This page has been archived and commenting is disabled.
Prometheus Bound - A 4-D View Of Ugly
Submitted by Michael Cembalest of JP Morgan
As punishment for giving fire to mortals, Zeus condemns Prometheus to be chained to a rock, and to have his immortal liver eaten daily by an eagle. It brings to mind the austerity program planned for Greece. No need to go through the details; it suffices to say that it’s the most austere adjustment an OECD country has subjected itself to in 50 years in the absence of a falling currency, a rebound in GDP growth and an open economy. We created the chart below to pull together four variables we’ve discussed before, showing that Greece is effectively in No Man’s Land.
So while the total Eurozone-IMF package of EUR 110 bn was 6x larger than the one discussed just a few weeks ago, here are some glass-half-empty observations:
- Greece’s ability to absorb the lion’s share of the adjustment solely through 15%-20% declines in wages and prices is untested, and implausible. Changes to retirement ages and increased privatization make sense, but their contributions to competitiveness are very small in the short run. Note that in Greece’s prior adjustment (1989-94), the Drachma fell 50%.
- We could have included the U.S. from 1985 to 1995, when the trade-weighted dollar fell 30%, or the British Pound in 1931, which devalued by 20% after the UK abandoned the Gold Standard. Of the countries using gold as a monetary anchor in 1931, none remained a decade later. The sooner a country regained its own monetary policy, the faster it recovered.
- The bailout does little to answer questions on Ireland, Spain and Portugal; is the new “safe zone” having a line of credit that takes you out of the capital markets for 3 years? Their public sector debt burdens are not as bad as Greece, but they suffer from some of the same (or larger) corporate debt burdens and productivity gaps vs core Europe.
- History is not kind to bailouts ending contagion. The 1982 Mexico bailout did not stop the spread to Brazil, Venezuela and Argentina, and the IMF rescue package for Thailand in October 1997 did little to stop the spread to Indonesia and Korea.
- It’s hard to keep track of all the EMU pillars being discarded at once (no bailouts, changes to ECB collateral rules, Eurozone rating agency). Will ECB purchases of sovereign bonds be next? The Fed and Bank of England have done this in spades; but Europe is different. German Constitutional Court rulings in 1993 asserted powers to review ways in which European institutions might be exceeding rights conferred to them. Furthermore, the US and UK do not have to grapple with a history of monetization of government debt as a contributor to military, economic and social disaster (1923). That may be why Merkel remarked last month that "Europe is not only a community of peace, it is a community of stability".
»
- 12443 reads
- Printer-friendly version
- Send to friend
- advertisements -
"contagion"
The "contagion" started at the center of the financial system, the US, the USD is the reserve currency of the world. The credit production peaked sometime in 2007 at around $4.7T annually, since that time it has now gone into negative area. See Federal Reserve Z1 report.
The only decoupling that is going to be done is like Europe decoupling and falling into the ocean. (Insert your country/state) will be next.
The only way for the contagion to stop is for credit expansion to increase exponentially at the rate needed to hold the equation together, one problem with that, humans can NOT supply and demand exponentially forever.
There is nothing different about this collapse then the past collapses, just the details make it appear to be different.
There is no stopping this "contagion" unless humans have unlimited power, and the US consumer startes taking on pre-2008 debt creation levels plus 5-14%.
It's game over. The equation loses every battle but always wins the war.
Oh noes, more ignorant fear mongering from Mako about the compound interest paradox.
Guess what - money's value can change. Yeah that means a hyperinflation (aka currency depreciation ---> currency collapse) in a our current fiat system.
But why bother stopping there, right Mako? Lets pretend the problem is money itself, becuase that be some good fear mongering there.
The choice is yours, the Math is the Math, fear is a human emotion.
"Yeah that means a hyperinflation (aka currency depreciation ---> currency collapse) in a our current fiat system."
Sorry but you use credit as money, you ran out of money long ago to support the equation, 7th grade Math if that to figure that out.
You will not see hyperinflation of credit. You will see a hyperinflation of body bag usage, and mass grave usage I suspect.
