May 16. Debt ceiling talk heats up

–The issue of the debt ceiling is becoming the subject of increasingly dire warnings by Geithner and Obama…US would lose credibility, small businesses would find it more difficult to get credit, confidence would evaporate.  With the world awash in real possibilities of default, (Greece first and foremost), the positive aspect of the US debt situation is that perhaps structural problems will be confronted.
–Currently markets aren’t exacting a price to resolve the issues.  Some analysts call for much higher treasury rates at the end of QE2, some for much lower stock prices, and some for hyperinflation as bank reserves have gone parabolic.
–From an article about the Irish debt problem (cited in Mauldin): “The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner. At some stage the ECB can take out an eraser and, where “Emergency Loan” is written in the accounts of Irish banks, write “Capital” instead. When it chooses to do so is its problem, not ours.”  This is the classic rule of banking, if the borrower is large enough, the borrower’s problem simply shifts to the lender. In the current case the borrowing collateral is real estate.
–New lows in some of the one year euro$ calendars.  Highest is now only 110.5 bps, still EDM12/EDM13.

Posted on May 16, 2011 at 5:32 am by alexmanzara · Permalink
In: Eurodollar Options

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