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Europe's "Great Deleveraging" Has Only Just Begun

Tyler Durden's picture


While Europe's financial services sector equity prices have retraced almost half of their May11 to Oct11 losses as we are told incessantly not to underestimate the impact of the LTRO, Morgan Stanley points out the other side of the balance sheet will continue to sag. While short-term liquidity (at least EUR-based liquidity as USD FX Swap lines are back at record highs this week) may have seen some of its risk culled, the real tail risk of the 'Great Deleveraging' has only just begun. As MS notes, we may have avoided a credit crunch but European banks could delever between EUR1.5 and EUR2 Trillion over the next 18 months as the unwind is far from over. History suggests that over a longer time-frame, around five to six years - the deleveraging could reach EUR4.5 Trillion assuming zero deposit growth and the LTRO will slow but not stop the process. As we discussed last night, this deleveraging will inevitably lead to continued contraction in European lending to the real economy (no matter how much liquidity is force-fed to the banking system) which will most explicitly impact Southern and Peripheral Europe and the Emerging Markets of Central and Eastern Europe.


Deleveraging has indeed a long way to go if history is any guide.Morgan Stanley sees four broad buckets of bank deleveraging likely:


In the meantime, we assume the Central Banks of the world will do the only thing they know, print and funnel liquidity to these increasingly zombified financial institutions; and while Dicky Fisher was calming us all down this evening on our QE3 expectations (given Gold and Silver's recent price action), it seems perhaps even the Fed is getting nervous at just how little surprise factor they have left given such a ravenously hungry deleveraging and insatiable need to maintain the market/economy's nominally positive appearances.


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Thu, 02/02/2012 - 23:44 | 2122125 kito
kito's picture

congrats tyler, the deflationistas have taken direct aim at you. front and center!!

Fri, 02/03/2012 - 00:06 | 2122165 DoChenRollingBearing
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+ 1 more

Ashvin Pandurangi

I believe this is the same "Ash" who was a troll at  Also a self-admitted Marxist.  Good catch kito!

Fri, 02/03/2012 - 00:37 | 2122208 sodbuster
sodbuster's picture

He's an "Ash" hole!!!

Fri, 02/03/2012 - 01:19 | 2122276 johnu1978
Fri, 02/03/2012 - 11:35 | 2123243 Nobody special
Nobody special's picture

LTRO will slow but not stop the process

Yes, because a slow and agonizing failure is much better than a quick collapse from which people can rebuild. </sarc>

The elite have the resources to withstand a slow collapse, while citizens do not. This slowing of the process is to make people dispair so they cry out in pain. It is not to save them. Bailouts serve the NWO agenda.

Fri, 02/03/2012 - 00:57 | 2122247 Oh regional Indian
Oh regional Indian's picture

Europe's great de-leveraging..... how do you de-lever trillions?

And clearly this world CANNOT return to mark-to-market. In a mark to model world, who is the final arbitrer of price on books of any asset?

That is the key question, IMO. And if history is any precedence it will happen by war, the great re-set button.



Fri, 02/03/2012 - 06:33 | 2122451 spiral_eyes
spiral_eyes's picture

you print.

can't print gold, bitchez.

Fri, 02/03/2012 - 00:34 | 2122172 TruthInSunshine
TruthInSunshine's picture

Global deleveraging is a potent force that wields a mighty hammer over Bernanke & the ECB (or the BOE or BOJ, for that matter), and in fact, the more Bernanke and his fellow fractional reserve conjurers push on a string, the more they reinforce that potent 'tsunami' (as The Automatic Earth describes this force).

The article you reference trips over its own argument somewhat near the end, when it finally mentions "debt deflation."

Deleveraging and debt deflation can be, but are by no means, the same thing.

Deleveraging can speak of future refusal by governments, businesses and consumers to assume new debts, while debt deflation isn't necessarily this phenomena at all (debt deflation can speak more to the form/manner of discharge/impairment/repayment of existing debt).

The ultimate question that needs an answer is what form debt deflation will take.

Creditor haircuts?


Currency debasement?

Global Jubilee?


That article on AE doesn't even take a stab at that issue, even after raising it near the close, and it's the most critical issue of all relative to whether inflation, deflation or stagflation (or some mutant hybrid) will be the prevailing and dominant future trend.

Fri, 02/03/2012 - 00:47 | 2122219 Sam Clemons
Sam Clemons's picture

I often wonder why the deflationists are so stuck on the idea that this boogey man debt (I call it the boogey man debt because it seems every country owes a bunch of other countries some money and no one actually wants to pay one another back, but still wants to borrow)  where they will get it from or will ever be paid back, or that even if it does get paid back, will be paid back in present value currency units.  Am I crazy, or does someone actually believe that most of the world's debt will be paid back in non-devalued currency?

Or as people see the writing on the wall for owning sovereign debt, mortgage debt, student loan debt, etc, and recognize that they won't be paid back in real or nominal terms, why wouldn't they start to diversify more heavily into another asset that is mostly undilutable, possibly gold?

Fri, 02/03/2012 - 00:49 | 2122228 TruthInSunshine
TruthInSunshine's picture

Well, I am not staking any claim that you are wrong or right, but there are intervening and superceding events such as wars that do arise from time to time to settle the ledger in another form.

Two great examples of this were WWI and WWII.

