Eurozone

The Greek Drachma has made two mysterious appearances this week, suggesting that the EU is on the verge of forcing the Greek economy into the adoption of a parallel currency and while this week’s Drachma “sightings” might properly be called anecdotal, a report from Kathimerini and comments from deposed FinMin Yanis Varoufakis suggest redenomination rumors are not entirely unfounded. Now, with the ECB set to cut Greek banks off from the ELA lifeline on Monday morning in the absence of a deal, some businesses are mitigating the liquidity shortage by accepting foreign currency.

Facing pressure from all sides, Greek PM Alexis Tsipras sells out voters and looks to push concessions through parliament ahead of Sunday deadline.

In short… the two biggest reasons for the markets to be rallying today (Greece and China) are simply temporary issues. They will resolve, very likely for the worse, in the coming weeks. Smart investors should be using this bounce to prepare for the next wave of the Crisis.

Greece has already collapsed, and the only real question is whether the ECB will give Greek depositors time to withdraw some of the €120 billion in deposits it holds hostage with the frozen ELA, or if the ECB will admit the truth about the Greek insolvent banking system risking Eurozone contagion. A better question is just what is the purpose of the IMF whose intervention in Greece can be described in one word: disaster. It can also be described in eleven, as the creator of the Taylor Rule, John Taylor, has done in a blog post which can be summarized as follows: IMF Loans To Greece Bailed Out Banks And Worsened The Situation.

The global and European economies are increasingly dominated by bureaucrats taking arbitrary decisions on capital allocation, with little regard for rules or process. The decisions of the ECB to reject the applications of the Bank of Greece for additional funding under ELA could have only been politically motivated, and therefore in clear violation of the ECB’s independence as enshrined in Article 123 TFEU. It is time for EU bureaucrats to stop acting as autocrats.

The Fed’s Stanley Fischer has said that the U.S. was preparing such legislation – after Tucker had indicated that such legislation was in place. The EU is also at an advanced stage in forcing countries to ratify bail-in legislation. The legislation is being devised to protect the larger banks against the interest of both depositors, taxpayers and the wider economy.

This much-needed re-set to an economy that serves the many rather than the few is what the Powers That Be are so fearful of. On the surface, everything still looks remarkably stable in the core industrial economies.  But surface stability is all the status quo can manage at this point, because the machine is shaking itself to pieces just maintaining the brittle illusion of prosperity and order. In effect, the status quo has greatly increased the system's vulnerability, fragility and brittleness--the necessary conditions for catastrophic collapse--all in the name of maintaining a completely bogus facade of stability for a few more years.

Follows the full text of a letter Greek PM Tsipras send to the Troika: Commission President Juncker, ECB's Draghi, and the IMF's Lagarde regarding the latest Greek deal proposal. What is left unsaid: any debt haircut requests (recall just on Sunday night Tsipras requested a 30% debt haircut in line with the IMF's debt sustainability proposal), and any mention of the Greek referendum which Tsipras personally called two weeks ago to the day to reject precisely the proposal he is now presenting.

• Fed Chair Yellen To Speak As Global Tensions Rise (WSJ)
• Greek PM Tsipras seeks party backing after abrupt concessions (Reuters)
• France Hails Greek Aid Proposals as Germany Reserves Judgment (BBG)
• Greek PM says does not have mandate to exit eurozone (Reuters)
• France Intercedes on Greece’s Behalf to Try to Hold Eurozone Together (WSJ)
• Frozen Funds, Fleeing Tourists: Greek Startups Feel the Pinch (BBG)
• Doubts Simmer Despite China’s Gain (WSJ)

It's officially Groundhog day... and month... and year... and so on.

"Chirac and many others were appalled as I told them in 1998... joining the euro would exacerbate recession in some countries, and that some would find themselves 'trapped in a burning building with no exits' - a phrase that brought me a fair amount of controversy and abuse... I hope the eurozone leaders meeting today will remember that those of us who criticised the euro at its creation were correct in our forecasts. Otherwise they risk adding to the monumental errors of judgment, analysis and leadership made by their predecessors in 1998."

When the going gets tough, the taxed get going and that is what Nobel Prize winning economist Joseph Stiglitz thinks should happen. In a Time op-ed, Stiglitz warns (likely correctly) that if Greece continues with austerity, it would be depression without end; and so his solution is simple... "The U.S. was generous with Germany as we defeated it. Now, it is time for the U.S. to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika." Strawman much?

The Austrian School of economics has a concept called a “crack-up boom” in which a critical mass of people conclude that their government is actively trying to devalue its currency. Consumers respond by front-running the government, spending their paychecks immediately in order to convert their soon-to-be-less-valuable money into real things. Merchants, not happy about the sudden influx of suspect currency (and sensing the panic of their customers) hold out for ever-higher prices, causing inflation to spike. But it’s a special kind of inflation, driven not by a sudden increase in the money supply but by collapsing confidence among holders of the currency. In a very short time, so goes the theory, the supply of stuff available for purchase dries up, prices hyperinflate, and the economy collapses. Welcome, in other words, to Greece...

Greece's outspoken Energy Minister Panagiotis Lafazanis laid out the details for the country's pipeline project with Russia on Thursday and went out of his way to let PM Alexis Tsipras know that the referendum "no" vote is "not going to become a humiliating 'yes'".

The Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who was caught "maliciously shorting stocks", when everything suddenly took off, and the SHCOMP closed  a "Dramamine required" 5.8% higher, the biggest daily increase since March 2009! Stocks around the globe followed, with US equity futures wiping out much of yesterday's losses and up 1% at last check.