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With $2 Trillion In 3 Year Funding Needs By the PIIGS, The IMF Is Helpless To Do Anything But Sit Back And Watch
Total PIIGS funding needs (defined as the sum of debt maturities and budget deficits) over the next 3 years amount to $2 trillion. Total PIIGS funding needs in 2010 alone amount to $600 billion. Total IMF bail out capacity: around $700 billion. Sorry - it simply does not compute.
Below is a table summarizing the funding needs of just the PIIGS.
On Tuesday all the PIIGS had essentially entered the unfundable zone as each's cost of funding surged, meaning the IMF would have to guarantee or bail them all out. We will certainly see this contagion again as the PIIGS now commence spending with unprecedented profligacy, knowing full well they will be bailed out when the time comes.
So just how equipped is the IMF to deal with this funding requirement?
From Bank Of America:
The IMF primarily funds itself through payments of quotas from member countries, which is based on the country’s relative size in the world economy. Currently, the amount of quotas totals SDR 217 billion, or $328 billion. The IMF additionally supplements quota subscriptions through two credit arrangements between the IMF and a group of member countries – New Arrangements to Borrow (NAB) and General Arrangements to Borrow (GAB). The NAB totals approximately $550 billion from 38 participants, recently expanded from $50 billion and 26 participants, and is used as a credit facility intended to backstop quota resources. The GAB enables the IMF to borrow from participant countries or their central banks under certain circumstances at market-related interest rates.
In reality, the amount the IMF has readily available for new lending is primarily determined by the one-year forward commitment capacity (though this figure is not a rigid maximum). The amount equals usable resources, including unused amounts under loan and note purchase agreements, plus projected loan repayments over the subsequent twelve months, less the resources that have already been committed under existing lending arrangements, less a prudential balance. Currently, the one-year forward capacity stands at SDR 165 billion, or $248 bilion.
In case you missed it, the top two countries on the hook to fund the World bailout are the US and Japan, the two countries caught in the greatest deflationary throes since the great depression. Coincidence, or willful dollar(yen)slaughter: you decide. The only solution for world bailout v2: raise the ceiling for the NAB from 500 billion to 5 trillion. That should do miracles for the deflation... But it probably won't.
But stepping back to look at the big picture, in one hand you have $2 trillion, in the other one third of that: which one is heavier? And why does the IMF lie each and every day when it says it can keep the situation under control. Again - it does not compute. Just keep rolling the Quanto CDS in, Goldman.
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Exactly, sit back and watch the fireworks, a few delays here and there but overall we won't be sitting on a internet blog talking about this in 10 years. Enjoy the entertainment, it's like watching a insect trying to get out of a spider web.
The engine of the world went into reverse, credit destruction not credit creation, death spiral. Decoupling is the myth paid advisors want you to believe. Once the US fails it's over, it's already over we just don't know the exact date yet.
Portugal will lend to Greece, Greece will lend to Spain, Spain will lend to Italy, Italy will lend to France, France will lend to Ireland, etc. until someone goes around the horn and lends it back to Portugal.
It's a death spiral folks.
Looks like is unwinding just as you have been describing for months now Mako.
Just wait until oil spikes.......
UK is a rising star on the sovereign debt supernova list. My guess is the UK will fall somewhere between Spain and Italy. This raises an interesting question: will this process be an orderly collapse, with each sovereign being extinquished discretely like a row of domino's, or will the first implosion trigger a systemic event and take the entire house of cards down all at once ?
Champagne supernova is my guess.
Growth has turned to contraction...there is no theory, school, or set of equations that make any sense to the debtpeddlers at this point because we have left Kansas.
No theory?
What if it's all going perfectly according to plan?
Gawed's plan?
If a bailout of Greece is followed by multiple other countries on the brink, it might force a recognition that much of Europe (and Japan, and the US, etc.) are in the same boat and the money doesn't exist to bail them all out. I think this recognition, if made openly and accepted, would cause some sort of attempted sit down to have as orderly a resolution as possible (i.e. a jubilee, or some other acknowledgement that creditors aren't going to get paid).
