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Weakness Begets Weakness: from Banks to Sovereigns to Banks
By: Eric Sprott & David Franklin
The Greek debt situation has been an interesting case study for students of the sovereign bond markets. If there’s a lesson to be learned from Greece’s experience thus far it’s that sovereign bailouts are far more complicated than bank bailouts. They require more sophisticated negotiations and proposals and involve an extra layer of diplomacy that makes them especially difficult to accomplish. As we write this, the European Union has recently announced new lending terms to support the Greek government, with great efforts made to assure the markets that these new terms do not constitute a ‘bailout’. The problem with the Greek situation is that an actual bailout would involve an almost impossible coordination among all the major powers within the EU. It would require the unanimous pre-approval of all the EU heads of state. It would involve the European Commission, the European Central Bank and the International Monetary Fund (IMF) all visiting Greece to perform financial assessments.1 And finally, it would involve at least seven EU countries affirming support through parliamentary votes - all of this before a single euro is spent. A true bailout involves an almost impossible number of hurdles that essentially guarantee nothing will happen until all other avenues of rescue are exhausted. However, judging by the recent increase in yields on 10-year Greek bonds, Greece may soon need more than a loan package proposal to solve its fiscal problems.
One aspect of the Greek situation that has been obscured by all the recent political wrangling is the crisis’ impact on the Greek banks. Although the banks were supposed to be rock solid after all the government-injected capital they received (not to mention zero-percent interest rates and generous lending terms from the European Central Bank), data shows that Greek bank deposits have fallen 8.4 billion euros, or 3.6 percent, in two months since December 2009.2 With no restraints on capital flows within the European Union, Greek savers are free to transfer their assets elsewhere. Given that bank deposit guarantees in Greece are the responsibility of the national government rather than the European Central Bank, we suspect Greek citizens are pulling money out of their banks because they question their government’s ability to honour its domestic deposit guarantees. We envision Greek depositors asking themselves how a government that can’t raise enough money to stay solvent can then turn around and guarantee their bank deposits? It’s a fair question to ask.
The Greek bank stocks have been thoroughly punished throughout the crisis. Chart A plots an index consisting of the four largest Greek bank stocks and shows an average decline of 47% since November 2009. The deposit withdrawals from these banks have been so damaging to their respective balance sheets (remember bank leverage?) that the Greek banks have asked to borrow 17 billion euros left over from a 28 billion euro support program launched in 2008.3 You see the connection here? Greece experienced a financial crisis, followed by a sovereign crisis, followed by another financial crisis. There is no doubt that the Greek crisis has helped drive the gold spot price to its recent all time high in euros. Gold is a prudent asset to own in times of crisis, and it’s possible that a portion of the Greek deposit withdrawals were reinvested into the precious metal. The fact remains, however, that if the Greek government cannot stem the outflows of deposits soon, the EU will have no other choice but to undertake a real sovereign bailout with all its bells, whistles and arduous protocols.
It’s a vicious spiral from financial crisis to sovereign debt crisis to banking crisis, and there is no reason it can’t spread to other European countries suffering from similar fiscal imbalances. With Spain and Portugal next in line with their own sovereign debt issues, we can expect depositors in these countries to make similar runs to the bank for their cash. "Guaranteed by Government" is truly beginning to lose its potency in this environment. The International Monetary Fund (IMF) seems to be preparing for such a scenario with its recent announcement of a tenfold increase in its emergency lending facility. The IMF’s New Arrangements to Borrow (NAB) facility is designed to prevent the "impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system."4 The NAB facility has grown from US$50 billion to US$550 billion with the mere stroke of a pen. Does the IMF know something that the market doesn’t? Is this a pre-emptive measure to repel an attack by bond vigilantes’ on Europe’s fiscally-weakened countries?
Sovereign Ratings
In our examination of the Greek situation this past month, we kept coming across various sovereign credit ratings. In an effort to better understand the Greek situation, we decided to look at how the ratings agencies generate their actual rankings and built our own model to determine a country’s credit risk.5 We used common metrics such as GDP per Capita, Government Budget Deficits, Gross Government and Contingent Liabilities, the inflation rate and incorporated a simple debt sustainability metric in order to generate our own sovereign ratings. What we discovered in the process was quite puzzling.
