Finally serious economists are considering a position I have been maintaining and writing about since the 2008 financial meltdown. Whatever its name— erasure, repudiation, abolishment, cancellation, jubilee—debt forgiveness, will have to eventually emerge forefront in global efforts to solve an ongoing systemic financial crisis. Debt forgiveness, therefore, accomplishes two important things. It eliminates the increasing and outsized portion of productive enterprise to pay off unproductive obligations, and it clears the ground for new opportunities, new thinking, invention, and entrepreneurialism. This is why the ability to declare bankruptcy is so essential in the pursuit of both happiness and innovation.
- Worse than expected manufacturing PMI figures from core Eurozone countries dented risk-appetite
- Equities came under further pressure following news that Credit Agricole is removed from EuroSTOXX 50 Index, whereas Societe Generale, Intesa Sanpaolo and Unicredit are removed from STOXX Europe 50 Index
- Risk-aversion was enhanced following a lack-lustre 5-year bond auction from Spain
- The French/German spread continued to widen throughout the session partly on the back of weaker manufacturing PMI from France
- According to an article in FT, citing European source, the IMF has estimated European banks could face a capital shortfall of EUR 200bln. However, Eurozone officials strongly disagreed with the IMF’s analysis.
The IMF says Euro banks are severely undercapitalized, the EU says the IMF is full of it. Reggie says they're both so optimistic that the word disaster can't even be spelled correctly without someone in a marble office breaking out into hives...
Every now and then it is easy to forget that the one or two "better than expected" data points blasted by flashing headlines do nothing that merely mask what is an otherwise quite deplorable and deteriorating reality. For the disconnect between America and the rest of the world look no further than this chart showing the dramatic divergence between the DJIA, which has just gone positive for the year, and every other major global stock market. Yet for those who require a narrative to go with their numbers, here is The Economic Collapse with the latest of their traditionally comprehensive bulletins, this time summarizing the "25 signs that the financial world is about to hit the big red panic button."
Compare these two statements: first from Reuters- "Greece's debt has run out of control and government policies are failing to restore finances, an independent parliamentary committee of experts wrote in a report released on Wednesday." And second, from Bloomberg: "Greece’s debt is on a “durable declining path” and new projections will show that the second rescue program reduces net liabilities, European Union Economic and Monetary Commissioner Olli Rehn said." Sorry Europe: your credibility, whatever was left of it, just ran out. When the indirect object of your bail out effort (the direct one being naturally your central bank and your various local banking oligarchy of course) says in your face that you are full of excrement, it is time to put a fork in it.
Well the second Greek bailout lasted all of... 5 weeks. Time for Bailout #3?
- EC PRESIDENT BARROSO SAYS WORKING ON NEW GREEK PROGRAM
- BARROSO SAYS EC REVIEWING WITH ECB AND IMF GREEK FIN. ASSIST
In the meantime, we learn that while two broke Greek banks just merged to create a bigger broke bank, the country's 4th largest bank admitted to resorting to the last ditch liquidity program discussed on Zero Hedge a week ago.
QE 3 won’t solve this mess (assuming it even arrives). Neither will the European bailout fund. We’re already in the Second Round of the Great Crisis which will see the EU broken up, the US economy implode, and a market collapse that will make 2008 look like a joke.
