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Eurozone's Big Boys Hold the Aces?
Nils Pratley of the Guardian reports, Eurozone's big boys hold the aces:
Markets tremble in the face of Irish resistance.
It was a reasonable reaction since even the European Union's top
officials seem unable to agree on the size of the threat. Herman van
Rompuy, European president, said the eurozone was in a "survival crisis"
while economic affairs commissioner Olli Rehn insisted that "it's not a
matter of the survival of the euro." Find the consistent message in
those statements if you can.
It looks
as if the EU officials are trying to hit two impossible targets at once –
crank up the pressure on Ireland to accept a bailout while
simultaneously reassuring the wider world that the debt crisis will not
spread to Portugal, or at least not to Spain.
Investors will
tolerate such confusion only for so long. They understand that verbal
gymnastics are part of the process of forcing a resolution but, in the
end, markets want to see a deal. Germany, France and European Central
Bank appear to have agreed that Ireland needs a bail-out to prevent a
loss of confidence in the eurozone. If they cannot then impose their
will on a junior member of their club, the crisis enters new territory.
Sympathy
for Ireland is entirely justified, however. The country is fully
funded until next summer, as its government keeps reminding us. Its
politicians are entitled to seek the best possible terms and
brinkmanship is entirely understandable. The focus will be Ireland's
freedom to set taxes. The ultra-low corporation tax rate of 12.5% is
the symbol of Ireland's economic freedom and a cause of resentment in
Germany and elsewhere. Hard bargaining might secure a marginally more
freedom.
Ultimately, though, the big
boys of the eurozone hold the aces. The wholesale markets are virtually
closed to Irish banks, who can fund themselves on a day-to-day basis
only because the ECB provides liquidity. That is why it seems
inevitable that Ireland will bow to the pressure to accept a bail-out
package.
It may be dressed up as a recapitalisation of the broken
banking system but that's merely a detail since Ireland continues to
stand behind its promise to support its banks. That die is now cast.
A succession of eurozone finance ministers have sought clarity from the Irish government
on its plans to resolve the banking crisis. Meanwhile, the Bangkok
Post reports that Europe and the International Monetary Fund announced the launch of an urgent mission to Dublin to finalize emergency support for Ireland's devastated banking sector:
EU
economic affairs commissioner Olli Rehn said plans in gestation for
days would have "an accent on restructuring Ireland's banking sector".
Dublin
had "committed" to explore shelter, he said, after tension on the bond
market that reflected the mounting market uncertainty over the
country's financial prospects.
"We will act in a determined and
coordinated way if necessary to ensure the stability of the eurozone,"
said Luxembourg Prime Minister Jean-Claude Juncker, who chairs the
group of euro finance ministers who must validate an application for
support from partner states.
The Irish government would have to decide on financial aid, with inevitable strings attached, within "days," said Juncker.
Cowen
had insisted to lawmakers in Dublin's Dail that the unfolding
discussions were about seeing how "irrational" markets could be "taken
out of the equation".
Ireland should not become "enslaved" to ruthless traders, he argued.
In
Washington, the IMF said a "short and focused consultation" would have
as its goal "to determine the best way to provide any necessary
support to address market risks."
US Treasury Secretary Timothy Geithner has said Europe would be well advised to act "very, very quickly."
Not
too quickly, after all, big US banks and their big hedge fund clients
are absolutely loving this volatility. They get to profit from all the
'market mayhem'. I've seen this movie so many times, I can write books
on it. While European "big boys" continue to vacillate, looking like a
bunch of incompetent fools, traders and hedge funds are just setting
themselves up for the next leg up.
Continue buying the dips. Just like last November's Dubai scare was way overblown,
so is all this nonsense of a 'eurozone crisis' because of Ireland's
banking woes. There will be plenty of fear mongering, but behind all these
rumors, some big funds are setting up for the next leg up. And you can
mark this post -- that's how confident I am that this is just more
nonsense to feed the real big boys running the big banks and top hedge
funds.
