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Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
Well, its official (sort of). Greece, a member of the European Union, will probably join the
ranks of countries like Latvia (where policies are limited by the
choice of the currency regime), Iceland (where the crisis has resulted
in a very heavy external debt burden), the Ukraine (which is still
affected by financial and political fragility) and a bevy of third world
and emerging market countries in distress from the (not very) esteemed
club of IMF financial aid recipients. What does this portend for the
Euro? Well, I have blogged earlier in the year that the Euro's
credibility is now highly suspect and those pundits who dared
contemplate the Euro potentially replacing the dollar as the global
reserve currency now see the folly of their ways. The chances of a
break-up are significantly higher and quite realistic. Credit Agricole's
currency strategist puts it succinctly:
“If Greece goes with the IMF, that says something terrible about the
political process within Europe,” said Stuart
Bennett, a senior foreign-exchange strategist at Credit Agricole
Corporate and Investment Bank in London. “This undermines any confidence
in the currency."
Greece will probably end up defaulting on their debt, with or without
the aid of the IMF, and they will probably have good company with
several other EU members. I say so, and so does UBS
Economist Donovan.
“I think it’s in an impossible situation,” said Donovan, who is based
in London, in an interview with Bloomberg Radio today. “Europe has
failed to clear its first serious hurdle. If Europe can’t solve a small
problem like this, how on earth is it going to solve the larger problem,
which is the euro doesn’t work. It’s a bad idea.”
How dare I make such a proclamation? Well, because I am telling the
truth based upon facts and the many forecasts from the various sovereign
nations are basically based upon lies, fiction and farce! As it is look
at how the market is viewing the Greek tragedy:
European governments have yet to agree on how to fund any rescue for
Greece, which says it will struggle to pay its debts at current market interest
rates. While Prime Minister George
Papandreou announced a
4.8 billion euro ($6.4 billion) austerity package on March 3, the extra yield that investors demand to hold
Greek debt over German counterparts has since risen.The spread was at 324 basis points today compared with 316 points at
the start of the month. The euro fell 1 percent today to $1.3358,
extending its decline this year to 6.7 percent.
I am willing to bet the "market" has not taken a strong, hard, objective
look at those proposed austerity measures and uncovered the secrets
that I am about to reveal. If they have, these spreads would have been
blown out much wider.
A German finance official said yesterday that both countries may agree
to involve the IMF. Papandreou said March 19 that Greece, which needs to
sell about 10 billion euros ($13.4 billion) of bonds in coming weeks,
is a step away from not being able to borrow and may need to turn to the
IMF if European aid isn’t forthcoming.Europe’s fiscal crisis shows the need for the euro region to create a
common fiscal policy, former U.K. Chancellor of the Exchequer Norman
Lamont said in an
interview in London today.“That would be the logical step,” Lamont said. “I don’t think they are
prepared to do that, and without doing that I think the euro is a
contradiction, a currency without a state.”
Bingo! The man hit the point right on the head. There are too many
chiefs and not enough Indians.
I want to visually and verbally demonstrate what an absolute joke
European economic estimates have been throughout this crisis, and more
importantly how politicians and sovereign states are interpreting this
joke in such a way that can deliver a punch line that can most assuredly
end in sever global recession, or worse. This document/blog post alone
should serve to sink the Euro and blow out CDS spreads for several
European sovereign. Why? Because the truth hurts and the truth is not
what has been coming from European sovereign states as of late.
The IMF and the EU have been consistently and overtly optimistic from
the very beginning of this crisis. Their numbers have been dramatically
over the top on the super bright, this will end pretty, rosy scenario
side - and that is after multiple revisions to the downside!!! We can
visit the US concept of regulatory capture (see How
Regulatory Capture Turns Doo Doo Deadly and Lehman
Brothers Dies While Getting Away with Murder: Regulatory Capture at its
Best) for the EU, but due to time constraints we will save that
topic for a later date. To make matters even worse, the sovereign states
have taken these dramatically optimistic and proven unrealistic
projections and have made even more optimistic and dramatically
unrealistic projections on top of those in order to create the illusion
of a workable "austerity" plan when in reality there is no way in hell
the stated and published plans will come anywhere near reducing the
debts and deficits as advertised - No Way in Hell
(Hades/Tartarus/Anao/Uffern/Peklo/Niffliehem - just to cover some of the
Euro states caught fudging the numbers)!
