Investors Hope For 'Correction' Cure - But It Won't Prevent the Ultimate Debt Crash

The Wall Street Journal yesterday featured a front page article, 'Stock Retreat Has Its Fans', which piqued the interest of many.  Quoting from the first two paragraphs:

"Many investors and analysts fear a postelection rally that has driven the S&P 500 up roughly 10 percent has cleaved share prices from the underlying fundamentals that tend to drive gains over time, such as interest rates and corporate earnings.

What's due now, some investors say, is a correction: a 10 % pullback from the indexes' March 1 high. They contend such a retreat would tamp down speculation, defray pockets of froth in popular investments and provide buying opportunities for those still on the sidelines."

The article goes on to state that such declines serve an important function in a market economy basically letting some of the excess 'gas' out of the balloon - which might otherwise blow up, i.e. resulting in a major crash. In this regard, the stock market is already well into bubble territory. Thus, long periods without the healthy corrections lead to market pathology and "unruly trading" - inflating the bubble further until it bursts.

Some may console themselves that a 10 percent correction or maybe even 12 percent, will ease their insecurities but alas, the crash is still on its way. What I would call a "sovereign debt crash" because it will ultimately be the recognition that most national debts can't be repaid that will be the tipping point to one of the largest crashes on record.

First, let's understand the nature of a sovereign debt crisis.,  Sovereign debt is not the same as the mortgage crisis which nearly brought down the global finance system in 2008. The latter was predicated upon the unwise purchase (mainly by banks but also by some insurers like AIG) of esoteric derivatives called “credit default swaps”. These basically represented bets on packaged mortgage securities called collateralized debt obligations.

In the case of the sovereign debt crisis, nations – not banks- are on the verge of default and are seeing their national bond ratings plummet because their debts are too high in relation to their gross domestic product (GDP).  In my March 22 post, I already noted Barbados as being deep in the maw of a sovereign debt crisis.  This followed yet another Moody's bond downgrade, down to Caaa3+, and Barbados now being on the verge of currency devaluation.

The Moody's report on the reasons for the downgrade included:

The government debt burden reached 111% of GDP at end-2016, and the authorities have accumulated a large stock of arrears to the private sector and the National Insurance Scheme,, estimated at a further 11% of GDP at end-FY2015/16. 

The National Insurance scheme is similar to Social Security in the U.S. and what the Moody's report indicates is that this program is over extended with the gov't already in arrears in what it owes (fro borrowing from the NIS) by 11 percent of GDP. In other words, the Barbados government is printing millions of dollars a month to try to keep seniors receiving their pensions.

Some may believe Barbados is an exception, but it isn't. Around the world governments are buried in debt - sovereign debt. It is this debt bomb - building up - that will ultimately roil the markets, along with serious missteps by the Trumpites in handling any future financial crises.  

But back to the sovereign debt crisis, not only is the U.S. in up to its eyeballs, with the Trumpites set to blow the debt wide open, i.e.


That is, the federal debt as a percentage of GDP would explode through the roof - exceeding the size of the entire U.S. economy within ten years. of Trump and the GOP get their tax policy plans rammed through.

Meanwhile, Europe is printing euros like there's no tomorrow, and debt - especially in nations like Spain, Portugal and Greece, piling up to unprecedented levels.  Then there is the Bank of Japan which has printed over 13.3  trillion yen   The Fed in the U.S. has done its own form of printing money by way of "quantitative easing", purchasing over $4 trillion in the bond market.

All of these signals in tandem show the instability of the global debt crisis and no one who looks into these can remain complacent. Barbados, of course, is near and dear to my heart  - so I pay special attention to what goes on there, like I do here in the U.S. But other nations' debt issues can't be overlooked because they also impact our own financial-economic conditions. As their own sovereign debt crises have manifested the oncoming 'train wreck'  is difficult to avoid. Expect to see default after default.