It should first be noted that the rating agencies are in the business of offering their ‘opinions’ about the creditworthiness of bonds that have been issued by various kinds of entities: corporations, governments, and (most recently) the packagers of mortgages and other debt obligations. These opinions come in the form of ‘ratings’ which are expressed in a letter grade. The best-known scale is that used by Standard & Poor’s ("S&P") which uses AAA for the highest rated debt, and AA, A, BBB, BB, for debt of descending credit quality.
In our opinion, as they relate to sovereign debt, the ratings provided by the agencies are highly suspect. While these agencies claim to provide ratings that consider the business credit cycle, there appears to be very little forward-looking information actually factored into their credit models. In some cases, the agency ratings end up looking absurdly optimistic. This of course should come as no surprise - we all remember the subprime mortgages that were rated AAA that are now worth pennies on the dollar.
While there were some similarities in our rankings (for example, our model ascribed AAA ratings to the local currency debt of Australia, Canada, Finland, Sweden, New Zealand which matched the ratings given by S&P), we found some glaring inconsistencies in the rating results for less fiscally prudent countries that left us scratching our heads. A good example is South Africa. The agencies currently rate South Africa an A+ entity, while our model calculated a ‘BBB-’ rating for its debt using our estimates. ‘BBB-’ is the lowest ‘investment grade’ rating for local currency sovereign debt - one level above junk. We arrived at this rating without having factored in South Africa’s resource endowment. A significant contributor to South African GDP is derived from mining, particularly gold mining.6 While South Africa has been the largest producer of gold until very recently, their below-ground reserves have not been revised since 2001 when the country held 36,000 tonnes of gold (or about 40% of the global total). Recent stats from the United States Geological Survey (USGS) estimate that South Africa now has only 6,000 tonnes worth of economic gold reserves remaining. Further review by Chris Hartnady, a former associate professor at the University of Cape Town, using similar techniques to those of M. King Hubbert (the Peak Oil theorist), suggests that South Africa could have only half of the gold reserves estimated by the USGS.7 If these new estimates are correct, South Africa could have 90% less gold than claimed – and it’s not even factored into our BBB- rating! So what’s South African debt really worth? An ‘A+’ from the ratings agencies seems far too generous based on our cursory review of the country’s fundamentals.
The rating agencies’ ranking of the United States is even more disconnected from reality. To believe that the US sets the benchmark for sovereign debt credit ratings is preposterous. While we have written ad nauseam about the excessive debt issuance by the United States, we found a recent update written by United States Government Accountability Office (GAO) to be particularly instructive. The update noted the US’s budget deficit equivalent to 9.9% of GDP in 2009 - the largest since 1945 - and stated that without significant policy changes the US government would soon face an "unsustainable growth in debt". This was not news to us. It goes on to state, however, that using reasonable assumptions, "roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020."8 This is news! In less than ten years, using reasonable assumptions, there will essentially be no money left to run the US government - 93% of all tax revenues the US government collects will go to pay social security, Medicare, Medicaid and the interest costs on their national debt. This implies no money left over for defense, homeland security, welfare, unemployment benefits, education or anything else we associate with the normal business of government. And the US government is rated AAA!?
The historian Niall Ferguson recently wrote that, "US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941."9 It’s hard not to agree given the foregoing statements by the GAO. The risk inherent to investors, of course, is what happens when the bond market begins to realize and react to this new level of risk. In a speech earlier this month, Jürgen Stark, who is a member of the board of the European Central Bank, stated, "We may already have entered into the next phase of the crisis: a sovereign debt crisis following on the financial and economic crisis."10 The activities of the IMF would confirm this statement. The question we must now ask ourselves is whether "backed by government" actually means anything anymore. In the depths of the 2008 crisis it was the governments that stepped in to provide a guarantee on financial assets. It was the governments that backed our savings accounts, money market funds, day-to-day business banking accounts, as well as debt issued by US banks. But what happens when confidence in the government guarantee begins to erode? We’ve seen what happened to Greece. Leverage inherent in the banking system elevated a bank run, equivalent to a mere 3.6 percent of deposits, into another full blown banking crisis. In our view it’s time for investors to acknowledge sovereign risk. The ratings agencies can opine all they want, but it seems clear to us that the only true AAA asset to protect your wealth is gold.
