Charting Europe's Crisis - Part 1

Tyler Durden's picture

With Europe finally regaining its rightful place as the epicenter of the peripheral economic crisis, it is time we shift focus, albeit briefly, from America and its increasing cadre of troubles, to those of the Euro area. Below we present some of the key charts and observations that will frame the imminent [bail out|default] of a whole host of minor EMU and EU countries.

The first, and most relevant data series, is unemployment. And while in the US everyone is well aware of the various seasonal adjustment gimmicks, DOL definition loopholes, and ridiculous birth-death model models which make the final number completely irrelevant, it is useful to note that both the EU and the US are sharing roughly the same "broad definition" (U-3) unemployment rate as a percentage of the labor force. Notable is that while the U.S. equivalent of this metric has allegedly started to improve (even as NSA data indicates the reading is at record recent highs), the European unemployment rate has yet to plateau.

Next, counting to use data from the ECB's Statistical Data Warehouse, we present the Harmonized Index of Consumer Prices, or, in brief, Euro Area Inflation rate. After hitting a low of -0.3% in August of 2009, the most recent reading indicated a +1% rate of inflation. This number is suspect for several reasons as will be shortly discussed.

One reason why one should take the inflation number with a grain of salt is that Unit Labor Costs, after peaking at 4.77 in Q4 2008, have taken a sharp downturn, in essence offsetting any direct gains in the HICP.

Furthermore, as BarCap demonstrates, the rate of decline in Negotiated Wages (both on an absolute and relative basis) in the Euro area is showing no moderation. This is a decidedly deflationary economic reading: absent a firm turnaround in wages, many will say, the case for inflation is baseless and at best will translate into highly volatile and speculation driven commodity prices (both in Europe and globally).

One redeeming feature for a contrarian inflation outlook is the inflection point that appears to have been hit in broad output metrics. With the manufacturing output index starting to trend down after a recent high, the slack in the economy may see some tightening, eventually leading to a rise in final prices.

Combining this data indicates that projected inflation, as represented by HIPC and by the BarCap underlying index, confirms that there will be deflationary pressures on European prices for the next couple of years.

Another consideration when evaluating economic slack is the recent dramatic inversion in current account balances as many of the hardest hit nations (the PIIGS come to mind) will promptly revert from a spending to a saving regime, thus eliminating much of the internal export-led growth by core countries (Germany).

This may well be one of the more critical consequences of the austerity measures that will be shortly adopted by various EMU countries with a high Deficit/GDP ratio. As BarCap notes:

It seems likely that under pressure from the markets, there will be an abrupt narrowing in these deficits – in other words, national saving will need to rise sharply as governments tighten fiscal policy. In turn, this would result in a shortage of domestic demand in the euro area. For example, last year we estimate that the current account deficit of ‘southern Europe’ (on our definition) was around €190bn, ie, 2.1% of euro area GDP (for Q4 09, we estimate that it was still around €50bn, ie, still around 2% of GDP).

To meet this domestic demand gap, Europe will look to Germany. Yet the German household saving ratio has also risen in recent years. On a gross basis (ie, including capital consumption) we calculate that it has risen from a low of 14.7% of personal disposable income in H2 00 to around 17.5% in Q3 09. Admittedly, this is not as strong as the rise of Spain’s, which grew from 9.7% of GDP (on the same basis) to around 19% (SA) in Q3 09, but still significant. In Germany’s case, this is likely to reflect concern about demographics and pension reform. To compensate for the likely shortfall in domestic demand in southern Europe, it will be important for the German household saving ratio to decline. Yet that will be a formidable task.

As well, given the lags in the monetary transmission process, the ECB must seek to anticipate developments in 2011, which is likely to be a year of concerted fiscal tightening (whereas Germany is undergoing tax cuts worth at least 1% of GDP this year, next year it also will tighten, along with the rest of Europe and possibly the US).

Speaking of not just a lagging but outright broken "monetary transmission process", we highlight what could be the scariest chart in this presentation: Europe's Monetary Aggregated M3, which is in freefall.

