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Impact Imminent?
Zero Hedge has the latest Cyprus update - There is no parliamentary support in Cyprus for any bail-in deal. Tyler Durden begs the question:
Neither we, nor anyone else, has any idea what comes now.
The folks at FTAlphaville have some thoughts on the state of play:
A bank run spreading to Spain looks a non-starter in the short term.
The risk of any wider bank run looks pretty small so far, with market reaction relatively benign.
I've been following the Press coverage of Cyprus, the talking heads are saying that Cyprus is a manageable issue. Nothing to worry about at all.
I'm going to disagree with FTA and the TV folks. The chances of a bank run have never been higher. Tyler's right. We're looking at a black hole.
The "Other" scenario for Cyprus is a shell shocker. Forget the shareholders or the senior bond guys - they will end up with Dick's hat band. Those Russians who were at risk of losing as much as 15% of their deposits - They get zip too. At best, they are getting an IOU. That IOU will have a value of 10 cents on the dollar.
Those small depositors that were going to get hit for an unfair loss of 6% now face a vacuum. Their bank statements may not reflect a loss of principal, but they won't be able to withdraw a dime from those accounts. The local banks will remain closed, when they do reopen those deposits will be converted to some new currency. It's possible that the new currency will be the Turkish Lira. You thought the poor folks in Cyprus were getting a bad deal on Monday? Wait till Friday before you pass judgement.
What happens if Cyprus does a "drop out" of the EU? That result immediately makes a lie of Mario Draghi's words that the Euro was Uber-Ales. This is precisely what Super Mario said "would never happen".
If Cyprus goes turtle and leaves the Euro, the credit spreads on peripherals will widen. This sets up a market "call" on the ECB. But remember, for Mario Draghi to give the market the "put" that it will demand, the government's of Spain and Italy will be forced to get down on their knees and beg the gods in Brussels and Berlin for a helping hand. To do that means that they would have to have very harsh terms imposed on them. An IMF team would run the finances of the countries involved.
Given that there is zero chance that Italy and Spain will do the necessary begging, the value of the promised Draghi "put" is now zero.
There is a chance that something can be done to stop what looks like a slide into an abyss. Those chance are now well below 50-50. The markets/seers are calling for a soft landing, while at the same time that outcome is looking less and less likely. The markets seem poorly positioned for what could result in a crisis. And this story is running at hyper speed. That' a very bad combo of events. Seat belts on - Impact Imminent!
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How much would it be worth for Russia to buy an eastern Mediterranean military port in Cyprus to go with their western Mediterranean port in Tartus, Syria?
Take a look at a map. Tartus is about 150kms from Cyprus.
Somewhere there is an Island in need of a trillion $ coin.
The Greeks, The Turks, The Russians......Do you really think that would be a stable situation?
No, but I smell a great Bond movie.
Quote of the day, Kaiserhoff.
Schoen gespielt !
My guess is, if Cyprus Parliament vetoes the bail-in it is because there are assurances from Putin Inc. that the Russian government will cough up the cash to keep the Cyprus banks afloat.
It's only ten billion euros!
Agreed. That is the option that makes the most sense. Despite the ECB mouse's non-show, and the silly German kick-em-in-the-nutz approach, there seems to be a lot of hurt pride and resentment mixed in as well, so no one is even close to saying ok, let's get this sorted and remove the uncertainty.
But no matter what happens the Cypriots are still going to be in economic hole, with either, and the Cypriots are angry enough, plus they now know for absolute certain that the EU WILL SHAFT THEM MERCILESSLY, AGAIN, AND AGAIN, if they stay in, so Russia has a clear run to bailout Cyprus and break this destructive cycle.
... Let's see. Cyprus joined the EU in 2008, made significant contributions to the EU, and now are being treated shabbily for their efforts?
What's beautiful is that silver isn't taking off just yet and I still have some time to shift into it and gold. Junior miners jan 2015 option calls are to salivate for, assuming one can get out before the inevitable bankster defaults/moneygrabs, the timing of which is highly suspect. Physical PMs are therefore the core position of any sensible person at this point, preferably guarded well.
I think this is great theater and was a little shocked by the market's yawn yesterday (monday). I want cyprus to tell the EU to go pound sand and watch that house of cards collapse. However, I think that this is pretty small stuff that the EU will pretend this cyprus incident didn't happen and not talk about it. Regardless, this is yet another signal that this game is nearly over. To think that a group of bankers thought they could get away with this exposes their hubris. It doesn't mattert whether it is their arrogance, stupidity or their evil intentions, these are very dangerous people. Why does europe allow such dangerous fools for leaders every other generation? I guess this is probably it for those socialist fools as they abort themselves out of control of a continent and just can let the islamists literally decapitate them.
