Jefferies: The Fed Should Print... In Europe

Tyler Durden's picture

One could be forgiven for suspecting a hint of self-preservation in a research note by the firm that faces the most intense pressure given its apparent European sovereign exposure but David Zervos' note today seems extreme in many ways. With the sanctity of the known world at risk, Zervos describes the group-think of sado-fiscalism that has invaded German minds and how the Fed is the only one left with the 'bazookas' big enough to get the job done.

David Zervos: The Fed Should Just Do QE for Europe

If you want to read one of the most misguided pieces of research on the euro crisis look no further than here. After reading this you will understand the dark and disturbed German disease that my good friend, and esteemed global strategist, James Aitken has diagnosed as "sado-fiscalism". It has contaminated the minds of Merkel, Schauble and Weidmann who continuously vilify ECB monetization and envision a peripheral Europe of indentured servants working to pay for their government and banking sector's past borrowing sins.


Leaders infected with this disease induce so called "market forces" of higher funding costs, sadistically and strategically, on peripheral (and now core) overextended levered balance sheets. This ensures, ex post, that bad borrowing decisions are penalized – in size. Of course, this should have been done ex-ante so that no excess borrowing was done in the first place, but those same sado-fiscalists were happy to let their home town bankers expand balance sheets with zero risk weight sub-prime sovereign lending at low rates during the good times. Sound familiar?


In the article referenced above, the author goes on to at least acknowledge the obvious - forcing a sado-fiscal depression in the non-German parts of Europe might create systemic problems. Duh? Ya think? His solution – jam the banks, pension funds and insurance companies. His words - "If I am wrong and acute risk aversion in euro area sovereign debt markets remains and fear continues to trump greed in the face of reform implementation and progress, euro area regulators and policy makers must be ready to adopt new tactics. One of them would be a kind of soft "financial repression," in which reforming European governments would effectively direct nominally private euro area investors towards greater investments in peripheral government debt. Put another way, euro area governments overseeing a currency union in rough external balance—and one in which reform and progress are achieved—should not allow their pampered and politically protected domestic financial services industry to reduce its holdings of euro area sovereign debt."


So in the middle of a systemic crisis,  where the banking system is choking on excess exposure to debts that are about to become credit impaired and EMU is breaking down, the solution is to force the banks to buy more toxic assets. Seriously, can there be a dumber idea? We in the US need to snuff out these sado-fiscalists and fast, they are danger to the world! More on that below.


But first, the foundation of "sado-fiscalist" solutions is built on cognitive dissonance - it cannot work. Using "market forces" to generate austerity and reform will backfire. Nearly all European countries do not have the ability nor the desire to pay back - in real terms - the debts racked up by their over indulgent governments and banks. And the good news is, if they don't have to pay them back. They can just leave EMU, default or monetize, and go on their merry way.


The reason the Germans are trying so hard to implement a "sado-fiscalist" solution is that without it, they lose - and lose big. If the debts are defaulted or monetized away, the savers of Europe - the Germans in large part - get crushed. This idea that the vendors to Europe are paid back by indentured servants perpetually sending 50 percent of their wages up north to pay for previous sins is folly. The Germans cannot win this game. The question how much systemic pain is created as they waltz down the path to losses?


A mass exit from or a complete breakdown of EMU will be determined by the German stance on monetization. There have been hundreds of calls by non-German Euro area leaders, US politicians, academics and private sector business leaders to monetize. And if the Germans block it in Euros, the printing presses in Drachma, Punt, Escudo, Peseta, Lira and Francs will surely be fired up once again. In the end of course there will be more paper money in the world chasing the same amount of goods and services - that is the end game!! The path to the end game is of course messy! And let's face it, we would all like to avoid "messy" if possible.


There is one easy way to do that - get the Americans involved. The US can force monetization at the ECB. If the Colonel deems sado-fiscalism as a global systemic threat (which it is), the Fed could act. The Fed has an account at the ECB in Euros. When the pesky Europeans borrow dollars from us on currency swaps to fund their insolvent banks we get this lovely account. And right now the Euros just sit there! If things get messy we just jack the "unlimited" lines up, back up the forklift, and buy Euro area bonds. Lots of them. Say a trillion or two across all non-German markets. The Fed already owns nearly 100b in German and French bonds. And if anyone tries to default down the road, well we have a few hundred billion in European gold to confiscate in the basement of the NY Fed. And if that's not enough we just institute "annual fees" for NATO membership or start confiscating European assets in the US.


If the shenanigans in Europe are going to mess up a US recovery, or even a presidential election, then there should be a serious US response. We did not spend all that money on the Marshall plan just to have Europe blow up the world again!