What's my main worry looking at Barbados and other nations? Well, that none of their debts will ever be repaid. Those debts, including unfunded liabilities into the future (e.g. pensions to be paid) are simply too huge for repayment even in instalment. The credit agencies Standard and Poor's and Moody''s already seem to recognize the writing is on the wall in the case of Barbados, which is why the loan conditions now are so draconian there's no way the debt will be covered.

It is no 'biggie' then to foresee that the debt collapse now drowning Barbados will very soon hit Europe, then spread to Japan - and the U.S. by the end of the year.   That end point will be accompanied by falling oil prices, failure to raise the debt ceiling after a brutal partisan showdown (and Trump -GOP bravado), and then cratering bond prices.

Obviously, borrowing more money for any sovereign debt nation isn't the answer. It hasn't been for Barbados, and has only pushed it into a debt hole. The same is true for Greece, Spain, Portugal, Japan and others.  Borrowing is especially useless as the loan terms are degraded - less money on offer, accompanied by more demanding loan condition. Ask Barbados' Central Bank.

Yes, a correction will likely help in the immediate future to stabilize stocks, but not in the longer term, and Trump's own actions may precipitate whatever crash is in the works to happen much sooner.

A Youthful European Leftist That Millennials in the U.S. Could Emulate!

Catarina Principe exudes the kind of Leftist energy we need in the U.S.

Catarina Principe is an energetic young Leftist from Portugal who exudes the youthful zest for life and energy we desperately need in the U.S. While the crazies in the Rightist Tea Party just celebrated their fifth anniversary - still holding 'Don't Tread on Me' signs they don't fully grasp, the left movement in the U.S. remains dormant after the Occupy movement fizzled out. Maybe we need Catarina to cross the 'pond'  and get things moving here!

What is so special about this twenty-nine year old firebrand? What isn't?   Start with the fact she's been a dedicated leftist since the age of 15 - unheard of in the U.S. where kids of that age are more enmeshed in selfies and twitter than political movements. Principe rose to lead her student union and then organized a protest at her high school against corporate education reforms. She also pushed for the introduction of (real) sexual education classes, not the bilge passed off in the U.S. as such. The girl, in other words, was way ahead of her time and leading the charge - not rotting away in some social media vacuum.

She joined the Left Bloc in 1999, an organization which includes radical elements from across Portugal and which today claims eight parliamentary seats.  (She moved to Germany in 2011, forced out by the same economic collapse that's brought activists like her to the forefront of European politics).

As reported by 'In These Times',  Catarina was recently in Athens to celebrate the election triumph of Syriza (Synaspismós Rizospastikís Aristerás) the acronym for the Greek coalition of the radical left. The ascendance came after years of austerity measures imposed by your typical right wing government - one which could also materialize here in the U.S. if voters are stupid enough to insert a right wing President (like Ted Cruz, Marco Rubio or Rand Paul) into power.

Recall the right wingers had brutally stripped away the pensions of the elderly to bare bones sustenance so they were literally begging on the streets or raiding garbage cans for food. Job cuts increased the misery- as well as shuttering numerous government services, leading to the collapse of health system as well.. All of which provoked violent rioting in the streets and ultimately the triumph of Syriza. 

The Greek people, unlike Americans, basically said 'Enough is enough!'   But it just didn't happen. People, especially the youth, had to get off their butts and basically engage with the political system. No surprise then for the last five to ten years it's been the scene of very intense mobilizations that  have not only introduced an entire generation to politics but also created the social structures that allowed Syriza to grow. No similar organic development occurred here in the U.S. as with Occupy Wall Street. Perhaps because it didn't spread across enough age groups.

In her interview, Catarina makes two points on the difference between failed and successful movements: 1) the ability to coordinate social movements, so different ones don't act at cross purposes, and 2) the ability to engage in grassroots community organizing - extending to trade unions and the rest of society.

There are lessons here if the  Occupy movement is ever revived, and one hopes the youth in the U.S. can emerge as activist, engaged and coherent as the groups (including Podemos) that came together in Greece.

