Tuesday, August 09, 2011

High finance

And by high finance, I mean, the question of the hour is, what the hell was S & P smoking?
Once again: S&P declared that US debt is no longer a safe investment; yet investors are piling into US debt, not out of it, driving the 10-year interest rate below 2.4%. This amounts to a massive market rejection of S&P’s concerns. [...]

And maybe, maybe there is an S&P story — but not the one you think. Arguably, that downgrade will bully policy makers into even more deflationary, contractionary policies than they would have undertaken otherwise, which has the perverse effect of making US debt more attractive, since the alternatives are worse.
In other words, investors are dumping private stocks because they've finally figured out austerity cuts kill jobs and the economy. Assume they're investing in US bonds because they believe, or at least hope that once this becomes apparent to the electorate, they'll kick the idiots out and elect people who understand the problem.

One thing for sure. Looks like the big bucks folks believe that US banks are still the best bet. Probably true, since it's painfully apparent our political overlords of all stripes protect the Banksters at all costs.
The European debt crisis is poised to flood U.S. banks with something they don't want and can't use: more money.

Cash held by U.S. banks surged 8.4% to a record $981 billion during the week ending July 27, the Federal Reserve said in an Aug. 5 report. That's more than triple the amount they had in July 2008, before the collapse of Lehman Bros. almost froze bank-to-bank lending.

Even more money may be deposited with U.S. lenders if investors pull away from European banks amid concern the Greek debt crisis may spread to Italy or beyond, said Brian Smedley, a strategist at Bank of America Merrill Lynch in New York. Those funds may not be so welcome: With few opportunities to lend them out profitably, U.S. firms may have to slap fees on depositors to keep returns from eroding.
I'm so old I remember when banks actually paid decent interest on savings. Now it's so low for ordinary savings accounts, I expect that's one reason people don't bother to save much. Besides they fact they have no money to save anyway after they pay their bills. But pretty ironic, that big money is now going to have to pay the banksters to take their money, in order to protect the bank's profits.

[More posts daily at the Detroit News.]

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