Fri, 02/03/2012 - 00:53 | 2122239 Sam Clemons
Sam Clemons's picture

Didn't the US extend huge loans to European countries for those wars and never got paid back?  How were the ledgers settled by the wars?  And the last question isn't meant to spur thought, I'm actually asking.

Fri, 02/03/2012 - 01:09 | 2122261 TruthInSunshine
TruthInSunshine's picture

AFAIK, the U.S. itself wasn't a big financial backer of any foreign sovereign regarding WWI, but we certainly financially backed our allies in WWII, after Germany fell under Hitler's spell due to the crushing reparations that threw her into a depression post WWI, and we certainly reaped the largest financial and economic benefits of helping the allied forces win WWII, as we received a global customer base for the most sought after products and goods, and more importantly, were given world reserve currency status (and we were able to sit down with Stalin & Churchill and divide up the global oil pie).

Fri, 02/03/2012 - 01:21 | 2122284 adr
adr's picture

Post WWII instead of giving money to countries, we gave them equipment they needed to rebuild. This helped US industrial production greatly. Many European farmers broke down in tears when they were given brand new tractors and mules. Our American mules kicked the European donkey's ass in terms of productivity. It goes to say that many American industrialists believed WWII was the only way out of the depression, knowing the destruction of Europe would benefit the USA greatly. If it wasn't for Henry Ford, Russia wuldn't have lasted two months against the Germans. Ford hated the Nazis and the Soviets. He hoped a prolonged war would wipe them both out. He didn't like bankers much either.

Fri, 02/03/2012 - 01:28 | 2122290 ultimate warrior
ultimate warrior's picture

Ford was a NAZI

Fri, 02/03/2012 - 07:04 | 2122465 falak pema
falak pema's picture

Ford a NAzi : By conviction or corporate interest is the question. Or both. 

Well he didn't like the "jewish" takeover of US banking and Hollywood and he was an out and out WASP, so he resented America's melting pot evolution. He was not mainstream in that. Like Lindberg and other Wasps or Wasp copy cats like Old Irish malt  Kennedy. American Oligarchy culture has this ability at the top to be very "cut and run", in ideological terms, being a young mind set nation and basically pragmatic hands on type country; the movers and shakers change sides very easily. Its in their atavistic blood line. 

Its a great plus for a nation this supple back bone construct. Don't put ideology before hands-on, in the street experience. After all, all cats are grey in the dark and all women are worth a roll in the haystack if they be pretty and feminine; whether they be Greta, Marlene, Ingrid, Ava, Lana, Elizabeth, Marilyn, Jane, Nicole or Keira. Universal International made it America's dream as did MGM and exported it. Thats  the good side of US of A, not Guantanomolese and NDAA sauce for PAtriots who act like fascists.

 Maybe Ford had a bit of both : he was John Ford and Henry Ford, but didn't know when to draw his gun! That would explain him loving Nazis and he and his ilk, like Harriman, helping the Bolsheviks as well. 

Fri, 02/03/2012 - 07:14 | 2122472 Disenchanted
Disenchanted's picture



Maybe it's best if one was to read Henry Ford's own words and decide for oneself what was his point, and not be told by others what to beLIEve about Henry Ford. So in that context here are Ford's original words:

The International Jew

Fri, 02/03/2012 - 07:31 | 2122480 falak pema
falak pema's picture

What you say and what you do may not be on the same page. Henry Ford never actively put his own "final solution" in place. 

Hitler did and five years later it was all over. End of that. Ford died in 1947, so he saw his personal ideology, as published in the text you presented, brought down in flames. But he never "drew his gun" in its name...; he may have fanned the flames; real events occured too fast for that, maybe! 

History is a bitch. Your dreams stay dreams, whatever you may scream in private or in public. Words n deeds; the dividing line of western civilization. Nobody goes to jail for intent of murder if he doesn't commit it!

Its worth saying to draw the line between fact and possible intention. 

Fri, 02/03/2012 - 07:23 | 2122475 spankfish
spankfish's picture

"all women are worth a roll in the haystack if they be pretty and feminine; whether they be Greta, Marlene, Ingrid, Ava, Lana, Elizabeth, Marilyn, Jane, Nicole or Keira" ... be careful with that statement.  When you are with a woman always apply Moulters Rule - never spend more than 4 hours with her and finished hit the floor running.  If not, you will became a victim of the Vagina Wars young man.

Fri, 02/03/2012 - 07:33 | 2122481 falak pema
falak pema's picture

I did say : It was Hollywood! ...

Fri, 02/03/2012 - 02:00 | 2122316 linrom
linrom's picture

Nice fiction. The Soviets stopped the Nazis in '41 in front of Moscow.

Fri, 02/03/2012 - 02:25 | 2122342 TruthInSunshine
TruthInSunshine's picture

Stalingrad from 42 to 43 was the huge turning point in WWII in terms of stopping Hitler's advance of armor/infantry (Nazi Germany failed to win gain any territory to the east afterwards while suffering massive casualties) and the opening up of two fronts (fighting the U.S./U,K to the south and west & fighting the Soviets to the north and east) was a critical tactical mistake by Hitler, with much of his top miltary advisers knowing to be the case, but too intimidated to challenge him on it.


Fri, 02/03/2012 - 03:56 | 2122391 Raymond Reason
Raymond Reason's picture

The Nazis couldn't take Leningrad either.  Most Americans don't realize that the theatre of battle there was 4 times the size of the entire Western Front.  In fact, it was the largest and deadliest theatre of battle in all of history.   We were given the American version in school, where the Soviets are reduced to "helpers". 

