California cities that have filed for bankruptcy in less than two weeks.

Is the prediction by Meredith Whitney, aka the “Diva of Doom,” about a wave of municipal defaults finally coming to fruition?

From NBC Los Angeles on the MSNBC website this morning:

San Bernardino became the third California city in less than two weeks to file municipal bankruptcy protection Tuesday night when the city council voted to make the move in the face of a $45-million budget shortfall…

Officials in Stockton said their June decision to seek federal bankruptcy protection was the “only choice” for the city that was unable to reach finance agreements with creditors to address a $26 million budget shortfall…

On July 4, Mammoth Lakes sought bankruptcy protection from a $43 million court judgment, according to Bloomberg News.

NBC Los Angeles staff pointed out:

In the six decades since Congress created bankruptcy protection for cities, fewer than 500 municipal bankruptcy petitions have been filed, according to the United States Courts website.

As much as I hate to say it, it’s my belief there will be a lot more local governments filing for bankruptcy before this ongoing economic mess is all sorted out. And Whitney will eventually be vindicated about the wave of defaults (her timing was just off). I come across stories about distressed municipalities on a daily basis out in cyberspace. The city that’s grabbing the headlines the last couple of days is Scranton, Pennsylvania. From Perry Chiaramonte on the FOX News website Monday:

Employees of a Pennsylvania city, who have all seen their salaries cut to minimum wage as the mayor grapples with budget problems, are hoping a judge restores their paychecks in full.

Scranton Mayor Chris Doherty cut everyone’s pay — including his own — on Friday, saying the state’s sixth-largest city is broke because the City Council blocked his proposed tax increase. Doherty, a Democrat, warned nearly 400 police officers, firefighters and public works employees about his doomsday plan, prompting a Lackawanna County judge to order the city to pay full wages to all employees, citing that it is a violation of their contracts. Hours later, the payday envelopes went out, and, despite the judge’s order, they were light…

The city of Scranton has battled budget woes for years, but the problems reached a boiling point after the City Council blocked Doherty’s plan to raise taxes to cover a $16.8 million shortfall, opting instead to borrow money to cover the budget gap.

More to come (I’m sure)…

Sources:

“San Bernardino becomes 3rd Calif. city in 2 weeks to file for bankruptcy protection.” MSNBC. 11 July 2012. (http://usnews.msnbc.msn.com/_news/2012/07/11/12675262-san-bernardino-becomes-3rd-calif-city-in-2-weeks-to-file-for-bankruptcy-protection?lite). 11 July 2012.

Chiaramonte, Perry. “Pennsylvania city workers to take mayor to court over across-the-board minimum wage salaries.” FOX News. 9 July 2012. (http://www.foxnews.com/politics/2012/07/09/political-statemate-leads-to-city-workers-salaries-cut-down-to-minimum-wage-in/). 11 July 2012.

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Wednesday, July 11th, 2012 Bankruptcy, Defaults, Deficits, Government No Comments

Wealthy Swiss Private Banking Clients Worried

The other day I talked about the recent strong demand for safe deposit boxes in Swiss banks. I surmised:

It’s not a bad idea to pay attention to what “the rich” are doing.

While gold isn’t as “hot” as it was back in September 2011, I’d venture to guess a lot of the yellow metal is being acquired and tucked away in these Swiss safe deposit boxes in anticipation of trying times ahead.

Yesterday, CNBC reporter and editor Robert Frank gave website readers a clearer picture of what’s going in those boxes. He wrote on CNBC.com:

If you want proof that the world’s wealthy are worried, consider this: Swiss banking clients have nearly a third of their portfolio in cash. And one in five believe the Euro will collapse.

The findings are included in a new report from LGT Group, the Austrian banking company, conducted with Austria’s Johannes Kepler University. The study found that wealthy Swiss and Austrian private-banking clients remain highly risk-averse and fearful of inflation, sovereign debt defaults and the unstable financial system.

In Switzerland, 58 percent of private banking clients have lost confidence in the financial system. Forty-four percent worry about inflation…

The study also said clients are reducing their diversification strategies and retreating to gold, cash and their home markets.

(Editor’s note: Italics added for emphasis)

The Swiss. Known for their cheese. And damned-good financial acumen.

Source:

Frank, Robert. “Wealthy Swiss Hoard Cash, See Doom for Euro.” CNBC. 28 June 2012. (http://www.cnbc.com/id/47961107). 29 June 2012.

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60 Minutes Segment About Eurozone Crisis, Potential Impact On United States

We’re in a debt crisis. Eurozone countries have way too much debt. We have gorged on debt. We are living beyond out means. And after 10 years of booming economic times- it is now payback time. We are paying back our credit cards, and that will prove very painful and costly…

Well, the U.S. is doing terribly well at the moment. However, clearly if the Eurozone has a really bad time of it this year, which it could well do, then America will not escape unscathed.

-Louise Cooper, Senior Financial Analyst at BGC Partners, talking to Steve Kroft in a recent interview that appeared on the CBS show 60 Minutes this past Sunday. Cooper has been called “The Downturn Diva” by the British press.