1 Thomas, Andrea (April 11, 2010) German MOF: Euro Zone’s Plan For Greece Not A Decision To Give Aid. Dow Jones Newswires. Retrieved on April 19, 2010 from: http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201004111740dowjonesdjonline000263&title=german-mofeuro-zones-plan-for-greece-not-a-decision-to-give-aid
2 Papadimas, Lefteris and Papachristou, Harry (April 7, 2010). UPDATE 2-Greek banks ask for rest of EUR28 bln support deal. Reuters. Retrieved on April 19, 2010 from: http://www.reuters.com/article/idUSLDE6360ZA20100407
3 Melander, Ingrid (April 7, 2010). Greek banks seek more aid as spreads widen again. Reuters. Retrieved on April 19, 2010 from: http://www.reuters.com/article/idUSTRE6361QK20100407
4 International Monetary Fund (April 12, 2005). IMF Executive Board Approves Major Expansion of Fund’s Borrowing Arrangements to Boost Resources for Crisis Resolution. Retrieved on April 19, 2010 from: http://www.imf.org/external/np/sec/pr/2010/pr10145.htm
5 Standard and Poor’s. Rating Methodology: Evaluating the Issuer. Retrieved on April 19, 2010 from: http://www2.standardandpoors.com/spf/pdf/fixedincome/methodology.pdf
6 Department: Minerals and Energy. Republic of South Africa. South Africas’s Mineral Industry 2007/2008. Retrieved on April 19, 2010 from: http://www.dme.gov.za/minerals/sami_2005.stm
7 Sergeant, Barry. (November 17, 2009). SA gold miners on final deathwatch as scientist finds gold reserves more than 90% less than claimed. Mineweb. Retrieved on April 19, 2010 from: http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=93062&sn=Detail
8 United States Government Accountability Office. The Federal Government’s Long-Term Fiscal Outlook January 2010 Update (GAO-10-468SP). Retrieved on April 19, 2010 from: http://www.gao.gov/new.items/d10468sp.pdf
9 Ferguson, Niall (February 10, 2010). A Greek crisis is coming to America. Financial Times. Retrieved on April 19, 2010 from: http://www.ft.com/cms/s/0/f90bca10-1679-11df-bf44-00144feab49a.html
10 Taking stock: where do we stand in the crisis? Speech by Jürgen Stark, Member of the Executive Board of the ECB at BMW Stiftung Herbert
Quandt, Washington D.C. April 15, 2010. Retrieved on April 19, 2010 from: http://www.ecb.int/press/key/date/2010/html/sp100415_1.en.html
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It's only currency... the Greeks or EU can promise currency to the moon. But let them try and guarantee wealth- money( gold). Won't happen.
Gotta Love Eric. Well considered and brutally blunt.
You can register to receive this directly by going to the Sprott Asset Management site.
but it seems clear to us that the only true AAA asset to protect your wealth is gold.
Amen.
GOLD BITCHES!!
Oh, one more "!" at the end. Sorry, it's the rulez.
DEFAULT BITCHES!!!
Gold is money. Everything else is...not...
Wrong. Money is whatever two people agree it is.
Gold is a commodity that people value.
There are zillions of others.
I would personally rather stockpile oil.
Agreed, but storing oil is a bit more difficult for an individual. Hell soybeans or wheat might be better then gold depending on harvests and if we see a game changing volcano or not.
Could be, although things with a shelf life might have a built-in value debasement. If it's really scarce (like the volcano scenario), it can work because people are consuming it at a fast enough pace. But then you have to hope that the crop-growing climate heals before the reserves run out.
Try storing even $10,000 in soybeans, or rice, or wheat, or any other agricultural commodity. NOT simple, NOT easy! They would all be bulky, perishable, cumbersome, and all but illiquid.
Now for ten times that value, $100,000, in gold? I can hold it in one hand.
Hence gold's timeless and inimitable value as a store of wealth.
The standard contract for soybeans, corn, or wheat is 5,000 bushels. Would make a lot of tofu, and yes there are grain bins full of the stuff all over the midwest. Will last about two years before in degrades seriously, but bourbon lasts until it's put to good use;)
your arm would get tired, real fast
Oil burn, soybeans or wheat might mouldy...therefore are useful and nothing more.
Gold is a store of value for future investment.
"Money is whatever two people agree it is"
does this mean me and the wife will never have any?
superb comment.
Does this mean me and the wife will never have any? LOL
No, it means you better agree with her or you won't be getting any.
