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Archive for the ‘sovereign debt crisis’ Category

Really?  Then what’s this?

The lenders being tested include 14 from Germany, six from Greece and four from the U.K., the Committee of European Banking Supervisors said in an e-mailed statement. EU banking regulators have told lenders that their planned stress tests may assume a loss of about 17 percent on Greek government debt and 3 percent on Spanish bonds, according to two people briefed on the talks.

Uh, a loss on government bonds held to maturity eh? 

That would only happen in the event of a default by both governments!

I have said repeatedly that there is no possibility that the previous trajectory on government spending could be maintained.  Various European officials, including Trichet, have repeatedly said there would be no “default” or “restructuring” of Greek debt.

Well, which is it?

And if the ECB has taken in all the Greek debt that the banks can puke up to it (it has), and the premise of the “stress tests” is that there will be a 17% haircut, how is the ECB going to handle the losses on those bonds?

There are two possibilities:

1. Puke ‘em back up to the banks and make them eat ‘em (ha!)

2. Swallow and monetize.

Neither is a good thing for the stability of the Euro zone.  The former trashes bank balance sheets, the latter trashes nations that weren’t involved in the overspending to a degree that their government debt was not impugned, such as Germany.

“This sounds like the softest option possible,” said Stephen Pope, London-based chief global equity strategist at Cantor Fitzgerald. “If that is the indicator how stringent the stress tests will be, then they aren’t worth too much.”

Oh.  So the definition of “stress” is kinda like our definition – let people lie, and try to suck them into the market to support bankrupt firms – in this case, bankrupt banks.

That often works – for a little while.  But it doesn’t work forever because solvency doesn’t suddenly appear from insolvency.  That’s sort of like trying to unscramble an egg.

Best-a-luck to the European banks….. and those who believe whatever BS comes from the so-called “stress tests.”

The Market-Ticker

By Damon Vrabel

The gap between the truth vs. the lies that pass for truth in the media has never been so wide. But living a lie is very destructive, so it’s important to cross this gap. Today I want to clear up one of the most important lies reinforced by the media–the idea that we have sovereign countries.

No doubt most of you have heard of the sovereign debt crisis that so many countries are facing. We hear endless economists, reporters, and billionaire hedge fund raiders talk about it. But the phrase they use is fictitious. It is a fabrication of the Ivy League, Wall Street, and erudite periodicals like the Financial Times of London. Sovereign debt is an impossibility. It cannot exist.

It seems ridiculous to point this out, but sovereign debt implies sovereignty. Right? Well, if countries are sovereign, then how could they be required to be in debt to private banking institutions? How could they be so easily attacked by the likes of George Soros, JP Morgan Chase, and Goldman Sachs? Why would they be subjugated to the whims of auctions and traders?

A true sovereign is in debt to nobody and is not traded in the public markets. For example, how would George Soros attack, say, the British royal family? It’s not possible. They are sovereign. Their stock isn’t traded on the NYSE. He can’t orchestrate a naked short sell strategy to destroy their credit and force them to restructure their assets. But he can do that to most of the other 6.7 billion people of the world by designing attack strategies against the companies they work for and the governments they depend on.

The fact is that most countries are not sovereign (the few that are are being attacked by CIA/MI6/Mossad or the military). Instead they are administrative districts or customers of the global banking establishment whose power has grown steadily over time based on the math of the bond market, currently ruled by the US dollar, and the expansionary nature of fractional lending. Their cult of economists from places like Harvard, Chicago, and the London School have steadily eroded national sovereignty by forcing debt-based, floating currencies on countries. So let’s start being honest and stop describing their debt instruments as sovereign.

We long ago lost the free market envisioned by Adam Smith in the “Wealth of Nations.” Such a world would require sovereign currencies, i.e. currencies that are well-regulated rather than floating, and an asset rather than an interest-bearing debt. Only then could there be a “wealth of nations.” But now we have nothing but the “debt of nations.” The exponential math of debt by definition meant that countries would only lose their wealth over time and become increasingly indebted to the global central banking network.

