Eric Sprott Presents The Ministry of [Un]Truth

Tyler Durden's picture

From Eric Sprott of Sprott Asset Management

Ministry of [Un]Truth

Speaking at a Brussels conference back in April 2011, Eurogroup President Jean Claude Juncker notably stated during a panel discussion that "when it becomes serious, you have to lie." He was referring to situations where the act of "pre-indicating" decisions on eurozone policy could fuel speculation that could harm the markets and undermine their policies' effectiveness.1 Everyone understands that the authorities sometimes lie in order to promote calm in the markets, but it was unexpected to hear such a high-level official actually admit to doing so. They're not supposed to admit that they lie. It is also somewhat disconcerting given the fact that virtually every economic event we have lived through since that time can very easily be described as "serious". Bank runs in Spain and Greece are indeed "serious", as is the weak economic data now emanating from Europe, the US and China. Should we assume that the authorities have been lying more frequently than usual over the past year?

When former Fed Chairman Alan Greenspan denied and down-played the US housing bubble back in 2004 and 2005, the market didn't realize how wrong he was until the bubble burst in 2007-2008. The same applies to the current Fed Chairman, Ben Bernanke, when he famously told US Congress in March of 2007 that "At this juncture… the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."2 They weren't necessarily lying, per se, they just underestimated the seriousness of the problem. At this point in the crisis, however, we are hard pressed to believe anything uttered by a central planner or financial authority figure. How many times have we heard that the eurozone crisis has been solved? And how many times have we heard officials flat out lie while the roof is burning over their heads?

Back in March, following the successful €530 billion launch of LTRO II, European Central Bank President Mario Draghi assured Germany's Bild Newspaper that "The worst is over… the situation is stabilizing."3 The situation certainly did stabilize… for about a month. And then the bank runs started up again and sovereign bond yields spiked. Draghi has since treaded the awkward plank of promoting calm while slipping out enough bad news to ensure the eurocrats stay on their toes. As ING economist Carsten Brzeski aptly described at an ECB press conference in early June, "Listening to the ECB's macro-economic assessment was a bit like listening to whistles in the dark… It looks as if they are becoming increasingly worried, but do not want to show it."4 And the situation has now deteriorated to the point where Draghi can't possibly show it. Although Draghi does now warn of "serious downside risks" in the eurozone, he maintains that they are, in his words, "mostly to do with heightened uncertainty".5 Of course they are, Mario. Europe's issues are simply due to a vague feeling of unease felt among the EU populace. They have nothing to do with fact that the EU banking system is on the verge of collapsing in on itself.

When Prime Minister Mariano Rajoy assured the Spanish press that "There will be no rescue of the Spanish banking sector" on May 28th, the Spanish government announced a $125 billion bailout for its banks a mere two weeks later.6 This apparent deceit was not lost on the Spanish left, who were quick to dub him "Lying Rajoy". But Mr. Rajoy didn't seem phased in the least. As the Guardian writes, "Even when the outpouring of outrage forced Rajoy to call a hasty press conference the next day, he still refused to use the word "bailout" - or any other word for that matter - and referred mysteriously to "what happened on Saturday". He went as far as to say that Spain's emergency had been "resolved" ("thanks to my pressure", he said). He then took a plane to Poland to watch the national football team play ("the players deserve my presence")."7 Sound credible to you?

Then there are the bankers. Back in April, JP Morgan CEO Jamie Dimon blithely dismissed media reports as a "tempest in a teapot" that referred to massively outsized derivative positions held by the bank's traders in the Chief Investment Office in London. That "tempest" was soon revealed to have resulted in a $2 billion trading loss for the bank roughly four weeks later. In testimony before the Senate Banking Committee this past week, Dimon explained that "This particular synthetic credit portfolio was intended to earn a lot of revenue if there was a crisis. I consider that a hedge."8 He went on to add that regulators "can't stop something like this from happening. It was purely a management mistake."9 That's just wonderful. Can we expect more 'mistakes' of this nature in the coming months given JP Morgan's estimated $70 trillion in derivatives exposure? And will the US taxpayer willingly bail out JP Morgan when it does? Everyone knows the derivatives position wasn't a hedge - but what else is Dimon going to say? That JP Morgan is making reckless derivatives bets overseas with other people's money that's backstopped by the US government? Credibility is leaving the system.

