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Summary Of The Biggest Bail Out Ever: Even Keynes Is Spinning In His Grave
- Bank of England
- Bank Run
- Ben Bernanke
- BOE
- Bond
- Capital Markets
- Central Banks
- Credit Crisis
- European Central Bank
- Eurozone
- Federal Reserve
- Financial Accounting Standards Board
- fixed
- Germany
- Greece
- International Monetary Fund
- Italy
- Keynesian economics
- Monetary Policy
- Monetization
- Nielsen
- Portugal
- Risk Premium
- Sovereign Risk
- Sovereign Risk
- Sovereigns
- United Kingdom
Europe has now followed the Fed in its all in move to prevent the disintegration of the euro and of Europe. As we expected, the EU was leaking various rumors to gauge market interest, and as speculated earlier, the final cost ended up being just short of one trillion. Here are the key summaries:
- EU Crafts $962 billion show of force to halt crisis
- Full blown monetization: ECB will buy public and private bonds
- Fed reactivates swap lines with Bank of Canada, BOE, ECB, BOJ, and the SNB
In other words, total and unprecedented monetary lunacy, as every cental bank, under the orchestration of the Federal Reserve, will throw money at the problem until it goes away, which it won't. As we have long expected, Bernanke is now willing to sacrifice the dollar at any cost to prevent the euro unwind. This is nothing than a very short-term fix, whose half life will be shorter still than all previous ones.
The race to the currency devaluation bottom is now in its final lap. And gold is the only alternative to the now imminent collapse of the fiat system: the world had a chance to take writedowns on losses, punish those who took risk and failed, and refused to do so. There is now no risk left, but it only means that eventually all the risk will come back and lead all capital markets to zero. The result will be the end of Keynesian economics as we know it. Do not trade in this broken market, do not hold your money in a bank as they are all now one hour away from a terminal bank run - buy and hold real, FASB mark-to-myth independent assets.
Here is Goldman's take on the reaction:
In reaction to escalating pressures on Euro area government bond markets this past week, and their broader repercussions on financial stability, European policymakers have announced tonight an impressive set of new policy initiatives, as Erik Nielsen flagged earlier this evening as they began to emerge.
The centerpiece is a EUR 500bn conditional mutual financial support scheme for EU sovereign states, boosted by further assistance from the IMF. To put this number into perspective, consider that it is slightly higher than Italy’s 2007-09 average gross issuance of public debt and that it could cover Spain’s and Portugal’s combined gross borrowing requirements for two-three years. These conditional contingent liabilities tying EMU sovereigns will not appear under the Maastricht deficit and debt measures. They require no additional funding-raising, for now.
The fiscal agreement will be subject to closer scrutiny in the days ahead, when more details will be made available. In particular, the EUR 440bn of bilateral loans will be no doubt at the centre of more political discussions. But, together with the promise by euro area governments to ‘take all measures to meet their fiscal targets’, such display of fiscal ‘solidarity’ and the institution of a fast-track EMU/IMF funding backstop have been instrumental in convincing the ECB to step in, invoking a financial stability role. In the coming days, the ECB – presumably through the national central banks - will conduct ‘interventions’ in those ‘public and private’ markets of the euro area it deems ‘dysfunctional’ and therefore impairing the transmission of monetary policy.
We provide more details of the measures below, touching also on some of the issues still pending. Our overall take is positive. The Eurozone fiscal crisis spread beyond Greece to countries with much better fiscal profiles due to a lack of confidence, in turn amplifying debt roll-over risks and hurting domestic banks. Short of fiscal federalism, the mutual support plan launched tonight goes to the heart of the matter, and fortifies Eurozone institutions, endowing them more flexibility tools to deal with future crises.
But the true ‘circuit-breaker’ when the European markets open tomorrow will no doubt be the ECB’s unprecedented involvement in the secondary markets. Banking on the ‘best practices’ accumulated over the crisis, the ECB is not saying which securities it will buy, and in what size. This makes the ‘announcement effect’ even more powerful. The interventions will be over time sterilized (i.e., the cash injected will be mopped up), limiting the interference with monetary.
In terms of markets, there are clearly a few areas that are more directly linked to tonight’s announcements and others that have been caught in the general cross-fire. We would make the following broad observations.
1. EMU peripheral sovereign spreads should tighten back, particularly at the front-end of yield curves. The move should be reinforced by the further tightening of fiscal policy in Spain and Portugal to be announced later this week, and the ongoing conservative fiscal stance in Italy. At the 2-yr maturity, Portugal closed on Friday at 550bp over Germany, Spain at 237bp and Italy at 181bp. Our relative preference goes at this juncture for Portugal, because of the higher risk premium. We think spreads should come back to the 250bp area, and quite possibly further. In Italy and Spain, spreads should halve (although we continue to think that Spain will trade weaker than Italy reflecting the two countries’ relative funding requirements). Meanwhile, German 2-yr benchmark bonds closed at 76bp through swaps. This spread is at least 20bp too high (it averaged 50bp up to March), considering that Germany’s contingent liabilities as a result of these actions have increased.
