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Coming To America: The Greek Sovereign Debt Crisis

Tyler Durden's picture


Yesterday we presented our views on why Europe's decision to tip over the first of the bailout dominoes will be inherently a catastrophic one in the long term, and will ultimately transfer the peripheral liquidity risk into funding, and ultimately, solvency (and once again, liquidity) risk to the very core. Today, Niall Ferguson joins in, in this latest Op-Ed in the Financial Times. "It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate." In other words, Marc Faber 1, CNBC talking heads, 0... as usual.

Ferguson lists the current dead ends presented before the EU:

There is of course a distinctive feature to the eurozone crisis.
Because of the way the European Monetary Union was designed, there is
in fact no mechanism for a bail-out of the Greek government by the
European Union, other member states or the European Central Bank
(articles 123 and 125 of the Lisbon treaty). True, Article 122
may be invoked by the European Council to assist a member state that is
“seriously threatened with severe difficulties caused by natural
disasters or exceptional occurrences beyond its control”, but at this
point nobody wants to pretend that Greece’s yawning deficit was an act
of God. Nor is there a way for Greece to devalue its currency, as it
would have done in the pre-EMU days of the drachma. There is not even a
mechanism for Greece to leave the eurozone.

The options are no surprise to anyone who has followed this drama as it has unfolded over the past two months, starting with the Dubai implosion in late November (whose CDS, incidentally, is almost back to all time wides). It is certainly no surprise to anyone who, like us, has been concerned about the sovereign implosion almost a year ago.

That leaves just three possibilities: one of the most excruciating
fiscal squeezes in modern European history – reducing the deficit from
13 per cent to 3 per cent of gross domestic product within just three
years; outright default on all or part of the Greek government’s debt;
or (most likely, as signalled by German officials on Wednesday) some kind of bail-out led by Berlin.
Because none of these options is very appealing, and because any
decision about Greece will have implications for Portugal, Spain and
possibly others, it may take much horse-trading before one can be

To be sure, Keynesianism is starting to unravel. The greatest failed experiment in economic history could only have been propped up for so long, courtesy of its core beneficiaries: the very oligarchs and financiers who transferred wealth over the ages from the working class to the "financially creative" product class (i.e., those that "packaged" and managed risk...look where they got us, but don't look how much they got paid for it).

What we in the western world are about to learn is that there is no
such thing as a Keynesian free lunch. Deficits did not “save” us half
so much as monetary policy – zero interest rates plus quantitative
easing – did. First, the impact of government spending (the hallowed
“multiplier”) has been much less than the proponents of stimulus hoped.
Second, there is a good deal of “leakage” from open economies in a
globalised world. Last, crucially, explosions of public debt incur
bills that fall due much sooner than we expect

For the world’s
biggest economy, the US, the day of reckoning still seems reassuringly
remote. The worse things get in the eurozone, the more the US dollar
rallies as nervous investors park their cash in the “safe haven” of
American government debt. This effect may persist for some months, just
as the dollar and Treasuries rallied in the depths of the banking panic
in late 2008.

Yet even a casual look at the fiscal position of
the federal government (not to mention the states) makes a nonsense of
the phrase “safe haven”. US government debt is a safe haven the way
Pearl Harbor was a safe haven in 1941.

Even according to the
White House’s new budget projections, the gross federal debt in public
hands will exceed 100 per cent of GDP in just two years’ time. This
year, like last year, the federal deficit will be around 10 per cent of
GDP. The long-run projections of the Congressional Budget Office
suggest that the US will never again run a balanced budget. That’s
right, never.

This is where shades or Reinhart and Rogoff emerge.

Explosions of public debt hurt economies in the following way, as
numerous empirical studies have shown. By raising fears of default
and/or currency depreciation ahead of actual inflation, they push up
real interest rates. Higher real rates, in turn, act as drag on growth,
especially when the private sector is also heavily indebted – as is the
case in most western economies, not least the US.

As we approach the proverbial endgame, the biggest supporter and enactor of flawed Keynesian policy, the Fed, is fast running out of bullets. Simply without the consumer becoming once again intimiately involved with the lie, the game can not continue.

Although the US household savings rate has risen since the Great
Recession began, it has not risen enough to absorb a trillion dollars
of net Treasury issuance a year. Only two things have thus far stood
between the US and higher bond yields: purchases of Treasuries (and
mortgage-backed securities, which many sellers essentially swapped for
Treasuries) by the Federal Reserve and reserve accumulation by the
Chinese monetary authorities.

But now the Fed is phasing out such
purchases and is expected to wind up quantitative easing. Meanwhile,
the Chinese have sharply reduced their purchases of Treasuries from
around 47 per cent of new issuance in 2006 to 20 per cent in 2008 to an
estimated 5 per cent last year. Small wonder Morgan Stanley assumes
that 10-year yields will rise from around 3.5 per cent to 5.5 per cent
this year. On a gross federal debt fast approaching $1,500bn, that
implies up to $300bn of extra interest payments – and you get up there
pretty quickly with the average maturity of the debt now below 50

The conclusion, knowing all too well that our political and financial leaders will do everything in their power, even sacrifice the population, to prevent the collapse of the system, can only be a rhetorical one.

The Obama administration’s new budget blithely assumes real GDP growth
of 3.6 per cent over the next five years, with inflation averaging 1.4
per cent. But with rising real rates, growth might well be lower. Under
those circumstances, interest payments could soar as a share of federal
revenue – from a tenth to a fifth to a quarter.

Last week Moody’s Investors Service warned that the triple A credit
rating of the US should not be taken for granted. That warning recalls
Larry Summers’ killer question (posed before he returned to
government): “How long can the world’s biggest borrower remain the
world’s biggest power?”