There is certainly a sense that the authorities can no longer be candid about this ongoing crisis, even if they want to be. On June 11th Austria's finance minister, Maria Fekter, opined in a television interview that, "Italy has to work its way out of its economic dilemma of very high deficits and debt, but of course it may be that, given the high rates Italy pays to refinance on markets, they too will need support."10 Her honesty sent Italian bond yields soaring and earned her some harsh criticism from eurozone officials, including Italian Prime Minister Mario Monti. As one eurozone official stated, "The problem is that this is market sensitive… It's one thing if journalists write this but quite another if a eurozone minister says it. Verbal discipline is very important but she doesn't seem to get that."11 See no evil, hear no evil… and speak no evil. That's the way forward for the eurozone elites.

We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There's no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.

NOTHING the central bankers have done up to this point has WORKED. All efforts have simply been aimed at keeping the financial system from imploding. QE I and II haven't worked. LTRO I and II haven't worked, and the most recent central bank initiatives are not even producing short-term benefits at this stage of the crisis. Just take Spain, for example. Following Rajoy's announcement of the $125 billion bailout loan for the Spanish banks on June 10th, Spanish bond yields were trading back over 7% one week later - the same yield level at which other eurozone countries have been forced to ask for further international aid.12 The market still doesn't even know what entity is going to pay the $125 billion, let alone when the funds will actually be released or whether the Spanish government will have to count it as part of its national debt. Spain is the fourth largest economy in the eurozone and larger than the previously bailedout Greece, Ireland and Portugal combined. At this point, it's not even clear if the ECB will be allowed to bail out a country of Spain's size, let alone Italy, which is now asking the ECB to use bailout funds to buy its sovereign bonds.13

The situation in Europe is becoming an exercise in futility. The positive effects of LTRO I and II, which combined pumped in over €1 trillion into European banks back in December 2011 and February 2012, have now been completely erased by the recent bank runs in Spain. Of the €523 billion released in LTRO II, roughly €200 billion was taken by Spanish banks.14 Of that amount, roughly €61 billion was estimated to have been reinvested back into Spanish sovereign bonds, which temporarily helped Spanish bond yields drop back to a sustainable level below 5.5%. Fast forward to today, and despite the LTRO infusions, the Spanish banks are all broke again after their underlying depositors withdrew billions over the past six weeks. The only liquid assets Spanish banks still own that they can sell to raise euros just happen to be government bonds… hence the rise in Spanish yields. So in essence, the entire benefit of the LTRO, which was a clever way of replenishing Spanish bank capital AND helping calm sovereign bond yields, has been completely reversed in roughly 14 weeks. It's as we've said before - it's not a sovereign problem, it's a banking problem. This is why Spanish Prime Minister Rajoy is now pleading for help "to break the link between risk in the banking sector and sovereign risk."15 Without a healthy sovereign bond market, peripheral eurozone countries simply have no way of supporting their bloated and insolvent banks.

The smart money is finally waking up to the dimension of the problem here and realizing that it's really a banking issue. Deposit flight has revealed the vulnerability of the European banking system: when depositors make withdrawals, the only assets the banks can sell to raise liquidity are sovereign bonds, which creates the vicious downward spiral that up to this point has always resulted in some form of central bank bailout. Many eurozone authorities still have trouble understanding this. As Spanish Economy Minister, Luis de Guindos, recently stated to reporters at the G20 Summit, "We think… that the way markets are penalizing Spain today does not reflect the efforts we have made or the growth potential of the economy… Spain is a solvent country and a country which has a capacity to grow."16 Every country has the capacity to grow. Not every country has a domestic banking system that has already borrowed €316 billion from the ECB so far this year (pre the most recently announced bailout), and needs to rollover roughly €600 billion in bank debt in 2012.17 That may be why the markets are reacting the way they are.