2. The impact all this should have on the level of rates is unclear. The ECB is in the near term injecting more liquidity, and this should keep rates low over the coming months. Sterilizations will presumably entail a steeper money market than currently is the case. Against the backdrop of falling risk premium and better growth numbers, as we expressed already in our Bond Snapshot last Friday, our inclination would be to fade the bond rally now. Among our recommended exposures is a trade to be long 10-yr UST vs. Bunds, for a target in the 40-50bp area.
3. On currencies, the impact on the trade-weighed EUR of a more restrictive fiscal policy and easy monetary stance is unclear. As the risk premium erodes, the currency may extend gains against the Dollar, returning towards our 1.35 3- and 6-mth forecasts (from Friday’s 1.27 close). Our main focus in coming days will be on several fundamentally sound opportunities that have been rocked by the generalized de-risking. Among these, at this stage we highlight PLN, TRY against the EUR, and MXN against the USD, which we added on Friday already as a tactical recommendation. Asian FX weakened last week on the increasing risk aversion, and should stage a come back. Earlier tonight, we recommended going long a basket of MYR, PHP and IDR against the JPY.
4. The story in equity space is similar: Given the higher co-variance between financial and sovereign risk, the main underperformer of late has been the European banking sector. In the near term, it will probably lead the market bounce. But tighter fiscal policy in the European periphery will in our view continue to weigh on the local financial institutions. Our interest goes more towards opportunities where we judge the macro underpinnings to be stronger. We have been recently stopped out of long positions in US consumer stocks, but that remains an area of interest, for example. And we have highlighted the merit of ‘core Europe’ (through the German DAX index), which we are likely to elaborate on in the coming days. Unlike during the credit crisis of 2008, these policy announcements take place against a much more favorable macro backdrop.
Turning to the measures, these involve:
On the fiscal side, the establishment of a ‘European stabilization mechanism’, under the legal umbrella of article 122.2 of the Maastricht Treaty. This envisages financial assistance from the Union to member states ‘seriously threatened with severe difficulties caused by exceptional occurrences beyond their control’. The overall ‘stabilization mechanism’, which overall will not require approval by the national parliaments, will revolve around three funding avenues, all operating on a conditional basis (meaning that the sovereign will have to agree to a fiscal adjustment plan to access the funds, ‘on terms and conditions similar to the IMF’s’).
To begin with, the EU Commission will set up and run a permanent ‘rapid-fire’ facility funded by the issuance of Eurobonds guaranteed by the single member states. The framework piggy-backs on the one used for the balance of payment support to non-EU countries, which is also run by the Commission. The new facility should be endowed with around EUR 60bn, and provide for the quick response that was lacking in the case of Greece. It is unclear whether the facility will be pre-funded. The balance-of-payment program is not, and the Commission taps markets upon need. Whether the guarantees will be ‘joint and several’, like is the case of existing EU Commission bonds, is also unclear. If so, the issuance may compete with existing EIB and KFW programs, which is less senior. We plan to flesh out some of these issues when more technical details are available.
Moreover, EMU member states have pledged up to an additional EUR 440bn in bilateral loans to support each other. As in the case of Greece, we think that they will be allocated along the same proportions as those holding for the ECB’s capital shares. The loans will be collected in an SPV ‘expiring after three years’. It is unclear whether non-EMU countries have signed up (the UK has not). The disbursement of the loans will require parliamentary approval.
Finally, according to European sources, the IMF will contribute to the deal with an amount up to EUR 250bn, presumably providing assistance in the formulation of the fiscal restructuring plan, as has been the case for Greece. We would notice that the higher the amount pledged by the IMF, presumably the greater the influence of its main shareholders over the disbursement.
On the monetary side, the ECB has announced it will conduct interventions in the euro area public and private debt securities markets ‘to ensure depth and liquidity in those market segments which are dysfunctional’. The ECB plans to sterilize these purchases. Further, to support banks, the ECB will conduct 3-mth fixed rate tenders around the end of this month, when the first 1-yr LTRO expires, and a 6-mth operation this Wednesday. And finally, the ECB will reactivate together with other major central banks temporary but unlimited Dollar swap lines with the Federal Reserve.
Last, but not least:
- The first tranche of the joint EMU/IMF 110bn package for Greece will be disbursed in the coming days. Earlier today, the IMF Board has approved the EUR 30bn Stand-by arrangement with Greece. Both these news were widely expected.
- On May 12, the European Commission will present proposals on how to improve the governance of the Euro area, including ‘strengthening’ the Stability and Growth Pact (involving a discussion on the introduction of more effective sanctions). This is the natural and necessary complement to a system of fiscal relationships involving greater risk-sharing, and will be the focus of many discussions in the weeks and months to come.
Francesco U. Garzarelli
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There will need to be another trillion or two handed out over the next month. As folks dig deeper into these proposals I am sure we will find many of the common threads of action we have seen since February. It is full blown Loony Tunes and That's All Folks. The wild fire has been freshened with ample fuel. Fools.
This is all leading to another paradigm...
Fingers crossed that will be a good thing...
everything depends on the Euro right now. it opened high and has steadily sold off. no surprise the stock market weakened as a result. right now the Euro is in a bottoming process on the daily chart.
the Euro has given back HALF of its gains today. that is a warning sign.
