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The Failure Of The Firewall
From Mark Grant, autho of Out of the Box
Oh How the Mighty are Falling
While the markets look at what took place at the last Summit and rally; just wait, it won’t last long. The markets are getting mislead, one more time, by the spin that Europe places on events; by the focus that the giant European propaganda machine spits out from various sources again and again and again. You may recall, in the not too distant past, how the firewall was the thing, how the money needed to be bigger and how we were all led to believe that this giant, massive wall of Euros would protect the core nations of Europe. These nations included Spain and Italy without question and now the first mighty oak has fallen as Spain stepped up to the plate and swung the begging bat.
Firewalls, of any size, do not do one thing to stop the infection of those that are heading economically south and Europe has placed its full concentration on the totally wrong aspect of the problem which has been to ward off the evil spirits of the bond vigilantes instead of on fixing the financial problems of the nations and so the problems continue and worsen. Over the weekend Spain said their second quarter results would be worse than the first quarter and Italy said there may come a moment when she needs help and the basis of what is driving the markets heightens as the economies of a mostly recession bound Europe are getting worse. What have we learned in short, in brief, in actuality is that the concept of some mighty firewall is a failed concept and Spain has just proved the truth of that.
We also learned over the weekend that various takes on the Summit were not all the same as Ms. Merkel’s version differed significantly from the Spanish tale. She said there was no increase in the amount of Germany’s financial guarantees in the Eurozone rescue funds, and no retreat on Germany’s refusal to contemplate jointly guaranteed Eurobonds as a way to help finance the most debt-strapped member nations she told her Parliament. In the first instance Spain will get its money from the EFSF which means that the loan will reside on the balance sheet of Spain. This will not change until there is a national bank regulator, if there ever is a national bank regulator, which would not be by the rosiest of projections until the end of this year. It may be not just the markets that are in for a surprise between then and now but also Spain if other core nations reject this plan based upon national sovereignty. It turned out that the seniority issue is just a one-time exemption for Spain and just in this one case so that any new money for Spain, and I expect another $300 billion or so will be needed for its banks and regional debts, will have the seniority clause applied to them.
As a matter of fact, Oliver Wyman, the German consulting firm, that just analyzed the Spanish banks reported out AFTER the euphoria that the Spanish banks will need another $347 billion over the next three years. Ms. Merkel also said the commitment to use Eurozone rescue funds to buy sovereign bonds for countries facing market pressure would still be subject to conditions. So it might not be the Men in Black but the Men in Dark Grey Suits who will be the overlords but the green eye shades of Berlin will be overlooking all of this just the same. The Spanish say “no conditionality” and the Germans say “absolutely conditionality” and who are you going to trust? Long experience teaches that the person handing out the money is much more accurate in presenting the terms and conditions than the man receiving it who is fixated on the alms handed out. A country such as Spain would have to apply for market intervention and sign a “Memorandum of Understanding” based on the European Commission’s recommendations before bond-buying would be approved in the primary market. “There will be conditionality,” Ms. Merkel said with conviction.
In fact the new instrument to lend money directly to banks has been approved by no one. It is NOT part of the ESM agreement which also has not yet been approved. Further, bond-buying in the primary market has been approved by no one and while there are schemes, plans and artifices aplenty; none of these newly discussed measures have been voted on or approved by any nation.
“But little Mouse, you are not alone,
In proving foresight may be vain:
The best laid schemes of mice and men
Go often awry,
And leave us nothing but grief and pain,
For promised joy!”
-Robert Burns
Recession
Recession is like gangrene; it spreads outward. All of Europe is now in recession except Germany and a few northern European nations. By the third quarter Germany will also be in a recession as the demand for goods and services in other European countries, German’s largest trading partners, slows significantly. China is slowing down; there were numbers released in the last few days that points this out. By the fourth quarter or the end of the first quarter next year America will also be in a recession in my opinion. Take a look at recent corporate earnings, down significantly and missed revenues and lesser profits and you begin to see the indications of things to come.
