As I Warned Yesterday, It Appears the Market Is Calling the Europeans Bluff – It’s Now Put Up Or Get Put Down

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Tue, 05/11/2010 - 20:37 | 344994 Matto
Matto's picture

There was one small sentence i noticed in my course work i was reading at about the same time as the European bail out was being announced (it was in regards to personal lending, credit cards, etc) that has stuck in my mind:

"It is much easier to get into debt than it is to get out."

And that just about sums it up as far as im concerned.


Tue, 05/11/2010 - 15:42 | 344329 Adam Selene
Adam Selene's picture

Don't worry about black swans, everyone. They will be drawn into the black hole, and all will surely be well.

/sarcasm off/

The world is now so completely demented that ZH is the only place that I can go to hear rational discourse. That is a very sobering thought indeed.

Thank you Reggie. This is good stuff.

Tue, 05/11/2010 - 15:24 | 344271 Panafrican Funk...
Panafrican Funktron Robot's picture

"For Pete's sake, they do not want a stronger euro. Do any of you understand basic macroeconomics?"

OK, since your introducing basic macroeconomics into the equation, please answer the following:

1.  What is the enforcement mechanism for the austerity measures?

2.  Are the austerity measures achievable?


Wed, 05/12/2010 - 02:04 | 345490 AnAnonymous
AnAnonymous's picture

What other enforcement mechanism than impossibility to sustain do you wish for?

Tue, 05/11/2010 - 12:57 | 343778 JR
JR's picture

Reggie, you run in front of the pack. That’s it exactly: it’s a bailout, not a solution. Put simply, centrally controlled socialist economies don’t work.

It’s interesting that Karl Marx didn’t lay down specific rules on how to set up a socialist economy, except perhaps his old Marxian principle: “From each according to his ability; to each according to his needs.”  Lenin himself said: “We have knowledge of socialism, but as for knowledge of…the organization and distribution of commodities—that we have not.  This the old Bolshevik leaders did not teach us…”

And so, during Russia’s cruel socialist experiment and resultant famines, it was production from U.S. capitalism that sent in large quantities of food to feed the Russian people while Russia’s despots produced war weapons.  And still, the toll from famine was staggering.

The Union of Soviet Socialist Republics finally fell of its own non-producing lightweight at the end of the 1980’s as its trade gap progressively emptied its coffers, leading to bankruptcy in 1991. 

But, central planners never learn, or don’t want to learn.  Current socialists and their “new economies” are at it again, and failing. Deliberately falsified statistics (the ones past doctoring they simply suppress) belie the evidence.

And, now, as U.S. capitalism morphs down The Road to Serfdom under the banner of the world’s central banker triumvirate—Bernanke (FRS) , Trichet (ECB) and Fischer (BOI)—who will come to the rescue of the American people should famine happen here?  Who will feed Europe?

Is more proof needed that central planning by a world banking cabal is simply the place for criminals to make money off the system, using socialism as a bridge to despotism?  On April 29, 2010, in the article ECB President Favors Global Governance, reported:

"...In his prepared printed and spoken remarks to the Council on Foreign Relations, Trichet emphasized that politicians, economists, and financiers must work across the Atlantic and collaborate on methods to create an international set of standards. It is his belief that through global governance, the resiliency of the global financial system can be assured, noting that ultimately it was governments' use of taxpayer's money, equivalent to around 25% of GDP on both sides of the Atlantic, that prevented another catastrophic great depression from occurring."

And, then, little more than a week later, on May 9,  Trichet announced Europe’s $1 Trillion taxpayer bailout to end all bailouts—a bailout, not a solution.


Who is Trichet? From Wikipedia, the free encyclopdia…

Jean-Claude Trichet (born 20 December 1942) is a French civil servant who is the current president of the European Central Bank, a position he has held since 2003. He is also a member of the Board of Directors of the Bank for International Settlements. Trichet ranks 5th on Newsweek's list of the world's most powerful along with economic triumvirs Ben Bernanke (4th) and Masaaki Shirakawa (6th) [Governor of the Bank of Japan].

Trichet was born in Lyon, France to a Jewish family. He was educated at the École des Mines de Nancy, from which he graduated in 1964..

In 1987 Trichet became a member of an influential Washington-based financial advisory body, the Group of Thirty. Later, in 1993 he was appointed governor of Banque de France. On 1 November 2003 he took Wim Duisenberg's place as president of the European Central Bank. (Most European Union leaders present at a 1998 special summit believed that Wim Duisenberg had agreed to a compromise with the French representatives and would step down from his office halfway through his eight-year term.)

