had planned to wait until last Friday (Jan. 20) to write the next update. The weekly report on the number of new claims for Unemployment Insurance looked great on Thursday, and the number of applications for New Mortgages looked very good on Wednesday. A good Existing Home Sales Figure for Friday could be a meaningful trifecta of sorts. In fact, I was beginning to wish I could have bet on the three indicators as big winners.

Then the snows came here in the Northwest. Now, it was nothing like the snows of the Midwest and Eastern U.S. We probably saw about a foot and a half on our cars’ rooftops. Pretty minor stuff, comparatively speaking, but in our region, it can really mess up our days. Typically, we lose power and, indeed, nearly 200,000 people had no electricity. The roads are a mess, and we don’t have the equipment to clean them up adequately. Not that many people invest in snow tires for the few days of snow, either.

We live in a heavily wooded community. The trees fill with snow, the branches freeze, and soon there are branches breaking and falling and giant handfuls of snow smashing into anything below them. At night, it sounds like artillery is being fired as the branches crack, and the whumping of the snow on the ground and roof and anything else in its way is unnerving.

Amazingly, we never lost power, though we lived with ominous flickers for several days. What we lost was our provider of Internet, and the telephone land line, and all cable (notably, television and email).

The kids fashioned a snowman whom they named Howard (he now looks like Mr. Pinhead) and created a film festival from our archives of DVDs—Harry Potter, Lord of the Rings, etc. We kept a pot of soup on the stove, a home-warming fire in the woodstove and, though we could use our computers for writing, we couldn’t get on the Internet with them. Nor could we send or receive email.

It wasn’t until today (Monday) that I could get on the Internet—but still…not at home. I’m sipping on some coffee at McDonald’s and using their free WiFi. And I’m grateful, though it isn’t easy to work in the midst of excited kids.

The good news—better than most people are allowing it to be—is that Existing Home Sales rose by a strong 5% during the month of December. Pause on that. Housing doesn’t usually have a good month in December. This year, it did—and that’s suggestive of a strengthening market.

Meantime, the supply of homes on the market declined to 6.2 months, and that’s the lowest inventory reading since 2006. No, these are not ho-hum developments!

Thursday, we learned that new claims for Unemployment Insurance dropped by an amazing 50,000. The revised figure for the prior week had been a dismayingly large 402,000—back above that watermark figure of 400,000. For the week ending January 14, the number of new claims fell to 352,000. (That number will be revised, but not enough to erase the wonder of how far it fell.)

And on Wednesday, the composite index for New Mortgage Applications fell by a stunning 23.1%, taken lower primarily by falling interest rates. Do not fail to notice, though, that the purchase money mortgage applications rose by 10.3%--and that was after the prior week’s rise of 8.1%. Good stuff!

Coming up in the next few days…. We’ll have the next Mortgage Applications Survey Wednesday, along with the next Pending Home Sales Index; Thursday, we’ll have the next Jobless Claims figure, plus the New Home Sales Index; and Friday, we’ll have a GDP estimate.

Big week, lots to watch—and the figures we’ll see in the coming days may go far to affirm the advances the recent indicators have been describing. Looks like a recovery, walks like a recovery, quacks like a recovery!

The one bright spot in the world is the resilience of the US economy, not re-entering the recession so widely forecast last fall, and so far impervious to events in Europe.
     
However, the failure of leadership in Europe, and here -- hell, everywhere -- seems to be coming together in another chaotic moment. There is no dominant thread to events, instead a tangle rather like the first time the kids helped to take down the Christmas lights. Find the end of one string, then another….
     
Here in the US: a surge in consumer credit (10% annual growth rate in November) may or may not indicate consumer and banking revival, or survive revision, but beats contraction. Consumer confidence numbers are in a sustained rise, sometimes correlating with a better job market. Tempering that enthusiasm, the ballyhooed holiday retail sales did not take place: fibbers on the stock-market channels oversold a mere point-one percent gain in December sales. Small-biz surveyor NFIB found a fourth-straight monthly gain, but shallow- slope, net index no better than last January.
     
On concern for the rest of the world, 10-year T-notes have fallen to 1.85% today, but there is no mortgage follow-through, largely because of the unspeakably stupid mortgage-rate surcharge imposed to pay for part of the Social Security tax cut.
     