The world is inter-connected; all talk of disconnects are tales told far from the truth. Economies vibrate; in a little out a little but everything is tied now in the financial world from the shoelaces to the leashes at the neck. Greece still jousts with default, Spain and Portugal will need more money, Italy may join the Gang of Five to make it six and the focus on having done something, which wasn’t much of a something in reality, is the wrong place to focus. Stare at the European economies, grimace at the debt taken on to pay old debts, frown at the worsening plight of Germany and France who are assuming more liabilities with each passing day as there is plenty of risk in the Great Game now. “Risk On” is but a day-to-day contrivance in a world swimming in recession and confronted with national defaults and the requirements of ever larger amount of capital needed to stem the flow of blood from debts that cannot be paid in any other fashion other than further encumbrances. It is a Fool’s Game for lesser intellects and for those not looking where they should and those not detoured by the European flights of fantasy will clearly understand the significant risks on the playing field at this point in time.
“I like nonsense, it wakes up the brain cells.”
-Dr. Seuss
Idiocy
One of the most laughable parts of the European playbook was the Prime Minister of Spain’s comment that the bailout of his country was “a great victory for Europe.” I was reminded of the rather infamous comment made years before.
“The invasion of Crete is a great victory for Europe.”
-Joseph Goebbels
Neither, in the end, was the truth!
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FUCK
Bitchez!
Idiots.
Can somebody cure these idiots who call themselves politicians?
rampant scamophilia in a cartelocracy.
Germany cannot ratify the ESM before July 10th. depending on what the surpreme says on July 10th, Germany may not be allowed to siratify the ESM (= hand out the credit cards to the FUCKING PIIGSF)
I believe that now is no longer discussing whether or not there will be crises. The efforts of the authorities concentrated on treating the crisis as small as possible. Unfortunately, the slowness in Europe to take appropriate action and resistance of the countries adopting them, threatens the economic recovery. From my point of view, the coming crisis will be very large.
@Strongband
Replies Tony Montana, Scarface: NO Fuck you!!
Looks like they have been using the Colorado Fire Wall.
New Mexico?
It's a Fire Wall all right, and it's steadily advancing, being fed by the massive exhalations of hubris that will only help to burn the bitchez down.
We don't need no water, let the mother fuckers BURN!
In a debt-based, fiat, Fractional Reserve Banking model all currency exists as a function of debt. Whenever currency is printed only the principal amount of the loan is printed (out of thin air). The interests which is payable on the loan is never printed. The only way to pay off the original Principal + Interest is to use someone else's Principal. This requires more debt to be issued so that more Principal is printed. If all debts were paid off only the principal would be paid off with all of the interest left outstanding.
The 'problem' with the system starts and ends here. Everything else is just froth. Period.
Nailed it Rex
So I guess we need to keep digging a deeper hole... You know ~ for our own good & all (rolls eyes)...
Same would be the case, even if we had Hard/PM currency based economy.
Hypothetically speaking, in such an eonomy if all the Gold and Silver (principal) was loaned out at an interest to the debtors, there will not be enough Gold and Silver needed to pay off the Principal as well as the interest component.
Assuming additional is not mined, which would kinda work the same way as "printing" money.
Problem is not the fiat but the interest based system.
So now that we've at NIRP... How does your theory stack up Mr. Problem Solver?
Negative interest is still interest, no?
Excess or deficit of something physically not available will cause an issue either way.
Morons who are junking me, would appreciate if they can point out what did I say wrong, except that its ok to charge interest on Gold as it gold coins magically get pregnant and deliver little interest coins, but not fiat as the interest component does not exist?
Yes, real bills doctrine is hokum, but it's more difficult to get a fractionally reserved loan in a sound money economy than in a fiat economy and inflation makes paying off that interest less odious over time (among other less desireable side-effects) so the comparison is somewhat between apples and kumquats.
In essence though: same problems, smaller bubbles.
Yes, the magnitude and size of the credit or any bubble will be a lot smaller with a built in natural check when you have hard currency, that is true.
