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Harry Potter, Twilight, And The EU

Tyler Durden's picture


From Peter Tchir of TF Market Advisors

Harry Potter, Twilight, And The EU

Neither Harry Porter nor the Twilight series felt that one movie could bring proper closure, so both did the “final movie” in 2 parts.  The EU has adopted that tradition and is already pushing the focus to the next Summit in March which really will be the grand finale.  They also seem to have stolen from the Twilight series and only work in the middle of the night and have to hold press conferences before the sun comes up.  They haven’t yet taken to calling us muggles, but they themselves certainly seem to believe in magic words like IMF while shorts live in fear of the “bazooka” with many names.

With the Summit having reached a conclusion, we now wait on a few final scenes to play out.  The plot started falling apart on Thursday with Draghi’s testimony, but by forming a circle, holding hands, and chanting IMF and G-20 over and over, the market was placated, at least for a day.

Draghi and the ECB

On Thursday, Draghi disappointed the market by taking unlimited sovereign bond purchases off the table.  Unlimited lending to banks, yes, but no unlimited bond purchases.  The market is trying to digest what unlimited lending really means, and since the ECB has never seemed to refuse to lend to a bank, if it is anything that new. 

Investors, and American ones in particular, retained the firm belief that Draghi was just saying that to placate the Germans, but would immediately reverse course once a new treaty (or compact) was reached.  Well, on Friday, Draghi stated that the Summit results were as expected, and that those expectations had been included when they made their decision on Thursday morning.  The market somehow continues to believe that he is going to change his mind.  That somehow, he will relent and announce unlimited sovereign bond purchases.  He won’t.  Certainly not yet, and possibly never.  It is not only the German’s who disagree with QE.  There are other Europeans who do not see QE as a way to end this crisis.  Not even every American is as willing to believe that QE has been a massive success.  While Geithner and Bernanke remain wedded to the idea that QE has been great, more and more people question whether the perversions of QE aren’t responsible for a sluggish economy.  QE has done more for the stock market than the real economy and has probably allowed the government to act irresponsibly for longer.  The ECB is a long way from deciding to pursue US style QE and may never get there.

In the meantime, the market is thin enough that €10 to €20 billion of allegedly mostly sterilized bond purchases could support the market.  I believe that as the realization that full scale printing is a long way off in Europe, the market will once again put pressure on the Spanish and Italian yields.  The ECB will care about that, but at this point they are more concerned with seeing real, sustainable change, in Italy and Spain than about helping them trick the market every single day. 

Treaty Change and Austerity

We should expect to hear more countries discuss the treaty changes.  Some countries really need to implement these changes.  Germany and France need to be first to show leadership.  Italy and Spain need to implement the rules to show that they deserve more bailouts.  I don’t think even these 4 countries will have such an easy time.  There will be opposition in each country – potentially for different reasons.  Italy has a technocrat who was imposed on the country, who couldn’t get his countryman to ease up on printing.  That could impact his credibility.  Spain at least has an elected government, but will everyone be so willing to cede so much sovereignty, especially when the rewards are so vague?

Even more importantly, when will they target meeting the budget constraints?  I expect that “balanced budget” amendments will not be slated to occur prior to 2015, or maybe longer.  They cannot get to a balanced budget anytime sooner (and maybe not even then) for many of the EU countries.  Maybe they will start carving things like “interest expense” out of the “balanced budget” language.  So yes, we will have a “balanced budget” if you don’t include interest expense.  I highly doubt that any “balanced budget” act will resemble what a normal human would think of as being a “balanced budget”.

What about the punishments for breaking the budgets?  Will they be a slap on the wrist, in which case no one will care, or will they be more onerous?  How onerous can they be?  A country that is running a 4% deficit because it is facing economic hardship may just take the fines or costs and add them to the budget deficit.  Debtor’s prison didn’t work and I suspect these fines or punishments won’t work either.  Countries that feel the need to run a deficit are unlikely to be deterred by having to run a bigger deficit to cover the punishment costs.  Maybe the punishments will be to stop receiving ECB support or to be kicked out of the EU?  I’m laughing as I type that.  We have seen time and again the EU cave at the thought of real defaults or real change.  Does anyone seriously believe that this group would follow through on those threats?  Especially when more space was devoted to how punishments could be waived rather than to the punishments themselves.  The EU could threaten countries that break the rule, that they won’t get any more summit invites.  Since that would hit the leader and finance minister directly, that could have the most impact (I think I’m joking).

