There are some very ominous rumblings coming from the European continent this morning.
First, Greece has the mother and father of all inverted yield curves, with the 1 year now trading at or near an implied 100% interest rate.
That’s not really news though – it’s been there for the last few days.
The new news is that some of the T-Bill auctions they ran were technical fails, with failures to place the entire offering.
This is no longer a liquidity event. It is now a “no money in the checking account” event.
Greece’s attempt to elicit “voluntary” rollovers is under doubt as well.
The underlying error and problem is that authorities both in Europe and here have refused to take my counsel (and that of few other people, as the economic world seems to be prone before the banksters) on enforcing one dollar of capital with the banking institutions in question.
Coupled with balance sheet lies this means that there is severe and imminent risk of a complete collapse initiating somewhere in the European banking system. That, in turn, is why the screaming from the IMF and others about the “need” to take various emergency actions to prevent a Greek default.
But there is no preventing a Greek default.
Greece passed that event horizon more than a year ago.
The lesson in here is that the technical point where one passes beyond the event horizon and thus default is inevitable occurs quite a bit earlier than recognition of that fact in the markets, or among the governments in question.
There is something we had better pay attention to here in the United States embedded in this episode, providing that the banking system in Europe survives this excursion and thus it matters to us in the intermediate term.
That lesson is:
- You will not know at the time in question that default is inevitable, which is the exact point I’ve made now for four years – fiscal consolidation always drives the ratios the wrong way for a while. This makes it impossible for anyone to give you an exact point beyond which you’re screwed. In turn this means you must not dance close to the edge of the cliff, lest you step over the line and the apparent solid ground under you disappear.
- You must not permit institutions to lie about their exposures and valuation of their alleged “assets.” You’d think we learned this in 2008, but we did not. We had damn well better learn it quickly, and act on it – right now. We still have a window on this in the United States but it is closing rapidly. If we do not learn this lesson from what is going on over in Europe we are absolutely fooked when this dynamic moves over here, and it inevitably will, perhaps within weeks or months rather than years.
- We must move toward One Dollar of Capital. Yes, that’s going to piss off the banksters who will no longer be able to lever up on the back of the taxpayer. Too damn bad. This is the source of the socialized losses and all of the “tanks in the streets” threats and it must end. This is not about social justice or any such thing – it is about the fact that the banksters, if allowed to continue this behavior, will bankrupt nations through this process. If you doubt they will then you doubt Greece’s problems are real, but they clearly are. You can’t have this one both ways folks.
I am getting extremely pessimistic in the intermediate term with regard to markets – in particular credit markets and then the economy as a whole. This is not simply due to the ongoing and un-paid for “stimulus” measures, including Obama’s latest demands.
It is due to the fact that financial terrorism has become the means of survival for these large banking institutions and we have not only continued to negotiate with the terrorists, we have given into their demands on a serial basis both here and abroad.