On reflection, it is appropriate that the
fiscal crisis of the west has begun in Greece, the birthplace of
western civilization. Soon it will cross the channel to Britain. But
the key question is when that crisis will reach the last bastion of
western power, on the other side of the Atlantic.

America no longer has the luxury of expecting that shoving its head in the sand long enough will fix everything. Indeed, we now live in a world where whole developed countries are being bailed out. A mere 3 years ago this would have sounded ludicrous and deranged, and now it causes a flurry of buying excitement in the stock market. Unfortunately, a repeat of the days of September 2008 is fast approaching, only this time absent Marsians coming to bail out the world, we are on our own.


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Wed, 02/10/2010 - 20:22 | Link to Comment VegasBD
VegasBD's picture

When can we start openly burning Keynesian books?

Wed, 02/10/2010 - 20:29 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Do it in front of an economics "Professor".  The looks on their faces are priceless!

Thu, 02/11/2010 - 01:08 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Just say "Reinhart and Rogoff" to those arrogant Professor Schmucks of economics.  Like waving a silver cross at the vampires.

I really do not understand why .gov and even the financial PTB are not alarmed by our grave situation.  Nor is anyone among TPTB ready to cut spending!  That would be the key to our revival, CHOP spending and chop it hard.

Such a great country we have/had.  Why can't our leaders do what is required before the wheels come off, and we have our train wreck?

Maybe I'll go back to screaming that we should all buy gold again, pity that some of my fellow gold guys are layin' low lately.

Thu, 02/11/2010 - 03:53 | Link to Comment Gold...Bitches
Gold...Bitches's picture

not me.  i hope they do flow into the dollar and gold goes down in the reflexive trade.  lets me buy more for cheaper.  gold is going higher, much higher, by the end of this game

Thu, 02/11/2010 - 11:50 | Link to Comment Master Bates
Master Bates's picture

That's what happens when you know you bought an asset at the top (IE fucked up) and were the most vocal and loudest about it.

Wed, 02/10/2010 - 20:46 | Link to Comment e_goldstein
e_goldstein's picture

Probably about the same time we are burning FEDRES bills to keep warm.

Wed, 02/10/2010 - 21:57 | Link to Comment A Broken Bear
A Broken Bear's picture

Quality...You see, its comments like these (plus the dam good reading ZH offers) that made me join the ZH community.

Thu, 02/11/2010 - 00:43 | Link to Comment jeff montanye
jeff montanye's picture

keynesian in the article above should be in quotes.  the deficit spending, in boom times and bust, that characterizes much of western society in the last forty years and certainly the siphoning of wealth from the bottom to the top of society via the state are nothing like what keynes advocated.  he was a cogent and prescient geopolitical observer (who predicted, in published detail, how the armistice that ended ww1 would bankrupt germany via hyperinflation and produce a greater war when a new generation of soldiers could be grown), wrote the most important book on economics in the last century (the general theory of employment, interest and money) and was an extremely astute and profitable investor for himself and his alma mater.

Wed, 02/10/2010 - 20:27 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Let's break this down to its most basic level - the pure fiat currency system is failing, and will fail completely soon.

Wed, 02/10/2010 - 21:07 | Link to Comment VegasBD
VegasBD's picture

We are most deffinately living in intersting times.

Id like to say that Im a patriot and will help take this country back from the govt and rebuild from the rubble...but honestly ill be way deep in Mexico drinkin margaritas. Paying for them in silver probably. =)

Thu, 02/11/2010 - 01:10 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Or Peru for me...

Wed, 02/10/2010 - 20:27 | Link to Comment RobotTrader
RobotTrader's picture

Meanwhile, Riverboaters are starting to "front run" a positive resolution to this mess by buying junker stocks like this:



Wed, 02/10/2010 - 22:24 | Link to Comment hidingfromhelis
hidingfromhelis's picture

The decimal point on the share price is a couple/few places too far right.  But then again, those penny stocks are vulnerable to pump & dump scenarios.

Wed, 02/10/2010 - 22:35 | Link to Comment bulldung
bulldung's picture

Really,Why? Technicals or does AIG benefit from Greecey bailot?

Thu, 02/11/2010 - 02:37 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:28 | Link to Comment dark pools of soros
dark pools of soros's picture

"even sacrifice the population"   9/11 only saved the dollar a decade eh?

Wed, 02/10/2010 - 21:05 | Link to Comment Anonymous
Wed, 02/10/2010 - 21:36 | Link to Comment Dark Helmet
Dark Helmet's picture

When the Soviet American empire collapses, it will be common knowledge that 9/11 was either ignored and allowed to happen or there was actually some involvement at some level. Lots of stuff became common knowledge when the USSR collapsed.

So clap comrade! Keep clapping for Premier Bush... err... Obama of the Republicrat Party!


Wed, 02/10/2010 - 22:14 | Link to Comment andy55
andy55's picture

As a former US navy submarine LT with top secret/SCI clearance that served from 99 to 04 on a 688i in the Persian Gulf, I've always been skeptical of 9/11 being an inside job on the basis that the government is basically inept and inefficient at everything.  I generally regarded it as impossible for the government to plan an operation like that with that many moving parts in complete secrecy.

That said, someone linked to the 'second edition' of "Loose Change" the other day and I thought I'd give it another try.  I was never that moved by the original version, but I have to admit that the second edition is significantly more convincing, both in terms of organization and evidence.  Granted, there's circumstantial evidence all over the place, but then again there's a enough evidence to paint a picture that stands very well on its own (which I did not feel after seeing the original cut).

