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"This Is The Problem" - Charting The Cash Supply-Demand Crunch In Europe
As Europe prepares to set off on a historic, if very divisive round of Treaty changes in an attempt to set the framework to be followed by all countries in advance of the controversial European federalist experiment and even more divisive issuance of "stability" bonds, we thought we would once again remind readers just what the very simple math behind the entire spectacle is, which Europe tries so hard to ignore with each passing day. Because at the end of the day it is a very simple tension: there is massive demand for fresh cash in the form of 1.7 EUR trillion in maturing debt (ignoring interest payments). Of this Morgan Stanley says, "Policy makers and investors have consistently underestimated the bank funding roll as a transmission mechanism of sovereign fears into the banks and real economy." This is 100% correct: courtesy of 30 years of great moderation everyone assumed that the funding markets would operate for ever and that interim rollovers would never be an issues. Incidentally this is precisely what we warned about back in April 2010 when we said that "Unless the UST can roll its debt not on a monthly but now weekly basis in greater and greater amounts, the interest rate doesn't matter." As it turns out, we were 100% right on the core problem, but 100% wrong on the location - the rollover funding crunch is not in the US, it is in Europe. And this is precisely what Europe is now fighting each and every day with, coming up with crazier and crazier plans to mask the fact that no matter what, there simply is not enough cash. Because while the first chart shows cash demand needs, the second one shows that when it comes to cash 'supply', or said otherwise issuance of unsecured debt, the market is now completely and totally dead. Indeed, November issuance is just laughable as the red-boxed region so vividly demonstrates. And that, in two charts is that - everything else is hype, rhetoric, smoke and mirrors.
Chart 1 - European funding needs:
Chart 2: European debt issuance - even as soaring debt and interest rollover and redemption demands mean huge amounts of debt have to be raised, what is happening is the following: "Term bank funding issuance has dried up. We are concerned there has been a step change in the availability and pricing of senior unsecured funding given such elevated euro-zone uncertainty and the knock-on to assets supported by unsecured funding." In other words: the is no more debt available which is "guaranteed" simply by promises of future cash flow: investors demand asset collateralization for the simple reason that fewer and fewer believe that assets are able to generate the amount of cash represented by a conflicted underwriter syndicate. Unfortunately, there is nowhere near enough hard assets to fund secured assets at even modest LTVs, and it will only get worse and worse as less and less cash actually goes to regenerating a rapidly depreciating and amortizing asset base.
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'As it turns out, we were 100% right on the core problem, but 100% wrong on the location - the rollover funding crunch is not in the US, it is in Europe'
UK also.
They were not wrong on the core problem or the location, it was simply kicked further down the road.
Last time I consulted a map, the UK was in Europe. Has somebody moved it?
all 3 treasonous spineless British Parties (Tories/socialist, Liberals/closet-Commies and Labour/hard-Marxists) want more 'in' Europe.. the people want more 'out' of Europe. Politicians draw maps, people draw lines ...there's some difficulty 'placing' Britain in Europe with this tug-of-war ...a larger vote for UKIP should redefine the boundaries very clearly
Yes, they moved it offshore to an island in the west.
Blah. Europe shouldn't even be talked about as a "continent." Fuckers. It's just the West coast of Asia.
but it sure didn't seem like it say 400 b.c. to 400 a.d. and 1500 to 1900. tempus fugit.
people are having to make hard choices everywhere from past mistakes.
http://expose2.wordpress.com
Musical chairs with humane gunbolt for the losers
why not just issue IOU's like California did does and will keep on doing?
I works for them....
California has their own FRN factory?
FRN's are but a small component of the IOU supply.
Hey, Sudden Debt
Why not just confiscate all the gold and mines, watch the price soar and sell into it?
Or would it be easier just to nuke the debt and call it:
"every man for himself!"?
I'm not kidding about this but asking someone who seems serious enough to have a thought or two on the subject.
I really don't know why these are not as acceptable as war.
thanks om
no tradition. didn't buy the slaves to set free and avoid a civil war either.
