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Alarm Bells Ringing: Behind The Smoke And Mirrors Of The European Banking System

Tyler Durden's picture


Submitted by Erico Matias Tavares of Sinclair & Co.

Alarm Bells Ringing - Behind the Smoke and Mirrors of the European Banking System

Alarm bells in the European banking system have been ringing for quite a while but nobody seems to be listening. The roaring capital markets are just too loud.

But we have been keeping track of a few things.

Private sector lending is dropping sharply in the Eurozone. The latest figures have just been released and the picture is not at all encouraging. Total private sector credit by Eurozone monetary financial institutions has accentuated its negative trajectory last June, with lending to households seeing the largest monthly decline since the height of the great financial crisis in late 2008. Uh-oh.

Periphery back in play? Very recently the second largest private bank in Portugal was caught in the bankruptcy of the Espirito Santo conglomerate, reporting the largest ever corporate loss in the country’s history just last Wednesday, and raising the specter that all might not be well in the Eurozone’s periphery. Now the Portuguese government may be forced to intervene, possibly using a very large chunk of the financial sector stabilization funds set aside during the country’s recent bailout.

BIS issues a(nother) warning. This should not be a surprise. In its 2014 annual report, released at the end of June, the Bank of International Settlements (“BIS”) warned that “banks that have failed to adjust post-crisis face lingering balance sheet weaknesses from direct exposure to overindebted borrowers and the drag of debt overhang on economic recovery”, with this situation being the most acute in Europe. It also stated that increases in government debt ratios in several cases appear to be on an unsustainable path. It appears that debt levels matter for (some) economists after all.

Bad loans rising. Before we had Fitch, the ratings agency, stating last May that in a sample of 124 Eurozone banks which participated in the latest stress test impaired loans increased by an average of 8% in 2013, with no less than 30 banks seeing an increase of 20%. This could have certainly contributed to the massive contraction in private sector credit that we are now seeing on its own. But there’s more.

Emerging dangers. Trillions more in fact. In February Reuters reported that European banks have loaned in excess of $3 trillion to emerging markets – a little less than the entire GDP of Germany, and more than four times the exposure of US lenders to those countries. Fitch chimed in saying that “a handful of large EU banks are materially exposed to more fragile emerging markets.” While direct risks might be manageable for these banks, any contagion might be another story. Is an Argentinean default truly contained? Are Turkey’s problems solved? What happens if the latest EU/US sanctions hit Russian banks or companies hard?

Where’s the capital? Another eye-opener came over a year ago. In April 2013, Jakob Vestergaard and María Retana at the Danish Institute for International Studies published "Smoke and Mirrors: On the Alleged Recapitalization of European Banks", a report partially funded by the World Bank. The title says it all. According to the authors, by using broad capital measures based on risk-weighted assets European banking regulators have overstated the banks’ soundness and resilience in their stress assessments. Accordingly, “recent increases in risk weighted capital ratios have been little more than a smokescreen.”

By focusing on leverage ratios instead, the authors reached some interesting conclusions. The least well-capitalized banking sector among the larger Eurozone countries is not the Spanish or Italian… but the German, closely followed by the French! According to their estimates, a five-fold increase in equity capital is needed in order to reach “adequate” levels of soundness. It is well worth reading the entire report, including the discussion on why regulators seem to be consistently behind the ball on bank recapitalization.

Figure 1: Eurozone Government Debt-to-GDP (Maastricht Definition)
Source: European Central Bank

Sovereign debt jumps. But alarm bells should have been ringing even before that. In the third quarter of 2012, the overall government debt-to-GDP in the Eurozone surpassed 90% for the first time ever, as shown in the graph above. Why is this number important? In “Growth in a Time of Debt”, after analyzing 3,700 annual country data points going back centuries under the most varied macroeconomic conditions (and the occasional spreadsheet error ;), Carmen Reinhart and Kenneth Rogoff found that in countries which are above that 90% threshold GDP growth is generally weak. In other words, from that point on the odds are firmly stacked against us seeing the growth rates necessary to smoothly reduce debt loads that even the BIS agrees are problematic. And several Eurozone countries are way past that level now.

And who were the buyers of bonds in some of the most indebted periphery countries? In April 2012 Bloomberg reported that Spanish, Italian and Portuguese banks increased their holdings of domestic sovereign debt by very significant double digits, mostly financed by the ECB. Much to the chagrin of bond vigilantes, the ensuing decline in the bond yields of these countries virtually up until today might not be a sign of strength and stability – but rather an impressive feat of financial engineering.

That Minsky moment. Over two decades ago, Hyman Minsky described in his “Financial Instability Hypothesis” the interplay between the financial markets and the wider economy, which according to him is at the heart of the business cycle in a capitalist economy with a sophisticated financial system. During the good times increases in asset values often lead to investment and speculative excesses financed through debt. At some point the resulting cash flows can no longer cover those debts, impairing loans and prompting banks to tighten credit availability, even to companies with good credit ratings. This in turn leads to a contraction in asset values and economic activity in general.

And where are we now in the Eurozone? We have already seen the general increase in asset values, so check. And now we can also check bad debts rising and private sector credit contracting. If Minsky was right, what follows is not pretty.

Whether governments and central banks have the power to push back or avoid that fateful moment remains to be seen. But equity markets in Europe are already smelling a rat.

Figure 2: Ratio of Developed Europe Financial Services Stocks to FTSE Developed Europe Stock Index (Monthly)

The share prices of financial services companies in developed European countries have been lagging the general index for developed Europe for some months now, with the ratio dipping below its 10-month (simple) moving average last May – typically a bad omen for the sector and the markets in general.

With so many concerning signs developing since the last financial flare-up in the Eurozone, we can make the case that European banks should have been taking much more proactive steps in recapitalizing their balance sheets, especially with such robust equity markets. But it seems nobody likes to spoil a good party.

Alarm bells should not be dismissed so easily. They are there for a reason. Regulators, politicians, bank managers and investors should all be paying attention.


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Sat, 08/02/2014 - 13:10 | 5037822 hairball48
hairball48's picture

Yeah, Yeah....We've been hearing this story for years.