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"Austerity" is relative to all aspects of an economy. Austerity to the point of diminishing returns is counterproductive. The Irish economy is already shrinking, and the tax base. Increasing corporate taxes will kill the goose, which lays the golden egg. Again, counterproductive. The money to be had here is not in the collateral of securitized mortgages, which the ECB accepts from Irish banks. That is due for a long collapse. Where is the nice money? England is on the hook. Her banks have the biggest gun to the head, but England can only come up with a smallish amount, an investment to forestall english bank losses, not anything near what the losses would actually be, which is still less than the amount needed. The Germans are retching daily as they get sucked further into this swamp. Will the IMF become a conduit for some nice free money from the Fed to slip into this equation? Suborning the Euro to the Dollar as the world currency is still very much in the interest of the Dollar. Since the Fed has not been audited, we can only imagine how far this has already been played. I'm looking for a bit of QE-2 to find it's way into this deal.
"There will be plenty of fear mongering, but behind all these rumors, some big funds are setting up for the next leg up."
Granted it's early, but I didn't see anything in your post to support your assertion/conjecture. Evidence, please? Which big funds; how much; how does that compare to previous ramp ups; have such funds placed wrong-way bets in the past, etc.?
Your argument seems to boil down to the idea that b/c a somewhat similar problem cropped up at the same time last year, this year's variant will follow the same trajectory. Or is your argument that, given their size, the big boys (and their CB tools) can't make mistakes? Either way (symmetry or omniscience), your argument rests on very slender reeds my boy. Good luck with that.
If you have been reading this blog long enough you should know he never provides evidence - just buy the dips because Uncle Benny is there to support the market. Without some sort of process to know when to buy or sell you might as well take your money to Vegas and go with out with style. I surmise that after such a large run-up from 2009 anyone using a every-dip-must-be-bought strategy has been rewarded. Unfortunately nothing goes up forever and when something really hits the fan the game will be over. Of course the dip buyers will be buying all the way back down telling us all there is a new bull market around the corner.
Agreed, but it never hurts to ask. The silence speaks volumes. I just thought it would be interesting to give him some rope to see what he'd do w/it. He did exactly nothing...as I expected.
No reponse needed. I said what I had to say, and do not need to justify it at all. I think there is plenty of liquidity out there to drive risk assets much higher, so I continue buying the dips and sitting tight. You can all wait for the end of the world, but this is just another buying opportunity. Cheers.
"Buy the dips..." Thanks for the sage advice, Leo. Which means that investors must depend on the perpetuation of the system, and largess from TPTB to make a living in the markets. What's the difference in this approach and the folks on food assistance or extend-until-doomsday unemployment payments? Not much really. It depends upon a faulty system to provide sustenance. It works until it stops working, and one has no exit strategy because all of a person's assets are wrapped up in fiat currencies. How about some realistic advice for a change?
I am dead serious -- keep buying the dips. Some of you should continue stocking up on canned food and guns waiting for Armaggedon. -)
Your first 3 words send the message.
You still don't get it Leo. The west is busted, broke, bankrupt. Maybe a few hedgies can still make money in the burning casino, but what will they do with it? We are staggering from one collapse to the next; there is no exit. The system is failing.
jokers holding aces...hyuk.hyuk
Irish banks are madly shorting everything knowing the can string this out for a few more weeks.
Man, that dude has certainly been clobbered with the ugly stick!
But yes, might as well buy the dips, particularly the golden ones. The fools are throwing it out right now.
The 'big boys of the eurozone' only hold the aces if Ireland is really desperate for a bailout and is not thinking of default.
In fact Ireland is in the power seat, knowing that the IMF and Eurozone are desperate for them to take a bailout.
Whats the difference for Ireland really? Take a bailout with austerity measures that will make it feel they are in a depression anyway, or default, restructure and be in the same position, except free and in a position to slowly start again.
It is not as though the Irish are not familiar with hard times.
Stand fast Ireland.
One of our characteristics that is little noted is resolute stubbornness. One that is stereotypical is the tendency to fight enthusiastically, particularly in lost causes, and sometimes win (though usually we have a tendency to snatch defeat from the jaws of victory).
I'm rooting for Ireland to kick the EU in the nads and declare that they are going to take the hardest, longest ride through economic reform possible without relinquishing any national sovereignty, independence or self determination to the whims of foreign bankers.
