Even as Italian bonds surged on hopes that the $40 billion Italian austerity plan (putting this to scale, $400 billion in Italian debt has to be refinanced in the next 12 months) proposed by Monti which is supposed to lower the nation's debt load (putting this to scale, Italy has €1.9 trillion in debt), coupled with expectations that this time (we lost track of which one this actually is) the European summit on December 9 will actually achieve something, the liquidity situation, and not just any liquidity but EUR-funded liquidity (the one that the Fed can do nothing to help by lowering the OIS swap rate) deteriorated massively overnight, as European banks deposited a whopping €20 billion in additional cash with the ECB despite the coordinate central bank intervention yesterday. Total deposits are now at €333 billion, just €50 billion short of the all time high hit in June 2010 when Greece failed for the first time and there was no clarity that the Bernanke Put had gone global, implying the need for an eventual Mars bail out. And confirming that the liquidity crunch is now shifting to the local currency, another €7 billion was borrowed from the punitive Marginal Lending Facility. So now what we have is a liquidity crisis that has been confirmed to not be only USD-based but also EUR. Congratulations Fed. Yet since the market is slow in understanding complex things it is surging, as it looks at Italian bonds which as noted earlier are soaring on nothing but hope, it will take a little before this filters to all the right places.
Classified documents surfaced in Germany that predicted a dire future for Afghanistan after the departure of NATO troops.
With the European End Game now in sight, the primary question that needs to be addressed is whether Europe will opt for a period of massive deflation, massive inflation, or deflation followed by inflation.
As every major developed economy hits Bass's Keynesian Endgame, the status quo is set to change dramatically. Nowhere is this climax playing out louder than in Europe and the implicit solution of Germany-uber-alles (while seemingly inevitable though nevertheless lengthy in execution) is likely to not sit well with many of the EMU nations. To wit, The Telegraph today reports that Britain's Foreign Office is advising its overseas embassies to draw up plans to help expats should the collapse of the Euro turn explosive. Almost incredibly, a senior minister has revealed that Britain is now planning on the basis that a euro collapse is matter of time.
Instead Of Relenting To Demands To Let ECB Print, Germany Is Preparing To Kick Countries Out Of EurozoneSubmitted by Tyler Durden on 11/18/2011 10:01 -0500
It's official - Germany has become just like China (or, rather, has always been like it): the more it is pushed to do something (let ECB print), the more it will do the opposite. Half a year ago we discussed that the weakest point of the European bailout language was its reliance on Collective Action Clauses which imply that any resolution which does not have 100% backing of all bondholders would potentially push a country into default. In essence, this took control out of the hands of the Eurozone head, Germany, and put it to the bondholders. Well, according to a preliminary draft released by the Telegraph and FT, as part of the new bailout 'indenture' contained in the ESM, "under a section headed “The establishment of a procedure for an orderly default as part of the ESM”, Berlin makes clear that countries which are deemed to be insolvent – rather than just suffering a temporary loss of access to the financial markets – would be allowed, in effect, to declare bankruptcy and default on their bonds: If [a debt sustainability review] is negative, the affected member state would instead receive loans for a limited time only, during which the procedure for an orderly default would be prepared. In order to make sovereign defaults possible where they are unavoidable, the threat of instability in the financial system resulting from such a default must be able to be credibly excluded. A plan to maintain the stability of the financial system in the event of an orderly default needs to be developed in close co-operation with European banking regulators. This would determine which banks would be restructured and/or recapitalised, which will necessitate the drawing up of Europe-wide rules on bank restructuring." And as we discussed previously, the voluntary language will likely be taken out from the final draft, effectively giving Germany the unilateral ability to kick countries out. Which explains why the market is about to plunge: according to just released information from DPA, "the German Foreign Ministry on Friday confirmed that Germany was considering the possibility of more eurozone "orderly defaults" beyond that of Greece, as suggested by a paper leaked by the British press." In essence, what this means is that instead of relenting on the ECB issue, which as every investment bank has said would be the end of the world unless massive printing is permitted, Germany would rather kick countries out of the Eurozone instead of entering a hyperinflationary collapse. Perhaps it is now time for the banks to start toning down their language on the imminent destruction that would ensue if the ECB does not print, as this is apparently not happening...
It is clear as day that the EU in its current form is finished. I’ve been saying this for months, but now even the mainstream media is picking up on rumblings that Germany wants to exit the Euro or at least restructure the entire EU.
European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.
The failure of the Eurozone and the European monetary union looks increasingly likely. This has incredible political, economic and monetary implications for the world and could lead to shockwaves akin to or surpassing that seen after the collapse of the Soviet Union. Given the scale of the crisis, we continue to amazed at the lack of animal spirits in the gold market – both from media coverage and from public participation. The majority have no idea of the ramifications of these momentous geopolitical developments. The public knows the developments are negative but most are resigned to their fate and many are like deer in the headlights failing to join the dots and realize the ramifications for their investments, savings and financial wellbeing. While demand in Asia has fallen from the very strong levels seen recently - demand continues and Chinese New Year should see Chinese demand pick up again in the coming weeks. Western investment demand continues as seen in increasing allocations to the SPDR trust.
If anyone needed the proper epitaph for the insane stupidity out of Europe, Reuters may have just provided it. In an exclusive article, Reuters stuns us with the following: "German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say. French President Nicolas Sarkozy gave some flavour of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe -- the euro zone moving ahead more rapidly than all 27 countries in the EU -- was the only model for the future." It gets much worse: "The discussions among senior policymakers in Paris, Berlin and Brussels go further, raising the possibility of one or more countries leaving the euro zone, while the remaining core pushes on towards deeper economic integration, including on tax and fiscal policy." Not sure how to further clarify this: Europe is preparing for its own end, and the dissolution of the existing structure of the Eurozone, which likely means an end to the EU in its current format, a reshaping of the customs union, and the overhaul of the zEURq.PK in its current form. Ironically, this may end up being favorable for the Euro... and detrimental for Germany. So the question is: will Germany go for it? At this point, it probably has no choice, unless it wants a mutiny on its hands.
The G-20 expected relaxed photo ops, handshakes, and fancy dinners, interrupted by rubber stamping the Grand Plan of bailing out Greece, bondholders, and banks. But then Papandreou fired his bazooka....