Fri, 02/03/2012 - 08:36 | 2122532 DanDaley
DanDaley's picture

Divide and conquer often works, and Hitler did it to the Germans in Russia; R.E. Lee he was not!

Fri, 02/03/2012 - 03:29 | 2122373 piceridu
piceridu's picture

The Germans never had a chance...very astute linrom...nice to see someone that knows the real (hi)story.

Fri, 02/03/2012 - 01:38 | 2122299 Ropingdown
Ropingdown's picture

JP Morgan Co's and Kuhn Loeb were extremely big lenders from 1914 onward.  If Wilson hadn't dragged us into WWI (despite running on the oppsite platform in 1916) Morgan Co's would have, at the very least, ended up much much poorer. 

Fri, 02/03/2012 - 08:42 | 2122542 disabledvet
disabledvet's picture

Henry Morgantheau. One of the greatest Secretary of Treasuries in history. Only Hamilton and JP Morgan can stand in those shoes. And of course Morgan created the only honest system of finance in a gold standard. Insofar as what the US economy got at the end of's really too long to list since most people simply devolve it to mere "dollar as reserve currency" and "industrial juggernaut" status. These two were easily the weakest links in the easily broken by Nixon as a soft necklace of pure gold to be smuggled into Korea or Taiwan. As we all now know "it was the media" that has created untold wealth on a scale not even imaginable by FDR when...having lied to Congress about the devastation of Pearl Harbor...he then brought in the media to tell them exactly what had happened...and put the USA on a path of political/economic dominion that stands higher today than ever. Come on up to Utica, NY. Pay a visit to the massive and long abandoned lunatic asylum. And then as yourself "why would such incredibly poor people build....

Fri, 02/03/2012 - 00:52 | 2122233 Sam Clemons
Sam Clemons's picture

Crap I messed up the above. 

Should say "this boogey man debt will ever be paid back."  No "where they will get it."

Long story short, it seems every country owes every other country some money.  Who actually owes who money?  Who actually intends to pay up honestly?

Fri, 02/03/2012 - 00:55 | 2122243 TruthInSunshine
TruthInSunshine's picture

As far as I can tell, trade is the real method of debt and repayment.

Fiat currency not backed by anything of tangible value is just an inherently flawed scorecard to try and keep tabs on it all and quantify the activity.

Fri, 02/03/2012 - 02:06 | 2122321 Bunga Bunga
Bunga Bunga's picture

All modern currencies are backed by debt (except Zimbabwe, Cuba, N Korea etc). For every dollar in circulation or deposits there is a dollar of debt, public or private.

Take a look at a random Federal Reserve Note. It prints: " This note is legal tender for all debts, public and private".

So a dollar is nothing else than a medium to pay debt. Since this legal tender status applies on every dollar, there can be outstanding only equal ammounts of dollars and debts.

Fri, 02/03/2012 - 03:18 | 2122366 GernB
GernB's picture

Then that would imply that the amount of inflation or deflation is related to the amount of debt. If all currency is backed by debt then the number of dollars chasing goods is related to debt and thus the cost of everything is related to debt. If people, corporations and countries stop borrowing then deflation must occur, regardless of what the Fed does (someone has to borrow the money the Fed prints).

Fri, 02/03/2012 - 07:25 | 2122477 itstippy
itstippy's picture

Unless you simply print more money, debasing the currency. 

Since August 2007 Bernanke has taken the Federal Reserve's balance sheet from $869B to $2.5T.  Bank Of England has taken similar action.  They call it "Quantitative Easing", but it's really just printing money out of thin air and using it to buy up assets (Mortgage Backed Securities in QE1, US Treasuries in QE2).  The European Central Bank is now also doing the same thing (basically) with their Long Term Refinancing Operation.

This Quantitative Easing keeps asset prices propped up (stocks, bonds, securities), giving people the false impression that their investments are still performing.  But the assets are priced in currency (dollars, pounds, euros), and the currency is being debased, so the actual value of the assets is going down.

The Central Banks claim that they're taking the "unusual measure" of Quantitative Easing to stimulate the broad economy, encourage investment, reduce unemployment, and promote growth.  Nope.  It's really a desperate attempt to keep overvalued assets pinned at their overvalued "worth" so the people and institutions holding these assets don't have to acknowledge the fact that they are insolvent because they paid way too much for risky, shitty assets. 

Somehow Bernanke & Co have convinced Joe The Plumber that The Fed is there to help him.  Joe The Plumber is too ill-informed to know differently, and too lazy (or scared) to find out the truth.  He sticks to being extremely knowledgable about professional football. 

Fri, 02/03/2012 - 08:31 | 2122524 oogs66
oogs66's picture

Joe the plumber? What about all the CNBS cheerleaders who should know better?

And why isn't mainstream pointing out that QE only encourages banks to buy what is getting QE'd and avoid lending

Fri, 02/03/2012 - 08:58 | 2122562 RecoveringDebtJunkie
RecoveringDebtJunkie's picture

"Deleveraging and debt deflation can be, but are by no means, the same thing."

That's a fair enough point, but I find it hard to argue that debt deflation can occur through currency devaluation, i.e. debt devaluation or inflation of debt.

