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Guest Post: Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?

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Submitted by Charles Hugh Smith from Of Two Minds

Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?  

The only solution to bad debt is to write it off--renounce it all. Why aren't those who took the risks for their own private gain being forced to absorb the losses?

We all know some 3 trillion euros of debt in Europe is uncollectible. So why isn't anyone talking about the one and only solution, which is writing off all that debt? Since nobody knows how much bad debt there actually is in the Eurozone--care to guess on the market value of all those underwater mortgages in Spain or the true size of Italy's debts?--that 3 trillion is just a guess, but it's probably a reasonable starting point.

Let's start with the most basic fact about all this uncollectible, impaired, bad debt: every euro of debt is somebody else's asset. Wipe out the debt and you wipe out the asset. That's why there's no willingness to accept the writedown of debt: somebody somewhere has to suck up 3 trillion euros of loss.

Can we please dispense with the fantasy "solutions"?

There is no way Europe is going to "grow its way out of this debt." How much of the eurozone's "growth" was the result of rampant malinvestment and risky borrowing? More than anyone dares admit. It won't take austerity to crash the euroland economy, all it will take is turning off the debt spigot.

"Restructuring" is a code word for writeoffs. Here, let me "restructure" the euro bond you bought at a 4% coupon yield. Now you're going to get 2%, and you're going to like it. Bang, your bond just lost half its market value, but everyone gets to keep it on the books at full value. Nice, until you have to sell it to raise cash. Oops, the euro has slipped in value so you lost more than 50%.

Printing euros to buy the bad debt is just a shuck-and-jive game of transferring the losses to unsuspecting holders of euros or taxpayers. Allow me to reprint a quote from yesterday's entry, The World Is Drowning in Debt, and Europe Laces On Concrete Boots: as Nobel prize winning economist Thomas Sargent noted: "There's a fundamental truth that everyone has to understand: what the government spends, the public will pay for sooner or later, whether in taxes or inflation or having their debt defaulted on." (Source: BusinessWeek 11/20/11).

In other words, if the European Central Bank prints 3 trillion euros to bail out the banks and bondholders, holders of euros will suck up 3 trillion in lost purchasing power, or split the loss with taxpayers who have to pony up cash to give the ECB a threadbare sheen of solvency.

There is no free lunch. And since there's no free lunch, then we have to ask: who should suck the losses when 3 trillion euros vanish in a massive renunciation/writeoff? Answer: those who took the risk. I know this is a shatteringly obvious conclusion, but it reveals the central flaw in the global financial system: risk has been disconnected from return.

Those who made the risky bets have diverted the risk to others: taxpayers or the general public who holds currency. The gains from the bets are private, and theirs to keep, but all the losses are distributed to the public via government bailouts or money-printing. The first shifts the losses to the taxpayer, and the second shifts the losses to everyone holding the currency being devalued.

Not only has the risk been palmed off onto unsuspecting chumps, the returns have been concentrated into the few hands that control the big bets. This is the ideal setup for the stupendous gains and zero risk that characterize crony-capitalism: make the big bets with leverage and borrowed money, and skim the vast profits. Then when the bets sour, demand a bailout from the Central State, the ECB, the Fed, etc., which promptly socializes the losses and distributes them over the entire populace of taxpayers or holders of currency.

It works beautifully until the debt-serfs rebel. The EU's politicos are begging to start the printing presses, as that is the only way they can retain their power in the face of the debt-serfs' revolt. But at least one populace of tax-serfs (Germany) is rebelling against sucking all the losses via a massive reduction of purchasing power.

The apologists for bailouts always whine about poor Jacques Q. Publique, whose pension fund will take a hit if those 3 trillion illusory euros go poof. Here's reality: everyone with capital or responsibility in the wager has to accept their fair share of the risk and the return. J.Q. Publique risked some capital, even if he didn't control the bets being made with his money, and so he has to suck up his share of the losses.

Those who made the bets should rightly lose everything--yes, be wiped out. If risk and return are actually causally linked, then this is the only result of a big bet that sours: those who placed the bets should be wiped out. That includes money managers, bank honchos, bond-fund gurus, and everyone else who foolishly bought all this debt without investigating the risks.

Investors in banks made their investment to reap a return; as a result, they are exposed to the other side of return which is risk. They should be wiped out as well.

Who should not suck a loss are those who did not stand to gain: the taxpayers and holders of the currency. To repeat: the most basic fact about all this uncollectible, impaired, bad debt is that every euro of debt is somebody else's asset. Wipe out the debt and you wipe out the asset.

There is no way to avoid the 3 trillion in losses. the only question is who should absorb those losses: those who stood to gain, or the innocent chumps whose only crime was being a taxpayer or owner of euros? If there is any justice (or classical Capitalism) at all in Euroland, then those who made the bets and invested capital in the bets to reap a return are the ones who should absorb the losses.

Life will go on if the banks are wiped out and closed, pension funds and insurance companies take losses, etc. In fact, as I noted in The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positive (November 5, 2011), the collapse of the predatory institutions which made all those bets would be a quantum leap forward not just in terms of justice but in the economic recovery everyone pines for.

Ideally, the dominoes will cross the Atlantic and take down the parasitic "too big to fail" banks and Wall Street leeches in the U.S. After all, they too made bets on euro-debt and they should absorb the losses.

If those who made the bets for their own private gain aren't forced to absorb the risk, then we don't live in either capitalism or democracy; we live in a financial-fascist tyranny.


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Tue, 11/15/2011 - 11:58 | 1879305 Careless Whisper
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Tue, 11/15/2011 - 12:06 | 1879323 BaBaBouy
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3 Trill Euros ???


More Like 30 Trillion ===> Write this off, Bitchez...


The World Fin System is being hyjacked.


Everything on the planet is pointing to "Buy Gold" ...

Tue, 11/15/2011 - 12:43 | 1879430 Strider52
Strider52's picture

"Buy Gold"?? But, remember, Gold isn't backed by anything! Fiat, on the other hand, is backed by the full faith and credit of our trustworthy PolyTicians and Bangsters..........oh, wait....