Let's take a visual perusal of what I am talking about, focusing on
those sovereign nations that I have covered thus far.
Notice how dramatically off the market the IMF has been, skewered
HEAVILY to the optimistic side. Now, notice how aggressively the
IMF has downwardly revsied their
forecasts to still end up widlly optimistic. 
Ever since the beginning of this crisis, IMF estimates of government
balance have been just as bad...
The EU/EC has proven to be no better, and if anything is arguably worse!
Revisions-R-US!
and the EU on goverment balance??? Way, way, way off.
If the IMF was wrong, what in the world does that make the EC/EU?
The EC forecasts have been just as bad, if not much, much worse in
nearly all of the forecasting scenarios we presented. Hey, if you think
tha's bad, try taking a look at what the govenment of Greece has done
with these fairy tale forecasts, as excerpted from the blog post "Greek
Crisis
Is
Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire!...
Think about it! With a .5% revisions, the EC was still 3 full points to
the optimistic side on GDP, that puts the possibility of Greek
government forecasts, which are much more optimistic than both the EU
and the slightly more stringent but still mostly erroneous IMF numbers,
being anywhere near realistic somewhere between zero and no way in hell
(tartarus, hades, purgatory...).
Now, if the Greek
government's
macroeconomic assumptions are overstated when compared with EU
estimates, and the EU estimates are overstated when compared to the IMF
estimates, and the IMF estimates are overstated when compared to
reality.... Just who the hell can you trust these days??? Never
fear, Reggie's here. Download our "unbiased, non-captured, empirically
driven" forecast of the REAL Greek economy - (subscribers only, click
here to subscribe) 
Greece Public Finances
Projections
2010-03-15 11:33:27 694.35 Kb
Related banking research can be downloaded here:
It really is a shame when you have to pay for the truth, isn't it? If
you think you've witnessed an example of social unrest in Greece, you
ain't seen nuthin' yet. Wait until the reality of these faked numbers
start hitting home...
What about the UK?
I'm glad you asked. We just finished our UK analysis (subscribers, see UK Public Finances March 2010 2010-03-24 09:32:01 617.23 Kb
and
the Greek theme has continued into the land of the Brits.
... and in terms of government balance over-optimism???
The UK government’s projections are based on real GDP growth of 1.3% and
3.5% in 2010-11 and 2011-12, respectively while the (extremely and
unrealistically optimistic) consensus estimates stand at 1.2% and 2.1%,
respectively. The latest estimates announced by the EIU (Economist
intelligence unit) in March 2010 are even lower at 1.2% and 1.5% for
2010-11 and 2011-12, respectively. The European Commission has also
raised similar concerns with the Commissioner for Economic and Monetary
Affairs, Olli Rehn, criticizing governments after scrutinizing the
strategies of 14 countries, including Germany, France, Italy, the U.K.
and Spain, that “their budget projections were based on favorable
macroeconomic assumptions after 2010 that may not materialize” (stated
in a press article on March 18, 2010)
Raising concerns on the UK, the European Commission also stated that
“The U.K. won't meet the EU's recommended target of reaching a 3% budget
deficit by 2014-15, and projections for economic recovery may also fall
short. Details on how the U.K. government, whose budget deficit is
expected to hit 12.7% in the current financial year, will rein back its
spending are also lacking. The absence of detailed departmental spending
limits is a source of uncertainty”.
Continuously rising fiscal deficit has led to a continuous increase in
the government total debt, which increased from 43.3% of GDP in 2007-08
to 72.9% in 2009-10. Moreover, according to EU Commission estimates,
after Ireland, the UK is poised to incur the worst deterioration in the
gross debt ratio in the EU, from 44.2% of GDP in 2008 to 88.2% of GDP in
2011. Though the average maturity of UK’s debt is considerably higher
compared to other nations (thus no refinancing risk in the near future),
the expanding interest burden is exacerbating the already strained
fiscal deficit.
