This page has been archived and commenting is disabled.
Eurozone Bailout: $955 Billion
From The Daily Capitalist
“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today after the 14-hour meeting.
The eurozone, those countries that use the euro as their currency, is in serious trouble as evidenced by Sunday night's (here) announcement of a €750 billion bailout to defend the euro from tanking and taking down several sovereigns with it. Greece is only one problem.
From the Wall Street Journal:
The European Union agreed on an audacious €750 billion ($955 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide.
The money would be available to rescue euro-zone economies that get into financial troubles. The plan would consist of €440 billion of loans from euro-zone governments, €60 billion from an EU emergency fund, and €250 billion from the International Monetary Fund.
Immediately after the announcement, the European Central Bank said it is ready to buy euro-zone government and private bonds "to ensure depth and liquidity" in markets, and the U.S. Federal Reserve announced it would reopen swap lines with other central banks to make sure they had ample access to dollars. ...
From Bloomberg:
“This is Shock and Awe, Part II and in 3-D,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. “This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion.”
The world's monetary authorities are expecting a flight to from [sorry] the dollar on Monday, and the Fed is ready to provide the dollars.
One could argue that the eurozone was founded on a central flaw: cheaters like Greece who spend beyond the debt limitations set by the ECB. Of course the main flaw is that none of the participant understand the flaw of spending beyond tax receipts. At some point the currency and the sovereign's bonds will be challenged because holders of sovereign debt fear sovereign default. It happens all the time and Greece has defaulted in the past. This time they can't print money to solve the problem.
Don't think it can't happen here. We just got a warning from the IMF.
Forbes publishes its annual Tax Misery & Reform Index which weighs the effect of taxation on economies. Many of the EC countries are right up there, including Greece (10th of about 70 countries). Which means it might be hard for them to raise and collect more taxes. It also looks as if they will have a difficult time cutting spending. By the way, depending on which state you are in, the U.S. is about 50th on the list. If you live in NYC you are 21st.
Mish has an excellent just published article on this topic you should read. He's expecting a short squeeze on Monday.
I agree with his conclusions: Good luck reforming Greece.
»
- advertisements -
What has happened to Iceland? Last I heard the public refused (by referendum) to bail out the bankers and banks that had loaned Euros to them. Has anything dire happened there, since they chose to default on the loans (as I understand it)? What is different about austerity with or without paying off the banks or going into more debt?
I was wondering about that also. But at the time, some "experts" were saying the referendum was not really binding on the government anyway. If that's true, the situation could still be unresolved.
Totally good point, but Iceland has, what, 350,000 people and nothing that gets them on anyone's popular culture radar.
"Many of the EC countries are right up there, including Greece (10th of about 70 countries). Which means it might be hard for them to raise and collect more taxes."
From what I've read, Greece doesn't fully collect those taxes from 70% of its citizens. So, they can raise their receipts without raising taxes by simply acting to collect those taxes already due.
And while I'm not a fan of taxes, why should I have to pay for some tax-evading Greek who gets paid as if he'd worked a 14-month year? Oh, that's right, so the giant Ponzi scheme that is our world's financial system doesn't come crashing down.
Bailouts and more Q&E. Wow what a surprise. Wait til the tap gets turned off. Its going to be as ugly a Betty. (Naked short selling on the horizon)
Let me get this right... Federal Reserve sends around $ 700 Billion
to the Euro Nations to pay off Derivitive Debts they made with
Goldman Sachs .. the same $ 700 Billion goes back to Goldman Sachs.
Round and Round and Obama gets a cut... US Taxpayers get
Fucked Again....
Obviously there is no 750,000,000,000 euros to back up this plan, now or ever. It is just an invocation to be shouted out, Harry Potter style, with enough force and wand-brandishing to shock the gathering evil forces into retreat. Of course if that doesn't work they will be left standing there, defenseless and holding a silly wooden stick.
Party like its 1999 *ahem*, March 2009.