That would certainly be a huge historical event, meaning painful adjsustment for people across the world, but it wouldn't necessarily be a "collapse of society, zombie hoards rule the streets" caliber of collapse.
Get an AK-47 just in case they can't keep supermarkets stocked with diapers and baby formula - that's the tipping point: "My baby don't got no food Where da fuck is da guvamin?"
Oh, and gold. Stay ahead of the tanks or you'll be thinking: "Fucking Mako was right!"
Squish.
Yes indeed. The key point being necessity. The real deal is under what conditions will the resolution process proceed.
Something else may be in the works.
Each nation will settle into its correct orientation. All the pieces of the divine jigsaw puzzle are falling into place...
Beware the serpant....
They will throw their silver into the streets, and their gold will be an unclean thing. Their silver and gold will not be able to save them in the day of the LORD's wrath. They will not satisfy their hunger or fill their stomachs with it, for it has made them stumble into sin.
Ezekiel 7:19
I would only add that I implore Tyler/Dan to execise words like "helpless" from both titles & commetaries.
The IMF is not helpless. Their role is simply to satisfactoriy execute public sector debt saturation. That's it - to achieve Mako's end point with all due course.
Whatever else is read into their intentions, whether one has been unduly influenced by Keynesien misdirection or monetary subterfuge, it would behoove astute readers to abandon post haste.
Here's how it works:
We've now see 3 out of 4 steps (long, short, long) executed in perfect harmony. The last stage may take the longest to fulfill, but rest assured the goal is within reach.
At what point does mass Point of Recognition arrive that the oil peak means that the Age of Growth is over?
The future cannot repay today's debts.
I have to believe that somebody besides a few of us was perspicacious enough to see this...and yet this debtmoney is still afforded confidence and respect. So, why not just print it? I think mass inertia and ostrich behavior should carry us through...
Travis, the power-elite control the media. That means the truth won't be allowed to take root until the appropriate time. IOW, we won't see the truth appear until their short positions have been established for maximum return.
Imagine transporting your comments back to 2006. GS, et al knew private sector debt saturation was nearing its terminal end-point and were preparing their shorts accordingly.
But what about the MSM? Sure there were whispers, but was it common knowledge? Of course not; thus the growth of the original blogs. Well, fast forward to 2008 and we now have a complete paradigm shift, where everyone knew real estate was overpriced and would collapse.
At some point in the near future, the power-elite will direct their MSM units to broadcast the truth and it will suddenly become common knowledge that both Keynes/monetary theories were merely covers to fulfill maximum public debt saturation.
At that point the sword drops. Of course, by that time the engineers will already be in extradition proof nations with their tons of bullion safely tucked away.
Yep, if the MSM is talking about something broadly, you've already missed out. Buy the rumor, sell the fact.
Wall St insider bulls make money, Bear sterns get taken out, PIIGS get slaughtered.
Yeah. It's like that scene in the new Strek Trek movie where they have the last battle scene and the red matter develops into a massive black hole.
The antagonist, Nero (aka Greece), is asked if he needs assistance. Nero essentially says go to hell and the Enterprise (IMF) needlessly throws all it's ammunition at a ship that is going to be sucked into the vortex anyway.
So... everyone and their grandmother on the Enterprise is patting themselves on the back, when Sulu warns that they are indeed to close to the vortex, and even at maximum warp they can get out.
Now, we all know that these movies must have happy endings, so Scotty is sent to the rescue and throws some sort of dilithium-based canisters out the back port into the black hole... and Voila! A massive explosion from the black hole expands and pushes the Enterprise to safety.
Our Federal Reserve and IMF is trying to do the same thing as Scotty-- excpet that they're actually trying to save Nero, the bad guy. The black hole is real. The solutions are folly, as adding more debt to to over indebted and deficit-laden countries intensifies the black hole.
If this plan "works", Greece don't have to pay squat in so called austerity. They just need to ask for more money-- or threaten default. Default would cause a chain reaction involving Spain, Portugal, Italy, etc.
