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On the Circus in Europe
I'm flabbergasted that Cyprus is the cause of the circus in Europe. Cyprus was an avoidable problem in my opinion. That view is supported by the fact that all of the words, actions (and threats) by the deciders in Northern Europe have been decidedly negative. There was no "Can Do" talk. All I heard was, "We won't do" or "Here is a deadline" - "Here's a gun to your head".
Two possibilities - Either this was a completely bungled effort in Brussels. Or this this was a deliberate effort to weed out the weak members of the EU. If the intent was the latter, this will not stop will little Cyprus.
Next week there will some broad confusion following the resolution in Cyprus. Either Cyprus is out of the Euro zone by Wednesday, or the +E100k depositors are going to get whacked big. There is no soft landing potential any longer. If the folks in Brussels and Berlin who are pulling the strings are really serious about stabilizing the Euro zone they will respond with a series of "positive" measures next week. Things that might be considered to ring-fence Cyprus include:
- Doubling the deposit guaranty to E200.
- Creating a Transaction Account Guarantee. This would insure all accounts that were related to the settlement of goods and trade. (protect the economy)
- Financial measures - From some minor stimulus stuff, to monetary measures like LTRO or a cut in % rates.
These would be "calming" steps. They would be proactive in that the intent would be to get ahead of any contagion. We could also see "nothing" from Brussels. That silence would be a "tell" that "they" don't want to resist gravity any longer. The most significant sign would be if capital controls were established more broadly in Europe over the next few weeks. These will scare the crap out of folks, especially those in Spain and Italy.
- Restrictions on the amount of withdrawals at an ATM.
- Restrictions on money transfers.
- Restrictions on the ability to acquire foreign exchange (Dollars Swiss Francs, etc)
Three possibilities. "They" either (1) act in a coordinated way to head off any problems, (2) do nothing, or (3) they turn up the heat with more scary stuff, and the SHTF.
I'm not sure what comes next, Door #1 might buy some time. Doors #2 &3 are trouble. Bad odds.
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The Circus
Europe looks like a three ringed circus to me. Think of it, the tent is packed with awe stuck patrons. In the center stage is a clown show. Slapstick comedy. Clowns running clumsily with their big shoes carrying rubber mallets, chasing after other clowns who have buckets filled with confetti, ready for a water fight. A riotous scene that many in the audience cheer and applaud. But there are also those in the audience who fear clowns - the reasons vary - the results are the same. They are revolted by the antics of the clowns. The clowns are the politicians and technocrats in Berlin and Brussels.
On one side is a smaller ring. This one has a large metal cage, in it are a bear, a lion and a dozen "little people". The wee ones are dressed in funny, colorful outfits. They carry miniature whips and are desperately trying to get the beasts to perform the hoop jump and barrel rolling tricks. The lion swats with a paw, knocking the bear off its perch and onto one of the little ones. A rescue squad of more little people comes up with a stretcher and carries off the "injured". Some children watching are crying, they think the little one has been crushed. Mothers try to soothe sobbing children with, "Don't worry, it's only make believe".
In the final ring is the high wire act. The famous Estes family from Milan is the main attraction. Three generations are balanced on a small wire. The family forms a pyramid three levels high. A young boy, the youngest Estes, climbs to the top and does a handstand. Most in the audience stand and cheer at this amazing feat, others turn their heads in fear. There is no safety net below the Estes family. How could they take such risks with their youth?
Off to the side of the final ring are a troop of actors. Some are dressed in brown shirts, others white. The stage has a back drop of the famous fortress in Toledo, The Alcazar.
The circus show is a re-enactment of the 1936 Siege of Alcazar. This battle was the start of the Spanish Civil war. The Brown shirts, led by Franco and armed by Germany defeated the defenders. The battle was fought over the control of a munitions plant. There were many heroes of this battle.
Few in the circus audience understand (or care) about this portion of the show. But some of the older ones do remember, others know that this siege was an important step to a much larger war.
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Anyone with money in Spanish or Italian banks had better get it out; capital controls and haircuts are coming to the rest of the preiphery.
Until the off balance sheet and derivative counterparty exposures are for Laiki, nobody really knows what is driving the EZ-Cyprus relationship. What if the exposures to an external financial market (i.e. Russia) are reckless and bizarre just as Laiki's known balance sheet is.
Bravo Bruce!...thoroughly enjoyed it!