No problem - in the name of Eurozone security simply seize all individual (not corporate) bank deposits, brokerage accounts, pension funds, and savings accounts and impose the death penalty (enforced house to house by Blackwater - er - Xe mercenaries - er - contractors) for hoarding gold and silver. Voila. Fait accompli.
no death penalty in eu. has that sapped their strength, unlike, say, texas?
Rollin', Rollin' Rollin'...
http://www.youtube.com/watch?v=Sl2fONPgIJE
PIIGS going down.
http://www.youtube.com/watch?v=EjYLRxHWKiQ
cook them well. they can be tough and buggy.
Spot on.
They spent all their money.
It's just that simple.
But as we know from the lessons learned from the collapse of the Soviet Union, socialist welfare states don't come cheap.
Hint hint Mr. President:)
The US is hardly in a position to mock socialist welfare states when it's effectively the largest terrorist organisation in the world based on numbers of civilians killed in recent history.
It's corrupt, militant or incompetant government that fucks everything.
Australia works ok.
Canada too, I hear.
'Australia works ok.
Canada too, I hear.'
Depends what you mean by 'works'. The population of both are significantly less than the States. Affordability is a joke, housing bubbles in both. There are of course other things to consider but life in the States is probably more materially comfortable than either of those two.
45million out of 330million are on food stamps. 22% unemployment by the same metrics used to measure the great depression. Shorter lifespan, higher infant mortality. Higher crime, immense prison population, lower education.
"more materially comfortable"
Feel free to check it out. I already have and it ain't my cup of tea. In 'life' I favor quality over quantity plus I'm not an infant nor do I give a shit about them or their 'mortality'.
Please enjoy the absolute worst of British culture and $9/gallon gas. You'll be herded into one of the few cities that they have and then sheared like the rest.
Someone once said that
In Canada we had the opportunity to have
British culture,
American technology,
and French cuisine.
Instead we got
American culture,
French technology,
and British cuisine.
All in all, we count ourselves fortunate to live here.
Except that London has become the food capital of the world right now?
Which is because it is the banker expense account capital. Of the world
Yeah there is a reason those in England have a stiff upper lip and that is that the food is terrible. Food capital? You call having to go to high priced restaurant to get decent food a "Food Capital". We are poor here in Louisiana,where most everyone can cook and have some of the best food around.
old chestnut: in heaven the cook's french, the police are english, the accountant's german and your lover italian. in hell the cook's english, the police french, the accountant italian and your lover german.
You can have Toronto, and Vancouver is to expensive. And don't worry O'Canada, the shit and stink will just keep rolling north.
The US infant mortality rate is only "high" because the metrics used in the US are different than other places. For instance, if a child is having complications in the womb in the US, doctors extract the baby and try to save it, if they fail it's counted against the mortality rate. In Cuba, in this same scenario, it is not counted against.
There are rational explanations for the crime rates as well.
But, education is jacked up as is the food stamps and unemployment.
These last three (and perhaps part of the mortality rate with Crack and other drugs adding to that number) are completely related to the reduction of morals and values in this nation.
But... Freedom has a price... It will exact that price one way or another.
What freedom?
I walk the streets of my city alone at night and fear no one. Guns are on police belts, and that's it. Don't know anyone who's been mugged.
I go to an airport, I walk through a metal detector and my bags get xrayed. No one touches me. I am not xrayed.
I could smoke a joint in public and if caught only get a small fine if the cop is feeling like being mean.
Your definition of freedom is not my definition.
@SYantiss,
freedom----------what freedom???
I just spent six months among you and I really did not see that freedom was very much in evidence, unless you call blogging with an alias 'freedom' om
After spending some time in the states, I have to echo the above posters' views. I was left with a feeling that "land of the free" was more an advertising slogan for large corporations than individuals.
what? we have free speech zones. the government has to go to a secret court which always approves to tap our phones. dollar limitations on campaign contribution are illegal (corporate free speech zone where it counts). so far only darkish/islamic people are imprisoned without trial. and only a democratic party president claims the right to assassinate citizens by secret executive order sometimes revealed for publicity/campaign purposes. i could go on.