Sat, 08/02/2014 - 13:22 | 5037856 cifo
cifo's picture

I already started selling.

Sat, 08/02/2014 - 13:47 | 5037937 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

At some point the resulting cash flows can no longer cover those debts...

With modern CBs, this statement should read, "At some point the resulting cash flows and money printing can no longer cover those debts...."

Sat, 08/02/2014 - 15:22 | 5038250 Spigot
Spigot's picture

US.Gov Debt to GDP is what, 105% now?? We are in the enviable position of being at the top, once again, over 100% Debt/GDP group along with Sudan, Lebanon, Greece, Italy, Portugal, Ireland and Japan.

Sat, 08/02/2014 - 16:20 | 5038409 NoDebt
NoDebt's picture

Japan is in a league of their own.  Which is why it's worth watching them- they'll either be the trigger or the blueprint.  Right now they're looking a bit more blueprinty than triggerish.

Sat, 08/02/2014 - 17:07 | 5038567 debtor of last ...
debtor of last resort's picture

I took a good look in their eyes, nothing...

Sat, 08/02/2014 - 19:22 | 5038923 813kml
813kml's picture

Maybe they were squinting.

Sat, 08/02/2014 - 22:34 | 5039350 THX 1178
THX 1178's picture

They're always squinting

Sat, 08/02/2014 - 22:55 | 5039416 mvsjcl
mvsjcl's picture

So did Clint Eastwood, just before bodies started falling.

Sat, 08/02/2014 - 23:27 | 5039472 HardlyZero
Sat, 08/02/2014 - 23:33 | 5039502 SafelyGraze
SafelyGraze's picture

on keiser report: "homeopathic money"


Sat, 08/02/2014 - 18:44 | 5038825 Skateboarder
Skateboarder's picture

The poster child had fallback economies to absorb the effect of the experiment. Now everyone is Japan, and there are no fallback economies, except what BRICS is trying to scrape together, and that's its own secretive perversion of how to keep their people down and out while that union's 'leadership' robs the commoners.

GDP has been proven a busted metric, and therefore no debt/GDP ratio matters anymore.

It all comes down to one big contract somewhere, sometime, going bunk. Then everything crumbles.

Sat, 08/02/2014 - 19:23 | 5038924 The Limerick King
The Limerick King's picture



My Eurozone bank isn't right

Its assets are smelling like shite

The ECB test

Said my bank was the best

Get ready for capital flight!!!

Sun, 08/03/2014 - 09:31 | 5040016 Bendromeda Strain
Bendromeda Strain's picture

That one needed a Burma Shave type conclusion... i.e.,


Get ready for capital flight!!!


Sun, 08/03/2014 - 10:35 | 5040113 Greenskeeper_Carl
Greenskeeper_Carl's picture

+1, im glad im not the only one who thinks that about this new BRICS bank. Everytime i say something like that i get hit with red arrows, but no one ever responds and tells me why I am wrong. Its not going to be some gold backed currency to do good things for the world by restoring sound money. Its going to be another fiat currency, and its just going to be another central bank, that does the same things all other central banks do- legalized, hidden theft from all its people. This one just won't use the dollar, and gives them a way around the US govs SWIFT system

Sun, 08/03/2014 - 12:52 | 5040546 withglee
withglee's picture

Am I not correct in asserting "a gold backed currency" does not exsit anywhere in the world today ... and hasn't for a very long time?

That being the case, you are recommending one ... meaning you'll have to create it. Knowing there is only 1oz of gold per person on Earth, please describe how your "gold backed currency doing good things for the world restoring sound money" works.

Sun, 08/03/2014 - 14:33 | 5040913 Greenskeeper_Carl
Greenskeeper_Carl's picture

it would probably work pretty much how it did throughout human history until the past century or so. And when i say 'gold backed' i mean silver and gold, commodity money that can't be created out of thin air like what we have now.

Sun, 08/03/2014 - 19:40 | 5041915 withglee
withglee's picture

Have you ever run the numbers? Today, 1oz of gold is less than $2,000. Since there's only 1oz per person on Earth, that has to balance each average person's  outstanding trades plus their savings. That is what they can demand in gold and silver in such a system. It's only petty cash to most of the people I know ... but maybe a pretty big deal to those in Ethiopia.  Further, adding silver doesn't help hardly at all. There is only 1/5 the value of silver existing as gold, so adding silver would bring you to less than $2,400 per person.

Now, knowing that (the facts) ... tell me how your gold and silver backed sound money system works.

Sat, 08/02/2014 - 17:37 | 5038636 Kirk2NCC1701
Kirk2NCC1701's picture

@Truthseeker2: "Obama's Ukraine Fiasco Will Trigger US-EU Economic Ruin"

This "Ruin" is deliberate and preplanned... Either

(1) to front-run a shift of the EU toward Eurasia (bad for Anglo-American Alliance and the USD as the GRC), or

(2) to use it as a pretext for a canned solution by the Globalist Banksters in response to a crisis of their making.

By using economic and political events as both cover and pretext, said Globalist Banksters ride in as heroes, instead of the true villains that they are.  So, instead of an asset confiscation, lynching and hanging, they get accolades and maintenance of wealth, power and lifestyle.

Through the use of the internet and social networking, libertarian people can organize to bring the Truth and Genuine Solutions (based on proven, universal and timeless principles) to every household.

Sat, 08/02/2014 - 17:52 | 5038694 Bindar Dundat
Bindar Dundat's picture

Do you think you can ever counter act  chaos?

No single organization could ever manage  billion people within 300 countries,  Even after a full John Fairley <>; war there would still be 4 billion people knocking around without cause so forget the theories of collusion -- can't happen.


Sat, 08/02/2014 - 19:16 | 5038903 Kirk2NCC1701
Kirk2NCC1701's picture

Ever heard of Hierarchies?  Leveraged Control?  Networks?  Hierarchy of Networks?

That's how Governments, Oligarchs, complex orgs and... the brain even work.  The latter (hierarchy of networks) dominates in the most complex of systems.