For those interested in the 'second edition':

Wed, 02/10/2010 - 23:12 | Link to Comment moneymutt
moneymutt's picture

I've said before, I don't buy all truther stuff, but there is very little to convince me that it's definitively wrong, and lots of stuff that fits insider story more than MSM story..

also on the incompetence seems there are two tracks, but we have seen in history very involved shadow stuff going on that only later got exposed only by some accident of some such...I believe it was a crashed helicopter and some guy singing like a bird at that point that lead to the whole  exposure of the Iran/Contra arms to terrorist, drugs flown into Homestead AFB and sold in domestically in US by CIA contractors...eventually linking to the sudden explosion of crack epidemic...these are all facts in multiple court case sworn testimony, Reagan even admitted to the facts of selling arms for hostages but denied/ compartmentalized this as not being what it was. So what if the helicopter had not crashed, would Oli North be a general by now? Think how many people were involved in this massive conspiracy, people negotiating arms deal, people funding contras, people bringing drugs into use, people negotiating have many people in many people countries doing this, and we only found out when helicopter crashed.

And notice how something really outrageous and controversial as independent companies that work for our govt smuggling drugs into a US AFB, arms for hostage, negotiating with terrorists not even hardly in our political memory, you don't hear people constantly beating on Reagan admin about this stain on their historic record etc...its because MSM does not bang on it.

Also, I think we have plenty of examples in ordinary life of many many people knowing something and it still not being in MSM, once again, because of a crash....Tiger Woods sex life. If it is so damn hard to keep a secret in the Internet age, how is it that perhaps 1000s of people knew definitively TW was a major many mistresses, many golfers on the tour, his friends, the friends and family of his mistresses, many media types, many random people that must have seen something etc...shoot, he wasn't even trying to hide things much, leaving a crumb  trail of texts etc..So what if stakes are higher, what if people doing the hiding are richer, more powerful than many people could know something and it still no be known to general population of US. And even when outrageous stuff get exposed and no one can refute credible sources, if they are not picked up by MSM, its like no one exposed anything.

See Sibel Edmonds...whose biggest coverage in media so far is an article in Hustler....even tho no one can credibly refute her sworn testimony.

Did you know this fact, the Bush family was close friends with the family of Reagan's attempted assassin, Hinckley? Did you know W's brother Neil was scheduled to have dine with a Hinckley's brother in Denver day of attempted assassination. This is all facts report in MSM media. May just be bizarre coincident but if Reagan dies, Bush is president, so why is this story common knowledge among US one refuted facts of story...story just died of inattention....again, open secrets... 

Finally this "govt is so incompetent" is ALWAYS the excuse they use when they trash something...we could never have foreseen a hurricane hitting NOLA, never foreseen  terrorist in planes, never foreseen financial crash... yada yada...the schtick is: look stupid, have regular govt do poorly, while you, shadow elite people, make out like bandits due to your access, insider info, ability to pull a few levers and easily manipulate just about anything...

Thu, 02/11/2010 - 00:52 | Link to Comment jeff montanye
jeff montanye's picture

so true.

Thu, 02/11/2010 - 01:17 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Well, guys, I am with Andy55 on this one, at least the bit about government incompetence and inability to keep secrets.

I had Top Secret / TK clearance at one of the alphabet soups.

Something like "the government / Bush / whatever did it" would be so big with so many in the know that it is clear to me to be highly unlikely.

Thu, 02/11/2010 - 08:57 | Link to Comment Anonymous
Thu, 02/11/2010 - 11:07 | Link to Comment velobabe
velobabe's picture

your heavy, good thing your man's best friend. we all know pure white woman don't enjoy sex. TW, god i miss you babe.

Wed, 02/10/2010 - 23:56 | Link to Comment Dark Helmet
Dark Helmet's picture

I lean toward what in the "truther" community is called "LIHOP" which stands for "Let It Happen On Purpose." I think there were warnings, and sometimes they were missed out of incompetence. However, sometimes they were also missed because I strongly suspect some people thought "hey, you know... we can really use this! we've been looking for another cold war!"

I also think some of the "truthers" are nuts. In some ways they're helping whatever cover-up exists by distracting people with insane out-there explanations. Instead, the questions to ask are things like "who is Osama bin Laden and what's his back story" and "what was Mohammed Atta doing in this country?"


Wed, 02/10/2010 - 23:59 | Link to Comment moneymutt
moneymutt's picture

good points and I tend to agree, crotch bomber could easily be LIHOP...once again govt looks totally incompetent...but are they really that bad..State Dept guys said US was not going to give crotch bomber visa, but CIA told them to cause they were tracking him...then there is the Indian guy trying to get him on with no passport, no video from airport etc....

Thu, 02/11/2010 - 00:10 | Link to Comment Lord Blankcheck
Lord Blankcheck's picture

In the history of aviation how many "BlacK Boxes" were not recovered?


All four are missing from that day

Fri, 02/12/2010 - 18:42 | Link to Comment Anonymous
Thu, 02/11/2010 - 00:00 | Link to Comment Anonymous
Thu, 02/11/2010 - 10:36 | Link to Comment Anonymous
Fri, 02/12/2010 - 10:33 | Link to Comment Anonymous
Thu, 02/11/2010 - 15:47 | Link to Comment Absinthe Minded
Absinthe Minded's picture

I found it hard to believe this could happen in our country too. Then I watched "Loose Change", 2nd cut, and was seriously troubled by this video. If there was no editing of the film then it's hard to dispute that charges took out support members in some of the collapse footage. All the info about their mock disasters that the military were planning up to 9/11 was also very weird and coincidental. The fact that they confiscated all security tapes and released only 5 screen grabs of the Pentagon crash was very shady. If you  want to believe our government is wholesome and completely innocent, by all means do not watch this video. Not short though, 80+ minutes, but definitely interesting.