Inflation may be whatever the ECB wants us to believe it is. However, as in the US, unless the money entering into the economy is circulating properly and receiving the benefit of the money multiplier, it is essentially useless from an inflationary standpoint. And while many lament the passage of banking lending to the private sector in the US, the M3 data indicates that the situation in Europe is in no way different, and will likely get worse before it gets better, especially should a liquidity crisis (not if but when) engulf one of the EMU nations.

The contraction in M3 and bank lending is sufficiently important that the ECB's recent release had a several paragraph discussion on its implications:

Turning to the monetary analysis, the annual growth rate of M3 remained negative in December 2009, standing at -0.2%. In the same period, annual growth in loans to the private sector was zero. These data continue to support our assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term. Actual monetary developments are likely to be weaker than the underlying pace of monetary expansion, owing to the downward impact of the rather steep yield curve [Prior sentence: The decline in actual monetary growth is likely to overstate the deceleration in the underlying pace of monetary expansion]. Looking ahead, M3 and credit growth is likely to remain [very omitted in most recent release] weak for some time to come.

The prevailing interest rate constellation continues to have a strong influence on both the level and composition of annual M3 growth. On the one hand, the low rates of remuneration on short-term bank deposits foster the allocation of funds away from M3 and into longerterm deposits and securities. On the other hand, the narrow spreads between the interest rates paid on different short-term deposits imply a low opportunity cost of holding funds in the most liquid components included in M1, which continued to grow at a robust annual rate of more than 12% in December.

The zero annual growth rate of bank loans to the private sector reflects a further increase in the growth in loans to households, while the annual growth in loans to non-financial corporations moved further into negative territory. Such divergence remains in line with business cycle regularities. The ongoing contraction in the outstanding amounts of loans to non-financial corporations continues to be accounted for entirely by a strong net redemption of loans with a short maturity. For the sector as a whole, the overall contraction may be due partly to substitution with market-based financing [Previously, the continued negative flows in short-term bank loans to non-financial corporations observed in recent months may partly reflect better possibilities for substitution with different sources of longer-term financing.]

Yet, just like in the US, the number one concern for Europe is the future source of funding in light of increasingly elevated leverage ratios. The most recent reading of government deficit as a % of GDP indicated a near-record reading of over -6%. This is an average representation, with some countries such as Greece, Portugal and Spain representing material double digit outliers, as has been extensively demonstrated previously.

Lastly, the Euro area's Debt as a % of GDP is skyrocketing, indicating that just like the US, Japan, and virtually most countries, any future budget expenditures will need to be financed with external borrowings. Yet if every country is dependant on China as the only source of endogenously created capital (instead of economies like the US' where new money is either originated by printing or by new shadow economy financial "innovation"), now that China is turning off the liquidity spigot, this spells doom for all nations that rely on the benevolence of external creditors to continue funding endless deficits.

It is on this fragile backdrop that the deterioration of the PIIGS is taking place. What is certain is that the increasing funding crisis, which may promptly turn into a liquidity crisis should spread persist in their widening, will soon find a path of least resistance to impair countries previously considered immune from a domino effect such as Germany, BeNeLux and Scandinavia. This is why in our belief the ECB, Germany and all heretofore more fiscally prudent countries are damned if they do and damned if they don't bail out Greece: as one outcome will lead to an escalation in the fiscal crisis, while the other will impair monetary policy for years to come. Europe is faced with a lose-lose proposition. The only real question is whether Europe's (and the Euro's) loss will be US' (and the dollar's) gain or whether investors will soon see America for a comparable hollow economic box, and will shun exposure to the "reserve" currency, instead finally focusing on the commodity economies in Asia, as Nouriel Roubini expects to happen. The next several weeks will surely provide many answers.

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SRV - ES339's picture

Tyler (anyone) know what's up with the secret meeting of Central Bankers in Australia this weekend?


dumpster's picture

its secret lol

THE DORK OF CORK's picture

I agree that Germany is in a much worse position then generally realised given that its mercantile economy sells high value products that people can do without and indeed cannot obtain in a credit starved world.

If both Germany and other EU consumers become very frugal then that those savings will have to be invested somewhere and in wealthy countries that means only one thing - capital intensive projects

Atom splitting hopefully in a controlled fashion is coming and it will rock the economic foundations of the continent

Segestan's picture

The EU should be abolished. Cut there losses before the whole continet is in flames. Ther has never been a balance only a fiat system to over whelm the truth with numbers.