If you want to know what's really going on, listen to the executives of companies that actually produce and sell things. On May 24, Tiffany & Co cut its fiscal-year sales and profit forecasts blaming "slowing growth in key markets like China and weakness in the United States as shoppers think twice about spending on high-end jewelry."18 On June 8th, McDonald's surprised the market with lower than expected same-store sales growth in May, following a lacklustre April sales report that the company stated was "largely due to underperformance in the United States, where consumers continue to seek out very low-priced food."19, 20 On June 13th, Nucor Corp., the largest U.S. steelmaker by market value warned that its second-quarter profit will miss its previous guidance after a "surge" in imports undermined prices and "political and economic uncertainty affect buyers' confidence".21 On June 20th, Proctor and Gamble lowered its fourth quarter guidance and profit forecast for 2012. Factors that drove the company's challenges included "slow-to-no GDP growth in developed markets", high unemployment levels, significant commodity cost increases and "highly volatile foreign exchange rates".22 Other companies that have recently lowered guidance include Danone, Nestle, Unilever, Cisco Systems, Dell, Lowe's, and Fedex. It's ugly out there, and many companies are politely warning the market about the type of environment they foresee ahead in both the US and abroad.

To give you a hint of how bad it is in Europe today, the most recent retail sales out of Netherlands showed a decline of 8.7% year-over-year in April.23 In Spain, retail sales fell 9.8% year-on-year in April, which was 6% greater than the revised drop of 3.8% in March.24 Declines of this magnitude are not normal occurrences and signal a significant shift in spending within those countries. We fear this is a sign of things to come within the broader Eurozone, which will only serve to complicate an already dire situation that much more.

The G6 central banks are out of conventional tools to solve this financial crisis. With interest rates at zero, and the thought of further stimulus rendered politically unpalatable for the time being, we cannot see any positive solutions to this problem other than debt repudiation. We continue to note the contrast between the reporting companies who by law cannot lie about their fiscal realities, versus the central planners who admit that they MUST lie to preserve calm and control. We'll leave it to you to decide whose version of the truth you want to believe.



1 Forelle, Charles (May 9, 2011) "Luxembourg Lies on Secret Meeting". Wall Street Journal. Retrieved on June 5, 2012 from:
2 Bernanke, Ben S. (March 28, 2007) "Economic Outlook before the Joint Economic Committee, U.S. Congress". Board of Governors of the Federal Reserve System. Retrieved on June 8, 2012 from:
3 Evans, Stephen (March 22, 2012) "ECB Chief Mario Draghi says worst of euro crisis over". BBC News. Retrieved on June 6, 2012 from:
4  Russolillo, Steven (June 6, 2012) "Here's How to Read Mario Draghi's Poker Face". Wall Street Journal. Retrieved on June 7, 2012 from:
5  AFP (June 16, 2012) "ECB warns 'serious risks' for Eurozone, but no inflation". Associated Foreign Press. Retrieved on June 19, 2012 from:
6  CBC News (May 28, 2012) "Spain says banks won't need EU rescue" CBC News. Retrieved on June 6, 2012 from:
7  Murado, Miguel-Anxo (June 12, 2012) "'Bailout' seems to be the hardest word for Spain's prime minister". The Guardian. Retrieved on June 12, 2012 from:
8  AP (June 13, 2012) "'There was good intent': JPMorgan's Jamie Dimon APOLOGIZES while explaining $2B loss to Congress
amid protesting hecklers". Associated Press. Retrieved on June 13, 2012 from:
9 Touryalai, Halah (June 13, 2012) "Jamie Dimon's Testimony: Volcker Rule May Have Prevented Loss". Forbes. Retrieved on June 16, 2012 from:
10   Shields, Michael and Scherer, Steve (June 12, 2012) "Austrian minister says Italy too may need bailout". Reuters. Retrieved on June 12, 2012 from:
11  Ibid.
12   Day, Paul (June 19, 2012) "Spain's short-term borrowing costs jump at auction". Reuters. Retrieved on June 20, 2012 from:
13  AP (June 20, 2012) "Europe gropes for crisis fix, bond buys pushed". Associated Press. Retrieved on June 20, 2012 from:
14   Watts, William (April 13, 2012) "Spain data underlines LTRO downside". Wall Street Journal. Retrieved on June 15, 2012 from:
15  Crowe, Darcy (June 18, 2012) "Spain's Rajoy Calls for Fencing in Banking Risk". Wall Street Journal. Retrieved on June 19, 2012 from:

