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Guest Post: How Draghi Opened The Door To Hyperinflation And Denied The Fed An Exit Strategy

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Submitted by Martin Sibileau of A View From The Trenches blog,

We finally heard the intentions of Mr. Draghi, President of the European Central Bank (“ECB”). We only need to know the conditions Germany’s Verfassungsgericht will impose on September 12th. We believe they will be relevant.

On Thursday, Draghi told us he intends (1) to purchase sovereign debt in the secondary market, (2) that before he does so, the issuing country must submit to certain conditions within a fiscal adjustment program, (3) that when he finally buys the debt, he will buy any debt (new or outstanding) with a maturity lower than three years, (4) that after buying it, he will sterilize the transaction, (5) that the collateral pledged so far for liquidity lines will not be subject to minimum credit ratings any longer, (6) that the ECB will accept to rank pari-passu with other creditors going forward, and (7) that the Securities Market Programme will be terminated, with the purchased debt held until maturity. According to Mr. Draghi (but not toGermany), buying debt with a tenor lower than three years does not constitute government financing. The number three, it seems, is a magical number.

We will mince no words: Mr. Draghi has opened the door to hyperinflation. There will probably not be hyperinflation because Germany would leave the Euro zone first, but the door is open and we will explain why. To avoid this outcome, assuming that in this context the Eurozone will continue to show fiscal deficits, we will also show that it is critical that the Fed does not raise interest rates. This can only be extremely bullish of precious metals and commodities in the long run. In the short-run, we will have to face the usual manipulations in the precious metals markets and everyone will seek to front run the European Central Bank, playing the sovereign yield curve and being long banks’ stocks. If in the short-run, the ECB is the lender of last resort, in the long run, it may become the borrower of first resort!

The policy of the ECB resembles that which the central bank of Argentinaadopted in April of 1977, which included sterilization via issuance of debt. This policy would result in the first episode of high inflation eight years later, in 1985 and generalized hyperinflation in 1989. Indeed, Argentina’s hyperinflation was not caused by the primary fiscal deficit of the government, but by the quasi-fiscal deficit suffered by its central bank. We will not elaborate on a comparison today, but will simply show how the Euro zone can end up in the same situation. To those interested in Argentina as a case study, we recommend this link (refer section II.2 “Cuasifiscal Expenditures”, page 13 of the document)

Mechanics of the sterilization

In the chart below, we describe what we think Draghi has in mind, when he refers to sterilization.

In stage 1, the governments whose debt will be bought by the ECB (EU governments) issue their bonds (sov bonds, a liability), which is purchased by the Euro zone banks (EU banks). These bonds will be an asset to the banks, which will in exchange create deposits for the governments (sov deposits, a liability to the banks and an asset to the EU governments).

In stage 2, the EU banks sell the sov bonds to the European Central Bank. The ECB buys them issuing Euros, which become an asset of the EU banks. The EU banks have thus seen a change in the composition of their assets: They exchanged interest producing sov bonds for cash. Until now, selling distressed sov bonds to the ECB to avoid losses was a positive thing for the EU banks. However, going forward, as the backstop of the ECB is in place and the expectation of default is removed from the front end (i.e. 1 to 3 years), exchanging carry (i.e. interest income) for cash will be a losing proposition. The EU banks will demand that the euros be sterilized, to receive ECB debt in exchange at an acceptable interest rate.

The sterilization is seen in stage 3: The ECB issues debt, which the EU banks purchase with the Euros they had received in exchange of their sov bonds. Currently, the ECB is issuing debt with a 7-day maturity. Should the situation worsen (as described further below), this will be a disadvantage that could make high inflation easier to set in.

We can see the result of the whole exercise in stage 4: The ECB is left with sovereign bonds, with a maturity of up to three years, as an asset financed by its 7-day debt. The EU banks own the ECB 7-day debt, and need a positive net interest income to profit from the deposits (sov deposits and also private deposits) that support that ECB debt (their asset).

 

 

What could go wrong

As can be observed in the chart above, at the end of the sterilization, the ECB is left with two assets which will generate a net interest income: Interest receivable from sov bonds – Interest payable on ECB debt.