But, in any scenario there is interest, the interest component will not exist when the loan is made. That is the point I was making.
A hard currency system shifts the paradigm from blood sucking parasites extracting wealth for themselves (in the name of accelerated growth), instead of growth taking its natural course (which is, the PRODUCTIVITY & INIATIVES of individuals creating real & tangible wealth on the back of their labor)...
Why bother to try to obliquely defend FIAT (above)... Fiat is anything you want it to be... Your point assumes money "borrowed at interest" is the root of problem... NO IT IS NOT... If Person A & Person B are the only two people on the planet, & Person A has a bunch of gold that Person B wants, he can earn that gold by working for it (& get paid incrementally for his labor)... If he wants it ahead of time, he can take some out on loan and hold it while he works off the balance... There is no evil in that dynamic (regardless of how much interest is charged)... That is an agreement between 2 individuals...
What IS fucked up is to be forced to exchange & barter in a system (FIAT), whereby the issuers of the fiat have the power to deflate the purchasing power (over time) of the notes of exchange... Thereby, stealthily stealing your savings from you...
Most of the past few generations have been blind to these machinations as they have become enamored with stock market bubbles, housing bubbles, rising 401k balances, & all sorts of illusory WEALTH INCREASING schemes... This phenomen has guided them towards the notion that all their "assets" should be held in accounts which are valued in FIAT (whereby the value of that has diminished)... Most, now, cannot escape this system without being severly penalized for doing so... Their savings have therefore been stolen...
Instead ~ You talk about evil interest... If interest rates work properly, the person who is a SAVER should be rewarded... That has clearly not been the case since at least the late 1970's...
If interest rates were set according to real market dynamics, you wouldn't see firefighters, cops, etc. retiring at full benefits after a nifty 20 years of eating donuts... You wouldn't be able to fund a half dozen wars around the globe anytime you want... Dumb ass university professors wouldn't be paid six figures to spout a bunch of bullshit...
I would'nt know where to start but a few of brief points.
Imagine an Gold based economy, and there is a person who lends out Gold money at interest. say he is 100% successful in getting his principal and interest back. Eventually he will end up owning all of the Gold in that economy and all the others would be left in debt or unpaid debt, as there will not be enough to settle all debts at any given time.
This would end up in tyranny, just like a fiat and interest based economy, the situation we have at present.. The difference would only be in size and timeframe of it.
Wars are not launched because of fiat, but just facilitated by it. One can easily collude with soem powerful players, hire soldiers in exchange for a share in the loot. One just needs intent.
The interest componenet would always be the "additional" bit to the hard money base and when distributed over goods and services in an economy, will cause inflation and deflation in case of defaults.
People dont work to "earn" Gold as such, but the food and necessitites. One can even do that by issuing personal IOU notes, if one has credibility.
"Wars are not launched because of fiat, but just facilitated by it. One can easily collude with soem powerful players, hire soldiers in exchange for a share in the loot. One just needs intent."
Wrong ~ just plain wrong... Those that are given the power to print fiat make it their primary goal to create conflicts & fund both sides... They do this because they do not have to spend any gold to do it, they conjure the fiat out of thin air...
"The interest componenet would always be the "additional" bit to the hard money base and when distributed over goods and services in an economy, will cause inflation and deflation in case of defaults.
People dont work to "earn" Gold as such, but the food and necessitites. One can even do that by issuing personal IOU notes, if one has credibility."
People work for food & necessities... The excess is stored as SAVINGS... If those savings are represented as something tangible & precious, their savings have value... If their savings are represented in the form of fiat paper (or electronic balances), then their savings can be stolen from them by the banking system... It's that simple...
But I just heard on CNBC that everything is groovy, so many bargains. It was on the TV.
I tried to change the channel, but the remote was so heavy.
Rex,
Serious question: If they create funds out of thin air, why don't they "pay" the debt instead of "loan" money to pay it. No loan, no interest.
People will not understadn the illusion of money and will keep getting fucked for it.
