There is a two-tier assault on the public sector's access to the credit markets. On the Federal level you have the babbling about the debt ceiling. Monkeying around there could increase the real yields required to sell Federal securities, due to perceptions of increased risk. An actual default, which could come as soon as May, I suspect puts us in a whole new world. Biblical stuff, dogs and cats, living together.
At the state level, you have talk in D.C. about new bankruptcy laws that would facilitate state government default on bonds and commitments to public employee pensions. Talk of this type could increase costs of new debt sold by state and local govs. We already had an illustration of this when the corpulent NJ governor babbled about bankruptcy in the middle of a NJ state gov bond sale and found surprise surprise that buyers wanted a higher interest rate. The sale was halted halfway through. The political object on the state side is to force attacks on public employee pensions (and implicitly, their unions). An important countervailing force is the interests of current bondholders, who don't look kindly on threats of haircuts or increases in interest rates. Many such bondholders are very risk averse retirees. An increase in interest rates generates capital losses for them and reduces their consumption, if they are in the habit of cashing out bonds to finance consumption, as opposed to just using the coupon payments. The greater force is of course the wealthy and large financial institutions holding such bonds. The latter sets up a confrontation within the GOP between the Tea Party loons and those serving the interests of the bond market. So in the end I think the effort fails because at the end of the day the TP is not much more than stooges for elite interests. Financial markets being what they are, it's still all dangerous, IMO. On Fri, Feb 4, 2011 at 11:03 AM, Jim Devine <[email protected]> wrote: > from SLATE: > > >>The Great Panic of 2015 > > Has Washington, or the rest of the world, learned anything from the > Great Recession? > By Annie Lowrey > > Posted Thursday, Feb. 3, 2011, at 4:38 PM ET > > The Great Recession officially started in December 2007, according to > the bean-counters at the National Bureau of Economic Research. Most > people on Wall Street or in Washington, however, would probably name > Sept. 15, 2008, as the real start date: That was when unprecedented > losses in housing-backed securities led to the bankruptcy of Lehman > Bros., setting off the banking panic, the credit crunch, and the rest > of the horrible aftermath. But the better question is not when the > last financial crisis began, but when the next one will. > > According to some creative analysts at the management consulting firm > Oliver Wyman, that date is April 26, 2015. In a paper presented last > week at the World Economic Forum in Davos to much chattering from the > fur-and-cashmere class, Wyman analysts imagine an all-too-familiar > scenario coming back all too soon. The next time, the authors say, the > fat-cat financiers will be in Singapore or Hong Kong, chased away from > New York and London by stricter reserve requirements and emboldened > regulators. The bubble will appear in developing markets, with easy > developed-world money and the promise of ever-spiraling commodity > prices funding unnecessary building and silly investments. So there > you have it—again: a big pool of money chasing market-beating returns > and ultimately inflating asset-price bubbles that burst with awful > consequences, from bank failures to sovereign-debt crises. > > Do the authors of this report—complete with an imaginary protagonist, > "John Banks," awakened in his air-conditioned Singapore bedroom at 3 > a.m. one April day with grim news—really believe another crisis is > just around the corner? Well, maybe. "Financial services executives > and regulators have worked hard to design a safer and more stable > financial system, but we will not know whether they have succeeded > until it is tested by the next crisis," the authors note. "The first > aim of our 2015 crisis scenario is to stress test the design of the > new financial system, to consider how well it would stand up to this > type of adverse scenario. The broader aim of the report is to > encourage readers to think about the broader financial system" using > many such plausible scenarios, in different markets, in different > countries, in different financial institutions. > > Now that the recovery has fully taken hold [of financial markets?] and > the global financial regulations overhaul is in the implementation > phase, the Wyman analysts are not alone in starting to imagine how the > combination of easy money plus risk mispricing and irrational > exuberance might again lead to catastrophe. Economist Jayati Ghosh, > for instance, also sees hot money flowing into emerging economies, > laying the groundwork for troubles. Many economists cite commodities > as problematic, given the growing conventional wisdom that increasing > demand from countries like China and India means prices will not > decline. > > Others see troubles starting to brew in the United States' own > finances, with the next crisis perhaps originating in Washington > rather than on Wall Street. The documentary Overdose, for instance, > argues that the recessionary strategy of shoring up over-indebted > private institutions by adding trillions in debt to public ones will > result in even greater catastrophe, later if not sooner. Sheila Bair, > the chair of the Federal Deposit Insurance Corp., worries about the > United States' [the US government's??] crushing debt burden causing > financing and dollar problems down the road, as do Allan Meltzer and > dozens more economists across the political spectrum. > > Other theories focus on continued vulnerabilities in the financial > system. Simon Johnson, a professor at the Massachusetts Institute of > Technology and former chief economist for the International Monetary > Fund, for instance, believes that the policy of "too big to fail," in > which the U.S. government deemed some banks too systemically important > to collapse, will make the problems worse down the road. Even though > Washington has promised no more bailouts, he believes concentration in > the financial sector has made some firms more important, not less—and > that the government would step in for the sake of the broader system, > again. > > All of these narratives of the next big crisis share one very scary > assumption: that whatever the United States and its European peers do > to try to prevent the next crisis might not be enough. At the heart of > the concern is the way Washington approached regulation—an incremental > approach based in strengthening existing rules rather than brute > force. Some wise men suggested strong leverage caps, or size or > activity restrictions to stop financial companies from getting too > risky. Others suggested just taxing the whole sector. But politicians > in Washington mostly stuck with the rules they had, attempting to > bolster them instead. Worries abound, then, as they have for a year, > that reform failed to address the core cause of the crisis. Everyone > from Forbes to The Nation, from the Hoover Institution to the > Roosevelt Institute, has admitted concerns with the Dodd-Frank law. > > That leads us back to April 26, 2015. If anything will prevent the > next financial crisis, it will be financial firms recognizing bubbles > and popping them early, with regulators stepping in to ensure that > risk-takers are the ones eating the losses. Vigilance is the word. Of > course, bubbles are virtually impossible to see while they're > inflating—who is to say what is a reasonable bull market, and what > isn't, especially when everyone's making money? For that reason, we > all might be left hoping for nothing more than better luck next time. > > -- > Jim Devine / "Living a life of quiet desperation -- but always with > style!" > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l >
_______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