- Canada GDP prints at -0.4% on expectations of 0.0%, first contraction since Q2, 2009
- Italy Living on Borrowed Time (WSJ)
- Choice for EU: Bail Out Greece or Bail Your Banks (WSJ)
- Economy Deeply Divides Fed (Fed Mouthpiece)
- SEC Lawyer Blew Whistle Before (WSJ)
- Noda promises action on surging yen (FT) ... again... always
- White House could unveil mortgage plan next week (Reuters)
- Greek Bailout Talks Face Hurdles (WSJ)
- Panama Canal upgrade sparks US ports battle (FT)
- Japan Finds Radiation Spread Over a Wide Area (WSJ)
- A German government spokesman said that the German cabinet has approved framework for a draft law on expanding the Eurozone rescue mechanism
- A French government spokeswoman said that France wants full application of a Eurozone agreement on Greece and no bilateral deals
- A German government draft mentioned that the EFSF will be allowed to recapitalise banks but only via national governments, which negated an earlier press report suggesting that the fund can lend to banks directly
- According to an Italian government source, the government is set to drop pension changes from its austerity package
- Strength was observed in CHF across the board as no comments emerged on curbing the currency's strength following the Swiss government's regular meeting
Selective Interpretation Of European Newsflow Demonstrates Ongoing QE3 Promise-Driven Risk On Confirmation BiasSubmitted by Tyler Durden on 08/31/2011 07:35 -0400
In yet another confirmation that absent some dramatic headlines which likely will not transpire due to all of Europe being on vacation, we will likely see another day of low volume levitation, is the over night split in action between stock futures and FX, which in turn demonstrates the selective interpretation of macro stories to validate any given cognitive bias. After dropping to overnight lows just above 1200, the futures are now preparing to print largely in the green following an overnight meltup driven, purportedly, by one single theme, namely that there is increasing German support of the EFSF after it was announced that that Germany's opposition Greens will approve new powers for the euro zone's bailout fund in a vote later in September, the party's parliamentary floor leader Juergen Trittin said on Wednesday. Per Reuters, Trittin was speaking after Chancellor Angela Merkel informed parliamentary floor leaders of the changes to the fund, which also supposedly would have bank recapitalization abilities, refuting all the rumors to the contrary from before. In other words, Europe has once again resorted to the old playbook where it floats one rumor then immediately turns around and refutes it to gauge market impact, as it did all though June and early July during the foreplay for the Second Greek Bailout. Yet ironically, while futures benefited from this, the EUR, which should be the biggest beneficiary of European stiblility actually fell substantially against Europe's safe haven currency, the CHF, on a 180 degree read of the just the same news flow. As Bloomberg explains, the CHF outperformed overnight in otherwise muted price action on concern regarding Germany’s willingness to expand EFSF commitment- bunds fall further after German cabinet backed measures to expand EFSF, allaying fears of further deterioration in Greece and Europe’s sovereign debt crisis and implying increased debt burden on Germany. On the other hand, Finnish reluctance to budge on the collateral issue then weighed down on the euro, negating all core risk transfer benefits.
That the European ponzi is leaps and bounds ahead of the US is well known: we have frequently succumbed to vertigo trying to chart just how interconnected Europe's financial system is at the current point where €1 in incremental capital is supposed to prop up a multi-trillion pyramid scheme. But the just released news from the Handeslblatt demonstrates that just when we thought we had seen it all, Europe once again manages to surprise us. As is by now well-known, Finland has proven to be quite a stick in the spokes of the joint-European can kicking exercise by, prudently, demanding collateral, or threatening to walk out of the second Greek bailout (that 1 year Greek bonds are trading at 60%+ yields is irrelevant). Well, here's the solution - give them collateral... in the form of insolvent Greek bank shares, which however will be "partially nationalized" as if that will suddenly push their value higher. Supposedly the Finns never clarified that the collateral has to have some liquidation "value." Oh well, better luck next time.
What's New In "Avoid Debt Destruction By Any Means" European Soap Opera Today? Additional Proof That Bank Failure's ImminentSubmitted by Reggie Middleton on 08/30/2011 10:17 -0400
Try, try, try as you might, you really cannot manipulate global markets on a sustainable basis. Italy, Portugal, Ireland and Greece are joining the ECB at the back of the class for a crash course in this lesson as I type this...
Bill Gross On "New Normal" Investing As A Failed Marriage: "What To Do When A Love Affair Goes Bad?"Submitted by Tyler Durden on 08/30/2011 08:49 -0400
- IASB criticises Greek debt writedowns (FT)
- ECB to reassess inflation risks (FT)
- Pimco's Gross rues US debt 'mistake' (FT)
- Trichet and Rehn defend Europe’s banks (FT)
- Japan Parliament Confirms Noda as Prime Minister (WSJ)
- Sino-Forest is Second Time Chan Loses Company (Bloomberg)
- US authorities assess hurricane’s aftermath (FT)
- Solar Purge Drives Weakest Into Buyouts (Bloomberg)
- Republicans to Unveil Bill to Force Major Changes at the UN (Bloomberg)