Good points, Bruce, about confidence building if that's what someone, or anyone, wants to do.
I still think the wild card is the derivative exposure, and Cyprus is such a weird little place, it's hard to get a handle on that.
Why does the vig go up by orders of magnitude? That should tell us something. Here are two likely scenarios:
1. Claims are already being made, behind the scenes, based on the default, and the "deciders" are such idiots, that they recalculate this daily.
2. The Jew Bankers are finally serious about clearing derivatives, and have decided the Russians should cover all the losses that ran through Cyprus. Playing hardball worked so well for them in the 30s.
There is no need for such desperate moves..., or is there?
"There is no need for such desperate moves..., or is there?"
Yes, there is.
It's a drill...for much bigger and badder.
And it's planned.
You may be right, but if you are, we're in for the mother of all depressions.
you mean "they" are. the "plan" has already been executed on. now it's time as Machiavelli famously (or infamously) said to "look to the result." the only mistake i have detected is the name "Eurogroup." these "things" don't have "names." that one's a dead giveaway to me...
Bruce,
The real clowns are we, the people, who let all this shit happen right under our nose. Too busy buying the next smartphone and not noticing that those in charge are not those serving our interests or concerned about the welbeing of future generatons. I guess this happens all the time throughout history : ancient greece, rome etc. Not really looking forward to what's coming next but I guess some of those ancient cassandras weren't either.
They'll open Door 1. Then when nearly all Cypriots are weaker and hungrier they'll stuff a technocrat down their throats. They're banksters. That's what banksters do.
I woud be shocked if a few Russians weren't sitting outside the homes of Trichet or Barusso right now! Then the game plan would change very quickly out of Brussels!
Trichet is out, the new guy is that Dutch punk with a hard to spell surname. God knows how many innocent people will die in the hands of assassins before expropriated Cypriotic depositors get the name right!
Outsource the first wave to the Albanians. They are well known for their 'subtle' approach.
No up front cost for the Russkies and they get to keep and the contractors can keep any daughters for the sex-slave trade. Plus as a bonus, they can keep what they find...
http://www.luxurybazaar.com/subcategories/subid_1333_Genghis_Khan.html
Merkel had to know when she went for the deposit grab she would end up right here. So what does she want to happen next? Cyprus out of the Euro? So she can show that she took the hard line during her re election run? In doing so she risked a bank run in the periphery and being forced to go to door number 2 or 3?
Crazy
Yes-but on the other hand is it not possible that Merkel, Putin & Barroso are all on the same team. Accelerate into what was already an unstable and deteriorating situation with the aim of further undermining the sovereignty Of nations and concentrating more power at the centre - the EU commission itself.
Very risky -almost a 'fuck it, its now or never' play.
Interesting and thoughtful posts both of you...
Also, +1000 for Bruce, I have really enjoyed your thoughtful posting this last week or so.
This is a very risky play. Perhaps, no matter how we try and parse this, it is no more than a geopolitical and financial 'conundrum' and no matter which path is chosen the risks are potentially cataclysmic?
Fucked if I know... what I do know is every european (or foreigner for that matter), with funds in the so called secure northern states, should take a cold hard look at implementing a worse case risk management strategy. If I was German I would not want my nest egg all locked up in Deutsche Bank or worse Commerzbank.
This is going to spread around the world as the cat is now out of the bag. The fact that they haven't shaved anything yet is mute.
Perhaps Cyprus is to be made an example for the remaining countries to accept whatever austerity measures that Germany warrants?
No exception to BK's analysis of the Cyprus imbroglio, but spare us the bogus history. The besieged force in the Alcazar consisted of c. 200 Nationalist military Cadets, some with their families...and nothing but small arms. Besieged by 20,000 howling, well-armed Reds. In a military Epic, the tiny Nationalist garrison held out until Franco's main force, coming up from Toledo, broke the seige and exterminated the local communists. Elsewhere in Spain, 20 out of 23 Nationalist garrisons were, during these early days of the Spanish Civil War, overrun and massacred by the communists. See Cecil Eby, Siege of the Alcazar (NY, 1965). Will you fucking libs ever stop lieing?
Short answer. No. It's what they do.
So Europe is not a three ring circus?
seven rings - like heaven and hell
Exactly. The show will go on with or without Cyprus in the Euro. And Cypriots will be miserable with our without Cyprus in the Euro.
Not a clown show at all. There is intention and steel in these actions.