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How Europe's Solvency Crisis Is Morphing Into A Liquidity Crisis: Spread Between Overnight And 3M ECB Repo Blows Out
Reader PP submits:
In the last week I have been hearing things from pals regarding funding crises in money markets and among banks, both within europe and across us/europe (fits with Fed relaunching EU swap lines). Attached chart will scare you guys. This is a little more subtle but look at the second chart, the one on the right... EU libor vs repo is widening (pink line) in last 2 days, and also dollar libor is rising faster than euribor (decline in blue line in right chart), ie dollars are harder to come by vs euros in the eu interbank market. expected. but most strikingly, the spread between 3m and o/n repo in europe is skyrocketing (yellow line), which means it is getting harder to secure funding on a 3 month basis using ECB collateral vs going to the window overnight. bad bad bad. means players are less inclined to lend collateralized money out at 3mths. We are watching an insolvency crisis become a liquidity crisis in real-time.
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It's getting ugly from the ignorant commies.... Education building in athens on fire....http://www.youtube.com/watch?v=EOZ14bD4ZHc&feature=player_embedded
"There will be no more 'peaceful' demonstrations."
h/t Pasha from Dr. Zhivago
http://www.mattfind.com/12345673215-3-2-3_img/movie/c/q/x/doctor_zhivago...
Someone tell Trichet to call Ben Bernanke.
Rumor has it that Big ben will temporarily lend out his printing press for the right price.
"...the right price..."
To be paid in what? Bananas?
from a friend in Greece
Hello Erik, we haven't talked for ages, things are not that bad yet here, but they soon will be. Businesses are in a very bad conditions and money is not really circulating, this makes people very nervous. The thing gets even worse with the "help" from the media, which scare people even more, I hope we 'll manage in the end, but for now things are pretty strange.
thx for posting! love hearing on the ground perspectives
Yes, thanks Erik. Also, MacedonianGlory is supposed to give us updates too.
Before or after slugs from the Ouzo bottle?
gah. yellow on white. my eyes!
OK, so with the caveat that history always rhymes but never repeats exactly, isn't this more or less what happened back in AUG/SEP 2008?
More or less, yes.
Dont be long any stock starting 'banca', 'banco', 'bancao', 'bancu' or 'bankofamerica'.
Well put. *lolz*
Funny, Mephisto, funny!
FED needs to open up the Dollar spigot and start excepting more junk via the swap lines.
Otherwise they run the risk of Bob Prechter dollar shortage theory becoming more of a reality.
Proving once again that in an arm's length transaction, exchanges of assets are of roughly equal value on both sides: crappy assets for equally devalued FRNs. Nice job, guys. Where does this end?
Yes; they will have to reopen the swap lines. The swap lines however are just Euros for FRNs via the CBs.
As FRNs only come into existence via borrowing, if nobody can borrow because nobody will lend, you have an apparent shortage of dollars in an environment where the world is awash in them.
Perhaps this is the plan with the US banks sitting atop trillions in reserves. We still have the seigniorage rights as a continuing legacy of Bretton Woods.
As long as we can continue to buy oil for the FRN, we are ok. At any point if an exodus to hard international barter settlement erupts, it will be over for the FRN nearly instantly.
trav7777 - You hit the nail on the head and pounded into the board.
China knows the strategic importance of mineral resources to its economy, military, and daily life. China is busy buying, investing, partnering, etc. around the world to secure the mineral resources that any nation needs to survive and prosper.
In contrast, the U.S. for years has been selling off strategic stockpiles, putting tens of millions of acres in Wilderness, prohibiting mineral exploration and development, and producing "financial products".
China knows the endgame is hard assets and a real economy, not "financial products" and a "service economy".
No doubt. One can make a good statistical guess how businesses are doing by looking at the commercial consumption of energy in any given area.
The same applies on the macro scale. The US cannot hope to grow GDP fast enough to pay off our debts, and sustain the present way of life; the US does not, and will not have access to enough cheap energy to do so.
Yep. They are tightening the noose and getting ready to kick the chair out.
Totally off. The US strategists are not that dumb. That is not because you disagree with them they are wrong.
The US has a strategy of pheriphical resources consumption: they consume the resources at the pheriphery of the Empire, as the pheriphery has the US army projection capability as its radius.
The US is pretty good at the extortion business. Trust them, they know what they are doing.
Meanwhile, China will prove that hard work leads nowhere, once again.
When the real resource competition begins, how long do you think the rest of the world will continue to foot the bill for the US military?
They will until their own currencies are accepted for oil transactions and underlie 75% of world debt
Because for you, the real competition has not started?
There are two groups of "strategists" in the US, those around oil (W)and those around finance (Obbie, currently in charge). The oilers are for nuking Iran, oil price to US$500+/bbl, obliterate the EU and put China against the wall, followed by seizure of Latin American oilfiels (Venezuela, Mexico). It's a game of inches. Cowboys vs Dolphins, anyone understood what those games were all about?
http://www.youtube.com/watch?v=WO4tIrjBDkk
+100 for the nuttiest conspiracy theory of the month.
