Even though most of us come to Zero Hedge to learn, laugh, share and even rant, ultimately many of us are all alone as we cope with our awakening. While Tyler & Company do an excellent job deconstructing the insanity, rarely is our day to day emotional and psychological battering discussed. I offer the following occasional series as a small step in that direction.
Now that formal newsflow has officially replaced the Onion's funny pages, it is only fitting that the reality of politics and finance be reduced to a board game. Enter Grant Williams, to whom the last days of the Ponzi unwind are nothing more or less than a game of KerPlunk!: "When playing KerPlunk!, the early straws are easy to pull out without causing any dislocation amongst the marbles. Consequently, there is a period when players spin the tube with abandon and yank straws from the bottom of the pile with the kind of carefree attitude one normally only sees on the face of a Fed Chairman about to be interviewed by CNBC, but as it goes on, almost imperceptibly, the game changes and tension begins to creep into the face of each and every player. The shift normally happens when one stray marble drops as a straw is pulled out without the requisite attention being paid to the ramifications of doing so. The sound of that one marble hitting the plastic floor of the tube is normally enough to concentrate the minds of the players for a minute or two, but pretty soon, as a few more straws get pulled out without further consequences, players relax again. It’s about this time that the game changes completely. Without any warning, the remaining tangle of straws suddenly looks precarious and finding a straw to pull out safely requires extreme focus...Each of the straws is virtually guaranteed to dislodge some marbles when pulled out – no matter how much care is taken – and while there are still a few straws which will cause minimal problems, certain straws, when pulled out, will cause a small avalanche. By this stage in the game it is abundantly clear to all the players that the point of no-return has been reached and in no time at all - and indeed at any moment - all the marbles will end up tumbling down; the cacophony of noise created by the echo in the plastic tube jarring to one and all."
Independence Day is not about blind nationalism, it is not about statism, it is not about collectivist subservience to a pervasive bureaucracy; it is about the rebirth of the individual in the face of overwhelming despotism, and the creation of a country whose fundamental focus was the nurturance of such individualism above the desires of government. Beyond the often irrational fears of the “majority”. A philosophy of decentralization that was meant to supercede elitist addictions to power and dominance. The 4th of July is a marker, an oasis in the annals of history, when the true potential of humanity could be glimpsed, even if only for a moment. Ever since, men have longed for another opening in the veil. We have allowed ourselves to be manipulated, conned, conditioned, and enslaved. We have abandoned our self sufficiency, and become utterly dependent upon political and economic systems we no longer have any real influence over. America has lost itself, and the darkness grows ever more heavy. For those who have awakened to this reality, I can say only this; you are not the first. Others have come before you. Others have fought back. Others have been victorious.
Confusion continues to reign supreme over what the French rollover plan does for the various entities. The details and mechanics are a bit sketchy, but I have attached the proposal that I found, and will use that as a basis for the analysis. As I go through the details, and incorporate the latest rating agency comments, the conclusion remains the same – this is a good deal for the Participants, a mediocre deal for the Troika, and punitive to Greece.
Below is a translation of a letter from Professor Schwarz-Schilling to Richard Herzinger of Die Welt c/o my friend Achim Duebel in Berlin. He writes: "Mr. Mladic perhaps is right to be angry, sitting so lonely in the dock in The Hague. A Europe unable to learn from its past sits in the shadow behind him."
The 4th of July is a fitting day to ponder the reality that we are at Peak Government, and the Savior State is unsustainable. This is a matter of accounting: no nation can spend more than it generates in surplus real output forever. What goes unremarked is the intrinsically destructive nature of our rising dependence on a Savior State. In his book Collapse of Complex Societies, anthropologist Joseph Tainter identified two causes of economic collapse: investments in social complexity yield diminishing marginal returns, and energy subsidies, i.e. cheap, abundant energy, decline. In my terminology, the dynamic he describes is one in which the cost structure of a society continues rising due to “the ratchet effect” but the gains from the added expenses are increasingly marginal. At some point the additional costs, usually justified as the “solution” to the marginal returns problem, become counterproductive and actually drain the system of resilience as dissent and adaptability (“variation is information”) are suppressed. This feeds systemic instability: on the surface, all seems stable, but beneath the surface, the potential for a stick/slip destabilization grows unnoticed. Cheap, abundant energy offers a surplus of value that can be invested in social complexity and consumption. Once the cost and availability of energy declines, then that surplus shrinks and can no longer be used to support the high cost structure. The U.S. economy has clearly been driven to the cliff edge of instability by both dynamics: the cheap, abundant energy which enabled fast growth of consumption and high cost social complexity is vanishing, and the cost structure of the economy has ballooned far beyond sustainability.
Hooked up with a buddy of mine who flew into town. Our interesting conversation covered blogging, bankers and regulation, BRICs, oil, interest rates, deflation, the next crisis, Greece and the Greek bailout, ratings agencies, Canada, and lots more. Enjoy!
When is the last time you shook a policeman’s hand, appreciative of the good work he had done for you? I live in Chile and I just did so. In North America, I would never think of doing the same thing. Cops are to be feared there. They are not helpful allies in the fight against crime. A North American is more likely to be victimized by the police rather than helped by them. In Europe, citizens are more likely to be clubbed than supported. YouTube is full of police abuse in the developed world; it is becoming a common reality of a politically correct society rather than a shocking exception. These uniformed thugs break down doors and intimidate innocent people. They plant GPS tracking devices on the cars of private citizens. They arrest people for dancing, arrest them for having a “bad attitude,” harrass people for taking photographs, and otherwise go out of their way to threaten what they are charged with protected. In Chile, things are different. Not only are the cops not corrupt like they are in every other Latin American country, they are actually helpful and efficient. Examples abound.