What about the smaller countries.  I have this feeling that by 4 in the morning some were just told to sign up and not make an issue of it.  Did they want to be the ones to cause global panic?  No, so they signed up, but now have to go home and think about it, and try and get it passed.  I believe some smaller countries will seriously consider leaving the Euro.  They are losing more control, and it is not clear, at least to me, what some of these small countries gain.  Finland might be in the best shape.  Most of its Nordic neighbors don’t use the Euro.  It has a very high credit rating.  It has some natural resources and some production.  Slovenia is AA- on the credit side.  Maybe it benefits a lot from using the Euro, but maybe they would like to take a step back and remain in the Eurozone, but not use the Euro?  Tiny Estonia has worked very hard to be debt free, and it is on watch because of what is going on with the bigger countries.  Do they need that hassle?  This group of countries that is being pushed off to the kiddies table may not follow through with the treaty agreements which would make investors question the overall deal.


How much money will these entities get and where will it come from.  The ESM is not all “paid-in capital” in spite of the headlines.  Though, even if it was all “paid-in capital” where would the money come from?  It  is the same problem as so many of the other programs that have been announced.  The money has to come from somewhere, and it is unclear who can support it.  The IMF is likely getting some money from individual central banks.  Okay, that is good, but wasn’t someone relying on that money?  Wasn’t some investor saying, I will lend to XYZ, because their central bank has all these reserves?  When those reserves flow out of good countries, that has to impact them.  In some ways it will “average out” the cost of funds for the countries, but that average will not be Germany’s or even France’s current average cost.  There will be pressure on yields of those countries as their wealth gets transferred.

The IMF needs to come up with some new donations.  The US is reluctant.  The changes in Russia don’t bode well for that.  Brazil is experiencing some problems and their neighbor (Argentina) has a stock market that is down 30% YTD and is experiencing 25% inflation.  That may put a dent on their ability to increase IMF support.  China is weakening, and depending on who you listen to, may need a lot more of their reserves for China sooner than people expect. 

I am not expecting new money for the IMF.  They will make these loans and will use up their existing unallocated commitments, but will not be able to go much beyond that.  They may even experience some difficulty getting the funds as many countries that have pledged money, will be happy to come up with the cash at this time. 

So the IMF is likely to say a few things, that although priced in, may still provide a small spark, but nothing radical, and with no new G-20 support and some perceived problems of getting the already committed money, we will see disappointment.


Unlimited cheap loans.  ECB support.  Awesome!  But at what cost?  I find it hard to believe that the EU politicians will allow the banks to receive all of this without some form of payback.  Whether it is forced capital raising, transaction taxes, or something, the banks will have to pay for all this free money.  It is just too politically unacceptable for the politicians not to be seen to be doing something.  They are too scared to do much now, but there is likely more in the background.  The frustration some politicians have over the PSI will come back to haunt the banks.  The banks continue to think short term and seem to extract as much value in the short term.  That may not be the right decision.  Anyways, we will see, but I remain cautious on European banks, because it feels like there is too much ill will against them and all these benefits they are currently getting will come at a cost.

S&P and the Downgrades

I expect we will see news out of S&P early this week.  I am assuming they will be somewhat disappointed by the compact as there is so little detail.  They won’t be as pessimistic as I am (they have more to lose politically by saying what they think), so will want to give some benefit of the doubt.  The central bank/IMF scheme will offer some support to the weakest countries, which they will take into account, but they will also take into account the cost to the higher quality countries of doing this.  The ESM will be treated similarly by them.  They will also compare their ratings to those of Moody’s and use this as a chance to get them in line (it’s how they work).  They will take the ECB comments at face value and assume no wholesale QE. 

So here is what I think happens:

Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg were all highlighted as only being at risk of a 1 notch downgrade.  I believe that they will all be left on negative watch as the rating agencies wait to see if each government in the treaty can agree to the plan.  I suspect that Belgium, if anyone, may actually get downgraded 1 notch, but that may be based on my personal aversion to the Dexia bailout.  If anyone was taken off watch at this stage, I expect it would be Finland as they continue to seem to fight to do what they view as prudent.  Germany will contribute the most to the bailouts, but they are so strong, and relatively little has been implemented, so I doubt they get downgraded. 

The UK wasn’t on S&P’s original list, but I suspect that they will get put on watch as their will  now be “heightened uncertainty” about their role in Europe or some other noise.

I think the small countries will be left alone.  I think it is too early to take them off watch, but since they had just been generically added in, they might be released and put back to stable, or moved from watch to outlook.

I think Spain gets hit with 1 notch and left on outlook or watch pending implementation.  Moody’s has them A1 already versus AA- at S&P, so taking them down 1 notch gets them to A+ and in line.  The positive comments would be additional IMF support but that would be against less than hoped for ECB support and uncertainty over their ability to implement treaty decisions.

I think Italy may get left alone for now, though it may get one notch like Spain.  The reasons to treat Italy a bit better would be based on Monti’s commitment, a new budget passed last week, and that Moody’s has them at A2 already which is the equivalent of A, so they are already ahead of the curve (of course that latter reason wouldn’t be published).  Also, Spain at A+ and Italy at A seems as good as any other relation between these two countries.  They will be left on watch until the support materializes and the treaty concerns and existing budget are implemented and demonstrated to be working.

