Whole Lotta Shaking Going On!

Well never say we live in boring times! An explosion of stories today with plenty for everyone!

Get your requests in as well, I should be good to go for a post as tomorrow is a night off from the training regime (thank goodness!!).

A Requested Retraction
One of my favorite bloggers is Jesse of the Americain Cafe. Tonight I cannot hold my tongue and must ask for a retraction of a visual aid he uses as it is insulting to a high degree.

In this post the author uses a picture of Tim Geithner and the subtitle reads;
"Apprentice to the Sith Lords"
Now we of the order of the Sith demand the retraction of this picture or change the subtitle to read:
"Dumb Jedi Padawan"
The Sith do not tolerate weakness nor stupidity and thus Timmy G could never make it. Thanks for your understanding.

Peas in a Pod
Sometimes things just fall into place and make sense. Take these two back to back headlines over at Calculated Risk:
Citis Deed in Lieu Program
Citi has a new (really?) 6 months rent free gift for deadbeats to be foreclosed on. How about a 6 month mortgage free program for all who have paid in full for over 3 years? I know, stupid.

About 2 hours later we get:
Fed MBS Purchase Program 95% Complete
Now I am sure these having nothing to do with one another, like filling the gap between MBS purchase program 2.0 start up, no way no how.

Gold Related
In a story that will have Stagflationary Mark chomping at the bit, the CME is raising margin requirements for gold, silver and palladium:
CME Increases Gold, Silver, Palladium Margins
Higher margin requirements will usually chase out marginal players. This is the second time margin has been raised, December 17th had one as well:
COMEX Gold And Silver Margin Requirements Raised
To be honest I have to digest this a bit. First reaction is some kind of drop on the way but the force out of marginal buyers is a long term good thing.

Of course this brings the day ever closer where paper gold/silver finally decouple from physical and things get interesting.

Oh yeah, Vietnam made their DONG weaker by 3% in a devaluation move yet again:
Vietnam devalues dong again, this time by over 3 pct
Key point: Vietnam is buying gold on the black market in large amounts because currency devaluation is not fun no matter what leading economists would have you think.

Max Debt Research
Just like in High School here comes my homework excuse.......

I really think that the questions Watchtower posted the other day are important and central to understanding what is happening to us right now. I think it deserves a full effort and I do have Monday off so I can work on it. The thought of Watchtower laying awake at night thinking about these things concerns me as well as puzzles me as I lay awake thinking about.....well lets say it not usually economics! HA!

Anyways, here is what I have put together to give you a flavor for where I am going.

The first issue I had was a central presentation I wanted to use is both only in PDF format and seems copyrighted so I am unsure of fair use. You can find it on a YAHOO search (I don't like Google) with the search term:
Total Credit Market Debt as a % of GDP
and it will be the 3rd one down by Crestmont Research.

I will take a chance and put up some items but if I get flack I will have to take it down.

First off, it was written in 2004 so try and extrapolate these terrible arguments out to now. The start:

1-This analysis relates to the often-cited statistic that "Total Credit Market Debt" in the U.S. has reached 300% of Gross Domestic Product (GDP), a historically high level
2-The data is accurate; the details are revealing. The often cited implication is that credit market leverage has soared and that the system is vulnerable to implosion or inflation as a
result of a leverage bubble. Those comments and conclusions don’t fully consider the underlying details.

So you can see the author thinks the chart is baloney. His case? (try not to laugh):

4-The so-called surge has resulted for a number of reasons, many of which pose relatively low risks to the system.
a) Substantial mortgage debt has been added to the ratio, especially after 1981
b) A significant number of workers were added to the economy in the 1970's
c) A growing economy with retained net worth can sustain higher debt levels
d) The substantial decline in the cost of debt encouraged and supported higher debt levels
e) Several developments (i.e. FNMA, FHLMC, GNMA, asset-backed securities, etc.) facilitated efficient leverage.
5-Home mortgage loans increased from 16% of GDP in 1952 to 66% of GDP in 2003, almost one-third of the increase in "Total Credit Market Debt."

Rising mortgage debt is a good thing because it is risk less as we know from history! Uh oh! The author may be surprised to find out that in 10 years we have added NO JOBS as well.

His conclusion:

CONCLUSION: The often cited chart reflecting a surge in Total Credit Market Debt as a % of GDP is distorted by a number of factors. One of the most significant reasons is that many
families have substituted mortgage payments for rents and, without changing their costs, increased the debt ratio. Ironically, the shift built significant equity value. Further, when the
long-term series is viewed on a standard logarithmic scale to show percentage gains over time, the chart becomes much less dramatic (see lower left chart). On a real basis, adjusting
for inflation, the rate of growth has been relatively constant over the past 50 years (see lower right chart).

See the chart in the post as it in much more tame than the scary one from last post.

Of course the chart the author uses is based on many metrics that are either bogus or heavily skewed by assumptions we know not to be true. Anyways, I am still working on that item.

Some other things on my radar as it relates to the discussion:
Greece Deal Opens Door for More Bailouts: Economist
While not US centric, the same principle applies. Key quote:

"If I was the Portuguese finance minister needing this one day, I would think I have a strong case," Nielsen said.
Now that EU leaders agreed to effectively backstop Greece's debt, they would struggle to say no to other euro-zone economies in the same difficult situation, he said.

Keep this in mind as the line forms behind California for handouts. I will set aside Jesse's false Sith Reference and submit his chart showing GDP contributions for the US states:

(click for larger view, you should know by now!) Plenty of housing bubble busted states in the top ten. Get in line folks and this adds to US debt.

Staying on topic, backstops add to the debt burden and now China may not be a buyer of anything not explicitly guaranteed by you and me, ie, the taxpayer:
China's Retreat From Risky Bonds Could Be The Straw That Breaks California's Back
Just as the Fannie and Freddie (and FHA) Federal guarantee fails to make it to the US bottom line, municipal bond guarantees are not likely to be found there either. But they will be there.

Maybe they are being counted already? The longer term US bond sales seem to be having some trouble:
30 Year Auction a Solid "F"
Worthy of making the FailBlog.org site?

My friend who writes The Housing Time Bomb chimes in with a post which is always helpful on auction days for me:
Is The Bond Auction Screaming Inflation?
I would quibble with the wording as I think the 30 year poor showing is a fear of devaluation/default (which fits our discussion) but then again inflation and devaluation are about the same in mechanics really.

Well that turned into a long post! I hope some found it helpful.

Things are moving fast and I would love to be on top of things a bit better but I have to do other things as well and that cuts down on my writing time. I think this summary of what I am watching is a good lead to what I am working on. Sound off in the comments and get Friday requests in as well.

Have a good night.