Posted on 08/18/2011 9:18:15 AM PDT by PieterCasparzen
This morning it's looking like...
Large European banks will be unable to weather the coming defaults of European sovereign debt. German voters will not permit Germany to backstop the European Union. It has been reported that U.S. regulators are currently digging at U.S. banks, reviewing their European exposure, preparing for European sovereign defaults and failure of large European banks.
My humble predictions...
U.S. voters will not permit a bailout out of European banks or sovereigns by any U.S. government action, be it via the Treasury or the Fed. U.S. banks and most financial firms will successfully manuever to avoid and survive the coming defaults of large European bank and sovereigns. The Eurozone will start steps towards financially decoupling in an orderly way.
For months now the handwriting has been on the wall regarding European sovereign debt, but we have had numerous cycles where, if one only watched the news on a "good" day, one would have thought the Euro debt problems had been solved.
Coming soon, by the sounds of things, big problems at some of the largest U.S. banks, nothing to do with Europe at all, will "resurface".
I don't believe that this time any will be bailed out.
People should remember to act now and call their local Congresscritter to complain about the continued overspending on the part of the U.S. government.
Bear in mind that after losing the election in November 2012, during those two months - no matter how bad the ecnomomy is at that point - the White House will act with utter vindictive cruelty on any and all non-left-wing Americans. The pain in the U.S. economy is undoubtedly to get progressively (like that word?) worse between now and then, so by then things will be quite painful.
If, when Congress returns in a few weeks, we can push for immediate cuts in Feral government spending - that will alleviate the pain and give some kind of chance for the next President and Congress in 2013 to save the economy from complete collapse. If we allow spending to go on unrestricted for the next year and half, there's a good chance that the debt ceiling debate comes up again before then. That may help Repubs in the 2012 election, but it also would be, I'm afraid, viewed as disastrous by the markets. If we can get Feral spending to start slowing down, the next President can continue the march towards balancing the budget.
This is going to be a rough ride, IMHO, by next spring.
I hope during the election season Obama is forced again and again to explain why he thinks having the U.S. become more like Euro-socialist states is a good idea. I don’t have the illusion that he or other like-minded progressives would ever let empirical evidence stand in the way of their flawed vision, but putting him on the spot repeatedly might slowly and surely educate the American public as to how lacking in scientific support his ideas are.
Reality 101. Great post! Talk about being between a rock and a hard place. bttt
Will congress listen (to U.S. voters), since it will be congress who votes? When watching congress regarding TARP, Zerocare, QE1, QE2, Debt Ceiling, I pray congress will listen. No confidence congress will listen.
I also foresee the possibility of several large banks being merged to save themselves--Bank of America with Wells Fargo, Citicorp with JP Morgan Chase, and several others.
I also foresee that Obama may finally "get the religion" and realize that a major overhaul of the income tax system to make it more business-friendly will now be on the table. The result: the most significant changes in our income tax laws maybe since the passing of the 16th Amendment.
The next big question is whe our own Default will happen.
what do US voters have to do with it?
the same “end of life as we know it” mentality that forced TARP down the throats of taxpayers via the US Senate, will be presented by all the usual actors, especially Hillary Clinton.
The first loss is the best loss. I sure hope the big US banks are unloading their Western European sovereign debt now and taking their writedown medicine. It is only going to get worse over there. The US government also should start posturing now forewarning Western Europe we cannot afford additional contributions to bolster the World Bank and IMM to eventually bailout Western European banks. Good luck, Germany.
“U.S. voters will not permit a bailout out of European banks or sovereigns by any U.S. government action, be it via the Treasury or the Fed.”
Sorry to burst your bubble there but the US voters won’t even be told about such actions, the pre-cursors to which have already begun, and certainly won’t be able to stop them.
U.S. voters will not permit a bailout out of European banks or sovereigns by any U.S. government action, be it via the Treasury or the Fed.
But, will we learn of actions taken by the Fed in secret (as is their wont) only when it is too late? I don't think any of us will be surprised to hear about it well after the deed is done.
I find it interesting how the financial news in the U.S. cycles nicely so as to avoid having depressing days continue much beyond a week. For months now the handwriting has been on the wall regarding European sovereign debt, but we have had numerous cycles where, if one only watched the news on a "good" day, one would have thought the Euro debt problems had been solved.
Yes, I've commented about this as well. It seems to me that the “European problems” meme is trotted out on days in which they need to provide cover for some other domestic US bad news. Today is an excellent example, tons of bad US news so we are told from the onset that “European problems” are leading to a stunning drop from the open. Heck, at this point we are told that an un-named large European bank was forced to go the EU emergency funds window overnight since the inter-bank lending appears to be “frozen.” No names, no sources (for a storyline of massive implication!).
Coming soon, by the sounds of things, big problems at some of the largest U.S. banks, nothing to do with Europe at all, will "resurface".
Well there are problems within the US operations of large EU banks, that is certain. The real question is the level of exposure to toxic European debt in the US banks. So far the stock markets has proclaimed they believe that the level is non-trivial at this point. But that doesn't argue against your point, I too believe that there is a great deal of toxic assets on the balance sheets of all the major US banks that should have been eliminated in the past, but nonetheless is still a powerful negative presence. (We already know that bailout $$$ don't always go for their “intended” use.)
I don't believe that this time any will be bailed out.
One would hope not, but I can't say that I am sure that we are not going to see it happen again. (The past has been a reliable prologue of the future at this point.)
