This page has been archived and commenting is disabled.
Guest Post: The Ghost Of The Bundesbank Haunting The Halls Of Brussels
From Alexander Gloy of Lighthouse Investment Management
The Ghost Of The Bundesbank Haunting The Halls Of Brussels
In his book “More money than God”, Sebastian Mallaby describes how George Soros received a signal from Helmut Schlesinger (president of Bundesbank at that time), to go ahead and speculate on a devaluation of the Italian Lira and the British Pound.
Germany had enjoyed a boost from the integration of Eastern Germany, which, partially due to a generous 1:1 exchange offer for the Eastern German Mark, led to unacceptably high inflation. Despite numerous warnings from the Bundesbank, fiscal policies did nothing to reign into the growing threat to price stability. Seeing its advice ignored, the Bundesbank fought back and raised its discount rate all the way to 8.75%.
This caused problems for other European countries, who were forced to follow the Bundesbank unless they wanted to risk a weakening of their currencies. They had to apply a restrictive monetary policy despite their own economies just recovering from the recession of the early 90?s.
According to Mallaby, British finance minister Lamont had insulted Schlesinger at a meeting, trying to extract a promise to cut German interest rates. Despite Schlesinger’s refusal, Lamont led the press to believe Schlesinger had made concessions.
The “payback” didn’t wait for long; Schlesinger publicly denied any intention of cutting rates. He also expressed low confidence in the fixed relationships among European currencies, particularly the “unsoundness” of the Italian Lira.
This was the go-ahead for George Soros to attack the European Exchange Rate Mechanism. Mallaby:
“Schlesinger’s answer was as clear as Soros could have wished for. The Bundesbank was open to the idea of monetary union, but not at any price. It’s first priority was to preserve the proud tradition of the inflation-proof Deutsche Mark, and if other economies could not stomach the austerity this implied, well, then they should devalue.”
“Soros suspected that Schlesinger would be perfectly content to see his hard line on inflation sabotage the plans for European monetary union, since that union would involve the creation of a European central bank, which would supplant the Bundesbank.”
“All bureaucracies are motivated by self-preservation, Soros reflected, and Schlesinger, a career Bundesbank official, was surely the personification of this tendency.”
Ironically, 20 years later, a similar setup emerges, albeit with (so far) fixed exchange rates. While Germany enjoys the lowest unemployment rate of the last two decades, its European trading partners are re-entering into recession.
In the run-up to the umpteenth Euro-summit last week, most market participants expected the ECB to “reward” politicians with the long-awaited “all-in” action of purchasing increasing amounts of PIIGS government debt.
If you haven’t done so, I recommend listening to the ECB press conference Q&A session (16 minutes into the webcast). Draghi expresses surprise about market expectations the ECB would step up bond purchases after the summit. Draghi subsequently repels any attempt at extracting any concessions whatsoever.
Minute 36: “Why is it so impossible for the ECB to act like the other central banks? –” We have a treaty: price stability and no monetary financing”
Minute 59: “Why wouldn’t it be okay for Euro-zone central banks to lend to the IMF?” – “I think each central bank has its institutional set-up. The primary mandate of the ECB is price stability. In the US the primary mandate of the Fed is completely different from us. Same is for the Bank of England”.
Draghi left no room for ambiguity or interpretation. Every single attempt to extract some hope of monetary creation was cut up, diced and discarded. It couldn’t have been clearer. Draghi mentioned the “principles of the Bundesbank”. The spirit clearly lives on. Those that claim the Bundesbank intentionally encouraged speculators to attack the British Pound in order to expel it from the European Exchange Rate Mechanism in 1992 might find another example of “creative destruction” in front of their disbelieving eyes.
How this could be good for equities (Friday’s rally) is a mystery to me. But then again, the S&P 500 celebrated a new all-time high in October 2007, mere four weeks before the official start of the “great recession”.
The answer to the question “why would the Bundesbank intentionally crash the Euro” lies in the TARGET2 system of intra-Euro central bank payments. Izabella Kaminska of FT Alphaville describes how the Bundesbank has run out of assets to sell in order to fund other Euro-zone central banks. This in itself is quite amazing. The Bundesbank and the Dutch Central Bank seem to be financing the entire Euro-zone central bank system. As the music stops, the Bundesbank is taking away all chairs at the same time.