Outside the US, in approximate order of importance:
     
The flame is rising under long-simmering Iran. Sanctions imposed to halt their nuclear program may produce unintended blowback in Hormuz, and today's news of US troop and naval movements add to the burden of already jumpy markets.
     
Consensus today has S&P downgrading the credit of most of Europe this weekend. Ordinarily downgrades would have no more effect than the downgrade of the US last summer; however, the European rescue funds (EFSF and ESM) are dependent on AAA ratings for contributors, especially France. No bailout funds… dawn of reality.
     
Greece faded in importance last fall as Italy and Spain came into play. The debt forgiveness that Greece needed seemed trivial by comparison, and nobody would be silly enough to tip the Greek domino by withholding pocket change. Right. Talks broke down today, and default is again imminent. Most exposed: the ECB and its holdings of $150 billion in Greek debt. You want that in 100,000-drachma notes, or 1,000,000?
     
Time out for ethics in financial leadership. During a sustained effort by the Swiss National Bank (its "Fed") to weaken the too-strong Swiss franc versus all other currencies, the wife of the SNB Chairman, Philipp Hildebrand, placed long-dollar trades with the family banker, who confirmed the trades with the Chairman. Upon exposure the Chairman attempted a cover-up with that banker, who refused (there are honest bankers). Philipp and Kashya Hildebrand met while working at a US hedge fund (dang, what kids learn in those places!); he has resigned and accepted a $1 million severance.
     
The largest Italian bank, Unicredit, attempted to raise capital in accordance with suicidal instructions to banks everywhere, and very nearly succeeded. In suicide. Its stock is now wallpaper; a good bet for the first of the nationalization dominoes.
     
The ECB flooded Europe two weeks ago with $700 billion in liquidity to banks to stop a run. A similar sum has returned to the ECB for safety. Its Chairman, Mario Draghi yesterday said, helpfully, that the returning cash was not from the banks who borrowed. Got it. The banks who borrowed paid back the banks from whom they had previously borrowed, and those banks are not going to loan money to anybody, sending it back to the ECB, where it now sits safely in mayonnaise jars under the ECB's porch. The ECB stopped the run for a while, but brought no economic or credit relief.
     
Yields on short-term Danish and German government bills have gone negative. In a phenomenon seen here in the 1930s, and very briefly in the current crisis, investors think it wise to pay 101 kroner or euros for the right to get back 100 ninety days later.
     
Financial people have been asking each other since last July, "What's the European endgame? What's the trigger?" At the moment, it looks as though the whole stack of procrastination, half measures, and self-deception is crumbling at once. But we're okay.

I’ve noted several times that any good economic news reported on by the financial press usually ends with a caveat—something like, “but don’t uncork the champagne just yet.” Etc.

Along comes the employment report we’ve been waiting for, after having watched the unemployment insurance claims numbers decline fairly steadily (especially the four-week moving average, which probably tells the most accurate story) for a few months now. And here’s how Jess Jiang in NPR’s Planet Money reported the greatly improved numbers:

“The jobs report…is good. Very good. The economy added about 200,000 jobs last month, and about 1.6 million jobs last year. And the unemployment rate fell to its lowest level in almost three years.

“But don't plan that parade just yet. People are still struggling to find jobs. Before the recession, the unemployment rate was around 5 percent. The number from this month: 8.5 percent.”

Fair enough, but it doesn’t take a Ph.D. in psychology to realize that this reporting leaves the reader with a dim view of the employment situation. And it is as if we need to throw a wet blanket over our responses to genuinely good news simply because the good news failed to take the data back to full-recovery levels.

So…. Let me suggest that we uncork a few bottles of bubbly—champagne, apple cider fizz, whatever—and savor this rare moment. What we have here is a genuinely viable set of numbers from the jobs report. No, the market hasn’t fully recovered—nor do these numbers tell us that the market WILL recover in a few weeks. It will still take time. But, if these numbers can be maintained, fully recovery WILL come.

The reporting in the financial news almost universally laments the fact that workers are finding it especially difficult to get jobs they really want. Though that doesn’t sound unusual for this stage of a recovery, it also portends the shifts our workforce is likely to go through in the coming years. The nature of jobs is changing—even jobs such as real estate professionals and mortgage loan officers.

Nothing new there. How much do the activities and responsibilities of today’s mortgage loan officer differ from what they looked like, say, five years ago? It’s rather amazing, no?

A key here is that many of the lingering problems in lending, financing, buying and selling real estate are systemic. They’re pretty much a part of how the industry operates, and that won’t last.