To many the significant beat of today's Manufacturing ISM was not very surprising based on yesterday's higher than expected Chicago Purchasing Managers Index. As most economists know, the Chicago PMI has traditionally been a spot on predictor of that other more comprehensive survey, the Mfg ISM. Indeed, as Wikipedia explains, "The Chicago-PMI survey registers manufacturing and non-manufacturing activity in the Chicago region. Investors care about this indicator because the Chicago region somewhat mirrors the nation in its distribution of manufacturing and non-manufacturing activity." Traditionally the correlation has been in the 80s and higher. Sure enough, anyone who simply bought the market on an expectation that the ISM would replicate the Chicago PMI won. Yet the biggest surprise was beneath the surface, where a more granular read indicates some very violent schizophrenia. As Goldman said earlier, when reporting on the ISM: "a sharp increase in the inventories index (from 48.7 to 54.1) explained 1.1 points of the 1.8 increase in the headline index." Said differently, nearly two thirds of the total beat came from a jump in inventory levels. Yet what happened in the Chicago PMI yesterday? Well: take it from the horse's mouth. The Chicago Business Barometer called it a "precipitous decline" after it plunged from 61.6 to 46.96, the biggest drop in years.
Ever since the famous Stanley Druckenmiller Op Ed published in early May, which called for an outright default of the US, saying it would not be
the end of the world, and in fact the US would emerge stronger as a
result of finally taking the first steps to getting its fiscal house in
order, there has been a visible shift regarding the US debt ceiling discussion, with republicans (so far) digging in and refusing to budge on the issue. After all, on the surface Druckenmiller is absolutely correct: with interest rates near record lows for the past 3 years, interest payments would be manageable for a long time even if general rates were to surge due to the Treasury's fixing of low cash coupons over the past 3-4 years, amounting to about 20-30% of all annual tax receipts. There is however one very big problem with this argument, one which we pointed out back in April 2010 when we said that "What people don't realize is that...unless the UST can roll its debt not on a monthly
but now weekly basis in greater and greater amounts, the interest rate
doesn't matter. All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion risks. This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.
I tend to be years early on identifying trends, but three that will make a difference going forward are what I call "The Three Ds": Delegitimization, Definancialization and Deglobalization. Broadly speaking, the global economy and thus globalization and its sibling, financialization, depend on the legitimacy of centralized institutions. These include nation-state governments, international organizations such as the IMF, central banks, the mainstream global media, and various Central State agencies tasked with reporting data accurately, for example the Securities and Exchange Commission (SEC) in the U.S. and equivalent agencies in other trading blocs. By far the grandest experiments in legitimization of the past 20 years are the European Union (EU) and its common currency, the euro, and China's one-party rule combining a command economy with a quasi-free enterprise model, i.e. "Capitalism with Chinese characteristics." The vortex of insolvency gripping Europe is rapidly chewing through what remains of the legitimacy of the euro and the EU institutions tasked with overseeing the financial sector...As for the euro and the EU's grand integration experiment, we can turn to George W. Bush's inimitable phrase for a summary: this sucker's going down. The subprime mortgage meltdown offers a cogent preview of Europe's future.
The EU vs US - Who Crashes First? Reserve currency status is a very strong lever, historically. Equally important, the holder of said status has usually held the most powerful military and technology as well. Meanwhile, the EU has the twin problem of CRE debt rolling over on underwater properties and devalued (by up to 50%) sovereign debt held at 30x leverage as risk free assets at par by the banking system. True, the US has similar CRE issues + housing depression... So much to contrast & compare.
Yesterday, I noted that Greece Is a Kleptocracy; the U.S. is a kleptocracy, too. Before you object with a florid speech about the Bill of Rights and free enterprise, please consider the following evidence that the U.S. is now a kleptocracy worthy of comparison to Greece: 1. Neither party has any interest in limiting the banking/financial cartel; 2. Our stock markets are dominated by insiders; 3. The rule of law in the U.S. has been divided into two branches: one in name only for the financial Elites and corporate cartels, and one for the rest of us mere citizens; 4. Just as in Greece, taxes are optional for the nation's financial Elites.
Over the weekend the French announced the outlines of a rollover plan to “help” Greece. This morning the German banks seem to be on board with the plan. According to the headlines, this should be good news for Greece. But is it? Working through the details as best possible shows it strengthens the positions of the banks and weakens the IMF/EU/ECB (“Troika”) and is expensive for Greece. The consequences of the rollover plan are that:
- The Troika has to provide more money up-front without being able to enforce austerity compliance
- The Troika is more likely to continue to fund Greece longer than it would otherwise because of the additional up-front payment and the moral suasion the banks will use to encourage further use of public funds
- Greek interest payments will go up, and with the GDP kicker, will be almost 2.5 times what they are currently scheduled to be and are in line with existing Greek long bond yields
The analysis clearly demonstrates that the Troika is put into more risk sooner, and with less control than it would be without the rollover.