Getting Caught Up

Yuan has been rising fast

Yuan has now risen 6% against the dollar in the last year. This means guarantied inflation.

Fed's Balance Sheet

The Fed’s balance sheet is expanding rapidly…

…and so is the monetary base.

The growing imbalance in agricultural commodities

The Amount of soybean export sales outstanding for this time of year are at record highs. In English, there is a huge, growing backlog of unfilled orders for US soybeans.

The ongoing state budget crisis

Zero Hedge reports that California Runs Out Of Money Again.

California Runs Out Of Money Again, Comes Begging To Wall Street As Moody's Threatens To Go Nuclear On Muni Market
Submitted by Tyler Durden on 07/14/2011 08:58 -0400

First New Jersey, now California. The cash-strapped state, which begged for, and got, a "bridge" loan from JP Morgan as recently as October 2010 (the same bank that recently bailed out Chris Christie), is asking for another bridge to the old bridge loan, ergo a "bridge bridge" loan. The excuse: the potential upcoming government shutdown, which would lock California out of the muni market. Surely the fact that it already has little to no cash left was not a part of the equation. BusinessWeek reports: "California is considering seeking a bridge loan from Wall Street ahead of an Aug. 2 deadline for raising the federal debt ceiling, in case talks fail and send the bond market into turmoil, Treasurer Bill Lockyer said. Proceeds from the loan would be used to help pay the state’s bills until Lockyer can sell an estimated $5 billion of so-called revenue-anticipation notes, or RANs, scheduled for late August. Without those notes, the state could run out of cash as it did in 2009, when it issued $2.6 billion of IOUs." Of course if the US is downgraded, Meredith Whitney's prediction will come true with a bang: as part of its warning yesterday, Moody's also threatened to downgrade 7000 municipal ratings which would halt RAN, and any other, issuance for an indefinite period of time. And while this is merely more M.A.D. posturing to help the debt ceiling dispute come to a speedy resolution, the fact that California is now forced to issue new bridge loans to "bridge" old ones is oddly troubling.

The US moves closer to default

CalculatedRisk reports that US Government Bond Rating on Review for Possible Downgrade.

Wednesday, July 13, 2011
Moody's Places US Government Bond Rating on Review for Possible Downgrade
by CalculatedRisk on 7/13/2011 05:07:00 PM

From Moody's: Moody's Places US Aaa Government Bond Rating and Related Ratings on Review for Possible Downgrade

Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.
The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such,
there is a small but rising risk of a short-lived default.

And when treasury yields finally head up, the US dominated global financial system will collapse.

Full Resolution

What is happening to US retail sector

Look at the graph below and imagine if it were adjusted for inflation. While retail sales continue to stagnate, stores are selling less at higher prices.

CalculatedRisk reports that Retail Sales increased 0.1% in June.

Retail Sales increased 0.1% in June
by CalculatedRisk on 7/14/2011 09:10:00 AM

On a monthly basis, retail sales increased 0.1% from May to June (seasonally adjusted, after revisions), and sales were up 8.1% from June 2010. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of
U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, BUT NOT FOR PRICE CHANGES, were $387.8 billion, an increase of 0.1 percent (±0.5%) from the previous month, and 8.1 percent (±0.7%) above June 2010.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

My reaction: Working to get caught up on current events after finishing video series on the ESF and its history.

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