Sun, 08/03/2014 - 05:49 | 5039812 free_lunch
free_lunch's picture

There is a lot of distraction going on in the world..  but:

German MEP Helmut Scholz explains why the GUE/NGL group in the European Parliament is calling for an immediate end to negotiations on the Transatlantic Trade and Investment Partnership (TTIP).

Read the article:

Watch the video: 



I don't know how much of this (NWO -Free Masonry - conspiracy) video is truth or fantasy, but it at least stimulates critical thinking:

Illuminati ..NWO..Freemasons for Dummies video


Law abiding citizen

Sat, 08/02/2014 - 19:44 | 5038972 Anybody
Anybody's picture

Re: Kirk2NCC1701

(2) to use it as a pretext for a canned solution by the Globalist Banksters in response to a crisis of their making.


A very keen analysis Captain Kirk. And hence it will drag on for another century or so long enough for it to be forgotten who the culprits were. Where's First Officer Spock when you need him?

Sun, 08/03/2014 - 17:11 | 5041457 Implied Violins
Implied Violins's picture

This is exactly correct. The proof is all here in this brilliant post by Ken at '':

This whole world scene has been created to make the west look like bad guys and then issue in the east as the good guys...but in the end, the people at the very top (IMF/BIS/BRICS) will be in charge - of the ENTIRE WORLD. When this current shitstorm ends people will be so relieved that they won't care to look at the bigger pattern; they will just be happy that they are still alive.

When this shit ends, we can't be satisfied until ALL OF THEM, ALL the bankers and politicos everywhere are GONE.

Sat, 08/02/2014 - 13:46 | 5037931 yrbmegr
yrbmegr's picture

We're always predicting disaster here on ZH.  Someday, we might be right about something.

Sat, 08/02/2014 - 14:25 | 5038060 FreedomGuy
FreedomGuy's picture

I have noted that, myself. Yet, I tend to agree with many of things posited. To me, the core problem is the entire concept of central planning. As central planning grows the true value of everything is lost. The true value of labor, money and products all get lost. In this process there are still winners and losers so things do not break instantly. There were lots and lots of winners in the house pyramiding for a long time. Then in a flash they were all losers. It appears to be starting again. The ability to adapt to government and central planning is enormous so it makes sense to me that there will be ten predictions of disaster to every actual disaster. It is just the magnitude and timing that are hard to predict.

Sat, 08/02/2014 - 17:33 | 5038637 Dick Buttkiss
Dick Buttkiss's picture

Along with lying, cheating, stealing, killing, and indoctrinating to render the first four respectable, there's one more thing governments are good at — extend and pretend — the problem being that the longer this strategy "works," the worse it will be when reality finally has its say.

Sat, 08/02/2014 - 17:45 | 5038674 Escrava Isaura
Escrava Isaura's picture

Dick Buttkiss, you said: "extend and pretend..."

Your rhetoric is pretty good at that, too.

Sat, 08/02/2014 - 23:00 | 5039430 Slave
Slave's picture

Everybody hates you. Go away.

Sun, 08/03/2014 - 10:44 | 5040133 Greenskeeper_Carl
Greenskeeper_Carl's picture

do yall remember this person trolling unttil recently? apparently he/she has been a member for 4 years, but i don't remember seeing this account until recently, and its always trolling. but yes, please go away

Sat, 08/02/2014 - 14:36 | 5038105 Space Animatoltipap
Space Animatoltipap's picture

The own material mind is the actual disaster. 

Sat, 08/02/2014 - 15:15 | 5038226 Spitzer
Spitzer's picture

ZH gets on the Euro hate bandwagon as much as anyone.

Sat, 08/02/2014 - 16:12 | 5038384 El Vaquero
El Vaquero's picture

What ZH has missed in its predictions of disaster is timing.  I certainly never thought that we would have carried on this long post Lehman.  One of the reasons for this, I think, is that we need to hit a few problems all at once where any one problem is solvable all by itself, but all of them together overwhelm the system.  That day will come, but the question is when?  If I could answer that with real certainty, I would wait until right before, then take out a credit card with the largest line of credit possible and max it out.


With potential triggering events coming faster and faster, the chances that we'll see something bad are getting higher.  What if war in MENA reduces world oil output by a significant percentage while Russia gets a few more major players on board with bypassing the dollar at the same time?  We're screwed.  Especially if you throw in another banking crisis at the same time. 


I think that one of the problems is that we are and have been in a state of collapse for quite some time.  At first, it was so gradual, we didn't even notice it.  Times were even good at the beginning and the middle of this collapse.  Lehman just ripped the facade off of it.  We've been experiencing the slow grinding part of a collapse for a while, expecting the collapse to be rapid.  I expect that there will be a rapid phase, and I expect it sooner rather than later, but I'm not going out and signing up for that line of revolving credit.  I fully expect to get caught by surprise, but not with my pants down. 

Sat, 08/02/2014 - 17:31 | 5038631 Escrava Isaura
Escrava Isaura's picture

El Vaquero, you said, not my words: "...not with my pants down."

I am here to help your keep your pants... where it should be (covering your ass):

Sat, 08/02/2014 - 19:39 | 5038957 I_Am_
I_Am_'s picture

 Excellent Link!

Sun, 08/03/2014 - 03:17 | 5039722 COSMOS
COSMOS's picture

Collapses and world wars have definitely repeated themselves, one good litmus test a guy was saying is when you hear the elevatorguy in a NY giving you advice definitely get out of the market.

Sun, 08/03/2014 - 08:54 | 5039964 Escrava Isaura
Escrava Isaura's picture

I would suggest you to give an ear to the shoeshiner.... You will always get something back...... better.

Sat, 08/02/2014 - 17:40 | 5038663 chunga
chunga's picture

Just like being in a boat alone far from the beach. I can handle one problem, maybe two, but more than that and the water starts turning green.

Sat, 08/02/2014 - 19:59 | 5038993 El Vaquero
El Vaquero's picture

I think you mean the water starts turning gold.  Or silver.  Boating accidents are funny like that.