Tue, 11/15/2011 - 13:10 | 1879507 Sudden Debt
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I'm really thanking god I put all my money in PM's 30 months ago.

Today I got a letter from one of my banks, saying taht starting jan. 2012 that they''ll limit all whitdrawals to 650 euro per day.

It made me think about Reggie's bank run predictions.

As of now, I'm going to empty my accounts and keeping it all cash.

Tue, 11/15/2011 - 13:27 | 1879557 LawsofPhysics
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Nice, capital controls, rationing comes next.  Winning!

Tue, 11/15/2011 - 14:11 | 1879646 flacon
flacon's picture

Just wait until the food rationing starts...

Tue, 11/15/2011 - 14:05 | 1879628 LauraB
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Fiat is backed by our labor, that's why we're all slaves.

Tue, 11/15/2011 - 13:04 | 1879488 Hugh_Jorgan
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You got it. The writedowns are symbolic of the intractable, untenable set of circumstances that the Western world has inflicted upon itself to foment chaos. The Globalist bigwigs think that they can "use" this crisis to implement central planning on the Globe out in the open.

Tue, 11/15/2011 - 13:06 | 1879491 Sudden Debt
Sudden Debt's picture

Whatever, let me write you a check for that amount.
Just don't cash it before.....

Tue, 11/15/2011 - 13:55 | 1879612 FinHits
FinHits's picture

Good solution. Let's write off US and Japanese and the UK debts as well. They are equally unpayable and in the same or higher ratio to the underlying GDPs.

Tue, 11/15/2011 - 15:13 | 1879859 hivekiller
hivekiller's picture

Juibilee! Jubilee! Jubilee!

Tue, 11/15/2011 - 21:39 | 1881108 Buck Johnson
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If you right off the 3 trillion (I say alot more), then we have the CDS's that come into effect which are in the tens of trillions of dollars.  And in so wanting to pay these CDS's and such, the financial institutions and banks will try to sell everything to get money including US treasuries.  Which the US will have to print money, which will start hyperinflation (really hyperstagflation).  Which will cause hyperinflation in the rest of the world since the world uses the US currency as the world currency.  You can't possibly print up trillions of dollars to cover our insurance company and banks bad bets to europe without that much money being felt instantly in the financial system.  I think what may happen is that the Western banking system is dead on arrival at the end of the kicking the can down the road.  And no matter what they do or say it's so intertwined with private and govt. that it will take down the system hook line and sinker.

Tue, 11/15/2011 - 12:08 | 1879342 Global Hunter
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Thumbs Up for CW I appreciate your effort...most of us come here to get an overview of what is going on the world so not sure why the thumbs down.

Tue, 11/15/2011 - 12:17 | 1879352 BaBaBouy
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Why Negatives? The PAID PLANTS are everywhere.

Its a nasty new world where money buys anything and everything, just ask "Bunga Bunga Man".

Tue, 11/15/2011 - 12:30 | 1879387 NotApplicable
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Some junk spam/threadjack posts as abusing polite forum etiquette, regardless of the content of the post.

FWIW, I don't bother either way.

Tue, 11/15/2011 - 12:00 | 1879313 YesWeKahn
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That's against Summer's central dogma.

Tue, 11/15/2011 - 12:22 | 1879349 DormRoom
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yeah, but he was an advocate of Central Bank intervention, not because it would help the wider population, but so his banker pals would not lose billions.


When the ECB buys the bad debt, they effectively shoulder it on the taxpayers, via inflation.  So the plutocracy doesn't lose any wealth.  But everyone else does.  Especially the old, and poor.


The problematic of modern finance is that its created a system in which a man can lose his humanity, and continue biologically living.


Tue, 11/15/2011 - 12:01 | 1879314 AngryGerman
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"Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?"

because if we all just really really strongly believe, and clap our hands, then all will be good...

Tue, 11/15/2011 - 13:24 | 1879315 hedgeless_horseman
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Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?

Because we in the USA are wearing the same irons...

Liability per American taxpayer* is now more than $1,000,000!

One man's debt is another man's asset.

With over 100 million US income tax payers, and most of the world paying the USD inflation tax, just imagine the income stream that comes from this plantation. why would a master free a (debt) slave that is performing so well?  There was a time in America when talk about freeing the slaves could get you lynched, or worse. 

*See lower right corner.

Tue, 11/15/2011 - 15:11 | 1879854 j0nx
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Looks like Captain Picard sold Geordi LaForge to the Orion slave syndicate.

Tue, 11/15/2011 - 19:35 | 1880842 hivekiller
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You all know, don't you, that the entire Roots saga was a fraud. Haley had to pay Harold Courlander - a white man - $650,000 in a plagiarism suit for stealing from Courlander's novel. Sort of like Martin Luther King plagarizing his thesis, speeches and being given a pass and sort of like all those made up holocau$$t stories, etc.


Like Henry Ford said, history is bunk.

Tue, 11/15/2011 - 12:02 | 1879316 greyghost
greyghost's picture

why isn't anyone talking about writing off trillions of debt in the U.S.???????? why, how on god's green earth would the bankers ever get paid??????????????

Tue, 11/15/2011 - 12:46 | 1879443 Eally Ucked
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Not only US, the whole world has to write off probably 20T off debt to start growing. But Americans first have to forget about bigger is better, all that debt comes from that doctrine and it killed jobs and economies of Western world otherwise everything would gradualy adjust itself. But at least Americans had 3 decades of dream life. Don't forget that and think about others.

Tue, 11/15/2011 - 12:01 | 1879317 TooBearish
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I Know!- I know! cause its easier to ignore it!

Tue, 11/15/2011 - 12:01 | 1879319 gojam
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Global Jubilee Bitchez!

Tue, 11/15/2011 - 12:01 | 1879321 Cdad
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Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?

Not sure, but I think it is because Larry Fink has a better plan...namely, to "make people buy" crap he has in inventory, thus avoidinig the nuisance of having to post losses that would otherwise result from sheer arrogance and stupidity.

And so the solution, as proposed is Crony Capitalism, theft, corruption, Marxism, fascism...or write downs.  You can see the dilemma, I suspect. 