Day, Paul and Maltezou, Renee (June 19, 2012) "Spanish short-term debt costs reach alarm levels". Reuters. Retrieved on June 20, 2012 from:

17   Smith, Geoffrey (June 12, 2012) "Spain Deal Doesn't Stop Sovereign-Bank Feedback Loop". Wall Street Journal. Retrieved on June 15, 2012 from:
18   Wahba, Phil (May 24, 2012) "Tiffany forecasts disappoint; U.S., Asia slowing". Reuters. Retrieved on June 19, 2012 from:
19   Egan, Matt (June 8, 2012) "McDonald's May Same-Store Sales Come Up Short". FOXBusiness. Retrieved on June 18, 2012 from:
20   Baertlein, Lisa and Wahba, Phil (May 8, 2012) "Mcdonald's April U.S. sales miss estimates. Reuters. Retrieved on June 20, 2012 from:
21  Elmquist, Sonja (June 13, 2012) "Nucor Says Profit To Miss Guidance As Steel Imports 'Surge'". Bloomberg. Retrieved on June 19, 2012 from:
22   Pichler, Josh (June 20, 2012) "P&G lowers guidance for fourth quarter". Retrieved on June 20, 2012 from:
23   Van den Oever, Robert. (June 14, 2012) "Dutch Retail Sales Fall 8.7% in April". Dow Jones. Retrieved on June 20, 2012 from:
24  Dowsett, Sonya (May 29, 2012) "Spanish retail sales show record fall in April". Reuters. Retrieved on June 20, 2012 from:

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FoolsAdvice's picture

Tonight I'm gonna party like it's 19...

B-rock's picture

I agree: Stop listening to them!  Unless you want to make money trading -- then, trade the lies and make money.  So far the truth makes one poor -- or at least a crummy trader...

MillionDollarBonus_'s picture

I was disappointed at the lack of decisiveness at the G2012. This was a real opportunity to discuss groundbreaking economic reforms, and to my dismay, absolutely no significant policy initiatives were forthcoming. In a way though, I can understand. These politicians must be incredibly frustrated that they have to pass legislation at the national level, when global challenges clearly require global legislation. It's time for a new world order. We need to understand that the only way forward is to allow policies to be both set AND enforced on a GLOBAL level, in conjunction with a global currency and global central bank. The time for change is here. Support the PROGRESSIVE REVOLUTION in 2012.

Desert Irish's picture

So who should head up this New World Order MDB? The Germans? I'll give ya a reddie anyway for effort

MillionDollarBonus_'s picture

That's a good question. Initially, it should be headed by a selection of professors from top academic institutions. Preference would be given to those who also had prior experience at top financial institutions and/or experience in government. In the longer term however, educational academies would be set up with the task of selecting the best and brightest financial minds a an early age and training them at an elite level. These children will be the next generation of world leaders.

AldousHuxley's picture

Television Program = Visually Programming your mind


Idiots watching too much TV start to believing TV is real.


Turn that off and discover reality.


Hint: real things are so much better than what you see on TV.