We need roughly 150,000 to 200,000 new jobs each month or better—and we got that this month. We need the employment rate back below 7%--and we got 8.5% this past month, which is a very nice jump in the right direction. And we need distress property sales to be handled, built into the system, resolved—whatever we can do that will neither hurt the industry nor mess with the future stability of the economy.

There is, by the way, an observation that keeps bubbling up among Occupy Wall Street types: When the huge investment banks ran into tremendous fiscal viability problems, we all chipped in, so to speak, and bailed them out. When hundreds of thousands of generally middle-class Americans discovered that their homes were underwater and they stood in danger of losing them, they were not bailed out; they were told they’d handled their money unwisely. That is going to come back and bite the banks on the tails in the coming few years, I suspect. And the result will be changes in the way lenders are regulated, in the way loans are written, and in the ways people are qualified when they borrow.

So the good news is that—as of this moment, at least—the overall economy (especially the jobs market and the real estate sector) seem to be headed in a positive direction. Be aware, though, that the more viable the big lenders become, the more pressure they will feel to bring their lending practices into line with the needs of homebuyers and homeowners in 2012.

We will want to play this season of change light on our feet! But remember—that means we WILL play in this economy. The marketplace, truly, is improving.

I think there are a few things we all should be discussing these days, because they run against the commonly-held gloom about the future of the real estate market. Indeed, they could bring on a number of significant opportunities for us all. Or, like so much in the dusty pastures of the recent past, they could prove to be green shoots that soon turn brown. Still, I think they are worth watching.

First, there seems to be a quiet growth in real estate transactions that may become sustainable in a short period of time. The number of mortgage applications for the week ending December 2 surged ahead to wipe out the losses in the prior week (which were largely brought on primarily by temporary worries about rising rates).

It’s rather remarkable: The number of refi applications had fallen 15.3% the prior week, and this past week it rose by the very same 15.3%, as if to tell us it’s time to move on. The important point here, though, is that purchase money loan applications rose by 8.3%, having fallen by only 0.8% the week before. This suggests a strengthening home sale market.

So do things like housing starts figures, which we’ll soon get, along with existing home sales. But it is new-home construction and sales figures that most intrigue me here. We are working with a positive recent pending home sales index, which should mean growing numbers of completed sales in the coming weeks and months. And there are other positive factors—an improving unemployment insurance claims figure (well below 400,000) that should stimulate greater confidence among sidelined homebuyers.

Second, then, there may be a series of unexpected changes in the overall real estate market. We are and have been for a long time in a time when—especially due to foreclosures—the cost of building or replacing a home exceeds the cost of purchasing a comparable existing home. This forces existing home prices to reach their cellar floor…and we are arguably just about there. At the same time, this forces new home builders to get very creative, very practical, very modern. (Those new home builders who are still putting up McMansions and 1960s-style ranch homes are wasting their time. There is simply no way to make a buck from the building of such homes today.)

But new-home builders have the benefit of a great many new technological and stylistic changes that are increasingly attractive to potential homebuyers and expensive for existing home sellers to provide. Thus, watch for innovation to be the watchword among new-home builders—smaller homes, better use of space, vastly better energy efficiency, much lower cost of operation, etc. We are likely to see, broadly speaking, a new class of homes on the landscape (if we don’t see them already).

At the same time, we are likely to see the function of real estate agents go through some changes, as real estate professionals help more and more homeowners arrange transactions in which current homes are turned into rentals that cover their expenses of operation and owners buy or rent in another area. There is simply no way for ailing refi and bring-homes-up-from-underwater governmental programs to handle the problems and needs presented by people simply living their lives, moving because of jobs and family and births and deaths, etc. A new mode of handling one’s homes must be developed efficiently. Probably not by the government.

And I suspect financing will go through meaningful changes as buyers tire of waiting in line through an agonizingly uncertain mortgage process. The changes will be more bottom-up than top-down, I think, and the Too-Big-To-Fails will need to be light on their feet and open to change. There’s a fantastic opportunity for smaller lenders in this, I believe.

It may just be one of the most exciting real estate seasons any of us have experienced in our lifetimes—and I, believe me, have been through many of them.

I love this. Looking back at the history of how much Black Friday sales activity has told us about the strength of the economy in the immediate future, Mark Hulbert (who has studied economic newsletters for much of his life) sighed, “Take the initial news reports about Black Friday with a grain of salt. You either learn next to nothing from those reports about how the holiday season will shape up—or, to the extent you do learn something, it is likely to be wrong.”