Tue, 11/15/2011 - 12:02 | 1879322 Dingleberry
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"Life may go on" if we wipe out the debts......but not Goldman Sachs life, or JPM's life, etc. etc.  There is the reason that there is no talk of wiping out debt.  The big boys would get hurt. Nuff said......

Tue, 11/15/2011 - 12:02 | 1879324 Roland99
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Privatize the profits, socialize the losses.


It's what's for breakfast!


Tue, 11/15/2011 - 14:02 | 1879623 IBelieveInMagic
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But wasn't lot of the soverign debt also run up because of untenable entitlement programs (even government jobs and military is kind of disguised entitlement programs -- reality is that there are not enough "real" jobs to support population with technology advancement/outsourcing). Guess the intention is to replace the non-performing debt with new but devalued money so that savers are still left financially ahead relative to the broke (nonetheless, everyone will experience loss in real asset values). Otherwise if they allow writeoffs, the savers in paper assets will be wiped out and it will be very difficult to standup a replacement paper based system. Also, the current financial system is beneficial to OECD nations but that advantage will be lost if they allow the current system to fail.

We may not like it, but monetization is what is for dinner!

Tue, 11/15/2011 - 14:49 | 1879786 Roland99
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oh, I'm sure that's a big part of it.  Also, what is Europe's demographics like?

In the U.S., we have a large senior population and fewer people working so the Soc Sec/Medicare tax revenue isn't as large as it was in the past.

We're all kind of victims of our own making.


Tue, 11/15/2011 - 12:03 | 1879326 Jean
Jean's picture

the collapse of the predatory institutions which made all those bets would be a quantum leap forward not just in terms of justice but in the economic recovery everyone pines for.

We can't do that, people are starving to death in Iceland right now /sarc


Tue, 11/15/2011 - 12:04 | 1879331 Quintus
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I have a lot of sympathy with the view expressed here that 'Those who took the risk should take the loss', but what about the little guy who deposits his money at the bank in the hope of merely earning enough interest to keep pace with inflation?  His bank goes down because it put his money in Govt bonds and he loses everything.  He didn't want any risk, and probably didn't think he was taking any.

Given the choice of being able to save cash in a form that retained 100% of its purchasing power (but produced no other return) without having to speculate on financial markets, I am sure that many/most people would jump at the chance.

By constantly eroding the purchasing power of currency, governments FORCE everyone, even little old grandma, to effectively put their money at risk by lending it to a bank (Which is what a deposit actually is) just to try and avoid penury though loss of purchasing power.

This is effectively government mandated risk taking, and I'm not so sure it deserves to be punished.

Tue, 11/15/2011 - 13:02 | 1879484 MJ
MJ's picture

Did you just use circular logic?  The government/banks create inflation, and therefore we need bailouts to support everyone that's trying to avoid inflation by buying risky assets?

Wed, 11/16/2011 - 11:42 | 1882715 Quintus
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No.  What we need is sound money that does not constantly depreciate.  The sort of money we used to have before the introduction of fiat currencies and fractional reserve banking.

Prior to this it was possible to live your whole life and the price of a loaf of bread on the day you died would not have moved significantly from the day you were born, other than as a result of seasonal supply/demand factors.

Inflation is an artefact of the monetary system.  It means you cannot realistically accumulate savings by keeping them 'Under the mattress' and out of the grasp of the bankers and their speculation schemes.

Wed, 11/16/2011 - 12:35 | 1882976 Bill Bogus
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well put

Tue, 11/15/2011 - 13:18 | 1879526 Ropingdown
Ropingdown's picture

FDIC insurance was created specifically to protect that little guy, while also insuring that bank deposits did not run away in a panic.  However, I note that the FDIC was forced to protect big guys too in the 2008-2009 collapse, as the maximum account size  protected was raised enormously and many minor rich people spread their few million across eight or ten banks.  The little guy did not risk losing.  The banks and those with larger liquid assets and cash got what they wanted, though.  Who paid?  The little guy, later on, when low rates and higher FDIC charges hit his little accounts.  Does the little guy respond politically to that reality?  How can he?  The candidates of both parties claim the maneuver was necessary.  Translation: "Look, little depositor, you're lucky we protect you at all, and protecting those big deposits helped you by saving your bank!"  So the little guy pays twice, and essentially has no recourse.

Wed, 11/16/2011 - 06:35 | 1881930 Bill Bogus
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I enjoyed your comment very much as it has provided some well-phrased insight to me.

I think it is a bit contrived to conclude from your post that you advocate bailouts.
What reasonable alternatives to the "government mandated risk taking that doesn't deserve to be punished" can you think of?

While we're at it: something that I haven't been able to shake off since 2007/08 is the idea that many banks should've been allowed (forced) to go bust in 2008.
Can someone explain what's wrong about that concept? Is it that we couldn't have continued international finance without a catastrophic economic contraction (= decimating prosperity all over the world?)?

Am I correct that what "we're" doing now is lending "money" from the future with the intent of defaulting on the debt; and so fabricating a financial system that works "well" now at the cost of working not at all or to our demise in a dead bleak future?

Sorry for all the cynicism that's missing from this post. I'll make it up on occasion.

Tue, 11/15/2011 - 12:05 | 1879333 TheSilverJournal
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The debt can't be written off because the entire banking system would crumble. The can can be kicked farther down the road by printing..which is exactly what will happen..hyperinflation being the end result.

Don't be fooled, the USD is in much worse shape. The USD has much less road to kick the can down before heading over the hyperinflation cliff.

Tue, 11/15/2011 - 13:26 | 1879552 BigJim
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Only if (or when, obviously) the USD loses petrocurrency status. Then the fun begins! And if the euro collapses, that day is put off considerably... except the contagion will probably bring down the TBTF in the US too, and Ben will have to print, thus jeopardizing the USD petrocurrency status... so I guess we'd better hurry up and 'tame' Iran before any other OPEC leaders start edging towards the exits. Give them a nice reminder who keeps them in their palaces.

Tue, 11/15/2011 - 12:06 | 1879334 El Viejo
Tue, 11/15/2011 - 12:05 | 1879335 PulauHantu29
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DDS: Deflationary Death Spiral.

