The Slog’s posts of earlier this year on the ‘American Recovery’ aka mirage are gradually being vindicated. Now comes more news about the deficit.
As early as 2010, I posted that a domestic consumption recovery in America would just make the debt worse. The trade figures are proving the point in spades.
Despite the value of the dollar being down 3.3% against a basket of currencies, the trade deficit widened more than forecast in March as American demand for crude oil, computers, automobiles and televisions raised imports to a record.
The gap grew 14% to $51.8 billion, the Commerce Department reported in Washington today. A 5.2% leap in imports, the biggest in more than a year, dwarfed the 2.9% gain in exports.
Not only is the US consumer buying more imported goods, the cost of raw materials is costing US business more as the Buck weakens. Crude oil imports in March increased to $29.2 billion from $23.4 billion the previous month, reflecting higher costs.
The increase in imports was broad-based with demand for foreign-made computers, telecommunications gear, automobiles and parts, televisions, cellular phones and clothing all doing better than ever.
But the guys at Bob Diamond’s Barcap remain unimpressed by such evidence.
“It’s hard to get nervous that imports are rising,” said Dean Maki in the New York office, “It does suggest that consumer demand is strong.”
The kid just doesn’t get it, does he? Which is disturbing given that he’s Bob’s Chief Economist in the Big Apple.
Two weeks ago, Geithner said trade with China was evening out, but it looks like he’s a dummy too: Imports from China climbed 12% in March and the US trade gap with Beijing widened from $28.1 billion to $31.5 billion.
So, the deficit continues to grow, and servicing the overall debt continues to get increasingly onerous. But US Sovereign debt – as we can see around the world today – is only part of the problem. In fact, the problem is insoluble – and yet to read the US business media output, you could be forgiven for thinking it might be just a nutwhack conspiracy theory.
I’m talking again about the astronomical obligations faced by American banks in the face of even a small number of failures. Bloomberg has updated these, and they show that the nine largest U.S. banks have a total of $228.72 trillion of exposure to derivatives….around three times the size of the real global economy that doesn’t involved worthlessly ‘leveraged’ paper. And that’s just nine banks owing
That’s an average of $25.4 trillion each. 2500 times more than the cap of Bank of America. 12,500 times bigger than JP Morgan-Chase. 25,000 times the size of Capital One.
Now over and over, I am told that “all these obligations are hedged”. But frankly, this is the inconsequential thinking pattern of an infantile delinquent: global banking is by definition a closed circle. To every reaction there will be a reaction. No one bank knows how their ‘bettee’ has hedged – or who with: but in the end, one comes back full circle to a bank already hedged one way and unable to hedge the other. Of course, if the banker is Goldman Sachs, this is standard procedure anyway….but that’s a moral consideration for a banking firm with its own and client accounts: it’s not a financial option for a bank that has already thrown its customers’ money in one direction. The investment system is not the Universe; it is finite, and doomed to imbalance if too much risk is taken.
That the savvy American elite sees the Tsunami coming our way as a result of this is also beyond reasonable doubt.
The level of executive employee share selling among S&P 500 companies is the highest in nearly 10 years. The sheer volume of insider sales (nearly 1,800 by S&P 500 executives over a three-month period according to brokerage Brockhouse Cooper) is hugely indicative of steers stampeding away from a lava flow.
And – perhaps in an eleventh-hour bid to restore some of its image – Goldman Sachs is projecting that the S&P 500 will have fallen 11% by the end of 2012. (Actually, I think that’s a very conservative figure…but that all depends on Bearded Ben the Trillion Dollar Catatonic Man: maybe this year my Bear Note investments will bear something other than losses).
What today’s posts here show is that a French bank’s decision to buy a Greek bank will mean less than full disclosure, and thus unknown exposure. Spanish statistics being untruthful will have an effect on projected bailout costs in Brussels, which will in turn screw up the plans of a Central Bank in Frankfurt. And corrupt loans in Russia coupled with a slowdown in world growth will lead to problems for badly formulated loan books in Scotland.
It’s called contagion. And don’t let any wise-assed Wall Street banker convince you he has this all taped. Paulson didn’t, Applegarth didn’t, Goodwin didn’t, Blankfein doesn’t, Draghi doesn’t, and neither does Moynihan.