“An Imperfect Union: Europe’s debt crisis”
CBS News Video

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Peter Schiff: ‘Phony Economy’ Will Come ‘Toppling Down,’ Pain Worse Than 2008-2009

Last night I blogged about Jim Rogers and his appearance on the CNBC show Fast Money last week. It turns out another “crash prophet,” Peter Schiff, dropped in on the show last night- with some dire warnings for viewers. The CEO and Chief Global Strategist of Euro Pacific Capital talked about the following in the seven minute segment:

• Federal Reserve money printing is enabling a government spending bubble and preventing the U.S. economy from restructuring
• A big drop in the bond market is coming, and the Fed didn’t make the banks stress test for this because they would fail
• Ben Bernanke and the Fed are keeping interest rates artificially low to prop up the housing market
• Equity markets appear to be gaining value because the U.S. dollar is losing value- “This is not about the stock market going up. It isn’t going up. That’s a delusion created by the Fed.”
• Beware Ben Bernanke and the Federal Reserve- “The Fed is the biggest enemy of this economy. In fact, Ben Bernanke, as far as I’m concerned, he’s public enemy number one.”
• Economic pain is coming, and it will be worse than in 2008-2009- “Oh, it is going to be. Absolutely going to be. Because the Fed is creating more damage now than it did when it blew up the housing bubble. The problem is going to be eventually, the world is going to figure out that the government is lying about inflation. Inflation is a much bigger problem than the CPI numbers show… Once the world realizes that inflation is running out of control in the U.S., and the Fed will do nothing about it. Because the minute the Fed takes this punch bowl away, the minute it raises interest rates to cut off the inflation, the banks are going to fail, the federal government is going to have to declare bankruptcy, it’s not going to be able to pay the interest on the national debt. This whole phony economy the Fed has constructed with cheap money is going to come toppling down. But the reality is we have to kill this phony economy because it’s unsustainable. We need to replace it with a viable one but unfortunately to do that there’s a lot of short-term pain because we’ve got to unwind this bubble, and the Fed doesn’t want that to happen. The Fed is letting our politicians off the hook. It’s trying to postpone our day of reckoning until after the next election. But there is always another election coming. We have got to deal with these problems. We can’t keep making them worse. That’s what we did when the stock market bubble burst. And we created the real estate bubble. But we learn nothing from our mistakes, all we do is repeat them but on a grander scale.”

At this point in the segment, someone in the Fast Money crew joked:

Sounds like Pete is running for office again [multiple laughs]

You know what? It sounds like 2007 again when a small number of financial types like Schiff warned about the coming financial carnage but the rest of the financial community ignored and/or ridiculed them.

You can watch this informative, sobering video segment on the CNBC website here.

(Editor’s note: 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)

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Housing Is Back!

Every few days, I see it snuck in somewhere on various mainstream media websites:

Housing is back

Doubtful. A number of housing experts point out that for residential real estate to achieve a sustained recovery in this country, substantial progress has to be made in reducing the glut of properties languishing on the market. The National Association of Realtors reported on August 18:

Total housing inventory at the end of July fell 1.7 percent to 3.65 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, up from a 9.2-month supply in June.

And don’t forget about the “shadow inventory,” or looming foreclosures that are expected to hit the market. Reuters’ Leah Schnurr wrote yesterday:

“There are probably about 3.5 million loans that should be in foreclosure but aren’t yet, and we’re going to have to work through that inventory before the housing market can come back,” said [RealtyTrac senior vice president Rick] Sharga. “This is a painful but necessary first step to get the housing market back on a more even keel.”

After foreclosure activity slowed down for a period of time, the banks appear to be back in the saddle again. The Chicago Tribune’s Mary Ellen Podmolik wrote yesterday:

Notices of mortgage default, the first step in the home foreclosure process, jumped 25 percent in Illinois last month, putting the threat of additional strain on local housing markets.

In August, 7,264 Illinois households received default notices in August, compared to 5,786 households that had foreclosure proceedings started against them by lenders in July, RealtyTrac reported Thursday. It was the most default notices filed against Illinois homeowners since March.

Illinois’ heightened activity mirrors a national trend. Across the country, 78,880 U.S. properties received a default notice in August, a nine-month high and a 33 percent increase from July…

States where default notices rose more than 40 percent from July included New Jersey, Indiana and California.

Based on inventory alone, it sounds like a sustained housing recovery in the United States is still a ways off.

Sources:

“Existing-Home Sales Down in July but Up Strongly From a Year Ago.” National Association of Realtors. 18 Aug. 2011. (http://www.realtor.org/press_room/news_releases/2011/08/july_ehs). 16 Sep. 2011.

Schnurr, Leah. “Mortgage default notices jump in August: RealtyTrac.” Reuters. 15 Sep. 2011. (http://www.reuters.com/article/2011/09/15/us-usa-economy-realtytrac-idUSTRE78E0OM20110915). 16 Sep. 2011.

Podmolik, Mary Ellen. “Mortgage default notices in Illinois surge 25% in August.” Chicago Tribune. 15 Sep. 2011. (http://www.chicagotribune.com/classified/realestate/foreclosure/chi-mortgage-default-warnings-surged-in-august-20110915,0,421789.story). 16 Sep. 2011.

