This page has been archived and commenting is disabled.
The Bull Argument For Europe Is Credible, Except For The Circular Argument: You Can't Solve Debt Problems With More Debt!!!
BoomBustBlogger "Rogier" posted an interesting counterpoing to my French Bank run thesis. For those who haven't been following, reference SocGen CEO Dismisses Rumors, Says France Is Not US - He's Right, But It May Be Worse And Bank Run Can't Be Ruled Out!!!. Rogier's counterpoing is the Citigroup analysts William Buiter's report on the ECB being capable to bail out all of the indebted Europe, as well as all of indebted Europe's banks as well - simultaneously, by printing money but not prinitng so much as to stoke inflation. Yes, that does sound rather extravagant. As a matter of fact, I was feeling his story a little more until I actually typed that statement down and realized how far fetched difficult it may be. One of the failing precepts in the article has been the mindset that is burying the profligate states as we speak, and that is the circular argument. Reference my discussion of this phenomenon as it refers to Greece: Greece Reports: "Circular Reasoning Works Because Circular Reasoning Works" - Or - Here Comes That Default!!! The gist of the story is that Greece will solve its over-indebtedness issues by acquiring addtionals debt. Hey, we just traveled full circle! Greece will implement austerity measures that will slow growth and implemenation, thus cut government costs while the country grows the economy out of the hole. But wait a minute here! How do you grow your economy out of a situation by slowing economic growth through austerity. Did we just spin around in a circle again? Below is an excerpt of the Citigroup report that drives the circular reasoning concept home... You see, the problem with the French argument is that the sovereign debt crisis, (which I feelI have credbily predicted and called accurately from the beginning. Reference the Pan-European Sovereign Debt Crisis series, starting with The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a localized one. The primariy problems emanated from oversized banks (Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe) who got into trouble taking undue risks. This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they're domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems. In the beginning, it was thought that these problems were that of the peripheral EU and CEE states only, but that was (and is) definitely not the case. You see, this is as much a case of humarn behavior as it is macro-economics. If one understands that concentp, the spread was easy to see coming from early last year, reference The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries. The consequent post, also explains what many seem to be overlooking, Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter? Now, as a result of sovereing states privatizing profits and socializing losses, they attempt to take multiples of thier GDP on the public balance sheets in terms of economic risks. Yes, it does sound both absurd and unsustainable, and accuracy is endemic on both counts. This particularly so when the health of the sovereign states themselves is callled into question due to the foibles of human nature in terms of honesty - referencing Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! The attempt to save insolvent banks that are multiples of the size of the soverign states that try to save them is a recipe for disaster that simply creates insolvencies on both sides of the public/private economic membrane, versus just the side that it originated in. Greece is proof-positive of said posit: How Greece Killed Its Own Banks! Greece forced its banks to buy Greek debt to stoke the perception of demand. Said debt collapsed in value, and voila! The same hypothetical leveraged positions expressed as a percentage gain or loss... The natural result of several nation-states attempting the same failed strategy, Contagion - Introducing The BoomBustBlog Sovereign Contagion Model. Contagion is exponential in nature, yet I feel many analysts are still thinking linear. Again, Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter? Background posts:
Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns
image005.pngimage005.p
The Inevitability of Another Bank Crisis,
- advertisements -
ah, but you can endlessly pretend you can.
You can deny reality, but you cannot deny the consequences of denying reality!
I have huge respect for Reggie Middleton and I think he is calling the crisis correctly.
But Reggie your presentation is beyond execrable. Your spelling mistakes, your typos, your strangled verbiage and your awful design sense are degrading your posts here and on your own site.
The other thing is that you constantly post links back to earlier posts to prove how right you have been in the past. This is tedious. I am so fed up with seeing the same links again, and again, and again.
If you are doing all this to attract clients you are doing it wrong. Your analysis is superb and you have few equals in your commentaries on banks. But for every client you get from your valuable analytical work you must lose ten who can't see past the awful presentation.
Can't you find someone who can quickly turn your draft posts into something polished and professional?
(PS: I don't mind if you stay as you are. The fewer people who understand what you are describing the more people there will be to take the other - losing - side of the trade!)
It's a matter of time and resources. I can take ten dollars out of analyis and research and put into and editor, but that is 10 dollars out of what gives the content value. GS and Citi may put more into presentation than I do, but guage the results. As I grow to the point where it is feasible I will add an editor, until then...
As for historical links, you find it tedious because you have followed me. If you read me for the first time or just a few times, you would think differently. My work is syndicated all over the web, thus there is a cross section of familiarity with my work. When I get to the point where the whole world has heard of Reggie, back posts won't be necessary :0)
If you want a slick presentation of crap there are a million advisers to choose from. Try the big brokerages for a start.
I try to overlook Reggies style because I would rather have him spend 10 hours a day on analysis and 5 minutes on writing, than the other way around.
Besides it keeps out the sheeple.
So, Go Reggie! Dont change a thing, you are the best!
I agree Reggie is the best.
I volunteer to proof-read! Free of charge.
Since the world banking crisis began in 2007, if you did your homework, like Reggie, and then did the math , like Reggie, there has
been only one viable path for world leaders to follow. That path is monetization of debt. It is becoming even more clear now as even
the implementation of modest austerity measures are met with resounding and sometimes violent resistance worldwide. Balancing
budgets, which would require unpopular deep cuts in entitlements and social programs, will be repeatedly postponed by legislators
leaving the ugly task to future administrations. This will inevitably continue until all major currencies of the world are debased beyond
redemption.
Yup. It's about that simple. Any further math is not necessary.
Reference protesters (in every country!) demanding that the State supply or maintain the gravy train -- the protesters deserve every bit of what's coming down the pipe...
Circular reasoning works because circular reasoning works until something comes in to break the circle. Central planners are trying to make sure nothing can break the circle. You can solve debt problems by adding more debt until someone stops you from issuing more debt by actually asking you to pay for the debt with something other than your own new debt.
If I wanted to I could probably keep myself going for a very long time by using my massive amount of credit and use more credit to just pay the minimum of each balance. Even better I could try to risk the debt I have borrowed in the stock market. If I bet right I can use the profit on the debt to pay back the debt allowing me to borrow more debt. As long as the stock market keeps going up I can play the game forever.
There really isn't anything stopping me. I could just let Bank of America, Chase, and Discover eat the $150k of credit they have given me if I make a few bad bets. It is just that pesky thing called ethics. Of course the Wall Street banksters have been playing the same game for quite a while and they don;t have to worry about losses at all.
The question really is: Who will step in and disrupt the circle? It doesn't look like anyone will. If someone does step in the entire world falls apart.
Quite true actually. People and businesses can operate for quite some time by robbing Peter to pay Paul per se. It is all about cash flow. And as long as there is a game to play, the cycle can seem to be repeated many more times (longer) than seems possible. Governents can do this even longer and better. However, it all does come down to cash flow. Once cash flow hits the proverbial "wall," it is game over in an instant. That is what makes this so dangerous. My take is that it is akin to juggling chainsaws... each cycle adding another chainsaw to the act. At some point it is going to end in an very ugly manner.
Some people do this. I know one guy who celebrates every new credit card he gets as free money because to him, it is. He keeps borrowing money and running up bills until he can no longer keep up the minimum payment then ignores them. The nasty phone calls stop after a couple of months and away he goes again.
So far he has declared bankruptcy 3 times that I know of. Never knew him to pay off a debt or a loan.
Reggie is on this fake ass market like white on rice. If I had a trading accoount I would sell FXE, but after losing everything to zombies I now know better than to get into a rigged game.