Sun, 08/03/2014 - 03:21 | 5039724 COSMOS
COSMOS's picture

Speaking of boating.  That is a good way to drop off the radar.  Sail the Pacific, catch your own fish, and with sail power you dont have to worry about gas payments.  Not only that but no property taxes, and you can maybe do a little charter on the side to make some money on the side tax free.

Sun, 08/03/2014 - 06:49 | 5039839 what's that smell
what&#039;s that smell's picture

....speaking of boating....don't forget pirates, drug runners, large waves, carcinogenic pollution, coral reefs, pesky leaks, sharks, mercury-laden fish, dead calm, and big wind.

...oh yeah....drowning and hypothermia.

Sun, 08/03/2014 - 08:56 | 5039967 Escrava Isaura
Escrava Isaura's picture

what's that smell,

Are you always this difficult?

Sat, 08/02/2014 - 22:27 | 5039329 tarsubil
tarsubil's picture

I completely agree. If you get around and start looking at the society of the US, it has already collapsed. This country is a complete and total disaster. But it is all behind the phony McMansion walls. The US is not going to last another generation as top dog. It's over. Everywhere I look, the thing is rotten. There are so few healthy people, in terms of physical, emotional and spiritual, in this country it is sad.

The mask will be ripped completely off in the next 20 years and the dark twisted thing underneath will shrivel up in the sunlight.

Sun, 08/03/2014 - 00:07 | 5039555 stocktivity
stocktivity's picture

Vac - That's one good post

Sun, 08/03/2014 - 10:58 | 5040173 Greenskeeper_Carl
Greenskeeper_Carl's picture

according to john williams of shadowstats, if you use a more realistic deflator, such as what the govt used to calculate inflation in 1980, before they started constantly tweaking it to make inflation seem lower than it is, we haven't had real growth since 2005 (I would argue its all been fake since at least 2000). Which means we have been in a technical depression for almost a decade. Whats caught most by surprise is how long they have been able to paper over the problems and fool everyone. One thing ive noticed that may be an indication of things strting to unravel is the way gold is hammered, and how it is losing its effectiveness. Until recently, a few hundred million worth of futures dumped on the market during thin trading hours could knock close to 30$ off the price, and also trigger a brief halt in trading. Now, they are having to dump 1.5 billion at a time to get a signiicant move. But even that ammount, 7 or 8 times what was used last year, doesnt even trigger a stop, or shave more than a few dollars off

Sun, 08/03/2014 - 11:47 | 5040322 El Vaquero
El Vaquero's picture

Go back to 1970-1971.  That's when US oil production peaked and Nixon took us off the gold standard.  We've had good times since then, but that was the inflection point.  People had to start working more hours or go into more debt to maintain the same standard of living.  We've had good times since then though.  Then, the employment-population ratio peaked around 1999 or 2000. Another red flag.  We've been in decline for a while, and the tricks being used to maintain the status quo are becoming less effective.


Think about it this way, we can look back now and see that 40 years before its demise, it was obvious with 20-20 hindsight that the Western Roman empire was in decline.  They were debasing their currency and imposing onerous taxes and regulations before the end.  Sound familiar?  What would most Romans have said if they had been told that in 4 decades, Rome would be no more?  One striking difference between today and antiquity to be kept in mind is that transport and communications are much faster.  Any aspect of collapse that depends on the speed of communication or transport can happen much faster today. 

Sat, 08/02/2014 - 17:08 | 5038573 debtor of last ...
debtor of last resort's picture

Someday, the hedge is just like the 'price' of silver. Keep stackin'

Sun, 08/03/2014 - 07:54 | 5039904 NoPension
NoPension's picture

I'm learning Spanish. Can't beat em, join em.

Sat, 08/02/2014 - 19:06 | 5038887 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

A broken clock is right twice a day!

Sun, 08/03/2014 - 03:23 | 5039726 COSMOS
COSMOS's picture

Really now, as far as wars in Europe and the economic blight associated with them that clock is right more than twice a day.

Sat, 08/02/2014 - 19:34 | 5038947 Kirk2NCC1701
Kirk2NCC1701's picture

@yrbmegr: "We're always predicting disaster here on ZH.  Someday, we might be right about something."

You refer to the BROKEN CLOCK syndrome.  Alas even a broken clock is accurate more frequently than Financial Planners, Brokers and Doomsdayers. 

OTOH, the latter three are far more profitable than the broken clock.  Hedge, plan accordingly.  ;-)

Sun, 08/03/2014 - 10:15 | 5040075 TheReplacement
TheReplacement's picture

Perhaps you are not paying taxes to support every method of welfare?  Perhaps you have not had your account bailed-in?  Perhaps you are not unable to find work and so not dependent on government handouts?

Perhaps you are on the inside so the disaster that IS has not touched you personally?

Sat, 08/02/2014 - 14:12 | 5038015 Stuck on Zero
Stuck on Zero's picture

If they would just give the unelected bureaucrats in Brussels more power this mess would never occur.

Sat, 08/02/2014 - 17:47 | 5038677 Beowulf55
Beowulf55's picture

ya forgot the /sarc

Sat, 08/02/2014 - 18:20 | 5038776 Escrava Isaura
Escrava Isaura's picture

hairball48, you said: "been hearing this story for years."

Well, the rhetoric is measured in decades.

Sat, 08/02/2014 - 19:02 | 5038874 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

I couldn't have put this any better.

Sat, 08/02/2014 - 13:12 | 5037829 IronShield
IronShield's picture

Stay still little fishy; whiles I guts ya!  ;-)

Sat, 08/02/2014 - 13:24 | 5037863 IronShield
IronShield's picture

I have acquaintances in good ole Europe and even with the NIRP and bail-ins, it's as if they believe it won't happen to me.  Ho Lee Fook; can you say De-Nile?  I knew ya could.  ;-)

Sun, 08/03/2014 - 03:25 | 5039727 COSMOS
COSMOS's picture

Like the sick Ottoman Empire, the EU is trying to digest Ukraine so it can keep going a little longer.  Ukraine offers very good cheap land for Euro Retirees, and farmland to feed the zombies and keep them from going crazy in Euro capitals.

