FedUpUSA

Archive for the ‘Germany’ Category

No doubt emergency meets are underway in numerous countries right now following a failed German bond auction. Bond auctions have failed before, but not in Germany (at least by this much), and never at a worse time.

 

Link if above video does not play: German Bond Auction Disaster

Key Ideas Expressed in Video

“What people are saying is Germany is going to have to pay the bill. … Just possibly, today is the day people may have decided German bonds are not the safe haven they thought they were. … It’s all about confidence isn’t it?”

It’s actually about solvency, not liquidity, not confidence. Solvency issues in Greece, Spain, and Portugal have now affected the core.

Mike “Mish” Shedlock

Global Economic Analysis

Damn we don’t learn, do we?

Merkel has suggested she would like to see the EU have the right to interfere in national budgets in extreme cases where euro zone stability is put at risk. But Germany has stopped short of that in its proposals and asks rather for sanctions for those that breach deficit rules to be written into the treaty.

This would involve the right to challenge states at the European Court, to have their budgets declared void, without meddling further in the details.

Uh huh.  Void a budget eh?  So what can you spend without a budget?  That would be…. nothing, right?

So what is the fundamental function of a government?  Why it is to provide services to the people that enable it (remember, all governments exist with the consent of the governed.)  What Merkel and the rest of Germany proposes is nothing less than the arrogation to themselves of the sovereign right of other nations.

That’s what happens in a war ladies and gentlemen, and whether its done with a briefcase or a gun it is in fact the same thing.

The inevitable outcome of this action will be the same too, just as it was in the early 1900s and then again in the 1930s.

And people wonder why I have said that the “Tea Party” has no claim to anything here, as they sold out immediately upon election and have utterly refused to demand that the people and institutions responsible for the mess we are in be held to account.  In fact we have both sides of the aisle claiming that “there was no lawbreaking” going on — of course as I have repeatedly documented this is only true if you ignore repeat offenses in securities laws, money laundering for drug cartels and the filing of over a hundred thousand perjured affidavits — for openers.

As a direct and proximate cause of this willful aversion of eyes, along with the complicity and active involvement of both major political parties, we’re seeing the inexorable march of the same dynamics that twice before led to massive armed conflicts once again arise on the land, and originating in the same part of the world where it did the last time.

We learned nothing.

I don’t usually write on rumors, but this one simply will not go away.

Germany is rumored to have ordered printing plates to resume printing Marks, and is intending to walk.  This does make sense, although the Germans would have to find a way to shield their banks from the impact of a massive shift off the Euro and into the Mark by Germans, which would spike the Mark higher and positively trash the Euro’s value.

The usual answer to “why they won’t” is that the Mark would become ridiculously strong and that would kill Germany’s export industry, which being goods based (rather than the faux “export industry” that is often mostly services) would get plastered.  The core of most commentators’ thesis is that this fact would preclude Germany from doing it.

But here’s the problem – playing the bailout game is a tax exactly identical to the impact of that stronger currency, and the bailout game costs you the decision-making power you retain when you are the one in control of your own destiny.

The German people are tired of the crap and with good reason.  They should not have bailed out Greece in the first place; they effectively rewarded cheating, as Greece was caught cooking the books.  Rather than prosecute the banks involved and yanking their charters, along with saying “No Mas!” they knelt down and performed an obscene act – more than once.  There is a political limit to how far you can go with these acts before the people act in whatever manner is necessary to put a stop to it, and the Germans have a long and painful history of what popular tolerance of political stupidity leads to.

I think there’s at least some credibility to this rumor.  I can’t put a percentage on the bet, but it’s not pure tinfoil nonsense.  Whether Germany actually goes ahead and does it likely depends on whether there is a further contagion – and I think there will be.  In fact, as I noted yesterday in an interview (to be published as a podcast next week) I have a nasty suspicion that Europe will ultimately “resolve” this problem the way Europe has in the past – via the business end of a bunch of hot lead-chuckers.

That would be disastrous but not surprising, given historical precedent.

Here’s the problem, when you get down to it – there comes a point where further bailouts have to be refused, simply because there’s no money to fund them.  I don’t know exactly where that line is, but I do know it exists.  Believing it doesn’t is the stuff of fantasy, and yet that’s exactly what the “Troika”, the IMF and others are all running.