Greece's problems are by no means resolved, but there is at least a better leverage position available now than when the austerity fetishists were in charge and driving a race to the bottom - bargaining with the larger EU for ever more 'bottom' at the expense of the people. As Catarina noted, the same United Left didn't succeed in Spain because of being too invested in the same austerity politics. Just like pregnancy, one can't be "a little committed to austerity".

Americans, take note!

Barbados' Bond Position worsens...What's Next?

One year ago (Feb. 18 post, 'Is Barbados Soon to go the way of Greece') I noted that Barbados bonds were downgraded to junk by Moody's six odd months after Standard and Poor's did the same. I added that these events were disturbing in the extreme, given the island nation had been on a downward trend since I last visited in 2010.

The downgrade lowered the country’s foreign and local currency bond ratings to Ba1 from Baa3. (note: a junk bond, is defined as one that is “below investment grade” due to a heightened risk of default, is any bond with a rating of Ba1/BB+ or lower, according to the system used by Moody’s.) Moody’s  accompanying statement held that Barbados’ outlook remained negative, and cited two factors in the downgrade: Barbados’ “continuing lackluster economic performance,” and “ongoing deterioration in the government’s debt metrics.”

Adding to the concerns, was the fact that Barbados’ economy grew by 0.6 percent in 2011 and 0.2 percent through September of 2012, well below expectations. Meanwhile, The United Nations Economic Commission for Latin America  projected  the country’s GDP to improve in 2013 with a rate of 1 percent . Much of this obviously can be traced to the U.S. recession.

SO what has transpired in the interim? Barely three months ago (Nov. 5) I cited a report in the Barbados NATION (THREE DEVALUATION OPTIONS)  that reported on three options (internal, external and fiscal) for devaluation presented by the Inter-American Development Bank (IDB). The two with the most heft were "internal" and fiscal"- meaning across the board cuts in civil servants' pay (or numbers) or actual currency devaluation.

Earlier last month we learned for the first time of hundreds having been laid off in assorted banks, among whom was my niece Trudi. This followed an earlier government announcement on Friday 13 December by the government of Barbados that it will lay-off over 3,000 public servants in January as a first step in cutting back government expenditure and reducing national demand for goods and services. The announcement rattled other Caribbean Community (CARICOM) members. Since then the Bim government has played it coy and mustered a waiting game, though all eyes remain fixed on further actions. Make no mistake that such a cut - representing more than eight percent of civil service manpower - would be catastrophic from many perspectives.

But it is clear, from an even more recent report out of the Barbados NATION  by Tony Best (Jan. 28) that something will have to be done, and if it isn't rendering civil servants redundant it likely will have to be currency devaluation. Both wifey and I dread this last step because it would mean a severe cut in our retirement income, depending on the magnitude of devaluation.  For example, a 100% devaluation would cut our income nearly one third. (100% devaluation would mean $1 BDS would be equal to $4 U.S. instead of $2 U.S. as is currently the case)

In the latest report (ibid.)  it appears the lowering of Barbados' bond quality in 2013 led the island's cognoscenti to dismiss the signs and portents  - basically resulting in ignoring  Wall Street’s call to action. Since then, Barbados’ bonds have declined to a current BB rating with a negative outlook .  This was described by Richard Francis, S&P’s lead analyst on Barbados, as three notches below investment grade, the lowest it has been in almost two decades. What’s worrisome is his warning that the country stands a one-in-three chance of seeing that rating downgraded again.

If it is, it could well be 'curtains' for those of us dreading massive layoffs in Bim (which will lower its life quality drastically, as well as probably increase crime rates) or currency devaluation which could have many of the same effects.  To underscore this Francis added that while Barbados’ credit rating “isn’t among the lowest of the low”  any further decline would make a bad situation worse and eventually hit Barbados in the pocketbook.