Sat, 08/02/2014 - 13:13 | 5037832 pauhana
pauhana's picture

Everyone knew it wasn't fixed but never guessed it was this bad.

Sat, 08/02/2014 - 13:28 | 5037876 Keyser
Keyser's picture

Much like Fukashima, which no one talks about... 

Sat, 08/02/2014 - 21:53 | 5039248 freewolf7
freewolf7's picture

Radiation trumps wealth, so if you talk about Fukushima, everything else becomes irrelevant. Whatever happens with the global debt does not answer the question of how to remedy the now toxic Pacific. In the meantime, articles about money, viruses, and sociopaths are a great distraction.

Sat, 08/02/2014 - 13:15 | 5037838 ekm1
ekm1's picture

Rule of Thumb:


ECB is the European Branch of Federal Reserve

Sat, 08/02/2014 - 13:23 | 5037857 digitalindustry
digitalindustry's picture


100 % true,  but its 2014 :

The "Cupboard is bear"


maybe there is a bear in the cupboard ?

but there's definitely no cash left.

Taco Tuesday is around the corner !   -



Sat, 08/02/2014 - 14:16 | 5038020 Theosebes Goodfellow
Theosebes Goodfellow's picture

There is no bear in the cupboard. If there were, then the cupboard wouldn't be BARE, (and the door wouldn't close).

Homophones, phone home. :)

Sat, 08/02/2014 - 15:17 | 5038233 Spitzer
Spitzer's picture

The ECB is not an arm of the Fed. Well, it wasn't designed to be but with the Goldmanite at the helm, it probably is

Sat, 08/02/2014 - 13:51 | 5037951 Bear
Bear's picture

With Belgium being as our last best hope for keeping us afloat

Sat, 08/02/2014 - 13:58 | 5037974 ekm1
ekm1's picture

Belgium is simply the Fed continuing QE via Euroclear

I estimate current QE is at about $150-200 billion per month

Sat, 08/02/2014 - 14:40 | 5038117 fonzannoon
fonzannoon's picture

how do you come to that estimation?

Sat, 08/02/2014 - 14:54 | 5038156 ekm1
ekm1's picture

10 year yield going below 2.5%

Sat, 08/02/2014 - 15:10 | 5038206 fonzannoon
fonzannoon's picture

Foreigner ust holdings keep hitting new ath's (yes yes even besides belgium) pension funds buying ust's banks need them for collateral. massive demand for ust's are why the 10yr is below 2.5%. throw in fear of stock market bubble.

yellen is going to have to raise rates, and she will, and she will keep the rigged market going up when she does.

Sat, 08/02/2014 - 15:15 | 5038223 ekm1
ekm1's picture

If that is true, then why did they actually start and continued QE if there were non fed demand?

Sat, 08/02/2014 - 16:31 | 5038418 NoDebt
NoDebt's picture

Wait, so we're saying that debt is money.  Money is debt.

Einhorn is Finkel.  Finkel IS EINHORN!

Is that your gun digging into my hip or are you just glad to see me?  Bleh!

Sat, 08/02/2014 - 17:13 | 5038583 ekm1
ekm1's picture

All money is credit/debt and all credit/debt is money including gold

Sat, 08/02/2014 - 17:36 | 5038649 Bioscale
Bioscale's picture

Gold is debt? You mean by owning real gold I'm actually having a liability? To whom?

Sat, 08/02/2014 - 17:57 | 5038654 ekm1
ekm1's picture

Economy owes goods and services to you, the gold holder

Gold is recurring debt without expiry and without yield

Sat, 08/02/2014 - 18:12 | 5038744 Tall Tom
Tall Tom's picture

Accounts Receivable is considered an asset, not a liability.


Now it is considered a liability, a debt?

Sat, 08/02/2014 - 18:44 | 5038826 ekm1
ekm1's picture

I used to comment on FTAV. Kaminska used to write fantastic stuff, until she was told to just talk the official line.

FTAV is trash, now.

Sat, 08/02/2014 - 19:00 | 5038865 fonzannoon
fonzannoon's picture

u sure any of us can distinguish between what's trash and what accurate anymore? u sure just because an opinion differs from the narrative on here that makes it wrong? 

Sat, 08/02/2014 - 19:05 | 5038882 ekm1
ekm1's picture

i've read everything from her for 3 years. She changed abruptly 6 months ago and the whole FTAV changed

Sat, 08/02/2014 - 20:36 | 5039082 fonzannoon
fonzannoon's picture

dude a year ago you were on here with a thirst for knowledge. You questioned everything. Now you are on here with a lecture everyday. Do you notice that difference in yourself? You are throwing out crazy figures like -4% gdp and 200 bil a month QE and when asked to elaborate you give answers like "10 yr below 2.5%". 

You sure you want to throw stones at her?

Sat, 08/02/2014 - 20:42 | 5039095 ekm1
ekm1's picture

I exhanged emails with here several times. We were on the same wavelength until she abruptly changed and I started calling her out until I simply quit posting there.

She needs an income also. She'll do what told. I don't blame her at all.

I'd do the same thing if I were her, probably

Sat, 08/02/2014 - 20:53 | 5039117 fonzannoon
fonzannoon's picture
"She needs an income also. She'll do what told. I'd do the same thing if I were her" "The point to understand here is that emerging market central banks are not really in control of their own currencies. Dollar inflows from exports or investments keep currencies supported, but eventually the currency appreciation kills your export competitiveness. The emerging market central banker is then in a bind, unable to depreciate the currency! It’s like subscribing to a euro system of your own volition. Without a constant source of cheap US dollar liquidity, the whole thing would collapse in on itself."
Sat, 08/02/2014 - 21:07 | 5039152 ekm1
ekm1's picture

Again, money recycling from computer to computer for bonds and stocks does not mean output or real trade

Sat, 08/02/2014 - 20:44 | 5039097 ekm1
ekm1's picture

-4% GDP is already proven even officially. Why the doubt there?