So thanks to debt-based, free-floating currencies, the “wealth of nations” transitioned to the “debt of nations” which is now transitioning to the “death of nations.” The new world economic order with one currency, one banking system, one government, and one integrated corporate empire is on the horizon. Perhaps that’s a good thing, but if it were, why would the establishment concoct oxymorons like “sovereign debt” instead of telling the truth? That’s my only goal here–I think people can be trusted with the truth. Lies harm not only the population hearing them, but also the powerful people telling them.

Those powers have the best salesmen in the world, so why don’t they just sell the population on the truth? Apparently they don’t think you’d like it. Well now you have it. And it’s coming unless countries follow Iceland’s lead and recover their sovereignty. The choice is ours.

CSPER

I Know! Let’s Vilify Germany!

Posted by Karl Denninger

Amusing the articles on Bloomberg this morning… let’s start here:

“The situation has been tough for all of us, lawyers and regulators alike,” said Jochen Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt. “The step was dropped on us like a bomb and no one really had any time to prepare.”

Germany was criticized for banning naked short selling of debt securities as well as naked credit-default swaps last week. BaFin published the ban late in the evening of May 18 and the rules took effect less than four hours later. Stocks around the world fell and Germany’s benchmark DAX Index dropped more than 8 percent since the ban was announced.

Awwwwww poor babies!  You mean that people who bill by the hour actually had to put in some billable hours on time other than 9-5 Monday – Friday? 

Then there’s this:

The euro crisis is looking more like a German crisis every day. The way the single currency now works is clear: It involves massive transfers of wealth from the richer to the poorer regions. And it means you have a soft, political currency. If Germany doesn’t like that, it should decide it doesn’t want to be part of the euro club anymore.

Crisis?

Germany has no crisis.  It has a pension funding problem but as a percentage of the budget, as a percentage of GDP, as a fiscal matter they look like the Girl Scouts at this party.

The amusing part of this is that without Germany the Euro probably trades at about 30 cents to the dollar.  Why?  Because the entire Euro zone’s GDP has been “borrow and blow”, just like it has been in the US, and without Germany to anchor this you’ll get some really amazing dislocations over in Europe.

I hope Germany does leave the Euro and goes back to the Mark.  They should.  There’s no more reason for them to support this nonsense than there is for China to play mercantilist with us in the intermediate and longer term, although this sort of thing always looks good in the short term.  In China’s case their exports to America have been subsidized, and now Germany is being told they must do the same.

Bah.

Nations should do the right thing, which means stopping spending money they cannot obtain by actual taxation.

Note what Geithner said today:

European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” Geithner said earlier in Beijing today.

Oh really Timmy?  How about restoring sustainability to an unsustainable system IN THE UNITED STATES?

The “Pump Brigade” was out this morning in force on CNBS as the futures were down 200 DOW points and 25 handles on the S&P.  Why?  Well gee, you think there might be recognition that the concept of spending more than you make must end at some point, and when the point comes not through your decision to stop being a profligate jackass but because your creditors start jacking up the cost of borrowing more money this leads to an economic dislocation?

How many times do we need to see this movie?

Iceland proved what happens when you borrow and spend money you don’t have on an indefinite forward basis and the bubble pops.  We learned nothing from it and didn’t stop it, and a year later the same thing happened to Greece.

Now we have the very same pumpers claiming this is “irrational fear” in the markets today, and that “it won’t come here, America is strong.”

Uh huh.

We’re spending 11% of GDP beyond what we have with the government borrowing it and blowing it.  Remove that and GDP contracts by at least $1.5 trillion instantly and the economists all scream “DEPRESSION!“

The choice we have today is the same choice we had in 2000, 2007 and last year: We can either accept the damage that we have caused by our own hand – not as an accident, but as a consequence of our idiocy – or we can continue with the same Wimpy econolies that got us into this mess in the first place and instead of having a lot of damage we can have an economic catastrophe.