You are not quite correct. While Fractional Reserve Lending will produce more 'effective' money in the economy, that will get limited by the reserve ratio, and won't be infinite. On the other hand, Government deficit spending is more dangerous, has no limits, and leads to the 'printing out of thin air' kind of money. Unless that is addressed, you are fighting the wrong target.
This is all bullish. Somehow.
I used to think that as a physician, I didn't know shit about things financial. After watching the markets repeatedly bounce up on every utterance from some EuroCrat, despite the repeated "Nein!!!" from BisMerkel, I 've decided that I'm not so bad off after all. And why anybody would think that the Germans should bail out the PIGS is completely beyond me. I wish WE had the power to tell the socialists in this country to shove it.
You can tell them to shove it any time you want you... Problem is, you'll suddenly discover that you are "anti-semitic", "rayciss", "homophobic", & "misogynistic" all rolled into one & taken to the "nth" power if you do... (Hell ~ you may even be a terrist" as well)...
So ~ do you really want to go there?
Not forgetting that if you call for government to have a balanced budget then "you hate the poor!" ... and if you call for a reduction in the size of government (say, back to the size it was just a few decades ago), then you are called "a filthy capitalist" (a badge that I wear proudly, which really pisses them off!).
While Spain said "no conditionality" on secondary market schemes, Germany said "some conditionality" on these schemes, the Fins and the Dutch said over the weekend no bond buying schemes at all. This is hilarious.
Meanwhile the French found out that they have to cut €6-10 B this year to meet the 4.5 percent deficit and more than €30 B next year to meet the 3.0 percent deficit.
ps: Oliver Wyman is not a German consultor. They are American. Roland Berger, though, is a German company.
pps: Btw what is the corrent abreviation for billion? bln, bn or B?
Look who is talking. US Congress cannot vote for even the simplest of laws without attaching about 2000 pages of pork projects and who even knows what other crap into it, so that all 50 states are satistfied.
Stay focussed ... we're talking about Europe here!
You'll have your chance when Tyler puts up an Obomber or Bombney thread.
Come to think of it: Does any western government run a balanced budget?
No eastern government does it either...so...relax (!?!)
Norway.
to: Mon, 07/02/2012 - 08:13 | 2580166 mark7
Just like the F22 fighter contracts, F-22 production was split up over many subcontractors across 46 states, in a strategy to increase Congressional support for the program.
“He who is not contented with what he has, would not be contented with what he would like to have.” Socrates
Why is it that everytime Europeans actually try to solve problems a bunch of Americans scream like little bitchy girls in a candy shop, "Not enough, mommy! Not enough!". You were against EU, Euro, pretty much against every kind of European co-operation. Probably you guys also want companies like Airbus to be dismantled too because you fucks do not like competition.
Libor scandal: George Osborne to announce independent inquiry
http://www.guardian.co.uk/business/2012/jul/02/libor-scandal-george-osbo...
...
"He told Sky News: "I'm sure that Diamond will want to pay back the bonuses that he wrongly got on the back of lies, and in essence defrauding homeowners across Britain, because that's what happened. But then he must resign – he's got to go."
Lady Wheatcroft, a former Barclays director, told Sky News that Agius was "carrying the can" and it was inevitable that Diamond would step down." ..
The trading bots are bullish on the headlines. Thats all that matters in this program trading market.
Brian Sack of the Federal Reserve is supplying money to keep the game going.
Oh hell these idiots will be preaching recovery when nukes are raining.
Don't forget the US is in a modern day depression btw.
http://news.yahoo.com/guys-little-pony-gather-bronycon-160957992.html
For Frau Merkel the best firewall is the threat of collective demise of financial world; not the specific firewall protecting Euro banking world; as its ALL interconnected. She is playing with fire to fight fire. She has no choice.
The question is what choices does PAx Americana and FED/USD defense have at its disposal for its own protection, in case Euro burns. They have more to lose if the Euro experiment fails; as they lose their pre-eminence. They cannot decouple from Eurodemise. It will bring down the whole private banking sector. Financial Armageddon of capitalist world hurts top dog most!
