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1914 Deja Vu: Draghi's Cap On ELA Is Today's Czar Nicholas Troop Mobilization
Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,
If you don't like how the table is set, turn over the table.
– Frank Underwood, “House of Cards” (2013)
Nothing like a good Friday-after-the-close blockbuster to set the stage for an interesting week.
At 1am Saturday morning Athens time, the Greek government called for a nationwide referendum to vote the Eurogroup's reform + bailout proposal up or down. The vote will happen on Sunday, July 5th, but Greece will default on its IMF debt this Wednesday, and as a result the slow motion run on Greek banks is about to get a lot more fast motion unless capital controls are imposed. If you want to get into the weeds, Deutsche Bank put out a note, available here, that I think is both a well-written and comprehensive take on the facts at hand. As for the big picture, I've attached last week’s Epsilon Theory note ("Inherent Vice"), as this referendum is EXACTLY the sort of self-binding, "rip your brakes and steering wheel out of the car" strategy I wrote about as a highly effective way to play the game of Chicken.
Look, I have no idea whether or not Tsipras will be successful with this gambit. But I admire it. It’s a really smart move. It’s a wonderful display of what de Tocqueville praised as the “condition of semi-madness” that was so politically effective in 1848, and I suspect will be today. Plus, you can’t deny the sheer entertainment value of hearing Dijsselbloem splutter about how he was open to a revised, revised, Plan X from Greece all along, if only Tsipras would continue with this interminable charade. “The door was still open, in my mind.” Priceless.
So long as Tsipras can avoid market anarchy and TV coverage of violent ATM mobs this week, I think the NO vote is likely to win. The referendum is worded and timed in a way that allows very little room for Antonio Samaras and other Syriza opponents to turn the vote into a referendum on the Euro itself, which has proven to be a successful approach in the past. Particularly as the Eurogroup rather ham-handedly denied the request for a one-week extension in the default deadline, the referendum is being framed by Syriza as what Cormac McCarthy called a “condition of war”, an over-arching game where “that which is wagered swallows up game, player, all.” It may well be a close vote, but it’s hard to vote YES for a public humiliation of your own country under any circumstances, much less when that YES vote is being portrayed as giving aid and comfort to the enemy.
Here’s how I see the game playing out after the vote.
If Greece votes to accept the Eurogroup reform proposal after all, then the game of Chicken resolves itself within the stable Nash equilibrium of a shamed Greece and a triumphant Euro status quo. I would expect an enormous risk-on rally in equities and credit, particularly in Euro-area financials. Hard to say about rates ... peripheral Euro debt (Italy, Spain) should rally, and German Bunds might, too, as the Narrative will be that Germany "won". But reduction of systemic risk is a negative for any flight-to-safety trade, so this outcome is probably not good for Bunds in the long term, or US Treasuries over any term.
If Greece votes to reject the proposal, then either the game resolves itself within the stable Nash equilibrium of a shamed Euro status quo and a triumphant Greece (if the ECB and EU decide to cave to some form of the original Greek proposal), or we enter the death spiral phase of a game of Chicken, as all parties start to talk about how they “have no choice” but to crash their cars. That latter course is the far more likely path, I think, given how the various Euro Powers That Be are already positioning themselves. It’s all so very 1914-ish. Draghi’s cap on bank-supporting Emergency Liquidity Assistance (ELA) is the modern day equivalent of Czar Nicholas II’s troop mobilization. Good luck walking that back.
If we go down the death spiral path and some form of Greek exit from the Euro-system, I expect the dominant market Narrative to be that Greece committed economic suicide and that the rest of Europe will be just fine, thank you very much. That should prevent a big risk-off market move down, or at least keep it short-lived (although you should expect Bunds and USTs to do their risk-off thing here). Unless you’re a hedge fund trying to make a killing on those really cheap Greek bonds you bought two years ago, there’s no reason to panic even if we’re on the death spiral.
Over time, however, I expect that dominant Narrative to be flipped on its head. Greece will quickly do some sort of deal with Russia (hard currency for port access?), and then the IMF will strike a deal because that's what the IMF does. More and more people will start to say, "Hey, this isn't so bad", which is actually the worst possible outcome for Draghi and Merkel. At that point, you’ll start to see the Narrative focus on the ECB balance sheet and credibility, and as Italian and Spanish rates start to creep up and as the spread to Bunds starts to widen, people will recall that ECB QE only has national banks buying their own debt ... the Bundesbank ain't propping up Italian sovereign debt. I suspect it will be a slow motion contagion, all taking place in the Narrative and expressed in Italian, Spanish, and French politics over the next 12 months or so. The Red King will start to wake.