In January 2003 Trichet was put on trial with 8 others charged with irregularities at Credit Lyonnais, one of France's biggest banks. Trichet was in charge of the French treasury at that time. He was cleared in June 2003 which left the way clear for him to move to the ECB.

Tue, 05/11/2010 - 16:30 | 344371 WaterWings
WaterWings's picture

Ah, another excellent post.

And thank you, Reggie.

Tue, 05/11/2010 - 11:54 | 343616 Steve Garrison
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Anybody have a handle on how much of the IMF's 250 billion is being supplied

by the US?

Tue, 05/11/2010 - 12:06 | 343662 Jim in MN
Jim in MN's picture

Aren't we usually 17%?  A cool $42.5 billion?


Give or take $10 billion depending on whether it's worth assuming a non-parity USD:Euro exchange rate....hardly seems worth the bother under the circumstances....

Tue, 05/11/2010 - 12:18 | 343719 Steve Garrison
Steve Garrison's picture

I believe the amount depends on the reason for the monetary expansion. No

figures are forthcoming from our government.

This is another of the many reasons for "transparency."

Tue, 05/11/2010 - 13:17 | 343842 pezhead
pezhead's picture

Don't forget the Fed Reserve black ops - the men who show up in the middle of the night carry bags of money

Tue, 05/11/2010 - 11:36 | 343547 Jim Billy Bob J...
Jim Billy Bob James IV's picture

It appears that the more the central banks get involved, the more complicated the process becomes.  The ECB has prevented the roof of the house of cards from collapsing, but ultimately the house will collapse unless the foundation is solid.  It looks to me that the EC has the same problem as the U.S. - the only feasible way out is to inflate out and everytime you kick the can down the road the required amount  of needed inflation goes up exponentially.

Tue, 05/11/2010 - 11:13 | 343469 Kina
Kina's picture

They are desperate to end green is so obvious, who do they think they are fooling?

Tue, 05/11/2010 - 11:11 | 343464 Kina
Kina's picture

That would be a future super balck swan if it gets into the gulf stream.

Tue, 05/11/2010 - 11:11 | 343462 Robert J Moran
Robert J Moran's picture

Short selling will be banned and 'rigorously strengthened' Circuit Breakers will be in place!  Downward movement in the market WILL NOT be tolerated!  We have decreed it to be SO!  Bernanke et all are at the Event Horizon of the Deflationary Black Hole and they don't like the view... 

Tue, 05/11/2010 - 11:07 | 343445 Husk-Erzulie
Husk-Erzulie's picture

The S&P 5 day looks pretty flippin cool right now.  What to call this slab sided new construct?  manipulation  ditch?  HFT trough?  Volatility Club limbo dancing?

Tue, 05/11/2010 - 12:02 | 343650 Jim in MN
Jim in MN's picture

Slab is good.  As in morgue.  Also has a nice clumsy ring to it which is appropriate.

How about Technocrats' Slab chart formation?

Tue, 05/11/2010 - 10:45 | 343377 tim73
tim73's picture

One black swan could still be the Gulf oil spill. is estimating that it is already 21 MILLION gallons and daily outflow rate is one million gallons. is quite shocking video (ships as teacups!) . We are talking about possible millions of NEW unemployed in the Gulf region and quite soon...

Tue, 05/11/2010 - 16:24 | 344356 WaterWings
WaterWings's picture

Good post. The area could be a total dead zone. Think about hurricanes spraying the south with it.

Consider an attack on Iran, and "retaliation" on US soil by August, when Iraqi AF takes over the skies and will no longer "approve" Israeli fighters on an "emergency" warpath.

Tue, 05/11/2010 - 11:10 | 343456 Cammy Le Flage
Cammy Le Flage's picture

Thank you for having key insight.   Markets now must pay attention to other factors that are not totally "financial".  I said it before, and I will say it again.   The oil hits the Florida Keys - ALL bets are off.   That gulf gusher is not a "spill" by the way.  I would dare to say a "spill" is finite.

Tue, 05/11/2010 - 10:20 | 343319 markar
markar's picture

Did these idiots really believe pouring more debt onto the Eurozone and buying its trash was going to strengthen the currency?

Tue, 05/11/2010 - 10:26 | 343336 Leo Kolivakis
Leo Kolivakis's picture

For Pete's sake, they do not want a stronger euro. Do any of you understand basic macroeconomics? Financial conditions need to be loosened, and with interest rates next to zero, they're hoping the euro's slide will help buffer the economic shock.

Tue, 05/11/2010 - 11:51 | 343596 Blindweb
Blindweb's picture

Perfectly illustrating why fiat and central planning will collapse.  The games played and resources wasted to devalue a currency, something that should happen organically.

