World View: U.S. Banks Double Investments in Treasuries as Deposits Explode

This morning's key headlines from

  • PKK terrorists kill 8 in huge blast in Turkey near Syrian border
  • Europeans debate next desperate step to try to save the euro
  • U.S. banks double investments in Treasuries as deposits explode

PKK terrorists kill 8 in huge blast in Turkey near Syrian border

At least 8 people have been killed and 60 injured in a huge bomb blast in Turkey, near the border with Syria. No one has claimed responsibility, but various reports blame the Kurdistan Workers' Party (PKK), a separatist terrorist group within the Kurdish community demanding an independent state of Kurdistan. Turkey has a long standing problem with the PKK, who have been based in the mountains of northern Iraq and have been conducting terrorist attacks throughout Turkey. But the major fallout from the Syrian crisis, besides the huge flood of refugees pouring into Turkey, is that there's a large community of Kurds living in a region of northeastern Syria that's no longer governable from Damascus because of the conflict. So now the Kurds in Syria, along with the Kurds in Iraq and in southeastern Turkey itself, are agitating for that entire region to become an independent Kurdistan. Zaman (Istanbul) and Hurriyet (Ankara)

Europeans debate next desperate step to try to save the euro

Over the weekend, the German magazine Der Spiegel said that it "learned" that the European Central Bank (ECB) was going to go on a massive money-printing program to purchase bonds issued by Spain and Italy:

Interest rates on Spanish sovereign bonds have been rising to dangerous levels in recent weeks. Now, SPIEGEL has learned that the European Central Bank plans to use a new instrument to stop the trend: The bank is considering setting yield targets on the bonds of euro-zone countries. Should interest rates exceed those levels, the ECB would intervene by buying up their debt.

The effect of this plan would be to permit Spain and Italy to borrow unlimited amounts of money from the ECB to fund all their spending programs without any restrictions whatsoever. First thing Monday morning, the head of the Bundesbank (Germany's central bank) said, "The Bundesbank holds to the opinion that government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks," adding that the new program "could be unlimited." A statement from the ECB itself added that it’s "misleading to report on decisions which have not yet been taken." Finally, Ambrose Evans-Pritchard of The Telegraph confirmed that Spiegel's original report was correct, and not only is a "game changer" of this type being planned, but it has the support of German Chancellor Angela Merkel, despite the fierce opposition of the Bundesbank.

I quoted all these statements to illustrate the total level of chaos that Europe is in. The bond-buying program is no trivial thing. It would explode public debt from trillions of euros to tens of trillions of euros and send the markets into chaos. The only alternative to this totally desperate measure that the Europeans are talking about is to cut Greece out of the eurozone. But either of these two alternatives would have disastrous consequences for Europe and the world. As I've been saying for over two years, generational theory says that there DOES NOT EXIST any solution to Greece's debt problem or to the euro debt crisis in general. If I were to guess which of these two alternatives will be chosen, it will have to be the bond-buying program, because that kicks the can down the road a little longer. Der Spiegel and Bloomberg and The Telegraph (London)

U.S. banks double investments in Treasuries as deposits explode

Generational trends are also in full gear in the United States, where households are becoming increasingly thrifty, depositing their money in bank savings accounts instead of going out and spending it. This has caused bank deposits to explode, leaving banks with a lot of excess cash on hand. But banks are also following the same generational trends as the 1930s and are reluctant to take the risk of lending the money out to business owners. Instead, banks have already bought $136.4 billion in Treasury and government agency debt, more than double the $62.6 billion in ALL of 2011. Bloomberg

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