Best emphasized that "the reality should be clear" and added ominously:


"Chris Sinckler, Minister of Finance, went to the financial markets last year to borrow money to prop up declining foreign reserves but couldn’t get an acceptable offer and had to withdraw the bonds largely because of the credit rating.

Obviously, Wall Street’s message had reached potential bond investors and it was that the risk of Barbados’ defaulting on its bonds had increased and to get the money it needed, the island had to pay a “premium”. It’s that straightforward. There is a nexus between the rating, an indication of risk, and the interest rate a country pays".


Best went on to report that eventually Barbados obtained a Credit Suisse loan but the terms were horrendous. According to Aaron Freedman, a Moody's analyst, the "terms are of concern" - which is really an understatement.

How bad? The Moody's analyst cited "LIBOR plus 700 (basis points" - or essentially yields implying Bim's gov't is trading in the "secondary market".  LIBOR denotes the interbank interest rate - what banks allow each other- and 700 basis points is 7 percent on top of that.  The Moody's analyst was further quoted as saying:

“Obviously there is a significant premium risk that the Government is paying. That has direct fiscal implications. If your interest expense rises, it makes it that much more difficult to achieve fiscal consolidation. Interest expense already consumes a significant portion of the Budget. We were expecting it would be close to 30 per cent of Government revenues, which is one of the highest levels we have seen anywhere.”

Best observed that the analyst's point was underscored by a headline in a Bloomberg News story: Barbados Bonds At Record Yields As IMF [International Monetary Fund] Urges Restraint:

“Yields on Barbados’ 2021 dollar bonds were at a record 9.58 per cent at 12:16 p.m. New York Time [December 20[ and were up 33 basis points, or 0.03 percentage point, this week. The 2022 bonds trade at 9.61 per cent after rising to a record 9.64 per cent on December 18.”
 

Best adds that the decline in foreign reserves is the major reason for the record-high interest rates Barbados is paying on its bonds. Such a decline, which also occurred before the IMF intervention in 1991 (after Barbados attempted to emulate the Reagan tax cuts in 1986) essentially was accelerated when people with monetary interests in Bim (but living in the U.S.) began pulling money out - or existing residents tried to get money into U.S. banks to escape possible devaluation. But even before this, foreign reserves were dropping because of the island's continued massive importation, e.g. of food stuffs, as well as automobiles.

 I pointed such problems out in a blog back in May, 2010 ('Will Barbados Fall to the Sovereign Debt Crisis', Pts. 1 and 2). I wrote:

 "In terms of food, nearly all has to be imported and fuel costs add to the import costs. Bajans do grow a lot of their own, e.g. chickens for example, but it can't meet the island's demands. Autos, meanwhile,  clog the island's narrow highways and biways. Each also must be imported, as does petrol, and the costs of both are eating up precious capital"

What must be done? Best's words are stark and unforgiving but probably spot-on:


"Barbados has to take tougher action in order to stabilize its finances and boost its credibility. So, despite the statements by unions about layoffs and the delay in accelerating the layoff by two weeks, Government must go ahead with its plans."

Carl Rose, a managing director of Oppenheimer in Atlanta, quoted in Tony Best's piece, observed:
 

"The market's signal is clear: Barbados must implement its adjustment report quickly and forcefully.”

Tony's parting words?


"The Barbados Workers’ Union and National Union of Public Workers may shout and scream but more painful cuts, even beyond the initial 3 000 tranche of layoffs, are needed to protect the currency, cut the deficit and reduce the debt."

Let's hope the island's leaders, and its people, do the right thing to protect the country ....and soon!
  

Devaluation in Barbados Imminent? Looks That Way!

The news in this morning's online Barbados NATION is exactly what many of us who used to live there, and still hold assets there, didn't want to hear. That it isn't a question of whether or 'if' a devaluation will occur, but what manner it will take.