We cannot increase taxes to get out of this.  Historically, no matter the tax rate, governments seem to be unable to collect more than about 20% of GDP in taxes.  With a $14 trillion economy this means the federal government has to be limited to about $2.8 trillion in size maximum, and somewhat less during recessions (like now, for instance.)

But it’s not – it’s $4 trillion and growing.

The gap, currently $1.5 trillion, cannot be closed by “slowing the growth of the budget.”

The ugly truth is that most of what The Federal Government does is unconstitutional.  The Education and Agriculture Departments, Medicare, Medicaid, Social Security – all unconstitutional.  Yet we don’t care so long as “we get ours.”

This has to change.  “I got mine, now screw you” as a personal attitude must change.

If it does not, we will become Greece.

The Roof Is On Fire

Posted by Karl Denninger

The Euro Zone is in serious trouble, and Britain and we are next.

The game’s up folks.

Many people talk about us “printing” money.  Indeed, there’s a large brokerage that runs advertisements on CNBS with that exact claim, over and over and over.  Ron Paul and Peter Schiff have run this mantra for years.

This chart says something else entirely:

THERE HAS BEEN NO PRINTING GOING ON!

No, what’s been happening is worse. 

Worldwide governments have borrowed and spent huge percentages of their GDP in a puerile attempt to protect a criminal class that has looted the public and bribed the legislature – THE BANKS.

There was always a point where this would fail, but it is flatly impossible for anyone to know exactly where it was beforehand.

But mathematically, there was a point where it would fail.

The gamble that Bernanke, Trichet, Obama, Bush, Paulson, Geithner and everyone else in the world took is that we could do this for a short period of time and that in doing so private demand would pick up and return us to “stability.”

THESE PEOPLE DID NOT STUDY THE ABOVE CHART, AND THEY’RE F^#KING IDIOTS FOR BELIEVING THAT WHICH WAS TRIED IN 2003-2007, WITH A HIGHER DEBT LOAD THAN WE HAD THEN, WOULD WORK NOW WHEN IT FAILED IN 2003.

Failed?

Yes, FAILED.

O’Neill was on Bloomberg the other day.  He was Bush’s Treasury Secretary during part of his first term, until he resigned under pressure from the administration.  Why did he resign in 2002?

BECAUSE HE KNEW THAT WHAT THE BUSH ADMINISTRATION WAS DOING WOULD NOT WORK.

A study he ran in 2002 showed that the United States would be running budget deficits of more than $500 billion going forward, and that to fix it we would have to enact an across-the-board tax increase of more than 60% or radically cut entitlement spending.

We did neither, of course, and Bush pushed through a huge entitlement increase in an attempt to appease Democrats.  It did, but it also created a structural $500 billion budget deficit that we couldn’t get rid of.

The remaining years of the “boom” from 2003-2007 were all fueled by fraud.  Unable to generate positive GDP through organic growth and productivity we instead imported 20 million illegal Mexicans (who our current President refuses to send home and seal the border against, even though Calderon, who wants us to legalize them all, arrests and deports more illegal immigrants a year from Mexico than we catch!) and blew a huge housing bubble, giving anyone with a pulse a loan to buy a house irrespective of their ability to pay.

These weren’t even mortgages – they were virtually all balloon notes that were never intended to be paid, but instead designed and intended to force the “buyer” to come back in 2 or 3 years and refinance, so the banks could skim off yet another set of fees for themselves and steal any equity that the hapless owner had accumulated.  If there was excess “equity” the banks graciously let you have some of it during that refinance to buy a boat (with equity that didn’t really exist, but for which you’d be obligated in the future.)

Three years ago I said we couldn’t get away with the intervention.  Those who have been reading The Ticker since the beginning know that I have written several open letters, have faxed tens of thousands of pages to Congress, and have offered to get in a car or on a plane and come testify – under oath – as to the mathematical certainty of what we face and what we must do.

You also know that nobody wants to hear it and no such invitation has been forthcoming, that I was basically laughed off CNBS and that the “rah rah” crowd all got millions of Americans to pile back into the stock market.

Yeah, ok.