Wed, 02/10/2010 - 22:41 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:28 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ferguson wrote the auto biography for the is a fascinating story, worth reading every chapter.  It is two volumes. 

This pretty well sums it up.  Let the games begin!  and like always, the US pressures some one else to make the first move.  Well, Iran, do what you will.  Remember, you are toying with a country that has nothing left to lose.  At least this is the view from the Fed, who know they have lost 'Merica's wealth down the toilet.  The toilet leads to their bat cave btw. 

"To the Batcave!"  Screamed Timmy Geithner.  He ran ahead of the group making 'driving' noises with his mouth.  "VROOM!  VROOM!"  "Do I get a cape and mask?" asked Sheila Bair.  "Sorry SHEila, you have to be a boy to wear a cape and mask.  You are a girl, so you get pom poms."  Replied BS.  "Oh yeah!  Pom Poms!"  Ironically, Hank Pauslon had pom poms too.  "Hey, why does Hank have Pom Poms?" Sheila asked.  "I, I, I wha- want to be puh-puh-pretty."  said Hank, as drool dripped down his chin.

Thu, 02/11/2010 - 01:21 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Funny, funny Mr L H.

Please feel free to let us know the name of the book on the Rothschilds, I may buy me a copy.

Thu, 02/11/2010 - 10:33 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:28 | Link to Comment GoldSilverDoc
GoldSilverDoc's picture

We knew it all along - Keynesianism was proposed by a fellow who wanted to please his friends in government - and gain their smiles... how to do it? Propose a theory that involves lots of government spending, thus allowing the pols to blow all the cash they want to buy votes.

And it worked, for awhile. Like the Soviet Union worked, for awhile.

But you can't fool Mother Nature forever. All you folks who have paper or "numbers" in the "bank", trade it all for real things. Land (produces rent). Gold (good insurance). Do it soon. Don't think you can pull off just one more scam/trade and squeeze "just a little more" out of the system. Put 90% of it out of reach of the US tax man, and do it soon.

Be like the Boy Scout. Prepared.

Wed, 02/10/2010 - 20:36 | Link to Comment dark pools of soros
dark pools of soros's picture

one play that will be interesting is when will people start yanking out their 401ks and damn the penalties??   I'm not talking about old fucks that should of already done that.  I'm saying the Gen Xers that are getting the 100% match and have a lot to lose by pulling out now and even more to lose if it all goes to shit..  


Everyone says the Gen Xers never had any power from lack of numbers..  i think a mass pull out and buying of gold/land would be a hell of a statement


Wed, 02/10/2010 - 20:43 | Link to Comment GoldSilverDoc
GoldSilverDoc's picture

I have said it before, and I'll say it again.


All it will take is for around 5-6% of the folks with bank balances to walk into their banks and demand CASH (as in, the green crap they give you which you will someday soon use for chicken-house litter) in the same week, to end this little fiasco and put us back (after some serious pain) on the right road.

And what will gold be "priced" at?  One ounce, per ounce.  Same as the past 5000 years.



Wed, 02/10/2010 - 20:53 | Link to Comment Anonymous
Thu, 02/11/2010 - 01:25 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Keep thinking about cashing out.  I did (IRA) in late '08, paid penalties & taxes but have slept better ever since.

Land, Au and lead.  A worthy diversification!  Might want to keep $10,000 or so in FRNs in case we are wrong though...

Wed, 02/10/2010 - 21:07 | Link to Comment e_goldstein
e_goldstein's picture

Unfortunately, most Xers are just as oblivious as the boomers.

I hate to say that, I'm an Xer too.

Wed, 02/10/2010 - 21:22 | Link to Comment dark pools of soros
dark pools of soros's picture

the intermediate play is to take as big a loan as you can against your 401k and pay off any high debt you have.. or if you dont have any, buy gold and silver


that is the only hedge I see with 401k at this point

Wed, 02/10/2010 - 21:39 | Link to Comment e_goldstein
e_goldstein's picture

Thanks, I'm all set.  I'm a firm believer in the Mogambo Guru investment strategy,

and have been for awhile.  No debt, long on booze, bullets, beans and bullion (wheee).

Thu, 02/11/2010 - 01:27 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

10-4 on the Mogambo's bunker startegy!

"Wheeee!  This investing stuff is easy"

Wed, 02/10/2010 - 23:03 | Link to Comment Anonymous
Thu, 02/11/2010 - 02:45 | Link to Comment Anonymous
Thu, 02/11/2010 - 00:06 | Link to Comment Anonymous
Thu, 02/11/2010 - 14:32 | Link to Comment earnyermoney
earnyermoney's picture

Believe Mr. Soros has stated that extraordinary times call for extraordinary actions to justify his father's efforts to escape Nazi Germany.


In this context, who says you have to follow established law when you withdrawn your money? Plan accordingly

Thu, 02/11/2010 - 03:36 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:29 | Link to Comment indyamericanblog
indyamericanblog's picture


Wed, 02/10/2010 - 20:30 | Link to Comment Shameful
Shameful's picture

So I'm hearing we need to invest more in SETI so we can find alien life, and borrow from them! Space bucks to save America!

Wed, 02/10/2010 - 20:36 | Link to Comment RobotTrader
RobotTrader's picture

And my buddy Rasputin throws in his 2 cents:


Youza! Denninger reveals the true extent of EU scroomage.
Rasputin - Wed, Feb 10, 2010 - 07:18 AM

In a missive found here:

...Karl Denninger reveals just how much debt the EU idiots have run up.