If the interest payable on the ECB debt was higher than that received from the sov bonds, the European Central Bank would have a net interest loss, which could only cover by printing more Euros. This would be a spiraling circularity where the net interest loss forces the ECB to print euros that need to be sterilized, issuing more debt and exponentially increasing the net interest loss. This perverse dynamic of a net interest loss born out of sterilization affected the central bank of Argentina, although for different reasons, beginning in 1977. It generated a substantial quasi-fiscal deficit which would later morph into hyperinflation in 1989. Without entering into further details about the Argentine experience, we must however ask ourselves under what conditions could the Euro zone befall to such dynamic. That is the purpose of this article.

As the ECB backstops short-term sovereign debt, two results will emerge in the sovereign risk space: First, the market will discover the implicit yield cap and through rational expectations, that yield cap –having been validated by the ECB- will become the floor for sovereign risk within the Euro zone. The key assumption here is that primary fiscal deficits persist across the Euro zone. Secondly, within that maturity range selected by the ECB for its secondary market purchases (up to three years), the market will arbitrage between the rates of core Europe and its periphery, converging into a single Euro zone yield target.

Now, for simplicity, let’s say that the discovered yield cap, which going forward will be a floor, is 4%. This 4% will be a risk-free rate, which in a world of ultra-low interest rates, will look very tempting. The problem is that the risk-free condition holds as long as the bond is bought by the European Central Bank. In the zombie banking system of the Euro zone, where the profitability of banks has been destroyed, banks will not be able to survive if they pass this risk-free yield on to the central bank, unless….unless the central bank compensates them for that lost yield with a “reasonable” rate on the debt it issues during the sterilization. And no, we are not thinking of 75bps!

What is then a reasonable rate? Well, a rate that leaves a profit after paying for deposits. Yes, we know that that is not a problem today, in the context of zero interest rates. But if the floor sovereign rate for the whole Euro zone converged to a relatively significant positive number, banks would only be able to attract the billions in deposits they lost –which are needed in the first place to buy the sovereign bonds in the primary market- at rates higher than the sovereign floor rate received by the ECB. Why higher? Firstly, because unlike the holders of sovereign bonds, depositors do not have the explicit backstop of the European Central Bank on their deposits, which are leveraged multiple times. The liquidity lines provided by the European Central Bank may disappear at a moment’s notice, which is why money left the periphery to the core of the EU zone. An alternative to the European Central Bank, if the deposits from the private sector did not stop falling, would be to keep lending to the EU banks. But this is not feasible in the long run, given the shortage of available collateral. Secondly, as the yield cap becomes the convergence floor, the market’s inflation expectations crystallize into a meaningful expected inflation rate.

Therefore, should fiscal deficits persist in the Euro zone, it is conceivable that as these so-called Outright Monetary Transactions (OMT) develop, we may eventually see net interest losses run by the European Central Bank. It is clear that a net interest loss would be expansionary of the monetary base, because in order to pay for that interest loss, the central bank would have to print more euros, which would need to be sterilized, increasing its debt and interest losses exponentially. It should be noted that once the market’s expectations adapt to this rate of growth in the supply of money, a net interest gain by the central bank, for whatever reason, would be seen contracting the supply of money and therefore, deflationary!

Having said this, we think that the time frame for such a result would be considerable. It would take years for this to unfold and it is very unlikely that it ends in hyperinflation because Germany and the rest of core Europe would leave the Euro zone before it gets there. We present another chart below, to visualize our thoughts:

 

 

Additional conclusions

If we were to see a process like the one just described, it would be very hard for the Fed to engage in an exit strategy that would lift interest rates. If it did, the interest rates both the European Central Bank and the EU banks would have to pay on its debt and to attract deposits, respectively, would increase meaningfully. The contagion risk to the USD zone would be very significant and the Fed would have to “couple” its balance sheet to that of the Euro zone via currency swaps. The segmentation seen today in the Eurodollar market, with Libor being a completely useless benchmark, would only accentuate.

This thesis, if proved correct, is bullish of EU banks in the short-to-medium run (before the private sector collapses in a wave of defaults due to higher interest rates, beginning with the sovereign risk-free floor validated by the ECB last Thursday) and very bullish of precious metals and commodities in the long run.

 


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Mon, 09/10/2012 - 14:35 | Link to Comment bankruptcylawyer
bankruptcylawyer's picture

this whole thing is a GIANT reach around  in order to debase the currency. that's all this is. 

Mon, 09/10/2012 - 14:44 | Link to Comment Stackers
Stackers's picture

Draghi Facebook page:

 

Latest reads:

Check Kiting for Dummies,

Circle Jerk - Fun for Everyone,

Masters of the 3 Card Monti

Mon, 09/10/2012 - 14:47 | Link to Comment aerojet
aerojet's picture

Man, if only I could print up and sell sovereign toilet paper!