Sat, 08/02/2014 - 20:45 | 5039102 fonzannoon
fonzannoon's picture

link please

Sat, 08/02/2014 - 20:50 | 5039111 ekm1
ekm1's picture

It was officially -2.9% for Q1. They used smaller deflator. With the normal deflator would have been -5-6%

For Q2 it is officially +4% with smaller deflator. With normal deflation is officially about 1-2%

Hence, thus far, -4% when the proper deflator is used.

Sat, 08/02/2014 - 20:56 | 5039123 fonzannoon
fonzannoon's picture

"even officially"

link please

Sat, 08/02/2014 - 21:02 | 5039135 ekm1
ekm1's picture

Wasn't it -2.9% for Q1?

I'm following old pros on twitter who used to calculate GDP for the government, who brought up the 'deflator' issue several times.

Deflator used now is much smaller.

Sat, 08/02/2014 - 21:06 | 5039149 ekm1
ekm1's picture


found it

Here's one old pro who is retired now.

Sat, 08/02/2014 - 18:49 | 5038835 ekm1
ekm1's picture

Balance sheet is just one way to represent trade, it's a legal document.


Goods go one way, money goes counter way.

Money (USD or Gold) claims output.

The statement assumes trading is going on and people buy goods and services.

Everybody considers holding USD or Gold as holding a debt instrument without expiry and without yield which can be exchanged with goods and services with free willing individuals.


It is not a debt agreement in the classical way of debt, but it is a form of debt. It is debt.

Sat, 08/02/2014 - 19:22 | 5038927 Tall Tom
Tall Tom's picture

Yes Money claims future output. That is completely understandable.


Of course the assumption is that people will be trading. There is NO ECONOMY without trade. That is what an economy is.


However Gold is also a Hard Good. The amount of that Money has been growing at 2% per annum and keeps pace with population growth as well as an ideal production growth.


(I am not writing that growth is good as it is unsustainable. I know better. It is NOT. But then I am writing about what is real, whether I consider it good or not.)


I am part of "everybody" and I do not consider that holding USDs maintains Purchasing Power as USDs are created at ever increasing rates by the Federal Reserve whereas Gold is created at a stable rate. Thus the value of USD, issued as Debtor's Notes, is being depleted.


I also consider that the actions of Central Banks and Large Financials to supress the price of Gold, using naked shorting and other sleight of hand techniques is artificially keeping the illusion that Price Inflation is checked when it is not. It is artificially supressing the Purchasing Power of Gold.


Thus holding USD guarantees a loss of future Purchasing Power while holding Gold gives the promise of maintaing Purchasing Power in the future.


But if the US Dollar is created as a Debt, and is a Debtor's Note, then it is a liability to the Loan Orignator. The value thereof is also subject to counterparty risk.


I understand that Gold, due to manipulation, is also currently subject to counterparty risk. But that cannot be maintained forever.


Since the USD is created from Debt, thus it is Debt, then it needs to be considered as a liability.


Gold, as it is an haed asset, is not created as the result of debt. It needs to be recognized as an asset in that it is a claim on future Goods and Services.


I am certain that you have read about and understand Exter's Inverted Pyramid?

Sat, 08/02/2014 - 22:34 | 5039356 tarsubil
tarsubil's picture

Like tally sticks? There is an assumption that it is worth stuff or services. A debt to someone other than you?

Sat, 08/02/2014 - 18:25 | 5038788 Bioscale
Bioscale's picture

Economy owes me nothing just due to the fact I might own some gold. That would imply that all factories and the every industry are completely indebted forever  and can't get rid of it because their goal is .. to produce goods and services.

Is this a new kind of fucking newspeak?

Sat, 08/02/2014 - 19:01 | 5038870 Tall Tom
Tall Tom's picture

You do not understand what money is. Money is a receipt for Future Goods and Services.


People take Money in lieu of a Hard Good or Service in a trade with the faith that the Money taken can be traded at a later date.


If Gold is MONEY, and GOLD IS MONEY, then Gold is taken in trade for a Hard Good and Service in order that it can be traded tommorow..


If I sell you a widget and I value the widget at a Tenth Ounce, then I am acting IN FAITH when I take that Tenth Ounce, that I can trade that Tenth Ounce tommorow for a Good or Service which I need or want.


Now the problem with US Dollars is that they are subject to a dicatates of a counterparty who can devalue US Dollars at whim...BY PRINTING MORE OF THEM. Thus US Dollars do not store wealth, Purchasing Power, but the value is being continually eroded.


While it is granted that the Powers That Be are also supressing the PRICE OF GOLD, sooner, or later, they will lose control of that because of their INSANE Monetary Creation Policies.


Money was developed to remove the problem of BARTER.


Gold, historically, was the least common denominator and thus was adopted as Money. It still is MONEY, the purest and truest form. It will be the last man standing when the curtains fall and the economy collapses.

Sat, 08/02/2014 - 19:17 | 5038911 ekm1
ekm1's picture


Sat, 08/02/2014 - 20:12 | 5039021 Kirk2NCC1701
Kirk2NCC1701's picture

Seriously though, Money is also a Claim on past "goods, services and obligations".

Sat, 08/02/2014 - 19:40 | 5038962 Kirk2NCC1701
Kirk2NCC1701's picture

I heard a Brother say that "Gold is Bling.  Bling gets you pussy.  You don't know Debt till you've had pussy."

Sat, 08/02/2014 - 20:19 | 5039035 Tall Tom
Tall Tom's picture

You have heard it said that all it takes to get a woman is time and money. Thus...


Eq(1)      women = (time)(money)


Add into this the fact that time is money


Eq(2)      time = money


Substituting Eq(2) into Eq(1) yields...


Eq(3)      Women = (money)2


Now it has been said that Money is the root of all problems...


Eq(4)       money = (problems)1/2


Substituting Eq(4) into Eq(3) yields...


Eq(5)        Women = [(problems)1/2]2


Simplifying yields...


Eq(6)      Women = Problems.


So the next time that women give you problems at least you will understand why.