Here is an excerpt:

"Yet unlike Greece, which has a GDP of EUR $261 billion, Spain's
is EUR 1.134 trillion and Italy's EUR 1.406 trillion. Portugal and
Ireland's economies are smaller, but they belie big problems, with the
"best" indication being the external debt to GDP ratio.

Italy's is 127% (the US is running close to 100% at present),
while Greece's is 161%. Spain's, on the other hand, is 171%. Germany,
for all of its vaunted "strength", runs 178% of GDP, Portugal is at
214% and Ireland is running an unbelievable 1267%.

That's right - tiny Ireland with EUR 144 billion in GDP has well north of a trillion Euros outstanding in external debt."

(Ras):And he doesn't even discuss Japan, which I understand is also over 100% debt-to-GDP.

So, it is truly "Inflate or Die" time for the world's economies.

Which one will they choose?

And by the way, all of these fiatscos the Fed is flinging go to fund Uncle Gorilla who is the:

1. Employer

2. Mortgage provider

3. Entitlement disburser

4. Buyer

5. Seller

...of first, last and ONLY resort and is able to impose his will
on the entire economy, distorting markets and sectors as he sees fit.

Sheesh, just look at the hiring boom in D.C. and the continued
housing bubble there for all you need to know regarding Uncle's ability
to spend our way out of this little recession.

Bernanke says "any minute now...we're gonna raise rates and also hand back all that toxic trash to Wall Street".

Here's the link to his testimony:

So, if the Fed isserious, and follows through, then it's right back to "Great Disintegration I".

But as Mike Tyson used to say:

"Everybody's gotta plan, until they get hit in the face".

Let's see how tough Big Boy Bernanke is when he gets smacked with
the upper-cut of McStucco prices crashing another twenty-percent
because no one will touch a Fannie/Freddie MBS.

Or when he takes a right-cross on the chin from the
liquidity-driven stock market dead cat bounce ending and everyone's
401(k)/IRA/mutual fund re-collapses.

Or, when he feels the pressure of Congress telling him to take a dive and implement "QuantSleaze 2.0".

Then we'll see who's woofin' and who came to fight.


Wed, 02/10/2010 - 20:43 | Link to Comment Shameful
Shameful's picture

Really like when you post Rasputin's stuff here but I don't think Zimbabwe Ben will hit the brakes. He might make a few light taps on them but no way he hits the breaks, so no need to worry what happens if/when he does. He'll be to busy fueling up his helicopter.

Wed, 02/10/2010 - 23:57 | Link to Comment Anonymous
Wed, 02/10/2010 - 21:41 | Link to Comment Dark Helmet
Dark Helmet's picture

"and Ireland is running an unbelievable 1267%."

Goddamn. Just. Goddamn. Holy shit. Goddamn.


Wed, 02/10/2010 - 23:07 | Link to Comment Brindle702
Brindle702's picture


Thu, 02/11/2010 - 01:30 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture


Just unbelieveable what they have done to themselves over there in Europe.

Oh, wait, you mean it's happening to us too?  Uh oh.

Thu, 02/11/2010 - 08:26 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Some of the external debt anomaly is due to the presence of one third of the worlds hedge funds being based in the IFSC building in Dublin ( open to correction) - this explains the large amounts of US treasuries flowing through this State last year , Zero hedge reported recently that Ireland had more US dollars then France.

The Irish Sate has no liability with these funds , there must be a policey of see no evil hear no evil I guess.

Luxembourg a even smaller EU country has a higher per capita  external debt because of other strange financial engineering.

Never the less these funds that have a supranational power are a major problem for the EU as a whole

Thu, 02/11/2010 - 11:40 | Link to Comment Anonymous
Thu, 02/11/2010 - 01:15 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:36 | Link to Comment Landrew
Landrew's picture

Tyler, I do not understand your Keynes reference to all of the debt expenditures. I have never read where Keynes thought bailing out banks, ins, autos, etc. was a good thing. In fact reading his work points more towards tax cuts with a combination of work programs like the WPA. Can you point me to what you mean buy Keynes bailout spending?

Wed, 02/10/2010 - 20:53 | Link to Comment Catullus
Catullus's picture

To be fair, The General Theory by JM Keynes is one of the worst written books in the history of humanity.  Good luck making sense of it, but this chapter will provide some clues.

If you ask me, there's no such thing as keynesianism.  There are just economists who get paid by the government to proclaim that every amount of government spending "stimulates" the economy.

Wed, 02/10/2010 - 21:12 | Link to Comment Landrew
Landrew's picture

Thanks Catullus,

However I don't think I can argue with Keynes statement, "The authoritarian state systems of today seem to solve the problem of unemployment at the expense of efficiency and of freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated and in my opinion, inevitably associated with present-day capitalistic individualism. But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom."

In your link, Keynes never states continued deficit spending during prosperous times. However, he does recommend some taxation of higher incomes and inheritance as a funding solution. Obscene debt markets of today I doubt Keynes would have approved of or even believed possible.

Wed, 02/10/2010 - 21:50 | Link to Comment Catullus
Catullus's picture

I think Keynes is referring to the national socialism in "authoritarian state systems of today (1936)".  It was no secret that Keynes was a great admirer of the Hitler regime before 1939 and believed that the Nazis were executing his general theory quite well.  Even if you read the above, you can clearly see that while Keynes recognizes that such regimes encroach individual freedom, he also believed that his system of government substituting "effective demand" via government spending could achieve the same thing as the national socialists.  The problem as F.A. Hayek pointed out in a very famous book called "The Road to Serfdom" (and not so famous, but just as important books responding to Keynes' book) was that even a middle road to achieve the same ends led to the same enslavement. 