DJI 15,000 next stop?
Is there any stop?
Can't wait for Robo's *wildebeests* and *wild chicks* today. The ladies on business networks might as well go all naked today.
Dear CB: Can you please explain your post in somewaht plainer English fo0r those of us who are relative newcomers? Thank you. Cheers, Mitchman
"Scams are us" is expanding to the ECB's as a result of this weekend's activity. Sir Ben knighted several bankers and bestowed upon them the Fed's playbook for Strengthening Banks Without BENefiting the public.
It's just an opinion, but I try to be a student of Friedrich Hayek, Cheeky Bastard, and Adam Smith to name a few.
Euphoria over what, delusion. This whole world is now like a heroin junkie who only cares about a quick fix. Personally, Im not touching any of it and good luck finding the retail to buy into the hot shot euphoria the down and out junkies are so euphoric about.
Even BP is soaring, dispite their ever expanding oil spill!
This is a over euphoric market right now. Looks like everybody is pressing the buy button, especially the bank stocks.
CITI, AIG, BAC, ....
and buying NBG ?
I really need to understand the EU details before making any real conclusions.
But, I do have some questions:
Why would the sovereign debt bond market (if so smart) respond positively to an obvious short term bandaid through an extension of terms?
The ability of Greece to refinance is based on their capacity to pay interest. How has this changed with the announcement?
Is it really wise for the FED to potentially take a large position in EUROs?
Mark Beck
As to your questions:
1. The bond market reaction today is likely a short covering maneuver. As prices rise, the momentum runs out, and we'll find out whether there are really many long buyers (optimists) left. Personally, I am doubtful and think the horses are spooked.
When that upward momentum wears out, then watch the thing turn back downward and for talk of the long-term sovereign fundamentals (which are poor) being a key part of the price decline conversation....fundamentally, nothing has changed with the credit risk.
2. If the Euro governments hold true to their press release (this is a speculative bet in and of itself), then Greece no longer has to worry about market interest rates interfering with their ability to roll over debt. The ECB and Euro governments just said that they will buy the Greek debt (today's news) when no other liquidity (i.e., buyers) are available.
3. The Fed is not taking a position in Euros, per se, they are loaning one form of liquidity for another for a short period of time, and then everybody gives it right back at the same terms at a later date.
So, the Fed is providing US dollars to European central banks to lend to their commercial banks so they have additional cash on hand (other than Euros) and can limit any runs on banks.
The commercial banks then take the money and go out and buy US Treasuries for the time being, which should temporarily lower the cost of US Treasuries with temporary, buy-side demand from these foreign participants. Of course, this all goes away when the swap trade is unwound between the Fed and ECB, thereby evaporating the liquidity the Fed just gave the ECB.
OPERATION EURO:
http://williambanzai7.blogspot.com/2010/05/central-banking-stories.html
Actually on second thoughts more like my crazy mutt (Agememnon) who likes to eat grass, upchuck and then eat the upchucked material.
price discovery
extended correction
exhilarating process
verbal warning
fates calling
winter near (here)
Nope.
Opening of swap facilities has got absolutely NOTHING to do with providing liquidity, more with binary FX move for the following reason a) strengthen the EUR devalue the USD against all currencies and provide monetary infusion in form of a proxy QE in order to keep a steady inflow capital into the US market thus providing the indexes rise b) keep EUR from vanishing over night into USD parity and thus obliterating the capital inflows which 1.40xx-1.50xx FX provides. Basically its cheap money coming into the US since it can not get a decent ROC in Europe c) keep EMU bonds strong and highly liquid in order to keep EURIBOR, LIBOR and interbank lending at bay without causing Lehmanesque events and ripple effects d) lower borrowing costs for EMU members e) further facilitation to the ECB in second market bond buybacks.