According to the brief article, THREE DEVALUATION OPTIONS have been presented to the Caribbean (specifically to Barbados) by the Inter-American Development Bank (IDB), which also "hailed Barbados as having successfully implemented one over two decades ago." That was the one I was there for, which entailed an eight percent cut across the board in civil servants' wages. That was also the one that drove wifey and myself back to the States, realizing that if we remained we'd be in endless penury and not even be able afford "poor man's" food of chicken and rice or macaroni pie or salt fish and cuccoo. (For reference, imagine having your wages cut 8% and paying up to $14 for a box of cereal, never mind bacon at $6 a lb. and eggs for $1.50 each- in the money you earn.)

As I pointed out in a letter published in The Financial Times, in 2008, the lead up to that "internal" devaluation - whereby the fiscal deficit was reduced from eight per cent of Gross Domestic Product (GDP) to two per cent by 1992, and capital expenditure diminished by 50 per cent- was a "tax cut" implemented in 1986. At that time the then newly elected DLP government decided to hand out generous tax cuts based on the Reagan "supply side" nonsense in the U.S. Like many others, I strongly argued in the Bajan press against this, given that: a) Barbados was not the U.S., and b) the loss in revenue would seriously compromise Bim's balance of payments issues, as well as banking liquidity.

This proved to be prophetic, as less and less revenue was collected leading up to 1991, and the conditions became so unstable that they drew the attention of the International Monetary Fund, or IMF. The IMF insisted on a full currency devaluation (fiscal) devaluaton, but the administration wisely begged off, seeing what such moves had already done to Trinidad, Guyana and Jamaica. The result was an across the board permanent wage cut for hospital radiotherapists like my wife, and for college physics teachers like yours truly. Within another year, we'd left for Columbia, MD given we couldn't break even or save a dime working our regular jobs plus two after-hours jobs (tutoring physics for me, repairing VCRs for wifey).

Anyway, in its latest policy brief the Washington-based IDB listed "external, internal and fiscal devaluation" as the main choices in the face of reduced competitiveness and a sustained current account deficit across the region, while noting that Barbados "had successfully implemented the internal option in the 1991 economic recession." Let's understand here that the reasons for the current morass are the under-utilization of the tourist industry, and the essential regression of the island's offshore banking business - no thanks to Neoliberal ideologues like France's (now deposed) Nicholas Sarkozy who several years back (at an OECD confab) complained about "offshore banking outlaws" in the region. Most of the island nations with offshore banking went apoplectic at the scurrilous lies, given that this was one of the few financial pillars that remained, after the loss of tourist dollars and the downscaling of the sugar cane industry.

The other problem is Barbadians are spending beyond their means, to be sure, as I pointed out in a blog back in May, 2010 ('Will Barbados Fall to the Sovereign Debt Crisis', Pts. 1 and 2). In terms of food, nearly all has to be imported and fuel costs add to the import costs. Bajans do grow a lot of their own, e.g. chickens for example, but it can't meet the island's demands. Another drag is the ever prominent "motor car" - which now clogs the island's narrow highways and biways. Each also must be imported, as does petrol, and the costs of both are eating up precious capital. Coupled with loss of income in an ongoing aggregate demand crisis (worse than in the U.S., obviously) the island has barely seen one percent growth in the past year - while it' s suffered credit downgrades.

So, the writing may now be well on the wall. In the brief entitled The Question Is Not Whether To Devalue Or Not To Devalue, But Rather What To Devalue, IDB senior economist Inder Jit Ruprah stated that “the typical example of success, given by proponents of internal devaluation, is Latvia. Rarely is Greece or Barbados mentioned”. True, but the fact he is mentioning it now again, indicates that Bajans - as well as other Caribbean island nations- may soon be expected to follow suit. Again, for Bim. But at least an internal devaluation would be a bit more tolerable than a fiscal (currency) devaluation. Ruprah added that before 1991 Barbados’ external position had begun to rapidly deteriorate but after the implementation "the current account improved."

