Credit Crisis in Brazil: Consumer Loan Rates Hit 47%, Defaults Soar, Debt Service Tops 50% of Disposable Income

Those looking for inflation and high interest rates can find them in much beloved emerging markets, especially Brazil.

Reader Otavio, from Brazil writes ...

Hello Mish

Otavio here, a Brazilian follower of your blog. Today I want to express my satisfaction as I read you latest post entitled Preposterous Statements - Jim Rogers: "No Food at Any Price"; Barton Biggs: " U.S. Needs Massive Infrastructure Program".

When I hear statements like these, it feels like the move up in commodity prices might be near the end. I cannot stress more the fact that high prices fueled by zero interest rates in developed and many emerging markets (for many years now) are a fruit of rampant speculation.

We have our own credit bubble here, which in my opinion has a good chance of busting sooner rather than later, via one or more of the following:

1. Central Bank over-tightening local rates
   
2. Slowdown in China, which would change our terms of trade and contract global capital flows to EM and Brazil (as we are suppliers of commodities to China), tightening monetary conditions here as a result
3. Deterioration of credit crisis in Europe (and US), would also contract global capital flows and tighten monetary conditions here

I took the liberty of forwarding you a FT article about Brazil.

I think you might appreciate this as maybe a topic for future posts of yours, since you are keen in identifying and warning readers and investors of potential bubbles around the world that may be close to busting. For the record, I will say that in my opinion, Brazilian real estate, many local stocks, and our currency (the Real), are extremely overvalued as well.

Cheers
Otavio

Brazil Risks Tumbling From Boom to Bust

With thanks to Otavio, please consider a few highlights from the Financial Times article Brazil risks tumbling from boom to bust

Cash Flow Burden Astronomical and Rising

• Average rate of interest on consumer loans 47%, up from 41% in 2010
• Consumer debt service burden was 24 per cent of disposable income in 2010, slated to rise to 28 per cent in 2011. This compares with 16% for an “overburdened” US consumer and a mid-single digit reading for other emerging markets such as China and India.
• Debt service burden for the so-called “middle class” in Brazil has now breached 50% of disposable income
• Delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011.
  
• Delinquencies are now rising at a very hectic rate. They have risen at 23 per cent in the first five months of this year in absolute terms or at an annualised rate of 55 per cent.
• Normally credit indicators cyclically lag the economic cycle. When they begin to deteriorate before any economic weakness it usually represents a structural problem relating to underlying cash flow or underwriting weakness in the quality of credit – Brazil has both problems.

In light of facts elsewhere around the globe, it's really quite humorous to hear repeated chants of hyperinflation every time US treasury yields inch up slightly.

Brazil Targets Currency Speculators

Brazil's Finance Minister, Guido Mantega Mulls New Currency Measures

Brazil will continue to act to curb the strength of its currency, with restraining excess speculation in the futures and derivatives markets among possible options, the country's finance minister said on Tuesday.

"The government will continue to take measures to contain the over-valuation of the exchange rate ... We've taken measures on reserve requirements, we can take measures on derivatives and futures. But these are not measures we will pre-announce," Mantega told reporters.

Despite aggressive measures to curb the strength of its currency, including taxes on fixed-income inflows, the real is trading close to its strongest level against
the dollar in 12 years.

In recent weeks, foreign investors have raised their bets that the real will continue rising to record levels.

Last year, Mantega accused governments around the world of deliberately weakening their currencies to boost their export competitiveness, warning of an "international currency war."

But for Alberto Ramos, Latin America economist at Goldman Sachs in New York, Brazil is "no passive victim."

Near-zero rates in developed markets and high rates in emerging economies are drawing investment to countries like Brazil. At the same time, though, Brazil has failed or refused to contemplate measures that could ease flows, such as cutting
government spending, which makes up a whopping 40 percent of gross domestic product, he said.

No Passive Victim

I am inclined to agree with Otavio who says the Real is "extremely overvalued".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Chào Bọ Lập Hà Nội

Phạm Ngọc Tiến

Phạm Ngọc Tiến gắn bó thân thiết với mình gần ba chục năm nay. Chiếc xe đạp đầu tiên vợ mình đi làm ở Hà Nội là của vợ chồng nó cho. Vợ nó tuồng như là bác sĩ riêng của cả nhà mình trong suốt thời kì nhà mình ở Ha Nội. Bạn văn mình có cả trăm, thậm chí có cả ngàn, nhưng bạn bè thân thiết luôn luôn có mặt những khi may mắn cũng như rủi ro, khổ đau cũng như hạnh phúc chỉ có hơn chục người, trong đó có Phạm Ngọc Tiến.

