Today’s sub trend/lesson is … drum roll … not all Republicans/conservatives are arses and not all Democrats/Liberals are naïve fools.  Moral – don’t judge a potential ally by his clothing.  We’re going to need all the friends we can get to stop the turkeys to the left and the sharks on the right from really screwing up our country.

Accountability, transparency, responsibility, moral hazard are in the greater good — Ron Paul’s Bill Would Put Fed on the Hot Seat
–AFP

When the FEDury finally does slow down its spending what happens? — The temporary problem: Rolfe Winkler — Spending Money is easy … stopping is a whole lot harder
–Alibaba.com

Voices are beginning to say Whoa Nellie — Robert Scheer: Obama Is more of the same
–Appeal Democrat

Duh!  Hello Congress … the power of the FEDury is a scary thing.  Personally I don’t believe in benevolent rulers or the Easter Bunny — Bernanke Grilling May Weaken Case for Fed as Risk Regulator
–Bloomberg

Not everybody things banks are too big to fail — Bank of England: no bank ‘too big to fail’
–Business Week

Bill Bonner is always good to read — The Public Still Has Faith in Economists – But Why?
–Daily Reckoning

Euphemism Alert!  I believe the evidently politically incorrect term is socialism — Is the Obama Administration’s Financial System Overhaul Pushing Us Toward State Capitalism?
–Money Morning

Don’t discount this liberal she could be a valuable ally in the effort to prevent what’s going on in Washington while folks quake in their boots — Arianna Huffington: We’ve Gone From Saving Wall Street in Order to Save Main Street to Just Saving Wall Street
–TheUnion.com

Well … gee … you mean bankers just make good money vs. ridiculous bags full? — Plain-Vanilla Financing Could Melt Bank Profits
–Wall Street Journal

For More Headlines

BEA released an advance estimate of -6.1%!  As the previous post indicates, we expected only -4ish, with a slow revision to a more accurate number.  The opposite. hmmm.  Just when we thought the government was getting predictable by simply assuming the worst from it.  Perhaps we have to rethink what is the worst.  Could the worst be engineering crisis to sell Treasury debt?

Regardless, to trade on the advance number is probably a mistake.

Heritage Foundation ran an article entitled, “Treasury Exposes Markets to Added Stress Flu” in which they suggest that the Treasury is adding to the uncertainty by announcing its intention to exchange preferred stock for common stock in banks:

“The Treasury [ ] doubled down on market fears through its equity conversion proposal. Treasury currently owns billions in preferred shares of the major banks. These shares plus its supervisory powers mean the most troubled banks have already been effectively nationalized through the backdoor. The banks are still learning what this means in practice, and its not pretty – threatened pay caps, CEO firings, etc. Converting the preferred shares to common shares takes this nationalization one small step further.

What the conversion does not do is make the banks any healthier. Banks that are light on capital remain so. And because it has so little concrete meaning, the conversion to common shares raises serious questions about Treasury’s real intentions.”

So…could the Treasury actually intend for uncertainty to rise with consequent rise in risk premiums and attendant flight to safety in Treasury bonds? Yesterday the Treasury announced they would need to borrow $361 billion in marketable debt in the second quarter, a record for the period and more than double its previous projection. They expect to borrow about $500B in the month of July alone.  Is the Treasury so sinister as to engineer a flight to safety to insure a demand for its debt?

China is slowing down its purchases of US Treasuries.  This could be trouble in the near future.  The Economic Populist says:

“Increasingly China is becoming a less and less dominant creditor to America…Other foreign creditors have taken China’s place in buying our debt. In fact, foreign purchases of treasury debt has never been greater…While that should be good news, it isn’t for several reasons….The first reason why this isn’t good news is because of the sheer, overwhelming volume of treasury debt being issued. Despite a massive increase in foreign purchasing of treasury debt, the massive supply of new debt coming on line is swamping it.”

The second reason is that we are only talking about treasury debt. The entire rest of the world, especially the private sector, has stopped purchasing all other types of our debt.

Check out the whole article – it’s worth it.  Here’s one last teaser:

This isn’t a matter of politics – it’s a matter of math. The money simply isn’t there. Foreigners, no matter how hard they try, can’t lend us dollars that they don’t have if they don’t have the trade surpluses to begin with. What’s more, why should they be lending us money when we’ve already proven that our financial system is full of crooks?