Sat, 08/02/2014 - 22:38 | 5039366 tarsubil
tarsubil's picture

That is so awesome. Did you come up with that yourself? I started laughing at [problems]^1/2.

Sat, 08/02/2014 - 23:47 | 5039525 HardlyZero
HardlyZero's picture

No.  This is ancient wisdom from the 1950's or 60's.  It is the highest pre-geek theory.  Probably developed at west coast or east coast (Cal Tech, Stanford, MIT).

Sun, 08/03/2014 - 00:25 | 5039574 Tall Tom
Tall Tom's picture

I read in a text somewhere. But if you cannot derive it then you do not know it.


And man...I know it.


You ought to check out the one that Skateboarder posted on the Economic Theory in One Cartoon thread.

Sat, 08/02/2014 - 23:19 | 5039478 orez65
orez65's picture

"Economy owes goods and services to you, the gold holder ..."

WTF ????

No !!! The economy does not owe any good or service to a gold holder.

If you exchange your product or service for gold the transaction is ended, period, end of the story,transaction totally and absolutely completed.

You dont know WTF money is.

Sat, 08/02/2014 - 15:22 | 5038246 ekm1
ekm1's picture

If financial system is not allowed to function based on supply/demand of real economy, then world will simply not use it, as it is happening with BRICs

Sat, 08/02/2014 - 17:17 | 5038598 Marco
Marco's picture

As long as Saudi Arabia keeps using the dollar it doesn't matter.

Sat, 08/02/2014 - 17:36 | 5038650 Escrava Isaura
Escrava Isaura's picture

Marco, have you consider US demand against SA oil profits?

Sat, 08/02/2014 - 17:52 | 5038696 ekm1
ekm1's picture

They will but they want Obama to come back online or resign

Sat, 08/02/2014 - 17:56 | 5038707 Escrava Isaura
Escrava Isaura's picture


Sat, 08/02/2014 - 18:52 | 5038847 ekm1
ekm1's picture

A top ally and a hyper top ally like Saudis, have the right to influence US domestic and foreign policy.

Obama hates Saudis and loves Iran.

Obama has a problem.

Sat, 08/02/2014 - 19:39 | 5038961 Tall Tom
Tall Tom's picture

So do do we.

Sat, 08/02/2014 - 20:03 | 5039001 Escrava Isaura
Escrava Isaura's picture

ekm1, Wow!

You need to connect the dots for us.

You know more than us, here!

Sat, 08/02/2014 - 17:14 | 5038587 Bear
Bear's picture

Wow that's some deep hole to plug

Sat, 08/02/2014 - 18:42 | 5038820 Atomizer
Atomizer's picture

How many fingers will it take to plug a leaking ship?

Sat, 08/02/2014 - 19:33 | 5038944 813kml
813kml's picture


Sat, 08/02/2014 - 23:50 | 5039539 HardlyZero
Sat, 08/02/2014 - 14:02 | 5037983 digitalindustry
digitalindustry's picture

Can't cheat being a bag-holder - have to have productive capacity to exploit so "Belgium" is irrelevant unless we start seeing "Europeans" "turning Japanese".


This is also somewhat of an indication of how possibly desperate the situation may be.

Sat, 08/02/2014 - 18:59 | 5038861 ekm1
ekm1's picture



Money is NOT capital.

Money is a claim on capital


Capital is a property which produces output.


Financial system is NOT the economy.

Financial system allocates claims on the economic output and assets.

Financial system is simply a legal system, not the economy.


Following circulation of money does not mean you are following economic output and economic trade.

Shadow banking recycles money into money into money and into money does not reflect real output of the economy.


Lecture is over

Sat, 08/02/2014 - 20:12 | 5038985 tickhound
tickhound's picture

So then if "money" is a claim on capital, and capital is property that produces output, why have money if/when output is automated? Eventually entirely automated.

So see, money works well in an "economy" that requires your labor. "Output" is no longer dependent your labor. And increasingly less and less so.

If not for the labor/wage quagmire, we, as in humanity, would be pleased to see automation. We would insist on it.

The so called "money" we have will soon be replaced by the "resources" we have, our capacity, and our rates of extractions and depletions. "Afford" along with "money" are terms increasingly obsolete. If they weren't, they couldn't be so easily distorted.

The longer we keep money, by your and THE above definition, the longer we enable fewer and fewer to control capital (that property that produces output).

Sat, 08/02/2014 - 20:27 | 5039050 ekm1
ekm1's picture

Money = Measurement of Trade surplus/deficit and Codification of it


In pure barter, money needs not to exist.

Money is a result of partial bareter.

The difference in trade creates money.


That is the universal definition of money, Measurement of Trade Surplus/Deficit and Legalization of it


Gold is the safest form of money, because all world religions and cultures ACCEPT it in exchange for goods and services, to settle trade.


Gold is money (or used to settle trade) only and only and only because all world religions venerate it in one way or another for thousands of years.

Sat, 08/02/2014 - 20:45 | 5039091 tickhound
tickhound's picture

K, first off I thought we were beyond Webster definitions. And I didn't need a history lesson.

I replied because I thought you said something valuable to the class here, and that is money (real money) is a claim on capital, and that capital is property that produces output.

I'm not challenging what you said, if you failed to see this. I am, however, challenging you to take things a step further.

Which means we may need to CONSIDER letting go of "thousands of years of 'religious' behavior" (thousands of years dependent human labor, and thousands of years of leftover conditioning).

To me, the real debate begins when one asks, "so then WTF are we going to do with our time." "WTF will distinguish me from others?" "WTF will justify my existence on this rock?"

Cog dis hits real hard right there.

Sat, 08/02/2014 - 20:52 | 5039116 ekm1
ekm1's picture


I take things seriously in general.

My bad

Sat, 08/02/2014 - 22:50 | 5039406 tickhound
tickhound's picture

Oh, my bad too, and all this time I thought you just threw out numbers.

Sat, 08/02/2014 - 22:13 | 5039297 TuPhat
TuPhat's picture

There is no such thing as automation without any labor and never will be.  You might understand economics but you have no understanding of technical matters such as automation.  Or did you send your post from the Starship Enterprise?