Người ta bảo nghề văn bạc lắm, mớ chữ nghĩa mình đổ mồ hôi sôi nước mắt  cố công đục đẽo tóm lại cũng rơi vào quên lãng, tiền bạc chẳng thu được bao nhiêu từ mớ chữ nghĩa kia. Nhưng mình lại nghĩ khác, nghề văn chẳng bạc chút nào. Dọc đường đời người ta chỉ tìm ba thứ, đó là danh, tiền và tình. Danh tự đến với nhà văn, không cần phải tìm kiếm. Có thể nhà văn không kiếm được tiền nhưng tình là thứ nhà văn luôn luôn có, miễn sao họ là người cầm bút trung thực. Từ tiền dẫn đến tình, tình đó phần nhiều là tình bạc. Từ tình dẫn đến tiền, tiền đó là tiền tri âm, chỉ có tôn cao mình lên không bao giờ làm hoen ố phẩm hạnh của mình. Thế thì sao lại bảo nghề văn là nghề bạc?

Hôm rồi chở cả nhà Bọ Lập ra sân bay vô Sài Gòn chuyển vùng. Lúc bàu đoàn thê tử lốc nhốc kéo đồ đạc đi vào thấy Bọ vẫn đứng ở sảnh nhìn ra. Quần sooc, áo bà ba cộc, đầu trọc, tay chống gậy, rõ nhất là cặp mắt có ánh nhìn rất lạ.

Như là lưu luyến, như là xa xót, như là tiếc nuối, lại như là trút đi một cái thở phào thoát được một việc không thể không làm. Bỗng dùng dằng chẳng đành, bước khỏi xe quay lại. Hình như Bọ cũng đợi thì phải, thấy vung cả tay gậy lẫn tay không gậy. Xiết chặt. Chỉ dám ôm nhanh Bọ một cái, chúc một câu rồi đi luôn. Quay nhìn thấy Bọ vào ga thập thà thập thễnh kiểu đi mà đám trẻ con khu nhà Linh Đàm hay đùa cợt: “Bác đi thế này bao giờ mới đến được Văn Điển hả bác?” chợt cay cay gan ruột. Nước mắt trào ra. Muốn viết một cái gì đó về Nguyễn Quang Lập Hà Nội. Chỉ là Lập Hà Nội thôi nhé.

 Lập thành người Hà Nội lúc chưa đến bốn mươi gần hai chục năm trước. Tôi dạo đó mới viết được một vài tập truyện nhìn ông bọ quê Quảng Bình này như nhìn người hành tinh khác. Khủng lắm. Này nhé, đẹp giai đã đành, đi đâu cũng kè kè viện sĩ kiêm vệ sĩ Phạm Xuân Nguyên và vài em vừa có danh vừa trẻ đẹp kề vai áp má. Tức muốn nổ mắt. Thêm nữa là cái hành trang có đến cuối đời tôi nằm mơ cũng không có nổi. Văn xuôi tiểu thuyết, truyện ngắn vài bốn cuốn nhưng tinh thứ ra tấm ra món chỉ riêng tiểu thuyết “Những mảnh đời đen trắng” đã gây nhức dư luận. Đấy là chưa kể vô số vở kịch sân khấu đèn đỏ rực mỗi đêm. Chức tước bét nhất cũng đã từng là phó tổng tờ Cửa Việt. Chao ôi là oai. Vị thế như vậy Lập trở thành một trong nhóm người sáng lập ra tờ Văn Nghệ Trẻ và nhanh chóng bán nhà ở Quảng Trị ra tậu một ngôi nhà ở phố Lò Sũ gần sát Bờ Hồ trung tâm để dắt díu vợ con gia nhập đội ngũ công dân Thủ Đô. Cú mua nhà này là quả đắng đầu tiên Lập xơi được ở Hà Nội. Là ông bạn của một ông bạn nhà thơ ẵm luôn đến một phần ba số tiền mang từ quê ra bằng chiêu môi giới giúp nhưng bí mật cài hoa hồng. Đắng nhưng Lập vẫn cười he he. Phố cổ nhé, phố cổ nhé. Tất nhiên là phố cổ. Lò Sũ cơ mà. Thôi cứ coi như đấy là cái giá dù không rẻ để trở thành người Hà Nội.