Merkozy are still trying to save the Euro by severe austerity at the last minute, but it is too late. Financial markets have already revolted and put countries in various buckets via yield curve “triage”:
The ghost of the Bundesbank has reappeared, this time under the disguise of an Italian. Ignore its powers at your own peril.
»
- 13194 reads
- Printer-friendly version
- Send to friend
- advertisements -
Ghosts bitchez
Excellent article. Though the Bundesbank has a lot more sterilization tricks up its sleeve than just potentially running out of Bunds to offer the market.
Agreed. They will get re-creative and buy more time. Where/when is true resistance before crash is the question........
The article is factually wrong - and not just in - unimportant - details. There was no 1:1exchange rate. It was 1:1 for the FIRST 3.000 DDR-Marks and 1:2 thereafter (and for all insurance contracts and the likes). 1:3 for money held abroad. And while it was 1:1 for wages and pensions you have to keep in mind that both were just a tiny fraction of West German wages and pensions. In effect, the situation was win-win for west german corporations and two-edged for east german people: East german comsumers got plenty of money to shop in west german consumer goods corporations, car sellers etc (there was no amazon around back then). While at the same time the sudden spike in wages and costs and export prices bankrupted almost the entire east german export industry overnight (leaving the field wide open for their west-german competitors to eat their lunch and/or take them over for next to nothing.) As a result, millions of east germans lost their jobs (that's the two-edged sword)
Beware bitchez.
Abby Joseph Cohen of the squid just said the S&P is 30% undervalued. That's the sell signal, she's the best contra-indicator I ever knew. The S&P really is 30% overvalued. Sell, Sell, Sell.
That Cohen guy doesn't know shit.
i'm pretty sure that is tyler under the sheet, BiCheZ!
1200 thread count, bitchez
Overall the biggest shame to me is how we have some shadowy maniacal looking old lunatic like Soros lording over the world economy and banking system pulling all the strings...why is it allowed?
he has important relatives
Well thats what Im talking about. Why?
He's making a sardonic jewish reference.
Schwartz is Soros' birth name.
Georgie is a Jew turned Nazi. His "relatives" are from the Third Reich and the London School of Economics where the Fabians hang out.
Profile of the SociopathThis website summarizes some of the common features of descriptions of the behavior of sociopaths.
They never recognize the rights of others and see their self-serving behaviors as permissible. They appear to be charming, yet are covertly hostile and domineering, seeing their victim as merely an instrument to be used. They may dominate and humiliate their victims.
Feels entitled to certain things as "their right."
Has no problem lying coolly and easily and it is almost impossible for them to be truthful on a consistent basis. Can create, and get caught up in, a complex belief about their own powers and abilities. Extremely convincing and even able to pass lie detector tests.
A deep seated rage, which is split off and repressed, is at their core. Does not see others around them as people, but only as targets and opportunities. Instead of friends, they have victims and accomplices who end up as victims. The end always justifies the means and they let nothing stand in their way.
When they show what seems to be warmth, joy, love and compassion it is more feigned than experienced and serves an ulterior motive. Outraged by insignificant matters, yet remaining unmoved and cold by what would upset a normal person. Since they are not genuine, neither are their promises.
Living on the edge. Verbal outbursts and physical punishments are normal. Promiscuity and gambling are common.
Unable to empathize with the pain of their victims, having only contempt for others' feelings of distress and readily taking advantage of them.
Rage and abuse, alternating with small expressions of love and approval produce an addictive cycle for abuser and abused, as well as creating hopelessness in the victim. Believe they are all-powerful, all-knowing, entitled to every wish, no sense of personal boundaries, no concern for their impact on others.
Usually has a history of behavioral and academic difficulties, yet "gets by" by conning others. Problems in making and keeping friends; aberrant behaviors such as cruelty to people or animals, stealing, etc.
Not concerned about wrecking others' lives and dreams. Oblivious or indifferent to the devastation they cause. Does not accept blame themselves, but blames others, even for acts they obviously committed.
Promiscuity, child sexual abuse, rape and sexual acting out of all sorts.
Tends to move around a lot or makes all encompassing promises for the future, poor work ethic but exploits others effectively.
Changes their image as needed to avoid prosecution. Changes life story readily.
http://www.mcafee.cc/Bin/sb.html
think i tick about 60% of those boxes
is the list definitive or can i ask for a re-count?
borderline is good!
i was sooo relieved to get to the end and not see anything about parking tickets, library fines, or jury duty...
actually, these character traits are not uncommon at all...