Money, that is.
There are many microbes and organisms which eat oil. They can be treated, but its far more difficult to store oil for any length of time, than it is gold (or other precious metals).
I would personally rather stockpile oil.
No you wouldn't; unless you have a refinery, you would probably rather stockpile gasoline and/or diesel.
"You can't eat oil."
useable fuel has a shelf life too.
http://www.baproducts.com/rr-p90.htm
I am Chumbawamba.
Thanks for that -- I've been using Sta-bil. This looks to be better, but you get what you pay for.
Booyah
I read that 40% of Greece's GDP is from the public sector (don't ask me how that can be a real positive contribution) and the country exports are 1/3rd of imports. Who in their right mind gives money to such a mess. If this was a company, it would be in banruptcy (except the TBTF's of course). What happened over the last few years to the idea that financial failure can (and should) happen? It's clear that all governments will trash their currencies to pre-empt failure of any kind. Complete madness.
Isn't 40% of the GDP of the USA due to local, state, federal government employment??? How is the USA much different than Greece (sans nuclear missiles)???
it's not. And that should scare everyone.
it does, me at least
Given the realities of debtmoney, and the deflationary impacts of default, at this point in the leverage game, default of any kind must be prevented.
LEH nearly caused the end of the world in terms of debtmoney. There were multitrillion dollar runs on accounts all over the world unfolding on Sep 18.
The entire world's CP market froze and is essentially still frozen. Every single credit conduit ceased and had to be replaced by central banks.
What this means is that credit ceased to become money for a time on that day. You could not trade credit. Cash accounts were still worthful, but the picture was clear that there would have been a collapse in that shortly thereafter.
All it would have taken was inaction by the Fed along with a price breakout in oil or gold and the whole thing could have come apart, irrevocably. At that point, nobody would have traded cash for anything real, either.
This is the conundrum that deflationists misunderstand - the window between worthful- and worthlessness for cash is very short. If you want something *real* during a financial crisis, you best have it in your hands ahead of time. You may find those who have it unwilling to part with it for your paper until the dust settles on what that paper will eventually be "worth."
In the teeth of a deflationary implosion, credit is worthless. All forms of coupon paper were collapsing...even pricing something like CP or MBS during those days was impossible. The market was reading "no bid," IOW 0. So, for a time during the Sep swoon, anything with a counterparty was afforded a 0 market price. The things standing were cash and real assets. Parties only needed cash to settle accounts and to "fund." Once the Fed stood in to lend to everyone, the acute crisis abated.
The confusing aspect of it was the paper prices of commodities, which fell dramatically while at the same time they became relatively unavailable for purchase, suggesting a real price significantly higher than the futures markets were quoting. Buying retail gold at spot during that period was impossible.
However, given that every single deflationist has stated their intent to "get out" of cash at the right time, it's clear that the desire of people to get clear of paper within a short period after acute crisis onset would have caused a hyperinflationary supernova, meaning that within a few days or a week perhaps, people would not have parted with real assets for paper as hoarding and scarcity became the rule and market pricing mechanisms broke down. I submit that the POG at $715 when every retail dealer across the internet (even large ones) had no supply and was quoting at $100 over spot (which was gone immed) suggests that the very initial phase of pricing mechanism collapse was underway. Either the dealers were hoarding expecting that the dollar price was a de facto error or their wholesalers were, under the same presumption, or the mints or major sellers were.
It's instructive to examine the price trends during that period as insight to how wide the window to get out of cash will be. WTF good is a futures price of $715/oz if nobody will sell it to you at that?
At what point do you think the price for actual, physical "delivered to your hand" gold will permanently decouple from the world's paper gold price and what will be the trigger?
What this means is that credit ceased to become money for a time on that day.
Credit isn't money, and it never was. It acts like money, but it is born of debt-money in a fractional-reserve fraud system.
the window between worthful- and worthlessness for cash is very short.
For fiat, yes that is true. That's because fiat isn't really money either. Fiat is born in a debt transaction. It is itself an obligation; that's why FRN's are "Notes". The question is, whose obligation? Anyway, then we call it "capital" (even though it's not) and break it up into tiny pieces and loan it out with fractional backing. Wanna know why the system nearly came apart? IT'S A GIANT BUBBLE.
If you want something *real* during a financial crisis, you best have it in your hands ahead of time.