You'll be hard-pressed to find Keynes saying anything outright of what you're looking for.  You could read chapters 3, 4, & 6.  But again, this is pure drivel.  It's best to read Keynes through the eyes of Keynesians like Paul Samuelson and Paul Krugman to understand what they've interpreted this all to mean.  They basic interpretation of Keynes is to say that the government (through less authoritarian measures of a command economy) can manipulate the amount of money to create a marginal utility of savings to become less than the margin utility of spending.  By doing this, people will be less encouraged to save and more encouraged to spend.  The spending leads to "full-employment" of resources and prevents "underconsumption". 

Wed, 02/10/2010 - 22:56 | Link to Comment Anonymous
Thu, 02/11/2010 - 00:28 | Link to Comment Stevm30
Stevm30's picture

Great analysis of Keynes the man:

Wed, 02/10/2010 - 20:42 | Link to Comment Kreditanstalt
Kreditanstalt's picture

Niall Ferguson is excellent again!  A Ferrari head-to-head with the Pintos and Mazdas.  And this does tie in nicely with Marc Faber's latest tit-for-tat with the CNN bubbleheads and Dennis Kneale. 

It is now a GIVEN that we will see massive erosion of most currencies' purchasing power manifesting itself in PRICE INFLATION in essentials: food, energy, metals...  How else can the stresses inherent in a worldwide system of fiat currencies being printed to excess reveal themselves?  The pressure has to be released somewhere: it is simply not credible to expect one or more such currencies to enjoy lasting, rising value while others sink.  Thus, the denouement will be seen in the rising value of just about anything in short supply: commodities, hard and soft and GOLD.

In markets, we are seeing wild swings in both long and short positions this month.  Witness AIG, above, or SRS last night.  Great intraday volatility.  Probably great desperation on the part of professional computer-terminal traders too, as profit opportunities diminish. 


Ironically, now is perhaps time to end stock speculation, as returns are getting ever more meagre.  Buy-and-hold ~ in commodities ~ is back, is my prediction.

Wed, 02/10/2010 - 22:03 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Agree, well said.  the current pure-fiat currency system is going to fail, and soon, of that I have no doubt.

Wed, 02/10/2010 - 20:44 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:47 | Link to Comment Kayman
Kayman's picture

Keynes never suggested running deficits at times when the economy was growing and unemployment was low. But Dubya did.

Keynes proposed a way out of the Great Depression, after we were in it up to our eyeballs.

So, let's not do the book burning thing. Let's find new leadership and a new economic theory- one that doesn't load the financing of current consumption of short term Chinese crap into long term debt payable by our children and grand children.

Can we really continue to maintain this country on Chinese Wallmart and (so-called) investment bankers ??

Insource American jobs and outsource Jack Welch and his ilk.

Wed, 02/10/2010 - 21:17 | Link to Comment Landrew
Landrew's picture

Here! Here! I have to agree. I ask this question, how long can this country survive with over 20% unemployment? One in six are now on food stamps. People need to work rather than take handouts that you can't live on.

Wed, 02/10/2010 - 22:11 | Link to Comment Mrmojorisin515
Mrmojorisin515's picture

you'd be surprised, beer and video games my friend, beer and video games

Wed, 02/10/2010 - 22:43 | Link to Comment Anonymous
Thu, 02/11/2010 - 01:08 | Link to Comment jeff montanye
jeff montanye's picture

do you mean '90s japan, the bust not the bubble?

Thu, 02/11/2010 - 02:46 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:50 | Link to Comment Anonymous
Thu, 02/11/2010 - 02:51 | Link to Comment Anonymous
Wed, 02/10/2010 - 20:54 | Link to Comment Going Down
Going Down's picture


"We're Doomed."


The worst part of all is that Obama is totally clueless.



Wed, 02/10/2010 - 22:47 | Link to Comment carbonmutant
carbonmutant's picture

Great piece.

I loved some of the comments..

Wed, 02/10/2010 - 21:05 | Link to Comment glenlloyd
glenlloyd's picture

That's always been the kicker though, they will never reverse course on the present policy until it implodes. Thing is, now with the contagion spreading in Europe that day is approaching ever more quickly.

Wed, 02/10/2010 - 21:11 | Link to Comment Anonymous
Thu, 02/11/2010 - 01:11 | Link to Comment jeff montanye
jeff montanye's picture

sounds a bit like naomi klein's "shock doctrine".

Thu, 02/11/2010 - 11:15 | Link to Comment velobabe
velobabe's picture


Wed, 02/10/2010 - 22:49 | Link to Comment carbonmutant
carbonmutant's picture

All they need to do is kick the can as far as the next administration and they can blame them for what happens next.

Thu, 02/11/2010 - 01:14 | Link to Comment jeff montanye
jeff montanye's picture

but obama is only one year in to a four year contract the historical correlative of which is the the hoover administration.

Thu, 02/11/2010 - 15:03 | Link to Comment carbonmutant
carbonmutant's picture

Well, things are happening a little faster than the experts in this administration predicted... which seems to be par for the course.

Wed, 02/10/2010 - 21:07 | Link to Comment velobabe
velobabe's picture

uhm, i am movin higher up and further back

Wed, 02/10/2010 - 21:12 | Link to Comment Anonymous
Wed, 02/10/2010 - 21:15 | Link to Comment Realist
Realist's picture

Gold is only valuable in your hands, but it's also a security risk if people know you have it. 

Land is valuable for farming, not for rent. What will they pay you rent in if money is worthless?

I would say the best things to invest in are seeds, soil, tools, and livestock. Friends are also invaluable, and books that have information about things that are actually productive, unlike finance.

I wouldn't burn the Keynes for fun just yet. You might need them to keep warm in the winter.