So that leaves France.  I think they downgrade France 1 notch, to AA+ (same as the US) and shift them from watch to outlook.  That France was in the potential 2 notch group is an important distinction from Germany.  They are cleared viewed as a weaker credit.  More than Germany, France has to put in its own budget plans. It has more risk of failing in that respect than Germany.  At the same time, the contributions it is making to the cause are similar to Germany’s.  They are putting money and guarantees up everywhere, and even got dragged into Dexia which Germany was able to avoid.  I think the costs of the bailout will be the primary reason for a 1 notch downgrade.  It would also be consistent with saying that it was all the additional support from other EU countries is the reason to be optimistic for Spain and Italy.

Downgrading France 1 notch would be a huge step for S&P.   It could have severe repercussions for their business model, yet it would be consistent with their methodology and rationale.  It would de-rail the EFSF and ESM or at least force ESM to move to a fully capitalized model.  The fear of the problems it would cause may hold back the rating agency, but logically they have to do it.  They already highlighted their view that France is weaker than Germany with the 2 notch threat.  France is at risk from being able to implement its own balanced budget deal.  France doesn’t benefit from the new IMF facility or ESM, it is actually a cost to France.  Their willingness to leverage and guarantee money at every point is worrisome as a creditor (France is involved in Dexia and pushed hardest for all forms of leveraged EFSF and ESM).  Not downgrading France would be solely out of the fear of the damage that downgrading them would cause.  That and the fact that the new head of S&P only became the head of S&P when his predecessor was fired for doing what he thought was right. 

It is hard, as I believe that with close to 100% agreement, S&P will view France as deserving a downgrade, but the political pressure and fear may force them to keep it unchanged for now.


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Sun, 12/11/2011 - 13:14 | 1967615 oogs66
oogs66's picture

A French downgrade would be sooo sweet :)

Sun, 12/11/2011 - 13:59 | 1967730 French Frog
French Frog's picture

I can't wait until S&P opens its mouth...

Somehow i don't think that S&P will be as bearish with their new ratings as the 'logic' highlighted in the article above demands: after all we have a Santa's rally to look after so that everybody's year-end figures can at least look half decent;

Would they really dare to spoil xmas?

Sun, 12/11/2011 - 14:15 | 1967765 oogs66
oogs66's picture

it would be nice!  but you are probably right, have to give more time for bad news

Sun, 12/11/2011 - 14:38 | 1967816 no life
no life's picture

.. 'cept for in France, they don't call it a downgrade..

Sun, 12/11/2011 - 17:49 | 1968297 Bagger
Bagger's picture

France are always there when they need us.

Sun, 12/11/2011 - 19:39 | 1968512 Chris Jusset
Chris Jusset's picture

"The next Summit in March which really will be the grand finale."


So this bullshit will continue for another 4 months?  My God, the Eurozone has been teetering on the edge for most of the year ... just let the house-of-cards collapse already.


Sun, 12/11/2011 - 20:40 | 1968643 strannick
strannick's picture

Austerity is a long long road, and the economy is a dented can from all the kicking

Sun, 12/11/2011 - 15:54 | 1968050 knukles
knukles's picture

Beware the wrath of a shrinking Snarko.
Festering narcississitic dwarf emboldened by Napoleonic Complex accuses British acroos Channel of Torpedoing Europe Again, Part II Redux.
Time for hope and change if there ever was one.

(Betcha he's got more than one penis pump.)

Sun, 12/11/2011 - 19:33 | 1968496 WhiteNight123129
WhiteNight123129's picture

Sarko is the worst President we have ever had in France. This guy is dangerous. We need to kick him out at the next elections in France in May. The problem is that the alternatives are sinister, only dismal choices. Looks like we are going to need a full blown out crisis for a "Clemenceau" or "De Gaulle" to emerge from that rubble. The faster we go back to the French Franc and implement what DE GAULLE was asking for back in 1965 which a GOLD STANDARD the better. We will be first in the domino, US will be the last, I´d rather move over this unbearable fiat era as fast as possible rather than have some sort of Chinese torture (nothing against the Chinese, just against the torture...).

As for the UK, I thank them to torpedo the EURO. I think though that the UK is doing something that is somewhat puzzling for a country which is knee deep in Fiat. There is a massive exposure of the UK to Spain (BIS reports). Also if the UK blows up because their exposure makes their system more fragile, ok they print. But the end game is what?, a peg of hte currency to Gold to stablize inflation or do a deflation. But in their case "what GOLD?", the UK has sold almost all of its Gold. Finally I looks to me like the UK is looking at the Geo political situation with a 50 years old read of the situation.