-273's picture

It is actually quite convenient, it makes moving around, working and doing business between and in different countries easy and you dont have to deal with changing your money all the time. I have lived and worked in 5 different European countries over the last decade and it was much harder during the first moves with all of the paperwork etc. before the EU was established. Sure it has problems, but imagine America with a different currency (as well as language) in each state, lengthy border checks and work visa issues to move between them. The advantages for someone living and working in a joined EU have far outweighted the disadvantages in my experience.

Anonymous's picture


Many Americans are insular, and not having travelled, have no idea of the realities that Europeans faced before the EU.

Even in Canada, the difficulties in trying to deal with the Quebec government, which fancies itself a nation, pale compared to what Europeans used to face.

jmc8888's picture

But if it destroys everything within the euro zone, how much easier is then as compared to before?

It made it easier for you.

It also made it easier for THEM. 

They rigged it faster than you benefitted from it.

Also comparing different soverign countries to states in the U.S. is quite wrong.

A Slovakian comes from a far different background and culture, then a frenchman.

Meanwhile a californian isn't much different than an Alabaman.  Even if we can see some major differences, it pales in comparison.

Of course you could keep some of those restrictions, without letting them rig everything against you?

Ahh nevermind, you can't with the Lisbon/Maastricht soverignity sucking measures that have turned each country into a beggar upon a higher master.  Now you'll have people in Brussels, (or London) making decisions on union groups in Greece, and those Greeks will KNOW the changes aren't being done for THEIR benefit.   No european country can save itself.  It's all for one and one for all, and no country gets to determine how that will play out.  Only those that control the strings from Brussels, who aren't elected by the average euro zone member, decide how things play out...and they're looking out for the bankers not the people.

We're all up schmidt creek, and caused by the same people believing in the same failed policies for the past 10-40 years.  The statistical models are economies have relied upon are broken, and they will never be fixed, partially because they never had a chance of working in the first place. The markets lived off a fantasy called derivatives, and now soverign debt, and that fantasy is over.

It was never the actions of any specific country, or it's social spending policies that got us here.  It was the broken system.  Another way to put it, the people who were filling the cracks in the damn ran out of gum.  Now what is reaped from 40 years of gum filling cracks will be exposed as the scam it always that should be quite clear now, unless a person is under the delusion that things can ever get back to normal in this broken system.

Most of the prosperity of the last 40 years? All a paper pushing fantasy. The reality is (at least in the U.S.) we've had 40+ straight years of economic decline.  Eurozone hasn't fared much better.  Just the hot money from derivatives and supply side economics, deregulation, race to wage bottoms through imperialism (sorry globilization) ocurred.  The psychology of the markets has been manipulated so long, that it is all that is left.


Also there is far too much power concentrated in our federal gov't.  When this is over, while still holding the majority of the power, the states will probably recoup alot of it.  My bet is after some vary bad occurrences, that will happen the same to Europe, except back to the member countries. 


Good luck though in europe, we're all going to need a lot of it.

Anonymous's picture

It isn't the EU which is the problem. It actually has helped every single participant. Since no single country in the EU could effectively negotiate favorable trade policy with the outside world on its own.

What is a failure is the Euro project. And I likely that it won't survive this decade.

bugs_'s picture

Lose lose unless they can kick the can by conning Uncle Sam.

David449420's picture

Uncle Sam, as you put it, may be an active participant, but if so it will NOT be because he/it was conned. WE are facing GLOBAL problems here. Not just the EU, or US, or Japan (you choose the economy) .  These are unprecedented times, and how we (globably) are going to solve the problems is anyones guess at this time.

Anyone who claims to Know the answer is bullshitting you.  They are guessing. Your guess is as good as mine or their's.  Some solutions are more beneficial to most of the societies affected, but there are forces (powerfull forces) who will attempt to force the solutions that are in their favour.  These competing forces; the Financial Industry, the Military-Industrial Complex, the Medical-Pharmacutical Industry, to name a few, WILL win unless (globably) we the people marshal effective opposition to them.

We (the people, today) DO NOT have the resources available to the monied industries.  Who will prevail?

What we would like to happen, may not unless we (most of  the people) wake up and begin to exert strong influence on where we are going.

