We're Getting Closer

Bruce Krasting's picture

I couldn’t be more delighted than to see the DAX get tagged for 2.5% today. This is a consequence of the “Successful” vote yesterday in the German Parliament to throw more good money after bad. The hit (so far) to German investors comes to $40b. That should make them happy this weekend.

It’s not just investors that a giving the raspberry. According to this WSJ article yesterday, 75% of the folks in German are fed up with more bailouts.

A poll for national German broadcaster ZDF earlier this month shows three-quarters of Germans are against the expanded European rescue fund.

How can this happen? Politicians are doing what the voters don’t want. It can only mean that new politicians are coming and the bailouts will be curtailed.

Keep in mind that the expanded EFSF is still woefully inadequate to address the debt problem in the EU. There has to be a much bigger effort. In my view, anything less than Euro $2 Trillion is not going to work. A big bazooka is required, a popgun is being offered.

This brings us to the speculation this week about a Euro SPV. There was the “Leisman Plan” (I wanna puke) and the EURECA Plan. These are confusing to most people. Let me make it easy. What is being proposed are Euro Bonds in disguise. This is just financial engineering to cosmetically create a joint and several EU debt obligation.

This won’t work. The ratings agencies and investors will see through this. If something silly like this is going to come I would anticipate that Moody’s and S&P will downgrade both France and Germany within weeks. Everything that is being offered is just a half-assed effort to deal with a very big problem.

The conclusion for me is that the Euro has to continue to suffer on the crosses as a result.

I see the dollar as the backbone for the markets in general. In a “perfect” world an orderly depreciation of the dollar (5% a year) is a “good thing”. It supports US inflation (that makes debt look smaller). A weak dollar is beneficial for tourism, and encourages foreigners to buy real assets like real estate. It gives US manufacturers of big-ticket items (planes/construction equipment) a pricing advantage. It also provides a big boost to translated earnings for the S&P multinationals.

The very worst thing that could happen to the US economy in the 4th quarter is that the dollar gains 10% against the Euro. That looks like what is coming to me. Don’t buy the dips, sell the rallies.




On the subject of the EU and the banks, an interesting speech by Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB). He spoke at an investors conference in Boston (PDF) yesterday. I wasn’t there. He was quoted as saying:

European banks carried out "blatant breaches" of IFRS in valuing their holdings of Greek debt.


Mr. Hoogervorst’s comments were consistent with his letter (PDF) to the European Securities and Markets Authority. Some tidbits from that letter:

There have been indications in the market that some European companies are applying the accounting requirements for fair value measurement and impairment losses in a way that seems to differ from the objective of IAS 39 Financial Instruments: Recognition and Measurement.
This is evident particularly in their accounting for distressed sovereign debt, including Greek government bonds.

The bottom line from the chair of the International Standards Board is that the European banks are fudging their books. This is not the Blogs making this assertion. It’s coming from the highest authority that exists.

This conflict can’t be ignored much longer. It’s possible that the EU banks will try to wash this over one more time in their third quarter statements. I think it will be damn near impossible for them to issue annual reports for 2011 without full disclose. In other words, don’t load up on the EU banks just yet…


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Clowns on Acid's picture

Bruce - I must say thank you for your constant and erudite reporting and analysis of the left wing fascists in Europe. Their day is done. Although one must be careful for that which we wish for.

Perhaps we should start writing about what Europe looks like post Greece / Italy/Spain/Portugal (The Club Med countries) default.

2 tier Euro? Can they possibly resurrect the Drachma / Lira/ Peso? Will Club Med adopt a USD / Yuan link? 

Will Russia (with Putin rising) use nat gas pipeline as financial / political blackmail?

Lotsa questions coming to the fore. Thanks again.

Smiddywesson's picture

 Politicians are doing what the voters don’t want. It can only mean that new politicians are coming and the bailouts will be curtailed.

Yeah, more Bilderberg owned politicians sounding like they want to reform, and then doing exactly what TPTB say after they are elected.

bugfixx's picture

Exactly.  The current bunch of politicians will be thrown out by the voters, then the opposition will take power and proceed with the bailouts after making solemn on-camera promises during the election campaign not to do so.  This is exactly what happened in Ireland.

papaswamp's picture

Must have called the Chinese banks and asked how it was done....