I, for one, urge the nation of Ireland to face the money famine with the same grit, despair and resolve as they faced the potato famine. You will survive, you will rebuild, and you will be recognized as the first nation comprised by people of stern, unyielding grit in this maelstrom of financial manipulation.
I would love to see a video of the Irish PM looking over the dais of renowned global financial experts and declaring:
"Fuck you, fuck Europe, and screw your investors! We declare our withdrawal from the Euro community, we declare absolute national independence, we declare national default, now get the fuck out of our country before we set the IRA on your family's ass...(what? oh, we already set the IRA on your family's ass so you better get back quick!)"
Why do you make it seem as if a default is only a loss to foreign bankers? It's also a loss for Irish Bankers, Irish pension funds and Irish depositors.
Also, Ireland wouldn't be the first nation to default. The list is rather long (Argentina, Hungary, Russia, Zimbabwae etc...). And it's not as if EACH and EVERY time in the past, default didn't end with some loss of national soverignity, when those nations who have defaulted have to start again finding external sources of financing. Because they all end up having to do so. None of those nations that have defaulted have now become paragons of virtue.
As I've said, I agree that some form of default is probably a better choice over the long term for the irish people. But let's please not paint such a rosy picture of what that entails. The international banking cartels will still hold them by the balls.
Its come to light that the Irish banks are very light in Irish bonds relative to other European bank state relationships , also private pensions use German Bonds as a bench mark and by law have to use these rather then Irish bonds during a wind up giving a huge subsidy to the German state.
As for deposits historically a higher proportion of term deposits were in Post office bonds rather then todays bank term deposits.
There is still huge cash wealth in Ireland - the problem is that most of the middleclass now have more liabilities then assets even though the assets are considerable.
In general I believe the Irish executive were very enthusiastic about following the new globalised rules to the letter and the quid pro quo of this arrangement was we get to keep our low corporate tax.
Now that the time is right the powers that be are going to pull the last pillar from this shaky construction of arse lickers and brown nosers.
The lesson here is that the more globalised/banked a country is the higher the rise the harder the fall.
We have been bankers bitches since 1987 and now we are paying the price.
Well put.
And with 2.64 trillion Euros in foreign liabilities (and 2.5 trillion in foregin assets), Ireland is probably the most globalised/banked country in the world on a per capita basis.
How the Irish people have believed for decades that they could become a prosperous nation by being at the centre of this parasitic spiderweb and never bare the ultimate consequences of these nonsensical policies remains the question.
Sad. Reallly sad.
Another lesson to be learned (one syllable) from the above posts is how much more learned (two syllables) the European posters seem to be, as indicated by their writing.
I dunno. The Irish would seem to have been seduced by the siren's song of inflationism long ago, like everyone else.
Besides there probably would be famine in Ireland if they stuck it to the creditors like that.
Please consider that this is not exactly a fair representation of the consequences of a bailout vs those of a default.
A bailout means a semblant of austerity measures and a gradual reduction of deficits in exchange for less economic freedom, loss of sovereignty.
A default means the inability to find external sources of financing for at least the next 5 years, ie instead of a gradual reduction of deficits zero deficits at all, ie much harsher austerity measures (compare 0% deficit to 30% deficit).
So a default IS much harder on the Irish people immediately but I agree that over the long run it is probably a better choice.
I mean, it's always the same thing : some people, politicians, TPTB want to try to maintain some illusion of prosperity by piling on more debt more bailouts in exchange for less economic freedom and bigger problems later, the more responsible people prefer to cut to the chase now, even if it means much harder times immediately but a better outcome over the long run.
"You can't solve a problem with the same mind that created it." -- Albert Einstein.
Comical at best. The ultra low corporation tax was allowed by the various EU subsidizes to Ireland. Go tell that it is the symbol of economic freedom.
The EU wanted Ireland to be the poster child of their economical policy, they then allowed a policy of social irresponsibility while taking from other europeans to fill up the gaps caused by this kind of policy. It can be indeed labelled freedom, the kind of freedom a master enjoys over his slaves, the US kind of freedom, when others only exist to soak up the negative consequences of your actions.
