The Debts of the Lenders: Russian Default Risk Rises Exponentially

I think an oil supply shock, in a critical and volatile region, would be of great help to Moscow and other exporters.

"To say Russia has quickly been humbled would be an understatement.
After a brief period of complete shock, expect a sudden outburst of
absolute rage from the Russian people and Russian politicians as they
squarely lay the blame for their instant fall from grace on 'the
West'. Unfortunately Russia's regional neighours are likely to bear
the brunt of that blind rage."

http://benbittrolff.blogspot.com/2008/11/russian-default-risk-jumps.html

The Debts of the Spenders: Storm Clouds Gather Over Treasuries Pt 2

Treasury bond investors - such as pension funds and other institutions - stand to lose billions and potentially trillions of dollars in the coming months.

Why?

Higher interest rates on future bond issuances will lower the value of existing treasury holdings. This is unlikely to be a problem w/shorter term issuances such as the 3 year or lower maturities. However, it spells big trouble for bonds that have longer dated maturities.

10 year Treasuries still offer yields below 4% (roughly 3.75-3.8% the last time I checked). Throw in several more trillion dollar bailouts of the financial, auto, insurance, and other industries currently begging at Washington's doorstep and you have the formula for a meteoric rise well north of 4-5%.

Rising inflation is also a problem in the future as the US government continues to run their printing presses 24/7.

Ironically, a steep yield curve has been beneficial to banks as it reduces their borrowing costs while raising the return on their loans. This is yet another example of Paulson and Bernanke's unintended consequence of unlimited bailouts: robbing Peter to pay Paul.

The Debts of the Spenders: US Is Already Bankrupt

The US dollar is a monetary fiction. But that pretense will persist as long as there is no other reserve currency alternative to the dollar.


http://benbittrolff.blogspot.com/2008/11/really-scary-fed-charts-nov-us-bankrupt.html

The Debts of the Spenders: Everyone's a Billionaire in Zimbabwe

Inflation expectations can turn even your average person into a billionaire. Zimbabwe reported an official inflation rate of 231 million percent this year.
http://www.boncherry.com/blog/2008/10/26/global-crisis-this-is-the-real-crisis/

The Debts of the Lenders: The End of the Carry Trade Part 5

Wall St trading desks on leverage are contributing to their own demise!

First, a lot of them bet on $200 oil and $9 corn. Second, they betted on each others' demise through CDS. Third, they betted on a strong euro. And finally, they're betting on a strong yen.

Ironically the yen is at the heart of all the prior bets since a cheap yen fueled easy borrowing. Now, you have the currency trading desks bidding up a strong yen while the arb and prop desks frantically try to unload their losing trades. And this is going on in the same house!

``An intervention to change the yen's rising trend would be like trying to stop a tsunami with one hand tied behind your back,'' Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, said in an interview on Oct. 28. The unit of London-based Barclays Plc is the third-largest foreign-exchange trader.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aJ.S4s.NPFWo&refer=home

The Debts of the Spenders: Federal Reserve Continues To Pay Banks

And banks STILL refuse to lend. No surprise there as the only people w/credit have always been able to get credit while those w/poor credit. . . have poor credit for a reason.

WASHINGTON (MarketWatch) -- The Federal Reserve on Wednesday said it has raised the interest rate paid to banks on reserves that banks keep with it. The Fed said the latest formula for excess reserves sets the interest rate at the lowest FOMC target rate in effect during the reserve maintenance period. The previous formula set it at the target rate minus 35 basis points. The rate on required balances will be set at the average target fed funds rate over the reserve maintenance period. The previous formula set it at minus 10 basis points. The Fed said these changes would help foster trading in the funds market at rates closer to the FOMC's target federal funds rate. In recent weeks, trading has been below the Fed's target. The Fed said the new formula for paying interest on reserves -- an authority the Fed received as part of the Congressionally approved $700-billion bailout program for financial firms -- will be effective from Thursday, November 6.

The Debts of the Spenders: Storm Clouds Gather Over 10 Year Treasuries

The bond markets rarely lie. I find them to be a reliable indicator of medium-long term economic sentiment.

Medium term government paper is another canary in the coal mine. Traditionally, 10 year notes occupy the middle ground between the extremes of short term (13 week - 2 year) and long term (30 year) paper. The fact that they are veering towards bearish sentiment is troubling for the US government.

The short term paper has seen yields driven down to below 0 at several points in October because of a flight to safety. Meanwhile, the longer term paper continues to maintain an upwardedly biased yield curve (despite some minor down movements also based on a flight to safety). This is no surprise as interest rate risk rises to match uncertainty when the time horizon expands.

Some commentators believed that medium term paper yields were supposed to fall. Instead the opposite happened. Rates rose.

I believe this is an ominous sign. EVERY SINGLE world government is flooding the bond markets w/paper. EVERYONE. Foreign Treasuries are doing this to finance the gigantic budget deficits arising from new bailouts and existing social spending programs.

The US government has to compete w/these new issuers for bond buyers' attention. While rates here are relatively low, they are sure to rise in the future.

Short term paper is continuing to offer low yields because they are the extension of central bankers' wills. However, central bankers are powerless to determine longer term interest rates. No. Long term rates remain under the domain of the markets.

Treasury Auction Schedule:
http://www.treas.gov/offices/domestic-finance/debt-management/
auctions/auctions.pdf