AMANDA DRURY!!!!!!!!! Yes, I don't need Viagra today!!!!!!!!
Her breast in white!!!!!!!!! Just superb!!!! Best of CNBC by far
GO Dawgs! Can still see yaz from North Queen Anne
-Layne
Keynes wasn't kidding when he stated that we're all dead in the long-term. Clearly, central bankers live & breathe this philosophy. Who cares if the system crashes in 1 or two years? Today we live, so eat, drink & be merry.
I'm really curious as to why anyone is surprised - what's up with all the vitriol & anger? The PTB are essentially admitting what many have known for some time now: the economy died back in 2007-2008. There weren't any green shoots - that was last year's propaganda message to keep the illusion going.
But it has obviously grown stale. This year's theme will be akin to the tradition of breaking open the liquor cabinet when a ship is doomed: all discipline is abandoned as the crew gets blindingly drunk. So, party on mates.
Perhaps some may survive and wash up on shore. They might eve get a chance to create a new society. Nah, it'll just devolve to the same one we have today.
no sh*t, what's changed...some times I feel that this blog has devolved into CNBC's evil twin...shessh...and you right, live it up for today, fore tomorrow will come...
Or that it will at least work better than that shave would have in High Plains Drifter.
http://www.youtube.com/watch?v=t8sNeozweTM
exactly...overloading the left-brain until it cracks open and floods into the right via the pineal gland.
we are all autistic now.
Perhaps the Catholics were on to somthun when they created the Court of the Pinecone. http://indianinthemachine.files.wordpress.com/2009/10/pineconecourt.jpg
...then there was Heinrich Himmler's spear of destiny. http://www.williamhenry.net/spear.html
Ich bin ein Berliner.
Spoken June 26, 1963. Then, just a metaphor.
Today, May 10, 2010, it has become truth.
You're a jelly donut?
(It's the 'ein' that gave you away... :)
Perhaps this may be just a reflection that the matters at hand are rapidly becoming everyone's donut... (Spans of control, influence and all that)
definitely, but both were obsessed with looking outside in instead of inside out.
speaking of pinecones, guess what grows under them?
http://www.savethemales.ca/the_christmas_tree_and_the_mus.html
Brother can you spare a pair-o-dimes?
just don't drop one..
Could it be, that the grass is always green?
http://www.youtube.com/watch?v=xO-G7YatytY
"This is all leading to another paradigm..."
like a pure credit economy (ala knut wicksell, circa 1898)
Most assuredly.
This statement reminds me of (Plato's) Republic:
...Most assuredly.
And is not the love of learning the love of wisdom, which is philosophy?
They are the same, he replied.
And may we not say confidently of man also, that he who is likely to be gentle to his friends and acquaintances, must by nature be a lover of wisdom and knowledge?
That we may safely affirm.
Then he who is to be a really good and noble guardian of the State will require to unite in himself philosophy and spirit and swiftness and strength?
Undoubtedly....
... within the warm embrace of assurance that is born from living rather than dying. In total, what it means to represent the whole by example.
All cards are basically out now, pending details of this lunacy of course. Riots should spread to Spain and Italy within 3 months, with war to break out in Europe in 6-12 months as the ECB attempts to legislate various countries with competing interests.
BTW, call your senators and representatives and start complaining about the Fed's swap lines.
I really agree on the last point.
If indeed, these swap lines represent "loans" to other central banks, why in God's creation are we accepting loans in Euros? Are we so awfully sure we will even be close to being paid back on a currency adjusted basis?
The Fed's involvement is akin to plugging a dam leak with your finger, while 10,000 more leaks are sprouting out. Not only will it NOT change the course of events, it may eventually do more harm than good.
And when Ben tesifies again on "The Hill" they will ask the same question: "What banks was this additional trillion lent to?"
Ben: " I don't really know"
For years I've been unclear how wars could actually get started... Now it seems so utterly clear: Exactly like this.
First economies are utterly destroyed for the foreseeable future.
Next social unrest topples governments.
And then the great leader appears to unifies his people by rallying them around a foreign enemy.
Step 1: Check
Step 2: In progress.
Step 3: 2 years.
good point, no one seems to want to talk about the European folks reaction to this, they tend to vote in the street more than US people...the biggest bailout ever only works if the people roll over for it...will they? right now I don't think they are that desperate, so maybe it will be quiet, wish I knew how angry Europeans are right now...
a trillion here, a trillion there, pretty soon we're talkin real money
a trillion here, a trillion there, pretty soon we're talkin worthless money.
Gold bitches (food and ammo,too).
That's real? hmmmm
sarcasm is one of the most elusive financial indicators.
Ya, and the "s" on my chest is to indicate super slowness.
We've just witnessed history: One of the largest nominal amounts of money tossed into a burning fire. Bernanke and Geithner have penis envy right about now.
What do you want them to do, dismantle the euro and everybody starts owning debt in fluctuating currencies - that would be an even bigger mess! Honestly I thought Trichet will flood the market with liquidity last week and that naive belief in EU speed under pressure cost a fortune to my calls in financials, which should recover nicely now.