:) Sad truth is that we've been just a few steps behind you guys in loosing more and more of our personal freedoms and for what? An illusion of a feeling of security.
"Freedom" is a state of mind. And you win. You could be free as a motherfucker in Dubai, too.
I'm curious if you can cite anything about the infant mortality rate. (My understanding is that the babies that die are generally the ones that might've been aborted if that were easy everywhere. Another win, I guess.)
dear myne,
The current estimate of US population is: 311,800 please see below
The Population of the United States of AmericaBy Matt Rosenberg, About.com Guide
See More About:- united states
- demographics
- population
Digital Vision/Getty Images Jul 21 2011The current U.S.A. population is over 311 million people (311,800,000 in mid-2011) so the United States has the world's third largest population (following China and India).
I have just returned to Ecuador and have heard several times that family members are back after years of working in the US.
Anyway, it is all but an estimate based on a model that does not include the cumulative 'margins of error' which could be significant.
Thanks for inspiring me to write this down; it has been on my mind un-articulated for some time now om
housing bubbles in both
It's not a bubble until it bursts.
It's the other way around. After it has burst, it is no longer a bubble.
Sometimes they just get a leak. We'll see what happens.
In the meantime, land, not necessarily housing, is valuable wherever you are, like PMs.
If you are moving up, you want prices to fall. When you have your last place, you want prices to rise.
I think PK was calling the U.S. a socialist welfare state.
OK, Tell us how you really feel:)
Interesting bit of relevant info: from my New Zealand real-estate website (premium property) I see that at the moment the highest interest comes from ...CANADA, ahead of the UK, the US and China.
It could be the climate or the similarities in culture, or perhaps the feared domination by a powerful neighbour..
A few years ago Asia was ahead, then it became the UK. Canada is surprising.
BROKEN ARROW! I REPEAT, BROKEN ARROW!!
BEGIN EXTRATION OF SENIOR STAFF! AND LET THE REMAINING INFANTRY BLOW THEMSELVES UP TO BUY MORE TIME!!
Aren't you supposed to be waiting in line somewhere???
He's tweeting the hedge from his iPhone while waiting in line for his $95 withdrawal hence the bold caps.
Jeebus. All .com's should take a few hrs off just about now. Even if you're mascaraing as a .com, get with it. Roll a fatty, inhale like a free diver before decent ( http://www.freediver.com ) and re the fucking lax dudes.
and begin mascaraing http://www.youtube.com/watch?v=LOH0T3AKnjE
This month the crunch is in Europe, Next month the crunch will be in the U.S.
Not sure what kind of calendar you're using, but by the one I use, it's been a hell of a lot longer than a month that the fuse has been burning on Europe.
"...investors demand asset collateralization for the simple reason that fewer and fewer believe that assets are able to generate the amount of cash represented by a conflicted underwriter syndicate...."
Thus, we see every CB hoarding gold and locking their Vaults.
Nah, they demand Physical asset collateralization because a 50% haircut is NOT a credit event. If the insurance refuses to pay off, the game is over.
There's no trust out there, so all bets are off.
Kill the PIIGS.
http://www.youtube.com/watch?v=EjYLRxHWKiQ
LET THE SUCKER GO DOWN – Gary North today on Lew Rockwell:
Conclusion: Europe is in bad shape. This is hedge fund manager Kyle Bass's assessment of the situation in Europe. He stated this in a rousing interview on the BBC's TV network. Here is the segment.
He made two crucial points – points that stock market investors are ignoring. First, over the last nine years, there has been an increase of world debt from $80 trillion to $210 trillion. These numbers are staggering. Global debt over the last nine years has grown at 12% per year, while GDP has grown at 4% per year.
While he did not verbally spell out the conclusion for the interviewer, it is this: when credit must grow by 12% per year in order to produce 4% GDP growth, at some point there will not be enough GDP to supply sufficient credit.
