Here Come The DOLTS

Worried about a Greek default? Good. There is trouble ahead in European economic waters. But it is not just small economies that are in hot water. There are some big ones are also in trouble.

Feb. 9 (Bloomberg) -- When it comes to America’s AAA debt rating, we have to ask whether we would be better off without it.

That notion is pure heresy, and Treasury Secretary Timothy Geithner was quick this weekend to try and dispel any thought that the U.S. would ever be in for a downgrade.

“That will never happen to this country,” Geithner said during an interview with ABC News. The remark came after Moody’s Investors Service last week said the pristine U.S. rating will come under pressure unless something is done about mounting deficits.

Geithner shouldn’t have fought Moody’s report. He should have embraced it. What better way to impress upon Congress that the U.S. is very much in crisis and needs to face up to its problems.

That reality has yet to set in on Capitol Hill. Two weeks ago, for example, the Senate shot down a proposal to create a deficit-reduction commission. The measure failed because the Left worries such a committee will cut spending, while the Right is afraid it will call for tax hikes.

So no spending cuts or tax hikes, which is what we need -- just deficits as far as the eye can see. Let’s break out the fiddles already and watch Rome burn.

This is why concerns over the so-called PIGS -- Portugal, Ireland, Greece and Spain -- or those on the geographic and economic periphery of the European Union are really a sideshow. The real danger to markets lies with the DOLTS, or Dangerously Over-Leveraged Triple-A Superpowers.

That club currently consists of the U.S.

You can read more. And you should. Because when this crap sandwich trickles down to Main Street we are going to be in a place worse than we were in September of 2008.

China is now beginning to deleverage.

China joined my bubble brigade and raised their reserve requirements on banks for the second time this month! The reserve requirement will increase 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones.

Stocks reversed gains in Europe after the announcement on concern that tighter lending in China will dampen the global economic recovery. Policymakers aim to avert asset bubbles and restrain inflation after banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January and property prices climbed the most in 21 months.

“This is all about controlling the boom, so that we don’t have a bust in the second half,”

said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.

So what do I think? Interest rates have to go up. They have to go up to a point where leverage is squeezed out of the market. Not that I'm against leverage. It is just that we are leveraged on the wrong things. Clear the table and let us plan a science meal instead of Chinese, the kind where you are hungry again after an hour.

Did I mention that we may only have snacks while we replan the meal? Life is hard and then you die. Take your enjoyment where you find it.