Is that likely to occur?

NOT in the short term, I think. But there's the possible solution, and I do HOPE we may get there.

Being an optimist almost all my life, I HOPE that WE will prevail.

tom a taxpayer's picture


Unfortunately, it is difficult to discuss Europe's crisis without bringing Goldman Sachs into the picture. For example, take Greece.

Goldman Sachs had its tentacle into the Greek government with "complex financial instruments" going back to at least 2002. Thanks to asdf for link to "Goldman Sachs helped Greece in debt Cosmetics" #220388,1518,676346,00.html&sl=de&tl=en&hl=&ie=UTF-8

The Greek government still has not wised up to the perils of doing business with GS. Excerpts from Financial Times Jan 28, 2010.

"Goldman plays key role in Greece rescue"


"A team from Goldman Sachs was in Athens on Thursday shepherding representatives of Paulson, the US hedge fund, around meetings with local bankers, economists and analysts... Last year it took George Papaconstantinou, the finance minister, on his first roadshow to London and Frankfurt, along with Deutsche Bank. Earlier this week the bank was one of the joint-lead managers on Greece’s sale of an €8bn (£7bn, $11bn) government bond..."

"Mr Papaconstantinou confirmed earlier this week to the FT that he would in the next few weeks go on an investors’ roadshow to Beijing, Shanghai and Hong Kong in order to generate interest in Greek government bonds. It is expected that as with the previous European trip, Goldman would be taking a leading role in organising this roadshow, according to investment circles in Greece.

"JPMorgan has been important in the past but is being shunned by the new government over a controversy centred on the sale of a structured bond in 2007 to a Greek pension fund, under the previous conservative government. JPMorgan denied any wrongdoing and repaid the funds. The socialist government last week announced it was reopening an investigation into the scandal.

"Goldman’s main source of income in Greece is from the Hellenic republic’s borrowing operation, to which it has access as one of 15 Greek and foreign banks that act as market-makers. “They’re very active in the bond swaps market, which is extremely lucrative,” said the fund manager. It also regularly advises NBG, the country’s biggest commercial lender."

This hilarious howler quote is also from the FT article:

“Goldman pretty much has taken a leading role on advising Greece at the moment,” said a Greek economic consultant. “Their competitive advantage is that they are smart guys and come up with good ideas. That certainly helps in a crisis like now,” the consultant said."

With "smart" friends with "good ideas" like Goldman Sachs, who needs enemies?


SlorgGamma's picture

Ah, the Vampire Squid -- still in search of hemoglobin, still betentacled. That said, this little detail is telling:


"Mr Papaconstantinou confirmed earlier this week to the FT that he would in the next few weeks go on an investors’ roadshow to Beijing, Shanghai and Hong Kong in order to generate interest in Greek government bonds."


China has been looking for alternatives to US T-bills. Euro-bills might just do the trick. Throw in a recovering Russia and CIS region, and Europe should do OK.


Dirtt's picture

I'd almost trust GS and China before Greece. 

Anonymous's picture

Beware Greeks bearing gilts!

Oracle of Kypseli's picture

Timeo Danaos a dona ferentes

Anonymous's picture

Greek bonds represent a reduction in rish compared to USTs?

A Man without Qualities's picture

You guys at ZH really need to follow up on this story in Der Speigel, cos if you don't then I will assume you are actually on the payroll of GS.  

Missing_Link's picture

Beware of Goldmanites bearing gifts to Greece.

knukles's picture

Beware of greeking Goldmanites. 

Oracle of Kypseli's picture

"JPMorgan has been important in the past but is being shunned by the new government over a controversy centred on the sale of a structured bond in 2007 to a Greek pension fund, under the previous conservative government.

Aha! Politics again. Jamie Dimon being Greek but the "wrong kind" by the new administration, was rejected for the Calamari Cartel.

Well, Kyrie Papaconstantinou you deserve to have your blood sucked.

Dirtt's picture

Okay.  PermaBear David Tice ranted about some looming credit crisis in 2006.  And that the contraction of credit will ultimately be what sucks the hope of an immediate recovery into an abyss. Yada yada.


And this accurate?


Credit continues to contract in the US.