OOne question still remains to be answered though - can you pay debt with more debt, or will the system be dismantled gradually over time - looking forward to 2030 :-)
2030? You'll be lucky if we make it to 2013 at this point.
I am Chumbawamba.
Fuck me old chum, June -July 2011 is all the legs this lame ducks got. Wake up the World is full of people who believe an earthquake is a remote possibility. This is the most inane idea I have had the pleasure (or pain) of hearing. Tell me should I save my ass soiled toilet paper to sell for a profit or should I flush it. Not a snow balls chance in Hell of this thing working. Its the Debt (now increased) that needs to be addressed.
Sorry but this is a butt fuck (now) for the whole World.
NO ONE IS TAKING RESPONSIBILITY FOR LARGESS -
Yes I'm just cranky at the short term stupid nature of people who should lead instead of being pushed to slaughter. No offence meant - I just want to see reality and truth make a decision
I think you could have made your point without being so potty mouthed. Foul language can devalue the point we try to make
Deleted hysterical rant at people who are too sensitive to strong language.
MsCreant, THIS IS A FIRST. The deployment of potty mouthed in a non sarcastic mode of delivery at ZH! Even the gold standard of propriety, MN Nice never went here! Wow Chumba, I stand in reverence and awe of your continuing capabilities to capture the very best in us all.
You have been here for 31 weeks and you still cling to the propriety crap in the use of language here at ZH? I would hope you would have garnered a bit more about all of this given the time you have studied it. Just so ya know, Observer, I am just another fucking observer (shamelessly plagiarized from the movie, Blue Thunder). So, it's JAFO to you.
Be Well
I wouldn't go back now for any amount of money (or anything else) - Miles Kendig
delete
"What do you want them to do, dismantle the euro and everybody starts owning debt in fluctuating currencies - that would be an even bigger mess!"
Yes and no. The bigger mess is the one we (humans) keep creating. Start by kicking out the countries that should not have been in the Euro Zone in the first place...like say...Greece?
I wonder WTF will happen when UST 10 yr break out %4
So the Fed, ECB etc are buying unfinished real estate & empty matchboxes? (Melchior Palyi 1937)
It's not as if this story hasn't already been told.
But this time it's different...
[/sarcasm]
It seems like this could be positive for the EU. At least the credit is coupled with fiscal austerity measures and a committment not to permit it to expand the monetary base. This is deflationary but at least introduces the necessary medicine for longterm stability. The EU in the long run will be much better off than the U.S., which still believes it can borrow without fiscal discipline.
The PIIGS say they will commit to austerity measures. They'll say anything to get the money. Bernanke just bought the Brooklyn Bridge. He got a good price though.
The EU established debt limits for their members a long time ago. They have been so roundly ignored that even Germany figured out that running a deficit over 3% of GDP was in their best interests.
If the IMF doesn't have a military to back it up, Greece and the rest of the PIIGS can spend away. The EU would have been much better off in the long run by forcing Greece to restructure its debts and making bondholders take at least a partial haircut.
But nope. This is just the European version of American QE. But somehow, the UK was able to skirt by with no commitment, and the ECB was able to get Ben Bernenke to provide loans in dollars.
This is going to encourage even more bad behavior, I'm afraid.
I have no idea whether the austerity measures will be honored. But there is a difference in this EU QE (which will only become QE if the credit is not sanitized as promised): no one can tell the Fed what it's limits are or, it seems, even should be. The ECB is, however, ultimately subject to its component sovereigns and now the IMF will also have a say. Given German history, its people are already predisposed to flavor deflation over inflation (whether or not wise). So over the short term, while more pressure will be put on Europe and the Euro until they prove that they can get their finances under control, I like the Euro v. U.S. dollar over the long term. Europe is blessed to have passed through the debt vigilantes before the United States. I have a feeling that one day they will be bailing out our butts with the help of the IMF. Unfortunately there is little either of us can do to stop it.
you know I keep thinking about Weimar Republic....and Zimbabwe...would Zimbabwe be better off if they had been IMF'd...I don't think so, they declared jubilee by printing.
The other thing about Weimar...I read somewhere that they did not print enough to cause that but instead it was massive shorting by foreigners that did them in....
Once debt bubble formed...what is best way out for regular folks? (I guess the answer is the opposite of whatever our leaders do)
"On currencies, the impact on the trade-weighed EUR of a more restrictive fiscal policy and easy monetary stance is unclear"
Not unclear to me. Restrictive Fiscal Policy, Easy Monetary Policy in Europe. Loose Fiscal Policy/Beginnings of tighter mnetary policy in the US (Bennie Mae has suspended mortgage purches etc).
Weaker Euro is the conclusion ( After Sarkozy has his fun screwing with the hedge funds for a day or so).
"These conditional contingent liabilities tying EMU sovereigns will not appear under the Maastricht deficit and debt measures."
Isn't this the same as 'raising the debt ceiling'?
Yup. Exact same thing.
Actually more like an 'off balance sheet' unfunded liability. So you see, it doesn't really count.
"conditional contingent"
how do you condition a contingency?
Ahhhh.. Folks within the defense establishment have made careers outta that lump of ear wax.