They've had self serving "leaders" all along. There has been no alternating between good and bad leaders over time. The problems accumulated from the good times and better times leaders blow up in the faces of the bad times leaders. There's a horrible purge and then the cycle restarts. This time though, the cycle restarts as you point out with demographics that mean a Non European Europe in 50 years from now, and an entirely different cultural and racial setup atop the real estate over there. The Greco roman judeo Christian light skinned bunch will be underground, literally. The wages of socialist hedonist materialism are that you die out. .
Bingo!! Bravissimo!!
Europe is self destructing. Absent another Charles Martel, it will be just another third world 85 IQ sharia law basket case 50 years from now.
Show me the force or combination of forces that has the power to reverse these unarguable existing trends.
Junking this post won't change the unpleasant reality on the ground that all of the head in the sand open immigration welfare statists want to ignore.
An awful virus that kills most retirees, and inexplicably, also arabic and Turkish speaking peoples would reverse things. Big jump in GDP per head, no pensions to pay out, and some hope of sane values being reasserted. Hopefully there is no such virus, but that would do it.
The virus that kills civilizations is the welfare state. No advanced economy can afford it and yet no one talks about it.
The nations that will advance are those like China and Russia that have no welfare or only modest welfare. The support obligations incurred by Europe, the U.,S. and Japan will slowly drive those societies into oblivion.
So far the only mention is old age pensions and medical care. No one mentions the food stamps, SSDI, SSI, Section 8 housing, aid to dependent children, refundable tax credits, etc. that apply to the working age (and much browner population). All of these benefits breed a low IQ population that cannot contribute in any meaningful way to the competitiveness of a complex society and can never produce enough to cover the cost of educating their children, their health care or their old age support. At least the old age benefits, paid as they are to the elderly, are not degrading the gene pool.
Sorry liberals, but realative national economic power and prosperity correlates with high IQ. Stupid young people are all cost and no benefit.
It is the dependent working age population that is the problem.
This isn't a liberal issue. This is rather a failure of the baby boomers (and the politicians they elected) to address education, health and reproductive issues due to their stand on abortion/birth control (religion), a public education protocol that is so far removed from the rest of the globe we are still not using the metric system.
Politiicians and lobby groups have led the people to where they are today. They are the leaders and they have failed miserably. Both parties share in the blame.
It was not always like this. The virtually handicapped millions of overweight people is just an example of the diet americans consume and what is allowed into the food supply. HFCS is destroy livers. Fatty liver disease is seen in 20s. Kidney stones, gallbladder disease, bad backs, depression...it's just a nightmare scenario....and the doctors would agree. It is disgusting and yes, makes you hate the people, I agree, especially people who seem so self righteous and demanding while they give so very little to make this world a better place. Whine, complain, never happy, no one has enough of what they need.
But as I said, it was not always this way. The media has an impact on what influences their audience; they've had focus groups and billions of dollars worth of studies to find out what it takes to make an American part with their cash. Taco Bell...Vivid colors, dripping sauce, portions enough for a king, and there is steam coming off fake fucking taco, makes your mouth water and goddam it, you eat a cookie or 12 and make plans to get to Taco Bell the next time you leave the house.
These people have are plenty rich thanks to the poor health of US citizens. Big Pharma/Health insurance companies are largest lobby groups, whose dick is up whose ass is sometimes questionable..but it's a circle jerk anyway you look at it.
People need a leader goddam it. Elections and vast sums of money are spent chosing a leader and yet we have this mess? Same up in Canada...guy up there was bragging about his Asian help and what sorry excuses the Canadian workforce is, spoiled by their parents, never to feel frustration or want...they drive a hard bargain.
But please, it is a path and just like anything, you follow the money and see the major corporations are sending campaign donations to the politicians and the media gives the advertising necessary to move their piece-of-shit merchandise on to the population so what the fuck do you expect?
