The entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.
A Full Analysis and Step-by-Step Guide for EU Area Residents To Aid In Escaping the Upcoming Bank Bail-ins & Capital ControlsSubmitted by Reggie Middleton on 04/18/2015 12:21 -0400
This may take you the entire weekend to digest, but if you are an unsecured creditor/lender (have a checking, savings or demand deposit account) to a euro zone bank, I would consider it your fiduciary responsibility to yourself to sit down and parse this piece with care and aplomb!
Today, to our dismay, we find that the ECB has not only considered a "parallel currency" alterantive but for Greece this may be a reality before long. According to Reuters, the ECB "has analyzed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual second currency within the euro bloc, people with knowledge of the exercise told Reuters." "The fact is we are not seeing any progress... So we have to look at these scenarios."
Sentiment in general remains poor and all the focus is on gold's weakness in dollar terms, despite gold's strong gains in euro terms in 2014 and so far in 2015. Poor sentiment is of course bullish from a contrarian perspective and suggests all the froth has been washed out of the gold market.
Greek FinMin Varoufakis is meeting sovereign debt lawyer Lee Buchheit today, the ‘fairy godmother to finance ministers in distress’... The big questions concern not just the difference between on the one hand, economic issues and on the other, political ones. Syriza doesn’t have the mandate to take Greece out of the eurozone. That is a huge point. But neither does it have the mandate to give in to the troika’s insistence on pensions cuts. At a certain moment, it may come down to what can be explained to the Greek people, and how well it can be explained. This explanation will almost certainly have to come after the fact, since holding a referendum pre-Grexit would carry far too much potential risk of uncontrolled demolition of the entire Greek economy and banking system.
- 2010: The first full year of the recovery was a growth recession with a collapse in inventories (after the restocking was complete), and continued private sector deleveraging.
- 2011: There were a series of events, including the Japanese tsunami, spike in oil prices and US debt downgrade by S&P.
- 2012: The crisis in the Eurozone intensified with concerns over a Greek exit and a breakup of the Eurozone. The policy response abroad was lackluster and there were concerns of another financial crisis.
- 2013: The combination of the sequester, debt ceiling fight and government shutdown created an environment of heightened uncertainty and fiscal restraint.
- 2014: The polar vortex delayed economic activity and led to a permanent loss of growth.
- 2015: Rapid appreciation of the dollar and heightened uncertainty about the winners and losers from plunging oil prices has hurt growth. A small part of the weakness may be related to the weather and the dock strike.
IMF OFFICIAL: IMF'S GREEK ECONOMIC OUTLOOK NEEDS TO BE LOWERED
IMF MAY NEED NEW DEBT ANALYSIS ON GREECE, THOMSEN SAYS
A large number of European countries have effectively quarantined Greece in a bid to minimize the consequences on their credit systems in case of a Greek "accident." As ekathimerini reports, the actions are being taken in order to shield themselves and minimize the danger of contagion in case the negotiations between the Greek government and the eurozone do not bear fruit. This has sparked broad-based selling across global risk assets but particularly in Europe. Stocks from Germany to Spain are having their worst day of the year, European sovereign bond risk is exploding higher (contagion Mr. Schaeuble?), and Greek bank bonds and stocks are getting crushed.
- Fed Shies Away From June Rate Hike (Hilsenrath)
- Europe Stocks Fall Most in Three Weeks Amid Greece as Banks Drop (BBG)
- China Futures Tumble on Trust Curbs, Expansion of Short Selling (BBG)
- Oil slips below $64 as ample supplies weigh (Reuters)
- Fed officials lean all ways on rate hikes, data in focus (Reuters)
- Eurozone deflation eases in March (FT)
You know it's over when the bookies are closing their markets...
"Financial markets are treating the risks around Greek exit with too little regard for the probable dangers," UBS says. Put simply, bond yields don't matter, meaning that ECB-controlled sovereign spreads can't possibly be taken as a serious indicator when it comes to assessing the contagion risk from a possible Grexit. What matters are bank runs because to the degree depositors feel that redenomination risk is real, everything else goes out the window and the lines start to form at the doors of periphery banks.
Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016 that reveals a few things that haven’t gotten much attention to date. Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue. Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall.
To think it was just recently in September of last year when the S&P, seemingly unaware of the tragic reality facing Greece in just a few months (by reality we meen democratic elections which overthrew the previous regime which was merely a group of Troika picked technocrats), upgraded Greece to B and said "The upgrade reflects our view that risks to fiscal consolidation in Greece have abated." Well, the risks have unabated, and two months after S&P flipflopped and downgraded Greece back to B- on February 6, moments ago it downgraded it again, this time to triple hooks, aka the dreaded CCC+. But, as City AM reports, the biggest news is that the Greek Finance Minister "will on Friday meet with infamous sovereign debt lawyer Lee Buchheit, who has helped numerous countries restructure their debt. Buchheit is a partner at top US law firm Cleary Gottlieb."
Berlin is drawing up contingency plans as Germany prepares for an increasingly likely Greek default, Zeit reports. The new plan purportedly is designed to prop up the Greek banking sector in the event Athens misses a payment, but it's contingent upon the Syriza government acting less "taxi-driver-ish" at the reform negotiating table. In the event Greece will not cooperate, Germany is prepared to let them go but Brussels will help "facilitate" the transition to the drachma (that currency Goldman recently said the country "can't just print").
- China growth slowest in six years, more stimulus expected soon (Reuters)
- EU charges Google over shopping searches, to probe Android (Reuters)
- A Chinese Paradox: Slow Growth Is Good, Stock Bubbles Welcome (BBG)
- Draghi Seen Dispelling Duration Doubts About QE Program (BBG)
- IEA Sees OPEC Supply Jumping Most in Four Years on Saudi Surge (BBG)
- SEC Reaches Settlement with Former Freddie Mac (WSJ)
- Kerry says confident Obama can get final deal on Iran (Reuters)
- Regulators Call for Short-Term Loan Changes to Handle ‘Too-Big-to-Fail’ (WSJ)
- Florida Doctor Linked to Sen. Robert Menendez Indicted for Medicare Fraud (WSJ)