Financial stocks, houses, cars, and so on are being sucked up into a massive debt destruction.....some areas will benefit...oil PMs, fertilizer corp...etc

Tue, 11/15/2011 - 13:15 | 1879520 narnia
narnia's picture

the credit supporting the worldwide government spending induced fiat currency bubble is guaranteed, one way or another, by the sovereign nations.  if it starts to explode all over the place, they either have to entirely disavow it- which will spark a wide scale debtor revolution against the legal system- or they will have to print into hyperinflation anyway.

left to the market, all of this worthless credit would liquidate.  left to a bunch of interventionist, all of this worthless credit will eventually liquidate in even more dramatic fashion.  they are arrogant enough to think they can "manage" their way out of this.  silly central wankers.

Tue, 11/15/2011 - 12:06 | 1879336 SheepDog-One
SheepDog-One's picture

Whole lotta cold feet everywhere suddenly...OH it was all fun and games for years swapping imaginary trading vehicles and such, now that its time for bunch of useless billionaires need to take major haircuts and pay the bar tab it seems everyone has misplaced their wallets?

1 world bank, 1 world govt, 1 world currency...  my ass, they see it wont work and now no one has any idea what to do next.

Just my humble assesment of the whole stinking mess.

Tue, 11/15/2011 - 12:18 | 1879359 twotraps
twotraps's picture

exactly!  go back and search articles in the run-up to the Euro.  The main selling point was all this potential economic power to take on the US Dollar and prove that the Europeans are more civilized bla bla bla and can work together bla bla bla.   How's that going now.  When politics drive the program its doomed.

Tue, 11/15/2011 - 12:08 | 1879338 TheAkashicRecord
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On a lighter note, check this out

Besti Flokkurinn, the Best Party, was founded in 2009 by Jón Gnarr, an Icelandic actor, comedian and writer. The party has from the beginning admitted that it will not honour any of the promises given before elections.[5] It claims all other parties are secretly corrupt, so it promises to be openly corrupt. Among its original goals was to satirize common themes in Icelandic politics, partly by mimicking the standard phrases, idioms and jargon used by Icelandic politicians.

However, it is not a joke party and has shown an interest in governing. It takes a left-wing stance on many issues. Jón Gnarr identifies himself as an anarchist; the party as a whole, however, is closer to the centre-left.[6]

Since its founding, Besti Flokkurinn has developed into a full-grown political party with its own independent agenda, which has yet to be identified to an English-speaking audience. The theme song of Besti Flokkurinn is "Simply The Best" by Tina Turner. Prior to the 2010 election, the party published a new version of the song with new, Iceland-specific lyrics. A music video was also made, featuring Ágústa Eva Erlendsdóttir.




Here's the clip from the documentary

Tue, 11/15/2011 - 12:11 | 1879344 Global Hunter
Global Hunter's picture

Anton Newcombe for PM!!!

Tue, 11/15/2011 - 12:08 | 1879340 Madcow
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Think about the Baby Boomers who are presently in charge.  What do you think they will do?

A.  Nuke the assets, and flush out all the fraud and corruption and allow a new generation of savers to re-build the economy along more fundamentally local lines.

B.  More taxes, more government, more fraud, more corruption, more intellectual dishonesty, and a growth industry in delusionary thinking to somehow explain away rapidly increasing costs of food and energy.

Tue, 11/15/2011 - 12:20 | 1879362 WonderDawg
WonderDawg's picture

So, blame an entire generation for the crimes of some highly placed sociopaths?

Tue, 11/15/2011 - 12:46 | 1879440 pods
pods's picture

I think your point would have come across much better without the shot at the boomers.  In reality, our problems are that of simple math (exponentials in a finite world).  Only the timing is subject to argument.

Many here shrug off anything that is set up in a Hegelian dialetic.  


Tue, 11/15/2011 - 13:39 | 1879576 Madcow
Madcow's picture

this is not meant to be a shot at the boomers - merely an observation.

there's a massive divergence in the interests of younger and older generations coming into play. the older folks need the system to hold together - to the long term detriment of the young.  the young need the present system to collpase if they're going to have any shot at a prosperous future.

looking forward, the battle lines are going to be more young vs old than left vs right.



Tue, 11/15/2011 - 13:43 | 1879584 pods
pods's picture

That is true, but we can avoid the fight.  Cause if we do not, while we are at each other's throats, the banksters will slip in another mickey and we will be put back to sleep for another 100 years.

It is starting to set up the way you describe.  The old have the most to lose, the young the most to gain.  


Tue, 11/15/2011 - 23:42 | 1881502 WebWeasel
WebWeasel's picture

Once the younger generations figure out that boomers are made of meat it's all over.

Wed, 11/16/2011 - 00:11 | 1881573 prains
prains's picture

looking forward, the battle lines are going to be more young vs old than left vs right.


in some respect i agree but this is and always will be about LABOUR VS CAPITOL, capitol is trying to rewrite the contract for the next century by putting labour into a collosus of indentured

servitude that will control the social contract of a diminishing labour supply for the next 100 years.

Tue, 11/15/2011 - 14:34 | 1879734 Hugh_Jorgan
Hugh_Jorgan's picture

C'mon folks. The comment was "the Baby Boomers who are presently in charge" not "those damn Baby Boomers" or anything nearly as inflammatory as you seem to have taken it for. You're both dating yourselves as Boomers.


BTW in case you hadn't noticed; the Bably Boomer generation is at the helm right now. Just saying...


Tue, 11/15/2011 - 12:08 | 1879341 BlueStreet
BlueStreet's picture

Maybe nobody is talking about it because the time to talk has already passed.  Time now to buy the canned goods and popcorn.  



Tue, 11/15/2011 - 12:11 | 1879345 xcehn
xcehn's picture

When you OWN the world's armies, you can declare whatever you want unacceptable. All bow before the banksters.

Wed, 11/16/2011 - 04:26 | 1881892 the tower
the tower's picture

The real scary shit is that armies are being de-humanized... drones, missiles, satellites...