Moreover, rising debt not only restricts government’s fiscal stimulus
and support to the economy, but is also forcing the government to
undertake sharp fiscal consolidation measures to moderate the adverse
impact of rising interest expenses on the fiscal deficit. This is bound
to have an internal deflationary effect.
The government expects an increase in its debt from 55.5% of GDP in
2008-09 to 90.9% in 2012-13. In absolute terms, the government debt is
expected to grow from £796.4 billion in 2009-10 to £1,486.2 billion in
2012-13. However, we expect the debt to increase much higher off higher
primary deficit owing to relatively lower GDP growth assumptions.
And what about Italy???
Again, we're glad you inquired. Subscribers should download Italy public finances
projection
2010-03-22 10:47:41 588.19 Kb
as well as the
Italian Banking Macro-FundamentalDiscussion Note and the
Spanish Banking Macro Discussion Note in anticipation of our upcoming Spain
analysis, which should be a doozy!
This is Italy's presumption of economic growth used in their fiscal
projections:
For those that don't subscribe, there is still a lot of nitty gritty
that I made publicly available on Italy here: Once
You
Catch
a Few EU Countries "Stretching the Truth", Why Should You
Trust the Rest?
More on Euro stretching of the truth
If you haven't had your fill of innuendo, ambiguity, creativity and
sleight of hand (my polite way of saying "lying"), you can peruse
Smoking
Swap
Guns
Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!
For the complete Pan-European Sovereign Debt Crisis series, see:
- The
Coming Pan-European Sovereign Debt Crisis
- introduces the crisis
and identified it as a pan-European problem, not a localized one. - What
Country is Next in the Coming Pan-European Sovereign Debt Crisis?
-
illustrates the potential for the domino effect - The
Pan-European Sovereign Debt Crisis: If I Were to Short Any Country,
- attempts to illustrate the highly
What Country Would That Be..
interdependent weaknesses in Europe's sovereign nations can effect even
the perceived "stronger" nations. - The
Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
European Countries -
Depression is Already Here for Some Members of Europe, and It Just
Might Be Contagious! -
Beginning of the Endgame is Coming???
-
I
Think It's Confirmed, Greece Will Be the First Domino to Fall - Smoking
Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware! - Financial
Contagion vs. Economic Contagion: Does the Market Underestimate the
Effects of the Latter? - "Greek
Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire! - Germany
Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort
of... -
The
Greece and the Greek Banks Get the Word "First" Etched on the Side of
Their Domino -
I Warned Earlier, Latvian Government Collapses Exacerbating Financial
Crisis -
You Catch a Few EU Countries "Stretching the Truth", Why Should You
Trust the Rest?
- advertisements -
Not a confidence game but rather a game of musical chairs. What will be the last currency left standing and will it too collapse in the end, unable to support the weight of the world?
We will muddle through some how but it will get ugly. Don't forget as bad as the Great Depression was, 70% still had jobs.
Anyone - Any thoughts on parking some money in ultra short term muni-bond funds as this mess plays out?
I wonder if anyone is thinking about making a James Bond movie out of this mess?
Good work! European politicians are the biggest bunch of blathering fools...Have they fixed anything structurally in Europe during the past decade? I wonder? What really drove the Euro bubble?
It is interesting to see how people around the world are so much alike. Seems that delusion, corruption, greed, and fear are such universal traits. Humans don't seem to want to face reality of any sort. It looks like no matter what anyone does we are going to end up in a global depression in a year or so.
Confirmation bias is the enemy. People hold onto their set beliefs with both hands, and only see what fits into that system.
From mid 2009 onwards I warned of an impending USD rally and it's got much further to go.
The proprietary indicators I use in my technical analysis can identify trend changes before they occur.
http://www.zerohedge.com/forum/latest-market-outlook-0
Excellent article Reggie but when things get really serious other options present themselves that previously would be almost unimaginable...
