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

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 blastin Turkey, near the border with Syria. No one has claimedresponsibility, but various reports blame the Kurdistan Workers’ Party(PKK), a separatist terrorist group within the Kurdish communitydemanding an independent state of Kurdistan. Turkey has a longstanding problem with the PKK, who have been based in the mountains ofnorthern Iraq and have been conducting terrorist attacks throughoutTurkey. But the major fallout from the Syrian crisis, besides thehuge flood of refugees pouring into Turkey, is that there’s a largecommunity of Kurds living in a region of northeastern Syria that’s nolonger governable from Damascus because of the conflict. So now theKurds in Syria, along with the Kurds in Iraq and in southeasternTurkey itself, are agitating for that entire region to become anindependent 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-printingprogram to purchase bonds issued by Spain and Italy:

Interest rates on Spanish sovereign bonds have beenrising to dangerous levels in recent weeks. Now, SPIEGEL haslearned that the European Central Bank plans to use a newinstrument to stop the trend: The bank is considering settingyield targets on the bonds of euro-zone countries. Should interestrates exceed those levels, the ECB would intervene by buying uptheir debt.

The effect of this plan would be to permit Spain and Italy to borrowunlimited amounts of money from the ECB to fund all their spendingprograms without any restrictions whatsoever. First thing Mondaymorning, the head of the Bundesbank (Germany’s central bank) said,the Eurosystem are to be seen critically and entail significantstability risks,” adding that the new program “could be unlimited.” Astatement from the ECB itself added that it’s “misleading to report ondecisions which have not yet been taken.” Finally, AmbroseEvans-Pritchard of The Telegraph confirmed that Spiegel’s originalreport was correct, and not only is a “game changer” of this typebeing planned, but it has the support of German Chancellor AngelaMerkel, despite the fierce opposition of the Bundesbank.

I quoted all these statements to illustrate the total level of chaosthat Europe is in. The bond-buying program is no trivial thing. Itwould explode public debt from trillions of euros to tens of trillionsof euros and send the markets into chaos. The only alternative tothis totally desperate measure that the Europeans are talking about isto cut Greece out of the eurozone. But either of these twoalternatives would have disastrous consequences for Europe and theworld. As I’ve been saying for over two years, generational theorysays that there DOES NOT EXIST any solution to Greece’s debt problemor to the euro debt crisis in general. If I were to guess which ofthese two alternatives will be chosen, it will have to be thebond-buying program, because that kicks the can down the road a littlelonger. 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, wherehouseholds are becoming increasingly thrifty, depositing their moneyin bank savings accounts instead of going out and spending it. Thishas caused bank deposits to explode, leaving banks with a lot ofexcess cash on hand. But banks are also following the samegenerational trends as the 1930s and are reluctant to take the riskof lending the money out to business owners. Instead, banks havealready 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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