Sun, 12/11/2011 - 20:15 | 1968595 nmewn
nmewn's picture

Correct me if I'm wrong in this (I take it you are from France) but isn't this agreement, such as it is, a direct assault on every EU member nations sovereignty?

Isn't there going to be an unelected, therefore unaccountable "group", telling the individual nations what is in the best interest of all?

How are they to be chosen and by whom?

Sun, 12/11/2011 - 20:26 | 1968618 WhiteNight123129
WhiteNight123129's picture

Yes I am from France. You are absolutely right, the only way a currency union works (as shown in two cases (Prussia pre 1871) and the American Colonies) is if the countries end up merging. There is clearly a loss of sovereignty and I think that this is why some politicians will resist it because it takes away their power in a sense. If the Countries merge, Sarko become President of what? The Paris region of the EU? I think that this compact as no other purpose than to try make the "thing" a bit more tight before Greece and Portugal exit. Given BIS exposure of Spain to Portugal, that would be downgrades and more loses for French, British and German banks.

I think that is the only purpose of this tentative of agreement, that is try to make the exit of Greece and Portugal the least ugly as possible. Why is why the move from the UK is so puzzling given their very large exposure to Spain. Ok maybe the Parliament of the UK is that heroic and is willing to camp on their independence and ability to misregulate their financial industry on their own. The way I read it is that preventing this EU "compact" makes the fall of Spain and the link to UK banks more probable and faster.




Sun, 12/11/2011 - 20:52 | 1968669 nmewn
nmewn's picture

"There is clearly a loss of sovereignty and I think that this is why some politicians will resist it because it takes away their power in a sense. If the Countries merge, Sarko become President of what?"

Well put. The governor of the province of France?

Which "is why the move from the UK is so puzzling given their very large exposure to Spain. Ok maybe the Parliament of the UK is that heroic and is willing to camp on their independence and ability to misregulate their financial industry on their own."

I think that is the most likely the case. In my view, as it should be. Individuals in their own nations should manage their own affairs...for good or ill.

Here, with me, the issue is sovereignty.

Thanks for the response.

Mon, 12/12/2011 - 04:01 | 1969310 Ghordius
Ghordius's picture

"the only way a currency union works ... is if the countries end up merging."

This is about the only hogwash where US, UK and France's pundits agree fully, each for their reasons...

The key for a currency union without "mergers" are stable, functioning sovereign debt markets - which is what our dear rating agencies nearly destroyed.

NYC and the City of London loved the biz with lending to Greece so much that the Squid had to help with their books, already forgotten?

This is now a race about when the local financial industries get "regulated" properly - before or after a further deterioration at global level.

The "continental approach" is not palatable for the City, that's all...

Sun, 12/11/2011 - 20:21 | 1968606 knukles
knukles's picture

Absolutely no mystery about the UK's actions.

The City of London remains sancrosanct.  The Anglo-American Banking Cartels' locus remains intact.
Europe falls to the NWO to be goverened and financed via the City and it's minions on Wall Street,

All's well, proceeding as planned.

Sun, 12/11/2011 - 20:57 | 1968675 nmewn
nmewn's picture

I understand...thats where we all should come in and stop it.

Monarchs...and guys with ties who aspire to be, are so eighteenth century ;-)

Sun, 12/11/2011 - 19:35 | 1968506 LeonardoFibonacci
LeonardoFibonacci's picture

Let me see. Global financial system about to break down, China looking at a hard landing, EU Euro on the verge of fracturing, US economy scraping the bottom of the pool, US about to implode if Europe crashes, prospects of printing USD galore.....and some say....sell your gold and silver??
One thing is certain - nobody knows how this is going to end up, but it wont be good.
This is one gun fight I won't be taking a knife to.

Sun, 12/11/2011 - 13:15 | 1967621 Rama V
Rama V's picture

I like the muggles that Louis Armstrong used to smoke.

Sun, 12/11/2011 - 13:17 | 1967629 danielvisionvic...'s picture



If Silver Goes Down ALL HELL will Break Loose

Sun, 12/11/2011 - 13:45 | 1967696 LookingWithAmazement
LookingWithAmazement's picture

Unfortunately, silver is not mined in the US only. Please google on "silver glut" and you will find some disturbing articles.

Sun, 12/11/2011 - 13:23 | 1967644 SHEEPFUKKER

It's always daylight somewhere. 

Sun, 12/11/2011 - 13:26 | 1967654 Ancona
Ancona's picture

They will do whatever they have to to avoid banker losses.

Sun, 12/11/2011 - 16:45 | 1968180 el Gallinazo
el Gallinazo's picture


I found Tchir's article disappointing.  After the AAA toxic waste MBS, who takes the corrupt and idiot big three credit raters seriously?  France lost its AAA long ago.  It is also disappointing as he focuses on these ratings and the "austerity" packages without mentioning that the austerity and bailouts are just pass throughs to the core banks and not designed to help the 99.99%.  Rather to turn them into Mississippi sharecroppers.