This is how stupid the whole thing has become. The enlightened Germans are "getting convinced" that allowing Greece to default would cause a chain reaction of unintended consequences. Yeah... it will hurt a lot of banks that took poor risks. Allowing Greece to be bailed out will raise the stakes 100x, as Greece has no great incentive to pay a dime back. Just threaten default, and all will be good. Greece will default anyway.
Live long and prosper.
+! Assetman. The beast will always demand more. Even as it consumes itself. If Germany, or the rest of Europe were serious about the future of pan-European stability it would be talking resolution over not only the whole of the PIIGS, but greater Europe (EMU/EU and peripheral nations) as well. It is time the Europeans truly gave consideration to the conditions that not only permitted, encouraged and made hopelessly interdependent the development of this general condition, but a structure that actually works to support and sustain the region. The deal is that by creating a world financial system premised upon the MAD concept where sovereign power is made subservient to private big money power no one can escape the resolution of the unsustainable fiscal and monetary situations unscathed. This is the great Ponzi's self defense mechanism and it must be removed from the situation for stability to be restored in Europe.
Print more money?
Ben and Tim may end up laboring at the printing press up until the end, printing faster and faster, until the magma flow overtakes them.
If you can fund your own credit there would be no reason to have a credit system.
Just call Ben Bernanke - he can get an intern to print that much at the press of a button.
The US had the same problem (remember the 1.7T Bennie printed?). The US can paper over the problem but the EU can't? Sorry to be a skeptic but I think investors have proven 2 things: 1) they have a shit-load of money to do something with and 2) they don't really care about structural problems. At all.
Which 'investors'? The prop trading desks? Most of us are sitting on the sidelines. Da Boyz are all planning on getting out when they need to. If you don't know who the patsy is in the game, then you're the patsy. Anybody who allows themselves to be sheared this second time fully deserves the abbatoir instead.
Eurozone dont exactly have a funding problem. Saving rate in eurozone is 15,1%. http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-30042010-CP/EN/2-300...
The real question are borrowing costs.
BTW....does anyone know how much physical gold the US actually has?
Could the plan be to default on all US debts, crash the system, and then restart under a gold standard, all while protected by the most powerful military in history?
This wikipedia link might help, it shows total holdings as of Dec 2009 not counting the recent selloffs by the IMF
http://en.wikipedia.org/wiki/Gold_reserve
$5 trillion for all gold ever mined?!?! Wow, that's just a blip.
Ahhhhh....the joy of fiat currency. You can "create" a multi-trillion dollar mess because you're not restricted by that pesky gold value thing.
The system was never restricted by gold, which is why you had bank runs even during gold and silver standard days. Gold holder goes to the bank, deposit the gold, bank lends out with compounding interest, gold holder receives a part of the cut. Eventually the amount being compounding is more then the supply. Bank run, credit collapses, people die. Been going on for 1000s of years.
Credit expansion has never been restricted by the amount of gold or silver, eventually the compounding interest expands the system past system of whatever your medium of exchange is, once it is no longer able to expand... poof, unfunded liabilities have to be wiped from the payroll. Last time 100+ million unfunded were wiped off the payroll.
well...it gets worse than that. Such a system as you describe would have a longterm stability.
What happens is that the bankers begin lending gold they don't even possess. The Sterling Bill was the lynchpin of British Imperial Power for centuries based upon this.
They ran inflation bubbles all throughout the east and latin america long before this crisis or the .com bubble ever "struck" anyone as the first bubble they'd ever seen. People really need to review history. Pump & dump has been used habitually by the major powers on the developing world with unbacked debtmoney for a long, long time.
There were so many bubbles after the BOE's inception that it wasn't funny. The Sterling Bill was a truly revolutionary invention. It was allowed to impersonate gold all over the world.
jkruffin,
We KNOW China's numbers are lies..............they have FAR more than they have reported....far more.
I hate to say this, but...
I would be very plesantly surprised if there was ANY gold left at Ft. Knox!
