Bill Gross on Debt Ceiling Deal, Attention Shifts to Euro Zone, and a Glimmer of Hope on Horizon

Bill Gross is weighing in on the pathetic debt deal, which predictably passed the Senate today, in a PIMCO newsletter today:

• ​Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit.
• In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at “net present cost.”
• Aside from outright default, there are numerous ways a government can reduce its future liabilities. They include balancing the budget, unexpected inflation, currency depreciation and financial repression.

Gross of course has a huge interest in keeping U.S. bond values afloat.  While outright default is the right answer, you can bet your bottom greenback that our wonderful leaders in Washington will opt for inflation and currency depreciation.  The whole balancing the budget thing is a scam, every federal budget is technically balanced, borrowing just makes up the difference.  The sooner the Tea Party drops the issue, the sooner they get back to reality.

Now a big part of the debt ceiling deal is the creation of the atrociously dubbed "Super Congress."  Yes, that's right, despite the fact that Congress has the lowest approval rate probably ever, let's make a stronger and more efficient one.  Good thing K Street is on the job and ready to infiltrate.  Via Politico:

K Street wasted little time putting clients on notice about the next phase of the debt ceiling debate with a simple message: Nobody is safe from the super committee.
Lobby shops say a much-broader-than-expected range of budget cuts and tax provisions could be in play, especially compared with the relatively small group of industries that were afraid of getting a haircut during the earlier debt ceiling negotiations led by Vice President Joe Biden.

Several lobbyists said they expect companies and industry groups to put a full-court press on Capitol Hill engaging grass roots, advertising and old-fashioned, shoe-leather lobbying to try to minimize the severity of the cuts.

How much influence K Street can have on the process is still unclear.

Looks like being chosen as one of the twelve members of the Super Congress is going to be a very competitive process.  Who doesn't like being wined and dined just to save a measly $30 billion tax credit?  Bars and restaurants around Capital Hill better prepare and order extra martini mix.  Look for it to be staffed with a bunch of moderates like Lindsey Graham who will agree to a bunch of cuts which will never come to fruition.

With the debt ceiling once again raised, all sights are set on Europe as Spain and Italy 10 year bond yields are exploding:

 Via Bloomberg:

The yield on 10-year Italian bonds rose 13 basis points to 6.14 percent at 4:31 p.m. in London. It earlier surged to 6.25 percent, the most since November 1997. The 4.75 percent security maturity in September 2021 fell 0.895, or 8.95 euros per 1,000- euro ($1,422) face amount, to 90.34. That pushed the difference in yield, or spread, over bunds, to as much as 384 basis points, the most since before the euro was introduced in 1999.
Italian bond futures fell, sending the price difference over bund futures to a record. The September Italian futures contract fell 1 percent to 98.21 after reaching a record 96.75, making the difference over its German equivalent 33.52.

Let's not forget about Greece now.  While the fiscal can was kicked down the road just a little more, it looks like the Greek citizens are finally seeing the writing on the wall.  Via Guardian:

In one of the biggest banks in the centre of Athens a clerk is explaining how his savers have been thronging to pull out their cash.
Wary of giving his name, he glances around the marble-floored, wood-panelled foyer before pulling out a slim A4-sized folder. It is about the size of a small safety-deposit box – and those, ever since the financial crisis hit Greece 18 months ago, have become the most sought-after financial products in the country. Worried about whether the banks will stay in business, Greeks have been taking their life savings out of accounts and sticking them in metal slits in basement vaults.
The boxes are so popular that the bank has doubled the rent on them in the past year – and still every day between five and 10 customers request one. This bank ran out of spares months ago. The clerk leans over: "I've been working in a bank for 31 years, and I've never seen a panic like this."
Official figures back him up. In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a "silent bank run". This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece, one that runs all the way from the humble rainy-day saver to the really big money.

"Every time the markets move, I get phone calls," says an Athens-based fund manager. "They're from investors asking: 'How can I get my money out of the country?' "
One senior investment banker is more blunt: "People are scared that the government doesn't know what the fuck it's doing." He tells a story about an acquaintance who took out €30,000, wrapped it in a bag and stashed it in his garage. "The bag had previously had some food inside," he says. "So it attracted rats, who ate the notes."

Too bad the government knows exactly what the fuck its doing.  It's saving the banks at the expense of taxpayers.  Same story, same place, nothing changes.
Except for the price of gold!

Good thing the Bernank doesn't think gold is money, that way every other Central Bank can keep loading up.  Via Zerohedge:

Further confirmation in the continuing stealth accumulation of bullion by central banks came overnight with confirmation that South Korea's central bank bought 25 tonnes of gold  over the past two months. The gold is worth $1.24 billion and resulted in a 17 fold increase in their gold reserves.
Thailand’s gold reserves rose by 15.5% in the two months and rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand’s website accessed by Bloomberg this morning.
South Korea is the world’s seventh-biggest foreign-exchange reserve holder and 64% of its reserves are in U.S. dollars. The bank said that it also holds euros and other assets and the move was about achieving diversification.

Hmmm, if Paul Krugman's hypothesis is true and its Glenn Beck and all those dastardly gold sellers on TV are really behind the rise in the price of gold, they must be having some huge international influence.  I didn't know Beck was broadcasted out in Korea and Thailand.

While all the recent economic data has been pretty pessimistic, here is a piece of news that will have Keynesians screaming bloody murder for QEIII:

WASHINGTON (AP) -- Americans cut their spending in June for the first time in nearly two years after seeing their incomes grow by the smallest amount in nine months. The latest data offered a troubling sign for an economy that is adding few jobs and barely growing.
Consumer spending dropped 0.2 percent in June, the Commerce Department said Tuesday. It was the first decline since September 2009.

Incomes rose 0.1 percent, the smallest gain since September. Many people are also pocketing more of their paychecks. The personal savings rate rose to 5.4 percent of after-tax incomes, the highest level since August 2010.

While Keynesians will tear their hair out at this news, this is actually a great sign.  Savings, not consumption, are would lead to productive investment.  In a world unaffected by central banking, this type of behavior would bring down interest rates.  Too bad Bernanke crazed monetary tools have the system so convoluted with money slipping in from all directions, a change in time preference by consumers may not be enough to offset another manipulated business cycle.