Un/Under-employment (real) will be 20% before it will be 10%.

Housing is toast.  Foreclosures accelerating.

Demand for dollars worldwide is going to grow.


Credit is not only contracting in the EU but about to accelerate.

Un/Under-employment is accelerating in the EU.

Housing is toast.  Foreclosures accelerating.

Demand for dollars worldwide is going to grow.


Japan is Japan.


China plays hardball with failing EU governments at a time when they are having trouble with the genie and the bottle.  The US Consumer won't play ball.


US companies, after 86ing every worker possible, squeezing every minute out of those who still have a paycheck and slashed all the fat out of operations, "beat earnings" (ex-items) on lower revenue.  Unless upper management in the Fortune 500 is ready to lay themselves off....


If I were to draft a rumor list to spook (crash) the markets a couple of years ago would this have done it?

dark pools of soros's picture

maybe they can undercut Vanna & Pat and sell some vowels to boost GDP

A Man without Qualities's picture

My opinion, for what it's worth is the major reason for the drop in unemployment during the last decade was jobs linked to the massive real estate boom.  All over Europe, but especially in the south, there has been so much construction and other associated activity linked to crappy high rise apartment buildings that nobody actually lives in.  

I visited a place in Portugal in 2001 that had been a sleepy fishing port ten years before.  It had been turned into a construction sight from hell with literally dozens of multi-story apartment blocks.  Most of the locals were very happy about this, and they said they were using their EU development grants to turn the place into a major seaside resort.  It was simply hell on earth and I left after 1 night.  The development grants given to Portugal, Spain, Greece etc seem to have been wasted on a real estate boom which was exacerbated by cheap mortgages (as a result of being in the Euro) and plenty of undeclared income in the old currency being laundered into hard assets to avoid the glare of the taxman when they went to the bank to convert.

Now, there are no more people to buy and nowhere else to build, prices start to fall, unemployment starts to rise and everyone looks at the politicians and asks where it all went so wrong.  It's like a post-industrial society but with no industry and no service sector... 

El Capitan's picture

The US will be OK. This is still the best place to do business as a free market capitalistic society. Obama has no chance of employing bad ideas with good words and this is becoming more and more apparent. The Alabama senator holding things up is more a reminder of the implications of cost cutting that would affect jobs for any representtive region of the US. Only thing is that Boeing overall would be the better deal. although an IED test facility in Alabama is as questionable as another moon attempt. The military complex of the US is the best in the world with which no one can compete and this is the trump card. deflation will remain the trend and republicans will gain little traction in 2012 as Obama has plenty of time to garner his new base of centrist and tea party voters. Fuel cell tech and biotech are front runners next to defense. Agribusiness is up there as well. Simply put, the US is in good standing. The EU will not allow the IMF to serenade Greece, Port and Spain, and this will ensure the Euro as a global currency that MAY someday replace the dollar for certain commodities such as NG. I still believe Bama to be a 1 term pres, however I must say the Alabama senator may be a bane to the GOP if his own self interests turn to sabatoge the party in later debates over fiscal spending. The whole notion that Bama is going to take Clinton over Biden is nonsense. The longer health care stays on the shelf, the stronger Obama will get. Dow 12K 2010

10044's picture

Ariana at HuffPo called, she's anxiously waiting for your comments.

David449420's picture

What colour is the sky in your world?  Just asking, because it is obovious to me that you do not live in the same world I do.

JR's picture

It was Ben Bernanke who, with Alan Greenspan, oversaw the derivatives time bomb that has turned into a worldwide financial weapon of destruction.  All done behind closed doors by a few powerful men.

In fact, Bernanke said that derivatives were good for the economy, making the U.S. economy resilient to risk.  While Greenspan’s understudy, Bernanke was saying: “Certainly, derivatives instruments pose challenges to risk managers and to supervisors, but these risks are manageable and thus far have been managed quite well.”  Bernanke never rushed to monitor the derivatives trading that he said “have contributed to our understanding of the measurement and management of risk.” –quotes from John A. Pugsley, author of Common Sense Economics and The Alpha Strategy

In 1986, according to Pugsley, the global derivatives market was just over $1 trillion and by 2008, according to Online Journal, “Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.” (Derivatives Trades Jump 27 percent to Record $681 Trillion by Hamish Risk)

And, now, the global mayhem ensues:

Ambrose Evans-Pritchard 04 Feb 2010 writes in Fears of ‘Lehman-style’ tsunami as crisis hits Spain and Portugal: The Greek debt crisis has spread to Spain and Portugal in a dangerous escalation as global markets test whether Europe is willing to shore up monetary union with muscle rather than words:

Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.”