Folks, it’s quite simple.  Accumulation of debt is inflationary.  It pulls forward demand from tomorrow.  Look at house prices from 2003-2007 for your best and finest example – they quadrupled in some areas and doubled in many more.  20%+ “appreciation” annually was common.

But when you take on debt to buy something you’re buying today what you would otherwise consume tomorrow.  This is the Wimpy action: “I will gladly pay you Tuesday for a hamburger today.”

But when Tuesday comes, you’ve already eaten the hamburger, you’re hungry again, and if you pay the hamburger stand owner you now have no money with which to buy another hamburger. 

When debt loads rise to the point that you can no longer buy both today’s hamburger and pay for the one you ate last week the impact is deflationary, because today’s demand, having been pulled forward from yesterday, can no longer be sustained.  Without demand sales collapse and without sales there is no profit – and no employment.

Keynesian economic thought is fundamentally bankrupt, as it requires that treasuries be rebuilt during flush times so you can spend the money during bad times.  Keynesian economics does not include, and never did, borrowing to spend.  That’s a corruption of Keynes beliefs but it is where attempting to apply Keynes economic “theories” to the real world always ends up, as government will always find a place to blow a surplus, thereby guaranteeing there won’t be one to spend when the bad times come.

As such the best we can do is allow business cycle downturns to work themselves out.  Yes, this process will suck.  Yes, people will lose their jobs.  Yes, people will go bankrupt.  But we must never, ever backstop businesses – including banks.  We can (and should) backstop depositors (people) through a self-funded insurance fund (which is what the FDIC is supposed to be, and would be if run correctly) but even there we can’t make people 100% whole, as it drives them to “reach for yield” and thus chase insolvent institutions.  Changing the FDIC to pay 80% of insured deposits (instead of 100%) would be sufficient to both prevent people from being bankrupted but also stop the “chase for yield” that winds up supporting those who have already gone bust.

I remain willing and able to get on that plane or in that car and come testify before any body of Congress, under oath, or lay it all out on any form of broadcast media. 

But Congress doesn’t want to hear it, and “Tout TV” sure as hell doesn’t want to broadcast it – especially not the above chart and what it means, even though that, properly explained, makes everything crystal-clear – and irrefutably so.

It sucks to have to say “See, I told you so!”, because we had an opportunity to flush these banksters down the toilet in 2007 and 2008, and failed to take it.  Yes, we would have had to recognize the Depression we are in right now, but by now it would be over and employment would be truly recovering.  We would have been forced to put in place something like The Fair Tax to keep our government from imploding and that would have brought 70% or more of all the multinational corporations to our shores over the intervening couple of years, stabilizing our economy.  We would have broken the back of the bankster cartel, jailed a bunch of ‘em and made damn sure it could not happen again by re-imposing Glass-Steagall.  Those who were not jailed would have fled to other nations, waving their fingers at us at how “those countries” would be better off.  Then they would have flushed in their excessive debt loads while we, in America, would have taken our medicine already.

Yes, all this would have been at the rest of the world’s expense – that’s what happens when you do it right and everyone else does it wrong.

But we didn’t choose to do that.  We still can do the right thing, by the way, but now the damage is greater, because you can’t unbreak an egg.  The $3 trillion+ that we borrowed and spent is gone. 

Our options remain as they were in 2007.  We can take our medicine and accept the damage that has already been done yet papered over and shoveled under the carpet or we can continue to lie and pray that we don’t end up like Greece.

But prayer doesn’t work when you’re asking God to intervene against a mathematical reality that you created by your own hand, and thus what’s coming – and you’re asking for the divine to stop - is something you deserve.

No US Taxpayer Dollars for Greek Bailouts

By J.D. Foster

The European Union (EU) has gone hat in hand to the International Monetary Fund (IMF) for assistance in bailing out one of its own. Greece is in a financial death spiral brought on by years of amazingly irresponsible deficit spending and similar behaviors often found in socialist states to the detriment of their economies. Greece also abandoned its national currency in favor of the Euro, in hindsight at least a stunningly bad move which for the EU makes this a major financial crisis and an embarrassment of the first order. What makes these otherwise somewhat removed events of immediate concern to the United States is that the IMF intends to use US taxpayer dollars to try to stave off Grecian disaster.