As for answering the question of what form debt deflation will take, that has been a central aim of TAE for years now. Take a stroll through the archives or the primers. You would probably be pleased to know that dollar HI is viewed as the inevitable endgame.

Fri, 02/03/2012 - 09:09 | 2122591 Matt
Matt's picture

What an interesting coincidence, The Automatic Earth article from January 31, 2012 post used the Buzz Lightyear quote the very same day I did.

Fri, 02/03/2012 - 00:31 | 2122196 Sam Clemons
Sam Clemons's picture

"To see what is in front of one's nose needs a constant struggle." - George Orwell

Fri, 02/03/2012 - 01:04 | 2122258 Oh regional Indian
Oh regional Indian's picture

Excellent quote, thanks Sam.


Fri, 02/03/2012 - 01:08 | 2122264 Sam Clemons
Sam Clemons's picture

You usually provide great comments - thank you for them and for this.  Sorry for being a douche to you in the past.

Fri, 02/03/2012 - 01:24 | 2122286 Oh regional Indian
Oh regional Indian's picture

You are welcome and all good Sam. Many strong/well read minds here, so being opinionated is a given.


Fri, 02/03/2012 - 02:18 | 2122335 linrom
linrom's picture

Wow, I missed the blog? What a tremendous find. If you look at what he reads, the list is made up of Who is Who, of those that foresaw the present GFC.

I am no longer a fan of ZH either. The blog is becoming another MSM propaganda tool in a war against the underprivileged classes.

Fri, 02/03/2012 - 08:14 | 2122499 chubbar
chubbar's picture

It's National NDAA protest day. Please call your Congresscritter or email using the links below by writing your own letter or copy/paste the one provided below and using the link immediately following the letter.

"TODAY, Friday, February 3 is NDAA Protest Day. Thousands of patriots will be protesting at local Congressional offices.

YOU can participate in the protest, even if you are unable to attend in person. But first...

Some Background

NDAA is the National Defense Authorization Act, signed into law by President Obama on New Year's Eve 2011. Sections 1021 and 1022 authorize the President to "indefinitely detain" (kidnap) ANY person - American or non-citizen - without bringing charges and without a day in court. Learn more.

The Tenth Amendment Center asked President Jim Babka to present a detailed yet plausible scenario, whereby these kidnapping provisions could be used to snare activists.

The Backlash

Anger toward the NDAA was immediate. fought against the bill before passage, and launched its repeal campaign on January 9. At least three repeal bills have been proposed. Regrettably, none are sufficient...

  • Rep. Ron Paul's bill HR 3785 repeals Section 1021 but not 1022.
  • Rep. Jeff Landry's HR 3676 would restore Constitutional protections for American citizens but denies them to foreigners -- even legal residents.
  • Sen. Diane Feinstein's bill S.2003 restores due process to American citizens and lawful alien residents but seems to deny even a citizen’s due process rights if apprehended on foreign soil.

In addition, citizens are working through their states and local communities to communicate their opposition to Sections 1021 and 1022. For instance...

NDAA Protest Day

The event is TODAY from noon to 7pm at your Representative's Congressional District offices throughout the country. Downsize DC is not involved in planning or coordination these in-person protests, but it appears that you can come when you can, as long as you can.

If you are able to attend, you can locate the office nearest you here:

More information here:

If you are unable to attend, then PLEASE call Your Representative and Senators.

To call, go to your Downsize DC "District Information" page. If you're logged in that link is located in Your Toolbox. It contains each of their phone numbers:

Here are a few words you can use...

It is a cowardly act to surrender our freedoms in the name of fighting terrorists. Please introduce legislation that repeals Section 1021 and 1022 of the NDAA and restore strong due process rights for all.

BUT IF YOU DO NOTHING ELSE, send a letter: Go to's Repeal Indefinite Detention Campaign.

You may borrow from or copy this...

It is often said that terrorists hate us because of our freedom.

So if we give up our freedom in the name of fighting terrorists, doesn't that mean they win?

That's a cowardly act!

It started with the Patriot Act. It continued with other terrible bills such as the Military Commissions Act. But Sections 1021 and 1022 of the NDAA endanger EVERYONE's freedom.

These provisions authorize the military to kidnap any person whom this, or any future President decrees is a "terrorist." Non-Americans and Americans alike. On foreign soil AND our soil. For as long as there are "hostilities," i.e., possibly forever.

What if any other country passed such a law? Would you travel there? Wouldn't our own State Department condemn such a human rights violation? Would you call its people "free" or "unfree?"

The power to kidnap, to "disappear" people, is the mark of a backward tyranny.

The NDAA destroyed a legal tradition going back to the nearly 800 year-old Magna Carta. The protection of persons from arbitrary arrest and imprisonment is the very foundation of a free society. It's one of the crown jewels of civilization. It makes us feel fortunate to live in a country like the United States.

Make us proud to be Americans once again.

Please introduce legislation that repeals Section 1021 and 1022 of the NDAA. Restore strong due process rights for all.


You can send your letter using's Educate the Powerful System.

Thank you for taking part. Encourage your friends to do the same!

James Wilson
Policy Research Director, Inc.


D o w n s i z e r - D i s p a t c h

Official email newsletter of, Inc. & Downsize DC Foundation."

Fri, 02/03/2012 - 00:00 | 2122129 ACP
ACP's picture

The what? The great De-Re-De-Re-Re-Leveraging? Print money, lose it, write it off. Print money, lose it, write it off.