Iran is building their nuclear capability. The Iranian leaders have declared that any losses to them resulting from the use would be acceptible, as long as it eliminates the Jooze. You can expect that there will be some losses planned for "The Great Satan." Why would they be considered to be able to exercise restraint? They sent 12 yr. old children into battle with a gun and a plastic key that was supposed to be the key to heaven.
Would that be Pelosi and Reid we should trust implicity, or perhaps Dodd and Frank, or Trusty Turbo Timmy and Helicopter Ben ?
for this very reason, within 20 yrs, US will attack Canada.
Attack? No. The press release will say that Canada requested assistance. Shortly after that, the Amero. CNBS will have whole segments on the benefits of canadian bacon.
We will not fight back, but rather invite them into our homes, ply them with free thinking and good Canuckistani beer, and help them realize the error of their ways. It's how we do things up here.
anschluss 2
"..whole segments on the benefits of canadian bacon..."
Naw, it will just be yet another excuse for them to run spots about marijuana.
No, i think the Amero is off the table. It's now on the fast track to the one world currency. This time around they just might skip the fiat currency and go right for the chip. Maybe immedately after a false flag terror attack. You know the kind, conducted by the Ci a..
Update yor grey matter,
cuz someday it may matter.
Within 10 years we will beg Canada to become 51st state (or 52nd if PR signs up) at which time they will refuse but will offer us commonwealth status if we nuke DC first to show our good intentions. We should probably nuke DC now just in case.
Come get some. But first, help me out here, just have a small hit on my vape, is this honey oil any good?
Hey ... you still there?
Meanwhile banks are holding onto undewater defaulted upon mortgages, letting defaulters live there rent free because they don't want to have to write the loss off on their books.
Once the inevitable write offs come, those dollars are gone. This removal of USD from the system will be accentuated by the the Quant. easing program end, and allow M2 to spiral down further.
In addition, the banks are not lending to small and medium size businesses which further adds to the decreasing USD supply.
Yup this confirms my gut. How long before the fit hits the shan, like this month?
I've been long vol and now it seems to be paying off. Gold is verily doing great despite the $$ rise.
guess the euro was becoming too popular as a tier2 reserve currency. i'm sure the fed had a hand in this... the exorbitant privilege will not be vitiated!
Maybe. But the Euro is paying structural weaknesses like not being in demand through commodities and not being backed by a common fiscal policy.
a single currency without a centralized political union will never work.
The Fed certainly must be behind it. Everyone knows that the generous Germans have never expected to be repaid for loans they make. It is only with the US Federal Reserve insistance that the Germans had the idea that they should want their money back. And it all results from the long standing US hatered of all things Greek. The plan is to get every last drachma first, then nuke Greece.
to; Ned Zeppelin
where does it end...? good point .... It will end with
blood on the streets..... sad but true... Greece , California ,
France , China , blood on the streets...
If there is a liquidity crisis in Europe, shouldn't the Euro dollar be the one doing the rallying?... Scramble for cash so to speak.
I think it mean the euro supply is there, but it is not being lent out by the ECBs; the risk has risen as evident in the rise in 3 mos yields. maybe the ECBs will start gambling with it like their US counterparts.
Perhaps it's a dollar crisis. 75% of world debt is FRN-based.
A rolling legacy of Bretton Woods
Moody's just put all Portugal banks on review.
Harry said this was contained.
Its Spain needing $230B+ is elephant in the room.
$230B is the fly on the elephant
That oil spill in the gulf is contained too.
The oil spill in the Gulf is another European failure, mind you.
The Brits owned the oil and the Swiss owned the drilling rig.
Next, the U.S. will get liability remuneration from both.
Should help lower the trade deficit.
I'm guessing dinglebarry hanger is busy looking for a new place to discredit himself now. Yesterday was not a good one for him here.
Credit rating agencies ? The markets still pay attention to them?
It sure is bad for credit default swaps that rely very heavily on short term money for liquidity, which have no assets except a bet on interest rates, which are declining. They'll be paying negative rates FOR SURE.
But I'm happy if you're happy.
-F6
A man goes broke "slowly, then all at once." Ernest Hemingway. The All at Once train seems to be arriving a bit earlier than the politicians expected. I guess these same politicians never expected this could happen to governments either. I wouldn't buy the gov't debt of the PIIGS, UK, Japan, or the US with your money, let alone mine.
I'd by CDSs with yours, but I'd want a cut.
I was thinking it might be an intersting time to start investigating the USDJPY cross. Any thoughts?
Watch the Euro and the DOW crash into the close of business today. Its going to be parabolically nasty this week.
Love that kind of talk!
Well, it sure looks like whomever was in charge at PPT HQ was asleep at the switch starting at around 13:45 today.
Looked at the charts, they are not scary is just a blip on the data.