Are you trying to scare us? You're not. We already know this. We're already "hoarding". Get it?
...it's clear that the desire of people to get clear of paper within a short period after acute crisis onset would have caused a hyperinflationary supernova, meaning that within a few days or a week perhaps, people would not have parted with real assets for paper as hoarding and scarcity became the rule and market pricing mechanisms broke down.
Yup.
Word. Your neighbors are fortunate to have someone like you around who will be in a position to not only keep a clear head (knowing you have quietly prepared), but to explain that the "turmoil" is actually a logical and necessary paradigm shift from the banker debt money system that lasted longer than it had any mathematical right to.
I'd like to know your source for much of what you've written, but "Buying retail gold at spot during that period was impossibl" is simply not accurate. That may have been the case on the internet, but I was buying gold from my local dealer around that time. In fact I think I picked up several ounces when it was at $780.
Overall, I agree that the deflationists waiting for the perfect moment to move out of cash are being foolish.
I am Chumbawamba.
Bureaucrats form the backbone for any government, thats why they are a special asset class. Otherwise, who would be creating the paperwork for anyone to file ?
Governments, corporations and academia have tried everything in their power to eradicate chaos from our everyday lives. They regulated the natural dynamics, they contained natural tendencies, they indoctrinated the vast majority of idiots and imposed their regulation as belief punishable by death if not followed by those of us who have the imagination, knowledge and information to question their motives and goals. I know this is somewhat OT but it needs to be said. The delicate natural equilibrium of chaos and order, the metaphysical axiom of cause and effect are regulated. But it is to no avail. The end of the current system is inevitable since it is in no way different from past civilizations. All this petty everyday stuff we read on ZH is ultimately irrelevant, but serves as an indicator of the whole picture. I do not know when will the current economic, banking, political and military paradigm end. I do not know what will come after it. What i do know is that there is no cure for the cancer the apparatus created via their lack of control, need to please everyone and everything, via their abandoned sense of humanity and their exile into the post-human environment. Rigid and analytical, logical and denoted in numbers, with or without value, but certainly with a price. We are reduced not to our humanity but whether we are assets or liabilities of some imagined artificial environment they proudly call " The 21.st century". They mistook their failure as success, they mistook our devotion to the truth as subversive action and fringe rhetoric. They overstated their power and become addicted to it. They dear readers will be reduced to ash, the same as we will. But a life spent in lunatic pursuit of artificial balance and strict control and the imposition of the said on us will not save their so called "civilization". With time our cities will decay and become graveyards of their failed experiments, national borders will disintegrate when faced with force of aforementioned axioms. Purely abstract concept of the human mind will lay unremembered by anyone and anything once we devolve/evolve into self-destruction. There will be nothing to remember us. Grass will grow over the floors of stock exchanges, bank branches will be used as shelters by the animals, 5th avenue apartments will be unrecognizable among the flesh of death animals and ever growing plants. Remember that the next time you lose your shit when the stock you own falls 1%, remember that when you find a scratch in your car and go apeshit, remember that when the self-righteous among you drink their cocktails and bang their whores in the chambers of their 100 000$ a year private clubs because this are not rants of some lunatic, this is our future. Certain as 2+2=4.
Now allow me to medicate myself into a painless oblivion. Good night ladies and gentleman.
Insightful as always. Thanks.
I met a traveller from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip, and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.
A fitting tribute to an awesome screed.
I am Chumbawamba.
Here's another:
Life is short filled with stuff
Don't know what for I can't get enough
I learned all I know by the age of nine
That I could better myself if I could only find
Some new kinda kick something I ain't had
Some new kinda buzz I wanna go hog mad
- The Cramps
An ode to the oligarchs of high finance!
We are the hollow men We are the stuffed men Leaning together Headpiece filled with straw. Alas! Our dried voices, when We whisper together Are quiet and meaningless As wind in dry grass Or rats' feet over broken glass In our dry cellar Shape without form, shade without colour, Paralysed force, gesture without motion; Those who have crossed With direct eyes, to death's other Kingdom Remember us -- if at all -- not as lost Violent souls, but only As the hollow men The stuffed men.
The horror! The horror!
-Col. Kurtz
I love your rants dude. Please do it more often, I enjoy reading them.
"Rants from Zero Hedge" on Amazon soon! heheheh
Friedrich Nietzsche, the only true Greek.
