Friday brainstorming - part 1

1. Lies and propaganda

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European Stress Tests Confimed To Be A Farce: Will Not Include Discussion Of Sovereign Risks

Morgan Stanley's Huw van Steenis has confirmed that the European Stress Tests will be nothing more than a dud and a farce: the primary risk consideration that is enveloping Europe, i.e. sovereign risk, will not even be discussed at all in the stress tests. With this bit of information everyone can now effectively discount the "Stress" test for what truly are: a Geithner-inspired propaganda tool, which has zero credibility, and which will only seek to persuade the idiot money to buy at least a few Spanish bonds, alongside the ECB, which is now buying up about €10 billion (and rising) in toxic sovereign debt both in the primary and secondary market, each week.

2. Heading for the official depression - sure Obama will make a big fuss just before the elections and have some more money printed. once in a while even a greenspan speaks the truth just wondering what his hidden agenda was to remind people that America is broke.

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ECRI Index Continues To Plunge, Drops By 2.2 To -5.7, And Just 4.3 Away From "Guaranteed" Double Dip Territory

The ECRI weekly leading index is continuing its accelerating dive, and is now well into negative territory, hitting -5.7 for the past week: a 2.2 decline from the prior week. Here is why, as David Rosenberg, this is a critical indicator, and why we may have just 4.3 more points to go before the critical -10 threshold: "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." At this rate of decline -10 will be taken out in the first week of July.

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Greenspan Says U.S. May Soon Reach Borrowing Limit

By Jacob Greber - Jun 17, 2010

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Former U.S. Federal Reserve Chairman Alan Greenspan testifies at a hearing of the Financial Crisis Inquiry Commission in Washington. Photographer: Brendan Hoffman/Bloomberg

Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing.

“Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said.

Greenspan rebutted “misplaced” concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the “medium term,” governments must reinforce the recovery in private demand.

“The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy,” said Greenspan, 84, who served at the Fed’s helm from 1987 to 2006. “Incremental change will not be adequate.”

Rein in Debt

Pressure on capital markets would also be eased if the U.S. government “contained” the sale of Treasuries, he wrote.

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

Yields on U.S. Treasuries have benefitted from safe-haven demand in recent months because of the European debt crisis, a circumstance that may not last, said Greenspan, who now consults for clients including Pacific Investment Management Co., which has the world’s biggest bond fund.

Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo today, down from the year’s high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis began. Yields have remained low “despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion,” Greenspan said.

The swing in demand toward American government debt and away from euro-denominated bonds is “temporary,” he said.

“Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.”