The market says “BS!” to all of this; the sell-off in the equity markets is bad, but the implied forward view looking at high yield credit is far worse, and that looking at credit-default spreads is even worse than that.  The latter on a number of institutions are showing the sorts of numbers that immediately preceded Lehman’s failure, implying the potential for a “no-notice” liquidity seizure.

If it happens, and if it does it is likely to come almost without warning if not literally without warning, Germany would find it very expedient to leave the Euro.

Note that the treaties that formed the Euro left no means to expel a misbehaving “member.”  But there’s no way to restrain a nation from deciding to quit as opposed to being expelled.

Many believe that Greece will leave instead.  They may, but only when it’s clear that there will be no more “bailouts” forthcoming.  Their departure would destroy their banks instantly, unless it was coupled with a simultaneous “by declaration” re-denomination at par of all Euro-denominated debts in the nation into the Drachma.

That, incidentally, is not beyond the realm of possibility.  What other nations in the Euro would think of it, and the sort of tectonic reaction it would generate, is another thing entirely.

I think we’re weeks to months away from a catastrophic failure somewhere in Europe, and the slowdown in Asia is much worse than is being reported.  Any belief that we’re going to avoid the repercussions of these events is pure folly.

That is a light you see down the tunnel, now that we have walked in well over a mile from the mouth.

Unfortunately that light it is a train and there is no chance we can run the other way fast enough to avoid being flattened.

I’m going to add to Mr. Denninger’s excellent post by mentioning that at least one prominent financial/economics advisor wholeheartedly agrees with the idea that Germany will leave the Euro.  Dr. Philippa (Pippa) Malmgren, President and founder of Principals Asset Management based in London had this to say earlier this month:

News to expect in the coming days and weeks:

• Greece defaults
• Germany protects German banks but other countries cannot do the same thus quickly provoking multiple sovereign defaults and or bank failures, all of which may easily lead to a payments crisis in the global banking system. Derivatives are particularly at risk in terms of operation and execution.
• The Euro falls in value especially against the US dollar
• The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.
• The Euro falls even more on any news that Germany is withdrawing from the Euro.

Meanwhile, it may be that Germany is not alone in this line of thinking.  Anyone remember the Irish bank crisis that was in the news for months earlier this year?  Well, they haven’t solved anything, it’s just that with Greece’s imminent default, the focus was shifted.  That little crisis is still bubbling away in the background.  So much so that there is at least one report of their secretly printing their old currency.

The Guardian: Ireland Printing Its Old Currency, Just in Case

Ireland’s central bank reportedly is printing Ireland’s old currency in case the country leaves the eurozone. At least that’s the rumor circulating in Dublin, notes Alan McQuaid, chief economist at Bloxham stockbrokers in that city.

McQuaid, writing a guest commentary for The Guardian, says he’s not sure if the rumor is true. But he does hope Ireland has contingency plans in case the euro disintegrates.

Then again, given the record of European leaders, a lack of backup plan wouldn’t be surprising.

As Greece struggles to remain solvent, the European monetary union is scrambling to stop the debt crisis from spreading. If the crisis does spread, Ireland might be next in line.

Some pundits say Ireland should drop the euro.

Being master of your own destiny does have appeal, McQuaid admits. If it returned to the punt, Ireland could boost exports by devaluing the currency and reduce its debt burden.

But if it had its own currency, the Irish would move their deposits overseas, which could destroy the country’s banks.

All is not well in the Eurozone.  I think it is not much longer before the detonations begin.

Who isn’t paying attention here?

Andreas Vosskuhle, head of the constitutional court, said politicians do not have the legal authority to sign away the birthright of the German people without their explicit consent.

“The sovereignty of the German state is inviolate and anchored in perpetuity by basic law. It may not be abandoned by the legislature (even with its powers to amend the constitution),” he said.

“There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit – which might be politically legitimate and desirable – then Germany must give itself a new constitution. A referendum would be necessary. This cannot be done without the people,” he told newspaper Frankfurter Allgemeine.

Oh I see.  So the expansion of the EFSF, including the “re-purposing” to turn it into a giant SIV which can then lever itself up to €2 trillion or more, isn’t legal from a German perspective without a formal vote of the people?

Yet Thursday, the markets believe, will mark the day this happens.  The Euro is soaring this morning and the futures have been on a relentless march since midnight when Europeans woke up “over there” and started trading among themselves.