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Friday, September 16th, 2011 Defaults, Housing No Comments

‘Dr. Dooms’ Marc Faber, Nouriel Roubini Say No U.S. Default Right Now

Before the housing bubble popped and the global financial crisis reared its ugly head, the mainstream media regularly referred to Swiss investment adviser Dr. Marc Faber and economist Dr. Nouriel Roubini as “Dr. Dooms” for their bearish outlook on the U.S. economy. Turns out both men were right on the money with their predictions. Lately, Faber and Roubini voiced their opinion on whether or not the United States would default on their sovereign debt obligations.

Back on July 14, Faber, who publishes the Gloom Boom & Doom Report and correctly called the 1987 U.S. stock market, phoned into CNBC’s Worldwide Exchange from Thailand. When asked a question by host Christine Tan about the possibility of America going into default right now, Faber replied:

Well, basically, I don’t think they will default in terms of not paying the interest on the government debt. But I think that they will default in terms of paying back the debt and the interest with depreciated, worthless dollars as a result of the Fed’s- or specifically, Mr. Bernanke’s- money printing.

(Editor’s note: Italics added for emphasis)

Roubini, a former Treasury official under the Clinton administration who, like Faber, also correctly-predicted the global financial crisis, let his feelings be known about a potential U.S. debt default at a recent forum in Shanghai. MarketWatch’s Jean Yung wrote on Tuesday:

Economist Nouriel Roubini, known for his prescient warnings about the 2008 financial crisis, said Tuesday the U.S. won’t default on its debt but the country will suffer a fiscal drag…

“There are about eight days until the deadline. My baseline scenario is still an agreement will be reached. I don’t think the U.S. will default,” Roubini, a professor at New York University, told a forum in Shanghai.

But the U.S. economic slowdown is a chronic issue rather than merely a “soft patch,” he said.

Roubini said that growth in public consumption has been artificially boosted by the government deficit. So when the authorities eventually have to reduce spending, raise taxes, or cut transfer payments, not only will that be a fiscal drag, but will slow the growth of disposable income.

(Editor’s note: Italics added for emphasis)

So it appears no debt “D-Day” on August 2 for these two “doomsayers.”

On Monday, legendary investor Jim Rogers predicted:

They’re not going to default. If the U.S. defaults, it will be for a day or two. They’re going to put together some kind of false package, they’re going to say everything is all right, but then everything is going to get worse.

(Editor’s note: Italics added for emphasis)

Source:

Yung, Jean. “Roubini: US won’t default but will see fiscal drag.” MarketWatch. 26 July 2011. (http://www.marketwatch.com/story/roubini-us-wont-default-but-will-see-fiscal-drag-2011-07-26). 28 July 2011.

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Moody’s Says Greece Default ‘Virtually 100%’

While Jim Rogers and I don’t anticipate an authentic U.S. default in the coming days, one European nation is heading in that direction. From Moody’s Investors Service yesterday:

Moody’s Investors Service has today downgraded Greece’s local- and foreign-currency bond ratings to Ca from Caa1 and has assigned a developing outlook to the ratings.

The combination of the announced EU support programme and debt exchange proposals by major financial institutions implies that private creditors will incur substantial economic losses on their holdings of government debt. The rating’s developing outlook reflects the current uncertainty about the exact market value of the securities creditors will receive in the exchange. After the debt exchanges have been completed, Moody’s will re-assess the credit risk profile of any outstanding or new securities issued by the Greek government.

The announced EU programme along with the Institute of International Finance’s (IIF’s) statement (representing major financial institutions) implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100%. The magnitude of investor losses will be determined by the difference between the face value of the debt exchanged and the market value of the debt received. The IIF has indicated that investor losses are likely to be in excess of 20%.

(Editor’s note: Italics added for emphasis)

According to Moody’s Global Credit Research unit, all is not lost in Greece. They noted:

Looking further ahead, the EU programme and proposed debt exchanges will increase the likelihood that Greece will be able to stabilize and eventually reduce its overall debt burden. The support package for Greece also benefits all euro area sovereigns by containing the severe near-term contagion risk that would likely have followed a disorderly payment default or large haircut on existing Greek debt. However, Greece will still face medium-term solvency challenges: its stock of debt will still be well in excess of 100% of GDP for many years and it will still face very significant implementation risks to fiscal and economic reform.

(Editor’s note: Italics added for emphasis)

I blogged about the potential consequences for the United States should Greece default back on June 2 and July 6.

You can read Moody’s entire explanation for their downgrade of Greek debt on their website here.

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Tuesday, July 26th, 2011 Bonds, Credit, Debt Crisis, Defaults, Europe, Government No Comments

Jim Rogers: U.S. Not Going To Default

They’re not going to default. If the U.S. defaults, it will be for a day or two. They’re going to put together some kind of false package, they’re going to say everything is all right, but then everything is going to get worse.

-Well-known investor, author, and financial commentator Jim Rogers, appearing on the Wall Street Journal Digital Network show The News Hub on July 25


“Jim Rogers: U.S. Already Has Lost AAA Rating”
MarketWatch Video

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