"I find it hard to believe that the EU politicians will allow the banks to receive all of this without some form of payback."

Why?  How have the USA politicians  forced the TBTF to reform for their larceny?  Are the eurozone politicians less paid whores to their megabanks?

Tchir is much too MSM for my taste. 


Sun, 12/11/2011 - 21:00 | 1968678 oogs66
oogs66's picture

Sadly too many people care about what the agencies say. The weakest link has too much power. Stupid but true but also why places like pimco outperform year after year because they don't care about the dumb agencies.

Sun, 12/11/2011 - 13:26 | 1967656 kito
kito's picture

im starting to think merkozy relishes the downgrades to expedite the implementation of their iron grip

Sun, 12/11/2011 - 13:27 | 1967658 smore
smore's picture

"To adapt Maynard Keynes, in the long term, the whole euro project is dead."  Or possibly in the short term!  Nice snarky article from the Telegraph:

Sun, 12/11/2011 - 13:45 | 1967695 s2man
s2man's picture

Nice avatar, smore.  Too bad I block animated av's, as I find them distracting.  At least your's is distracting in a pleasant way. :-)

Sun, 12/11/2011 - 15:56 | 1968052 knukles
knukles's picture

If you've blocked them how come you see this one?

Sun, 12/11/2011 - 16:28 | 1968140 el Gallinazo
el Gallinazo's picture

Bet he unblocked it temporarily because the still was so intriguing :-)

Sun, 12/11/2011 - 13:30 | 1967662 spanish inquisition
spanish inquisition's picture

Twilight is the rehypothication of Harry Potter. Formulated and without substance. An empty 2 part ending, because they read they should have a 2 part ending to make more money rather than the story demands it.

Pretty much where the EU is now, setting up an empty 2 part flop with hopes that more money spent on marketing will win the day.

Sun, 12/11/2011 - 13:35 | 1967675 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

i haven't seen twilight (because i dont want a seizure) but Potter and the EU Saga are horrible stories.  bad acting, no plot, and they go on without end

Sun, 12/11/2011 - 15:57 | 1968055 knukles
knukles's picture

Like the election cycle?

Sun, 12/11/2011 - 13:35 | 1967674 Eally Ucked
Eally Ucked's picture

Sorry but I still don't understand where ECB gets their money from to lend unlimited amounts to the banks? Do they print, do they have some big stash of cash hidden somewhere or just aliens decided to donate some euros to ECB? Could somebody explain it to me? And lets forget those stupid ratings where almost all countries are on the verge of default, including Germany, and still maintain top marks or close to them. Maybe consumer rating agencies should help S&P, Moodys and Fitch establish some better models of rating which they apply so succcessfully to us.

Sun, 12/11/2011 - 13:38 | 1967678 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I'll admit it is all a little fuzzy to me too.  I assume all CBs will use their discount windows to max out credit.  maybe the Fed increases its swapd too

Sun, 12/11/2011 - 13:47 | 1967703 Eally Ucked
Eally Ucked's picture

I understand that FED is printing like there is no tomorrow but its "swap" policy implies that they getting something for their freshly minted $ and it means euros, so where those euros are coming from.

Sun, 12/11/2011 - 14:07 | 1967749 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

i think that Euro banks will get unlimited funding from US Baanks that get unlimited funding from the Fed's discount window and then the Euro banks will buy Euro debt.  The Euro Zone will then have cash to make a swap with to the Fed, and that should have the appearance of tying things up while the Fiat Ponzi continues to crash and burn like ferraris in japan.

Sun, 12/11/2011 - 14:34 | 1967805 williambanzai7
williambanzai7's picture

You noticed that Ferrari story. ;-) in Japan spoiled rich kids crash Ferraris. In Europe spoiled bankers and politicians crash countries and banks.

Sun, 12/11/2011 - 18:38 | 1968388 LongBallsShortBrains
LongBallsShortBrains's picture

" where those euros are coming from?"

New short positions in the €.

Sun, 12/11/2011 - 13:47 | 1967706 oogs66
oogs66's picture

between re-hypothecation and sterilization i think a lot is being hidden

Sun, 12/11/2011 - 14:43 | 1967811 AbelCatalyst
AbelCatalyst's picture

If TPTB could just come up with a few more big scary words for cover they could kick this can down the road forever!! I recommend they talk to the pharmaceutical companies - big complex words are right in their wheelhouse!

How about hypomoneyfractalization? As in accelerating money creation via fractal lending. It would take the masses years to figure out what that actually means and it would provide great cover. More complexity means more can kicking - or compexicaneticization of faux solutions!!