Mon, 09/10/2012 - 14:51 | Link to Comment SheepRevolution
SheepRevolution's picture

At this point, I sincerely believe it doesn't matter what the centralbanks will do or will not do. The debt-based monetary system that was created in 1971 by Nixon is taking its last breaths. This system will collapse, although I don't know whether it will be though hyperinflation or the first hyperdeflation the world has ever seen (read: JP Morgan, Goldmans Sachs, BoA, Citi and all the others collapse due too extreme credit losses). We have reached the point where the society as a whole can not take on any more debt, and since the amount of debt outnumbers the amount of money, the whole thing is over. What's concerning and very disturbing is to witness all the masses being completely unaware of what is going on. People actually believe the global banksters will fix this mess for them. Serously, how badly does one need to get screwed in order to understand.

And now for some true words of wisdom:

"There's a reason for this, there's a reason education sucks, and it's the same reason it will never ever ever be fixed. It's never going to get any better. Don't look for it. Be happy with what you've got... because the owners of this country don’t want that. I'm talking about the real owners now... the real owners. The big wealthy business interests that control things and make all the important decisions. Forget the politicians. The politicians are put there to give you the idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own and control the corporations. They’ve long since bought and paid for the Senate, the Congress, the state houses, the city halls. They got the judges in their back pockets and they own all the big media companies, so they control just about all of the news and information you get to hear. They got you by the balls. They spend billions of dollars every year lobbying. Lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else, but I’ll tell you what they don’t want. They don’t want a population of citizens capable of critical thinking. They don’t want well-informed, well-educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interests. That’s right. They don’t want people who are smart enough to sit around a kitchen table and think about how badly they’re getting fucked by a system that threw them overboard 30 fuckin’ years ago. They don’t want that. You know what they want? They want obedient workers. Obedient workers, people who are just smart enough to run the machines and do the paperwork. And just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and vanishing pension that disappears the minute you go to collect it. And now they’re coming for your Social Security money. They want your fuckin' retirement money. They want it back so they can give it to their criminal friends on Wall Street. And you know something? They’ll get it. They’ll get it all from you sooner or later 'cause they own this fuckin' place. It’s a big club and you ain't in it. You and I are not in the big club. By the way, it’s the same big club they use to beat you over the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy. The table is tilted, folks. The game is rigged and nobody seems to notice. Nobody seems to care. Good, honest, hard-working people: white collar, blue collar, it doesn’t matter what color shirt you have on. Good, honest, hard-working people continue — these are people of modest means — continue to elect these rich cocksuckers who don’t give a fuck about them. They don’t give a fuck about you. They don’t give a fuck about you. They don’t care about you at all! At all! At all! And nobody seems to notice. Nobody seems to care. That’s what the owners count on. The fact that Americans will probably remain willfully ignorant of the big red, white and blue dick that’s being jammed up their assholes every day, because the owners of this country know the truth. It’s called the American Dream, 'cause you have to be asleep to believe it."

George Carlin

Mon, 09/10/2012 - 15:13 | Link to Comment tbd108
tbd108's picture

Everyday I hear from someone, that bad, old, Tricky Dick is the cause of all of our current financial problems. The way I remember it (fairly clearly as that damn war brought me into the navy for four years ... fought boredom in Iceland and traffic in Italy in order to avoid slogging through the mud in Southest Asia) the war bankrupted the country and Nixon had no choice to do what he did as France wanted to cash in the linen for gold which would have emptied out Fort Knox (would have beat Clinton to it if you believe Jim Willie). So you might want to mention Lucky Lyndon if you want to blame a politician for the grief (personally I see the problem as running much deeper than the presidency specifically the American tendency to want to invade and loot other countries).

Mon, 09/10/2012 - 15:21 | Link to Comment Flakmeister
Flakmeister's picture

That and the fact that rocketing oil imports were going on as the US peaked in 1970...

This is a damn fine read from the guy that was in charge of auditing US oil production for Nixon...

http://www-personal.umich.edu/~twod/oil-ns/articles/for_aff_aikins_oil_crisis_apr1973.pdf

I am utterly amazed at what was projected for demand and production in 1980...