In your world 2+2=4, but that is not the world of crony capitalism. Hayek said that when you take a capitalistic society, and clash it with socialistic policy, you get a third thing. For such a time means to an end demanded a moral boundary to be crossed, then in a moment the morality of means becomes irrelevant. That my friend is what should terrify us all. We are building the framework that could bring rise to something truly terrifying, more terrifying than the truth:
In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later: the logic of their position demanded it. Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy. The heresy of heresies was common sense. And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right. For, after all, how do we know that two and two make four? Or that the force of gravity works? Or that the past is unchangeable? If both the past and the external world exist only in the mind, and if the mind itself is controllable—what then? - nineteen-eighty-four: George Orwell
+1000
Well said, Cheeky.
I don't even want to think about a sovereign debt crisis.
Pearl Harbor indeed. More like the fall of Rome 10-fold again. I don't think anything recognizable emerges intact from failure on that scale.
Creative Destruction On A Massive Scale!
*ahem* It's only "creative" if something is left standing when it's over.
Otherwise, it's the usual kind of plain old "destructive" destruction that leaves a path of destruction in its wake after destroying eveything.
Though yeah, maybe something good comes of it all ... about 800 years out.
depends on the intensity of the background radiation after the coming nuclear war
True, however once the government declares force majeure on social security, ones hopes it will awaken people, think i am moving to hong kong anyway to hedge.
where will eric stand when the us(and canada) confiscates privately held gold? Get Physical.
such an act could very well result in the bloodiest civil war in world history. That wouldn't work in the US. trust me cops wouldn't do that... now the SLV and GLD being siezed and settled in cash, that's an effective possibility. Also increased capital gains increases in PMs, all sneaky and backhanded ways to skim the stack I think are fair game. Worst case, citizens could smuggle their PMs and Diamonds to a friendly country (depending on where you live. That's what people have done in the past when this crap happens.
That's one of the reasons you'll have to go through a full body scan every time you try to get on an airplane.
Thanks for thinking outside of the box, Mr E Nixon.
Funny how willingly Americans give away their freedoms. The freedom to get on an airplane without some lethargic TSA hack seeing your hairy swatch? Not a peep.
I more than peeped: I made a commitment to never again get on a plane from inside a US airport. If I absolutely have to fly then I'll drive to either Mexico or Canada and fly out of either of those countries. But I will not submit to any more of this abjectly ridiculous security bullshit.
I am Chumbawamba.
.
Here's a 58yo American guy in a Mexican jail with 150 ozt Eagles & Krug confiscated as he tried to board a plane to Panama. Not a good situation to say the least.
http://www.economicpolicyjournal.com/2010/04/150-gold-coins-seized-from-...
Yikes. Holy shit that's a bad day.
Physical is good.
But we also need some place to store it ......beyond the govt.'s reach.
Blah blah blah buy small caps again!
"All this petty everyday stuff we read on ZH is ultimately irrelevant, but serves as an indicator of the whole picture."
irrelevant cumulative noise.
+1e6
The IMF may need to increase their kitty beyond $550B should sovereign default contagion spread. And then, of course, it rests on the shoulders of the US taxpayer once again. When will we shrug?
Yes, what a profoundly brilliant strategy: if western nations are all collectively bankrupt, then the solution is, of course ---- to bail each other out of bankruptcy!
(And with what, you may ask? NO, you may NOT ask!)
What a sublimely obvious proposal! I bet it takes many years of rigorous academic training at Harvard to achieve such rarefied heights of intellectual insight and finesse.
And yet there are still those who do not believe that banks create money or that the Fed cannot be insolvent.
We will lend the IMF money we don't have in order that they can lend it back to us.
ALL HAIL THE FRN.
Delete copy.
Santelli CNBS:
"let Geece fail"
Akak Zerohedge:
"Let CNBC fail"
Justice will finally prevail when Michelle Caruso-Cabrerra-Mussolini-Corleone is serving tables at a suburban Chili's (instead of dishing up pro-bankster tripe), Steve Liesman is picking up trash (instead of spreading it), Dennis Kneale resurrects his role as Big Bird on Sesame Street (instead of incessantly squawking in favor of the financial oligarchy ), Larry Kudlow retires to pick weeds in his garden (instead of planting green shoots and mustard seeds of pro-establishment propaganda), and Erin Burnett goes back to cheerleading her high school football team (instead of cheerleading the Wall Street and central bankster takeover of the economies and political systems of the Western world).