That's the bottom line in Germany's current play; not the silly Euro club med shenanigans of "beggars can be choosers". If the Eurozone survives this war waged by financial PAx Americana on it, it will come out leaner and meaner with a better basic economic model than USA. But to get there, Germano-Franc Europe has to cross three Rubicons in Europe's economy : 1° Survive the current financial currency war. 2° Decouple from Pax Americana down the road. 3° Create a consolidated model.
What are the bets on that???
I'm puzzled as to how you translate trillions of Euros of accumulated budget deficits (owed to unarmed resource and 'stuff' exporters) as "war waged by Americana"? If I remember correctly, I think the US has exactly the same problem. So ... Care to explain?
the Euro HFs are not attacking the USD or the £. The Anglo HF are attacking the Eurozone flat out. Using Zirp and the same PDs who are on both sides of the market. Crazy. The sovereign spreads are rigged to beat the feeble, by the Oligarchy market, whereas the fundamentals of UK and US banks and economy are equivalent to Europeripherals. So its one eyed jacks play.
The whole Derivatives market off balance sheet is a vast racket to cannibalise what can be, by those who hold the biggest fiat gun. Short term thinking as its all interconnected in the end.
You don't seem to want to admit what Pax Americana really is. A lot of ZH understands the mechanism but won't admit who runs the show and provides the main momentum to this runaway train. It ain't the European sovereings, and the Euro banks are drowning in the derivative debt created by US banks since 2001-2003 when derivatiive mountain began. 50% of Euro sovereign debt is POST 2008. As a result of bank debt imported into Eurozone trying to "keep up with the Joneses" of Anglo heyday. Now its payday for all, but some want to strip whats left on the backs of the weak, like a pack of wolves. That is Pax Americana for you. Its now an imperial way of life worldwide for the Oligarchs.
LOL ... you can't even maintain a consistent line of thought or reasoning! Why call it 'Pax Americana' when the lines of control all go back to Europe?
Ownership of the Federal Reserve ... control of the CIA ... control of Bilderberg ... ownership of JPM and GS ... control of NATO ... control of the BIS ... etc.
Even the US military is just a mercenary army of the European oligarchs and has been manipulated by the oligarchs to achieve their global geopolitical objectives ever since the late 19th century. And, soon it will be turned against the American people themselves.
Wake up!
Firewalls are only good at stopping the spread fire.
This is debt - don't the Europeans know this?
I've worked in banks with firewalls, chinese walls and dense brick walls and all of them breakdown quite quickly.
The only game is whether you find out - or the regulator does.
Americans are mostly to blame, after repealing one of the biggest of firewalls, the Glass-Steagall act in the 90's. It started the whole wildfire. Eager and stupid Brits did not think twice before following...because they got that "Special relationship with America!", lapdogs eager to please the master.
Yes mark blame whoever you like. Get a clue we are all in the same boat and it is sinking. Greed actually got us to this point as it takes two to tango mark. Nothing was forced on anyone until recently. We all slurped at the investment FRN trough for years and were warned. What you did to protect yourself is another matter.
markets are not fooled, they are part of the charade. fund managers only care about bonuses on paper gains. a good lie gives them something upon which to hang their hat.
Some consider that their primary job function.
Tra La La
http://www.youtube.com/watch?v=gh8WWlQFz8U
Did you feel the hopium coursing through your veins on Friday?
either that or europe is finally using the firewall rather than just pretending they have one
Despite the bad news from Europe this morning, the bond markets continue to lose yield.
http://confoundedinterest.wordpress.com/2012/07/02/bad-start-to-the-week...
We don't need a firewall. We need a firebreak! Clear the shrubland between the blaze and the unafected areas and let the fire burn itself out.
Time for a controlled burn.
Would you borrow on a boat? Would you borrow...with a goat?
exhaling is no more like gangrene than inhaling
what on earth is the matter with people's brains?
Man where does this guy find his quotes.
Awesome lol...
“The invasion of Crete is a great victory for Europe.”
-Joseph Goebbels