One last point on how the market Narrative will shift if we go down the death spiral path, and that’s the dog that will stop barking. The incessant and often silly focus on Fed “lift-off” is about to go on summer hiatus, which can’t happen soon enough for me.
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Hopefully Vicky Nudelman will play the role of Archduke Ferdinand
And when or where does the inevitable next Archduke Ferdinand moment occur? They just need a little something more to get their party started for real.
Rihad. Spratley. Tehran. Tokyo. Seoul. DC.
The plan is certainlly in place, pending final moment of opportunity of max psyops impact to justify retaliatory first strike. Good luck against that Keshe magic box. Good luck in Peoria.
Once Greece leaves the Euro and laughs in the IMFs face, the remaining countries described as the PIGS will have been downgraded to .. PIS!
b,b,but we're already in that cesspool, no.
I had to agree with someone said here in another thread, there's no fan, only a huge barrel...
No "will" but is (happening right under our noses).
It happened 6/27/15, except this time they didn't kill a person, they killed a country...
It's name was Greece (not sure of sexual orientation)...
No, that Nuland/Nudelman biatch will create Maidan II -- complete with hit-men sniping at both Yes and No sides.
The Greek Police and Security Services had better do overtime, keeping tabs on known trouble makers and be ready to clamp down on National Security Threats at a moment's notice. Lest these False-Flag Terrorists endanger the State and country.
just close down the ussa embassy and move all the cia cretans back home.
The grunts called them "the donkeys".
ThermoFinancial War.
Carpet Banking War Crimes.
Denial of Humanity.
Mandatory Servitude.
Collateral Carnage.
Freedom No More.
War Misery in Greece.
Inhuman Predators in Banks.
next up: actual death and destruction everywhere you look until the perps walk their last !
Oooooop! (I farted!)
"Greece what"?.......
Sure looks like Athens versus Thesolonikki to me but hey...somebody is out a huge chunk of dough.
Besides the Greek people who have been totally FUCKED.
Meanwhile "back in France the IMF demands payment in gold for the 36 billion it blew on Greece."
The alternative would appear to be full scale dollarization and an Ayatollah for your "new President."
He didn't say that whole west is just one step better economic shap than greece.
stay tuned !
Currency swaps with Russia and China. Drachmae for Yuan and Rubles. And let the banks go bankrupt. New state owned banks will provide retail banking.
"After a 90% devaluation"...sure, why not?
just so you don't sound too silly. why don't look up $$ devaluation over the years.
i'd do it for you but you seem to need some practice
Water finds its own level. So does currency.
That's exactly what the Central Planners and CB's hate, and why they want currencies like the Euro or the Dollar.
“Never argue with an idiot. They will drag you down to their level and beat you with experience.”
Sarah Cook
Go Greece, Go!....
Who the fuck is Sarah Cook? Twain said this over a century ago.
But it is apropos.
"Arguing with a Fool is a bit like mud-wrestling with a Pig. Pretty soon you realize that the Pig is enjoying himself"
Just kill the pig and make Souvlakis. Hopa!
Thank goodness JP Morgan was there to finance billions in illegal steel and arms deals after Germany had effectively won the war and offered peace.
/sarc
For the record, Hitler kicked out the jewish Rothschild bankers, created a new currency based on production, he realized the jewish communist threat from the Soviet Union as well as the jewish communist threat inside the country and tried to save Europe from communism (EU now). Hitler also had several peace offers on the table when the "allies" attacked anyway. Bottom line is you're going down if you mess with the jew bankers and your country gets too strong. The jews had long wanted Germany to perish.
These articles from Salient Partners are usually pretty smart, but a "slow motion contagion" over the next 12 months? It seems equally likely that some sort of unanticipated consequence will pop up and start a frenzied panic. No one's even talking about the derivative market implications yet.
We are talking about them here on ZH. Just how exposed to all of this is Douchebank anyway?
Excellent point. Panic could be only days and weeks ahead with America now in social disarray and facing significant unrest due to the Supreme Court vacating thousands of years of a family-based civilization with its gay-marriage ruling. An economic system that ignores the social revolution ahead is far from stable.