It is time once again to quote economist Herb Stein: "When something cannot go on forever, it has a tendency to stop."
Bass had a great metaphor: the PIIGS have "sailed into a zone of insolvency."
Second, he explained, the sovereign debts in Europe will be written down. There is no other solution. ...
http://lewrockwell.com/north/north1066.html
hi JR, happy turkey day
Things which can’t go on forever, don’t - but they can sure take a damn long time about it.
and this one from the same article:
'If those who made the bets for their own private gain aren't forced to absorb the risk, then we don't live in either capitalism or democracy; we live in a financial-fascist tyranny.'
that is so true you can take it to the bank. wait, no. well, still true.
i have no problem with the concept of europe being required to roll over debt in ever increasing numbers. facts are facts. one fac that is being overlooked in this article is that the persistent roll over of us treasury debt is three times larger than that of europe and is being financed by fiat dollars at three times the rate as debt is being rolled over in europe. the enabling mechansim is the same, but us deficits are double those of europes at the "federal" level. the combined deficits of europe are nowhere near as large as that of the united states. the only difference is that the US has a pnzi facility at its disposal for as long as dollars cna be repatriated into the morass that goes for directed central planning in the US. that's right, the us problem is three times that of europe and dollars that have been printed over the last few decades (all paper and without creating any value for the US) are being returned into the vortex. The US is borrowing 1.5 trillion dollars in a single year..comapre that to the combined deficits of the whole of europe. nowhere near the same. these are facts, pretend europe is the problem if you want, because that is the bandwagon. Japan is just as bad, it thinks its a good year when its debt doesnt double (at zero interest rates) every 20 years. the fed can rig an interest rate, but it cant avoid the paradox of needing to create more debt at an increasing rate to solve a current over leveraged economy. the paradox is plain..ron paul says "cancel the us government debt owned by the fed, it makes no difference to anyone" i say "if printing money was the solution all along, why bother to collect tax" happy turkey day..the turkey is the smart one and it is about to be well and truly stuffed.
Play the Fed Chairman game, set the interest rate at zero for 16 quarters and see where you end up at.
http://www.frbsf.org/education/activities/chairman/index.html
There is a end to this game, one way or another.
"if printing money was the solution all along, why bother to collect tax"
Brilliant
Simple. All the monies collected via taxation was gifted to israel by the generous congress and senate people.
We made a promise long ago to repay the chosen people for this wonderful invention called fractional reserve banking and the federal reserve.
Your point is well-taken, but you see, we have been using the USD to fuck over the entire world for the past 40 years. We'll pay, sure, but it'll hurt EVERYONE ELSE a bit more than us.
If there were some kind of natural order to the universe that corresponded to your idea of "fair," this would never have happened in the first place.
California Munis trading at all time highs
Meredith Whitney nowhere to be found
Yeah thats the ticket: California is in great shape. Just look at Oakland.
Hyperinflation can be found in strange places at unlikely times in a debt-as-currency regime
"California Munis trading at all time highs, Meredith Whitney nowhere to be found".
I'm thinking sometime very soon you will be 'nowhere to be found'.
check out pck at http://stockcharts.com/h-sc/ui?s=$INDU
last week was pretty brutal, no?
meredith whitney is so going to have the last laugh on this one.
"don't say it can't happen just because it hasn't happened yet."
Look this is the fundamental problem with all debt based monetary systems. Every single unit of currency is a debt instrument. This means you ‘must’ print more currency (i.e. go further into debt) in order to pay the interest.
When a default occurs the money supply goes down resulting in a situation in which increasing numbers of individuals and nations don’t have cash to pay their loans, and so and so on.
So your choices are death from hyper-deflation or hyper-inflation, take your pick.
The solution is to go back to ‘sovereign’ debt free currency (the supply of which is regulated by a super majority law) and kick this evil international banking cartel that has been sucking us dry via the inflation/deflation pump, into the dust bin of history.
All other plans simply advocate moving the inflation/deflation pump in one direction or the other.