I keep going back to this excellent article - it seems to hit all the right buttons for me
The Nuclear Option
"The ECB and the BIS have a secret weapon. They don't want to have to use it because they don't want to be seen as the instigators of the dollar's collapse. They would prefer the market to take care of it for them. But don't doubt for a second that they won't use it before sitting back and watching permanent damage come to the euro system."
fofoa.blogspot.com/2010/02/greece-is-word.html
- the dollar is set up for a growth model and it looks like we are growing out of our teenage years - lets just hope we don't blow our brains out because the world did not live up to our expectations
I am in agreement with DOC.
ECB have large gold reserves, marked to market.
A/FOA/FOFOA Freegold theory in action takes care of most of the debt.
Problem solved.
New system ensures fiscal irresponsibility will no longer carry no consequences.
This is simply evolution of our system. Forwards, not backwards.
Bad luck for anyone with no physical gold, but hey, who said life was fair?
I agree with Jim Rogers. The sooner euro-zone kicks out free-loaders and restores its financial discipline, the sooner euro-zone block becomes a very viable international player.
The present Pan-European union is a socialistic/bureaucratic pipe-dream. The present crisis, if it is handled properly, will create a new viable European union capable of dealing with both the USA and the rest of world including Russia, China, Japan, etc.,
Consequently, I do salute to Germany for playing a responsible "no bailout" game.
Great work Reggie. The title says it all.
If the Euro is screwed, the Dollar is no better and neither is Sterling. It's all a game of relativity.
DavidC
Exactly, it is all about 'relative' worth as these FIAT currencies go down. Gold is a store of value and tells the story.
Add in the Yen but also understand that each currency has a country except for the Euro. That makes it a very different game and both more and less predictable in certain ways. The issues here are huge and there's a significant chance the Euro won't survive in current form. Germany was a kind of lynch pin that I think many were depending on and completely discounting any and all uncertainty.
Pretty dumb in my book but bids are set by the marginal bidder and we've had several decades of training bigger fools. Same deal after Bear, bid everything to perfection, assume all problems are over, extrapolate from previous trend line and go back to what you "know". Unfortunately most of the very senior folks left in this industry are under 55 and have yet to face a serious case of it not working out perfectly. They have constantly known a paradigm of expanding credit and liquidity alongside interest rates going from 18% to almost nothing - forget globalization and technology, that alone is an incredible tailwind for asset values/refinancing trouble away.
The assumption here as with so much other reportage concerning the crisis in Euroland is that the IMF has stood aloof from the economic dislocations roiling the continent and even the United States itself. Ever since its inception more than a half century ago, and through its successive evolutions through the significant economic disruptions which were the expected and intended results of its own policies, the IMF has played a pivotal if not generally acknowledged role in the inexorable progression to the institution of a world economic order with the SDR "supplementary reserve asset" as the fulcrum of a new world reserve currency.
The glaringly obvious disparity between the IMF projected GDP growth, sovereign balances versus the "actuals" is nothing especially new in the IMF playbook. This tactic is an essential tool in the undermining and subversion of existing economies by an overestimation of asset values and GDP growth with the obvious intention of exploiting the resulting and unsustainable gap between the devaluing assets and the exponentially developing debt burdens engineered largely through IMF allocations and quota reserve funds interest rates.
What has happened here in the United States over the past several years is an object lesson in the application of IMF funding, interest rate and currency exchange manipulations which have long been standard practice in third world and developing nations and are now coming home to roost. First in the Euro Zone, where sovereigns will be attacked and picked apart one by one by currency speculation and counter party claims to OTC derivative contracts, and secondly in the U.S. where the pickings will be still larger with vast pension funds, state and municipality bonds and infrastructure developments all fatally encumbered with the same excessive leverage, unserviceable debt levels and the same OTCD outstanding claims on pre-engineered funding gaps, courtesy of the Federal Reserve and its IMF big brother.
I guess you've also read the book "Confessions of an Economic Hitman" by Perkins.
regrettably way behind in the active research. Perkins is on the list. Try Greg Palast's "The Best Democracy Money Can Buy", specifically Chapter Two "Sell the Lexus, Burn the Olive Tree, Globalization and its Discontents" The whole book is online.
Great book.