Obviously the markets are not reflecting the impending economic turmoil in the United States and the unelected Troika has always been on shifting sands.
The United States economic system , some would say, is moving along smoothly and can absorb shocks; but we have just witnessed as incredible power display by the bank-supported Supreme Court (Congress long ago relinquished its position as a player in this power grab). This suggests an incredible danger of social upheaval, as day and night divisions form between American citizens, with some suggesting such possibilities as a tax revolt whereby millions can withdraw their financial support of a system that is smashing its most cherished foundations.
The homosexual ruling is more about religion than rights; for the Court has essentially taken charge of regulating religion in the United States. And, if we want to quote de Toqueville again, America’s power and goodness came from her churches. And when America ceases to be good, he added, she will cease to be great.
Failure to recognize this sudden social shift in America's social fabric is to ignore what operates her economic engine and what created the American Dream -- Christian values and freedom.
Already, people are saying, Who needs this system if all that these bureaucrats are going to do is punish us? Self-representative govenments and currencies to be successful must operate on trust.
If Greece votes to accept the Eurogroup reform proposal
I bet on this one as long as it means we will be uncertain if Greece is going to default for another five years.
Greece hasn't just defaulted ....
THEYVE DECIDED TO GO MONEYLESS FOR THE NEXT SEVEN DAYS!
Not that I don't respect the "plan" as it were...I'm not sure why the Greek people would go along with it though.
OH THE HUMILIATION indeed...
Damage has been done to the markets and it is showing. Selling started in China weeks ago to prepare for this massive margin call and this is only the beginning. Soon stocks will go to zero, bonds will go to zero, and the dollar's value will be zero.
The fiat game is about to die, and it will happen in a single night.
:)
The hardline goal is an attempt to first get Tsipras to fold, and if that fails, to get Greece to collapse to the point where the ECB/EU takes over -- or the people kick Tsipras out. The goal is not to kick Greece out of the EU or to get any debt relief or to get Greece to default on all of its debt.
That sounds an awful lot like Turkey crossing the "line of Control" in Tsyprus and a Greek/Turkish airwar over the Aegean...but, hey!
Anything to be Top Dog I guess...
The world's entire financial system rests on lines of programming code; now, if that doesn't cause you to shit your pants......
Have Veryfukis explain to the Troika that Greece is undergoing Identity-change and its currency a Gender-change.
Maybe it's the kind of language that they understand and get fully behind.
p.s. The so-called "Star of David" is actually a bit of Tribal plagiarism, as it was originally a Greek symbol before the real or mythical David made it his own.
I didn't know that about the hexagram. Unfortunately, Wikipedia kind of muddles the origin and is not the place to go for information on that particular subject.
I am sure that you are aware that none of the books of the Old Testament were written before about 500 BC. Oral traditions, perhaps, but not written. Hebrew did not exist until that time. Indeed, that is about the time that Hebrew emerged as a distinct language, as opposed to just a dialect of Arabic. I have a friend that was shocked by that information. I insisted that Hebrew was a relatively young language. Before 500 BC, they were all Arabic speakers.
If Greece exits the Euro, it won't be so nice and easy. The EU will impose maximal punishment. All "Y" Euro notes will be ordered turned in, and those that aren't invalidated. All assets of Greek citizens elsewhere in the EU will be confiscated, and all Greek citizens elsewhere in the Union wil be deported. If Greece aligns with Russia, NATO will invade with Turkish troops after the CIA goes in to assassinate the Greek government - unless of course there is an internal coup. Russia might have to defend Greece....
My guess is there will be a coup and Tspiras will be shot. The Military wants to be paid in Euros.
this is just crap.
how is your own life coming along?
with a warped mindset like this u must be having a lot of problems with you hemorrhoids
"Draghi’s cap on bank-supporting Emergency Liquidity Assistance (ELA) is the modern day equivalent of Czar Nicholas II’s troop mobilization. Good luck walking that back."
...i was thinking it was more like Alice down the rabbit hole.
It's hard to imagine a majority of the Greeks voting against the status quo. During the American Revolution, only a third of the colonists supported independence from Britain, and I sincerely doubt a majority of citizens supported the French and Russian revolutions.
So I think the voters will approve continuing the Troika program, and the can will get kicked again.
But there's plenty of risk in any game of chicken. Right now the Greek default may be less significant than what's happening in China.