I could easily name you xxx more reasons why the swap facility is re-opened and why it is multilateral [unnecessary in my opinion given the USD infusion which binary FED-ECB agreement will provide should be more than enough to achieve USD targeted value], but one can say that FED is using this multilateral swap approach as a hedging strategy if some external even triggers lower FX in any of the counterparty monetary zones. It really simple; keep the USD synthetically down in order to provide rising values into all viable sectors of the US economy and when those sectors became volatile to much to provide the necessary liquidity for USTs and keep LIBOR based rate metrics in bay. It really is nothing more than a sophisticated Ponzi.
Cheeky,
Nice to hear from you.
I will admit you make a compelling case for Fed cooperation with the ECB to keep the Euro propped up vs. the dollar. With treasuries getting hammered this morning, rates are headed up. But it would seem that would tend to increase the dollar? Apparently the euro gains are minimal this morning because money believes this bailout is not the fix, which I agree with. But perhaps you are correct in that the dollar would be much higher without the swap lines. Also I don't understand your comment of QE. A lower dollar would increase exports but increase the cost of imports which would be an obvious hit to consumers which would be a negative. There are always two sides to a sale of goods.
I admit I am not an expert in foreign exchange. Perhaps you can clarify your comments a bit.
Cheeky, yours is an interesting analysis.
The benefits of 1.40 to 1.50 USD:EUR pair do provide greater affordability for UST securities or, stated differently, the capacity for European holders of capital to buy more of our outstanding debt with the same amount of Euros.
The international trade balance effects of a weaker dollar, however, have not been as much of a cure-all for our trade imbalance because we also overbuy and undersell to the Asian economies.
The re-opened swap facility (temporarily giving others lots of USD liquidity) is akin to Marlboro (NYSE:MO) providing free "reds" to European banks to -first- get them hooked and -then- have them continue buying to sustain their own habits.
Will it continue to work? Only if we can control the growth rate of future debt issuance requirements...something Euro sovereigns have been unable to do for the past few weeks, hence the run.
Dear CB: Can you please explain your post in somewaht plainer English for those of us who are relative newcomers? Thank you. Cheers, Mitchman
Hi Mitchman.
Yesterday you requested posters of my Timmy in Jail image. They are at the ZH Fundraiser I am doing that was mentioned at the end Cognitive Dissonance's story--I have created them for you. Those images at the bottom of the story were from items I created at the store. Everyone loves Timmy Behind Bars! All funds go to ZH.
It took awhile to get it to poster resolution but you mentioned wanting a dozen so it's up for you!
Go to www.zazzle.com/Howard_Beale and you will see the poster in 2 sizes on the front page.
Here's a direct link to the larger poster:
http://www.zazzle.com/timmy_in_jail_poster-228189632579265027
If you want it square, please let me know!
Howard
Going there now! Thanks!
This is true but the scheme is being run by a confederacy of dunces, oops, I mean bureaucrats.
How long before somebody miscalculates and there's an epic fail at the US Treasury auction?
It all works as long as you can roll the debt over, when the roll over fails ... a clarifying moment occurs. It's game over.
Then the Ponzi scheme unravels like a cheap shawl.
Everything you said *should* be true...
But can you actually ever have a failed auction under the primary dealer system? With dealers pledged to buy and pre-announcing capacity to buy, under what possible conditions might we ever get a failed auction?
And with Treasury directly supporting the viability of the primary dealers -- we have an ouroboros.
There is no man or group of men who are wise enough or honest enough to manage an economy made up of billions of souls. The experiment must fail. The central banks are holding entire economies in their hands. It can't work, and the longer and harder they try, the more epic the fail will be when it finally occurs. I know we've said that here a zillion times.
I've believed in "QE to infinity" for quite a while, and for the simple reason that I've always known that they can't admit defeat, they can't not try to reflate. It's all on the line. Failure for them means their incompetence to their task will be revealed to even the least informed among us, and the repudiation of the central banking / central planning state. There was never any doubt about the actions they'd take. This is where Mish et al fall down.
Wow that exactly like my crazy aunt Millie ( we keep her in the basement and dont really like to talk about her much).