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  1. Wealth
June 20, 2011

What's up with the numbers?

By Spear's

If the debt ceiling isn’t raised, Helicopter Ben will just have to raise the roof with more Quantitative Easing instead

Last Tuesday’s announcements coming out of the US show the momentum in the world’s largest economy is slowing: retail sales in May fell by 0.2% for the first time in eleven months, caused by a 3.2% decline in car sales, which means that production in the largest industrial sector is also falling.

This is caused by the supply line disruption from the Japanese tsunami, which is hard to quantify, and also by the higher price of petrol and the effect of the one-off payroll tax reduction wearing off. And it’s about the same in the UK, as Tesco announced a 0.1% reduction in sales in Q1, as customers have to pay more to refuel their cars.

But it’s much worse in the US housing market – worse in fact than during The Great Depression when prices fell by 31% – as prices are off by 33% since 2006. Professor Robert Schiller of Yale, the founder of the Case-Schiller Housing Index, said “the US is at risk of double-dipping back into recession”, which won’t surprise readers of this column. Meanwhile, the housing market in the UK (outside London), is just about holding up, provided you can find a buyer who can get a mortgage, which these days are as rare as the son of a barren woman or flowers in the sky.

Meanwhile Bernanke at The Fed, no doubt mindful that interest on Greek 10-year bonds had reached an unsustainable 18% pa, as compared with the German equivalent of 3%, has told Congress that the National Debt ceiling must be raised from its current $14.3 billion – already equivalent to US annual GDP – or the risk of interest not being paid would send tremors through world markets and lead to a ratings downgrade and higher interest rates in the future, but the impasse on Capitol Hill looks to be set in rapid-hardening cement, and probably will remain so until election time next year.

If the debt ceiling isn’t raised, Helicopter Ben will just have to raise the roof with more Quantitative Easing instead; but surely, even he must by now be beginning to realise that as far as growth is, or isn’t, going, he’s just pushing on a string and stoking up future inflation. He is beginning to look like a one-song act with an increasingly desperate crescendo and running out of encores.

Back in Greece, meanwhile, President Papahandout and his Finance Minister Papaconstantlyindebt (sorry, he was replaced over the weekend by the former Minister of Defence!) are really running out of road: the mobs are baying at the tradesman’s entrance and the creditors are banging on the front door demanding yet more austerity and asset sales: but what assets, and at what price? Does this count as asset-stripping?

The French and the Germans are both worried about the effects of a Greek default on their own banks, which are owed €39.0 billion and €25.0 billion, respectively. (The UK banks, with their ability to turn up at every busted party anywhere, are owed €11.0 billion.) The fact that they agreed in Berlin on Friday to roll-over Greek debt doesn’t change the economics of Greece at all: Greece is essentially bust and further bail-outs will just make it even more bust.

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The EU federalising politicians are behaving like a rogue bank manager who lends far too much to a customer who cannot repay his loans, so he lends him more so that Head Office, that’s the EU Commission, doesn’t find out. Alan Greenspan said “A  Greek default is more likely than not”, so even he may be more right than usual, as Papahandout tries to persuade the Greek Parliament this Tuesday to put a bigger rope round its collective neck and a much heavier debt-load round its kicking ankles. Yes, it’s got that stupid!

On that same last Tuesday, however, the OECD in Paris announced in their April update “a mild loss of momentum in most major economies”, but that “a notable exception is the US, which continues expanding relative to trend”. Now it seems to me these two announcements last Tuesday cannot both be right, but if they are, then the fall-off from April to May in the US was considerable and indicates a sharp slow-down is already in the works, while Greece is left peering into the abyss, threatening to drag us all down into a new financial Hades, sooner or later, of our own making. What to do about it all? Short the dollar, the euro, the S&P 500, the CAC and the DAX, and buy gold.

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