I think Jesus saw this all coming when he turned over the tables of the money changers. 

"Forgive us our debts, as we forgive our debtors" might be the only way out.

Wed, 02/10/2010 - 23:29 | Link to Comment seadragonconquerer
seadragonconquerer's picture

Lots of "friends"...excellent idea, esp. if they are - like oneself, hopefully - well armed and know small unit tactics. Best part of return to small feudal domains led by alpha males is this: boys are going to be boys and girls, like or not, are going to be girls.  

Thu, 02/11/2010 - 01:20 | Link to Comment jeff montanye
jeff montanye's picture

or, alternatively, mad max remains a motion picture and the financial markets, as j.p. morgan observed, will fluctuate.  and those girls increase their majority in higher education and the job market.

Thu, 02/11/2010 - 04:55 | Link to Comment lewy14
lewy14's picture

What will they pay you rent in if money is worthless?

Arugula, bitches!

Thu, 02/11/2010 - 09:50 | Link to Comment Anonymous Hand
Anonymous Hand's picture


Wed, 02/10/2010 - 21:54 | Link to Comment john_connor
john_connor's picture

In this environment, the goal of the NY banking cartel led by "the Fed", is to confiscate assets for pennies on the dollar while everyone goes broke.  The Fed's current overnight rate is currently 150% higher than the 3 month T-Bill.  In light of this, the only thing keeping banks from going broke right now is interest paid on excess reserves.  The usual suspects are making money by betting the farm every day with taxpayer backed funds of course.  Hilarious. 

In the end it doesn't matter how much cash the fed prints because there are no willing borrowers.  So, until the debt is purged to a manageable level and there is price discovery, we will have the "Great Disintegration I" as Rasputin says.

Cash flow is disappearing, day by day.  Very soon it will matter. 

Thu, 02/11/2010 - 12:31 | Link to Comment Assetman
Assetman's picture

Very succinct and very well put, John.

The Neo-classical economists (please don't debase Keynes) like Uncle Ben are seeing the real enemy appear right before their eyes.  That enemy is debt.

Because cash flows are going "poof", debt service cannot be maintained on existing debt.  Little wonder there are no willing borrowers.

All the Fed has done over the past 2 years is transfer bad liabilities from the private sector into public sector hands.  Oh... and it has "provided liquidity".  The Fed could money print as much as it wanted, but it just creates more debt (via FRNs) that eventually cannot be serviced.  I think even Ben realizes he cannot create a dollar crisis.

The ugly solution has been staring at us for years-- yet no one seems to want to take the bitter medicine.  Debts must be purged and there must be price discovery on the collateral that supports that debt.  If central banks and governments won't clear the books, market forces will-- and it will be ruthless.

Meanwhile, the Fed and the NY Banksters are secretly finding dubious ways to confiscate capital to pay for all their debt-creating sins.  The more money they print, the more capital they will eventually need to confiscate. 

The silver lining right now, is that the rest of the world is willing to migrate to US Tresuries as Dubai, Greece, and EU are dealing with thier own sovereign debt issues.  The US would be best served issuing as much long duration, low coupon debt as possible while the window is still open (the liabilities are already there).  At some point, interest rates will be going much higher in most of the developed world... and that is when it's time to duck and cover.

Wed, 02/10/2010 - 21:34 | Link to Comment IveBeenHad
IveBeenHad's picture

love the fire and brimstone it makes for great fodder but in reality just as people were yelling about the end of the world in Sept 2008 and again in Feb 2009 it didn't happen. please people have some faith in this system. it taketh and giveth but there will be another day to trade. sovereign debt crisis is so dramatic. watch how the funding in europe takes care of it self.

how exactly? well the largest purchaser of their debts is again their welfare trusts. they owe themselves.  just like america and they will continue to owe themselves. now there will be short term pain but in the end the larger able countries will absorb the losses and they will all survive to fight another day.  

obviously i drank the kool aid

Wed, 02/10/2010 - 21:44 | Link to Comment velobabe
velobabe's picture


Wed, 02/10/2010 - 21:57 | Link to Comment Anonymous
Wed, 02/10/2010 - 21:59 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

This is a good op piece from Bloomberg.

Feb. 11 (Bloomberg) -- “The worst possible signal which we could send out is one calling for outside help,” Greek Finance Minister George Papaconstantinou told Bloomberg Television this week. He may be the only policy maker in the European Union who understands how disastrous a bailout would be.

Welcome to “Credit Crunch II.” By stuffing billions of dollars of taxpayers’ money into the balance-sheet holes of the banking industry, governments have transmogrified private risk into public liabilities. The “too-big-to-fail” label just reattaches itself to governments from financial companies.

The sequel, if the European Union or its members are suckered into some kind of Greek rescue package by buying, guaranteeing or even repaying its bonds, could end up featuring Portugal as Lehman Brothers Holdings Inc. and Spain as American International Group Inc.




Wed, 02/10/2010 - 22:19 | Link to Comment exportbank
exportbank's picture

OK ... we're now 100% cash - let it hit the fan... Anyone know how much rice I need to feed 10-people for 6-months?

Wed, 02/10/2010 - 23:20 | Link to Comment Eally Ucked
Eally Ucked's picture

Be informed that diet like that may cause beriberi, but anyway, if you decided for that you need around 1 ton, go for high quality and not some cheap shit, brother! As one of respondents advised gardening tools are recommended, with some training and time you can make your diet richer and more satisfying. If you want to produce some feel good drinks also double the amount of rice.