 Tôi vốn mạnh mẽ trước đám đông nhưng ngồi với người Hà Nội mới này bao giờ cũng bị mất điện. Chả cứ tôi khối ông viết văn trước Lập, danh to hơn Lập, phố cổ hơn Lập nhưng cũng im re vì lối ăn nói sóng gió kiểu miền Trung và tư thế thủ lĩnh của người thành đạt lúc còn quá trẻ nên thừa tự tin. Ngôi nhà phố cổ ( thực thì chỉ có chừng hai chục mét vuông kể cả gác xép trong ngõ vừa hẹp vừa tối) trở thành tụ điểm ăn nhậu của đám nhà văn đánh hơi thấy cùng ngưu cùng mã tìm đến. Tôi trở thành biên kịch hôm nay cũng là nhờ đánh đu ở ngôi nhà phố cổ ấy. Lúc nhậu say Lập hay chỉ dẫn cách viết kịch bản thế này, dựng lít thế kia loạn xì ngậu. Hứng lên Lập rủ thành lập nhóm viết chung quy tụ được nhiều nhà văn nổi tiếng cỡ Nguyễn Quang Thiều… Kịch bản Chuyện làng Nhô của tôi cũng được Lập gợi ý viết từ chính nơi này. Nghĩ lại giờ giật mình, dạo đó ai cũng nghèo sao nhậu dữ đến vậy. Như thể đích cuộc đời chỉ là ăn nhậu. Nhà Lập lúc nào cũng khách khứa ồn ã. Khách thì toàn văn nhân nhưng ăn nói văng mạng, tục tĩu chuyện trên giời dưới bể, nông sâu thầm kín cứ rượu vào lời ra chả kiêng dè giữ kẽ khiến cho chuyện gì thiên hạ cũng tỏ. Vô khối tai bay vạ gió đã xảy đến từ những cuộc nhậu thế này. Khỏi kể.

 Đang phất với danh phố cổ thì đánh đùng một cái Lập bán nhà. Bán rất nhanh như người ta bán cái xe máy vơ váo được bao nhiêu dồn vào mua căn hộ trăm mét ở Linh Đàm. Cú mua nhà này kéo theo hệ lụy nợ nần đằng đẵng. Tính Lập thế quyết cái gì là làm ngay bất chấp mọi nhẽ. Đang làm báo Văn nghệ thích sang nhà xuất bản Kim Đồng, chỉ sau một tăng nhậu với giám đốc Nguyễn Thắng Vu là quyết luôn. Còn nhiều thứ khác nữa như chính ngay cái chuyện khai tử công dân Hà thành để thành người Sè Goong chính hiệu bây giờ cũng vậy. Nhoằng một cái nhanh như điện là quyết chẳng cần bàn với bất cứ ai. Trừ vợ.

 Khi phim Đời Cát nổi danh thì Lập dính cú ngã xe máy định mệnh khi đi cùng đạo diễn Thanh Vân. Đây có lẽ là cái giá chát nhất của Lập khi trở thành công dân Hà Nội. Chẳng đâm vào ai, chỉ vì phanh gấp tránh một người đi bộ khiến xe đổ. Vân không sao nhưng Lập thì bị quật xuống đường khá mạnh. Đưa cấp cứu ở Việt Đức trong khi vị đạo diễn chạy ngược chạy xuôi lo thủ tục nhập viện thì Lập giãy dụa thế nào lại bị giáng tiếp phát ngã đập đầu từ băng ca xuống nền gạch. Tôi ngờ rằng cú ngã này mới là thủ phạm chính gây di họa liệt nửa người bây giờ cho tác giả Đời cát. Danh tiếng của Lập kéo nhiều người vào bệnh viện thăm anh. Thôi thì từ giám đốc bệnh viện hắt lên đến Bộ trưởng, phó Thủ tướng, từ đảng viên thường đến Trung ương ủy viên, thậm chí là thành viên Bộ chính trị, nhiều không kể xiết. Vô số tao nhân mặc khách, nam thanh nữ tú toàn người có danh có phận nườm nượp vô thăm. Đến mức đám canh giữ hầu hạ bệnh nhân được Lập phong là bạn gốc chúng tôi phát chán. Cứ phiên tôi trực ai là đàn bà, con gái vào thăm tôi đều vờ vẫn giả bộ công việc chăm sóc để cố tình lật tấm drap đắp phần dưới để phô ra bộ tam sự của Lập. Chả mấy khi cho phái đẹp công khai chiêm ngưỡng của quý danh sĩ Hà Nội. Khekhe…Có chuyện thế này, một cô là diễn viên nổi tiếng chắc là nhìn thấy hấp dẫn quá mới đỏ mặt hỏi nhỏ tôi, anh Tiến à, hôn mê sao cái kia của anh Lập lại…khí thế hùng dũng thế. Tôi trợn mắt nói ngọng là vì nó được ồng en. Là sao? Là lồng gen dẫn tiểu chứ sao. Cả cái ống nhựa ngoằng ngoẵng nhét làm lõi cu làm gì mà chả to chả cứng, chả hùng dũng khí thế. Người khỏe được vậy cũng đã vô địch thiên hạ. Cười ré. Tôi đồ chừng cô này chắc là mê Lập lắm mới bạo gan hỏi thế.