Soldiers can - and will - refuse duty when their families' lives are at stake... drones won't.


Ultimately the only thing that will stop us all from being submitted is to get rid of the elite.

Tue, 11/15/2011 - 12:12 | 1879347 nontaxpayer
nontaxpayer's picture

Why not pay every last eurocent of the debt back? In nominal terms...

Tue, 11/15/2011 - 12:45 | 1879439 NotApplicable
NotApplicable's picture

They will. It just takes time to manufacture the consent required to print without disrupting the facade of a market. Kinda like Chinese water torture.







Tue, 11/15/2011 - 12:47 | 1879445 NotApplicable
NotApplicable's picture

Which isn't to say that they won't crash and burn a few select bondholders along the way as a form of activation energy. Breaking eggs to make omelets, so they say.

Tue, 11/15/2011 - 12:18 | 1879348 Flounder
Flounder's picture

There are Europeans who believe the switch to the Euro has brought them prosperity with more to come.  Well, as I watch Italy, Spain, France 10yr bond ylds spike I can see the rent on their prosperity is rising by the minute.  The "prosperity" has been rented with mountains of unpayable debt. The bill is now due. Are they really willing to sacrifice sovereign identity to a political union just so they can extend the debt repayment a few more months? True prosperity comes from the creation of valuable goods and services not from borrowing and printing money.

Tue, 11/15/2011 - 12:16 | 1879354 aleph0
aleph0's picture

That's what I love about Charles-HS's writings....

He explains what is basically very simple ... so that even the most stupid Politicians can understand.

But then again ... are they really just totally stupid, or just totally corrupt ?

Tue, 11/15/2011 - 12:21 | 1879365 WonderDawg
WonderDawg's picture

The answer to your question is obvious: they are both.

Tue, 11/15/2011 - 12:17 | 1879355 TJ00
TJ00's picture

Here's reality: everyone with capital or responsibility in the wager has to accept their fair share of the risk and the return. J.Q. Publique risked some capital, even if he didn't control the bets being made with his money, and so he has to suck up his share of the losses.


And when J.Q. Publique abandons the banks, insurance companies and pension funds, disagregating his capital, the financial system disappears in a puff of smoke. No financial system, no aggregate capital to fund supply chains, governments, back to the Dark Ages, but with nuclear weapons littering the place. 

Tue, 11/15/2011 - 14:05 | 1879629 pvzh
pvzh's picture

You can do business without credit on the cash basis. Doing business on credit routinely is post-WW2 practice mainly. Pre-Fed, most of business was done on cash basis, so no "Dark Ages" involved. The side effects, of course, are lower prices and high cost of capital (high interest rates, high dividents, etc.): "cryptonite" for todays financial wizards.

Tue, 11/15/2011 - 12:18 | 1879358 oogs66
oogs66's picture

would be the best thing that happens to the system...those who are rich and not involved will be richer, those rich on nothing but government money will be poor, and everyone has a chance since the protected elite will be out of the way and real entrepeneurship and growth can take place

Tue, 11/15/2011 - 12:22 | 1879366 boom goes the d...
boom goes the dynamite's picture

Ok more obvious news to anyone paying attention......but we are approaching 1.35 eurusd, isn't Goldman supposed to start buying Euro and melt this market up again?  investing is a fun little game to play once you know the rules, until they change the rules that is.

Tue, 11/15/2011 - 12:22 | 1879370 Mactheknife
Mactheknife's picture

>we live in a financial-fascist tyranny. 

Hmmm...noticed that did ya?  Just getting back from the far reaches of the galaxy?

Tue, 11/15/2011 - 12:23 | 1879372 farmjohnny
farmjohnny's picture

Lets see

Everyone who purchased debt sells to the Central Bank, which prints money so the investors stay solvent. Check.

Central Bank writes off newly printed duckets. Check. No harm. No foul. (Just hyperinflation.)

Investors’ flush with ton-o-cash must find place for all those digits to get even bigger returns (remember the leverage) so they can buy the GI Joe with the kung fu grip, and jump right back into frying pan. Oh Fuck.

Am I missing something?

Tue, 11/15/2011 - 12:23 | 1879373 samsara
samsara's picture

"...every euro of debt is somebody else's asset. Wipe out the debt and you wipe out the asset. That's why there's no willingness to accept the writedown of debt: somebody somewhere has to suck up 3 trillion euros of loss."

That's all you need to know.  Why isn't there talk about dropping the Principal on mortgage debt,  instead of all the talk of lowering interest rates, or extending timelines.

EVERYTHING is insolvent.  PERIOD.  ALL major banks are Insolvent if everything was leveled to TRUE market value.

The emperor is naked and everyone knows it.


Tue, 11/15/2011 - 14:02 | 1879622 s2man
s2man's picture

Yep, its ALL bubbles. And try as they might, they will not be able to stop them from deflating or popping. "Things that can’t go on forever, don’t - but they can sure take a long time about it."

Tue, 11/15/2011 - 12:30 | 1879374 GOSPLAN HERO
GOSPLAN HERO's picture

Marching Through Georgia

Ring the good ol' bugle, boys, we'll sing another song, Sing it with the spirit that will start the world along, Sing it as we used to sing it 50,000 strong While we were marching through Georgia.

CHORUS: Hurrah, hurrah, we bring the jubilee! Hurrah, hurrah, the flag that makes you free! So we sang the chorus from Atlanta to the sea While we were marching through Georgia!

How the darkies shouted when they heard the joyful sound! How the turkeys gobbled which our commissary found! How the sweet potatoes even started from the ground

While we were marching through Georgia! Yes, and there were Union men who wept with joyful tears When they saw the honored flag they had not seen for years. Hardly could they be restrained from breaking forth in cheers While we were marching through Georgia!

Tue, 11/15/2011 - 12:26 | 1879377 JR
JR's picture

While our nation and parts of the world were distracted by the clearing out of New York City’s Occupy Wall Street protests, the ruling banker cartel has begun the lockdown occupation of Europe.

