SAR #12041

Our trillions of dollars in debts are a call on quantities of labor and resources that do not exist and probably never will.

The Reformation: Here's the proposed wedding vows for the marriage of Greeks to French and German banks: GDP to shrink at least 5% more this year. Health related spending to be cut 20%. Wages to be cut 20% (or in most cases, 100% as unemployment soars, including 150,000 public servants - the equivalent of Uncle Sam letting 5 million go). The Greek government kcaved in and has announced a deal has been reached. re their second bailout, The head of the European Central Bank is saying a deal has been done as well. The German finance minister says not so fast, the cuts proffered do not fulfill the required conditions. If Greece gets a deal, other countries will want one, so it behooves the overlords to make the conditions as nasty as possible.

Good Tiding Of Great Joy: Unemployment claims fell 9,000 to 358,000 last week. The previous week was revised up to 373,000 from 367,000. Pepsi didn't get the word, announced plans to fire 8,700 workers. It plans to spend the money on advertising.

A Drop in the Bucket: The headlines got it right: Mortgage Settlement Good for Banks, Not So Good for Homeowners, The Worst Kind of Crony Socialism, and so on. The $5 billion from the banks is just $1 billion each, probably spread over 3 years. They pay out far more than than in bonuses - they made $46 billion in profits just last year. Only 1 in 11 underwater homeowners will benefit and the benefit will average a $17,000 write-down and refinance on a mortgage that is $50,000 underwater. And about 20% of those the banks kicked out of their houses may get as much as $2,000 as a consolation prize. Those of you who stayed current on your mortgages get to applaud as your pension fund and your taxes pony up most of the remaining $20 billion.

Chasing the Dragon: The market was happy to learn that consumer credit is rising because that means more consumption which leads to stronger economic growth. This much is true. But it assumes either that the consumer will consume much less in the future, or that the consumer's income will be much higher in the future. It does not assume the most likely outcome: That the consumer will end up having to borrow even more - not to pay the debt, but for everyday living expenses. Oh, wait. That's what they're doing now.

Little Behinds: The administration is going to allow ten states to escape from the well-intentioned but poorly formulated No Child Left Behind and let them continue to turn out illiterate, uneducated children. But now they will not call the schools failures or the students unprepared - now they're going to be 'improved." As a bonus, school districts will be able to stop cheating on test results.

Evasive Action: Barred from using the US dollar, Iran has turned to barter and gold to conduct its international trade. Agri-giant Cargill acknowledges that trade with Iran is still possible through "payments other than the dollar... in gold bullion and barter deals." Which makes the dollar as an intentional reserve currency irrelevant, which is not what Obama had in mind.

Let's Look At The Record: Housing gurus have been seeing the bottom of the housing market again. They're wrong this time, too. Zillow reports median home values decreased 4.7% y/y, and they expect a 3.7% decline during 2012. BofA's Michelle Meyer says " those who are counting on the housing sector to save the economy this year will be disappointed. She expects home prices will fall another 7% through 2013.

Fungibility: The US spent $100 billion more on gasoline in 2011 than in 2010. We're headed over $4 a gallon before summer. It is likely to have a negative impact on the economy, especially when much of that money goes to foreign producers.

German Miracle: Why does Germany think the way forward is through downtrodden workers? Maybe because that's how they do it. They have no minimum wage, 20% of their workforce makes less than €400 ($520) a month, many skilled workers are listed on the books as custodial staff earning €2 an hour.