 Sau tai nạn Lập chung chiêng mất một dạo. Buồn. Lập kể có lần đã cố sức lết được đến sân thượng nhà Linh Đàm tính gieo mình tự tử cho xong kiếp. Tôi tin điều đó. Chẳng biết người khác thế nào chứ tôi luôn nghĩ đến cái chết kiểu này và đã định sẵn cho mình một thời điểm hợp lý. Lập chuẩn bị nhảy thì nghĩ đến ba đứa con lại thôi. Ứa nước mắt lết xuống nghiến răng nhủ thầm phải sống, cố phải sống để nuôi dạy con cái thành người. Đoạn này thì tôi vốn là một người đầy ý chí vượt khó cũng phải khâm phục mà tôn Lập làm thày. Lập tập gõ máy tính một tay, viết như điên như dại. Dựng cả công ty viết kịch bản để rèn nghề, dạy nghề và mục đích chính là kiếm tiền. Kiếm tiền chữa bệnh, kiếm tiền trả nợ nhà. Trả xong, một ngày đẹp giời bộp một cái lại bán nhà mua tiếp cái khác rộng hơn dù vẫn phải vay nợ. Và bây giờ lại bán để mua nhà phương khác. Kinh khủng. Mình lành lặn cũng chỉ dám 3 lần đập nhà xây trên nền cũ, đằng này…Nể.

 Mấy năm gần đây tự nhiên Lập nảy ra cái thú chơi blog. Quê Choa lừng danh đưa Lập thành hàng hót nhất nhì thế giới blog mạng xứ Việt. Công nhận viết hay. Khốn nạn cái thân thằng tôi cũng a dua học đòi bờ lốc bờ leo ăn theo. Hôm rồi Lập chào mừng con số mười triệu lượt khách thì tôi cũng ngần ấy thời gian câu được có bảy chục ngàn. Nhờ blog mà Lập có tên mới. Giờ thì ai cũng gọi Lập là Bọ hoặc Bọ Lập hoặc Quê Choa. Thay tên mình được thiên hạ thừa nhận là điều không phải ai cũng làm được. Tài.

 Bọ Lập tài hoa, hóm hỉnh đại tài về món trào lộng. Viết về Bọ tui cũng định theo lối hài hài hước hước để phác vài nét về người bạn mà tôi yêu mến kính trọng nhưng không hiểu sao nó cứ trầm trầm ngả theo hướng bi. Mệt!

 Một lần Bọ bảo, Tiến mày tiểu đường hỏng mẹ nó chim rồi còn cứ hay bốc tướng là sao. Tôi hất hàm hỏi lại vậy Bọ chân cẳng thế kia cái đó thế nào? Vênh mặt hất đầu đầy hãnh diện và cả tự tin: Tốt. Tốt thế nào? Là vẫn chơi tốt nhưng phải nằm ngửa để vợ nó mần. Cố nén cười, nằm thế mất mẹ nó hứng. Biết thế, thử rồi, nhưng người lăn cu chiêng xuống đệm, không được. Cười. Nhưng tự nhiên thấy xệch cả miệng.

 Năm trước, đột ngột Bọ tuyên bố xanh rờn sẽ bỏ Hà Nội vào Sài Gòn sống. Tôi đã biết tính nên không hề bất ngờ. Bán nhà ngoài này rồi mua nhà trong đó, vẫn chung cư. Có nợ không? Có, nhưng ít thôi. Chẳng biết là mừng hay buồn cho Bọ.

 Vậy là kết thúc một đời công dân Thủ Đô. Làm người Hà Nội gần hai chục năm Bọ chưa làm được nhiều việc như mong muốn. Vài kịch bản điện ảnh, sân khấu, viết và tổ chức mấy trăm tập kịch bản truyền hình, một cuốn sách khẩu văn sao ra từ blog….quá ít ỏi so với sự nghiệp lừng lẫy thuở chưa về Hà Nội. Làm người Hà Nội gần hai chục năm Bọ bê được cái nhà từ Quảng Trị ra Hà Nội và bây giờ chuyển nó vào Sài Gòn. Làm người Hà Nội gần hai chục năm từ một gã đẹp trai mạnh mẽ cua gái như chớp ( lạy giời mụ Hồng vợ Bọ đừng đọc đoạn này) giờ thành người tập tễnh chống gậy, ngủ ngửa. Đừng oán trách Hà Nội. Hà Nội chí ít không bạc khi đãi đằng Nguyễn Quang Lập cái tên Bọ lừng danh.

Và có những thằng bạn giặc yêu thương.

 Chào Bọ Lập Hà Nội. Wel come to Sài Gòn./.