"Lets pretend the problem is money itself"
You can pretend anything you want, the choice is yours.
Absent a fundamental shift in technology/productivity, there is only one possible out from the financial angle, and that target is the sole objective of the Fed and other central bankers.
To wit, governments must increasingly supplant the private sector and assume the responsibility for most/all credit demand. Right now, the US fed.gov is running around 10%, but there's nothing theoretically stopping it from going to 100%.
The hedgies and other market shorts actually make the case for the central banks - they must increase liquidity at all costs to "save the system". Ultimately, what is to stop world governments from taking over all credit demand? Eventually, given the ability to freely spend no matter the underlying economics, inflation would re-value most underwater liabilities.
The only task remaining at that point would be for the unified world governments to either default and/or devalue their sovereign debt in unison by lopping off a few zeros. At the end of the day, we'd be right back to where we started in a balanced economy.
There's only a few drawbacks to this plan:
The reason this thing is gonna crash hard is two-fold: the technical aspects fails every logical test, and it will never get past the numerous political obstacles necessary to even get a chance to put the theory in place.
That's why the money-elite are watching for significant tells. They will continue to stay long as long as the central banks have the (political) ability to lend (print and buy dog-shit put up as collateral). If the PTB begin to get a whiff of real political opposition, then the short positions will begin to be solidified.
The final trap door will be sprung on the clueless masses when the green-light is given to broadcast the "fraud+crooks" meme widely through the controlled MSM like the BBC, CBS, etc. Imagine the mayhem as the herd makes for the door, only to find it firmly closed shut.
My country won't "be next" - I'm Canadian. We win this one.
Haha, brilliant. Along with Australia, a utopia of ever-increasing asset prices. Not.
Yeah, right. This is not a hockey game.
Ponzi's work better in small population areas?
In the end only canada and australia will be able to get it up and keep it up. They will be the new vigra powered overlords of ponzi. Australia goes boom in 2011. Canda who knows.
Tell me that is sarcasm.
Might be. As our housing bubble might be a housing bubble.
Sorry sporb, you need to check your PM. He and his intend to leave you just as f'd as a whore at closing time, and tell you its a decent living. Its the Bilderber... sorry, I mean, Conservative way. All those natural resources you and the first nations think you have to fall back on: sold for pennies on the dollar. While the US considers moving beyond the 19th century health care wise, Harper is doing his level best to allow NAFTA (also courtesy of the C's you idiots elect time and time again), and its later, even more sovereignty raping revisions, drive the final wedge in your precious UHC, one province at a time.
Bonne Chance mon ami!
Well, I certainly didn't vote for them. Dangerous amateurs, the lot of them.
well there's constructive opinion, and then theres horse-shit. I sure know which category these "thoughts" belong in !
Heh, seriously darkpool, if you think anyone posting here feels obligated to be 'constructive', you obviously haven't read many posts... Any particular problem with the 'thoughts'? Or, as I suspect, are you just popping off a conditioned knee-jerking?
Been quite a day today, and it's not even noon.
O/T, I am so glad I am back from Italy. Nice and pretty, but, they do not even let you own a Beretta there! They make it there, but, sorry, no gun for you!
Soon as I can, I'll go pick up some cheap(er) gold & silver. And ammo on the way home.
Bastards... on the other hand (as a European I know this very well), you can buy a AK40 for about 120euro with ammo and a RPG for about 450euro over there ;)
It's shitty if you want to play marksman, but as a mobcontrol it works pretty well :)
Wow, I am surprised that Euroland will let you buy an AK.
I bought a Russian/American AK-47 for $900, the alternative was a Romanian for $550. I wanted the better piece.
Jeez, if I had known I could have bought an RPG for 450 Euro when I was there in Italy, I would have maxed out my credit & debit cards. Only problem would have been sneaking them back into the USA.
“What’s going on, you thought Greece had been ‘saved,’ right? Forcing both austerity and more debt onto a country is not a positive! But the largest negative of all is that the EU is having to break their own rules and make new ones. That’s an assault on the rule of law, capital does not like to stay where the rule of law is breaking down.” – Nathan Martin
May 3 (Bloomberg) -- The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market.
