Greece

America's Deadliest And Poorest City Set To Disband Its Entire Police Force Over Budget Crisis

Gone: Camden police officers will lose their jobs at the end of the year when the department is disbanded

While the stock market in the US continues to surge (if not so much in China where the composite is back to 2009 lows) as the relentless liquidity tsunami makes its way into stocks, and other Fed frontrunning instruments, and only there, reality for everyone else refuses to wait. Last week we saw reality striking in Greece, where a section of Athens literally shut down after it ran out of all cash. Today, reality comes to the US, and specifically its poorest city, Camden, which is a twofer, doubling down also as America's deadliest city. It turns out Camden is about to become even deadliest-er, as its police force is set to be disbanded following a budget crisis in this effectively insolvent city.

Frontrunning: September 24

  • World on track for record food prices 'within a year' due to US drought (Telegraph)
  • Foxconn halts production at plant after mass brawl (BBC)
  • Germany Losing Patience With Spain as EU Warns on Crisis Effort (Bloomberg)
  • Fed Recovery Doubts Spur Investor Bid for Treasuries (Bloomberg)
  • Japan protests as Chinese ships enter disputed waters (Reuters)
  • In Shark-Infested Waters, Resolve of Two Giants Is Tested (NYT)
  • China jails Wang Lijun for 15 years (FT)
  • China closes in on Bo Xilai after jailing ex-police chief (Reuters)
  • European Leaders Struggle to Overcome Crisis Stalemate (Bloomberg)
  • Politicians 1: Austerity 0 - Portugal Gives Ground on Worker Contributions (WSJ)
  • Obama Controls Most of His Money as Republicans Have More (Bloomberg)
  • Coeure Says Not Clear That Further ECB Interest-Rate Cut Needed (Bloomberg)
  • France Seeks Labour Overhaul (WSJ)

Overnight Sentiment: 'Rumors Regurgitated, Refuted' Redux As German Economy Slips Again

The last time we saw a bevy of regurgitated European rumors shortly refuted was last Friday. Today we get a redux, following a hard push by none other than Spiegel (precisely as we predicted a month ago: "And now, time for Spiegel to cite "unnamed sources" that the EFSF is going to use 3-4x leverage") to imagine a world in which the ESM can be leveraged 4x to €2 trillion. This is merely a replay of last fall when Europe's deus ex for 2 months was clutching at a cobbled up superficial plan of 3-4x EFSF leverage, which ultimately proved futile. Why? Because, just like in 2011, one would need China in on this strategy as there is simply not enough endogenous leverage in either the US or Europe which would make this plan feasible. And China, we are sad to say, has a whole lot of its own problems to worry about right about now, than bailing out the shattered dream of a failed monetary unions still held by a few lifelong European bureaucrats, which this thing is all about. As expected, moments ago Germany refuted everything. Via Reuters: "Germany's finance ministry said on Monday that talk of the euro zone's permanent bailout fund being leveraged to 2 trillion euros via private sector involvement was not realistic, adding that any discussion of precise figures was "purely abstract." This also explains why we devoted precisely zero space to this latest leverage incarnation rumor yesterday: we were merely waiting for the refutation.

Greece Caught Underreporting Its Budget Deficit By Nearly 50%

There was a time about a year ago, before the second Greek bailout was formalized and the haircut on its domestic-law private sector bonds (first 50%, ultimately 80%, soon to be 100%) was yet to be documented, when it was in Greece's interest to misrepresent its economy as being worse than it was in reality. Things got so bad that the former head of the Greek Statistics Bureau Elstat, also a former IMF employee, faced life in prison if convicted of doing precisely this. A year later, the tables have turned, now that Germany is virtually convinced that Europe can pull a Lehman and let Greece leave the Eurozone, and is merely looking for a pretext to sever all ties with the country, whose only benefit for Europe is to be a seller of islands at Blue Aegean water Special prices to assorted Goldman bankers (at least until it renationalizes them back in a few short years). So a year later we are back to a more normal data fudging dynamic, one in which Greece, whose July unemployment soared by one whole percentage point, will do everything in its power to underrepresent its soaring budget deficit. Case in point, on Friday the Finance Ministry proudly announced its budget deficit for the first eight months was "just" €12.5 billion, versus a target of €15.2 billion, leading some to wonder how it was possible that a country that has suffered terminal economic collapse, and in which the tax collectors have now joined everyone in striking and thus not collecting any tax revenue, could have a better than expected budget deficit. Turns out the answer was quite simple. According to Spiegel, Greece was lying about everything all along, and instead of a €12.5 billion deficit, the real revenue shortfall is nearly double this, or €20 billion, a number which will hardly incentivize anyone in Germany to give Greece the benefit of another delay, let along a third bailout as is now speculated.

From Complacency To Crisis Around The World

We have discussed the CRIC cycle a number of times - especially with regards Europe - but it seems the never-ending story of Crisis-Response-Improvement-Complacency has struck once again as Morgan Stanley notes when complacency becomes pervasive, it usually gives way to a renewed crisis. Complacent financial markets appear to be looking through the fact that the global economy remains stuck in a 'twilight zone' between expansion and recession. Dismissing weak PMIs in China and EU, markets have feasted in QEternity and OMT and this has, as expected, affected European policy-makers (e.g. ongoing disagreements over the details of the much-anticipated negative-feedback-loop-breaking banking union; and Spain/Italy's 'belief' they can avoid an ESM 'austerity' program). This feels eerily like the March/April period when post-LTRO improvements induced euphoria in traders and governments/ECB to relax prematurely and as Brevan Howard explains below - every major developed economy is facing significant downside risks - no matter how enthusiastic markets appear to be.