 2/7/2011

P.N.T

Theo blog Phạm Ngọc Tiến

Jobs, Income Data Show Right-To-Work States Have Advantage

Investor's Business Daily reports Jobs, Income Data Show Right-To-Work States Working

The business world is abuzz over the National Labor Relations Board's complaint vs. Boeing's new South Carolina production line. For NLRB critics, the case boils down to one thing: "right-to-work" laws.

Right-to-work states have generally lower unemployment, higher job growth, lower taxes and better business climates. They have growing populations and have been attracting businesses from other states.

In most states, once a workplace is unionized, employees are required to join the union or they can't work there. But 22 states, including South Carolina, have passed laws that give employees the right not to join. Hence the term "right-to-work."

Between 1977-08, employment grew 100% in right-to-work states vs. the national average of 71% and 56.5% in non-right-to-work states. That's according to a January study that Ohio University economics professor Richard Vedder did for the Indiana Chamber of Commerce.

In this period, real per capita income in the right-to-work states grew 62.3% vs. the national average of 54.7% and 52.8% for non-right-to-work states.

Vedder has studied right-to-work laws for decades and argues that this success is not a coincidence.

" I've been looking for ways to show that these laws don't really (impact) anything. But I haven't found it yet," Vedder said.

Right-to-work fans concede that a variety of factors go into the relative success of a state's economy. But the labor laws are a strong indicator, they argue.

"Nobody is saying that right-to-work is the only factor, but if the bottom 14 states for personal income growth (between 1999 and 2009) are all non-right-to- work states, that's a pretty strong negative correlation," said Stan Greer, senior research associate for National Right to Work's National Institute for Labor Relations Research.

I support national right-to-work laws for the simple reason it is the right thing to do. Forcing people to belong to unions to get a job is forced slavery. Dictating what people can and cannot do with their free time is also slavery.

Sadly, unions even dictate what non-union members can do with their free time.

Want to donate time to your school, cleaning classroom or planting shrubs? It's likely you can't because of unions. Want to be a volunteer fire-fighter? You may not be able to do that either.

For further discussion of the slavery issue, please see

• Collective Bargaining neither a Privilege nor a Right
• Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!
• Professor at Alaska University Chimes in on Public Unions and the Situation in Wisconsin

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

S&P Warns Greek Bailout Plan Constitutes Default; Greece at Risk of Missing June Target; Spoon Feeding will Continue Until Greece Dies

Before receiving the next bailout tranche, Greece May Have Missed June Primary Balance Target

Greece is at risk of missing a key budget target in June, European Union experts said in a report, a sign of the uphill struggle the country faces as it tries to get its deficit reduction plans back on track.

The report, prepared by European Commission budget experts with input from European Central Bank officials and published over the weekend, says that Greece could miss its June target for its primary budget balance, a measure of the government deficit that excludes interest payments on outstanding debt.

Government revenue faces "significant" shortfalls that have only partially been offset by lower spending and delayed payments, the report says. "As a result, the quarterly performance criterion on the primary balance could be missed already in June."

Spoon Feeding will Continue Regardless of Shortfalls

Short of telling the ECB, EU, and IMF to go to hell, nothing will stop the Plan to Spoon-Feed Greece to Death

The original bailout was 110 billion Euros, now it takes another $85 billion (and counting). When the fire sale of Greek assets does not bring in enough money, the banks and IMF will place even harsher terms on Greece.

Notice the plan to spoon-feed payments to Greece in 12 billion-euro bites while demanding "progress". This will ensure Greece is sucked dry (at fire sale prices) of any government assets worth owning by the time the "bailout" is over.

Portugal, and Ireland should make note of the process. The same "bailout" plan will be used on them unless they tell the IMF and EU to go to hell.

French Plan to "Save Greece" Constitutes Default

The New York Times reports S.&P. Warns Bank Plan Would Cause Greek Default

Greece risks being judged in default on its debt obligations if banks are forced to bear part of the pain, Standard & Poor’s said Monday, suggesting that current proposals for rescuing the euro zone’s weakest member may have to be reconsidered.

In particular, a plan proposed by the French government and banks “could require private sector debt restructuring in a form that we would view as an effective default,” S.&P. said in a statement.

The rating agency also said it was cutting its long-term rating on Greece three notches deeper into junk territory, to CCC from B.

A finding by the credit ratings agencies of default would also require the E.C.B. to impose discounts, known as haircuts, on the Greek debt it has accepted as collateral. That would inflict more financial pain on banks holding that debt.

Euro-zone finance ministers agreed over the weekend to provide Athens with financing of €8.7 billion, or $12.6 billion, from the €110 billion bailout agreed to last year, to help the Greek government function through the summer. The new aid eliminates the prospect of a near-term default.