The decision came less than a day after Greece agreed to a 110 billion-euro ($145 billion) package of emergency loans from the International Monetary Fund and its euro-region allies. Under the plan backed by the ECB, Greece pledged 30 billion euros in budget cuts to bring a deficit of 13.6 percent of gross domestic product within the EU limit of 3 percent in 2014…
Today’s decision was a reversal for ECB President Jean- Claude Trichet, who began the year saying the ECB would not change its “collateral policy for the sake of any particular country.”
That prompted Christoph Rieger, co-head of fixed-income strategy at Commerzbank AG in Frankfurt, to say today’s announcement “leaves a sour taste with regards to the ECB’s long-term credibility.”
Says Martin: “I just don’t know how you could destroy your own credibility any more than Trichet has. Saying, ‘indefinitely accept the country’s debt as collateral regardless of its country’s credit rating,’ is tantamount to simply stating that you are willing to print come hell or high water and that you simply do not care about the rule of law, nor about the rules of nature." (emphasis mine)
http://economicedge.blogspot.com/
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.
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.
http://en.wikipedia.org/wiki/Jean-Claude_Trichet
Rule of law? How quaint. See my post above - the entire exercise is about the public sector assuming even greater responsibility for (all) credit demand. In the absence of junk in which to collateralize, central banks could begin to just print out of thin air. After all, we're talking "national security" here.
At some point, someone somewhere will baulk. That will be the tell - when the first opposition to world government begins in earnest. At that point, the process of deflationary credit collapse starts anew.
If no one ever baulks, then we get to live in a NWO where everyone goes along quietly & submissively getting their government subsistence checks.
Great comments, all, Herr JR, but please don't forget that Trichet is also a member of the Group of Thirty:
http://www.group30.org/bios/members26.htm
Cheers!
All debt will eventually be forgiven. (No other option.) Then the game will start over for the new generations to experience.
After all, in the Prometheus trilogy, Zeus reconciled with Prometheus when he warned him not to f$%^K the nymph Thetis who will bear him a son more powerful that his father.
Greeks know this S#$%T. They wrote down for us but we dismiss it.
Debts are already repudiated. Forgiving them, useless.
global jubilee
QE to infinity. It won't work, but that's the plan.
MADNESS, COMPLETE MADNESS:
http://williambanzai7.blogspot.com/2010/05/innocence-has-power-markets-c...
I think this sums up metaphorically and visually the action today (and future of the PIIGS):
http://www.guzer.com/pictures/elephant_toilet.jpg
Link won't work. Deleted.
If I was a Greek I'd be telling the banksters to kiss myass.
Posted by Neil Hume on May 04 14:40. 10 comments.
Alan Ruskin has peered into the abyss of a US sovereign debt crisis to see what the world might look like. Unsurprisingly, it’s not a nice place.
Food commodities would be about the only thing left worth owning, More…
Alan Ruskin has peered into the abyss of a US sovereign debt crisis to see what the world might look like. Unsurprisingly, it’s not a nice place.
Food commodities would be about the only thing left worth owning, according to the RBS strategist.
Now, Ruskin is not forecasting a 70’s style Treasuries sell-off, but he reckons this is a fat tail risk worthy of serious consideration given that politicians will need to have their feet raked over coals before behaving responsibly.
Welcome to financial hell:
And here is Ruskin’s conclusion:
The attack on gold, while predictable, underlines a fantastic and savage misunderstanding of what the "relic" is and why central bankers so deplore it whilst warehouse it, allegedly. What he doesn't cover to no shock is what the revaluation of gold and its broader implications might be? Q up the Rickard interview....
The impending USD rally I've warned about since 2009 has arrived. It may last for some time too ...