As for Jim Cramer, I am sure there must be some unproduced Oxyclean infommercials just waiting for a new whining, irritating, hypermaniacal, fingernails-on-the-chalkboard-voiced spokesman. It might be a novelty for him to finally pitch something of inherent value for once.
Nice rant!
I am Chumbawamba.
We've kind of seen this play out before, but in a microcosm with Latvia. What eventually occurred was the Swedish overnight policy rate went negative, and nothing more in the press.
The Eurozone may have the same fate in store, the rest is all ballyhoo. But lower rates in the EU zone assures a higher gold price. *snap* *snap* *snap*
Alas, Goldman's profit today on CDS will mean somebody else's loss tomorrow.
Will anybody attest to the need for "insurance" on sovereign debt in any form, except for cornering risk in the market?
-F6
It is important to remember Irving Fisher's Debt Deflation paper in which he describes the bifurcation of credit after the collapse. Instead of all credits degrading in response to the markets' awareness of the the popping debt bubble, the spreads of weaker credits blow out while the relatively safer credits (and the fact that it is relative is important here) see a decrease in their interest rates due to a flight to quality/safety.
Left unchecked, the market picks off the relatively weakest credits one-by-one. This is what happened in the Bear Stearns, Lehman, Merril progression of 2008. The "safe" credits each become weak in turn; this is what was happening to all major US banks in Sep 08 until the safest credit of them all (again, in a relative sense), the Fed/US Gov, pledge to backstop the whole mess. It protected the herd by bring the weakest inside the ring of safety. This led us down the path towards the unicredit world as described by PIMCO.
This same dynamic is now playing out with sovereigns in the Eurozone. If the European governments and the ECB cannot support the weakest members, the herd will be attacked one-by-one, each in turn. Politics and the public reaction to the consequences (or non-consequences) of each bailout (or non-bailout) will influence the outcome at each turn. If Greece gets bailed out, it decreases the likelihood of the next guy getting bailed out, etc. If the Eurozone cannot produce a Geithner/Bernanke type of solution for its members, expect a breakup of the Eurozone.
Now take a step back and look at USD vs. Euro and ask yourself whether or not both of these blocs of currency and debt can exist in a time when the entire world has been caught up in a massive fiat/debt bubble. Can both USD and Euro exist when there is so much debt on which to default? Any sovereign that defaults, leaves a currency union, or drops a currency peg has the effect of weakening that currency bloc. The market wants to bifurcate these credits -- USD and Euro -- will the TPTB fight back or let it happen? Which outcome do they prefer? Classic prisoners' dilemma.
Gold is interesting but the real drama is US v Euro.
TPTB have one foot on the threshold of the exit door.
Exit to where? Off world?
Probably a yen melt-up, but that's just me.
Well, like you said, gold is interesting.
The drama is also "where is the Gold"? fort knox not audited in 20+ yrs...my guess is that there is nothing but tungsten left and the Saudi's have most of the real stuff. Interesting thing is that Portugal & EU, ex UK, have quite alot of the real stuff.
Whatever came of that strange 1 oz ingot you bought?
My big, fat Greek default.
I have been waiting for that line for a while now!
Congratulations!
*taking a bow* I think somebody already expressed it somewheres else, I'm just repeating it for the benefit of zerohedgers.
FOUND IT!!
http://www.wallstreetoasis.com/blog/my-big-fat-greek-default
Capital flight from Europe is fueling the ongoing melt-up.
Most of the Greek money is going to London, UK has for millenia been a destination in time of crises.
The UK? LOL!
Talk about "out of the frying pan, into the fire"!
Anyone looking for such antiquated and chimerical "protection" is only going to find that they have fled into a paper house, with the sparks from innumerable surrounding financial wildfires raining down upon it, and with its golden fire suppression system long ago sabotaged and deactivated. Meanwhile, surveillance cameras in every nook and cranny watch your every move, and state-sponsored thugs guard every door and window, waiting to confiscate anything of value while simultaneously preventing your exit.