I'd say there is. Just enough to coat all the tungsten bars. That might be good for a few million bucks.
Mark,
There's NO GOLD in Ft.Knox, what WAS there was transferred to a Central Holding bank in NYC years ago.
No chance of a real audit, ever. WWIII before that. You're right - no fucking way. Bastards robbed us already - why else is American Idle the #1 show?
Sounds like I need to invest in companies that manufacture printing presses.
Unfortunately, they print their capital themselves.
End game. Only question is how long it takes. Maybe we'll get another 10,000 PIIGS bailout stories.
The Italians alone should be fun the watch. I have first dibs on the coliseum. I'll refurbish the floor and seats and put on steel cage death matches (as in severed bloodly heads and lions) of bankers and sell the TV rights for zillions.
Barney Frank vs. Warren Buffet with standard paper sheets.
with standard new 100$ bills. LOL!
US TBTF bank CEOs against PIIGS union workers. The CEOs are allowed to shield themselves with printouts listing their off-book toxic assets which will be collected for review after the fight has ended.
Money ain't worth shit by then...better get paid in olive oil..
It is a very drafty place and difficult to heat...probably best to burn fiat currencies as a fuel source.
heh..
http://www.youtube.com/watch?v=yKs8ft0dBss
Meanwhile State and Muni budgets blow out the walls on this side of the pond. The 'G' in GDP might as well represent 'Government', Federal Government.
I'd like to see the SDR contributions per capita. I think Canada gets hosed on that one with 1/10 the population of the US. By that metric, I bet the Saudis get it really bad.
I'm with Mako on this one. Good stock of consummables, cozy chair: on with the show.
Unless someone finds true Superman, which unlike the comic book actually has unlimited power, there is nothing to do. The only way the collapse can be stopped is being God or God-like with limitless power. Well, I haven't seen anyone with that since I have been on this floating rock.
You would have to have an infinity amounts of Supermans to stop this. The only question is when, each day the power needed to sustain the system grow exponentially.
Why people are mad is actually a surprise to me. The lemmings go without thinking walking down the road to doom and are surprised that the end of the line there's a cliff. Well, the cliff was there the whole time, why did the lemmings agree to take the road to doom? The lemmings have themselves to blame. Of course, most of the lemmings continue to believe they are going to get out of this. Still marching....
YOu and I will sit back and watch the lemmings.
We're with Chuck Heston at the bottom of the Red Sea and someone just took the Lord's name in vain.
Why would the IMF need to come up with 100% of the funding requirements for 3 years? I'm not saying the situation isn't hopeless. It is.
But I don't think $2T is the right number. The IMF could run a successful bailout for less than this amount, although it won't fix anything and there will just be more and more countries needing bailouts going forward until there are some actual large defaults, which is inevitable.
Agreed. Bailout the first one (or two) and the perception of risk declines...spreads on those next in line come screaming in and they fund in the market because the yield-hungry cash on the sidelines will step up to buy the now "low risk" sovereign paper...the wheels on the bus go round and round...
Rah Rah Sis Boom Bah Go Bugs Bunny.
Rah Rah Sis Boom Bah Go Big Money.
Rah Rah Sis Boom Bah Print More Money.
Rah Rah Sis Boom Bah Too Much Money.
Rah Rah Big Boom, Bright Lights Not Funny.
Rah Rah Its Mid Night, Should Not be Sunny.
Damn. Greece and Portugal are just the appetizers. Italy is the main course.
No, the US is the main course.
The UK is in this 7 course meal somewhere.
What's for dessert?
PIIGS AND BULLS:
http://williambanzai7.blogspot.com/2010/04/piigs-and-bulls.html
More Euro needs to printed by Trichet, by that time everyone will get used to Moral Hazard
Seems to always be "next week" or "next month" or "end of the quarter", etc., etc. Now we have "three years"? Not going to happen. With the strength we're now seeing in GDP here and other indicators (note strong Chicago PMI and Sentiment), we're clearly looking at recovery here.