"Ireland should not become "enslaved" to ruthless traders, he argued." No. Neither to stupid EU/IMF/WB/NWO banksters. If the ruthless traders ar not doing anything illigal then it should be either made illigal and prosecuted or left alone to do as they please. Who is going to help us when these traders figure out a way to make money from stoopid EU/IMF/WB/NWO banksters? They will, you know, if you let them.
Bye, bye, democracy in EU.
Glad I voted 'no' to the Lisbon treaty, at least I can say I tried to prevent the EU nazis from taking all...
Good luck all...
Mean old Maggie Thatcher, but of many a derisive pop song in her day, is looking pretty smart right now in that regard.
Oh yeah, of course. The crisis actually never existed. Just a conspiracy by hedge funds and big boys to ensure a drop in equities, and then buy at a cheap price.
Buying equities at their high level with a high leverage would have been faster and more profitable, but never mind.
Keep buying the dips, Leo. We'll make an assessment of your portfolio in one year.
Don't you know?!?!?
Leo will "exit" just in the nick of time......like all other perma bulltards.
actually it was none other than Mark Mobius himself who thought "the Dubai crisis would have precipitated a signficant global correction." that did not happen and "the city has survived." so far. I do find it hard to reconcile a "dissolution of the euro" with "good news for the global economy going forward."
Dubai was bailed out by the much wealthier Sheikh of Abu Dhabi ... to save Emirates face, more than anything. It was just a matter of some cash flow. Europe is a far more intractable problem.
"...since Ireland continues to stand behind its promise to support its banks. That die is now cast."
Jesus - it's no wonder that priests can always find a kiddie to tamper, if there are grown-ups with that level of blind faith. Not a surprise that it's a journalist showing that level of stupidity.
There is breath-taking naivete embedded in the idea that the Irish political class would not turn 180-degrees - and pick up the 'cast die' and declare that they never ever cast it - the moment it suited them to do so.
Was Pratley shocked - SHOCKED!!!11!!1! - when successive Euro-zone governments abandoned the stability pact AND the 'no bailout' clause of the ECB charter... the moment it suited them?
Was he horrended when referenda that rejected the Euro were ignored?
It's all very nice to try and get some quasi-Rubicon-crossing references in there, but alia is never iacta when it becomes a question of harm to those who take politicians to fancy whorehouses.
One thing that can be said with absolute certainty about the political class is that they will abandon any plan, any promise, any claim, and any principles, the moment adhering to any of the above causes the slightest irritation to those who own the political class (here's a hint - that's NOT the citizenry).
Interesting name - Pratly. Starts with 'Prat'...
Do chroí, d'anam, do shaol
Cramer was creamin solars today... must be time to double down with Leo
I don't think Leo has calculated the percent of the total earth land mass that would to be covered in solar cells to meet humanity's energy needs.
BTW, the answer is to use the solar cells everybody already has. That's right, use the ground. Use the energy from the sun that was absorbed by the ground. Residential geothermal is also solar, but uses heat transfer rather than photovoltaic energy transfer. But since the majority of home energy needs are heating and cooling, it works out great. Since the ground acts is around 60-70deg F, depending on location, you use the ground to heat your house in the winter, and pump excess heat into the ground in the summer.
LOL
Great Avatar, Rock.
Thx.
What part of "bankrupt" does the ECB not understand?
"Markets tremble in the face of Irish resistance"....
Wrong, markets are barfing in the face of the idea that Central Bankers will not be allowed to continue their market rigging activities. The bond market is acting like a "free market" at the moment, double down on barf bags if this continues.
Same part that a crack dealer understands that the bitch will suck a shit covered wang for a hit.
I'm sure there are more options out here, but Ireland can primarily do 2 two things:
(1) They can rescind their promise to prop up the banking system and start the liquidation process-- with or without bailout help from ECB. Given that Ireland has been the austerity poster child for the EU, that would be a pretty painful hit to an already weak economy.
(2) Or... they could do what the Greek government did and get the best greenmail bailout deal ECB and IMF can possibly provide. Banks need bailing out? Bail them out and then some. Government needs $20 billion to keep running. Make it $40 billion, and we can run longer. As with Greece, Ireland should allow mandated debt reduction targets to be put in place-- but have no inclination of meeting those goals.