Mary Ellen Synon, based in Brussels as a columnist at the Irish Daily Mail, saw it coming. She wrote on November 7, 2011:

It stinks: EU to install puppet governments in Athens and Rome

As feared, the EU and its collaborators have pulled off a coup in Athens. Now what can only be called the occupying power are preparing to install their own man as the new Greek prime minister.

You doubt it? Just look at the two names that have ‘emerged’ to lead the new government: Lucas Papademos, who was until last year the vice-president of the European Central Bank, and Stavros Dimas, a former European Commissioner.

Over in Rome, where the EU is maneuvering to bring down Berlusconi, the name ‘emerging’ to be the next prime minister is Mario Monti. Monti is not only a former European Commissioner, but he is also the author of a report commissioned by Jose Manuel Barroso on the future of the single market – which was a report meant to plan ways the powers of Brussels could be further extended into every part of the members states economic and fiscal lives, including taking control of corporation tax rates.

More, Monti is a member of the Spinelli set, a euro-fanatic group set up by member of the European Parliament and Brussels heavies such as Jacques Delors to press the construction of a final centralized government in a country called Europe.

It all stinks.

Tue, 11/15/2011 - 12:28 | 1879383 twotraps
twotraps's picture

totally agree, well said.

Tue, 11/15/2011 - 12:52 | 1879463 NotApplicable
NotApplicable's picture

Funny how the "disintegration" of the Eurozone will actually lead to further integration with more centralized (i.e. non-local) control.

Hegel and the NWO, coming to a polis near you.

Tue, 11/15/2011 - 14:15 | 1879664 viahj
viahj's picture

ironic, in the effort to save the drowning EU, they are killing off the Euro.  i suspect there will be a "new Euro" in the future if their plan of centralizing all of Europe is met with success.

Tue, 11/15/2011 - 15:42 | 1879948 Peter K
Peter K's picture

Ambrose Evans Pritchard picked up on it in the DT also.

Tue, 11/15/2011 - 12:26 | 1879378 twotraps
twotraps's picture

The US and Europe are the great examples of politics driving the economic agenda.....they promise everything to everyone all the time assuming the miracle of the market is  there for their pleasure, whenever they please.  Unfortunately, that unforgiving-harsh-corrective mechanism is just not there in politics so the debts build, pension and social safety net debts build and they pile on more debt.


There is a hole in your boat.

Well....get some bigger fucking buckets and bail faster.

Governements run giant pretend accounts, divorced from reality.

Tue, 11/15/2011 - 12:28 | 1879381 marcusfenix
marcusfenix's picture

so market watch just posted retail sales for oct. and you would have thought from the headline that the green shoots and grown into oak trees. I mean many of the econodrones cited in the article said the recovery was now on and rockin...although some pointed out that the bump in spending was coming out of peoples savings and therefor could not continue but who cares right?

september came in at 1.1% increase while october came in at 0.5%...

so now the closer to christmas we get people start spending...less...hmmm

dept store sales declined while electronics and appliances bumped up so that would say to me people are dipping into there savings to replace worn out washers and computers...not really wild holiday consumer abandon sparked by those upcoming holiday bonuses and mounds of disposable cash...

Tue, 11/15/2011 - 13:59 | 1879618 JR
JR's picture

Nate today on Nathan’s Economic Edge points again to the ridiculous statistical fly in the Rotten Apple Retail Sales report: “it measures sales in dollars and since inflation is incorrectly measured is not adjusted appropriately. Since inflation is way understated, it overstates Retail Sales. Another flaw in this report is substitution bias, that is it only measures stores that are open over the last year and fails to account for stores that have closed…truth and transparency are not high on the list of those who control economic statistics.”

As for the Empire State Manufacturing Report, says Nate: “most of these manufacturing statistics are simply measurements of inflation, not of actual production. Instead of measuring units of production, these reports all first measure the flow of sales measured in dollars. Then in this case that is turned into an index level. So if, for example, a boat manufacturer makes the same 10 boats they made this year as they did last year, but they raise their price 10%, then manufacturing is reporting as up 10%!

“But NO, manufacturing was not up at all, it was flat. And this is the ‘miracle’ that is our jobless recovery…”

Tue, 11/15/2011 - 12:38 | 1879400 NotApplicable
NotApplicable's picture

In other words, if the European Central Bank prints 3 trillion euros to bail out the banks and bondholders, holders of euros will suck up 3 trillion in lost purchasing power...

There's your answer, right there. There will be no meaningful write-downs as long as Euros are still accepted as payment of debts. The wonders of socialism will ensure the pain is widespread as they attempt a "soft crash" in order to defend the status quo... er... I mean "Save the World's Financial System!" And of course, they'll print lots of Dollars, Yen, etc. along the way.

As somebody posted earlier in a thread, just add two zeros to everything. Well, except maybe your income.

Tue, 11/15/2011 - 12:37 | 1879401 lynnybee
lynnybee's picture

Professor Michael Hudson, "Debts that can't be paid, won't be paid."     banks involved in risky lending practices need to be punished.    where's the outrage at banks who targeted all our precious young people by lending unlimited credit in the form of student loan debt slavery ?  i'm calling it like it is ~~ fraudulent inducement.      revolt; don't pay.     besides, didn't these banks get paid already from the T.A.R.P. ?    so, what's going on here .... these bankers want to be paid twice ?   once by the taxpayer & again by the debtor ?   i don't think so !

Tue, 11/15/2011 - 12:42 | 1879426 NotApplicable
NotApplicable's picture

The debt is also non-dischargable, with the IRS going after any tax refunds, and also wage garnishment.

There will be no escape except inflation. (oh, boy)

Tue, 11/15/2011 - 12:39 | 1879404 vegas
vegas's picture

OK Chuck, to make you feel better;

"Hey, let's write off 3 Trillion in Euro debt."

Like Kramer said to Seinfeld; 'Jerry, it's just a write-off. They do it all the time. What's the big deal?"




Tue, 11/15/2011 - 12:41 | 1879418 agNau
agNau's picture

So why isn't anyone talking about our debt ceiling?

"The Super Committed"

Is the debt ceiling now a floor? I know we are waiting for the "Super Committed" to make debt decisions, but the rising debt is not!
I don't see any mention by any press outlet. ZH?
Looks like Thanksgiving will be nothing of the sort.
Another major decision made hastily.


