"This Is The Problem" - Charting The Cash Supply-Demand Crunch In Europe

Tyler Durden's picture

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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GeneMarchbanks's picture

'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.

MFL8240's picture

They were not wrong on the core problem or the location, it was simply kicked further down the road.

philipat's picture

Last time I consulted a map, the UK was in Europe. Has somebody moved it?

Zero Govt's picture

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

collon88's picture

Yes, they moved it offshore to an island in the west.

blunderdog's picture

Blah.  Europe shouldn't even be talked about as a "continent."  Fuckers.  It's just the West coast of Asia.

jeff montanye's picture

but it sure didn't seem like it say 400 b.c. to 400 a.d. and 1500 to 1900.  tempus fugit.

covert's picture

people are having to make hard choices everywhere from past mistakes.



UK debt marsh's picture

Musical chairs with humane gunbolt for the losers

Sudden Debt's picture

why not just issue IOU's like California did does and will keep on doing?

I works for them....


ffart's picture

California has their own FRN factory?

jdrose1985's picture

FRN's are but a small component of the IOU supply.

oldman's picture

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

jeff montanye's picture

no tradition.  didn't buy the slaves to set free and avoid a civil war either.

americanspirit's picture

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.

jeff montanye's picture

no death penalty in eu.  has that sapped their strength, unlike, say, texas?

Peter K's picture

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:)

myne's picture

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.

GeneMarchbanks's picture

'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.

myne's picture

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"

GeneMarchbanks's picture

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.

Silver Pullet's picture

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.

philipat's picture

Except that London has become the food capital of the world right now?

Tree of Liberty's picture

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. 

jeff montanye's picture

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.

thunderchief's picture

You can have Toronto, and Vancouver is to expensive.   And don't worry O'Canada, the shit and stink will just keep rolling north.

SYantiss's picture

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.

myne's picture

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.

oldman's picture


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

Gief Gold Plox's picture

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.

jeff montanye's picture

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.

Gief Gold Plox's picture

:) 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.

blunderdog's picture

"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.)

oldman's picture

dear myne,

The current estimate of US population is: 311,800    please see below

The Population of the United States of America

By , About.com Guide

See More About: Digital Vision/Getty Images Jul 21 2011

The 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

Silver Pullet's picture

housing bubbles in both

It's not a bubble until it bursts.

Börjesson's picture

It's the other way around. After it has burst, it is no longer a bubble.

Silver Pullet's picture

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.

s2man's picture

I think PK was calling the U.S. a socialist welfare state.

Peter K's picture

OK, Tell us how you really feel:)

Tompooz's picture

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.

Sudden Debt's picture




Hulk's picture

Aren't you supposed to be waiting in line somewhere???

Carlyle Groupie's picture

He's tweeting the hedge from his iPhone while waiting in line for his $95 withdrawal hence the bold caps.

Carlyle Groupie's picture

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.

zorba THE GREEK's picture

This month the crunch is in Europe, Next month the crunch will be in the U.S.

WonderDawg's picture

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.