But the finance ministers put off the question of how to provide a second bailout, reportedly valued at up to €90 billion, to keep the country operating through 2014, when it is hoped that Greece will be able to return to the credit markets.

Nicolas Sarkozy, the French president, announced June 27 that French banks had agreed to a plan under which the banks would reinvest most of the proceeds of their holdings of Greek debt maturing between now and 2014 back into new long-term Greek securities.

But Standard & Poor’s said Monday that it “views certain types of debt exchanges and similar restructurings as equivalent to a payment default”: when a transaction is seen as “distressed rather than purely opportunistic” and when it results “in investors receiving less value than the promise of the original securities.”

Both conditions would appear to be met by the French proposal, it said.

Rating Agency Rollover Default Conditions

1. It's a default if rollovers are distressed rather that opportunistic.
2. It's a default if "investors receiving less value than the promise of the original securities”

Point number one deals with the "voluntary" nature of the dealing. If banks roll over debt under duress, fearing bigger losses if they don't, the rating agencies will not consider that a "voluntary" rollover.

Even if a voluntary rollover can be constructed, condition number two must still be satisfied. I fail to see how that is possible, at least without destroying Greece.

Making Sense of the French Rollover Plan

There is a nice article on Zero Hedge by Peter Tchir of TF Market Advisors called Making Sense of the French Rollover Plan

The French proposal is slightly complex at best and convoluted at worst. Before digging into the specifics, let’s look at what a true rollover would look like. If Participants agreed with Greece to extend the maturity AND reduce the coupon AND do it immediately, that would be a clear example of a rollover that benefited Greece.

There are 3 key elements to a real rollover. The first is that they would agree to the rollover now. That would take away uncertainty. The maturity extension is the rollover, and the longer it is delayed, the better for Greece. The coupon on the new debt should be lower than the coupon Greece is currently paying. If all 3 of these criteria are met, and the new bonds are pari passu with the existing bonds, then I think everyone would agree that Greece benefits, the Troika would benefit, and the Participants would have made a sacrifice.

We need to stop right there. What Tchir says is true, but since when is the plan to benefit Greece? Moreover, even if the plan was to benefit Greece, notice the key phrase "the Participants would have made a sacrifice. "

A sacrifice implies "investors receive less value than the promise of the original securities”. That in turn implies default, at least to the rating agencies.

Tchir continues ...

The French proposal, as we will see, potentially does not satisfy any of the 3 aspects listed – it is not immediate, the coupon will be higher than existing debt, and the maturity extension is linked to taking some debt out of the market, so it’s not as clearly a benefit as the headlines make it seem.

The ISDA credit derivative definitions for a Restructuring Credit Event have to meet 2 tests. The first part of the test is straightforward and is met if bonds are extended, or the coupon is reduced, for example. This condition would be met. The second condition is effectively that it is involuntary. If the actions of some bondholders can force other bondholders into an agreement then this condition would be met and there would be a CDS Credit Event. In the case of Greek bonds, that looks unlikely. I have only looked at the offering circulars from a couple of bonds, but there does not appear to by anything that could force a bondholder to change the terms of the debt. There is no reason, that on a €1 billion issue, €950 million could be exchanged and €50 million could remain outstanding. If that is the case, then there would be no CDS Credit Event under this true rollover.

The rating agencies have taken the position (right or wrong), that if a rollover is done under duress, the rollover is not voluntary.

However, Tchir goes on to say "The Rating Agencies can be largely ignored".

The plan as it stands is complicated. Tchir does his best to explain it by comparing the rollover to 30 year mortgages.

The Participants are not lending to Greece for 30 years, the duration is much shorter, and the coupon payments start out potentially high, and become usurious in the later years.

The structure is designed in a such a way to make it look like the Participants are being helpful – 30 years at a low coupon, but separating the SPV into its zero coupon component and the loan to Greece clearly demonstrate that the terms being offered to Greece are far worse than the headlines that the Participants are selling to the public.

I would be surprised if Greece agrees to the loan terms as included in the French proposal and wonder if they have even been consulted?

Greece has had no say in this for the simple reason the plan is not to save Greece, but rather save the French banks who are most on hook should Greece default.

It will be interesting to see if the plan changes now that the S&P has warned the French plan for Greece constitute default. Even if the plan is modified, I do not see how it can be modified to meet the "voluntary" rollover criteria of the rating agencies.

Unless Tchir is correct that the rating agencies truly are irrelevant, something has to give.

Actually, something has to give anyway. The situation in Greece is so dire, and the economy, politics and riots so messy that Greece is going to default sooner or later anyway.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

"Jobless and Wageless" Recovery in Pictures; Trends in Jobs and Wage Growth

Please consider a collections of charts from The “Jobless and Wageless” Recovery from the Great Recession of 2007-2009. Annotations in red (where present)are by me.