This Nation has a MAJOR problem, and it really isn't our politicians.

Tue, 11/15/2011 - 12:41 | 1879422 The trend is yo...
The trend is your friend's picture

The bankers have such a tight grip on the politicains i just don't see how they will take the losses.  The people are so house trained that they will not defy thier master no matter how much they abuse them.  Look at the OWS movement.  They were asked to leave and they did.  Return when the park is clean and don't bring your tent's and sleeping bags!  "yes master". 

Give me your gold and use this paper as money, i promise to give it back to you anytime you want.....  "oh ok"

we're not gonna give the gold back to anyone now(1971)....."oh ok"

buy a house to build equity for your retirement, its a great savings vehicle....."oh ok"

now piss it all away with this creidt line i'm giving you...."oh ok"

i told you not use your house as a ATM you idiot, now you lost all your equity but you still have to pay me back in full..."oh ok"

Shit your stupidity has caused me massive losses, seems like all of you are going to eat these losses,  i'm certainly not..."oh ok"

Tue, 11/15/2011 - 14:21 | 1879687 viahj
viahj's picture

not that i disagree with your sentiments about the bakers side odf the equation, but no physical force was used on the serfs to trade their gold for paper, buy overpriced homes and then rip out the sudden and magically increasing equity for lavish lifestyles.  they willingly did it themselves.

Tue, 11/15/2011 - 12:42 | 1879425 bernorange
bernorange's picture

The password is ... haircut

Tue, 11/15/2011 - 12:47 | 1879447 Ned Zeppelin
Ned Zeppelin's picture

"Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?"

"Teacher, me, me!!!" (hand up and waving in the back of the classroom)

"Is it because of the $30 trillion of CDS that were written on that debt?"

Tue, 11/15/2011 - 13:03 | 1879485 xcehn
xcehn's picture

No way to stop that ticking package from exploding and ushering in financial armageddon.

Tue, 11/15/2011 - 12:51 | 1879459 uno
uno's picture

take the 3 trillion and give it to the ones smart enough not to be in debt in the first place and not in the top 1%.  Give it to the Germans and the 10 Americans not in irresponsibe debt


Tue, 11/15/2011 - 12:52 | 1879460 fractal trader
fractal trader's picture

Writing off debt is not a solution. Decimating public administration is.

Tue, 11/15/2011 - 12:54 | 1879469 NotApplicable
NotApplicable's picture

Which would result in the bad eggs managing to unseat the last of the good eggs. See the aftermath of nearly every revolution EVER, for details.

Tue, 11/15/2011 - 13:58 | 1879617 LFMayor
LFMayor's picture

so you're advocating no chance (status quo) vs. slight chance (roll those dice and light up those bankstas)?

Tue, 11/15/2011 - 12:56 | 1879471 defn8Dog
defn8Dog's picture

There never was growth in Europe, only spending by the peripheral children, using Germany's credit card.   Exhibit "X":  the Metropol Parasol erected by the city of Seville, Spain.  The world's largest wooden structure, it's an example of infrastructure spending gone very, very wrong.  Erected to shade the streets in sunny Seville, supplier Bayer AG mentioned wryly that the shade has proven to be very popular with government protestors.  Hopefully, the cash flows will start before the wood rots.

Tue, 11/15/2011 - 12:57 | 1879475 agNau
agNau's picture

I yearn for a stronger Yen. Intervention time?

Tue, 11/15/2011 - 12:58 | 1879479 Bob Bercy
Bob Bercy's picture

"Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt?"

It's happening! French banks are charging round the market with big books of loans for sale at big discounts. A chum just bought a port of junk from Credit Ag at 5c on the $. Santander is selling a 2bn chunk of real estate loans at a rumoured 40c. Wherever you look its deleveraging and writing off the loss. BNP halved its exposure to Italian GBs during Q3 and wrote off the loss. Yes there is more to come but its happening already.

The big question is how do the write offs effect 1) Solvency ratios and 2)Credit to the economy. Well, Unicredit just announced a 7,5bn rights issue on a 15bn market cap. Lots more of that to come. And credit to the economy...there isn't any, which is why the French real estate market has just dried up overnight and consumer expenditure is falling off a cliff. vis Electrolux's announcement today that they are closing 10% of European capacity having given a quietly reassuring message on Europe just three weeks ago at the Q3!

Tue, 11/15/2011 - 13:01 | 1879483 nontaxpayer
nontaxpayer's picture

Guess what? I am fully paid. Guess what I have on the asset side of my personal balance sheet, and there only? Not on anyone else's balance sheet. Let confused people chase yields and returns at this time and age.

Tue, 11/15/2011 - 13:09 | 1879498 InfoMacion
InfoMacion's picture

How long are we going to allow thse reckless bansters to rip us off? We have congress men and women trading on inside information. Farmers and ranchers' trading accounts frozen while that reckless criminal, Cozine, still not in jail. There is just NO JUSTICE at all.


Tue, 11/15/2011 - 13:09 | 1879499 InfoMacion
InfoMacion's picture

How long are we going to allow thse reckless bansters to rip us off? We have congress men and women trading on inside information. Farmers and ranchers' trading accounts frozen while that reckless criminal, Cozine, still not in jail. There is just NO JUSTICE at all.


Tue, 11/15/2011 - 13:09 | 1879500 InfoMacion
InfoMacion's picture

How long are we going to allow thse reckless bansters to rip us off? We have congress men and women trading on inside information. Farmers and ranchers' trading accounts frozen while that reckless criminal, Cozine, still not in jail. There is just NO JUSTICE at all.


Tue, 11/15/2011 - 13:09 | 1879501 InfoMacion
InfoMacion's picture

How long are we going to allow thse reckless bansters to rip us off? We have congress men and women trading on inside information. Farmers and ranchers' trading accounts frozen while that reckless criminal, Cozine, still not in jail. There is just NO JUSTICE at all.