Fuck it, gold bitchez!!!

You can't print it, and you only write it off if you lose it!!!

Thu, 02/02/2012 - 23:48 | 2122133 RiverRoad
RiverRoad's picture

And a great sucking sound came upon the Land...

Fri, 02/03/2012 - 19:50 | 2125350 Zero Govt
Zero Govt's picture

Yes, it's called Govt

Thu, 02/02/2012 - 23:51 | 2122135 rosiescenario
rosiescenario's picture

"while Dicky Fisher was calming us all down this evening on our QE3 expectations (given Gold and Silver's recent price action)"


Looking for the CME to step in again and raise the margin requirements on the pm's...Ben has a memo to them on this subject....lets make sure that no one gets the idea there is any inflation so lets crater the pm's....


Tomorrow would be a good day for them to do this....

Fri, 02/03/2012 - 00:03 | 2122162 kito
kito's picture

just who exactly is the cme going to shake out? its last remaining investors? last i checked, the mf global implosion was the ultimate margin hike.....

Thu, 02/02/2012 - 23:55 | 2122141 JPM Hater001
JPM Hater001's picture

I'm lost. So who had sex with who again and why is Chandler mad at Joey.

Please, someone explain if I were phoebe...please...

Thu, 02/02/2012 - 23:55 | 2122143 Bringin It
Bringin It's picture

perhaps even the Fed is getting nervous at just how little surprise factor they have left

Re. nervous.  BDI Don't lie.

Fri, 02/03/2012 - 01:41 | 2122300 Ropingdown
Ropingdown's picture

The pitchfork factor, Republican Congress factor, too, might be kicking in.

Fri, 02/03/2012 - 03:29 | 2122377 GernB
GernB's picture

I'm not sure it matters who is in congress. Eventally it will dawn upon everyone what their share of the national debt is, how big is it relative to their income, who is reaping the benefit of the taxes collected to pay the debt service, and just how close we are to being unable to ever pay it down. When that happens voters will stop the borrowing regardless of who is in power. If they have to change who is in power to do it, they will.

Thu, 02/02/2012 - 23:57 | 2122148 CrashisOptimistic
CrashisOptimistic's picture

I continue to have problems with declarations of "deleveraging" when governments are running deficits of hundreds of billions in the EU and over a trillion in the US.

Does a trillion dollar borrowing look like deleveraging to you?  No.  What it looks like is moving debt from bank balance sheets onto the taxpayer's balance sheet.

Fri, 02/03/2012 - 00:01 | 2122153 AU5K
AU5K's picture



rally tomorrow when headline hits 8.3%.  there's more 99 weekers flowing out than initial claims, which naturally, is bullish.  dont count on any of the expected negative january adjustments to kick in (birth/death, transportation overstate, bank layoffs, etc).  and the media will never focus on the total employment figure.  zh?

Fri, 02/03/2012 - 00:03 | 2122161 falun bong
falun bong's picture

Europe is much more tied to bank lending to keep businesses going than the US...this is gonna get ugly.

Fri, 02/03/2012 - 00:47 | 2122193 TruthInSunshine
TruthInSunshine's picture

I wouldn't agree with that.

Now, I would agree that this is true of the U.K. and France, and ESPECIALLY the U.K., with England being the original and most bank/financial services-dependant economy in the entire world (in terms of developed or emerging economies), with the U.S. and France trailing behind it.

[I'd also point out that London & New York are literal sister cities, as they both are so incredibly dependant on the scam that is modern day banking/financial services in order to maintain, or have any hope of maintaining, their status quo and standard of living - both are giant cesspools of net-net wealth destruction writ large]

It's so appropriate that Cameron slammed the door shut on Merkel (and other EU leaders) once the topic of serious, significant financial sector haircuts and cram-downs was put on the table as a necessity; after all, Cameron and England are owned by their banks. Cameron could ill afford to piss his masters off (hell, that old hag the Queen is liquidating assets to raise cash after her master bankers cut her line of credit).

Ahhh...what is a House of Red Shield subjugated pissant nation to do?

Fri, 02/03/2012 - 05:07 | 2122425 Sandmann
Sandmann's picture

I disagree with you since you have failed to read what falun bong wrote. Business in Europe IS MORE dependent on Bank Lending than in the USA because Corporate Bond Markets are under-developed BECAUSE European Governments fund large welfare states through Sovereign Debt issuance and crowd out Corporate Bonds. Investment Trusts used to fund businesses but names like Globe set up to pay for the first transatlantic cable were absorbed by CinVen a Government-sponsored Coal Pension Fund under the Thatcher Era when Finance ruled supreme.

Typically German SMEs are highly leveraged with Hausbank lending which is why they are squeezed. Large corporates may be cash rich but they are depositing at the ECB which is then funding Sovereigns through buying Collateral from insolvent banks. The Credit Squeeze is severe in the real economy.


You are talking about London as a Banking Centre falling into the old British trap of thinking Banking is real business when it is Virtual Reality with mirror-image Balance Sheets to reflect their position in the economy. What normal people would consider Assets they consider LIabilities and vice versa because they are the other side of the coin.

When Banks play with their own Balance Sheet they remove the shock absorber from the real economy and without long term funding SMEs die. That is why in 1945 the Bank of England pushed British Banks to create Investors In Industry as a long-term industrial credit bank but the 1980s turned it into 3i Plc which became a typical LBO Private Equity Fund under Phil Yea asset-stripping businesses instead of building them.