The problem with leverage is that it magnifies losses as well as gains.  There is never a free lunch in finance just as there is not in thermodynamics – you can trade one thing for another, but never is there a move that is free of risk, and just as in thermodynamics loss is also an inescapable part of the equation.

I have to be cynical on this one.  Should the EFSF actually “pass” the immediate result is likely to be a credit downgrade for both France and Germany, and this assumes that implementation can be put forward.  I don’t see it.

The problem is that thus far we’re not seeing what has to happen to actually fix the problem be proposed: Reduction of debt to sustainable levels and a removal of systemic leverage.

The reason this isn’t being proposed (here or there) should be obvious: Doing so means an end to the “vote us some more free shit and then write a new and larger rubber check to cover both it and the previous rubber check that Joe’s trying to present over there so it doesn’t bounce!”

This is a losing formula for economic stability just as taking another hit off the crack pipe to “solve” your withdrawal from the previous night’s binge doesn’t work either.  Oh sure, it stops the shakes – for a while.  But every hit you take weakens your heart and deepens your addiction.  Eventually you run out of either money (for most of us) or margin in your cardiovascular system (if you’re a rock star) and turn to crime or fall over dead.

The politicians of the world are acting like the addict who has run out of money and rocks – they’re sniffing the carpet looking for the one little piece they dropped last night during the height of their binge, desperate for another hit.  Our economy has $53 trillion in debt outstanding against $15 trillion in GDP; at a blended 5% interest rate that’s more than $2.5 trillion in interest payments, or one dollar in six that does no useful “work” in the economy but merely shifts around who gets the benefits.

Many people decry “wealth disparity” but in point of fact this sort of slavery is self-inflicted and no amount of legislation to “redistribute” fixes it.  The solution is simple: No more shifting of risk to the taxpayer and sheltering people from their own stupidity.

The only solution that actually works is to default that which cannot be paid and allow those who wrote these bad loans to eat them.  This will bankrupt many of those “rich” who knowingly lent money to people who can’t pay – whether they be governments, businesses or people.  It will cause a gross contraction in GDP on a temporary basis.

If you have a serious desire to see “wealth disparity” addressed this is how you do it.  Those who are paper rich will get trashed in such a correction, but it’s not only the appropriate means to address the problem it’s the only sustainable way you can address it.  The Deutsche Banks and JP Morgans have to be told to stuff it where the sun doesn’t shine, be forced to perform honest accounting of their asset values and when shown to be insolvent, be closed with their bondholders and shareholders absorbing the loss.  Let the directors and executives of these corporations stand before the shareholders and pensioners who own their bonds and shares (indirectly in most cases) and stand trial in a very public court of the “angry mob” for their sin of excessive abuse of leverage.  The threat of having to face those who got shafted might cause them to seek trial in an ordinary criminal court instead, as at least in prison they can find some modicum of security.

At the same time we must stop the capital drain that our unbalanced and idiotic trade policies have put in place, we must neuter the so-called “Fed 2% inflation mandate” and enforce the written law of stable prices, and we must resolve our energy problem here at home as this is responsible for about half of the trade deficit issue.

I don’t believe for a minute that Greece is going to successfully avoid default.  Rather, they’re going to do what we’re doing – they will play along, lie and cheat right up until the rug gets pulled out from under them.  And why not – it’s worked thus far, and addicts only fix their addictions when they either die or hit rock bottom – from where there is nowhere to go by upward toward recovery.

From Reuters:

“I don’t think that banks will get around further charges regarding Greece,” BdB President Andreas Schmitz told Reuters in an interview in Washington, adding that the effects of the Greek crisis were manageable if it could be contained.

Bankster speak to English: We intentionally loaned Greece money knowing they could not pay.  We did so even though we knew Goldman and others had helped Greece lie about deficits and thus their fiscal condition.

Schmitz said that this kind of dissent only added to investors’ concerns and that it was crucial that the German parliament approves the granting of new powers to the existing euro zone rescue mechanism, the European Financial Stability Facility (EFSF) in a key vote on September 29.

Bankster speak to English: Now that we did these stupid things, it is imperative that the public be forced to bail us out.  If they do not the gates of Hell will open and Lucifer will roam the land.

The correct response to the Banksters is as follows:

Go get stuffed.  We will not bail you out.  The bondholders who foolishly gave you money without doing their diligence and your executives must pay for your idiotic acts.   We demand that the government treat any such demand as extortion and terroristic threats and arrest, try, and punish you under existing law for those crimes should you commit them.