There's a lot to be made in the big crash that will inevitably follow this bailout...but after the money is made will it be accessible from trading accounts?
Tyler, you said don't trade & don't keep in bank - got that. For clarity, are you anticipating that this is going to be the Last Big Crash? What are other traders doing? I'm new to the scene and would really love to hear. Anyone else just keeping the bare minimum in the account, withdrawing early and often, and keeping the trades small b/c of that? Or instead letting the account grow big, in order to make big trades, bigger profits from the volatility?
(Me, I'm keeping everything really small...passing up the chance of doing well out of this, in order to keep buying bits of gold and if they close the account after a big crash, then we wouldn't lose too much.)
The only difference in character between a wealthy man and a poor one is to be found in the size of their bets.
That's great advice to hear, and pithy too. I've never had to 'trade through' a crash & subsequent bounce before, especially not where we're this close to the Big One.
ETA: Wait. That means keep the bets small, right? I just realised that could be taken TWO WAYS...and now I'm not sure which it is! (Confirmation bias, interpret it as continue doing what I'm already doing...)
" The less ya bet, the more ya lose, when ya win" Al Happel 1974
What's the difference between a gambler and a large pizza?
The large pie can feed a family of four.
Fortes fortuna adiuvat.
renfield, i don't think you are completely serious but if you are taking trading advice off a blog from people you don't know you are very likely to lose money.......especially ZH
No worries, Aussie, big difference btwn hearing and taking! :-)
I'm still new to trading, so I like to hear from those with more experience...it's more information to weigh.
What we've been doing has been working quite well so far, and that's b/c we do nothing long-term, and nothing sizable at all. So we've built it up tiny bit by tiny bit, and heaps of withdrawals. We take little rides on the big red & green candles, and win or lose are not in for long. It allowed us to make a little profit off the big crash, a little off this bankster bounce, and not committing to anything much. (We were not among those who made 1/2 million bucks off the crash. We made, like, a few thousand. That's how small-time we are, and how small-time we'll be staying. We are unable to lose much!)
Nevertheless, despite that what we're doing is working so far, I like to collect opinions. To me, the key to good research is collecting as much information as possible, from as many different sources, to give me more to consider (without necessarily believing any one source...) I don't really consider the source so much as seeing how various opinions square with my own logic. :-)
Hell, even Goldman Sachs might advise something that seems logical and correct to me. Just trying to learn as much as possible from as many as possible...I really enjoy getting opinions, b/c sometimes in those there's some good advice.
If you are "new" to trading you will get creamed, regardless. My advice to you is to stay out of the market. You will eventually lose, guaranteed. focus on getting some gold and silver.
Good advice, must agree with it. Good to see you back on the boards Renfield, always a pleasure.
Renfield, you seem to be making a lot of sense whenever I see your comments.
Keeping your trades small, buying gold, soliciting advice from lots of sources and taking money out of the banks all make a lot of sense to me.
I am a lousy trader, so have given that up. I am long Au, Ag, Pt, Pd and Pb (the Pb that can move very fast).
I am not Chumbawamba nor Gordon_Gecko, but I am an Asian rolling bearing.
Reflation at all costs. This is an opportunity for a country to create a gold backed currency.
China is doing just that, but very discreetly, or not so discreetly to an wide open eye. 1) No more exporting gold 2) Strongly encourage 1.4 Billion people to LOAD UP on gold 3) Without causing any ripples, continue to increase gold reserves like they did from 2003 (76% increase in their reserves) through 2009. 4) I bet when China says it has 1,000 tons, then you would find it in their vaults as stated. In the west you would need to calculate just how many people can lay claim to each single ounce of gold, 10?, 20? 65?
People are always talking about what the, 'Smart Money,' is doing on Wall Street. If you step back and take in the big picture, I think you have to believe most of the money in the West, is 'stupid money.' This morning it got a Trillion times stupider. That can't last.
Hunter, two things:
1) I think you're completely correct, as what you've commented squares with everything I've read on the big picture vis-a-vis China; and
2) Whoever flagged you without refuting you is a nibblenuts.
Glad you mentioned China.
The events of the last 24 hours illustrate that if everyone buys into an idea (or myth), then rules can be set, and life can proceed apace. Until consensus is lost.
The Western financial community has just floated a new idea (actually, a derivative of older ideas which haven't always worked as well as hoped), and set some new rules. And for the time being, everyone has breathed a sigh of relief, and life can proceed apace.
Until, perhaps, enough people with control of resources (energy, industrial, military, etc.) refuse to play by the rules, and announce, "Look, we have a new idea -- a better idea -- so let's play by my rules for a change."
Time will tell.
It's OK if the Dow goes up 1000 points in one day.
Yeah, no problem there.
UK next, most likely? Gird your loins, Dave.
JCT is already preparing his testimony:
"it was not my fault"
What is the SNB doing in all this? Will the CHF follow the EUR or stop supporting?
Yep, now that all private and public debt appears backstopped, the only thing left is to pay the installments each month - oh, that will be a bitch, and the kneecaps in the form of austerity measures can be real painful, too...
Well, better then whole countries held hostage to international financial speculators acting Tony Soprano.