Credit default swaps (CDS) measuring bankruptcy risk on Portuguese debt surged 28 basis points on Thursday to a record 222 on reports that Jose Socrates was about to resign as prime minister after failing to secure enough votes in parliament to carry out austerity measures.

Parliament minister Jorge Lacao said the political dispute has raised fears that the country is no longer governable. “What is at stake is the credibility of the Portuguese state,” he said.

Portugal has been in political crisis since the Maoist-Trotskyist Bloco won 10pc of the vote last year. This is rapidly turning into a market crisis as well as investors digest a revised budget deficit of 9.3pc of GDP for 2009, much higher than thought. A €500m debt auction failed on Wednesday. The yield spread on 10-year Portuguese bonds has risen to 155 basis points over German bunds.

Daniel Gross from the Centre for European Policy Studies said Portgual and Greece need to cut consumption by 10pc to clean house, but such draconian measures risk street protests. “This is what is making the markets so nervous,” he said.

In Spain, default insurance surged 16 basis points after Nobel economist Paul Krugman said that “the biggest trouble spot isn’t Greece, it’s Spain”. He blamed EMU’s one-size-fits-all monetary system, which has left the country with no defence against an adverse shock. The Madrid’s IBEX index fell 6pc.

Finance minister Elena Salgado said Professor Krugman did not “understand” the eurozone, but reserved her full wrath for the EU economics commissioner, Joaquin Almunia, who helped trigger the panic flight from Iberian debt by blurting out that Spain and Portugal were in much the same mess as Greece.

Mrs Salgado called the comparison simplistic and imprudent. “In Spain we have time for measures to overcome the crisis,” she said. It is precisely this assumption that is now in doubt. The budget deficit exploded to 11.4pc last year, yet the economy is still contracting...

Mr Callow of Barclays said EU leaders will come to the rescue in the end, but Germany has yet to blink in this game of “brinkmanship”. The core issue is that EMU’s credit bubble has left southern Europe with huge foreign liabilities: Spain at 91pc of GDP (€950bn); Portugal 108pc (€177bn). This compares with 87pc for Greece (€208bn). By this gauge, Iberian imbalances are worse than those of Greece, and the sums are far greater. The danger is that foreign creditors will cut off funding, setting off an internal EMU version of the Asian financial crisis in 1998…

Dirtt's picture

"It was Ben Bernanke who, with Alan Greenspan, oversaw the derivatives time bomb that has turned into a worldwide financial weapon of destruction.  All done behind closed doors by a few powerful men."


Thanks Genius.  Obviously you are in good camp.  I mean that respectfully.


So they "oversaw the bomb." Thanks for the honesty.  At least we agree that the bomb may explode sooner than everyone had hoped.  That's the rub about blatant corruption when it gets out of control it's a lot like keeping a watermelon coated in Vaseline in the deep end afloat.  They have done a remarkable job since 666.


When we get back to 666 no one is going to like what they see. Not if but when.

Anonymous's picture

why make such a big deal about greece ? Its only 2 percent of the US GDP !! I think the europe gimmick was to let the end of UK's QE transition smoothly !!!

Dirtt's picture

You are missing the overall trend.  Credit contraction.  It's the one thing that no one can reverse.  It's not like they aren't trying.


Credit contraction.  People who can get credit don't want anything to do with it.  And if you haven't looked at US politics lately would you blame them.  Who wants to go into biz w/ Rahm Emanuel & Co.?

Lndmvr's picture

But O said he would save help the banks again with out anyone noticing. Now he says that the SBA will hand out loans to help with the mortgages of small companies. Backdoor man.

Postal's picture

Ah, but most small businesses don't need loans themselves--they need their customers to have loans. Two examples: My g/f and I tried to buy a new bed & bedroom suite a few months ago, neither could get approved for the total amount of financing needed. Someone from the SBA called my cousin, who owns a small car dealership, asking if he needed a loan. Answer: "I need my customers tohave loans."