"Slope of Hope" is gettin' a bit slippery
BARROSO ATTACKS SPECULATORS: European Commission President Jose Manuel Barroso launched a fierce attack on financial market speculation on Wednesday and said the EU executive could move quickly to further regulate them if they acted irresponsibly. Barroso made his comments in a speech to the European Parliament. "The Commission will do whatever necessary to ensure that financial markets are not a playground for speculation," Barroso said. "We will ... act swiftly if further regulation is required." He said financial services must realise that they are a service and not an end in itself, and must not become detached from their economic and societal function. "Free markets constitute the basis for the functioning of successful economies. But free markets need rules and compliance, and rules and compliance need to be tightened if irresponsible behaviour puts at risk what cannot be at risk," said Barroso. He said euro zone heads of state and government would complete approval of the aid deal for Greece at talks in Brussels on Friday. "We will also look beyond this deal into what we need to do to draw the right lessons from this situation," Barroso said. The euro zone should also have a permanent mechanism for dealing with disruptive situations such as the Greek debt crisis, he said. "The responsibility shown by the governments needs to be matched by financial market players," he said.
LOL!
This guy is in big business'pockets.
Ban shorts! LOL
No ban pants. Shorts for the win.
No question, true.
The slides would be more gradual instead of the piranha attacks
"Compliant" Free Markets. How poetic.
They've seen that banning short selling actually does exactly the opposite of what they want to sovereign bond markets, what's their next recourse? Through just what kind of regulatory yoga are these politicians going to have to wring the wording of their threatened (and all but inevitable) legislation now that short selling bans are firmly established as ineffectual to their desired ends?
All the freakin' governments help create this mess. It ain't workin' out so now they want change? Hypocrites all. Continue to game the system to enable the oligarchs to profit at the expense of everyone else. So, what else is new? Or will be?
it's always a liquidity "shock" first--then a funding crisis. we mask it with the word "confidence." Shakedown Street baby. You've now met the Mafia and they are us. Just don't forget: "Code of Omerta." Next stop? M16's to Greece, not "dolares."
Let's all watch the Euro crash down to 127.50 or worse tonight shall we?
It will be interesting to see what happens when Japan returns from the 3-day holiday.
I don't see that the rating agencies have changed their stripes. It would appear that they are still doing their masters' bidding with their sovereign downgrades. Maybe they're working on a percentage basis now.
(looking for Dow 10,000 hat)
it's official: CNBC declares pullback "healthy."
They stole that from Harry's comment yesterday !
Why would anyone be supporting/going long Euro right now when collapse is imminent? Doesn't make sense to catch a falling guillotine blade. Not sure who melted it back up this morning, but obviously that was a horrible move.
same could be said for the dollar not too long ago, but look at it now! MUAHAHAHHAHAHAHAHAHAHAHA
:-)
But yeah, the Euro looks like its toast for now. Looks like those 35 hour workweeks
and 5 week vacations finally paid off nicely.
I'm shopping around for some black gold myself, maybe even pick up some
telecoms during this death spiral...
Welcome back, dying_bear. Love your nom de plume. Was wondering where you had disappeared.
Actually I lost a sh*tload of cash last year
trying to short against the wall of bulls.
...so I went into a severe depression, lost my job,
drank alot, smoked crack cocaine, even sold my male
virginity for a couple bucks just to get another hit...
But then I got into rehab, found another 9-5
and made back my gambling money so VOILA!
here i'm back with a vengeance :-)
I'm buying some Euros now to frame and display next to my Zimbabwe and Weimar collections. I feel they will be worth big bucks in about 300 years.
I'm buying some Euros now to frame and display next to my Zimbabwe and Weimar collections. I feel they will be worth big bucks in about 300 years.
Do you intend to live that long to find out?
Hasta la vista 1.28.
It'll be the dollar's turn before too long...buy gold while you still can lol
Just saw Chanos going on on his 'Short China' play. The man is everywhere. He's like the shorting Energizer Bunny. Why would a short go out and announce his play unless he's making money betting on the opposite or actively misdirecting everyone on the target. I don't remember Paulson or the Magnetar crew announcing to the world "Hey short the housing market!"
You know what would be funny? If China and the US got together to short the Europeans. Kinda like rolling the weak kid for his lunch money.
it is not a liquidity crisis. it is an insolvency crisis. people don't want to lend money to insolvent institutions. this is the same thinking the fed used and why we haven't fixed a thing and pushed things down the road. is, was, and always shall be. nationalization, haircut, recapitialization, fixed system. but that would mena no banker high salary or bonus so it isn't allowed to happen. therefore it morphs into a "liquidity crisis"
I knw were were in a bubble when libor was "normalized" the problem was that they define normal as a situation that was fantasy. I widh you had longer term graphs.
The proprietary indicators I use can identify trend changes before they occur and they have been warning of a USD rally since last year.
Just posted a new EURUSD chart: showing long term trendline with important support around 1.2770
http://www.zerohedge.com/forum/latest-market-outlook-0