Only public debt is backstopped, and private debt that threatens the banks. Austerity and slow death for the middle classes, endless free money for the banks. The theme is now transparent.
Argentina all over again.
Our old friend 'providing liquidity'. This has to be eyewash for the German supreme court and the ECJ, right?
Second, what will the announced sterilisation really mean for the policy's impact on inflation and the currency?
Fuckin' Brats
"the parents have promised to bail their wayward children out of jail. And they think that the children will respond overnight with gratitude and with a fundamental change of behavior. Does that ever actually happen?"
http://blogs.reuters.com/felix-salmon/2010/05/10/the-eu-bailout-too-much...
Wow, great summary. Thanks for the link!
So...hands up anyone who thinks the Greek citizens, or anyone else, is going to accept the austerity making any payments on this bigass loan is going to bring.
What's to keep Greece from defaulting anyway, when the first attempt at austerity fails? That's what I'd do if I were in charge there...
You know, Ren, my ex would not (and still does not) accept the forced austerity of job losses, pay cuts, and kids aging out of child support requirements. I don't see why the Greeks will be any different.
Sadly, human nature and greed just don't seem constrained by borders. I keep telling my family that we're truly living through historic times, but I'm not happy about it one bit. I'd much rather be frittering away the years in relative quietude.
Right there with you Max...
To be honest, I'm not sure that us civilian populations *should* constrain our greed in this case...the austerity in my view is completely unnecessary. I don't think it would even be an issue if our governments were less corrupt.
As it is, it's looking more and more to me that a revolution in some (large & 'important') 'western' nation is becoming necessary. Only question is to me is, which one, and what happens in the others after some government falls?
My view of this whole thing is a bit of a walk on the wild side:
Option 1: The Big Crash, when it becomes clear that none of this bankster bailout will ever be paid back, and probably not even the first payment.
Option 2: Hyperinflation, as the bailout becomes bigger and bigger and more & more global.
Option 3: A revolution somewhere, leading to a government fall in that place, a bank holiday, and a revalued currency.
I think China is preparing a big currency surprise. I think it will be in co-operation with the Middle East and Russia. But I do not think it is anywhere near ready yet, and until it is they will just lay low.
Well, those are my theories anyway....
And I'm right there with YOU. I cannot envision any realistic scenario that won't involve one of the options (and perhaps other worse ones, or a combination thereof) you enumerate.
Having lived in SE Asia for a couple of years now, I can only say that the Asian mind bears little resemblance to our own. It's one thing to read about, but quite another to experience first-hand. While we've assimilated as well as can be expected, we'll always be foreign to them, and the reverse is also true. So, it's difficult to imagine the machinations that have likely been taking place inside the Great Wall. I think we're in for all sorts of surprises.
I keep telling my family that we're truly living through historic times, but I'm not happy about it one bit. I'd much rather be frittering away the years in relative quietude.
I look at this differently. While I recognize the obvious danger, I see this as the best chance for liberation we are likely to get. I intend to make the most of it.
I agree completely. This is an opportunity to maybe finally fix a problem not kick the can down the road like we have been doing for years. And while it might get really bad maybe by the time my kids grow up the world and more importantly the US will be a better place to live.
MYFRIENDMISES,
Yeah, agreed, as long as we can hang onto our Constitution....and BOR's.
Rahm E, is talking about taking away our MIRANDA RIGHTS.
This, if done, will end VERY badly.
+1 This is the tragic pain before the venerable gain.
Liberation. And if that doesn't work, try not to get kicked down a notch.
Damn skippy
Thanks for sharing a very interesting read.
The sovereign Minsky moment is upon us...
Best call or description yet. And the problem is the Euros are willing to surrender their sovereignty to save a bunch of bankrupt banana republics.
Bunds down almost 2 points this morning, Gilts down 1 point. Not condusive to `green shoots`. The risk of going straight to mega inflation just got bigger in my view. I take the point that a crisis of confidence could overwhelm markets and cause a bank run. But the banks will surely just be filled up again with freshly printed fiat. I am buying physical silver today.
Eurozone GDP combined is about 8.5 trillion euros so even one trillion euro loan is about two months worth of production. So according to Americans this is all out monetizing when it is clearly not.
In other news the President selected his Supreme Court nominee whom I am sure will be confirmed swiftly. If you were going to construct an Obama nominee from scratch this is exactly what they would look like. Oh and she took $10,000 from Goldman also.
http://en.wikipedia.org/wiki/Elena_Kagan
The PIIGS Are Flying!http://www.businessinsider.com/who-cares-about-moral-hazard-european-sto...
if we are in for a financial meltdown of the proportions where i need to build an underground bunker to survive - best you shoot me right now... or i'll shoot myself when the time comes.
in the meantime i'm going to trade what i see... and keep my money in the bank... where it will as worthless as it would be in my pocket...
In your pocket, it's little pieces of paper, but in the bank, it's ummm electrons. Since there is far more money as electrons than as pieces of paper, if the system does crash, they will still be worth something.
you are right there! since i've lived in zimbabwe during the good old 1000% inflation days... i can tell you - you can find a lot of use for little pieces of paper... not all of them involving a toilet mind you!
you Lie sodaboy - toilet paper was (and is still) one of life's luxuries in that appalling country. I have uncles and aunts who have no power no diesel no flouror sugar but they would give an arm and a leg for toilet paper (over newspaper),soap and tooth paste (over the salt they use now).