Heads, we lose; tails, we lose.

But then, that’s the way the coins roll in the holiday season. If for no other reason than that investors take this time to adjust their holdings for tax reasons, it’s a time when the economic indicators can have little to do with what’s actually happening out in the world.

Add to that, though, the amazing distortion that European eco-politics create and it quickly becomes clear that just about everything needs to be taken with a grain of salt over the next month.

We are still limping from one moment of justifiable fright to another related to the European debt crisis—and from one fleeting apparent solution to the problems at hand to another as well. It seems to have taken many long months for the powers-that-be to acknowledge the depth and severity of the problems. At this point, they are speaking openly of the possibility that the euro will not survive and that the eurounion will fracture.

(And how bad of an eventuality would that be? For the U.S., the amount of trade lost if European markets go haywire for a time is surprisingly small. Europe makes up about 3% of our international trade. The proble becomes severe, though—and eerily unpredictable—when we talk of what could happen to international credit markets. What of the banks? And what of the loans supporting loans supporting loans? And what of the trillions of dollars out there in debt swaps? It could prove to be a huge implosion.)

There are two things closer to home that have my eye, though.

The first is that the new-home market seems to be strengthening after several years in the tank. We could see a market for newly-constructed real estate that will lead real estate out of the tail-end of the recession. Last month, the median price of a new home was 4% better than the median price in the same month a year ago. Things are looking good here.

But the second challenges any sustainable recovery. Paul Dales, an economist with Capital Economics, said it quite well recently: “It's one of the most striking developments of the housing downturn. The initial building blocks for a recovery are in place, but the legacy of the recession is really preventing households from taking advantage." The legacy of the recession—the foreclosures still the work out, the reticence on the part of buyers to obligate themselves for large mortgages, even if the rates are extremely low—these factors continue to keep a real recovery from cobbling itself together. And it’s very frustrating, to say the least.

The country’s overall economy would benefit mightily from a credible recovery that leads us all to take advantage of these prices, these loans, these sellers so anxious to sell.

The top story is still Europe, but a bore except for the entertaining incompetence on parade. Dr. Johnson maintained that nothing so concentrates the mind as the prospect of one's hanging in the morning, but that concept has eluded Europe.
    
All bond markets there fell apart this week, saved from collapse only by the  purchases of the European Central Bank, which said it is forbidden by treaty to do so, won't do, can’t do, but is doing. All other paths to euro status quo salvation are dead.
    
Club Med will sooner or later default on a couple of trillion in euro-IOUs. The ECB can buy time, but the hopes that an enormous credit loss can be handed to the ECB -- like telling the Maitre d'hôtel to remove an unfortunate plate of fish -- would only magnify ultimate danger. And, contrary to hopeful policy-mongers, such an attempted burial of credit loss at the ECB has no parallel to our Fed's QE.
    
Here at home the stream of economic data is okay. However, the general run of commentary is now just as excessively positive now as it was negative in August into September. Inflation is no threat at all: core producer prices were unchanged in October and CPI rose only .1%. The values including energy and food fell, .3% and .1% respectively, indicating downward pressure in the pipeline. Industrial production (down Sept, up Oct), the NY- and Philly-Fed indexes -- just wobbling back and forth across baseline. A bright spot, retail sales up a half-percent in October… careful with that. We should be getting something for $1.3 trillion in deficit spending this year.
    
Genuine reason for thanks: a lot of media and government people are suddenly speaking to housing. Six years in purgatory may be enough. Even those hostile to the likes of Fannie understand that credit is too tight. However, one debate remains: do we need jobs before housing can recover, or are jobs dependent on housing?
    
Time out from Europe for research, and the jury is in: housing first. (Sources NBER, NAR, Dept of Labor, and Freddie.)
    
Recession  November '73 to  March '75 Home sales rose from January 1975 bottom to the pre-recession level by July. Unemployment insurance claims did crest in March '75, and the rate of unemployment at 9.1%, but that rate was still above 8% in mid-'76, 16 months after the housing turn.
    