Mon, 09/10/2012 - 17:52 | Link to Comment falak pema
falak pema's picture

 

ESTIMATED PRODUCTION AND REVENUE, 1980

(Stated in thousands of barrels per day; billions of dollars annually)

Middle East Production Revenue

Iran 10,000 12.8 

Saudi Arabia 20,000 25.6

Kuwait   4,000 5.0

Iraq 5.,000 6.4

Abu Dhabi 4,000 5.0

 

Other Persian Gulf 2,000 3.2

Subtotal 45?000 58.0

North Africa


Libya 2,000 3.1

Algeria 1,500 2.3

Subtotal 3,500 5.4

Total 48,500 63.4

 

 

THIS GETS YOUR GOAT?

LOL, THEY WERE OPTIMISTS AND THE SKY WAS THE LIMIT!

I WONDER IF THIS WAS WHAT THE MAJORS WERE PROJECTING THEN....

And then came world peak oil fears ... That became evdent in 1979 crisis, although nobody in 1979 was projecting Saudi @ 20,000 KBPD  etc. as even a technically feasible production rate, given the concerns about well depletion rates and talk about enhanced oil recovery techniques prevalent then. 

NO WAY! 

These figures are projections, that are awesome even in the mid 1970s!

I was following this shit from 1979 onwards...on a monthly basis. 

Mon, 09/10/2012 - 18:14 | Link to Comment Flakmeister
Flakmeister's picture

Yep... OPEC pumping out 48 mmbpd.... that was the assumption that the game plan rested on....

People forget that *global* oil usage was rocketing up at ~7% CAGR in the 60's and that clearly was unsustainable....

As for the first oil shock, it was a wakeup call that went unheeded....

Mon, 09/10/2012 - 15:18 | Link to Comment shuckster
shuckster's picture

It sounds more politically palitable to deflate, or reflate - inflate, then let prices fall ad infinum, creating a flat trend similar to Microsoft's stock price since 2002 - that is, afterall, the Fed's mandate: "price stability"

 

Mon, 09/10/2012 - 16:17 | Link to Comment boiltherich
boiltherich's picture

But it turns out price stability is the easiest thing the Fed has ever tried, simply deny any inflation exists and presto no price increases.  If the CPI does not give you desired results simply change to a seasonally adjusted geometric chain weighted hedonic substitution calculation of prices, and if that does not work try a PCE (personal consumption expenditures) and average it over several years.  Just do not measure housing, food, or energy costs which for the majority of Americans is well over half their budget.   

Fri, 09/14/2012 - 20:20 | Link to Comment shuckster
shuckster's picture

But a 25% increase in gas prices over a year isn't Weimar, it's 1970. More telling is the fact that people get so worked up over a 10% increase in gas prices - which suggests deflation in wages, and deflation in general...

Mon, 09/10/2012 - 15:36 | Link to Comment BandGap
BandGap's picture

I wholeheartedly agree that there is no stopping now and am planning accordingly. 

This type of thinking (Carlin's) is just starting to hit the fringes of peoples' thinking, although in a very sanitized way (still clinging to not going over the cliff while we are airborne).

Mon, 09/10/2012 - 20:11 | Link to Comment Buck Johnson
Buck Johnson's picture

It's truly a wash with this.

Mon, 09/10/2012 - 14:35 | Link to Comment bankruptcylawyer
bankruptcylawyer's picture

oh yea , buy gold!

Mon, 09/10/2012 - 14:42 | Link to Comment Popo
Popo's picture

Buy *OIL*

Because historically speaking, this ends in war. It always does.

Mon, 09/10/2012 - 14:55 | Link to Comment Stackers
Stackers's picture

Now if I can just figure out how to store $100,000 in physical oil under my bed.

Mon, 09/10/2012 - 15:13 | Link to Comment A Lunatic
A Lunatic's picture

Why only five gallons?  (a few years down the road)

Mon, 09/10/2012 - 14:45 | Link to Comment Sudden Debt
Sudden Debt's picture

nono... this time will be different!

Mon, 09/10/2012 - 14:45 | Link to Comment ebworthen
ebworthen's picture

So it looks like the banks and governments will win, and the people will lose, again.

Besides NIRP and ZIRP look for the death tax to come back, tax on sale of home (if you have equity), increased capital gains, transaction taxes, VAT taxes, etc.

In other words, our money will be theirs - and if we have anything left it will be debased mercilessly.

Mon, 09/10/2012 - 14:46 | Link to Comment Martin T
Martin T's picture

Another great post by Martin Sibileau.