...especially on zeroHedge!
I have an ex that fits most of those traits. Oh hell..., more like all of them.
I was going to say that this sounds like the description of both the Goldman Sachs body of managing directors, and most Congressmen.
Thank you dear psychopath to release your criminal instinct on the jews, we waited since 1945 for another part of your centuries-old play .
Listen, you can find me easily- the jew -if you step into my neighbourhood : I have a long nose , cutting as a circumciser knife
I will help you get your futile shmock sized to a reasonnable proportion, maybe the shock will rebalance your sick brain
cause he got the $ and the Dem party in his pocket. Would be Murcoch if not for the socialists winning.
A fitting role for a man who believes he is a god.
must be another bs rumor mkt running back up now
The reality of a margin hike and no new printing will fix it
+1000 internets for you...
hey i can see my house!
Our 10 year bonds are about at 2% as well. But are we better off than Germany? One could say yes we are, but the other case is that we are not. Both are plausible.
A Bearing is not really capable of answering this question, even with my (generously given) two and a half working neurons...
Our 10 year being at 2% is not good.
We are accumulating debt faster than we ever have in history (over 4 trillion just under Obama). When our rates go up the cost of servicing that debt sky rockets and we end up like Greece.
It's a good high now but that hangover is gona' be a bitch. We will either have a massive forced reduction in the size of government (austerity) or we get hyperinflation from printing. Eitherway when it happens, it will happen fast and furious.
My sense is that the Fed is betting that if the same story plays out in Euroland first then the follow-on rioting and warfare will mean that on the whole the US position is improved without lifting a finger. Well, that is if you don't count the middle finger.
In any race to the bottom the winner is the one that arrives last.
I think the Fed have probably called it correctly. Europe is toast, our debt will become cheap or free, and the Big Reset will cut 200 years of chains. I don't like it, I wish things had been managed differently. But for 200 years we've been dealing with how these kleptocrats "manage" things and I don't see that changing until we start to skid off the road on the falling side of peak oil. At which point the Fed is going to realize that massive entropy awaits all at the bottom regardlles who arrives last.
And what happens AFTER Europe and people start looking at the US?
Just because we're the shiniest turd in the punch bowl at the moment doesn't mean we will always be.
Even if rates went to just historical norms we would have trouble servicing the debt.
'And what happens AFTER Europe and people start looking at the US?'
They can always deflect attention away from themselves and onto... say... the UK.
Then you can watch London riots this upcoming Spring on CNN, that should boost ratings and GDP, two birds right there.
You're welcome.
At somepoint you gotta' pay the bill and we're no different.
Whether we turn into a pumpkin @ 12:00am or 1:00am is irregardless. The bill will come due.
You haven't paid a bill yet my friend, the squinty eyed ones keep ordering drinks.
You're very different. At least militarily.
They will have to bring their own bullets to that party.
Europe is on the falling side of a very long imperialist run. Much of their current wealth was accumulated over 500 years and came from countries that today can defend themselves. They will be forced to write-off their debt owed at a penny on the dollar, and take what they can get of their past imperialist glory into their own new Middle Ages of lowered expectations and localized economy, from which they will never emerge.
But that's actually good news for them. They will be the first to deal with the collapse of energy.
A few minor wars and perhaps a plague down the road, I think the Europeans will be doing just fine. In a couple generations Europe should be a pleasant place, even for the serfs.
fucking bullshit, but whatever.
You idjits with your asinine ideas about how raw materials useless to natives were somehow "plundered" and then turned into useful manufactured articles by some sort of "theft" process....
Manhattan was useless to the injuns, that's why they took $5 for it.
I wasn't taking sides, just stating facts. It's all in the history books.
Spain was at one time among the richest countries in the world, second only perhaps to Italy (well really the Pope) at the time. But they didn't get rich selling goat milk and dates. Spain got almost all their gold from conquering the stone age Aztecs and pillaging Mexico. Under the pious Phillip II a lot of that gold eventually went into making the Spanish Armada to be aimed at Protestant England, a good part of which fleet the English privateer Sir Frances Drake promptly sank at their moorings. So much for Spanish dreams of conquering apostate England in the name of the Pope; they could only plunder the Aztecs once.
Every nation enjoys their day. But only once. That is what comes from living on speculation.