Realistically, however, we can expect any current account enhancement will only be temporary - irrespective of devaluation (if at all forthcoming)- unless Bajans learn to somehow live within their means! One also hopes this can be achieved without acceding to the increasing demands from the local Neoliberal bastions (mainly former sugar plantation owners and long time, inherited business types) to "cut pensions" or "privatize" them.

Reinhart-Rogoff’s Fuzzy Spreadsheet Math – and The Howling Austerity Fetishists

The recent paper by two Hah-vahd eggheads (Carmen Reinhart and Kenneth Rogoff) that when debt as Percentage of GDP hits 90% it leads to negative growth, has taken D.C. by storm. Well, let me clarify that: It has spurred the austerity hawks – including Paul Ryan and Tom Coburn – into doing backflips to demand gov’t spending be cut. Only one problem: a grad student ran the numbers himself on an Excel spreadsheet and found the Harvardians botched their analysis- leaving out several rows in their analysis and at least four countries, including Belgium and Canada.


Grad student Thomas Herndon did a run of the mill academic paper, entitled "Growth in a Time of Debt",  in which he exposed several errors including: simple coding errors, data omissions and peculiar aggregation procedures. Incredibly, when the spreadsheet errors were corrected, lo and behold the nations sporting debt at 90 percent or more of GDP were no longer in recession (the Rogoff -Reinhart paper showed growth typically defined for them at -0.1%) but with a reasonable 2.2 %. (This contrasts with 4.2% when debt is below 30% of GDP).

But never mnid uncovering the errors - which are definitely significant because the percent of growth is the issue on which austerity pivots- the abundant austerity freaks in congress don't want to hear it. You see, the issue isn't about whether the Rogoff -Reinhart paper was correct or not, but rather that it provided - at least for a time- special cover for the austerity - spending cut crowd to howl like banshees. Especially for Obama to make many more cuts so they can come to the table, agree no a sequestration resolution, and allow millions to leave on their flights on time.

But as blogger Richard Eskow also observed on smirkingchimp.com:

"Economists Carmen Reinhart and Ken Rogoff seem surprisingly unremorseful. And austerity's paid pitchmen are still hawking their wares."

As Eskow added:

"Their response can be boiled down to "Numbers. Shmumbers. Surely too much debt is bad, right?"

Well, of course such a cavalier attitude isn't suprising, given the dynamic duo are high-powered academics who've clearly invested lots of brain energy into their work. I mean, no academic wants to be forced to recant an error in a paper that earlier received so much welcome (from the Neoliberals) far less several errors - possibly making the whole paper useless.

But what I have found interesting is the inevitable comparisons with this austerity paper and the lies told the American people to justifying making war on Iraq ten years ago. This was noted in a recent article: Curveball: Spies, Lies, and the Con Man Who Caused a War  (American Prospect.) In the interview  therein,  Pete Drogin notes that all of the CIA intelligence used to justify the Iraq War - all of it -- traced back to a single, self-interested party. This fraud was also the source for Judith Miller's highly influential (and entirely false) reporting for the New York Times. All of that, together with the shrill calls from other corporo-media, had the American people polling for war by early 2003.

Curveball didn't need to prove his claims because the decision had already been made to go to war. He just needed to sound plausible enough for Miller and all the other self-interested hacks inside and outside of government.

 

As Drogin says in the interview, the Curveball episode was "a conspiracy of ineptitude driven by tawdry ambitions, spineless leadership, and fear." It wasn't that "they failed to connect the dots," says Drogin. They "made up the dots."

  Hmmmmmm.....sounds to me an awful lot like austerity economics and the babble of the Neoliberal imps who support it. The nuts and screwballs who want their cuts, despite the fact we remain in a low aggregate demand environment.