VallejoVillain's picture

Agreed, Cut the cable company this year, leeches

Shizzmoney's picture

So did 16% more Americans this year.

Not only do they know they don't need it (except for 4 channels), they can't afford it.

They can afford the internet, however.

AldousHuxley's picture
  1. Cut cable, public over the air has HD stream. (free)
  2. If you want something beautiful, look at your kids and your wife (free)
  3. If you want entertainment, go to you library and read a book. most movies are created from books anyways (free)
  4. Cut gym membership, do push ups, sit ups, running outside everyday (free)
  5. Cut fad diets, just eat less (free)
  6. Vote for 3rd party in elections (free)
  7. Delete your social networking facebook account, and talk to your neighbors and old people. call your mom. (free)
  8. Learn how to cook at home instead of eating out (free)
The Alarmist's picture

Dig a ditch in your back yard, stand over it and slit your wrists, and pull the dirt over yourself as you bleed out ... free! and it has the added benefit of helping contain climate change by limiting your carbon dioxide output and sequestering the carbon stored in your body.

MuppetMaster's picture


I have found Alpha.  & I give it to you for free.

Come see what I'm doing.  See what I'm seeing.

Poor Grogman's picture

Tibetan internet access not allowed under chinese sensible plan.\

No need for knowledge that might cause unauthorised thinking and questioning.

resurger's picture

I have a feeling Justin Bieber can become a world leader, i dont know why !!

Piranhanoia's picture

Do you remember when a person said "tedium, tedium, tedium, tedium... until you awoke again a bit confused yet feeling wide awake?

francis_sawyer's picture

Well I heard he [Beaver] fell down the stairs yesterday, so you may be on to something there... 

cranky-old-geezer's picture



Your "brightest minds" created the mess we see now, moron.

Go find a planet to run and implement your insane ideas.  It won't happen on this planet.

Michael's picture

As a property owner whose land and real estste is fully paid off, do I get to vote for the elite world leaders who will be ruling over me? Or do US patriots and others just get to go all Norwegian Knights Templar on the elites and oligarcdhs asses killing their wives, children, and extended family?

Norwegian mass murderer claims Knights Templar membership

Read more:

Dugald's picture

I just had a flash vision of portable Gas Chambers made in China

its where one world order will lead.....

jumbo maverick's picture

It's ok if it made in china it won't work anyways but I have a pitchfork in my garage that was made in the USA years ago. It always works.

AldousHuxley's picture

It is the greed of the poor to accumulate more junk that is driving manufacturing out to china. Rich don't buy shit made in china.

Struan's picture

Im sorry sir but you seem to repeat what the mainstream media tells us: we are lazy, greedy, etc hence the current crysis. I will enlighten you today. Since 2001 gold and silver rised 900%.

Military spending,  theft of trillions might be the cause. 

2 trillions missing from pentagon in 2001, fed giving trillions in bailout behind congress` back, a lot of capital corzined, current jpm loss, 2 billion.

The trillions add-up you know? And you, me , everybody is paying for it.

We are so lucky we have China.

The Alarmist's picture

Be glad we are building our prison labor force and reinforcing it with millions more now welcomed illegal workers so that we can drive wages even lower and make the US even more competitive with China.

Dugald's picture

After posting the crack about portable gas ovens made in china, I received an email re stuff being sent to schools by an Australian government dept, short story... they are encouraging kids to consider euthanasia as an alternative to growing old and ending in a nursing home...I would cut and paste the full item but for some reason I can't paste into ZH....

Shades of Soylent Green not so far over the horizon eh? Who is behind this crap? non other than the Australian Green Party, as they say....You can't make this shit up.....

Prince Eugene of Savoy's picture

Breivik must be a time traveler.  Pope Clement V, under pressure of financially motivated King Philip IV of France, dissolved the Knights Templar in 1312.