You know-it-alls tend to count on dad's money, is what I found. I spent a decade up in the upper middle class , lower upper class...and you people are not all that. A workaholic with a wife who can wear diamonds and rub elbows at the fucking country club. The men don't want to make a good business, they want to destroy their competition. I sat and listened to hundreds of hours of conversations by women wearing several thousand dollars of jewels on her on a trip to the mall, and all we ever talked about was what she was going to wear at the next event, restaurant in which they ate last saturday, where they stayed at their last vacation...or gossip...dirtier the better...lazy child in every family, a big disappoint if it is first born son, its a perfect home until you open the drawers and closets and see they are no better than any of us, just lucky, born into it or obsessive compulve because they are running scared.
There isn't any room to maneuver at the end of the gangplank.
The Cyprus govt bonds should have been restructured, starting a year ago ... this process was put off by Draghi who wanted to see if his Goldman buddy would get elected in Italy. Basically, this crisis is Draghi's fault ... the ECB should pony up and the Germans should shut up.
It's ten billion measly euros.
Spain will require a TRILLION euros!
The Russian supplies Germany with natural gas. Putin is already making ugly noises. The funds flowing from Russia through Cyprus are energy profits ... recycled BACK to Germany and the EU!
Europe is bankrupt, it's so-called 'assets' are a bunch of worthless automobiles ... that cannot pay for themselves by way of their use. The only other collateral that is worth anything in Europe is the bank deposits! Talk about shooting yourself in the euro-nuts with this two-fer. Is there any talk about getting rid of the autos or mandating energy conservation and cutting fuel imports paid for with credit that has to be obtained at unaffordable cost from finance buccaneers who have now turned into finance cannibals?
Well?
I still don't believe the senior creditors and preferreds cannot pick up the slack. All this doom to keep the bondholders from losing a penny ... meanwhile, everyone else drives to the debtors' prison on their last liter of gas.
Good Grief!
So the inventory of cars is the only thing holding up the balance sheets over there?
Are you aware you are only person who thinks this way?
@TBT:
I am ... I'm also right. That's the scary part. When the perception bubble bursts ...
Math is hard.
There are grains of truth in the logic he was using, so down arrowhead you.
Their inventory of cars plus their deposits is the totality of their assets. Wow. Makes so much sense.
Similar to what we've been going through in the U.S. since 2008. All this taxpayer money just to prop up a gaggle of TBTF banks and worthless banksters, along with all the companies that should have gone BK.
I saw this comment on Naked Capitalism.
Russia is least concerned about a $2.5Bln loan (which was primarily used for the Sea Block 12, “Aphrodite, gas field exploration and drilling and would see a return in the anticipated €18.5bn-€29.5bn, 103% – 163% of GDP, revenues irrespective of the ECB’s next step). The notion that Cyprus is perceived as a tax haven or a money laundering ‘Wash’n’Go’ shop for Russian business is immaterial. However, the $2.5Bln loan was seen by Moscow as a good will gesture regarding Cyprus’s previous administration’s confutation of NATO’s/US overtures.
What has really pissed-off Russia was when, despite denials and assurances from the US state department, a meeting was held in Ankara (November 2012) with the American Ambassador to Cyprus, John Koenig, along with British, Greek and Turkey government heads. The meeting discussed a plan: British bases in Cyprus will be turned into NATO bases – the ‘three-party guarantee’ of Britain, Turkey and Greece will be abandoned – and NATO will take over. America wants its ships there.
However, there was one small snag; for Cyprus, the plan is neither legal nor constitutionally permissible. When, last year, Nikos Anastasiades pushed for a majority in the Cyprus parliament to vote for and pass an act for the Cyprus to join NATO’s ‘Program for Peace’ (PfP); Cyprus being the only member of the 27-nation European Union that is not in NATO. President Christofias (whom helped broker the Russian $2.5Bln investment) vetoed it, citing that the act violated the Constitution and the separation of powers (one of Cyprus’ ‘basic principles’) as the PfP is neither “an international organization nor a treaty of alliance”.
Nevertheless, and much to the Russia’s chagrin, the UN Secretary-General’s Special Advisor on Cyprus Alexander Downer has continued to develop talks with, now, Prime Minister Anastasiades whereby British bases in Cyprus will be handed to NATO as part of a new ‘Cyprus Peace Plan’ (one that encompasses PfP).
How long the veto is, somehow, voided or nullified, is not an easy guess. So, if Russia can buy time, presence and influence in Cyprus by paying $30Bln to bail out Cyprus and save the day, it can keep NATO out and import all the couscous it wants; it’s a bargain.