Tue, 05/11/2010 - 11:00 | 343413 Anton LaVey
Anton LaVey's picture

Quite true... BUT:

(A) This means Europe likes inflation more than deflation. Weaker currency = more expensive raw materials and, especially, oil. Europe imports most of its oil from the Middle East and a weaker Euro means filling the tank of your car is going to be a lot more expensive if you live in Euroland. Inflation, ultimately, is not going to be good for the European economy (not to mention Eurozone unity). Germans, in particular, hate inflation...

(B) "Beggar thy neighbour" is all nice and good, but what if no one else is doing well enough to buy European products? This could be dampened somewhat by the fact that most trading of European countries is within the Eurozone, but exporting outside of it is going to be a real problem... Especially since the USA are going to go the devaluation way as well.

All in all, this is going to be bad for the European economy as a whole. Especially for European countries (UK, Sweden, etc...) that are part of the European Union, but not the Eurozone.

Again, Europeans are, in my opinion, paying the price for an opaque, bureaucracy-dominated elite, that refused to respect the opinion of the man on the street, and turned a blind eye to the antics of the Greek government (and others, Italy comes to mind). I am afraid this is NOT going to end well.

Tue, 05/11/2010 - 11:33 | 343529 Assetman
Assetman's picture

Again, Europeans are, in my opinion, paying the price for an opaque, bureaucracy-dominated elite, that refused to respect the opinion of the man on the street, and turned a blind eye to the antics of the Greek government (and others, Italy comes to mind). I am afraid this is NOT going to end well.

Agreed, for the most part.

The antics of the Greek government was pretty widely known-- and they called the EU's bluff in a very big way-- and "won".  Of course, I'm sure G-Pap warned the EU and ECB leadership that "there will be rioting in the streets of Athens" when they announced austerity plans.  And this is the reponse we get after going this far.  Everyone should call the EU's bluff.

The EU may well like inflation... but Germans still don't appear to like it at all.  The "Weimar event" is still too deeply ingrained in the sovereign psyche there.  Don't think for a minute that the Merkel party defeat in last week's election didn't have an impact.  The French can live with higher inflation, so long as the French banks are protected, it appears. 

It also appears that those pulling the strings in Germany felt like protecting German banks and bondholders of Greek (PIIGS) debt-- and the deflatoinary events from sovereign defaults-- were more important than risking an massive inflationary event.  Though politically unpopular, time will tell on that gamble.

Tue, 05/11/2010 - 10:20 | 343317 Mitchman
Mitchman's picture

Great post Reggie.  Spot on as always!

Tue, 05/11/2010 - 10:13 | 343297 Fish Gone Bad
Fish Gone Bad's picture

I love your work Reggie.

Tue, 05/11/2010 - 10:14 | 343300 Reggie Middleton
Reggie Middleton's picture


Tue, 05/11/2010 - 10:19 | 343315 Tense INDIAN
Tense INDIAN's picture

Hi reggie....should i buy PUTS nor for june...

Tue, 05/11/2010 - 13:07 | 343811 I need more asshats
I need more asshats's picture

reggie will let you know..... In June. Depending on how they turn out he will proclaim that he was on the winning side of the trade. You can read about it if you subscribe to his blog.

Tue, 05/11/2010 - 10:09 | 343288 Rogerwilco
Rogerwilco's picture

$1T is not enough? Of course it's not enough, black holes are never sated.

Tue, 05/11/2010 - 10:05 | 343279 Leo Kolivakis
Leo Kolivakis's picture


I will call you and raise you another trillion. Buy this dip folks, the next move will be parabolic up. Tech, energy, alternative energy, should be your focus. If you feel the world is coming to an end, buy yourself a ticket to the Greek islands and enjoy!

Tue, 05/11/2010 - 11:06 | 343443 merehuman
merehuman's picture

Hopium now in 10 oz bottles. get your 6pack now!

Tue, 05/11/2010 - 10:13 | 343295 Reggie Middleton
Reggie Middleton's picture

There you go again Leo. A sovereign default does not equate to the world ending. If that was the case, the world probably ended 1,000 times already. I don't doubt we may get a parabolic move upwards (thats what risk management is for) but net-net, Europe is looking bearish.

They haven't, and apparently they refuse, to address and solve the problems at hand in the short term. Everyone sees this, thus the only one's who will be there to drive prices up will be the disloyal, hot money, prop desk/momo crowd (including the buy the dips crew) who simply inject instability int an asset class when they drive it very high.

I don't see any lifeftime savers looking to put their retirement funds into Greek debt. Do you?