Grand Master Jacques de Molay, who had confessed under torture, retracted his coerced statement.  Geoffroi de Charney, also claimed his innocence.  Both men were declared guilty of being relapsed heretics, and they were sentenced to burn alive at the stake in Paris on March 18, 1314.  De Molay reportedly remained defiant to the end, asking to be tied in such a way that he could face the Notre Dame Cathedral and hold his hands together in prayer.  He called out from the flames that both Pope Clement and King Philip would soon meet him before God.  His actual words were recorded.  Translated: "God knows who is wrong and has sinned. Soon a calamity will occur to those who have condemned us to death".  Pope Clement died only a month later, and King Philip died in a hunting accident before the end of the year.  The remaining Templars around Europe were either arrested and tried under the Papal investigation with none convicted, or absorbed into other military orders such as the Knights Hospitaller.

Benjamin Glutton's picture

Breivik must be a time traveler. Pope Clement V, under pressure of financially motivated King Philip IV of France, dissolved the Knights Templar in 1312. you have a link that will reassure me Brevik is not a time traveler from the future?



Clashfan's picture

Prince Eugene, I suggest that you research the matter further. Check to see if a 33rd degree, Scottish Rite Freemason, a Shriner, is not also a Templar.

Mary Wilbur's picture

The original Knights Templar were bankers. They were too successful and thus excited envy. Their wealth was confiscated. Those Templars who survived the Inquisition were burnt at the stake.

Winston Churchill's picture

Thats what got us here MDB.

O Brave New World(order).

Not quite up to your normal sarc.

ZeroAvatar's picture

Just down-arrow MDB and move on. The troll provides absolutely nothing. No comedy, no insight, nothing.  Just like Robotarder:  down-arrow, scroll........

margaris's picture

red arrows have to be earned, we dont give them for free, lol

g speed's picture

someday maybe we'll get to hear what you really think--till then thumbs up for great comedy.

The Alarmist's picture

That would be The Brilliant Larry Summers to you.

Mary Wilbur's picture

They should have received a Nobel Prize in Economics, or at least the Peace Prize.

Bansters-in-my- feces's picture

Hey MDB you fuckhead.

I see you paid some troll s to press the up arrow on your comments.

There is NO WAY that many people on ZeroHedge would up arrow you for the "global currency" comment.

Fuck off and die,your takeing up space and wasting air.

harleyjohn45's picture

Personally, I would prefer a panel of Pawn Brokers over a panel of college professors.  In a financial crisis, you need someone who knows something.

wareco's picture

Are you out of your friggin' mind MDB?  "Preference would be given to those who also had prior experience at top financial institutions and/or experience in government".  These are the same douche bags that got us into this mess.

BuildItToBreakIt's picture

Prior experience at top financial institutions?  Like ex Goldman Sachs employees?  They already run virtually everything in the western world and clearly that's worked out so very well.

Would you stock it with Austrian or Keynsian Economists?  Gold Standard?

Who would train them?  The same guys that got us into this mess?

Your answer is way to vague to be a real solution.

Simplifiedfrisbee's picture

MDB, who n the fuck do you think your fooling? You posted as the irish man to set up your answer. You're a sick, spineless sack of meat with the spirit of God as the only thing holding you together. I forgive you based on the fact that your demented intellect has perversed you to inform not what you believe, but what you have made others believe of you. I see what you do on here and it is not where it is you intend to go with what you post but rather where it is you will not be allowed to enter with your words.

BadKiTTy's picture

Keep em coming MDB!

I LOVE your posts!



BadKiTTy's picture

Keep em coming MDB!

I LOVE your posts!



blueridgeviews's picture

Stalin and Hitler would love your idea.

Hurdy Gurdy Man's picture

Instead of the marriage of government and enterprise as you suggest, what *will* happen is decensus, over time.  Small groups finding their way, as one searches through the forest by stretching your hands out in the dark just to keep the next branch out of your face as you sort-of-kind-of remember your way back to base camp.

Xue's picture

'Initially, it should be headed by a selection of professors from top academic institutions.'

You mean Paul Krugman?