Sun, 12/11/2011 - 18:59 | 1968426 booboo
booboo's picture

But then they would have to list all of the side effects like a speed talker:

"hypomoneyfractalization may cause bleeding money out of the ass, mouth, nose, throat, vaporized 401k,retirement, loss of vision, marriage, kids, life, conflict, skirmish, war, total inhilation of entire swaths of humans, starvation, deprevation, measles mumps, smallpox, hangings, lootings, shooting, stabbings, shiting, sharting, farting, feeling hopeless, dopeless, loss of self esteem, mood swings, visions of swinging bankers and politicians, and itching.  


Sun, 12/11/2011 - 23:36 | 1968990 my puppy for prez
my puppy for prez's picture

OMG....that was THE funniest post I have ever read....HANDS DOWN!

Sun, 12/11/2011 - 13:47 | 1967702 TheFourthStooge-ing
TheFourthStooge-ing's picture

Eally Ucked asked:

Sorry but I still don't understand where ECB gets their money from to lend unlimited amounts to the banks? Do they print, do they have some big stash of cash hidden somewhere or just aliens decided to donate some euros to ECB? Could somebody explain it to me?

They have an enchanted well that gushes liquid clownbux. The liquid clownbux are created deep beneath the Earth's surface by magic trolls, who make it from abiotic oil.


Sun, 12/11/2011 - 13:50 | 1967707 doggings
doggings's picture

yes exactly, they get it from the Fed, who get it from the aliens


Sun, 12/11/2011 - 15:59 | 1968062 knukles
knukles's picture

That's the whole point.
They lend their own money to themselves and count it again as good funds.

The Whole Point.

Engaging in a Ponzi Scheme with yourself.

Sun, 12/11/2011 - 18:47 | 1968407 el Gallinazo
el Gallinazo's picture

I'll bet Charles Ponzi had hairy palms  At least, that's what the nuns said would happen.  Or was it going blind?.

Sun, 12/11/2011 - 13:45 | 1967697 ebworthen
ebworthen's picture

Retail outflows have continued unabated this Fall; however, governments have continued the bloodletting by funneling more and more of the public's money into the black hole of the banks hellish maws.


Sun, 12/11/2011 - 14:03 | 1967741 constantine
constantine's picture

Wish we could just skip all of this nonsense and fastforward to the part where everybody realizes that everybody is bankrupt and that all of the fancy Ivy-League economics terms in the world can't hide the fact that we have designed unproductive consumer economies.  In the end, whether deflation or inflation, it is simple.  You can't consume more than you produce; especially in a world of dwindling resources.

Ok, really just testing to see if my new tin foil hat wearing alien avatar is working; thanks.

Sun, 12/11/2011 - 14:38 | 1967817 Nobody special
Nobody special's picture

Perhaps the anti-depressants and floride in the water have rotted brains enough for this thin veil to suffice, but I doubt it. I'm not sure we'll see March arrive with the stability we have today. Not that this is stability. March will only be a let down of epic proportions.

Someone should make a montage of the EU leaders brave statements and ineptitude. It would really put reality in check. And it would a fun way to reveal the farce for what it is.

Sun, 12/11/2011 - 18:53 | 1968416 el Gallinazo
el Gallinazo's picture


Well, shit, no economic system can consume more than it can produce.  That's based on the law of the conservation of mass and energy.  The question is how are you gonna pay for it.

"I'll gladly pay you Tuesday for a hamburger today"

J. Wellington Wimpy



Sun, 12/11/2011 - 14:21 | 1967777 AbelCatalyst
AbelCatalyst's picture

There will come a moment that people will do the actual math and first move advantage will take hold. The Baby Boomers will panic. The dominoes will fall. The downward spiral will accelerate. There is simply no other way out - TPTB have done the math, but the BabyBoomers have not. They will. And as soon as they sense their lifestyle will completely change if they stay in the herd will begin to get a bit jumpy, they'll begin to jostle for position, they'll begin to look for the exits, they'll begin to slowly move as not to panic others... We're beginning to see this now - that's what all this volatility is along with the outflows from Mutual Funds. When Math reaches the masses look out!! Once the herd begins to panic there will be no place to hide. Guns, gold, and beans (and maybe even some religion!!)...

Sun, 12/11/2011 - 14:32 | 1967799 williambanzai7
williambanzai7's picture

Walking Tall...Final Chapter

Sun, 12/11/2011 - 14:36 | 1967813 Deep
Deep's picture

I enjoy all these if's and but's, ESF that, ESM that from Peter. It's all horseshit Peter.

At the end of the day Default is the only way, their will not be enough growth to sustain all this debt, let alone keep piling on more debt.

It amazes me all these so called smart people(like Peter) proposing all these bullshit smoke and mirrorr plans when theie is only really ONE SOLUTION. And we know what it is.