Wed, 02/10/2010 - 23:59 | Link to Comment Anonymous
Wed, 02/10/2010 - 22:38 | Link to Comment Anonymous
Wed, 02/10/2010 - 22:39 | Link to Comment Instant Karma
Instant Karma's picture

On the other hand, the "money" that already has been spent that led to the enormous debt, has already been spent, and, one could argue, has already driven up prices to unsustainable levels. In other words, we've already seen inflation Part I (see stock charts for the past 20 years, commodities, etc.)

Now, the system is imploding, debt has exploded, and money is becoming more scarce because the debt needs to be serviced (America 2007-2009, Eurozone 2010). This debt implosion actually results in a drain of liquidity, with stocks, real estate, commodities sinking and the value of money increasing, temporarily.

Meanwhile, consumer demand sinks, employment sinks, and it's Japan--high debt, deflation, declining demand, aging demographics.

Over the long haul, like Japan, and Brittan, and the US, so-called quantitative easing will have to continue. That is the Fed will have to buy up some corporate and public debt to manage interest rates. They will in truth be printing money to pay for things the Treasury pays for, including interest on the debt.

The tricky part, and Japan can attest to this, is what happens in the forex market. No question the Fed, like Japan, can control interest rates by buying up Treasurys with newly minted money in the computer system. But, since everyone is in the same boat, it's not clear the US Dollar, or the Euro, or the Yen, or, whatever, will change all that much over the years.

The only way the dollar really goes confetti, or the Euro, or the Yen, is if a viable alternative reserve currency emerges. If one does, then of course the value of the the fiat currencies now the most dominant, will decline relative to the new reserve currency. Maybe that will be the Yuan some day.

But right now there's only a few markets capable of serving some sort of reserve status, and they all suck. I'm partial to the Yuan, and the Aussie, but the former is pegged and the latter trades somewhat oddly.

So, yes, we will continue dealing with debt bombs again and again as we work our way through this depression, and debt will be created and destroyed and currencies will move relative to each other. But if you really think that, in the short term, any of the larger currencies like the Yen, US Dollar, or Euro is going to blow up, well, it won't be allowed to happen.

I mean, the hedgies can throw a few billion at the Euro and drive it down, but, the central banks can throw tens of billions back and drive it back up and blow them out. Just like you can bet the ranch on rising US bonds yields, but, do you really think Uncle Ben isn't going to step in one way or another? I mean, if our economy goes full out into depression, the rest of the world follows. At least for now.

If the Republicans can take up the mantle of fiscal sanity, and slow the debt explosion in the US, we might just be better off than the EuroZone, and, contrary to most opinion, the US dollar may just rise, relatively.

So I'm all about precious metals and commodities but I'm not ready to cash in my Benjamins for a survival seed bank. Not just yet.

Wed, 02/10/2010 - 22:54 | Link to Comment Kreditanstalt
Kreditanstalt's picture

Your "viable reserve currency" is already here - commodities and GOLD.  No more upside speculating for me.  We really are approaching "buy-and-hold" time in those areas.

Wed, 02/10/2010 - 23:01 | Link to Comment waterdog
waterdog's picture

Robo, how many more miles you gonna put on that bitch?


Wed, 02/10/2010 - 23:03 | Link to Comment cantstopselling (not verified)
Wed, 02/10/2010 - 23:07 | Link to Comment Anonymous
Thu, 02/11/2010 - 15:23 | Link to Comment IveBeenHad
IveBeenHad's picture

step into the 21 century you know post WWII. 

lets look at previous defaults argentina, russia, turkey , and just about every country in latin american has defaulted in last 30 years. very rarely has war resulted.


Wed, 02/10/2010 - 23:16 | Link to Comment Instant Karma
Instant Karma's picture

>>Your "viable reserve currency" is already here - commodities and GOLD.  No more upside speculating for me.<<

Not enough size or liquidity in commodities or gold to function as money, anymore. There's too much money and not enough gold. That's why the paper is no longer backed by the metals. They were saying oil was the new currency in 2007 as it crossed $100 per barrel. Problem is, no one could afford it at that price. So, unless there is a real shortage, THEY will not let essentials to run up that high that fast. If gold went to $5000 per ounce it wouldn't hurt anyone but the shorts, but, demand would dry up except investment. That's more a psychological game.

Thu, 02/11/2010 - 10:50 | Link to Comment Anonymous
Wed, 02/10/2010 - 23:33 | Link to Comment Argos
Argos's picture

Ok, just stop it with the 'farm land' investment.  When push comes to shove, there's no fuel for the tractors.  I guess you better invest in some mules too.  Oh, and by the way, owner or not, you'll NOT be welcome in the village.

Thu, 02/11/2010 - 00:17 | Link to Comment Anonymous
Wed, 02/10/2010 - 23:54 | Link to Comment Anonymous
Thu, 02/11/2010 - 00:13 | Link to Comment Actionpoint (not verified)
Thu, 02/11/2010 - 00:29 | Link to Comment Anonymous
Thu, 02/11/2010 - 01:39 | Link to Comment carbonmutant
carbonmutant's picture

 If there was a Greek bailout who would get the money? aside from the kalamári...


Thu, 02/11/2010 - 02:52 | Link to Comment Anonymous
Thu, 02/11/2010 - 04:12 | Link to Comment lewy14
lewy14's picture

but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God.

If ever there was a "man caused disaster"...

Thu, 02/11/2010 - 06:52 | Link to Comment Anonymous
Thu, 02/11/2010 - 07:43 | Link to Comment Anonymous
Thu, 02/11/2010 - 14:45 | Link to Comment Anonymous
Mon, 02/15/2010 - 12:50 | Link to Comment Anonymous
Mon, 04/19/2010 - 10:24 | Link to Comment Tom123456
Tom123456's picture

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