Mon, 09/10/2012 - 14:50 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"To avoid this outcome, assuming that in this context the Eurozone will continue to show fiscal deficits, we will also show that it is critical that the Fed does not raise interest rates."

Sooner or later the bridge abutment beckons. At some point the gravity well will suck in everything not securely nailed down.

Got Gold?

Mon, 09/10/2012 - 14:48 | Link to Comment Vegetius
Vegetius's picture

Bunga Bunga

Mon, 09/10/2012 - 14:58 | Link to Comment sandiegoman
sandiegoman's picture

I don't have any gold but I did caddy for the Dalai Lama once. He didn't give me a tip but told me on my death bed I would receive total inner consciousness. So I have that going for me.

 

Gunga Galoonga

Mon, 09/10/2012 - 16:54 | Link to Comment gtb
gtb's picture

...which is nice.

Mon, 09/10/2012 - 15:02 | Link to Comment shuckster
shuckster's picture

I fail to understand what these programs actually entail....

 

If he (Draghi) buys short term bonds from the banks, that should:

drive up the price of the bonds in the short term and decrease the value of the Euro due to new money in the money stock. However, the markets are re-acting to this news by increasing the value of the Euro. Does this suggest that Euro holders expect the Euro to fail and therefore interpret this as good news for the Euro, thus driving values up? Or is this a temporary spike in the Euro value during the long slide down, and will the Euro reach parity with the dollar (assuming the dollar holds value, which it probably won't)? This market hasn't been making any sense

(P.S.) I understand the concept of sterilization but unless the money is going to be thrown in a dumpster and burned, it's probably not going to stay sterile for long...

Mon, 09/10/2012 - 15:00 | Link to Comment Waydown
Waydown's picture

This is must-read... terrifying to say the least:

 

http://hat4uk.wordpress.com/2012/09/09/the-esms-articles-todays-must-read/

Mon, 09/10/2012 - 15:17 | Link to Comment Bastiat
Bastiat's picture

Even more bold than what Paulson tried to pull.

Mon, 09/10/2012 - 16:20 | Link to Comment walküre
walküre's picture

UNREAL

Mon, 09/10/2012 - 18:01 | Link to Comment DosZap
DosZap's picture

This is must-read... terrifying to say the least:

Can anyone spell Storm the Bastille?.

This kind of seizure/power, will put targets on all of their backs.

I can see new rope, and guillotines being built as I type.

Mon, 09/10/2012 - 15:05 | Link to Comment Qualitative Tig...
Qualitative Tightening's picture

The all important fact is that in order for  r(ECB) > r(SOV), the ECB will need to print Euros. In effect the ECB is trying to obfuscate what they are really doing by devising a form of backdoor monetization that they hope the market will overlook. All in all this just lead to more strong support for hard assets.

Mon, 09/10/2012 - 15:06 | Link to Comment insanelysane
insanelysane's picture

We do this at work all the time at project status meetings.  Everyone says their part of the project is on time even though no group is own time.  Eventually a group has to admit they are way behind and take the hit.  Draghi is just keeping it going until either the Northern countries leave the euro or the Southern countries leave the euro.

Mon, 09/10/2012 - 15:08 | Link to Comment apberusdisvet
apberusdisvet's picture

Draghi cannot afford NOT TO PRINT.  How else are they going to capture the fiscal sovereignty of Greece, Spain, Italy and perhaps France so that banksters can loot at will?  The problem with scenario #2, which is default, is that it would expose the horrific derivative and CDS Ponzi.  Can't have that, now can we?

Mon, 09/10/2012 - 15:18 | Link to Comment Bastiat
Bastiat's picture

No, can't have that because then all the filth would go down the sewer.

Mon, 09/10/2012 - 15:15 | Link to Comment giggler123
giggler123's picture

2-3Years.    If you knew that none of this would matter in those 2-3years time, you'd probably end up with the same solution.

 

See the Simpsons says all in their "Escalator to nowhere".

Mon, 09/10/2012 - 15:35 | Link to Comment LMAOLORI
LMAOLORI's picture

 

 The ECB bailout really isn't a done deal.

 

ECB’s Rescue Plan Hinges on Germany’s Politicians

snip

"The decision to save the euro zone isn’t one for the European Central Bank. It’s one for the politicians.

The ECB has only created the necessary conditions to prevent a euro collapse: it has promised to provide as much money as it takes to support bond markets in beleaguered countries as long as Europe’s politicians, led by Germany’s, agree.