Fri, 02/03/2012 - 06:51 | 2122460 Acet
Acet's picture

Businesses in Europe are more dependent on banking than those in the US because Europe has many more SMEs than the US - roughly, SMEs in the US employ 45% of employees while in the EU it's 67.4%.

SMEs are simply not large enough to viably tap the corporate bond market, hence the size of that market is not really relevant.

My theory is that this is because the US suffers much more from crony capitalism - the unhealthy coziness between politicians and big corporations that leads to lots of indirect and even direct subsidies being given to the later and, worse, laws and regulations being passed that create barriers to entry into markets, protecting entrenched and inneficient large companies from the competition of fresh new companies. This can also be seen in the UK, which has a similar cozy relationship between politicians and big corporates and the lowest precentage of SMEs in Europe (which is really bad news with regards to the UK's ability to maintain it's living standards in the current Depression).

Fri, 02/03/2012 - 08:41 | 2122495 falak pema
falak pema's picture

Alas, its true in France as well, where the big corporations are all run by the state Mandarin ENA/Polytechnique elite. France corporate structure thus suffers not from crony capitalism but from "one model" state controlled, top down, Colbert-Jacobin-Bonaparte-de Gaulle historical construct. Its this psychorigid tradition that creates the French five legged oligopolies like EDF, Areva, SNCF; utility and bank constructs. Also the major private sector corporations are very powerful. SME in France are very poor cousins to these who look down at them hating competition and are treated like dirt by the banks.

The real powerful SME model exists in Germany, Landers type poles; Italy regional mom n pop powerhouses of innovation and Benelux; where entrepreneurial existence is religion since Jacob van Artevelde of Antwerp days; when they pushed the french feudals into the ditch at Courtrai, resulting in the hundred years war, as he was commercial ally to England in the drapery and textile business.'Écluse

Fri, 02/03/2012 - 00:21 | 2122184 non_anon
non_anon's picture

ah, breaking up is hard to do

Fri, 02/03/2012 - 00:25 | 2122190 DIEKeynesianEco...
DIEKeynesianEconomics's picture

All this EUR volatility this last week is simply big players adding more shorts, bidding the price back up themselves, then adding more shorts and closing their short term longs for nice 100 pip profits. Once something newsworthy comes out, they will be positioned nicely with 2000 pips to run to the downside, instead of 1500.

FED tries to confuse the markets but they aren't so gullible anymore. Not much dumb money left to siphon fellas. We all know it's the ECB who is going to print. Why?

a) USD strongest = Ponzi lasts the longest. That's all you need to remember.

The only way to keep the dollar strong now, is to sink other currencies first. The ONLY way. And it's just a short term fix. I bet gold will hardly suffer at all. More Euros will  be going toward gold than ever before, and the USD won't rally as much because of it.


Fri, 02/03/2012 - 00:25 | 2122191 holdbuysell
holdbuysell's picture

"and while Dicky Fisher was calming us all down this evening on our QE3 expectations (given Gold and Silver's recent price action), it seems perhaps even the Fed is getting nervous at just how little surprise factor they have left given such a ravenously hungry deleveraging and insatiable need to maintain the market/economy's nominally positive appearances."

They should be nervous. Very nervous.

What was a surprise in pre-digital information days no longer can be. Information flows instantly. The smart (cough ZH cough) are disseminating fast and furiously and many are listening and acting.

Remember how Bernanke in his part of the "what went wrong in 2008" interview for the investigative committee said that the blogosphere was to blame? IMHO, that was Bernanke's way of saying the the truth was pulling the curtain down and causing a crisis of confidence. Sadly, the comment blames those for realizing the problem than those who are running the earth into the ground, all for the benefit of a few.

Information asymmetries resulting from information flow barriers are becoming scarcer. This is a huge problem for the elite, who used to rule like the Wizard of Oz did. Nothing is any longer mysterious due to 'free' instant information flow.

And to that, a big thanks to ZH for being an outstanding leader in this endeavor.

Fri, 02/03/2012 - 00:40 | 2122210 Atomizer
Atomizer's picture

Open the Euronext pod bay door HAL!


Fri, 02/03/2012 - 00:42 | 2122215 TruthInSunshine
TruthInSunshine's picture

HalCERNEuro9000:   I'm sorry, Angela (?)/Dave(?), but you know that I can't do that.

Fri, 02/03/2012 - 00:40 | 2122213 Flakmeister
Flakmeister's picture

So we are left with a difficult choice...

PM's getting hammered as the Euro collapses with the attendant flight to the dollar..... When does one pull the trigger?

Believe it or not, I am pretty fucking impressed that Ben, JC/Mario et al have been able to keep the wheels on the tracks during this slo-mo train wreck....

Could it be that these guys can print at rate commensurate with the rate of "money" aka debt being accreted into the Black Hole and thereby insure a "soft collapse"???

Can they manage the simultaneous demise of the Petro-dollar?

These are the real questions....

Fri, 02/03/2012 - 01:32 | 2122296 Oh regional Indian
Oh regional Indian's picture

Flak, I think the much dismissed and derided Amero/SDR double whammy might come and bite people in the ass when they least expect it.

of course, some 'event" will be manufactured prior. 