Coming to a country near you soon !
When you talk with German ladies who survived WWII, the thing they missed the most during the war was soap, hands down.
http://www.24hgold.com/english/news-gold-silver-100-items-that-disappear...
Nine fifty five. I guess they didn't want to use the T word. That should get them another month, maybe through the summer.
I hate when people use the PIIGS acronym...
Can't wait for Canada USA Nicaragua Trinidad&Tobago and Singapore to default at the same time... then we can form a nice little ancronym for them too!
LOL! Not only is ZH such a 'splendid' source of information on the now inevitable financial apocalypse. I have never seen a more 'witty' bunch on a blog! On the bright side, after the collapse, we can all look forward to much better music than the cr@p dished out today. This seems appropriate: http://www.youtube.com/watch?v=O4o8TeqKhgY
Ah, the boombox. Real men bore analog on their shoulders
I think GIPSI has a better ring to it. Perhaps the US, the UK and Canada will all be lumped together under the acronym, CANUSUK?
LOL
whats everybody gettin all excited about, its only paper, what harm can it do??
Dow futures up 400 pts. We do live in the world where big numbers mean nothing.
CAC/40 up 8% http://www.google.com/finance?q=INDEXEURO:.FCHI
FTSE/100 up 5% http://www.google.com/finance?q=INDEXFTSE:.FTSE
PS how do I make these real links?
You have to disable rich text. Then you can use html code.
There were a bunch of climax runs in individual US stocks several weeks back. Thought at that point that trouble was much closer at hand. Wonder if we get the "mother of all climax runs" this week...
Bail out? Not yet.
That is a fund in case bail outs have to be performed. An apparatus to scare speculators out of their position.
Lets see if speculators will hold the line to test the resolve and the actual capability of a bail out but up to now, not a bail out.
That Was Quick
After retracing tonight 78.6% of its recent weeklong decline, Euro futures are now falling again and are set to break 1.30. I guess a trillion bucks doesn't get you much these days.
After years in 'Compensation' the secret is not to use round numbers, like $500 Billion euros, better to say, ECB approves $498.532 billion euros. People never doubt that many decimal places - ask any Actuary - KFC, "Keep-it Fuckin' Complex".
My $0.02:
If the fall lasts. No way New York doesn't give it another bounce, at least at first...this is partly Bermonkey's baby too, no way he doesn't get some mileage out of it.
London's letting it slide a bit just to give New York room to lift. It's the same thing that Frankfurt did prior to London, and Tokyo before that.
I reckon we won't see any real fall until *at least* after New York has been open for awhile.
It's always fun to guess, isn't it.
The world's Central Bankers is made of a group of sociopath pyrotechnics. I'm looking forward to this climax. Maybe they can incorporate the faces of the many stars which will make history for all the wrong reasons in their fireworks display. I can only hope it is not a mushroom cloud at the end.
When this all collapse, I can see the politicians lining up saying nothing illegal was done. No harm no foul.
Since poloiticians talk through their assholes you will only hear crap
Um, they'll probably be running for their lives at that point, no explanations needed.
The former Nazis said the same thing at the The Hague. Nothing they did was illegal, either, but it damn sure was still a crime against humanity.
Better not start thinking about how many people committed crimes against humanity, but never were put to trial...
Unless you believe the US is somehow genetically different to Europe - I think it would be logical to assume the same behavior from the European PIGS after a bailout as the US pigs ( homeowners) after their bailout. Scam the system, stop paying your mortgage and just squat in your "home", get te govt to forgive your debts, run up your credit cards etc etc.
Why would anyone expect anything else?
So what happens when those who rotated into treasuries last week follow the crowd back into an equities short squeeze? Just shift the problem and the attacks to the next currency.
Massive short squeeze, a few days of sideways trading, then a collapse when traders see it won't work.
The pendulum always swings till it breaks down.
Just a trillion to tide over the EU and patch a few holes here and there.
US 1 Eurozone 1 in trillion dollar financial repairs.
Japan? They've been at this for years.
Inflation? The only things I can think of that are going down in price are houses and some consumer electronics. Food, energy, cars, rent, movie tickets, all going up.
Altho I got some awesome 2 for 1 deals on Ritz crackers this weekend at the grocery store.
If prices continue to creep up and salaries or governernt checks do not go up as much (which they're not), we have a declining standard of living on our hands, which we do.
Even people with money are being punished with 0% interest rates and ultra-low bond yields.
The ultimate suckers globally are those who are working in technically difficult , creative jobs and getting paid in this confetti that is created from thin air in the trillions . Suckers or heroes.