This agreement is ECB President Mario Draghi’s “strict conditionality” and the conditions are to be set out by the European Union’s EFSF/ESM stability programs and possibly by the International Monetary Fund."

more http://blogs.wsj.com/eurocrisis/2012/09/10/ecbs-rescue-plan-hinges-on-germanys-politicians/

and even if it was

Could the ECB Plan Backfire?

http://www.cnbc.com/id/48947449

 

 

 

Mon, 09/10/2012 - 16:33 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Merkel is all in with Draghi, that's been clear for some time already. The 'tough talking German' thing is just for show but even that is getting muted.

The German press now (Spiegel today) is even admitting Merkel is on board with the Draghi plan, and even going super-soft re Greece staying in the euro

Germans are scared ... German banks, insurers and pension funds can all blow if the eurozone blows ... that's why the Germans are all in on Draghi's money-printing plan

CNBC and Wall Street Journal are just recycling propaganda from 4 months ago

The real question is the populist revolt in southern Europe with all the austerity cuts ...

Will it be Greece, Spain or Italy that leaves the euro first and maybe brings down the whole house of cards

My guess is Berlusconi coming back to power shortly and taking Italy out ... but anybody's guess

Mon, 09/10/2012 - 16:04 | Link to Comment ali-ali-al-qomfri
ali-ali-al-qomfri's picture

"the Queensberry rules for the sport of boxing money lending"

                                  vs

 Mixed Martial Arts rules of fighting fiating

Mon, 09/10/2012 - 16:27 | Link to Comment falak pema
falak pema's picture

Draghi and Germany :

Soros has the best integrated approach to the Euro crisis, that he has constantly stated. As an Oligarch at least he has a coherent vision of what rational oligarchy play should be about; not what Merkel has been upto since 2009 : a frightened, psychorogid, morally frigid bureaucrat, who didn't see how Germany was now master of Eurozone, thanks to Schroeder/Kohl strategy over twenty years, and the incredible demise of Pax Americana global model thanks to Bush/Clinton/Bush/Obama hubrsitic power train derailment. 

George Soros: Biggest Tragedy In Europe Is Germany's Stance On Economics - Business Insider

Draghi is Oligarchy agent, just a man who arranges the chairs on Titanic deck, but the powerhouse remains Merkel's Germany.

If she can pull Eurozone and integrate with it an Ost politik, from Berlin to VLadivostock,  she could open up an alternative to PAx Americana. That is the only hope as now going back to Nation state strategy, in Europe as elsewhere, means world war surely; as would continued PAx Americana hegemony. 

Without German muscle and Ost politik, (big if with Putin),  in benign hegemon mode, Draghi is just  toast, as is Monti/Rajoy/Hollande today.

Its Germany that holds the cards. If she goes the right way the rest of Europe could follow, not keel over. Thus ensuring that one main pillar can bring the Eurocontinent and capitalist world out of this Anglo financialista ponzi.

But its a very long shot...at five minutes after mid night....!!!

First world is heading direct towards the Titanic's iceberg, as long as Pax Americana runs the show, and no alternative route exists. 

There are more than 90% chances that we stay in muddle thru "status quo'", which ultimately goes BOOM!

Mon, 09/10/2012 - 16:28 | Link to Comment walküre
walküre's picture

Yea, I believed that was an option until Merkel started to embrace Draghi's approach to bring unlimited firepower to the games. Nevermind that the whole firepower is nothing but empty shells.

The question is where does Merkel really stand. Is she just another bankster's puppet as suspected all along or is there something else to that woman? I doubt it very much.

But Germany is NOT just Merkel. Gauweiler sent a torpedo against Karlsruhe which could delay the verdit on Wednesday. In light of new developments and all that. Draghi should have kept his mouth shut until later this week but he didn't. Why did he come out last week and sprayed his banker jizz all over the markets? Was it that time again? Was there a threat of an imminent take down? Inquiring minds who are not impressed or blown away by the bedazzler Chief would like to know.

Mon, 09/10/2012 - 16:47 | Link to Comment LMAOLORI
LMAOLORI's picture

 

 

I think merkel is just another bankster puppet but I don't think she has the final say I believe that goes to the German courts and the Deutsche Bundesbank.  I would bet on Germany leaving the EU before allowing the bond holders, German taxpayers and German banks to foot the bill.