Sat, 08/02/2014 - 22:39 | 5039364 tickhound
tickhound's picture

Yeah cuz machines could never make machines, from resources extracted and delivered by machines. But lol ok.

That said I didn't imply that it wouldn't take SOME scientists and technicians and smart machines to feed millions. What I am implying is that it won't take 7 billion of them. And since we ALL can't be scientists and technicians... what make work program for the human race are you suggesting going forward?

Tell you what... How bout you play the job creator, and I'll play the job eliminator. Then let's compare real trends and you can check back.

Sat, 08/02/2014 - 23:49 | 5039537 Tall Tom
Tall Tom's picture

What is even funnier is that Artificial Intellegence is right around the corner.


We will have it by 2040...if we do not annihilate ourselves irst.


The problem with these Austin, Texas Socialists are that they are shallow thinkers. They lack depth and do not read anything which deals with High Tech.


Hell those 3-D Printers will be in every home producing any gadget that you need out of that recyclable plastic we now throw away.


That is going to put the Dollar Stores out of business.


LOL at all of the displacement.


It will be think or perish.


We will still need plumbers and that for awhile. But robotic plumbers will take over with AI brains.

Sun, 08/03/2014 - 01:16 | 5039639 SMG
SMG's picture

O wonder!
How many goodly creatures are there here!
How beauteous mankind is! O brave new world,
That has such people in't.

Oh God help us all.....

Sun, 08/03/2014 - 02:08 | 5039687 tickhound
tickhound's picture

Ah yes the boomergoon national anthem. But back in my day... Yeah yeah grandpa it was called a McJob.

Sat, 08/02/2014 - 23:36 | 5039511 orez65
orez65's picture

"WTF will justify my existence on this rock?"

That's getting pretty far from a discussion about money, but I'll throw in a couple of thoughts.

If you believe in religion, then you are in the rock because of whatever your religion says.

If you leave religion aside, you are just a result of evolution, a random result of the "competition for resources" 

Therefore you must choose your own path. 

I, personally, favor Mother Theresa's advice: if you want to make this a better world, take care of your family.

Sun, 08/03/2014 - 10:19 | 5040080 lesterbegood
lesterbegood's picture

Just like the BANK OF CANADA is the 13th Federal Reserve District.

Sat, 08/02/2014 - 13:21 | 5037850 Space Animatoltipap
Space Animatoltipap's picture

When France becomes a serious economical threat the domino's will hit the US also. So the FED international socialists will come to the rescue since it's of course their WW piramid ponzi scheme. In the mean time Germany may look to Russia and China for long term monetary and economical alliances. The NY/London axis of international socialist evil is indeed challenged every day more and more.

Sat, 08/02/2014 - 13:21 | 5037854 Seasmoke
Seasmoke's picture

We might find out. That smartest people on the planet. Aren't so smart after all. 

Sat, 08/02/2014 - 13:30 | 5037879 Keyser
Keyser's picture

No, they will blame someone else. Most likely, us. 

Sat, 08/02/2014 - 13:51 | 5037952 disabledvet
disabledvet's picture

More like the USSR it would appear.

Sat, 08/02/2014 - 13:49 | 5037944 Bear
Bear's picture

I don't know about that ... they looted the Middle Class and appear to be above the law almost everywhere ... and they will be no where to be found when the SHTF ... probably escaping to their tropical island or their mountain estate.

Sat, 08/02/2014 - 17:42 | 5038669 crazybob369
crazybob369's picture

Reminds me of the old joke about the priest, the hiker, and the smartest guy on the planet trapped in a doomed plane.

Sat, 08/02/2014 - 13:23 | 5037860 fiboman
fiboman's picture

And also European stocks (VGK) ,the last week, have broken a significant support trendline from 2012


Sat, 08/02/2014 - 13:41 | 5037868 jubber
jubber's picture

From Nov 2011 Oilver Sarkozy Europe liabilities  Euro 30 Trillion!!!!  Brilliant interview worth watching the whole thing, but if you want the main bit play from 4:30

Sat, 08/02/2014 - 13:27 | 5037872 alexcojones
alexcojones's picture

A. Can Europe last the winter without Russian gas?

B. Can the the World last the winter without War?

C. Can the US dollar last without War or Ebola / Martial Law?

D. No to All of the above, IMHO

Sat, 08/02/2014 - 13:39 | 5037911 Seasmoke
Seasmoke's picture


Sat, 08/02/2014 - 19:47 | 5038977 Kirk2NCC1701
Kirk2NCC1701's picture

Alex, you may be a Newbie to ZH, but not to Reality and Truth.  Keep it up.

Sat, 08/02/2014 - 13:32 | 5037885 Joebloinvestor
Joebloinvestor's picture

They should put up a graph of all EU bankers bonuses.

Sat, 08/02/2014 - 13:46 | 5037933 Omen IV
Omen IV's picture

whatt were the list of banks as promised who were on the hook for the CDS for Argentina?

Sat, 08/02/2014 - 13:49 | 5037942 q99x2
q99x2's picture

"Regulators, politicians, bank managers and investors should all be" replaced with open source software.

Sat, 08/02/2014 - 13:55 | 5037964 Joebloinvestor
Joebloinvestor's picture

Try exchanging a 500 euro note in a French bank.

They won't accept it.

That tells ya how much faith they have in their own currency.

Sat, 08/02/2014 - 14:30 | 5038077 PontifexMaximus
PontifexMaximus's picture

Try to do it in Italy, u have to show ur ID!

Sat, 08/02/2014 - 14:43 | 5038128 Joebloinvestor
Joebloinvestor's picture

At least they exchanged it.


Sat, 08/02/2014 - 15:12 | 5038212 Jano
Jano's picture

with 500 and over you have to show it everywhere in the EU.

Even, in Slovakia for example, you have to show your id alog side WITH EVERY TRANSACTIOn, evenif you bring in cents.!!!!!!

News for you? this regulation is already 5 years old. It resembles the year 2009..... hehe

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