Former ECB Chief Economist Says ECB Is In Panic, As Czech President Warns The End Of Democracy Is Imminent

If anyone thought the bad blood between Germany and the rest of the insolvent proletariat, aka the part of the Eurozone which is out of money (most of it), and which has been now confirmed will be supporting Obama (one wonders what the quid for that particular quo is, although we are certain we will find out as soon as December), complete collapse of the Greek neo-vassal state of the globalist agenda notwithstanding, had gone away, here comes former ECB chief economist Juergen Stark to dispel such illusions. In an interview with Austrian Die Presse, the former banker said what everyone without a PhD understands quite well: "The break came in 2010. Until then everything went well..."Then the ECB began to take on a new role, to fall into panic.... Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally. "It can't be solved by pressing a button. If the global economy stabilises, the potential for inflation has grown enormously... It gave in to outside pressure ... pressure from outside Europe" Why, whichever bank headquartered at 200 West, NY, NY might he be referring to?

IceCap Asset Management: Three Days That Shook The World, And The Law Of Diminishing Returns

Let’s review the tricks the central banks & governments have available to beat back any financial challenges presented by the debt reaper.

  • Money tool # 1 = deficit spending. For years, the G7 countries have believed that spending more than you make, will create jobs and prosperity. To measure the success of this strategy, we invite you to hang out in Spain, Greece or Italy.
  • Money tool # 2 = cut interest rates to 0%. All the really smart people in the World know that lower interest rates encourage people and companies to borrow more money and spend this money. To measure the success of this strategy, we invite you to hang out at the US Federal Reserve and help them count the $1.5 trillion in excess money held by the big banks.
  • Money tool # 3 = when all else fails print money. Everyone knows by now the reason the Great Depression was great was because no one had the idea to print money to kick start the economy. To measure the success of this strategy, we definitely do not invite you to visit Japan. The Japanese have been printing money for over 10 years and that hasn’t shaken their economy from its funk one bit.

As we enter the always dangerous months of September and October, central bankers and governments just can’t get their heads around the fact that their cherished money tools are not shaking the World. Never one to quit, someone somewhere muttered “we must do something” – and something they did.

"What's Next?": Simon Johnson Explains The Doomsday Cycle

There is a common problem underlying the economic troubles of Europe, Japan, and the US: the symbiotic relationship between politicians who heed narrow interests and the growth of a financial sector that has become increasingly opaque (Igan and Mishra 2011). Bailouts have encouraged reckless behaviour in the financial sector, which builds up further risks – and will lead to another round of shocks, collapses, and bailouts. This is what Simon Johnson and Peter Boone have called the ‘doomsday cycle’. The continuing crisis in the Eurozone merely buys time for Japan and the US. Investors are seeking refuge in these two countries only because the dangers are most imminent in the Eurozone. Will these countries take this time to fix their underlying fiscal and financial problems? That seems unlikely. The nature of ‘irresponsible growth’ is different in each country and region – but it is similarly unsustainable and it is still growing. There are more crises to come and they are likely to be worse than the last one.

Burkhardt's picture

Europe’s new mantra has become that of “why just one”? Spain is returning to the table asking for yet another bailout. Of course you will hear the cries of conditions this, targets that… With rampant unemployment and an untenable political position, expect Rajoy to nod his head in acquiescence to the ECB while at the same time ignoring his pledge the very next minute.

PIIGS In America: Is Illinois Preparing To Request A Federal Bailout?

Moments ago we saw the following amusing headline crossing the BBG:

ILLINOIS TEACHERS' PENSION FUND CUTS RATE OF RETURN TO 8% FROM 8.5%

It's amusing because these are the same teachers who were demanding, and received, higher pay - 17% higher over four years in fact - following a several day strike. It is even more amusing considering that in a fiscal year in which we saw QE2, Operation Twist 1 and 2, and LTRO 1 and 2, the nation's largest pension fund, Calpers, managed to eek out a measly 1% gain (and this is including the end of June surge following the then announced European bailout which turned out to be yet another dud). It is, however sadly, most amusing, because it may be a harbinger of something truly sad: the advent of the "PIIG bailout" to America, when a US state demands a Federal bailout. We have seen how eager Europe has been to bailout its insolvent nations. We are next about to see just how "united" the US is when its own solidarity is tested as state after state repeat the European bailout experience. But hey: at least we have the dollar so all should be well.

AVFMS's picture

So after 2 hell of positive weeks with fairy dust sprinkled by the CBU (Central Banks United), things seem a little out of breath here.

Post-Central Bank intervention depression, so to speak, as the question on everyone’s mind is “What’s next?

Add to that soured geopolitics that stirred spirits in Asia, MENA and to some extend in regional Spain.

Europe Finally Comes Out: Obama's Reelection "Uber Alles" Determines Europe's Future

For those to whom this comes as a surprise, following the periodic jaunts of Tim Geithner to Europe explaining just what is truly important in life, not to mention Obama's daily phone calls to Mario Monti, we feel truly sorry:

  • "Obama doesn't want anything on a macroeconomic scale that is going to rock the global economy before Nov. 6," a senior EU official told
  • "As far as European leaders are concerned, they don't want Romney, so they're probably willing to do anything to help Obama's chances," said the source, an EU official involved in finding solutions to the debt crisis.

One kinda wonders: just what has Obama promised a broke Europe in return? Don't answer: it's rhetorical. It's also "fair."