Read more at http://www.nakedcapitalism.com/2013/03/gaming-the-cyprus-negotiations.html#AtB3w6AREeFpHeom.99Denials and assurances of our State Dept." LOL. Run, until very recently by a convictable felon and life long devotee of criminal activity; Mrs. Clinton. What a state of affairs.
I'd give you thirteen thumbs up if I could; this is why I keep scanning the reams of ignorant babbling on this blog; every-once-in-awhile someone comes along who has done their homework, which I didn't do, apparently, I was doing some other homework, and actually knows what the fuck is going on. This is so exactly "Realpolitik". Thank You very much; and as a sane and peace loving citizen I hope Russia succeeds in foiling this dreadful piece of Empire Engineering on the part of the new Bad Guys; Us. Bookmarked Naked Capitalism; will skim in future.
Watch out: The ability to skim through the socialist BS at Naked Cap without getting physically sick is a sign of mental disease.
Even a blind squirrel finds a nut eventually. Some of my best finds have been in the comments, but man do you have to go through a lot of manure.
Yes . Panic spreads quickly and in this day and age where information reaches around the globe in seconds, the sentiment of panic will spread just as far and just as quick. The reason the banks are not opening in Cyprus is because of the massive withdrawal requests from mainly Russian depositors who could not be satisfied and would force a default on the system in Cyprus.
The derivatives that Cyprus is holding are toxic and if they wanted to collect in order to fill their withdrawal orders, the whole EU ponzi will collapse and bring the US ponzi down.
Paper never looked so bad as of this week.
It doesn't even take a panic, it just takes a bunch of people to make some prudent savvy decisions of action based on a cool-headed appraisal of current information and Presto! You have a bank run.
Really? That euro looks...and acts "like a God." not a very friendly one either.
Would vote you up except the italics prohibit it.
All upvotes to the HypnoToad.
Where's Paul Revere when you need him - "The F'ing Thieves are coming, the F'ing Thieves are coming"...
HAIRCUT ON DEPOSITS <100K€ WILL BE CANCELLED IN THE NEXT FEW DAYS. WHEN MARKETS BOUNCES OFF VIOLENTLY AND YOU DON T F*ING UNDERSTAND WHY, THAT LL BE IT, CONNECTED POLITICIANS BUYING... WAS JUST A TRICK, A MARKET TEST TO SEE HOW WE LIKE IT...
This is how EUROPE ended up being the continual "victim" ie, WWI & WWII.
Nobody did shit until their roofs were on fire and it was too fucking late.
Anyone who has any money in a EU bank after this shit DESERVES the loss.
The ECB has to print. Germany has to accept inflation (effectively a broad tax to pay for the GIIPS). It's the only way they save the Euro. This Cyprus debacle might not be the trigger moment, but it's irrelevant, the trigger will come eventually.
Germany's never going to accept the cost of a true United States of Europe, so the euro, as it stands, is doomed...eventually. Exact timing calls are difficult and silly to make. Cyprus could just blow over without much fuss in the end, until the next Cyprus which is too big to ignore. Bring it Beppe.
If I were running Germany, I'd cut and run, right now. Insure all depositors in Deutschemarks no matter what size deposit. Flip out all accounts from euros to DMs (including an offer on foreign held German debt), destroy the euros, and let the zombie banks fail. Collate resultant euro debts in an account at the Bundesbank and channel Iceland with a promise to pay on Germany's own terms. Short term clusterfuck but rapidly recovered as Germany still has the capability to produce things that foreigners want. Hell, if Germany did it right, the mark would probably appreciate as everyone realises the euro without Germany is toilet paper and they seek DMs as a safe haven.
If the DM devalued, it would be little drama as it would be even easier to run a current account surplus, a surplus earmarked for the "bad bank" account. Before too long, euro debts would be made good and everyone would be scrambling for DMs.
It would collapse the entire shadow banking system and cause economic chaos but tough shit. Surgery and chemotherapy are terrible, but you do it for a chance at life, or you do nothing and definitely die from cancer.
In the aftermath, perhaps more people would try doing something constructive with their lives instead of chasing virtual dollars around in a pointless Ponzi scheme and babbling about it the comments sections of weirdly named blogs.
If I were running Germany I'd cut and run, as Mediocritas states but also mint up gold dmarks then sit back and watch the rest of the world collapse into its own asshole.
Of course we too here in the United Socialist States of America have at least as much if not more capacity to produce things the rest of the world wants. Think food for one. But neither the half wits running this dog and pony show nor their counterparts in Deutschland are going to do anything remotely like what is described above and I reckon the populations of both countries would scream bloody murder if they were, for even a brief moment, inconvenienced at all by any such actions.