The relevant specifics of the Greek bailout are that the Eurozone (mostly Germany and France) is to chip in $106 billion while the IMF is to plus up this amount with another $39 billion. The IMF, of course, is tapping funds provided by its own member governments to participate in the bailout. As it happens, the Obama Administration convinced the Congress to give the IMF an extra $100 billion in play money last year. How convenient.

Suppose we suspend all credulity for a moment and imagine the Greeks will get their fiscal house in order, their economy won’t collapse under the now vastly higher taxes, workers will tire of striking in the streets and so return to work having seen their wages slashed, and that no other country (read, Portugal, Spain, Italy, Ireland, the U.K.) is caught up in the building financial contagion. In short, suppose we imagine the bailout works. Exactly why are U.S. tax dollars being used to bail out a European basket case?

And, of course, the odds are somewhere between slim and none that the Greek bailout will work. Having gotten the loan, will the perennially weak Greek government have the determination let alone the muscle to devalue the artificially elevated Greek standard of living? Fat chance.

Nor is Greece alone, but rather merely the first. A Mediterranean contagion is starting that is likely to sweep up many sad actors in the region. Are US taxpayer dollars to be used to bail out these countries, as well?

It was bad enough when the federal government bailed out AIG, and then Fannie Mae and Freddie Mac, and then many of the mega banks, and then GM and Chrysler. At least these had the modest merit of being US companies with US workers. Even if US government finances were in pristine shape, US taxpayer dollars should not be used to bail out a perennially dysfunctional state. But as spending-driven trillion dollar budget deficits and a Presidential debt commission starkly evidence, the US is seriously risking its own Greek-style sovereign debt crisis. Fortunately, the US doesn’t need an IMF bailout. It only needs a President willing to acknowledge that he has led the country on a Grecian spending binge it cannot afford.

Fortunately, Congressman Mike Pence (R-IN) and Congresswoman Cathy McMorris Rogers (R-WA) share this view and are circulating a letter to Treasury Secretary Geithner to urge him to protect American taxpayers from such nonsense. If European leaders wish to be Greek patsies then that’s their business. American taxpayer dollars should have no place in this foolishness.

Threats Of Civil War

Posted by Karl Denninger

Just reported: Greece will not cut public salaries or there wll be civil war.

There’s the gauntlet folks.  It means that no “assistance” can actually succeed, because it is not possible to get the fiscal situation under control without significant cuts in public spending.

This, incidentally, is the same problem we have in the US, and why attempts to deal with our fiscal situation at both state and federal levels is going to end up in the same place eventually.  The majority of our budget is comprised of handouts of one form or another, whether they be Social Security, Medicare, or public-sector salaries.

The “unified opposition” by public-sector employee unions (just look at what Florida teachers ran when their pension handouts and tenure were threatened) says everything you need to know.

Greece has to be cut loose.  The best way to do it is for Germany to walk away from the Euro and return to the Mark for its currency, leaving the rest of Europe to twist in the wind.

I see no other solution.  Threats of civil war, which are effectively what the public sector unions here in the US have also threatened repeatedly since 2008 (and to which we have responded by refusing to cut their salaries and benefits) mean that we have the irresistible force meeting the immovable object.

All such governments who refuse to take on these bullies and meet that threat with immediate charges of inciting overthrow of the government by force (in the US this charge is known as seditious conspiracy) will fail.

We have refused to make clear that such threats will result in charges of this sort - and so have other nations such as Greece.  Yet unless this is made crystal clear and this sort of approach by these unions is put down immediately all nations beset by this sort of action will fail both politically and economically.

Simply put the artificial support proffered to the financial sector should have never been put forward, but having done so, the public must now bear the cost, here, today, and immediately.

Those are the only choices folks.  Greece, and indeed the entire European Union, will ultimately disintegrate (as will America) if this is not done.