Yes, a EU that's maybe falling apart several years down the road, may have a muted impact on slowing growth here, it's quite a ways off to be concerned at this time in my book.
Yes, the recovery here is a strong one. In Kolyfonia we have tens of thousands of mini-PIIGS, families who bought houses with $5K mortgages with incomes that can now only service $1.5K a month. No worries there, full speed ahead! One beneficiary of these unique debt instruments is Wells Fargo Bank. A real pillar of strength, WFC has $1.7T in off balance sheet exposure (over 10% of U.S. GDP), but hey, nothing's perfect right? A little optimism is a good thing...
Can I borrow that book when you're finished with it?
Harry, I haven't disagreed with you until now. Maybe I have a disagreement with you about "growth" because every time I check "growth" is negative. I measure "growth" in credit creation which has been negative for almost a year even with the Federal government trying all they can.
Until I see a turn around in credit creation, I would disagree with you on your medium-long term calls.
"it's quite a ways off to be concerned at this time in my book"
Generally agree with this, I would say short of a derivatives implosion, enough energy in the system to get to 2011.
Short term, party on Garth. Medium and long term, well good luck until I see a reversal of credit creation. My guess is in 10 years we won't be talking about all this on the internet.
My summary, stabilization of the destruction with large spike in equities. I expected moves like this, actually I expect them in both directions.
Yes, we had a strong recovery event yesterday where I work. 10% of the company got strongly canned.
Thanks Harry
what did we all worry about before we started to worry about the implosion of global debt?
I cannot remember...
who told me guys tht USA funding needs for 2010 are only $2.3 trillion.
Is tht true or doesn't matter as you got the printer?
Obviously, we'll just expand the IMF.
There's a reason Zimbabwe Ben has a printing press.
And I would point out that the 2012 and 2013 estimates seem awfully optimistic. Are they based on some miracle return to GDP "growth" in those years. The real 2010-2013 numbers will probably be double the 2010-2011 values or $2.4T.
I actually think it is still a understatement. For example, the liability for Belgium banks on greece are expected to be arround 1.2 trillion.
Also, everybody keeps forgetting Eastern Europe, but the shit over there is getting creepingly bad! Bad like in assfuckingpainfullynovasilineavailableBAD!
Question: Who decides on the increase of NAB? Has Congress any say or right to object on this?
I feel bad for the eastern euro's, as if they weren't living in enough of a hell-hole during the boom years.
so true, they are the subprimers of Europe...their poor, some guy swoops it your poor neighborhood and says he'll re-fi your house and give you bunch of money and you are more than qualified for and then gives you loan shark rules (in East Europe it was the currency issue, vs strong Euro) and so for a millisecond you think you are a little better than poor but then they pull the rug from you, you still live in a poor neighborhood but are renting instead of living in the crap house you had that was paid off...
Did somebody unplug the algos this a.m.?
Here's a story from The Telegraph in the UK back in Feb '09.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4590512...
Note the name of the html page at the Telegraph site. Yet, funnily enough, no mention of the 16trill in the body of the text. That's because it was amended an hour after it was first published (I assume someone had a word in the editors ear).
here's how the text originally read (I copied it and saved it):
European banks may need massive bail-out
European banks sitting on £16.3 trillion of toxic assets may suffer massive losses, according to a confidential Brussels document.
By Bruno Waterfield in Brussels
Last Updated: 1:51PM GMT 11 Feb 2009
A secret 17-page paper discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday, also warned that government attempts to buy up or underwrite such assets could plunge the European Union into a deeper crisis.
National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned. “
"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”
European Commission officials have estimated that “impaired assets” may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the ‘trading book’ total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.
In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.
Banks account for their assets in different ways. Assets put into the “trading book” have to be marked to current market values, while those in the “banking book” are loans and other assets which the institution believes it can hold to maturity. Other assets are classified as “available for sale”, which are also marked to market values.
The Commission figure is significant because of the role EU officials will play in devising rules to evaluate “toxic” bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.
In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.
“Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,” the EC paper warned.
Harry reminds me of Henry Blodgett talking about the NAZ ALL the way down in 2000-2001. remember all the new paradigm talk and tech efficiencies which would transform the world and increase productivty? the NASDAQ hit an intraday high of around 5200 in mid-March 2000. TEN YEARS LATER and after a massive rally it is at around 2500!! Same line of BULL with housing NEVER going down and always being a great investment and so on.
it is ALL jive and spin built on quicksand. The S&P can continue up or sideways or collapse downward. So what really?? for the overwhelming mass of humanity it is irrelevant. the private sector is continuing to be gutted and outsourced and there is MASSIVE downward pressure on wages here at home. absent gubmint handouts, transfers and gubmint employment what the hell is going on in this country? Heck, the Dow might even hit 14,000 again. Why not, it was fake then and it is fake now. it is a number with NO actual meaning. The country was broke at Dow 14000 and it is broke now.. Harry talks of the equity markets as if they are ENDS to themselves. As in, the Dow being up is AN OBJECTIVELY good thing. it is not... often equities rise at the DIRECT EXPENSE of many other persons, places and things. The world does not get better because certain indexes rise. in fact, oftentimes the ivestor class benefits at the expense of everyone else. Harry does not seem to know or care about the massive pain involved when a listed company fires thousands to boost EPS. ALL he seems to care about is if his position in that same company went up as a result. what an incrediby vapid and narcissitic way to view the world. all through the prism of a stock price. wow...
short term shallow thinking, especially self and desire feeding thought is the most common. Some day all of us will recognize we are family. Too bad it takes disaster and the consequent humility to accomplish that.
I wonder what the new DeutscheMark will look like?
"I wonder what the new DeutscheMark will look like?"
I hear Joe Stalin's reputation is making a comeback in Russia -- something about strong leadership. Germany had strong leaders in the past, and putting them on the DeutscheMark is a way of showing some respect, the respect that Germany deserves among its weak EU brothers...
Until Merkel caves in, she is one of my heroes
Germany deserves respect like Goldman Sacs execs deserve respeect for having high FICO score and low debts, I'm so not impressed ...German banks raped East Europe just as GSacs did with subprime/crap securitizations...
They are so F$%#^%ed!
Your right Coffin Dodger, they did ommit the 17 trillion Euros of toxic debt. I totally forgot about this article and I think the wanted people to forget about it too, heck you don't hear in the media any mention of this article or this amount. I think once the first horse or country or major investment house gets spooked and make a run for the gates, everybody will make a run for it and get caught.
I hear Joe Stalin's reputation is making a comeback in Russia -- something about strong leadership. Germany had strong leaders in the past, and putting them on the DeutscheMark is a way of showing some respect, the respect that Germany deserves among its weak EU brothers...
storm watches|000-115|650-568|tiffany ring
I hear Joe Stalin's reputation is making a comeback in Russia -- something about strong leadership. Germany had strong leaders in the past, and putting them on the DeutscheMark is a way of showing some respect, the respect that Germany deserves among its weak EU brothers... storm watches|000-115|650-568|tiffany ring
I hear Joe Stalin's reputation is making a comeback in Russia -- something about strong leadership. Germany had strong leaders in the past, and putting them on the DeutscheMark is a way of showing some respect, the respect that Germany deserves among its weak EU brothers...
Thanks for sharing
storm watches|000-115|650-568|tiffany ring
The Frenchies are whining because they might have to work to 62 before they can retire, and you would think that they are being asked to work to the death.That's because they know if you give the devils an inch, they're gonna take a fucking mile. We haven't gotten that smart yet unfortunately352-001 \ Pass4sure 642-062 \ Pass4sure 000-115 \ Pass4sure 642-262 \ Pass4sure 642-072 \ Pass4sure 650-393 \ Pass4sure CCIE-LAB \ 642-185 \ Pass4sure 646-046 \ Pass4sure 650-251 \ Pass4sure HP0-S28 \ Pass4sure JN0-332