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PIIGs on steroids, and selectively applied defaults.
Thank God the Banks will be saved any pain or discomfort.
Washington and New York will rule them all with an iron rod.
NYT
Path Is Sought for States to Escape Debt Burdens
By Mary Williams Walsh
January 20, 2011
Policy makers 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.
Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.
“All of a sudden, there’s a whole new risk factor,” said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton administration.
For now, the fear of destabilizing the municipal bond market with the words “state bankruptcy” has proponents in Congress going about their work on tiptoe. 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 possiblity 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.
Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers...
I think the first leg of this correction in stocks is waning a bit as the highly overbought and complacent condition is being worked off, and new shorts are engaging in the market to be squeezed by steady buying in light volumes led by the SP futures.
Perhaps another move down, while Benny's dose of liquidity directly to Wall Street takes effect.
Excepting some event, it is hard to imagine a protracted stock market decline at this time given the artificial support that Wall Street is receiving.
The pigmen feel that they are firmly in control of both NY and Washington.
"The real collapse of our currency began when it became evident that certain industrial circles were more powerful than the government."
Adam Fergusson, When Money Dies
An Economic Philosophy That Has Completely Failed, William K. Black
'Failure' depends on what your objectives are. If looting for short term benefit of the Wall Street monied interests and their well-oiled Washington support system, things are working quite well.
More determined bear raids today, winnowing out the weak hands, the overleveraged, and the speculators. Look for silver to hold the most resilience and snapback on the shorts, as the shortage in wholesale supply continues to deepen.
Remember that January 26th is the option expiration at the Comex.
" You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold."
George Bernard Shaw
The precious metals have had a remarkable run since their breakouts last year, and are due for a pullback and consolidation which we have been in for some time as some of the seasonal factors waned.
Gold in particular is correcting as we can see from the next two charts. There is support at 1340 and 1320 which are both at natural fibonacci retracement levels, depending at what point in the rally one wishes to begin to measure.
In the correction of early 2010, gold fell roughly 6% from its peak reached on January 10, as is shown in the third chart.
From its recent peak of 1420, a decline of 6% would take gold roughly to 1334.
So it appears that this is a consolidation that one might expect. The impact must be greater in assets with higher leverage such as mining stocks, or even in the higher beta silver bullion.
IF there is a panic liquidation in stocks, then we might expect to see something more extraordinary.
If I have any disappointment it is that gold is moving with stocks, and has not yet diverged to move more closely with the currencies, and as a safe haven. That apparently is yet to come. But for now it is moving as if it is running with the monetary inflation being generated by the Fed. And so it will continue while the Fed is printing.
As an aside, there have been some recent comments about accounting changes at the Fed and some constraint regarding its 'insolvency.' This is an accounting technicality and a bit of a red herring.
The Fed as the agent of Treasury has always been incapable of becoming practically insolvent, because as Benny has allowed in a rare moment of candor, it owns 'a printing press.' Sovereigns who can print their own currency do not become insolvent, or bankrupt. States and the PIIGs can go bankrupt because their money is contingent. But with sovereigns, their currency becomes increasingly worthless as they pay their debts, denominated in their currency, with more of their currency. The difference is important because it tells you what to watch for, and how things will break down if they do. And by the way, this is why the sovereigns have an hysterical animosity towards gold and silver.
The only practical limit on the Fed's ability to monetize is the acceptability at value of US bills, notes and bonds, and the dollar is a Treasury bill of zero duration.
2011 is a year of revelations, and 2012 will be a year of wonders, at least in the worlds of politics and economics. Maintain your perspective, as panic, too often fed by over leverage, is the great enemy of your portfolio. If you trade, then trade. But if you do not know how to trade, how to protect yourself and hedge, then by all means stay out of the short term trades in the markets, for you will surely lose.