Peter Pan's picture

Tim Geithner's efforts in trying to push Europe towards some kind of Euro bond/fiscal consolidation is a lot of crap. The States of the USA have fiscal consolidation and where has that got them? Better still, why doesn't the USA consolidate all of its state debt into some kind of common bond as well and lead by example?

Bruce Krasting's picture


Many people have read this and concluded that I'm advocating a weak dollar policy.

If that was how you read it, I apologize. That was not the point I was trying to make.

What I was trying to say was that a strong dollar DOES hurt the USA. I think that's just a fact. That doesn't mean that I think we ought to devalue the dollar with bad policy. It just means that the economy will go into recession over the next three months. The strong dollar will take us over the top and produce negative real growth.


BigDuke6's picture

No need to apologise... its been a stimulating debate.

i think most here realise the dollar has been a very useful tool for getting the oil off the smelly arabs with little fuss.  give them paper instead of precious gold for the oil... totally.

you yanks who cry for a strong dollar... why do you care ? you'll never step out of the USA... you slave away with your 2 weeks holiday a year while greeks have 10!!.....

when u r abroad its good to have a strong currency, otherwise who cares?  does the strong dollar keeping luxury chanel bags cheap help u out?

printing money keeps my gold going up and when the oil runs out the debt can be inflated away and 'freegold' comes into play.

perfectly fucking simple.

caerus's picture

short the dollar

unum mountaineer's picture

short the dollar by buying gold ( there fixed it for ya)

Implicit simplicit's picture

Agreed. The dollar is probably a buy for a while from a technical view.

IrritableBowels's picture

Gods: Are the markets going to crash or what?  If we're entering a deflationary period, what so of the markets?  I hear of reduction in workers (less dollars leading to a greater UE ratio), but then immediately read about Japan's increased workforce due to the rise in the domestic economy.  Can anyone make sense of this?  Thanks in adavance,


SoNH80's picture

Krasting for Treasury Secretary.

Akrunner907's picture

Something to read..




Bruce,  maybe you can give me some insight into her rationale.

Bruce Krasting's picture

A fellow writes me this long bit of info related to this piece. The suggestion is thatHoogervost and Maijoor are connected at the hip. Interesting...




Hoogervorst and Maijoor both being Dutch names, I checked the latter,
whom I didn't know. (Being Dutch myself, I already knew Hoogervorst, who
was the Dutch Secretary of the Treasury some years ago, and later on
Scy of the Dutch Dept. of Health.) Interestingly, it turned out
Hoogervorst was Maijoor's boss in both their prior jobs. From 2007-2011
Hoogervorst was chief of the Dutch Financial Markets Authority (AFM) and
Maijoor, who was at the AFM from 2004-2011, was one of his deputies.


I can't find an English link for Maijoor, but here's the Dutch announcement by the AFM that Maijoor was leaving for ESMA:

interesting is that as one of the AFM's directors under Hoogervorst,
Maijoor was [translating from the Dutch link:] "responsible for [the
AFM's] oversight of financial reporting, accounting firms and the
integrity of {Dutch] financial markets"

So it looks like
Hoogervorst at the IASB is now, roughly, doing at an internartional
level what Maijoor used to do under Hoogervorst on the national level.

comments, as AFM-chief, on Maijoor leaving for ESMA [again from the
Dutch link]: "We're very proud that one of the AFM's directors has been
appointed in this prestigious position"

Like I said, I know
nothing about Maijoor, but I would count Hoogervorst in the camp of
people like Weber, Issing and Stark (at, or rather, no longer at the

I've seen Hoogervorst earlier this year, shortly after he
had been appointed at the IASB, in the Dutch sunday morning politics
talkshow "Buitenhof" and he was extremely critical of the banks. I don't
recall exactly what he said, but I do vividly remember thinking that he
went to the brink of what criticism he could possibly make in his
position without being fired before he had actually started in his new

So, summarizing, it seems like we have two Dutch guys of the
German hardliner type in charge of both the IASB and ESMA. Perhaps the
letter you mentioned is them starting to play ball. And Hoogervorst is
definitely not the kind of man who will let his IASB be run over by the
banks like the FASB in the US had itself outdone in 2009.

The point to note is of course that Hoogervorst sent his letter, which
is basically regarding financial institutions (banks, insurers and
pension funds), NOT to the EU banking watchdog (led by an Italian) and
NOT to the EU Insurance & Pensions watchdog (led by a Portugese),
but, well, ONLY to his old pal Maijoor at the EU watchdog for basically
all non-financial companies and institutions!