The simple fact is that those that control the currency supply control the nation. In fact you are by definition not a fully sovereign nation ‘without’ control over the currency supply. It’s really that simple. So job one is default on the international bank cartel debt and then reform your nation’s money supply/remaining debt obligations based on a sovereign debt free currency and taking care of your own as you see fit.
Free trade can then be reestablished based on market driven supply/demand.
100% correct ....
The solution is to go back to ‘sovereign’ debt free currency (the supply of which is regulated by a super majority law) and kick this evil international banking cartel that has been sucking us dry via the inflation/deflation pump, into the dust bin of history.
.. and to reach that stage, one has to arrest all the crooks to get them out of the way of the process.
We don't want another 1913 event in 2013 ... the FED's 100 yr. mandate is nearly over BTW.
An excellent youtube to watch covering the details:
The Secret of Oz - Winner, Best Docu of 2010
http://www.youtube.com/watch?v=swkq2E8mswI
Thanks for the link, CG
I found the logic behind the author's arguments against gold and gold coins flawed. Additionally, for a documentary it falls embarrassingly short at presenting any actual evidence to support it's case. Admittedly I couldn't bear to watching it all the way through.
Gold and Silver coins ‘as legal tender’ at ‘market prices’ (ie not subject to sales taxes and/or capital gains/loss) should also circulate as money. This would act as an additional check to any reckless print of paper or expansion of credit should the super majority law governing the amount of paper dollars in circulation be breached somehow.
Such a thing as free trade once existed?
Please don't make us laugh
The solution is to go back to ‘sovereign’ debt free currency.
Is that like when the King owns all the territory, you mean?
If not, what's the debt-free bit pegged to? Landmass?
Would currencies still float internationally?
Pegged to the productivity of the people.
A piece of land is just dirt until someone works it and produces something.
A factory is just a building until someones labor produces a marketable product.
The value in any economy is the wealth of it's citizens, their creativity, their ingenuity, and their labor.
True Capitalism is the ability of the individual to prosper through their labor, but alas that meaning has been lost, because TPTB don't want you to know that you don't have to be a debt slave to survive.
Currency (especially paper currency) is primarily a medium of exchange, not a store of value. If you want to store value then store it in something of value.
OK, that makes sense. Who would be responsible for increasing/decreasing money supply, and what are the mechanics?
Is it just left to the banks with a banker/government-directed interest rate?
Dear EuroZone,
We have reviewed your application for additional credit. Unfortunately, we must refuse your request as we have determined that you are even more insolvent and unworthy of credit than we are. Good luck with finding suckers to bankroll you.
Yours truly,
Brian Moynahan
CEO, BankAmerica
if i print an iou to you ...it means there i have spent the money and need to borrow your money and i might pay you back
if a bank prints an iou to the fed, it means the same.
so if i print an iou to a million of my friends...how many parties have i had?
if a bank prints a billion ious to the fed, it means the same..the money is gone, spent, else the bank could simply grow "organically" from its profits.
if we (the government/tax payer) print an iou to the fed...we have spent the money and the fed is simply a record of how much we have spent..an accounting device, that is all..the account goes down when we pay back what we spent, and keeps going up when we dont pay it back...the fed is an accountant...not an economist, or a monetarist or a saviour..accountants dont create jobs or growth, they tell you what you have done..mostly years ago
I learned a long time (Coupla years) ago that the bond markets set the FFR, not the Fed. Its easy to say which way the economy is moving (or to set an interest rate)...after it has moved.
The IRS is really the accounting firm.
isn't this the reason that a) the banks are de-leveraging b) the ECB will introduce 1 year and 2 year term facilities?
So, when is that fucking Terrorist Ben S Bernanke going to raise interest rates in the USA and stop stealing from the world.
You fucking thieves criminals and terrorist also, American Govt.
You's do NOTHING....FUCKING NOTHING...!!!! to bring this maddness to an end.
Hey! Are you that guy from Youtube with the baseball bat and stuff?
Cool!