Tue, 11/15/2011 - 13:09 | 1879503 InfoMacion
InfoMacion's picture

How long are we going to allow thse reckless bansters to rip us off? We have congress men and women trading on inside information. Farmers and ranchers' trading accounts frozen while that reckless criminal, Cozine, still not in jail. There is just NO JUSTICE at all.


Tue, 11/15/2011 - 13:54 | 1879609 LFMayor
LFMayor's picture

Goddam, get your finger away from that key!  Muhammed Ali, is that you?

Tue, 11/15/2011 - 14:24 | 1879697 viahj
viahj's picture

could be Michael J. Fox (I know, parky jokes are in bad taste)

Tue, 11/15/2011 - 14:10 | 1879644 s2man
s2man's picture

I liked it better the first two times you said it

Tue, 11/15/2011 - 13:10 | 1879509 Georgesblog
Georgesblog's picture

The central banks would be very quick to say that they're not running a charity. This is like trying to get freebies from the Mafia. The central banks won't settle for getting slopped, shoulder to shoulder with the hogs.

Tue, 11/15/2011 - 13:27 | 1879554 topshelfstuff
topshelfstuff's picture

Coincidence ??? but remeber this Secret that came out recently, though hardly a follow-up word about it in the MSM. I happened to Note the $3+Trillion admittd to, and keep in mind this is the "Watered-Down" version of the Original Audit the FED Bill

Audit: Fed gave $16 trillion in emergency loans

July 21, 2011

The U.S. Federal Reserve gave out $16.1 trillion in emergency loans to U.S. and foreign financial institutions between Dec. 1, 2007 and July 21, 2010, according to figures produced by the government’s first-ever audit of the central bank.


Last year, the gross domestic product of the entire U.S. economy was $14.5 trillion.

Of the $16.1 trillion loaned out, $3.08 trillion went to financial institutions in the U.K., Germany, Switzerland, France and Belgium, the Government Accountability Office’s (GAO) analysis shows.


Additionally, asset swap arrangements were opened with banks in the U.K., Canada, Brazil, Japan, South Korea, Norway, Mexico, Singapore and Switzerland. Twelve of those arrangements are still ongoing, having been extended through August 2012.


Out of all borrowers, Citigroup received the most financial assistance from the Fed, at $2.5 trillion. Morgan Stanley came in second with $2.04 trillion, followed by Merill Lynch at $1.9 trillion and Bank of America at $1.3 trillion.


The audit also found that the Fed mostly outsourced its lending operations to the very financial institutions which sparked the crisis to begin with, and that they delegated contracts largely on a no-bid basis.


The GAO report recommends new policies that would eliminate such conflicts of interest, and suggests that in the future the Fed should keep better records of their emergency decision-making process.

The Fed agreed to “strongly consider” the recommendations, but as it is not a government-run institution it cannot be forced to do so by lawmakers. The seven-member board of governors and the Fed chairman are, however, appointed by the President of the United States and confirmed by the Senate.


And let me leave this link. You probably have seen many of the clips contained, but this was such a great job done, I have it as a real KEEPER


'Dear Taxpayer', Corey Ogilvie's latest on the Occupy Wall Street movement.

Tue, 11/15/2011 - 13:45 | 1879589 Mark123
Mark123's picture

$3 trillion will not be enough, unless it is also combined with large dose of money printing.


Either way this absorbtion of losses will be a huge drag on the economy going forward and an end of the debt binge high we have been living off of for the last 30 years.  This is a real loss of wealth.

Tue, 11/15/2011 - 14:10 | 1879643 clawfoot tub
clawfoot tub's picture

"we live in a financial-fascist tyranny."

Welcome to 1913. I see you have some catching up to do.

Tue, 11/15/2011 - 14:12 | 1879650 s2man
s2man's picture

well put, Charles

Tue, 11/15/2011 - 15:36 | 1879929 mcarrero
mcarrero's picture

I think the tax payers would rather have a marginal increase in taxes over x years and their currencies value reduced over x years (before it incorrectly appreciates due to speculation) rather than lost 50% of their retirement plans. Just saying.

Tue, 11/15/2011 - 15:38 | 1879937 Peter K
Peter K's picture

Hey Chuck,

Any dim witted historian worth his weight in Euro bonds could tell you that Euroland is the extention of the Third Reich, less the uniforms.

Nothing new there.

What's new in the post Hitlerian era is the fact that the National Socialist at least made good on their commitments. Both financial and military.

Suggestion: get the history correct, and it will ADD (not detract) from a very good analysis. :)

Tue, 11/15/2011 - 15:38 | 1879939 Grand Supercycle
Grand Supercycle's picture

NASDAQ megaphone pattern on daily chart indicates a big move lies ahead.

SP500 monthly chart remains bearish and USDX weekly remains bullish, so it’s only a matter of time until the market makes its move.

Tue, 11/15/2011 - 17:16 | 1880263 dolly madison
dolly madison's picture

Yes, the only real solution is writing off debt, but it is the only solution they won't do, so it keeps going, keeping us all stuck in this pergatory. 

Tue, 11/15/2011 - 17:55 | 1880398 malek
malek's picture

That's a nice dream, which Charles wrote down, but it will not happen.

And I say that not as a cynical worrywart, but as a realist.
In our democracies if the mojority says -or doesn't reject leader's claims- that black is the new white, it will become so.

Tue, 11/15/2011 - 18:05 | 1880412 Marco
Marco's picture

"Those who made the bets should rightly lose everything--yes, be wiped out."


How exactly are all the long paid out bonuses and golden parachutes going to disappear just because the financial firms go bankrupt? Those who arranged for the bets to be made have made their money in ways a bankruptcy court will not be able to touch ... they're not really scared about a deflationary collapse which would result from letting everyone default, as long as it's accompanied by austerity ... they would just mop up the collateral and become feudal rent seeking lords.

The only things which will wipe these people out are things like capital gains taxes, land value taxes, estate taxes and guillotines.

Tue, 11/15/2011 - 23:32 | 1881473 honestann
honestann's picture

At this point, only guillotines or similar can work.

Tue, 11/15/2011 - 23:30 | 1881468 honestann
honestann's picture

You mean some people think we don't live in predatory financial fascist tyranny?  What are they smoking?

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