GDP 2007 Q4 - 2011 Q1



GDP made a new high but look at the amount of US fiscal stimulus from Congress, monetary stimulus from the Fed, and global stimulus especially China, that it took to achieve that.

Nonfarm Jobs



Total Civilian Employment



By the "end" of the recession the US economy shed 7 million nonfarm jobs and 6 million civilian jobs. Since the official end of the recession, there has been a small net loss of both nonfarm jobs and civilian jobs.

Mean Weekly Private Sector Hours



Mean weekly hours have risen by .5 hours since the recession ended but are still .2 hours below the start of the recession.

Change in Civilian Jobs vs. Prior Recessions 7 Quarters Later



Private Sector Real Hourly Earnings in Constant 201o Dollars



Thanks to the Fed specifically and central bankers in general, real wages are below where they were when the recession ended.

Real Median Weekly Earnings Full-Time Wage and Salary Employees in Constant 2010 Dollars



Trends in Annualized Wage and Salary Accruals CPI-U Adjusted 2010 Dollars



Annualized Value of Corporate Profits in Constant 2010 Dollars



Snip from the report ....

"To date, through the first quarter of 2011, the nation’s recovery from the 2007-2009 recession is both a jobless and a wageless recovery. Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders. Most holders of savings and money market accounts also are net losers due to declining real interest rates which have been in negative territory for many interest bearing and money market accounts."

There are more charts, tables and commentary in the 23 page PDF report.

Given the global economy is clearly weakening (disregarding inventory building and the latest US manufacturing ISM numbers), there is every reason to believe the jobless, wageless, "state of affairs" will last.

Notice I called it "state of affairs". The recovery, if that is what one wants to call what we had, is on its last legs.

For a look at the latest manufacturing ISM numbers and trends in other countries, please see Manufacturing ISM Weaker Than it Looks; Digging Into the Numbers; Inventory Restocking Accounts for Much of the Rise

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Case for a Balanced Budget Amendment; Charts of the Day: Transfer Payments (Medicare, Medicaid, Food Stamps, etc.) vs. Total Government Receipts

Inquiring minds are investigating Personal Transfer Receipts.

Personal current transfer receipts are benefits received by persons for which no current services are performed. They are payments by governments and businesses to individuals and nonprofit institutions serving individuals.

Personal Current Transfer Receipts Examples

• Medicare
• Medicaid
• Food Stamps
• Social Security
• Unemployment Insurance
  

Personal Current Transfer Receipts



Note that transfer receipts are nearly $2.4 trillion.

Federal Government Receipts



Ratio of Personal Transfer Receipts to Federal Government Receipts



Notes

• Nearly every dime of federal government receipts goes to personal transfer payments.
• Between 1960 and 1970, personal transfer payments were 30-35% of federal government receipts.
• From 1980-2000 the percentage fluctuated between 50% and 65%.
• If (when) the economy slips back into recession personal transfer payments will exceed 100% of federal government receipts.

Given personal transfer receipts take up nearly 100% of federal government receipts, in theory, there should be no room for anything else, including wars, roads and bridges, and wages of federal employees.

Unfortunately, the government wastes money on wars, wastes money on bureaucracies that should not exist, and overpays on roads, bridges, and infrastructure (because of Davis-Bacon, collective bargaining, and prevailing wage laws).

The only way to remedy this is with an iron-clad, no-exceptions, balanced budget amendment.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

China Bought More Treasuries Than Disclosed, Perhaps Illegally; Nuclear Dollar Dumping Theory Revisited

Not only did China buy more treasuries than disclosed, it did so in violation of treasury auction rules.

When the Treasury Department revamped its rules for participating in government bond auctions two years ago, officials said they were simply modernizing outdated procedures.

The real reason for the change, a Reuters investigation has found, was more serious: The Treasury had concluded that China was buying much more in U.S. government debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open - all without ruffling feathers in Beijing.

Guaranteed Bid

The United States sells its debt to investors through auctions that are held weekly - sometimes four times per week - by the Treasury's Bureau of the Public Debt, in batches ranging from $13 billion to $35 billion at a time. Investors can buy the bonds directly from the Treasury at auctions, or through any of the 20 elite "primary dealers," Wall Street firms authorized to bid on behalf of customers. The Treasury limits the amount any single bidder can purchase to 35 percent of a given auction. Anyone who bought more than 35 percent of a particular batch of Treasury securities at a single auction would have a controlling stake in that batch.

By the beginning of 2009, China, which uses multiple firms to buy U.S. Treasuries, was regularly doing deals that had the effect of hiding billions of dollars of purchases in each auction, according to interviews with traders at primary dealers and documents viewed by Reuters.