Stop with all the jibberish Peter.

Sun, 12/11/2011 - 20:07 | 1968581 oogs66
oogs66's picture

I think he only tries to explain it so we can truly bash it and not just be negative for sake of being negative. It is all gibberish and for the banksters but they are hard to fight. Thanks for zh to getting stuff out there.

Sun, 12/11/2011 - 15:23 | 1967952 AldoHux_IV
AldoHux_IV's picture

Some countries really need to implement these changes.  Germany and France need to be first to show leadership.  Italy and Spain need to implement the rules to show that they deserve more bailouts. 

I have to disagree with all due respect, the last thing this world economy needs are more bailouts and solving debt problems with more debt (in some cases with more stringent controls). While countries need to re-evaluate their spending habits, it's more imperative the global economy evolves out of this backward thinking that more unity and more debt and more bailouts will save all.

We have bailed out the financial system already and it's close to blowing up once again-- it's the system of our current financial structure that is flawed i.e. fractional reserve lending that has led to the build up of a shadow banking system that is ready to take down the global economy at any second of distress.

These are structural issues we need to take action on now and no longer perpetuate a system of perverse incentives (both for the private sector and regulators) and lack of healthy capital formation.

Sun, 12/11/2011 - 15:49 | 1968038 oldman
oldman's picture

Peter, Thanks for this most interesting and thoughtful piece. Rational and well written as it is, it begs the question:

Why does the Euro exist?

The Euro was necessary to facilitate trading among members of the European Union where trade without borders was enhanced by eliminating the confusion of many currencies. The ECB was merely a watchdog to force compliance and eliminate conflict between member states; a conceptual tool never intended to be a true 'central bank' in the way the Fed is with power to set policy for states who abandoned their sovereignity in order to form a 'more perfect union'.

Several years ago, both France and Germany exceeded the debt parameters and the ECB did nothing except remind those two nations of the agreement and allow the infraction because of 'difficult economic times'. No one spoke of dropping the Euro of disbanding the Union. Only recently has this become a problem and mostly because the US is sopping up every available investment dollar with its enormous demand for buyers of its debt which is a problem that dwarfs any other nation on earth with the possible exception of Japan.

I know nothing about any of this except that the Euro was originally a facility for trade as much as open borders and it worked quite well for this purpose until the US forced it out of the debt markets. The Euro still has this place in Europe. If the member states using it decide that they will go their own way together, as opposed to returning to individual currencies, and allow the weaker members to fail without the scorn and ridicule they are receiving in the world's financial press, it seems to me that life will go on as before. The Brits and the US have caused a problem that is none their concern by making so much of nothing. The propaganda program of the past two years in order to distract the world from knowing that the machine does not function will come down on these two nations like a ton bricks, eventually: unless, they suck the planet into the Last World War; and I do exclude this as their goal.

IMO, the discussion in Europe is not about the Euro as much as it is the reigning in of the banksters and technocrats that have taken over the ECB in an attempt to turn Europe into a fedral state like the US. Europeans, in my experience, relish their national and cultural identities and will retain their national sovereignties----perhaps, I am just stupid, but it seems that everyone is trying to make an end-of-the-world case out of a toothache;Europeans do not want war----just a life of their own in their own way. I can find nothing wrong with this; it is all I have ever worked for and wanted for my people, the americans.

Britain has never been a part of of anything; I could never understand why they were invited into the EU in the first place. The member states who kept their own currencies probably knew this and did not want to be a part of any financial union that included Britain; I can not blame them. The ECB's attempt to make a 'federal state' of the EU is the source of the problem and when I speak to individual Europeans they tell me this is their main objection to making a 'constitution for Europe'; imo, Europe will never agree to this.

The derivatives implosion will spare no bank or nation----it is a 'false flag' that we could simply say 'no' to, but we choose hysteria and hyperbole to sanity. Let the debts fall where they may, let the winners win and the losers lose---we will all suffer and gain. The machine has self-destructed from the one weakness of capitalism: the failure of and the unwillingness share the goods and services of the society. I have done very well by capitalism and prefer it, but not in the primative and savagely greedy, corrupt form that has destroyed itself. 

It is time to move on and this oldman hopes to live long enough to see the other side of this story----he believes it will be more interesting than the old                        om

Sun, 12/11/2011 - 20:09 | 1968584 oogs66
oogs66's picture

Great points oldman. When people used cash to buy and sell things, not having to convert currencies had value. With everything done via credit card is the euro even less relevant?

Sun, 12/11/2011 - 16:44 | 1968175 slewie the pi-rat
slewie the pi-rat's picture

With the Summit having reached a climax, we now wait on a few final sex-scenes to play out.  The plot started falling apart on Thursday with Draghi’s impotence, but by forming a circle, holding hands, and chanting IMF and G-20 over and over, he was able to perform to italian stallion standards, at least for a day.