I have made no such assumption sir. This is but a mere installment in a long series of research. There is still much to cover, I am just a little behind and lacking in bandwidth to get "sanitized" versions out to the public. Trust me, there is much more and the implications may (just may) be a bit more dire than the local Tribune or Post may make it out to be.
Nice work here, as usual, Reggie! I look forward to reading the "much more" and its implications.
Reggie,
Forgive the ignorance here, but why can't the IMF step in and bail out all the PIIGS? I understand the lost confidence in the Euro Zone but wouldn't this stop the ripple effects to bank's balance sheets. An example here is all the US banks helped by the Fed bail outs.
Thanks
A) the forced fiscal measures will cause internal deflation, hampering trade among the various countries.
b) the lose in the confidence Euro will cause havoc, and a flight of capital that will probably do just as much damage to the banks.
c) If the IMF gets to look at the books and some of those looks become public, there is not telling what the flight may look like.
d) All the Fed did was transder 1/3rd of the problems to the public sector to bring about heavier taxation and allow accounting shenanigans to hide the rest of the problems. Our banks are still very much in trouble. As rates rise and the sovereign debt issues cause more compeition for funds, crowding out privates, driving costs up and eventually leading to defaults which will most likely roil the inventory of many banks (such as those poor guys that were coerced to buy that Greek offering a week or two ago, not to mention the ECB and the Fed), you will probably start to see more cracks (re)appearing.
So, extrapolating all of this information, where to park the money? If the Eurozone is truly f****d, then normally we would go to the dollar. But, if the US fiscal sheets are f****d too, then where? China is pegged to the dollar, and they will get crushed right along with us - unless of course they unpeg during the crash, which probably hurts them just as bad. We know that PM do awful in periods of major deflation, so that leads me right back to dollars.
Even if internationally, dollars get home, during periods of big time deflation, they should be THE place to park money, right? I'm not sold on this, but it makes sense in my head. I'm missing something probably.
There is no answer to your problem because of a poor situation of the problem.
The current trend is not about preserving (parking money), the current trend is about consuming, consuming as much as you can before the inflow of resources starts to dwindle.
You know, it is like a mall that is supplied less and less day after day. People are rushing in (especially on discount days and we are in discount days) to buy. You are asking how to save your money. Offset.
When the situation is advanced enough, the population can be divided in two: people who largely consumed when all was cheap and available, they might be deep in debt and people who pettily consumed(lived within their means) and might be liquid but with little to consume as there is little to consume.
Dont miss the train...
I am asking myself the same question -are dollars the place to be - you would have thought that today's bond sales would have been better if that were the case - Paper might be on the way out but gold dropped today as well -but if you have currencies collapsing it might be a bargain. I still think the dollar will rally for the time being how long I can't say . It all depends if Japan and China start showing up at auctions trying to save their own ass. Oh yeah , another good article Reggie.
the dollar does not determine the value of gold. it is gold, that is a stable store of value, and the dollar, that fluctuates, with perceptions
Gold is a fiat currency just the same as any other. The only reason that gold has any value at all is that people have confidence that it has value, and think it is pretty.
Hey! It's a nonsense paaaartaaay! What's up guys! I hate gold too!
Thankyou e1618978, I was beginning to feel awfully lonely here on ZH... But shhhhh. Comments like that have a way of geeting flagged and "disappearing". So much for ZH and freedom of expression huh ;-)
But I must ask, do you really believe in such a thing as a "fiat" currency? Is the value of money really determined by nothing at all?
Please check out a little theory I have under the title, what is money? in the general forum and let me know what you think?
The European Currency Cartel is inherently unstable because the incentive to cheat makes cartels generally difficult to sustain in the long run.
And the Europeans have a long history of gaming the system.
Like Rogers said this morning "The countries participating in the euro were basically arbitraging the great German industrial machine."
A currency without a state? You mean, like gold?
All these pundits keep saying that not bailing out Greece is a failure of the Euro. It's in fact a success of the Euro, that there is no way to cheat the system.