Direct lending to business has it's place, but if business customer have financing, the rest will take care of itself. Of course, customers without jobs shouldn't be able to obtain loans...

Instant Karma's picture

A rolling series of debt and currency crises along the long and winding road of a world wide depression.

Anonymous's picture

I think the time has come to ask ourselves a few stupid yet fundamental questions:

1. If there is so much of debt/deficit all around, which entities are at the lending end? Who are so powerful to bring entire nations to their knees? Other counties? Banking entities? Large private entities? Who are they?

2. What part of the debt/deficit was financed internally funded (money printing) ?

3. What part of the debt/deficit was financed by external borrowing/ bond sales? Who are the counter-parties?

4. Can we have a bit of transparency and publish a "Debt Network Diagram" that includes open list of all major lenders and borrowers (all major entities in the world of finance should figure here) and also the timelines.

5. Analyze and "reduce" the diagram to arrive at the net debt per nation. For example US is a debtor but is also a creditor nation (via direct loans to other counties and indirectly via US funded entities like World Bank, IMF and other banks/PE/hedge-funds etc)

6. This analytical task is very important. At least humanity will know who are the real money masters to whom they are enslaved?

7. It is going to be a large and intricate diagram and will have to be built piecewise by many people and then spliced together. It is worth the effort.

I suspect, the diagram will reveal that most of the net wealth (net lending) originates from a handful of entities.

It may also show that large part of such "wealth" was actually printed (manufactured out of thin air) over many decades and propagated through so many hands that it is no longer easy to recognize it as such.

Let us not forget than "total normalized wealth" in this isolated planet is constant and what changes is its distribution pattern. The wealthy individuals/nations have a larger share of this normalized wealth (or notional buying power). Money is an instrument for exchange of this wealth and the exchange rate can vary from one place to another as well over time (devaluations).

The time order in which the global system of currencies got built is very interesting too. Going back to history, The Third World nations are poor not because they had no natural resources (tangibles that are equivalent to normalized wealth) but because they did not have an upperhand with their currency valuation. This happened long before most modern economic textbooks were even written. Powerful entities took advantage of that.

So, can we build this diagram or not?
Will it be too uncomfortable a truth to lay bare?
Who can answer?

Anonymous's picture

I think you've hit the nail on the head. That's exactly what we all need to know. Let's start scrutinising the origins of the debt - who is really in control here??

Anonymous's picture

Most of the Asian Central Bankers for the countries that are owed a lot of this money are conveniently meeting over the next few days in Australia on neutral grounds (supposedly secretly). The EU and US representatives for their central banks are obviously attending also. The story being sold is that this gathering was planned last year; but that can mean just 6 weeks ago. The first anyone besides the invitees knew of it was 2 days ago when everyone started turning up in Sydney. You don't need to be Einstein to work out what they'll be talking about for the next 2 days.

David449420's picture

Every single one of those individuals (representing Corporations, Industries) are part of the Problem.  Not any part of the possible sucessful future solutions, if we are lucky. They all represent the monied interests, (the financial industry, the Military-Industrial Complex, the Medical-Pharmacutical industry, to name some of the most blatent)

If they end up crafting the solutions, we ARE lost.  Doomed

Anonymous's picture

Deflation then inflation. This is getting old. The global powers must be having a hard time determining which hard assets they will buy on the cheap.

fallst's picture

"They didn't recognize that the model is flawed, and it neglected this thick tail in the bell curve"  Soros, about LTCM, TEN YEARS AGO. So, here we are again, approaching tails/Black Swan/sovereign debt "surprise". CDS margin call time again. So much fun.

fallst's picture

Model is Flawed?  What? Impossible. Do you mean giant hairballs of back-of-the-envelope CDS entwined around even the smallest TBTF wannabes? All with the same exit? Purrfect!

Anonymous's picture

Goldman (or anyone else) advising Greek Government should not be allowed to trade in Greek Government Bonds, how simple good regulation could be

Anonymous's picture

Goldman (or anyone else) advising Greek Government should not be allowed to trade in Greek Government Bonds, how simple good regulation could be