We are in early 2008 all over again. When the sub prime crisis hit in late 2007 the Federal Reserve started to inject liquidity in to the system and slash interest rates. The immediate response of markets was to sell the dollar and take commodity prices to the moon, with oil hitting 147 dollars a barrel. At some stage, the central planners where worried about the rising food prices and the fed stopped slashing interest rates and the ECB even raised them a bit. The lack of liquidity caused the markets to collapse in late 2008. Only when the FED resumed the money printing, this in much larger scale did markets recover with oil hitting 86 dollars a barrel. Since the 31st of March 2010 the FED stopped printing money the lack of liquidity caused the dollar to strengthen and brought a liquidity crunch in Europe. The ECB has taken the FED's place with steroids. It is now buying not only AAA paper like the FED did it is buying junk bond in Greece and across Europe. This effectively will turn the euro in to the Drachma. Today the short Euro+ stocks is reversing and the Euro is rising as a result. But that will not change the big picture- If the ECB continues to print money like crazy the Euro will crash and commodities will go throw the roof. At some stage the ECB will be forced to stop and then the Euro will fall apart.
Source:
The Euro Crisis and the Euro Collapse- The ECB has decided to turn the Euro into the Drachma
All I know is the second bottle Jack Daniels never thrills as much as the first bottle.
A Trillion Fiats injected into the system probably does not have the same effect as a Trillion Fiats did in 2008. Moreover the Euro - crats lack the ability to create drama and soap opera - unlike the bennie Mae/Paulson show with dramatic late night showdowns with congress critters and what not.
An SPV huh. The Enronisation of the EU
Exactly. Enron is the new paradigm.
EU/FED/IMF did what was "right" per the playbook. They are fighting the credit bifurcation that Irving Fisher described so brilliantly in "The Debt-Deflation Theory of Great Depressions". They have successfully created the unicredit world (see PIMCO's description).
Now watch out for the interest rate on the 10 Yr Treasury. Nearly the entire Western World is backstopped directly, indirectly, or through the proxies of the US Gov/Fed. US Debt roll will no longer benefit from flight to quality prompted by EuroZone contagion. QE1.0 ended in March.
July earnings season should be strong; I suspect corp outlooks will be bright if cautious.
Has anyone read anything on how the Fed will fund the currency swaps? Will they expand their balance sheet again?
Planning to get long TBT today.
Welcome to the f'ing twilight zone; euro rallies as the EU announces "full blown monetization."
No; it's a retrace.
The selling last week was on a euro collapse instead of a managed slide.
Gold and other commodities will lose ground but then they will inexorably march upward until real costs (especially in oil) make THAT time's debt loads unserviceable then we repeat the crisis phase.
Yeah all these central planners print Fiats and hand them to their bankster buddies. The horror. Maybe I should go on strike. If I had any useful skills that anyone would miss - i would go on strike!
So its approx. $1 Trillion to temporarily bail out Europe. Of course this is only the start for them. How about the United States. Many of the U.S states such as California are bankrupt. The focus just shifted back over here. Count on Bernake priniting another $3 trillion-5 trillion to fix the domestic problem. The problem just shifts a few years down the line but you can definitely count on one thing and thats INFLATION.
Buy as much gold and silver as you can , while you can, because the day will come in a year or two where you will not be able to find it anywhere.
I would highly suggest also loading your portfolios up on agriculture plays.
If I were bailout-less California, Michigan, or Illinois, I'd be pretty ticked off about this...
this is a gigantic scam, the biggest ponzi scheme ever since the tulip mania..
they will prop up the equity markets at all costs until the law of nature finally kicks in and all hell will break loose...
S&P 200 by 2012
+1. IBGYBG. The banks and the governments are one. The scheme had to be propped up. But I think war will happen before the S&P goes to 200.
I would be willin to forgive all of the transgressions of the central planners if they would get rid of the tax code. I mean why the charade of paying taxes - just print up as much as you want - really .
my thought too, if you can print money to bailout, why not print money for the things taxes pay for...defense, social safety net, roads/technology infrastructure, research etc.,,there is never enough money for these things (well, I guess there is for war, but even that they never get all the armor etc they want) but when it comes to bailing out banks, then they have money to infinity.
If you will inflate money supply to pay for things, let us, not the banks, benefit from that in the form of now not needing taxes. I like Ellen H Brown's idea on this...
There is a SIMPLE way out of this entire mess, IF Congress would just do it.
Take back the ability to SET the value of US Monies, from the Fed...........
WHY, do we have to GET our currency/money, from them, and pay interest on something with NO VALUE,except the ink, and paper?.
Congress, could make ONE COIN / BILL, with the amount of DEBT we have, imprint ALL Debt we have on it , and state PAID in FULL.
Congress gave UP their responsibility to take care/set values, of the money system..........they can also take it back.
RESET BITCHEZZ
EUROPE PREPARES TO TAKE IT'S AUSTERITY MEDS:
http://williambanzai7.blogspot.com/2010/05/europe-prepares-to-take-its-a...
My new slogan " No Mo Taxes - Print It Instead" . Iam Bennie Mae and I approve of this crap.
We know Americans have been doing it tough while we've been feeding at the trough, so we here at Government (Sachs) would like to make a Promise With America(tm). Read our ink-stained lips "No new taxes." We'll just print it all instead, trust us, nothing could go wrong.
I'm a giant vampire squid, and I endorse this message.
Banks say, "no more defaults, print it instead, we must have profits"