If you plotted the Greek yield curve on the same graph, it would be located on the ceiling above your screen. ;-)
George Soros = king of insider trading
Actually his theory of reflexivity and writings on strategy are interesting. His books are awful garbage though.
soros just bought up 2 billion of european bonds from mf....what does he know that we dont?
Yes, that felonious Bundesbank, how dare they throw a monkey-wrench into Obama's second term...
http://www.nytimes.com/2011/12/11/world/europe/euro-crisis-pits-germany-...
It's 3:30. Know where your SSO is?
I would like 4 toasts for breakfast tomorrow morning and a hard and soft boiled egg.
and some fries... I just love fries!
No McRib?
I don't eat ribs before 10'o clock in the morning. I'm pretty strickt about that one.
Without doubt a dumb question but - if the euro zone breaks up, what happens to all the bank lending from the ECB?
picture giant toilet flushing.
Step 1: They increase their dividends to 10% of cap
Step 2: Increase bonusses of all employees
Step 3: Blame somebody
Here we go again with the Wall-Street Crack addicts looking for the next shot.
The Bundesbank has it exactly right. This may be a severe crisis, but if we learn our lesson and start living within our means, and especially free ourselves from the enslavement to the financial Sector, it will be the last crisis in this fashion.
Of course we can cure the withdrawal symptoms by just getting the next shot but after that we will still be addicted, still live our lifes like a raccoon in a dumpster and continue in our downward spiral. Shot for Shot in a vicious circle.
And to the Bankers out there: You better stop wondering where the next million is coming from and start worriing about what will happen if the people find out what you did to them for the last 3 years. Better start running while still ahead boys.
There's an entire TV channel essentially devoted to replaying Germany's last attempt at ridding themselves of the shackles of this enslavement system
"Three Times is the Charm" as they say.
Volk ans gewehr!
+1 Interesting
es rips but euro is gonna close under the 1.32 mark first time since oct....look out below
George Soros' real last name is Schwartz
I wonder if he was just trying to be clever by changing his last name to a palindrome. He should have changed his name to Racecar.
the us equity mkt is f'ng a joke
it's not a market ... it's a system.
US equity markets are now just a shadow puppet show up on the curtain to keep the sheeple subdued.
Is it time to go Long the Euro? Are we going to see a bounce or a pounding right through
Santa comin to town... or at least ES.
I'll answer my own question: the ECB takes the collateral.
And just like those ghosts haunting Victorian photos, on the night LaMont made his 'Black Wednesday' announcement there's another figure in the background, none other than his just out of short trousers assistant, a certain David Cameron......
http://news.bbc.co.uk/player/nol/newsid_6560000/newsid_6563000/6563031.s...
Amazing. This is when you start to realize that these games have been on for a century at least. I figure, two centuries. The players hardly change, and the roles really never do.
Anyone got a scope on today's ramp up?
usual post-3:30 bullshit rally?
there be another sell off of ES at 4:14
FOMC day tomorrow along with Italian bond auction
Thats a nice picture of a Ghost. Otherwise this article is completly made up. You didnt even get the east mark exchange right, it was 1 to 3 not 1 to 1.
No, it was 1 for 1.
lol its probably just people buying expecting some late breaking hopium by this point...
Trying to front-run timing of the expected market close rumor dump....yea pathetic.
Good article. The only really naive part in it, is the assumption that REAL german unemployment actually fell that much in such a short time.
Hint: It didn't. Widespread and massive changes were applied in that timespan, regarding handling of the "unemployment issue". In fact, the entire system that deals with unemployed, got replaced alltogether.
There were indeed many changes introduced over the last ten years,
But nevertheless there is already a labor shortage in Germany since one year. Immigration rules for non EU nationals were softened and there is a already a steady growing immigration of labor force from EU countries. Young professionals from Spain, Italy, Greece move to Germany in the hope to get a job.
Who ya' gonna' call?
Ghostbusters!
http://www.youtube.com/watch?v=m9We2XsVZfc
pump, pump
France never reallyh gave up on ECB monatization, should France be downgraded and their yileds spiking, there will be tremndous pressure on the ECB to print and for Germany to allow it to print; Greece, Portugal, Spain and Italy may accept Germany forcing them into submission, France wont and there you will have the real clash awating Europe in 2012.
The EUR/USD traders have the 1.32 option pinned for tomorrow close, but the ES traders are having fun with the shorts.