'We're More Important': German Bundesbank Chief Warns Draghi Over ECB Bond Buying

http://www.ibtimes.com/articles/369155/20120801/bundesbank-euro-debt-crisis-ecb-draghi.htm

Mon, 09/10/2012 - 17:20 | Link to Comment Carl Spackler
Carl Spackler's picture

This is quite the conspiracy theory you outline, FP.

Too bad it is not based in any realistic constructs.

/sarc/ Have you wondered... if China went west and allied with India... they could form a machine to dominate the entire global manufacturing landscape for cheap junk and, thus, control all Anglo-American consumer behaviors

Mon, 09/10/2012 - 17:30 | Link to Comment falak pema
falak pema's picture

China and India having nothing in common in trade or culture, having fought a war in the 1960s with Paki being a constant friend of China, rival to India. China and India are cheap labour economies and are NOT complementary.

Germany and Russia have a strategic partnership in oil and gas called  new north slope and also conventional route thru Ukraine.

Conspiracy theory ? I think not. Germany and China/Russia are complementary economies. Also China wants out of USD hegemony as Merkel's trip to China has high lighted. 

Ost politik is not an unrealistic construct. Especially if Turkey joins the partnership as ME major SWING  player of tomorrow's age.

It controls the waters of Tigris and EUphrates. 

 

Mon, 09/10/2012 - 16:17 | Link to Comment earleflorida
earleflorida's picture

just another unelected despot by goldilocks tentacle 'bear hug...

sooner rather than later calamari will be served cold on the Danube, Rhein [Rhine, Rijin], and Seine...

Mon, 09/10/2012 - 17:32 | Link to Comment _underscore
_underscore's picture

If the 'sterilsation' is actually achieved, then no new (nett) fiat  (ultimately)enters the system - how can that help, or be used to finance govt deficits? It reminds me of the shuffle-less card cut. What it does seem to do though, is increase the velocity of the existing fiat - so we get to enjoy the inflation that's latent, but currently quiescent. Bullish for PMs (now) I would say.

Mon, 09/10/2012 - 18:39 | Link to Comment Infnordz
Infnordz's picture

Indeed, the problem is too many countries only educate pupils to be employees (wage slaves to fear and greed), so they are not taught about how to use money competently, so are used by money; this maybe intentional, or just incompetence breeding incompetence.  This financial illiteracy has caused chaos in economics, banking, politics and regulation, and because so many are financial illiterate, few realise that it is caused by financial illiteracy, so the problem persists.  The competently home schooled, and privately and home educated wealthy must be staring in disbelief or laughing their heads off at how illiterate and bad the rest of the population are at managing money *.  * Most countries' currencies are not even money, but rather debt; this further complicates matters.

A different slant on same problem is illustrated in this story:

http://www.zerohedge.com/news/poll-finds-more-half-americans-take-out-lo...

 

The way to fix this is make sure most students and working people are taught enough about money, that they learn to control it (e.g. Rich Dad Poor Dad, Kung Fu Finance etc.), rather than visa-versa, otherwise the whole process will just keep repeating itself.

 

Mon, 09/10/2012 - 20:16 | Link to Comment andrewp111
andrewp111's picture

I don't think they can keep it up long enough to hyperinflate. Something else will happen.

Mon, 09/10/2012 - 21:19 | Link to Comment GoingLoonie
GoingLoonie's picture

Hats off to anyone that understood this, it put me in the loonie bin.  Have I been baffled with bullshit?

Mon, 09/10/2012 - 21:25 | Link to Comment tony bonn
tony bonn's picture

all central banks are highly constrained by the gold bomb which is in cascading explosions.....the banksters are short 40-60,000 tons of gold which certain folks are demanding....this is a massively huge problem....the banksters cannot afford for gold to rise and yet it is....they are now powerless to affect gold prices....they are only as low as they are because certain parties want the low price to drain the banksters of their remaining gold supplies and are using feces infested treasury paper to pay for it.....

if geithner isn't shitting his pampers, it is only because he is a fucktard......

Mon, 09/10/2012 - 22:12 | Link to Comment Nimby
Nimby's picture

You know things are bad when Jim Cramer tells you to invest in wheelbarrel manufacturers.

Tue, 09/11/2012 - 01:10 | Link to Comment chump666
chump666's picture

Spain just slapped Germany across the face as it officially becomes a drug addict to the ECB.

* Spain PM Rajoy - New ECB backstop makes bailout less urgent - DowJones.

 

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