Ergo: H+M are definitely playing ball here.

Zeroexperience2010's picture

4 minutes on German TV, Sept. 29:


in German, obviously, but it shows the total incompetence across all major parties of at least some of the Bundestagsabgeordnete (the ones that committed Germany to the ESFS): some don't even know how large the share of funding is for Germany, nor that banks can also be supported through this, etc...


This is really depressing...


smiler03's picture

There is clearly a need for Google to launch an instantaneous spoken language translation service. It would be very useful and no doubt hilarious. Anyway, I'm disappointed that I can't understand the link as it would be great to know the details. Many thanks anyway :O)

Yes_Questions's picture



What percentage of the the folks in Swahili are fed up with more bailouts?

Are there words for bailout in Swahili?



The Federal Reserve is neither Federal nor a "Reserve". This private bank run by the "Bank of England" has been stripping the US of its assets since the days of Andrew Jackson.  If the $16,000,000,000,000.00 given away secretly, since 2007, to the member banks isn't reason enough to overhaul our entire government financial system then our country is doomed to financial failure. You won't read this in the mainstream media....but it may emerge in the coming elections. Read about this first ever audit of the Fed and understand why we are in such trouble.  Tuesday, September 27, 2011 First Ever GAO Audit Of The Federal Reserve

(You can click on the site and read the report).

The first ever GAO audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill (HR1207), so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve nearly 100 year history were posted on Senator Sanderâs webpage earlier this morning.

sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3   (Summarized below)

What was revealed in the audit was startling:

$16,000,000,000,000.00 (TRILLION) had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the worldâs banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest.

Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs. To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is only $14.5 trillion.

The budget that is being debated so heavily in Congress and the Senate is only $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world. In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. 
That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion. ****


When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self-identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.


Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and super-corporations like Halloween candy.


The list of institutions which received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows:

Citigroup: $2.5 trillion($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion* ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)






zoomer's picture

"foreign banks everywhere from France to Scotland"

Don't forget the over 100 hedge funds located in the Cayman Islands and other offshore tax havens that allow for the evasion of over $100 billion in taxes (a subject near and dear to Turbo Timmay) each year.

You should read Sen. Sanders letter.


RoRoTrader's picture


Jim Rickard had an interesting piece/interview with KING World News published at ZH prior to the FED bomb of no QE3. (Sept 18 I think)

Richard' assumption was not to expect QE3 until there was a material depreciation in the EURO.

Quote from Rickard's piece;

"Switzerland and Brazil are mere sideshows in this global war. The main event is the three-ring circus of the U.S., Europe and China and their respective currencies, the dollar, euro and the yuan. The dynamic is straightforward – all three would like a cheaper currency, relative to the others, to help exports. China has the least justification for cheapening, so it considers a peg the next best thing – at least their currency doesn’t go up. The U.S. has the most clout – it has the leading reserve currency and a printing press so it can just print its way to devaluation. Europe desperately wants to depreciate but is dependent on China to buy its sovereign bonds and dependent on the U.S. for dollar liquidity in the form of swap lines so it has no leverage over the other two. Besides, Germany has a history of maintaining a strong export sector even with a strong currency because of its efficiency, homogenous culture and labor-management cooperation. This was true in the 1970’s with the strong Deutschemark and it’s largely true today. This dynamic plays out as you might expect. The U.S. devalues against yuan and the euro – it gets all of what it wants. China revalues upward against the dollar, but keeps a peg to the euro – it gets half of what it wants. And the euro remains strong against the dollar and pegged against yuan – so it gets none of what it wants. This has been the prevailing paradigm since June when the Chinese finally let the yuan appreciate against the dollar in a serious way.


There’s only one problem with this neat solution to the currency wars. Germany may be able to survive with a strong currency but the rest of Europe cannot and parts of Europe, especially Greece, are facing insolvency. Up to a point, the Greeks have to accept the fiscal austerity forced on them by the Germans. But beyond a certain point, either the Greeks or the Germans balk, and the crisis goes critical and threatens the stability of the global financial system. At that point, either the euro must weaken significantly or Germany must rescue Greece. German reluctance on the bailout has recently led to a weaker euro as a default or break-up loomed. However, this euro weakening broke the global arrangement with China, which was now faced precisely with its worst case – a weaker euro and a weaker dollar at the same time. China is prepared to accept one or the other but not both."