Fri, 02/03/2012 - 07:14 | 2122450 falak pema
falak pema's picture

That's what the whole CBs cooperation is about. Thats why Qatar is massively investing in Europe. That's why China has to do the same. Eur$zone deleveraging has become fulcrum to keep the bubble from collapsing while the real economy of first world shrinks. All Geneva/Zurich based banks are very pessimistic about real economic growth in Europe, without finding a real issue in Bric countries for their clients. Even the commodity game projection has become hot potato. It could collapse if financialfantasyland implodes. Whence mergers in this area, its Oligarchy protection strategy and it works BOTH ways. 

All three pillars of first world now depend on real economy attrition and currency roller coaster in unstable equlibrium to ensure bubble economy does not fold in. The USD safe haven has its limits as a Euro USD parity means the real economic perspectives of US economy could be zilch. Not acceptable to WS. Whence the roller coaster model to keep the markets guessing by manipulated CBs/PD coordinated plays. Very non free market for sure. Its the bubble economy which is the unknown; as its internecine fault lines are murky, aka MF Global. The CDS derivatives market collapse as collateral to Greek unwind, will hurt all these banks whose off balance sheet profits rely so much on OTC derivative trades. If the Euro governments being elected in France or Germany or any of the fragile dominoes now decide in next two crucial years to tighten the screws on ponzi bank constructs, it could trigger a frantic financial spiral that even FED/ECB/IMF/BOJ/BOE cooperation could not contain.

Black swans, impossible ball juggling and the energy quandrum all make life fragile as hell in financial-political Oligarchy land. Which thief will go first for his gun if he feels the other guy is two timing him, remains a burning question in a world without faith or ethics.

I am obviously referring to the existing fracture line between City/WS and Euroland Oligarchs which will widen IMO as the two business models seem incompatible. Who is stronger in this financial tug of war behind the curtains is still difficult to tell.

Obviously pax americana and anglo financials hold the stronger card, but for how long?

Fri, 02/03/2012 - 00:43 | 2122218 chump666
chump666's picture

C'mon Citi top MS with a ultra bearish/doom report.

Fri, 02/03/2012 - 01:30 | 2122293 adr
adr's picture

Come on people losing jobs that pay $50k only to find part time jobs paying minimum wage can actually spend more according to Krugman. They can all benefit greatly from all the government stimulus. Nobody has to spend less and deleverage. We are in the greatest goldilocks market of all time. We don't even need to work and corproations like Facebook that don't produce a damn thing will make us all rich!!! OHHH good times are here again, my pants are full of cash and I can't even spend it all, THANKS OBAMA!!! of course that is sarcasm if you can't tell.

Fri, 02/03/2012 - 02:24 | 2122336 earleflorida
earleflorida's picture

QE1 = Mid/Short Term Relief for U.S. Markets

QE2 = Weak Relief for Rolling-Over U.S. Markets

QE3 [?] = Zippo, but high on the "Prozac Count" for U.S. Markets --- Recommend Credit Watch on or after January 20,2013 -

now,... let's see if i'm reading Tyler correctly with this conversion chart:

LTRO I = Mild Term Relief for EU Markets

LTRO II [?] = Lethargic Relief with 'Mild Depression' for EU Markets 

LTRO III [?] = Quasi-Comatose Relief , with Sedative Measures of Constraint - Post Traumatic Stress showing   Visible Fractures in Stability --- Recommend: Two Year Suicidal Credit Watch

Ps. Credit Rating Court of 'Domestic Sovereign Disputes' via 'International-Tutelage', strongly recommends said parties stay throwing distance of a crow's-mile limit from estranged mistresses ___ aka.- Greece, Portugal, Spain, Italy, and the French Madame , per order Timmah & Binji NWO HQ's Basel, esq.

Fri, 02/03/2012 - 04:29 | 2122405 EcoFlow
EcoFlow's picture

MS is just completly wrong. The current deleveraging is not going to keep the same pace. The reason is simple : current account deficit is strongly improving in peripheral countries, with domestic saving progressively filling  the gap with financing needs. At some point real interest paid on sovereign debt of these countries as long as private debt will ease, following the much less resiliance on foreign savings and decreasing risk.

MS should better look at at how both US and UK are going to do to face their own financing issues once the EZ has finally fixed its imbalances....

Fri, 02/03/2012 - 05:03 | 2122424 Youri Carma
Youri Carma's picture

The Credit Crises Only Just Started!

Fri, 02/03/2012 - 06:10 | 2122446 PORTA PORTA
PORTA PORTA's picture

please COMMENT !!


Option 1 – Sovereign partial risk participation
Member State bond issued in combination with a Partial Protection Certificate of the same maturity as the attached bond. The sovereign bond and the Certificate are initially offered together to investors. The bond and the certificate will be detachable after initial issue and can be traded separately.


Partial Protection Certificate
The certificate gives rise to a claim in the event of a Member State credit event under the full ISDA definition, which covers
(i) failure by the Issuer to make full and timely payments of amounts scheduled to be due in respect of one or more bonds, subject to grace periods; or
(ii) repudiation or moratorium; or
(iii) restructuring


Option 2 – Co-investment Approach
Co-Investment Fund (CIF) established to invest in sovereign bonds of Member States, in primary and/or secondary markets.
The CIF will have one or more compartment(s). Each compartment could either be dedicated to a single Member State or to more than one Member State.
The CIF will have a predefined lifetime.