Recession October '79 to November '82 The NBER pegs the start in January 1980, and calls two separate recessions in the period, but I was there -- it began earlier and was all one crater. Home sales crashed by October '79 under the weight of Paul Volcker's jack of mortgage rates to 11.64% (top: 18.45% in '81, not below 14% until fall '82). The housing crash: from 3.77 million annualized in '79 to bottom in May '82 at 1.86 million, back to 2.57 million by January '83. Unemployment soared from 5.6% to 11.4%, at its worst simultaneous with that January '83 housing recovery, and unemployment did not fall below 8% for another 14 months. Pattern there.
    
Recession July '90 to March '91: Existing home sales fell from a 3 million pre-recession pace in to 2.6 million in December 1990, damage done by mortgage rates rising through 10%, sales back above 3 million by May '91. Pre-recession unemployment was 5.6%; it did not top out at 8.2% until nine months after home-sales recovery, did not fall below 8% for another year, and elevated claims for unemployment insurance did not normalize until another six months after that.
    
We have had two recessions since, the Mini from March-November 2001, and the Great, December 2007 to officially end (uh-huh) in June 2009. These two are anomalous: in the Mini, housing did fine throughout, supported by record-low rates and sign-here credit. Maybe that's why it was Mini? Could be? The Great of course was made Great by the collapse of idiot-credit, and not even all-time-record-low rates can overcome today's credit drought. 4%, but don't bother to apply.
    
I do try to write without saying something unpleasant about the President. However, in light of historical evidence his focus on shovel-in-the-mail jobs programs and utter, total absence of housing policy seem a bit odd.
   
In numbing detail, this fine academic work proves that the sun does, in fact, rise in the east. If anybody STILL wants to argue about housing as the central US economic problem, send 'em this. Teasing aside, it is very well done, and casket-shut conclusive. http://faculty.chicagobooth.edu/amir.sufi/MianRaoSufi_EconomicSlump_Nov2011.pdf

   
This week Bill Dudley, NY Fed Prez and certified White Hat, delivered the best speech on the economy, housing-heavy, since the Great Recession began. You may correctly assume that the Fed is exhausted with a White House, Treasury, and Congress that simply will not pay attention, and are void of imagination. Dudley's remarks are non-technical, refreshing to any real estate professional, and reassuring to any civilian feeling abandoned. The cavalry will come one day. http://www.newyorkfed.org/newsevents/speeches/2011/dud111118.html

Generally given to witty understatement, London’s The Economist nonetheless had this to say about the latest incarnation of the European debt crisis, which now revolves around Italy. Looking at the worrisome rise in Italian Bond yields, the newsweekly exclaimed:

“At stake is not just the Italian economy, but Spain, Portugal, Ireland, the euro, the European Union’s single market, the global banking system, the world economy, and pretty much anything else you can think of…. Italy matters so much more [than Greece] because it is so vast.”

What should we be watching for in Europe as we focus on the possibility that the continent could send the world into financial chaos? Here’s the bad news: We—and the markets of the world—need some reassurances that European politicians will at long last rise to the moment, thinking boldly, acting wisely. How likely does that seem, given the recent record?

The concerns grew at a rapid pace on November 9, when Italy’s 10-year notes lost their footing and worried investors suddenly demanded a 7.5% return if they were to buy the securities. This is not hard to follow. If fewer and fewer investors are willing to spring for Italy’s debt, the interest rate yield on that debt rises to the point where investors feel they have a deal.

Italy, meanwhile, suddenly has a lot more interest expense attached to its new debt than it was counting on and a salient question arises: Can Italy afford to make the necessary payments on its debt if it bears a much higher interest rate? At some point, the answer could easily become “No.”

Helping it in that direction is another simple question: Will investors continue to finance the debt? That is, when the payment with higher interest becomes due, will investors buy the securities with which Italy makes the payments on its debt? Maybe. Maybe not.

What if Italy can’t cobble the money together to make its debt payments? We’ve watched Greece deal with this one. It is a mad rush for more debt from which to pay down existing debt, and mad rushes tend to result in higher interest rates on the debt.

We can grouse all day about what a self-indulgent leader Berlusconi was, but Italy’s debt position really isn’t that much worse than our own or Britain’s. Further, it has the benefit of a relatively low exposure to creditors outside its own borders. But it is in a monetary/economic system that covers all of Europe. And that means Italy’s bonds are subject to the whims of the overall market and errors of its politicians.

The solution? Better leaders, perhaps. A clearly improving economy, definitely. But the likelihood that the Italian economy will improve meaningfully is small, especially if it tries to get the economy moving primarily from economic activity that doesn’t include a healthy jump in trade with other countries.