Just saying, check the UK property market, right now the Greeks are paying top $
Check your gold, the tungsten found in a "central bank ingot" by the Germans was not a 400oz bar as some might have u believe, closer to 1kg (32.15oz). Also I found a 1 oz bar that took over 5 times the equivalent force to bend (typical deviation was +/- 5% of force NOT 5000%!!) having it melted down...only gonna buy gold in Hong Kong or Dubai from now on, at least they have some serious penalties for thievery.
I just asked about that one above. Do you have to be a Canadian citizen to get RCM gold in 1 oz increments? I don't see it for sale at the better known retailers.
What are you talking about? What you're saying is meaningless.
Are you trying to indicate that you got a tungsten 1oz bar?
Wondering the same thing myself. Was the item touted as .9999 (24k)? American Gold Eagles are 22k. That's 91.67% gold with the rest of the metal in the coin mixture being copper and a trace of silver. The reaction to stress is not the same.
Guys, Guys, GUYSSSS!
Lighten up. They'll change the rules, reinvent the concept of money,
do a global jubilee, or some such nonsense BUT BE CERTAIN OF THIS...
these banksters are not constrained by 'our' laws. Just imagine Nazi tanks
blasting through hedge-row country. No one in Europe thought it was possible
before it happened and Voila! -- the marvel of lawlessness.
The future might suck, all you old investors may be in too deep to survive,
and the powerful will NOT be punished (get over it) but this is not the end of days!!!
Go for a walk or something -- get some air.
Have a nice week end.
Where there is wealth creation you have a chance to re-or distriubute it. In greeeece and soon in ussa, we are not creating a whole bunch. Sprott's article is not so mucn a prediction as a projection. Under free market system not a maladjusted market system you have ups and downs, companies come and go. There is a natural risning and falling process. The kleptocarts in WCD need to be turned out if there are not allowing wealth creation to occur. In the last two years, we had a massive fake out/failure accross so many sectors and fronts. Its, the Great Disturbance's, seeds lie in faulty incentives, bad philosophy, and unrealistic expectations, top to bottom and side to side.
Right now too many people are shouting about the wrong things and themes. WE are on the real eve of distruction. IT is a time to wise up.
Just call me crazy, but i shorted nasdaq100 right now.
http://midasfinancialmarkets.blogspot.com/2010/04/just-shorted-nasdaq100...
All it will take for the US Dollar to collapse is the rise of a less bad alternative currency. It could happen very fast. Faster than people think.
If the Yen or the Euro where to rise again, the US Dollar would be toast. Inflation would soar.
Already, the US Dollar has become toast versus the Brazilian Real, the Swiss Franc, the Canadian Dollar, and the Australian Dollar, and probably lots of other currencies I don't even follow.
I have been converting cash into physical precious metals for about a year. I must say I'm not making a fortune but with gold, silver, palladium and platinum where they are, I'm doing OK.
Now if GS could help me figure out how to lease an oil tanker.
Is this the back-channel behind the US's alleged pressure on CHina to upwardly revalue Yuan?
As we write this, the European Union has recently announced new lending terms to support the Greek government, with great efforts made to assure the markets that these new terms do not constitute a ‘bailout’.
So still, yet, again, the first last and only predictable loser is the rule of law, and the idea that contracts, constitutions, and agreements mean what they say. Sure makes me want to run out a build a company so Commiebama and his 40 thieves can loot it.
Although the banksters have scammed lots of folks, for a very long time (since around 1100 AD), the time draws nigh...
Hard assets. Gold, silver, land, guns, ammunition, skills, books full of information of every kind, mineral mines.... the question is not value, it is differential time preference. ZeroHedgers are long-time-preference people, for the most part. People who think of their children, and their children, and theirs....and plan accordingly.
Rome lasted 1100 years, and was at its peak for 300. Then... 1000 years of misery for humans of our geolocation. The Anglo empire has had a good 800 years, the last 100-150 at its peak.
Time for a settling of scores.
Recently i added to my silver position. I was shock when 3 100oz bars arrived that looked like revolutionary war era bars. Their scrapping the bottom of the barrel to make demand. We should all keep buying and put an end to this manipulation.
Dead on. This has all happened before. http://fofoa.blogspot.com/2010/04/21st-century-bank-run.html
Bank runs have not only taken the form of withdrawals of paper money; the U.S. has seen at least two instances ~ 1933 and 1971 ~ when government-guarantees of gold were unsustainable.
They can conjure up more currency anytime in any number of ways but they can't do it with gold.