..... i may be crazy.. but they are worse... PLEASE COMMENT ON THE 2 OPTIONS-PRUDUCTS



Fri, 02/03/2012 - 07:05 | 2122467 celticgold
celticgold's picture

Dear Porta porta ,

Option 1 ..... are u fuckin kidding?

Option gotta be shittin us!

as to your disclaimer , you are 100% correct.

Thanks for steppin into the ring

Fri, 02/03/2012 - 07:09 | 2122470 props2009
props2009's picture

Germany says no EU meeting on monday as Greece does not meet requirements

Fri, 02/03/2012 - 09:29 | 2122639 Negro Primero
Negro Primero's picture

Here is a good article from today's "Corriere del Ticino"

(Google Translation)

The festival of illusionism

Tito Tettamanti - I doubt that in future history books today's European leaders will be remembered as great men and women of the State. It is more likely to be mentioned in the Golden Book of Illusionists. The illusion is the art of making what appear to be real is not real. We all know that there is a trick, but we are glad not to find out for not sciuparci the beautiful illusion.
Greece has 400 billion euros of debt, of which 14.4 billion euros must be paid off in March. Not being able to cope with this or a subsequent deadlines, Greece has substantially failed. Nothing amazing, is repeated a claim that comes in over a year. But this is not good for the pride of the bureaucrats and politicians in Brussels, that nothing in the world would have the modesty to ask if something is wrong in the construction of the EU. Much less admit that the euro has been an adventurous and improvident decision once in a roundabout way to get a political union that peoples and governments have never decided. It then uses illusionism.
Two hundred of the 400 billion of debt held by private investors, mostly banks, insurance companies, pension funds, investment funds. The EU, the European Central Bank (ECB), governments of European countries are under pressure as these convince creditors to give the credit to 50% (100 billion) and the remaining 100 billion euros to accept payment in new government bonds greek with a maturity of 30 years (horse bell). There is still debate on the rate from 3% to 4% are not peanuts, because half percent to 100 billion for 30 years amounts to 15 billion. If the operation succeeds, Greece - they say - can not be considered failed.
But the illusion continues. The other 200 billion is held by governments, by Greek banks, the IMF and the ECB (the latter for more than 40 billion euros) that do not want to know how to give up to 50% of private credit. The ECB, which also has bought an inordinate amount of debt greek to stop the avalanche (if he had a private suspect market manipulation), infringes the prohibition to finance the costs of the euro states admitting a curtailment .
Next act of illusionism: to solve the problem, why not pass the credit all'EFSF by the ECB (European Financial Stability Facility)? The money is still lost, the operation of the ECB is still debatable, it is always the taxpayer who pays for the euro countries, however, the illusion can say that everything is in perfect order.
New shot from illusionist. The countries of the euro / EU come together, give them security for the issuance of bonds EFSF (EMS or later). Given the presence and guarantee by Germany and some countries of Northern Europe, there is money at more favorable rates. There are many similarities with the reviled subprime caused outrage, and techniques of the big banks to split these loans into different levels of risk in order to give the illusion that the credit had been rock-solid (AAA). Operations are technically legitimate but largely by illusion. The game, however, begins to taste less than the market, so much so that state funds and central banks in Asia and the Middle East, which in June had subscribed for 54% of emissions of EFSF bonds, they have bought in January only 12%.
Another shot of illusionism. Given the conditions of Greece, as early as 2010, an investor who wanted to buy Greek bonds would do well to make sure. There is a market (technically CDS) where specialist operators provide premiums they consider appropriate with the possible bankruptcy of the debtor. Now, in the case of Greece, which has failed but it must be said, who is assured even paying substantial premiums can not redeem the bond's face value as would be entitled and who earned the prize should not make the commitment assumed, ie pay. Shot of illusionism that overwhelms an agreement between two regular operators and unfairly penalizes one of the two. Ideal system to destroy a market.
Meanwhile, those who should represent the people (parties, associations, unions, NGOs) are increasingly demanding irresponsible acts of illusion, increasingly daring and difficult. Bengodi of the country, where you can spend more than you have and you do not pay dues until you start doing other debts, should last indefinitely. Unfortunately it is only a question of time, because this is an illusion. When the same crowd if they realize you imbufalirà such as buffalo and load everything and everyone without judgment and reasoning. Then they will be bitter cabbage, especially for magicians.
In 2010 the members of Parliament have spent over 280 million euros in travel (!). Over 1 million cost of the trip 50 (!) MPs in the Congo to study poverty. (!) It is not true: they studied black magic ...

Fri, 02/03/2012 - 09:45 | 2122727 Judge Arrow
Judge Arrow's picture

The tectonic shift to a financial economy or, casino, and away from a goods and services economy, has happened almost without a ground stir. In fact, that is the point, to make the shift without the voter being aware other than some vague disquiet at the enormous sovereign debt that has been the energy source. No one quite knows what this means to them. It is quite simple. Goods and services markets and labor go away. You join the casino. Most of us here are in the casino already. More are coming everyday. But, the casino has no set games, no rules - new ones pop up everyday - it is the milieu of the mad hatter. You make your own game for awhile and then another. The main thing is to keep the casino going. Another name for the casino and what forms around us - anarchy.  See: the Medit Basin - the birthplace of the new anti-civilization - coming to a country near you - now, what will you do?

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