The Euro has been doomed for several years now. Somewhere somebody is getting rich off the prolonged death scene of this thing or it would ahve ended much earlier.
Anyone's guess is a good a it gets now although I think Cyprus will sort of blow over and Italy will be spending Lire before anyone else exits.
Bring it Beppe indeed.
Germany is an export economy. If your plan were to be implemented and work, the new Germany currency would soar in value, screwing the German export machine.
WSJ article today stating that US manufacturing is already starting to suffer due to falling Euro. So long as bailouts remain minor, Germany wins.
Trade deficits cannot continue indefinitetly without a problem piling up. Accumulated debt of nations n deficit towards your "export" economies. At some point the debt is bad and all that exporting over time gets a bad haircut. Here we are.
Ja, Deutschland is also an import economy.
Without Saar and Ruhr coal (circa 1920), most energy is consumed in the forms of petroleum (the Middle East) and natural gas (Russia) , and it all comes from external sources.
Unlike France, Germany is not tied to nuclear energy, either. Wind and solar are just feel-good, political charades that have zero ability to sustain the industrial output machine.
Many (not all) of the commodities used in manufacture also come from elsewhere. And, much of the food comes from outside Germany.
Therefore, what Germany needs is a stable exchange rate.
A deutsche mark rising in relative value in the immediate term is not the worst thing in the world for Germans.
The fact that there would be less demand for large-ticket capital goods (i.e., machinery), as global economies are implode, is a bigger issue.
So what. If they currency is highly valued, this means they are already wealthy, so there's no need to export. Work less, and enjoy life.
Hey, that's what the club med countries have been doing?
@ Medio:
etc.
None of this creates one new drop of crude oil. From an energy standpoint, Germany is another version of mercantile Japan. Why is Japan stuttering? It's customers are having difficulties and cannot subsidize Japan's fuel consumption. There is a Japanese current account deficit. How/why is Germany any different?
Even if Germany can survive, the other Europeans cannot. Their pathetic currencies are proxies for bankrupt countries, unacceptable for the purchase of fuel. Countries would be forced into the pre-euro regime of having to buy dollars or sterling on forex markets in order to purchase fuel. Consumption would plunge as real prices skyrocket ... waste-based economies would unravel.
So would economies of trading partners: China, India, Middle East. Everything is tied together now, held by strong bonds of petroleum waste.
Overall, not a good place to be ...
In which case the price of oil will plunge and stay down a considerable time ... which is a broad-based stimulus (and they did say they wanted lower carbon emissions win-win!).
If oil prices plunge b/c customers are bankrupt these customers will not be stimulated with low prices ... that is, whatever the oil price happens to be, it will always be too high.
If customers are bankrupt the credit system is also broken down. Nobody can repay. This is why the current low rates have cannot gain any traction. A bankrupt customer cannot borrow -- or will not -- even if rates are sharply negative.
The depositor levy in Cyprus will not cause customers to run out and buy stuff in stores, it will have the opposite effect.
This is not 1950s or 60s when there was spare fuel capacity and low prices reflected additional (potential) supply. We are at the endgame, when supply allocation becomes a wicked problem.
If you had debts greater than 2-years income and I cancelled all of your debts via bankruptcy of you and the zombie Banks you owed, sans any desire to recap or nationalize them, then don't you think you'd find you had greater disposable income and more of a free-hand to start over again? To argue from the proposition that down is the only way this can go, or that a new-normal equilibrium stabeeleetee reset will not arise, in which economic activity thrives with surprising vigor and dynamism, is not believable. Or have I misunderstood you?
I've d/l that site and will examine the content.
Perhaps Germany's decomissioning of its nuclear post-Fukushima is starting to look decidely ill-judged. Especially with Putin controlling the gas valves. And Polonium Putin is one bloke Merkel shouldn't piss off.
It may be the best thing to do in the long run, but the DM would appreciate significantly. And Germany's all-important exports would get priced out of the market (relative to current depressed Euro pricing). German unemployment would rise significantly. Politicians would lose their job. Hence they will be reluctant to go down this path.
...but the DM would appreciate significantly...
I keep hearing this argument, but I fail to see any reason why the Bundesbank couldn't debase the new DM enough to weaken it relative to other currencies. DM too strong? Print more of it to pay off German government debt... and no, I don't mean QE, which is just more debt, but actual unsterilised money creation.