What has interested me, however, is how the Governor of the Central Bank of Barbados (De Lisle Worrell)  shrugged when recently asked about Barbados low rate of growth (barely 1% last year) and high % of debt of GDP, essentially dismissed it. He also dismissed the worries of some that it might spark an IMF intervention. "What intervention?" he sneered, and in so many words. Adding that Barbados has mainly gone its own way for over 350 years and will continue to do so. He noted the low growth is directly connected to the continued credit crisis and low aggregate demand - especially in the U.S. - where most of the island's tourists hail from. DUH!

So he isn't worried because he grasps that Barbados' economic fortunes are cyclical, with the tourist dollar. For a time this was counterbalanced by offshore banking operations, until capitalist-Neoliberal scumballs like Nicholas Sarkozy (at assorted OECD meets) castigated it and called a pox upon all the banking houses of the Caribbean as harboring monies of  "criminals". In one fell swoop, the economic Neoliberal naysayers set the offshore banking business back at least a decade.  Also, they had better watch themselves if they ever think of tripping in Bim.

But a point Gov. Worrell ought to concern himself with is the $400 m going out each year from the island to pay for fuel imports to runs buses, over 100,000 cars and taxis.  Unless the island gets a grip on this they will enter into a sovereign debt crisis.

As for the U.S. - the real worry isn't any similar such thing but rather another, possibly greater recession, especially if too many imbeciles in D.C. keep buying into and pushing their austerity economics - based on spreadsheet errors in a high falutin' Harvard economics paper!

Stocks: Still the Fastest Way to Lose Your Money!

Last week the DOW ran up its largest 1-week gains (over 7 %) since 2009, and in a one day blowout soared more than 490 pts. The word on the Street is that all those who acted pedestrian and parked money in safe (fixed) income havens would be expressing regret at missing all these gains which saw the average 401k shoot up nearly $5,000.

I don't think so!

The fact remains, as I've laid it out in multiple previous blogs, e.g.:

http://brane-space.blogspot.com/2011/09/investors-losing-faith-in-stocks-what.html

http://brane-space.blogspot.com/2011/10/zombie-stocks-messing-up-mutual-funds.html

http://brane-space.blogspot.com/2011/02/stampeding-dow-or-smoke-and-mirrors.html

this stock market is bubble-based and only one major financial blowup will see it melt down with losses rivaling what we beheld back in the Fall of 2008. Indeed, author Michael Lewis, author of The Big Short, noted it was all "built on quicksand, and people who invest in stocks are not paying serious attention to the underlying fundamentals. Instead they're being mesmerized by flickering numbers on crawl screens, and carried away by temporarily inflated share prices and think this will net them a hearty retirement nest egg. Hardly, because if this bubble bursts as I believe it will, many will lose even more of their nest eggs - especially 401ks- than they did three years ago.

This isn't being "alarmist" but rather a realist. What bubble aspects are there to look at:

1) The Fed has pumped more than $1.6 trillion (not $7.7. trillion as has been cited in many liberal blogs) of "free money" to the banksters which has essentially helped keep fixed income yields extremely low as its chased the unwise into risky stocks. This was intended, along with the Fed's misguided policy of keeping interest rates at barely 0% through 2013. All this has meant more cheap money pumped into equities, other stocks.

2) Companies have been using the capital they're sitting on (more than $2,.2 trillion) to buy back millions of shares of their own stocks, thereby creating the illusion that share prices are increasing because of enhanced product, services or fundamentals. This is a pure smoke and mirrors ploy.

Of course, to make bubble burst, one also requires fundamental instabilities and they are:

1) The continued overall low aggregate demand environment which prompted one guy, a "senior U.S. policy maker" to write WSJ finance columnist David Wessel ( 'The Perils of Ignoring History', by Daniel Wessel, WSJ, Sept. 29, p. A7 )to tell him:

"Promise me if you write a sequel about the Great Depression of 2012 that you'll note I was one of the guys really trying to head it off".