For what it is worth my impression, especially since the FED bomb was dropped is there are so many conflicting signals being floated (probably intentionally) that even sage traders (not moi inclusive) are having difficulty discerning a direction - read no compass for price discovery.

To top off that the markets are still in a general pattern of conjestion, although testing significant support levels and then late today another doubt for price discovery was introduced with the next POMO schedule being announced.

Trading can be very frustrating when second guessing oneself.

Cosmicserpent's picture

By leaving the Euro, Germany could actually save Europe.  The article says Germany could survive having a strong currency (D-mark) but weaker European countries can't.  The solution would be for Germany to leave the Euro and just let the Euro devalue to help the PIIGS.  Interesting.

THE DORK OF CORK's picture

If the ECB does not hit the Gold button soon it will be confirmation that they are a creature of the FED or even shock horror the US treasury.

Maybe the Euro boys have made a calculation - they can't afford to defend themselves so they need the $ to feed the troops.

I always saw a nationalist Friedmanite US Treasuary vs a Hayak like denationalised Euro system - not a fan of either to be honest.

There both a pox.

dwdollar's picture

"Politicians are doing what the voters don’t want. It can only mean that new politicians are coming and the bailouts will be curtailed."

I wouldn't be so sure. How many Americans were against TARP? Didn't mean shit in the elections just one month later.

PulauHantu29's picture

Politicians do not represent The people:

80% of peoples opposed Obamacare...it passed...

75% oppose continued Iraq War...Barry send smore troops...

75% thought the bank reform act was too weak....Barry passed a poor law anyway according to Bill Gross...

95% opposed more Fat Bank Bonuses...Barry handed banks and AIG  record bonuses...

I suspect we will see a massive change in politicans ...

Rhodin's picture

Politicians, like diapers, are soon full of shit, and  be need to be changed regularly.

Unfortunately, the new ones come from the old manufacturer, and work for the same assholes.

If Ron Paul should win(fat chance), they will probably replace him with a clone.  Better than the android we have now i suppose.


Vendetta's picture

exactly.  Manufactured is the word.  With few exceptions, they are interchangeable parts from the same 'approved to run' process

sasebo's picture

All you've got to do is change one politician - Dr. Ron Paul. He'll get rid of Geithner, Bernanke, Clinton, Holder, TSA, et. al. Muy pronto.

oldman's picture


if ron paul is alone and acts he will never finish his first speech if it changes anything. We are dealing with the mob, baby. This is not just a fucking virtual reality----the real people are going to die as always and be blamed for the problems. That's just the way it has been. Having said this, I want to add one thing:

FUCK THE MOB!!!!    om

Eeyores Enigma's picture

Politicians do represent the best interest of the people...the politicians just can't tell said people what their best interests are without blowing the lid off the whole shebang(?) shabang? he/shebang? Gangbang...ya...thats it.


Look guys and dolls they are trying their best to insure that we are the last to fall. The last ones standing.


You guys are making their job really tough. Ease up will ya. Look at the big picture. What do want? Collapse is a given. How would you like it to go down?

dwdollar's picture

I don't think the elections are legitimate to begin with.

PulauHantu29's picture

"NEW YORK (MarketWatch) — U.S. stock indexes dropped more than 2% Friday, ending their worst quarter since the depth of the financial crisis, with worries over Europe dominating.

The Dow Jones Industrial Average (DJIA) fell 240.60 points, or 2.2%, at 10,913.38. It gained 1.3% for the week but lost 6% for the month, its fifth monthly loss in a row.

The 12.1% quarterly loss was the worst since the March 2009 quarter. The S&P 500 Index (SPX) fell 28.98 points, or 2.5%, at 1,131.42 Friday. It was off 0.4% for the week, down 7.2% for the month and off 14.3% for the quarter — its worst quarter since December 2008."


Shit Happens.

Dugald's picture

Ideed it does, its the increasing frequency

that is getting to be a botheration...

jomama's picture

and what does that all mean to the US' highly manipulated, hyperleveraged 'markets' and their robot traders?  

pretty much nothing.

max2205's picture

Still have not hit a lower low from August. Just saying

DeadFred's picture

"I think it will be damn near impossible for them to issue annual reports for 2011 without full disclose."

