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« Team: New Venture Update 20 December 2012 | Main | 'Is There a Best Way to Return to a Gold Standard?' »
Wednesday
Dec192012

The more things change, the more they stay the same

 

No, nothing new. More QE and gold goes down. In addition,  another downpour of economic news that confirms the total inability of central banks and governments to provide any credible solution to what is a guaranteed road to perdition.

Investors worldwide are continuing to buy debt that yields nothing or virtually nothing from bankrupt issuers. The only thing that is guaranteed is that the bond market, which is the most over overvalued market in the world,  will default. This is particularly the case with the government bond market where government deficits are increasing so fast that the only buyer remaining will be the issuer of the bonds. But also mortgage bond yields  have fallen to their lowest level ever recorded. And spreads on corporate debt have narrowed to the wafer thin margins of 2007 in spite of the fact that default rates are three times higher than they were in 2007 for twice as high investment grade companies. Thus it is almost guaranteed that bond investors will lose most, if not all of their investment.  Even the BIS in Switzerland has woken up to the fact that the world risks a fresh credit bubble.

So what are the powers that be doing about it. Well, the EU has finally agreed to appoint the ECB as “the single supervisory mechanism” for the supervision of the 200 largest EU banks. This will be another failed EU organisation that will create a massive, bureaucratic structure (to be based in France) whose main beneficiaries will be its employees who will earn massive tax free salaries and unlimited benefits and perks. As regards the regulated European Banks, they are bankrupt and will remain bankrupt. All the supervisory commission can do and will do is to recommend for ever increasing money printing by the ECB to “save” these banks from the sensible thing to do which is to close down for good. If they ever valued their asset at market prices that would be their only option.

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