Wessel earlier pointed to all the failed props of the current economic environment, including: lackluster consumer spending (still laden with debt as they are), lack of housing starts, and the inability of government to break out beyond the austerity mindset that now permeates every facet of the Beltway. It is as if a pill was taken by everyone involved and they've turned into zombies, all parroting the same spending cut line. But therein lies untold disaster, the seeds of which have already been sown with the rejection of Obama's $447b jobs bill - which afforded at least a partial way out of the miasma.

2) Meanwhile, bond pirates everywhere are slobbering over their liver pate after seeing the failure of the ill-conceived "Joint Deficit Reduction Committee" or "supercommittee" because it likely means they'll be able to intervene to hold our nation hostage like they did with Greece and Italy. Not one of them believes that the "automatic spending cuts" will actually kick in, and even if they do, it will likely be too late to address the current problems. Meanwhile, Repugs are adamant they will not allow any tax hikes, period, even as they kill all spending proposals that would ensure a more vibrant economy, and jobs!. They are also howling like stuck pigs that they intend to prevent any automatic cuts to defense, currently the most bloated part of the federal budget, gobbling up 58 cents of every dollar.

3) On top of (1) and (2) , other dastardly culprits lurk which could cause it all to implode. Last Saturday's Wall Street Journal featured a small article on the front of its Markets section ('Careful Day Caps Big Week for Dow') which noted in one paragraph the incipient danger we face:

"The closer you are to the precipice, the more the market rallies when you get good news", said Jonathan Golub, chief U.S. equity strategist at UBS AG.

Golub then went on to say(ibid.):

"There is a relatively large disconnect between the level of strain in the equity markets and the level of strain in the fixed income markets. Normally, you want these things to be in synch with each other."

So why aren't they? Perhaps the killer clue, maybe overlooked by too many, was afforded in a small paragraph tucked away in David Wessel's column of December 1st (WSJ, p. A15):

"Congress has forbidden a repeat of the Treasury's guarantee of money market mutual funds or the Federal Deposit Insurance Corp's bland guarantee of bank non-deposit liabilities. The International Monetary Fund doesn't have nearly enough to rescue Europe".

Let's back up to understand where the explosive lies in all this, and hence what it means. First, money market mutual funds are exactly where cautious investors (who don't wish to lose principal) have flocked since the stock market's gyrations amped up after the debt ceiling crisis fiasco. Trillions are now parked there, and this money supports capital investment, via bonds as well as commercial paper. It is the last "grist" to fuel the sluggish private financial mills.

Second, money market funds now also include commercial paper and bonds from the euro-zone, maybe one euro equivalent for every U.S. dollar invested in commercial paper. But since this isn't entirely "U.S. born and bred" money, the Repuke Congress has felt no obligation to protect it, and hence the attitude "It's Europe's turn now!" (ibid.)

But this is callously short-sighted and misses the point that if the money market funds collapse and the 'buck is broken" (as it was in 2008 at one investment company before the Treasury Dept. stepped in) more than 30 million U.S. citizens, mostly middle class, will be shattered by losses. Worse, most 401ks only allow a single fixed income alternative in the form of money market mutuals. (No Treasurys, etc.) Thus, the Repuke congress has almost certainly ensured massive losses for the 99% while the 1% are still able to write off their stock market losses as "capital gains losses". Along with their average yearly Bush tax cut, equivalent to two new Lexuses, they'll barely feel a blip!

But there's a larger point here: If the money market mutual funds collapse in the sense of all breaking the buck, then the commercial paper investments for business will collapse not only in Europe but here in the U.S. What had formerly been an aggregate demand nightmare, will then become a financial malignancy that will take the whole house of cards down one time. And with no private investment (low or near zero private demand) and little consumer demand, coupled with the prevention of any new government spending....we will have that Great Depression of 2012 as the U.S. official (cited by Wessel) predicted.

THIS is the price the Republicans are willing to pay to make sure Obama doesn't get a 2nd term. The problem is that every manjack in this forlorn nation (who isn't part of the 1%) will also have to pay it......and then some.