Tue, 05/11/2010 - 10:29 | 343342 Leo Kolivakis
Leo Kolivakis's picture


Sovereign default is deflationary. At this juncture Bernanke, Trichet et al. will do anything it takes to avoid this outcome. As for addressing issues, I think Europeans are smarter than you Americans think. In fact, they may a lot smarter than you give them credit for.

Tue, 05/11/2010 - 10:50 | 343387 Reggie Middleton
Reggie Middleton's picture

Sovereign default is deflationary. At this juncture Bernanke, Trichet et al. will do anything it takes to avoid this outcome

Correction. They will do "anything within their ability to avoid this outcome". Their abilities are limited, and it appears that any cheerleaders think of centra bankers as omnipotent and all knowing. Until the lord Odin or Zeus himself decides to take the chair of the ECB, I would lower my expectations. If the CBs were all that good, we wouldn't be where we are now because the problems were very easy to see coming at least a year in advance. I saw many of them and I am far from being alone.

Tue, 05/11/2010 - 13:01 | 343795 I need more asshats
I need more asshats's picture

Oh yes reggie you see everything. You have magical powers, you are so great, you are the immortal market oracle. When reggie talks the universe listens.

Tue, 05/11/2010 - 16:43 | 344403 i.knoknot
i.knoknot's picture

now there's a productive reply, inmAH.

i think i'll re-work a few of my investment strategies...

keep up the good work.

Tue, 05/11/2010 - 15:46 | 344333 WaterWings
WaterWings's picture

Hey, ass! Well, nothing. I just wanted to say it. Nice avatar.

Tue, 05/11/2010 - 10:50 | 343386 ZackAttack
ZackAttack's picture

 At this juncture Bernanke, Trichet et al. will do anything it takes to avoid this outcome

Why would we have the slightest expectation they'll be any more successful than Japan has been these last, lost two decades? Japan failed with every secular wind at its back - cheap energy, strong world growth, the ability to debase its currency at will, social cohesiveness, a strong export economy, a bubble that was largely confined to CRE rather than RRE. The western world currently has none of these advantages.  

Perhaps what's really happening is that Western central banks are misdiagnosing and mistreating a secular demographic shift as an issue of confidence and liquidity; and for this reason, real estate really *is* the bubble-of-last-resort.

I also object to the characterization that those who aren't wildly bullish must necessarily believe it's 'the end of the world.'

Tue, 05/11/2010 - 10:47 | 343383 Missing_Link
Missing_Link's picture

Being "smart" doesn't translate into an ability to execute.  It's completely different from the ability to work cohesively with the discipline and teamwork required to get themselves out of their current situation  ...  and those are far greater virtues than raw intelligence in the long run.

I don't think anyone believes the Europeans are stupid.  On the contrary, they're too clever by half.  It's just that none of their brilliant ideas have any correlation to reality.

Tue, 05/11/2010 - 10:04 | 343277 Jim in MN
Jim in MN's picture

Income graduated (progressive) bond haircuts.  The fact that you've never seen these words in the same sentance before tells you everything you need to know.

They will take us all down with them.

Tue, 05/11/2010 - 09:58 | 343271 ZackAttack
ZackAttack's picture

Get your penny bids in!

Tue, 05/11/2010 - 10:06 | 343284 anony
anony's picture

Sports guy chest bump!  )(

Tue, 05/11/2010 - 09:57 | 343267 hp12c
hp12c's picture

Those Hair clippers keep getting closer and closer to the bond holders heads..

Tue, 05/11/2010 - 11:52 | 343607 The Alarmist
The Alarmist's picture

The irony being that it is to finance the early retirements of greek hairdressers, who can retire at 50 because they have hazardous duties (they work with dangerous chemicals) and possibly even to subsidize their retirement travels, since EU minister of Industry believes vacation travel is a right and should be subsidised for pensioners. Haircut indeed.

Tue, 05/11/2010 - 16:29 | 344366 silvertrain
silvertrain's picture

 Those people get 14 months vacation for every 12 months worked, come on, we havent heard the last of the german people about this yet......


Tue, 05/11/2010 - 09:47 | 343251 williambanzai7
williambanzai7's picture

We have reached the point where a Trillion is not enough! Think about that...


Tue, 05/11/2010 - 16:39 | 344270 i.knoknot
i.knoknot's picture

tnx reggie,

i've noted that these 'trillions' are not really transferred, but rather 'allocated', which seems like a PR move. kind of like GLD vs physical delivery.

serious question: if the euro keeps tanking, does anyone think the IMF/ECB/Fed will actually deliver on their weekend promises, or does that become a mute (moot?) point?

KD points out that greece has been 'saved' a bunch of times this month, and nothing has actually been done to 'save' them. just press releases...

"watch the other hand"

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