People should remember to act now and call their local Congresscritter to complain about the continued overspending on the part of the U.S. government.
Absolutely, to anyone willing to entertain truth, over-spending by governments (which has been solidly encouraged by the central banks) is the single most important factor as to why the global economy is in its current state. It is that simple, and that clear. But will continue to be denied over and over again!
Bear in mind that after losing the election in November 2012, during those two months - no matter how bad the ecnomomy is at that point - the White House will act with utter vindictive cruelty on any and all non-left-wing Americans. The pain in the U.S. economy is undoubtedly to get progressively (like that word?) worse between now and then, so by then things will be quite painful.
Agreed (sadly).
If, when Congress returns in a few weeks, we can push for immediate cuts in Feral government spending - that will alleviate the pain and give some kind of chance for the next President and Congress in 2013 to save the economy from complete collapse. If we allow spending to go on unrestricted for the next year and half, there's a good chance that the debt ceiling debate comes up again before then. That may help Repubs in the 2012 election, but it also would be, I'm afraid, viewed as disastrous by the markets. If we can get Feral spending to start slowing down, the next President can continue the march towards balancing the budget.
Yeah but the Congress is going to be presented with the exact opposite. We all know that this jackal's “jobs plan” is going to be comprised of: Higher Taxes, more Stimulus spending (I guess about $800 billion), and phantom cuts over 10-12 years that will never occur. I guarantee that those 3 elements are what will be revealed.
And, we will see a tsunami of pressure ginned up by the administration (and other Dims) and the propaganda media like never before (to date). It will be a non-stop chorus of “The TEA party & Republicans are destroying the economy merely for political reasons. They are willing to hurt ALL Americans in order to hurt the POTUS.” And so forth, endlessly. I also won't be the least bit surprised if some horrific “event” occurs that is blamed on the TEA Party to further the point. I won't be surprised at all. That is how high the stakes have been raised.
This is going to be a rough ride, IMHO, by next spring.
It is going to get “rougher” at an increasing rate every day for the foreseeable future (which ain't that long at this point!).
I agree.
"U.S. voters will not permit a bailout out of European banks or sovereigns by any U.S. government action..."
I disagree. A majority of the U.S. electorate is composed of morons.
I recall reading articles (the Economist, I think) about this several years ago, like 2007 or so.
If it happens before the Election our voters won’t have any say in the process. The Fed and Treasury will do whatever they like no matter what Congress says about it and it is unlikely that Congress would do anything beyond yelling, anyway.
Yeah, recall the original bailout event: Bush et al called all top players into a closed room and (AFAIK) told them “the system is going to collapse within 24 yours unless you take this money, and you WILL take this money”. There was no discussion & debate to speak of.
Bubbles and dams show signs of bursting before they do, but when they do it’s very very fast. US voters won’t know the bubble is popping until either the rescue has occurred or their plastic won’t swipe.
A two-point plan for real economic recovery
One part of this plan is a MASSIVE streamlining of government to reduce bureaucratic overlap, agency bloat, excessive regulations, and even phase out some agencies. Just this streamline could cut the Federal budget 40% or more.
IMHO...
Tax proposals from wealthy guys like Steve Forbes always seem to have some great points along with something like removing all tax on capital gains and interest income.
Such an “investment haven” scheme would produce huge swings of capital, as paper corporations would be set up to funnel invesments through. It would start out nice for our economy - and make a windfall for those wealthy guys. Then comes the aftermath, the unintended consequences. Look at poor Switzerland, an investment haven with a nice solid government balance sheet. It very much relies on what amounts to an export business. Now that other nations are drowning in debt, the Swiss franc is strengthening to the point where it is hurting it’s export businesses. I’m not saying that such a situation specifically would be the unintended consequences if America became an investment haven, just that there is quite a bit to digest with complete elimination or even large reductions to capital gains tax rates, and it’s undboubtedly prudent to avoid slanting the tax code too far in favor of individuals or corporations. The consequences, of course, can also veer into political side as well as economic.
I seem to notice that a truly balanced approach to things financial seems to minimize the effect of downturns. If we truly taxed all income at the same rate - suddenly I don’t have anything to gain by making moves like incorporating myself and not taking any W-2 income, etc. Suddenly business decisions are made on the business merits, not to foster my tax avoidance efforts.
Regardless of whether a person is rich or poor, an income tax scheme - if it is to be fair - needs to simply say that if a person earns $1.00, they pay x cents in tax.
If one person earns that dollar investing, another earns it as a royalty from their book, another from selling ice cream, same rate.
The one exception that probably will continue to make sense is long-term capital gains. Of course, this is for a very simple reason: to provide enough of a bargain to investors to make it worth their while to invest for the long haul and not try to carve gains out of extreme price volatility. While a large part of it’s effect is to artificially boost the stock market, it also serves nicely to dampen wild market swings.
Long term capital gains is also, IMHO, an attractive yet largely forgotten idea to encourage ma and pa kettle to invest and hold onto their investments. It makes a person feel good to know that if they buy stock in a corporation (public OR PRIVATE) and hold onto it until they retire, they can pay tax on the gains at a discounted rate. They helped society by investing in that business, the government gives them a break when they’re old. Of course, most people are invested via funds today anyway and have completely forgotten about the idea that holding onto the same stock for 20 years gives them a tax deferral on that gain.
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