Your missing the forest, most likely due to that big fat tree in your way. Kick out Greece, and Greece's economy plunges (which will probably happen anyway). The Greek banks and thos banks that have claim on Greece reflexively convulse, causing a chain reaction that moves throughout Euroland. Suppose the Eurozon gets away with this, then they will just have to survive Portugal, Spain, Italy, Ireland, the UK and much of CEE. If they get away with all of that, the austerity measures that allowed them to get away with it will force internal deflaton that would kick the current economic leaders in the ass, Germany and France. After all, who will these export nations be exporting to, unemployed Greeks?
You see, there are just too many fragile pieces not to break for everything to work out "just right". That is also assuming that China is really not in a bubble, and the greatest financial calamity the US has ever seen ended in just one year, despite the fact it took a decade to recover from the last one (the depression). It is also assuming that there is really nothing wrong with US banks, Green Shoots are sprouting out of everyone's ass, and the unemployment numbers aren't really a sham, but actually are reported a tad bit on the pessimistic side.
Yeah, this will work out just fine....
So you're saying maybe someone will start a war?
I totally agree, but I think it's going to happen anyway. Like a row of dominoes, Greece will fail then the banks and other institutions that hold Greek debt. Today Portugal was downgraded, so if we haven't heard that much from the other PIIGS it's because Greece has been taking up the airwaves. Usually when countries are quiet, it says that their are some truth to said issues. Italy isn't saying to much except the usual we aren't Greece, the other countries are himming and hawing but they are just as bad if not worse shape.
What I fear is that once IMF is involved the Greece is going to go downhill fast. Also Reggie I have a question, since Greece is still using the Euro how will Greece devalue said currency if that is a stipulation of the IMF (which they have done before Belaruse, etc.)?
IMF medicine almost always includes demands to privatize state industries, to slash public spending even on health and education, devalue the national currency against the dollar, and open the country to free flow of international capital-both in and, especially, out.
I agree with the reminded list of IMF actions.
Now lets take a different perspective. You bet on a continuity with past IMF policies. I bet on a discontinuity with past IMF policies. Double standards shall appear and Greece wont get the rough treatment given to third world countries.
Lets a five years period unfold so we can discuss this bit.
Thats why I asked the question about the Euro at the end, I think they will follow the model but it will be a tad different and alot worse for Greece. The reason is because of a population of 8 to 11 million people they have a total of 1400 islands and only 227 are inhabited. Which leaves over 1100 and change of islands that could be sold or manouvered for someone or some countries to take for collateral and make it their own. They are in a prime spot in southern Europe.
I don't know what any of this has to do with the Euro as a currency.
You can't effect a common currency with disparate fiscal policies, disparate economies, disparate (or effectively non-existent) enforcement measures and disparate politics.
I honestly can't make it much clearer than that. The US is aggregated under the federal government and the states only have but so much rope with which to hang themselves (although a few have managed to hang themselves anyway). Even with a potential hanging, there are mechanisms with which to manage it. The EU (and by extension the backers of the euro) have yet to think that far in advance.
for what it"s worth, Martin Armstrong is in full agreement in both theory and practical outcome. He has Euro going to 1.17 with the upward limit of US$ at 90 as a direct concurrence.
You can't effect a common currency with disparate fiscal policies, disparate economies, disparate (or effectively non-existent) enforcement measures and disparate politics.
This is what the gold standard used to do.
And that is exactly why the gold standard is such a bad idea.
Ok, EU is shit and gone, crooks, idiots, fraudsters! Now the only choice for us is to go to USD? Because US have exactly the same problems? Where do we run? Do you have any idea which USD, EURO, YEN is better and why?
The German Chancellor Merkel might NOT attend the EU meeting to bailout Greece tomorrow.
http://www.welt.de/politik/deutschland/article6909970/Merkel-haelt-Teiln... (in German)
That is another reason for the Euro to crack.
Well, it's a good thing that the Good Ol' US of A doesn't have crooked govt. stats like these. It's almost like their lying or something.
Reggie is working on the charts.
As chinese product import prices are going to start to inflate starting june, and as europe has the luck to import these products in DOLLARS, Europe will be the firsts to have a inflation that will be arround 5 to 6% by then.
Guess who will be left holding the bag! America!
A bad idea from day 1.
A confidence game.