We're still alive. In 2011 no worldwide collapse took place and neither one of those in:
http://theeconomiccollapseblog.com/archives/12-economic-collapse-scenarios-that-we-could-potentially-see-in-2011
Next Sunday the Advent starts. Merry Christmas.
Large Asian Shipping line MISC Just Gone POP! The Fun Begins...........
http://www.bloomberg.com/news/2011-11-24/misc-corp-to-shutter-container-...
Yes, they moved it to an island offshore to the west.
"As it turns out, we were 100% right on the core problem, but 100% wrong on the location - the rollover funding crunch is not in the US, it is in Europe. And this is precisely what Europe is now fighting each and every day with, coming up with crazier and crazier plans to mask the fact that no matter what, there simply is not enough cash."
That's because the US is a currency issuer whereas Eurozone countries are currency users. All Eurozone countries are effectively borrowing in a foreign currency, and will likely experience the usual associated difficulties in a credit crunch.
And this is precisely what Europe is now fighting each and every day with, coming up with crazier and crazier plans to mask the fact that no matter what, there simply is not enough cash.
There is enough cash... it's just that most of it is buying US treasuries for some insane reason.
Will Goldman whine when all the PIIGS default on their debt and claim they got GIIPed?
There are two sides to the core problem - Banking is untrustworthy, and there is no source of available borrowing.
note that because Banks pull the strings of the economy, they are in bed with the government - over long association, the government finances are similarly affected.
The policies over the last year have displayed a paucity of wisdom, perception (of solvency) is not solely governed by the size of the cash balance, it also has to do with the capacity to efficiently manage cash. This is the 'sorting-out' of of the European problem, which only the Europeans do not appreciate - 'why should we change the way we derive profit (through the pricing and support) in the economy'.
Look at it this way, banking and government help influence the cost of capital available to industry. Germany has been most successful at making efficient use of that 'discounting', while the US has been happily at the trough.
The indebted nations have reached a point where the current structure of prices are sustainable only through increasing wage-inflation - that implies that the costs are greater than revenues, or why is deflation such a problem?
At the moment, Governments are talking about funding themselves. in the absence of Bank funding - the solution to that is easy, if you can't get funding from Banks, develop a system to borrow from the people: obviously, alarm bells would ring if such borrowing is more than as raised through (personal) taxation. However, governments worth the name, would be talking about measures to offset deflationary concerns as per the average consumer, and providing a new framework for industrial investment that is somewhat removed from the era of hegemonic worship.
Double-digit yields don't mean much when the issuer defaults, right?
Something I've never seen in print is that: The EMU is TBTF. All we are witnessing now is brinksmanship, with each country holding out for the best deal. In the end they will be have to be standing at the edge of the abyss with their toes hanging over before they acquiesce to a half baked federalization treaty. That treaty will unleash the ECB. They don't have enough cash to pay their debts? No problem! The ECB prints like crazy. The US will match the printing to keep the EUR/USD at 1.30. Given that the derivative unwind must be avoided at all costs, and the big banks will therefore be held up no matter what, we will avoid deflation no matter what. This opens the door to hyperinflation, but the Fed & ECB all believe they can "manage" inflation.
The problem is that once inflation reaches a significant level in a stagnating environment, merchants will stop accepting credit cards; the fees & delays are too onerous. A real paper cash economy will emerge, which will require A LOT more cash. So the Fed & Treasury go on a for-real printing spree. To faciltiate larger trasnactions, they release $1,000 & $5,000 bills. But this fuels more in-your-face inflation and people begin worrying. Given that there is way too much money for the assets people want to hold instead of paper money, asset prices begin to skyrocket. This will lead to a hyperinflation, but not just in the US, every country will have to follow.
In the Weimar hyperinflation, people who saw it coming, just coverted to Swiss Francs. But in a global hyperinflation, no currency will be safe. Assets will go up in nominal terms, but won't keep pace in real terms. The only safe place to go will be gold.
BTW: A lot of these are Jim Rickards' ideas, I'm just saying them in a way that makes sense to me.