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
So, the ECB has decided to go down the same path as the Fed, BOE, Chinese, BOJ, and about every other developed country. No surprise there. The alternative is too politically difficult. Europe made this decision years ago when it knowingly took in economies that did not have fiscal discipline. The benefits of becoming an economic block the size of the US was deemed to outweigh the negatives of some of the poorer and less disciplined countries. With the amount of debt that will be defaulted, extend and pretend will need to continue for quite awhile. The defaulting debt will also allow the central banks to continue to feed money into the system for a long time in the name of price stability and fighting deflation. Look at Japan, they have been at this for 20 years and they still have deflation. The US and Europe have even more debt than Japan so the central banks either let the whole works blow sky high or they extend and pretend and feed money into the system. As long as it is done slowly and in proportion to the rest of the world, I suspect that, just as Japan has been at it for a long time, the rest of the developed world can also keep the game going for quite awhile.
And the dollar?
The dollar already depreciated about 30% against other major currencies over the last few years so I find it hard to believe that it would weaken further if all the major economies are playing the extend and pretend game together. To the extent that the dollar is the reserve currency it could enjoy some relative strength compared to other major currencies. Also, one reason the dollar declined is that our problems were well understood while others held themselves out as fiscally prudent. Now that their imprudence has been exposed, there is no longer any reason to give them a valuation premium.
I like liver.
Changes to retirement ages and increased privatization make sense, but their contributions to competitiveness are very small in the short run.
Especially with unemployment at 10% and rising. Instead of being retired these people will just end up on some sort of welfare instead. What kind of jobs would they have anyway, government jobs? That doesn't help much.
Out of control parasites usually end up killing the host.
"History is not kind to bailouts ending contagion. The 1982 Mexico bailout did not stop the spread to Brazil, Venezuela and Argentina, and the IMF rescue package for Thailand in October 1997 did little to stop the spread to Indonesia and Korea."
I'm channeling John Perkins (Confessions of an economic hitman) here. I would argue against bailouts being a failure. On the contrary, they were intended to and created a larger sphere of debt slavery, which did benefit favored debt holders and corporations tremendously. Much better than doing one orderly bankruptcy, no fun there.
Then we would be able to go full circle back to the 1800's where everything was awesome due to the "free economy" where if you were black (2000 verison of holding debt) you would have to work ever increasing hours to never actually pay off the fact you were black, so your kids got to try again.
As long as debt doesn't carry assets of the deceased onto descendents, we will avoid full slavery at least... just gotta make sure bank lobbyists dont include that in the new FReg Bill.
The obvious intention then is debt bondage, economic slavery,and the added burden of onerous and unsustainable taxation and the gutting of social expenditures beginning with the insupportable levels allocated to pension funds and social services. In other words the time honored and tested methods of carrot and stick, bait and switch, the classic set up.
Indeed, Steaming WD has it right, rather then an "orderly bankruptcy, a much larger sphere of debt slavery". In the past two years the broad monetary base has declined as U.S. bank reserves has exponentially increased from $50/60 billion to unknown trillions, free money all parked at the Federal Reserve with no strings attached earning interest.
Of course the ECB is going to accept collateralized Greek bonds no matter how worthless. Greece has as little chance of paying back the stratospheric debt as it does of even rolling over the "generous" rates of interest offered by the IMF. The ECB will even find a way to circumvent the Eu charter to monetize every sovereign debt á la the Federal Reserve, the IMF's partner in financial terrorism. What the hell, the entire infrastructure of Greece is up for bid at fire sale prices. The well connected insiders in the socialist paradise are already salivating at the rake off.
Wall Street and the City of London along with their enforcers at Moodys and S&P have ratcheted down Greece's credit worthiness by unprecedented levels so that the vultures from the hedge funds and investment speculators can operate even more effectively in the feeding frenzy. This kind of economic blood sport is just shooting fish in a barrel, the kind of "risk aversion" that these economic predators thrive on.
This little IMF test plot in the cradle of Western civilization is about to go viral and intercontinental.
Dont want to sound racist but is it not chickens coming home to roost?
IMF recipes are well known (and Greece is not fully cooked by the IMF recipes book)
The field tests were run long ago, elsewhere.
Like Zombies. Zombies eat living flesh. When living flesh is exausted, they start eating each other.
The Greek citizens will not be enslaved by the bondholders who lent them into bondage. Austerity? Not a fucking chance. Expect blood. Literally.