Draghi and the ECB

On Thursday, Draghi disappointed the market by taking unlimited sovereign sex-bond purchases off the table.  Unlimited lending to sex-banksters, yes, but no unlimited sex-bond purchases.  The market is trying to swallow what unlimited sex-liquidity w/ banksters really means, and since the ECB has never seemed to refuse to service a bankster,...

Playaz, and American ones in particular, retained the firm belief that Draghi was just saying that to arouse the Germans, but would immediately reverse course once a new treaty (or circular sex-compact) was reached.  Well, on Friday, Draghi stated that the Summit results were delicious,  leading some voyeurs and bears to wonder about his preferences. The sex-market somehow continues to believe that he is going to change his mind!    He won’t.  Certainly not yet, and possibly never. 

Such a tease, BiCheZ, such a tease...

Sun, 12/11/2011 - 17:57 | 1968318 hooligan2009
hooligan2009's picture

what i want to know is...what is the difference between unlimited lending by the ecb to banks and unlimited lending by the ecb to governments? seems like sleight of hand to can print money in the banking sector cos they make crap loans and pay fat bonuses buy cant lend money to the governments because they pay out welfare and health benefits? wtf? they are both wrong..the printing of money can equally mean the socialising of losses or no taxes for anyone..(just print money and pay no tax!) .. is the difference because banks are a better credit risk than governments or that banks are better run that governments? looks to me that both are screwed up destroyers of savings and cash flows from tax payers.

Sun, 12/11/2011 - 18:44 | 1968395 slewie the pi-rat
slewie the pi-rat's picture


which is why, w/ this "option" the situ isn't deteriorating faster, visibly, as capital is moved around for Contingency Set # 9 and the "markets" keep paying out the winners

however, as the banks get marked down due to latent insolvency, and the ability of the sovereigns to pay off the debts in the bankster-controlled foreign currency (the EUR) dwindles w/ each recessionary day, anything can happen

to be known as "the man (or woman) who shot Liberty Valence" ;[the EU] still seems stgmatiZed, rather than heroificated, much less to tell the banksters to go fuk themselves when they know where you live

there are so many contingency plans that even p.tchir may be wondering just wtf is in play today, but the debt has to be increased to...service the debt for...eventual socialization of the IOUs and continued debtor-in-possession/creditor-in-charge by the corpo-fascist NWO

so, have a nice day!

Sun, 12/11/2011 - 18:58 | 1968423 hooligan2009
hooligan2009's picture

thanks i have a picture of katie price on one of my pillows and jen aniston on the other...i may go tkae a nap..sometimes i get nice dreams...other times...they ask fro credit!

Sun, 12/11/2011 - 23:12 | 1968952 oldman
oldman's picture

Thanks, Slewie,

You are a very funny dude.

Are there really that many contingency plans or are they not just in complete panic mode? It seems, to me, that we left the 'plans' behind when we departed from rational space and entered irrational space. I haven't heard, "Good morning, This is your captain speaking---thank you for being aboard flight #666. Our flight to Brussells will be a little bumpy as there is a major storm over the Channel---------------------"

Anyway, it is fun to watch this show in good company---thanks again, dude                  om




Sun, 12/11/2011 - 19:18 | 1968460 homer8043
homer8043's picture

I'm glad we have Peter's articles at ZH. He tries to make sense out of what is clearly nonsense. And with vast experience in debt markets. Peter's analysis is one of the only thing that makes sense even though it is rarely tradable for me. And he's calm and thoughtful the whole time which is incredible in these times.

That being said, I'm drinking some Fire Whisky and looking forward to Europe's next Patrous. Stupid market.

Sun, 12/11/2011 - 22:50 | 1968919 homer8043
homer8043's picture

The problem with the Euro isn't Harry Potter, but two thousand years of history. It will not work by March.

Mon, 12/12/2011 - 01:59 | 1969199 EZYJET PILOT
EZYJET PILOT's picture

So if the banks are getting unlimited money from the ECB via US banks, via the Fed discount window, what are they spending the money on!? Someone said they are buying European bonds, are they? If so who is buying the bonds off them, is it the ECB and if so are they making a huge profit on this trade? I can't see that they are buying Euro bonds as there isn't a market for them, unless the ECB is buying illegally on the sly, which Tyler did allude to in a recent article. This is all bullshit, nothing makes any damn sense. I get the impression that rehypothication features heavily in all of this.€200-billion-cumulative-piigs-bonds-purchases-now-monetizing-30-more-fed

Mon, 12/12/2011 - 05:44 | 1969369 tliberty
tliberty's picture

Ah, there is nothing like the sweet nerdiness of comapring HP and Twilight to modern economics.

I oppose fiat wand making!

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