Must....close.....above magical......DOW 12,000 line....must....pump...
hungary is not a EUR-zone country..
if greece goes on the last chart it would be "toast on a shingle"
but i can see where they didn't include it--to keep the scale
on the page...
This is a good reminder, also, that the Euro is not really that old.
To print or not to print, that is the question.
Im prepped, go ahead and print. Beans, bullets and buillion baby. Turn those printers on.
so here's what I don't get, why aren't the Brits falling in? I know what Cameran said were the reasons but he's not exactly the UK's version of Ron Paul...
so what's the angle here? why not ratify the treaty and solidify the rule of Europe by the bureaucrats and banking cartels, after all that was the goal from the start wasn't it? I find it hard to believe the whole "national sovereignty" line he's running.
maybe it's just the politically jaded American in me talking, or maybe the wounds from two world wars run deeper for them and is overriding all other considerations. I just find it strange on the eve of the rise of the new euro bankster world order that he should throw a such a large monkey wrench into the process.
Good question, I think the answer is mundane though. No cunning long term plan is in play, just simple domestic politics. Cameron leads a deeply eurosceptic party, the grandees are all city insiders but the grass roots are not. The grass roots of the party are typically small business owners, and working familis who decry the benefit culture reulting from the Blair / Brown governments. To appease this large faction the Cameron government passed legislation that NO further power could be transferred from Westminster to Brussels without a referendum. The treaty Cameron vetoed would have triggered a referendum. With re cent polls indicating that 75pct of voters want the UK completely out of Europe he had no choice.
Financial Transaction Tax
57% of all PIIGS debt belongs to Italy - (PIIGS Bond Redemptions is 504 Billion Euros in 2012 - that does NOT include Bank recapitalizations!)Therefore the equations are easily expressed...but when you superimpose the timeline my imagination cannot conceive of a solution that can satisfy the demand profile across the EU-17...when you consider the CRE & Residential mortgage (per Deloitte 1.5 Trillion Euros of NPLs in Central/Eastern Europe many CREs entering the refi zone) debacle in Central Eastern Europe...Kyle Bass is a damn VISONARY! There is NO CONCEIVABLE BACKSTOP...Anyone that disagrees I beg you to make your case as I would LOVE to be convinced otherwise...
Where does all the good collateral go in [re]hypothecation frenzies? Target2 has flushed all the good collateral out, but who's been buying and holding onto it?
It goes into gold, as evidenced by the death of the gold carry trade this month.
The East German mark was converted at par for wages, prices and basic savings (up to a limit of 4000 Mark per person, except a smaller number for children and a larger number for pensioners. Larger amounts of savings, company debts and housing loans were converted at a 2:1 rate whilst so-called "speculative money", acquired shortly before unification, was converted at a rate of 3:1 (http://en.wikipedia.org/wiki/East_German_mark)
I always knew Soros got inside info on the Pound. But I don't think it was from Schlesinger. That part is a red herring. If you look at the Chronology of the devaluation, you can see it came down to a last minute deal to make sure it happened by a few political players. That is where you want to start on who Soros was in bed with.
Honestly...
I don't know what will happen with the Euro. I do see a real possiblity that the Eurocrats might decide to say "Fuck You" to banks. Then if that happens, lots of Euros will be vaporized. That means the Euro will skyrocket in value.
Think about it.
Pls someone help me, my nonsense-meter was send off scale by Draghi's speech.
He says that it's not an Ecb affair to save piigs sovereign. Ecb mandate is price stability and keep banking system running (alive?).
But when Dexia exposure is 2.5 fold Belgium gdp and when the two ill twins italian banking giants (sanintesa unicredit) exposure is 1.01 italian gdp does have a sense saying: I don't save the govvies, I only care of price stability and bank system?
Or will he let the eu banks be trashed?
I think is more useful to judge people from their actions and not from their thoughts.
Draghi actions: 1) two interest rates cuts 2) (intersting) banks reserves coefficient slashed from 2% to 1% (a whopping -50%)
Monti (Draghi's GS comrade) actions: State guarantee on italian bank bonds.
How this decisions spells in short term outlook for italian banks?
In other words (given that the sky is falling and is better take the money out of the banks and run (where, apart an all in gold bet)),
is it better with paper savings staying in a high risk bank (and 1. having the possibility to switch from euro to dollar from time to time 2. having a greater interest rate) or high risk bank bond
or is better to stay in a smaller bank (that doesen't have these tools)?