Just repeat the above process and threaten sovereign default for more greenmail-- until the approach changes. In essence, the ECB is encouaging Ireland to act more like Greece-- than like Ireland. Act like Greece, I say...
Austerity poster child with a deficit of 32% of GDP in 2010 alone? I wonder how high it'd be if they weren't an austerity poster child?
We live now in a strange world where a gradual reduction of deficits (ie an INCREASE in debt) is called austerity. This is a joke. A bailout means more extend and pretend, more illusion of prosperity while politicians pretend they are running a semblant of austerity measures. Smoke and mirrors.
Real austerity means no deficits AT ALL allowed. That's what a default means in practice as the country can't get any external sources of financing for at least the next 5 years.
So at least, please, let's be clear about what austerity really means. We haven't seen nothing yet, not in Greece, not in the UK , not in Ireland, nor anywhere else. Everywhere it's been extend and pretend.
You are wrong. Real austerity has already taken place in both Greece and Ireland. Just ask those affected.
The reason why Ireland is running a 30+ pc deficit is not because it's spending on it's people, it's because it continues to cover the loses of its banks.
double post
Yes taraxis but you miss my point - Ireland is taking austerity but given that there is no capital controls here all that sacrifice is to the benefit of other entities.
Ireland is/was one gigantic island sieve which absorbed outside credit during the good times via FDI with the domestic banks trying to increase their profits on the back of these outside money flows via loans for consumption and now the whole mechanism is in reverse.
We need credit for domestic strategic goals that have been ignored for more then 20 years.
Although I am not in favour of fractional reserve credit creation we cannot change the world on our own - we have to game the system.
I have been calling for a state sponsored industrial bank to funnel funds into strategic objectives with also the added benefit of at least stabilising the credit aggregates but you might as well be talking to the wall in this country.
We are a sad bunch with little or no self confidence to tell the banks fuck off with their monopoly on credit creation.
Once you start spending the pension pot you are spending the means of paying off the deficit in the future.This whole situation now is a huge gamble on the worlds economy going back to how it was.It will not return to this for decades if ever.These debts are unpayable and in effect the whole system is just shambling from one crisis to another.This is not just the death of fiat currencies this is the start of a whole new way of life.Austerity exists for many and in the long term is political dynamite,whether current politicians and political parties know it or not within 10 years they will have long since been given up on by the masses.Default is the only means of defending what you have and in the present chaos the people would be behind the Government on this.Its alright protecting the markets but if society dosen,t function there will be no profits anyway.Hyperinflation or war appear to be the only long term results.
Show me the line in the Irish Government budget where "Bank Losses" represent 30% of GDP? Because I don't see it. So just let me know how much of the Irish public expenditure goes for bank losses. Show me the number as you seem to know it so well. Thank You.
The reason Ireland has a 30% deficit is because it is STILL living way above its means, has one of the lowest tax rates in Europe and the lowest corporate tax rate in Europe while still spending far more than it can afford.
That's not austerity, that's smoke and mirrors. The Irish people have seen nothing yet. Wait until that deficit has to be cut from 30% of GDP to zero. That's when they'll have to either increase taxes by 100% or cut expenses by more than 50%. Then they'll see what austerity really means.
For decades, Ireland has been the posterchild in Europe for building the illusion of prosperity from credit. Until 2007, Ireland (together with Spain) were shown as the examples of succesful neoliberal economies in Europe. All lies comming from low tax rates and a real estate credit binge. Now reality strikes in but it's still runinng a 30% deficit. And you call that austerity?
Wait until Ireland (and Greece, Portugal, Spain...) defaults. Then you'll see what austerity really means : ZERO deficit, positive cash flows only, every cent has to be collected from tax before it's spent. Strict capital controls. And all international trade settled in Gold or foreign currencies.
Ireland has a large fiscal debt because it is impossible to increase the tax take on a declining money supply.
Austerity is impossible in this monetory system.
I like to see how the US would get on without the creation of credit.
You cannot take on the big guys without producing credit - talk from the Irish Goverment of using our pension pot to pay off debt that the banks created is stupidity squared.
If we would have liquidated that fund and multiplied it via fractional reserve principals then we would not be completly at their mercy now.