Using a method of purchases known as "guaranteed bidding," China was forging gentleman's agreements with primary dealers to purchase a certain amount of Treasury securities on offer at an auction without being reported as bidders in that auction, according to the people interviewed. After setting the amount of Treasuries the guaranteed bidder wanted to buy, the dealer would then buy that amount in the auction, technically on its own behalf.

The practice kept the true size of China's holdings hidden from U.S. view, according to Treasury dealers interviewed, and may have allowed China at times to buy controlling stakes - more than 35 percent - in some of the securities the Treasury issued.

The Treasury department, too, came to believe that China was breaching the 35 percent limit, according to internal documents viewed by Reuters, though the documents do not indicate whether the Treasury was able to verify definitively that this occurred.

Guaranteed bidding wasn't illegal, but breaking the 35 percent limit would be. The Uniform Offering Circular - a document governing Treasury auctions - says anyone who wins more than 35 percent of a single auction will have his purchase reduced to the 35 percent limit. Those caught breaking auction rules can be barred from future auctions, and may be referred to the Securities and Exchange Commission or the Justice Department.

At the beginning of 2009, Treasury officials began discussing the issue of guaranteed bidders, with a focus on China's behavior, internal documents seen by Reuters show. The culmination of their efforts was a change to the Uniform Offering Circular published on June 1, 2009 that eliminated the provision allowing guaranteed bidding.

In the first auctions conducted after guaranteed bidding was banned, a key metric rose sharply: the percentage of so-called indirect bidders, those who placed their auction bids through primary dealers. Indirect bidders are seen as a proxy measure for foreign central bank buying, because foreign central banks most often bid through primary dealers. With the elimination of the guaranteed bidder provision, far more buyers were put in this class in reports to the Treasury Department.

Direct vs. Indirect Bidding Comparisons Invalid

As a result of the rule change, comparisons of direct and indirect bidding now to a few years ago are invalid. Foreign governments were buying more US debt before than they disclosed.

Sadly, the article perpetuated widely spread nonsense regarding China dumping of US debt:

"If the Chinese sold their Treasuries all at once, it could undermine U.S. markets and the economy by driving interest rates higher very quickly. Scenarios of this sort have been discussed in Washington defense-policy circles for at least a year now. Not knowing the full extent of these holdings would make it even more difficult to assess China's political leverage over U.S. finances."

The irony was China was buying more than disclosed, while the fear was otherwise. China can still be accumulating more US debt than disclosed via the secondary markets and possibly via foreign markets.

Secret Treasury Buying

Flashback January 21, 2011: China Secretly Buying US Treasuries Via UK Accounts? Trade Deficit Math; "Hot Money" Math

Floyd Norris at the Wall Street Journal thinks China May Be Masking Its Purchase of U.S. Securities

Who Is Buying US Debt?

Here are two charts from the graphic: Who Buys U.S. Debt?

China



Foreign Buyers and Sellers




Trade Deficit Math

The two charts above are not believable for a mathematical reason that Norris did not explicitly state: When the US runs a deficit, some other nation must (as a function of pure math) accumulate US assets. Those assets could be dollar reserves, treasuries, investments in US companies, US property, or US equities.

One humorous aspect of all this alleged selloff of US treasuries by China is the hyperinflationist rant "China is Dumping Treasuries" when the reality is that China is likely accumulating US dollars or US treasuries a function of trade deficit math.

My one quibble with Norris' article is his statement "If China has been buying through money managers, it may be easier at some point for it to begin selling Treasuries through the British channel without others understanding where the selling pressure is coming from."

While technically true, please remember the math. Were the US to start running trade surpluses with China, then China certainly would be an outright seller of treasuries or US$ reserves. How likely is that?

China's Treasury Holding Revised up 30%

On March 1, 2011, I noted China Holdings of US Treasuries Revised Up 30%

Annual revisions released Monday show that China's holding of US treasuries is 30% greater than reported just weeks ago.

I am not surprised given that persistent rumors of China dumping treasuries made little mathematical sense from a balance of trade standpoint. Instead, I suggested China was accumulating treasuries via trading desks in the UK. We now see that is precisely the case.

Silly Rumors Surface Constantly

Nonetheless, rumors circulate consyantly that China is dumping treasuries or soon will dump treasuries causing soaring interest rates or hyperinflation in the US.

Nuclear Dumping Theory Revisited

For a detailed rebuttal to the silly "nuclear dumping" theory and belief China and Japan will refuse to buy US debt or hold US dollars, please see ...

• Should China Dump Dollars for Commodities? What about the "Nuclear Option" of Dumping Treasuries? Can Global Trade Collapse?


• Hyperinflation Nonsense in Multiple Places

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List