How many of the banks will still be around for a 2011 report. It's the upside to bankruptcy, you can thumb your nose at all the reports.

Axenolith's picture

I'll insure it.  $250K/year, you can send it to my PayPal acct...  I'm good for it :-)

PY-129-20's picture

Yes, we're getting closer (as a German citizen I am very offended by that vote and I can ensure you that a majority of Germans is really angry about this - the politicians that voted against this from Merkels party are now considering to leave politics because of the pressure they've gotten during the recent weeks) -

not only in this aspect, but the eruption of the El Hierro volcano could happen any day now. In TVE1 they said that  there are currently the 3 signs of an eruption: the earthquakes, ground deformation and gases anomaly. 


With the current accumulated energy it won't trigger a major landslide, I suppose. The megatsunami that would wipe out the entire American East coast + parts of the European coast won't come from El Hierro. The El Golfo and El Julan slides have already removed the most hazardous material. The San Andreas failed slide is on the other side of the island and is not near where the quake activity is at.

But if a very strong earthquake would occur at La Palma all bets are off. According to the scientists the cracks on La Palma show more unstable cliffs and could trigger such a Megatsunami (25-30 metres high waves for the entire east coast). When I talked to Dr. Behnke about this topic, he told me that even an earthquake of a small magnitude could trigger a huge landslide - at least that seems to be the case with the El Hierro landslides.

It has happened in the past, but fortunately it does happen very seldom. No reason to panic. It will be a nice volcanic eruption, but nothing more. Maybe you might wanna short some airlines. ;)

disabledvet's picture

You might want to visit Yellowstone National Park soon as well (in German spelled "Jellystone") as once that sucker blows we'll all be speaking German then. (Holy-sheisa comes to mind.) Anywho if you can't get out there here's some highlights for you:
as you can see you're really missing out.

walküre's picture

Guten Abend, ist es nicht schon sehr spät auf La Palma? Nice island and beautiful climate.

The vote... Warum hat die Merkel sich so dermaßen verausgabt? Es ist doch klar, daß die Erweiterung des Schirms vor allem den deutschen Banken helfen soll, wenn sich die griechische Tragödie weiter verschlimmert. Die Griechen sind pleite. Da geht kein Weg am Abgrund vorbei, die werden über die Klippen stürzen.

Zum Wohl. Was trinkt man auf La Palma derzeit?

Cliff Claven Cheers's picture

Rottweilers, comes from the German word weilerschnitzel.


  • The Rottweiler was used by farmers to pull carts in their daily milk deliveries.


virgilcaine's picture

I pay more attention now to what is Not discussed than what is.  That arcane Net Capital rule by the Sec in 2004 allowing banks to lever up..?  huh.

Cliff Claven Cheers's picture

 A herd of buffalo can only move as fast as the slowest buffalo. And when the herd is hunted, it’s the slowest and weakest ones at the back that are killed first. This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.

In much the same way, the human brain can only operate as fast as the slowest brain cells. Now, as we know, excessive intake of alcohol kills brain cells. But naturally, it attacks the slowest and weakest brain cells first. In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine.

chindit13's picture

Now I realize why we don't see too many buffalo today. Evolution has made them so fast that they move beyond the threshold of human perception.  Or perhaps they now move so quickly they can exceed, like those particles shot recently from Switzerland to Italy, the speed of light.  THAT might explain why we remember millions of them back in the days of Bill Cody;  they all just met up during that moment in time for a kegger and species reunion.

DeadFred's picture

This leads to two questions, which will be the fastest bank the survives the onslaught and which of your two remaining neurons will survive?

disabledvet's picture

clearly it will be the bankers that drink most heavily--especially while at work. and clearly the three martini lunch needs be brought back post-haste.

virgilcaine's picture

Its not everyday the shadow banking system collapses! What I find interesting is the Silence surrounding Glass Steagle repeal in 1999.. its as if it never happened.. Pretend it didnt happen and it will go away.

Robslob's picture



Bruce advocating 5% annual depreciation of the dollar?

First thought...socialist

Second thought...yeah for gold bugs

THE DORK OF CORK's picture

Bruce wants to Export a thing called PAIN.


Its always been about Dollar Vs Gold Bitches