I try to follow the meanderings of this international debt crisis and often come away thinking that we may see the bottom fall out of international bond markets any day now. The reality, though, is that we already have seen days where both bond and stock markets fell dramatically, declines that were perhaps stopped—just barely?—by the bond buying of the ECB.

It is possible that this dangerous misery will continue for many months—indeed, it remains possible that we will all grow out of the mess we’ve all created—or it could be that we’ll see a crash in just a few days. It is, in any case, a time to act with great caution. I have rarely looked so deeply into the raging belly of a tornado as its furor continues to form.

The silver lining here is that the real estate sector could continue to move toward improvement, loosening its dependency on international money markets. But that’s a pretty uncertain bet, too. Still…we can hope. And will!

Events this week are more Ripley's Believe It or Not, or Saturday Night Live, than financial market proceedings.
     
Italian bond yields (10s) screamed from mid-sixes to 7.48% on Wednesday, collapsing US-Europe stocks. Then somebody bought a lot of those bonds to put out the fire, or gave orders to banks to stop selling, yield back to 6.89%. The European Central Bank says it is forbidden to buy sovereign debt bail out nations, but the ECB is the last hope to buy significant time. And, on a continent in which everyone says one thing and does another… buying time, is all.
     
Italy sold some one-year notes at auction this week, yield 6.09% versus 3.57% last month. Not a good trend. We pay 0.10% for one year.
     
French banks hold a France-killing $560 billion in Italian IOUs. As the Italian contagion grew this week, rumors flew that S&P would cut France's AAA rating, which among other things would collapse the European Financial Stabilization Facility. S&P denied the rumor, but did not explain upon what basis it has rated France AAA.
     
The EFSF is a self-bailout fund guaranteed by all 17 euro-currency nations. Those who need to be bailed are also guarantors. The guarantees are not "joint and several," each guarantor liable for the entire amount; instead the guarantees are pro-rata to GDP. If some guarantees turn out to be worthless, creditors may not look to the surviving strong to pick up the trash left by the failed.
     
The EFSF is to sell its own IOUs to raise cash to execute the bailout promises to Ireland, Portugal and Greece, themselves EFSF co-guarantors. If this sounds like a Series 2005 Subprime CDO, you have been paying attention.
     
The EFSF has been trying for ten days to sell $4 billion of its IOUs, and for several days could not; it finally moved them at a 1.77% premium to German bunds, up from 0.51% spread in June. Marvelous. You are drowning, and you are tossed a life-line by another swimmer nearby, also drowning.
     
The 17 euro currency zone GDPs are as follows, in (billions). The three official wrecks: Greece ($305), Portugal ($228), and Ireland ($203), total $736 billion. The nine mini-members (Malta ($8), Cyprus ($25), Estonia ($19), Slovenia ($48), Luxembourg ($55), Slovakia ($90), Finland ($239), Austria ($376), and Belgium ($468), total $1,328 billion. Most of the minis are in good shape, except the biggest: Belgium has no functioning government, and Austria, whose banks made a lot of loans to Eastern Europe in Swiss Francs which will not be repaid.
     
The remaining six nations in the euro-zone break into three groups. The healthy, Germany ($3,310) and Holland ($783). The sick, Italy ($2,050) and Spain ($1,410). And the hopelessly exposed to contagion via shot-to-hell banks: France ($2,560).
     
The grand total is a big operation, $12,517 GDP. However… the three officially insolvent plus Italy and Spain (total $4,196) are to be bailed out by Holland and Germany ($4,093) and the minis (?), while hoping that France can huff, puff, and bluff its way for a decade? Ain't gonna happen. Just arithmetic. Nothing personal.
     
A lot of really smart people are trying to figure out the breaking point. Can't be done. Like watching an inevitable car accident with a closing speed of an inch per day.
     
Markets via bank run may step on the accelerator at any time. Or these boobs may stay on the Merkel Plan and let austerity run its course, which means recession throughout Europe, collapsing credit and then bank collapse. Unlike the US, Europe has understood for more than a century that banks are public utilities, but they forget that there are limits to capacity at the sewer plant. Once you have a sewer plant in trouble, be veeerrry careful with the valves.
     
Mercifully, since the world buys so little from us, we'll be less-impacted by global recession than anyone. No inflation, low or lower interest rates, Fed free to QE3, easy to sell Treasurys.