(h/t Shawn)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
HelluvaEngineer's picture

Like Ben hasn't already thought of this.  He has wet dreams about it.

redpill's picture

Utter treason. These assholes would destroy Americans' savings just to cover their imploding european bond exposure. Scum of the earth.

Freddie's picture

These people are so evil.


GenX Investor's picture

Right... because the USA is just looking for more places to spend money??? We don't have enough shovel ready projects domestically. The air reeks of desperation.


Buck Johnson's picture

It is a sign of desperation.  Everything is coming apart and the canary's in the coal mines are dying.  All this is about is self preservation, and the rest of civilization be damned.

Harlequin001's picture

Bernanke's biggest problem right now is that if this euro money deserts the euro system and flows into commodities it will raise prices in dollars and with it US inflation leading to higher rates and a US default.

He will print because he has no choice.


Pladizow's picture

I thinnk there should be WWIII.

Rules: Bankers vs. Politicians. (Themselves physically)

Weapons: Knives, bats, chains, etc.....

The pay per view tickets alone should provide a substantial bump to global GDP.

RickyBobby's picture

They are on ths same side. They only feign opposition for the sheeple's sake.

Pladizow's picture

Would the world not be a better place in their absense?

narapoiddyslexia's picture

I want to watch Bernanke vs Blyth, retiarius vs secutor, to the death.


Michael's picture

It's really Public Sector Vs Private Sector, only the private sector has 400 million personal fire arms. It's all about Sector Warfare stupid.

Hearst's picture

Bailout companies check.  Bailout banks check.  Bailout foreign nations check.  Bailout the people...send checks to IRS on time OR ELSE.

Michael's picture

Europe is not blowing up the world! Alan Greenspan is the architect of our current mass financial destruction and he's from the USA.

I love you Alan Greenspan, my hero.

zaphod's picture

It's all insanity run by madmen who probably believe in their own nonsense....

That said, as long as we live in a world of fiat, who's central bankers enable misallocation of capital everywhere, we might as well have the FED implement a policy that offically transfers NYC gold to the US gov. At least that way the US gets something for their 60+ years of supporting EU solialist policies.

Maybe that was the plan all along....

slaughterer's picture

You are right, the language of this note is 'extreme' --even insane.  Sado-fiscalism?  WTF?  Are the change management people walking into Jefferies right now? To think that Buffett was asked if he was going to buy Jefferies today on Bloomberg.  Yeah, analysts like this are going to fit into the Berkshire Hathaway grandpa culture realy well.   On second thought, I admire this Jefferies analyst.   

SheepDog-One's picture

HelluvaEngineer, but Bernank HAS already done it! What was the $1 trillion Euro bailout 12 months ago? Did everyone already forget that one?

augmister's picture

SShhhhhh!  You're not supposed to tell anyone about the Euro bailout.  What do you think will happen in the US when we go under and EVERYONE KNOWS THAT ON TOP OF EVERYTHING ELSE STUPID THAT WAS DONE, US taxpayer monies were burning in Europe... and no postcard for that!

vast-dom's picture

Jesus is this guy serious about QE exported for EuroZone? How is this fucktard allowed to open his mouth?

Howard_Beale's picture

It's already happening on a stealth level.

AbelCatalyst's picture

When will Jefferies go away???  

BlueStreet's picture


Fish Gone Bad's picture

Now that Bill Keane is dead, you would think that that little whiny kid would finally go away. </humor>

CPL's picture

Never, most of their board members are the "finest" the banking and investment community offers.  In fact I'll be surprised if you are surprised at the names ringing the table.

Troll Magnet's picture

Thank God!  What a relief.  And here I was all worried that they might be, you know, incompeten...Well, I'll let you finish that thought.

NEOSERF's picture

Agree, seems self-serving but would bet the Fed has already weighed the option of offering up $1.5T to ECB to throw water on the fire

GeneMarchbanks's picture

So in an tragicomic twist, the US will bomb EZ while the EZ bombs Iran?

CPL's picture

New plan of attack, they'll just dump USD across Iran, it's cheaper than bombs.

Ghordius's picture

Money bombs!!
Ben's Apocalypse Now !!!

CPL's picture



Needed that...the train is about to fall off the cliff and the morons left on board asking where the steering wheel is.

Sudden Debt's picture



Actually, they're calling for the food cart girl to bring the more bottles of scotch... and whiskey.... and beer... lots and lots of beers....

and that's the plan...

always has been...

Sudden Debt's picture

You're missing the point here my friend. LOTS AND LOTS OF BEER!


Dr. Engali's picture

Please print and save our firm. We don't care what you do to the American sheeple.

topcallingtroll's picture

That is about the strangest thing i have read from an analyst for a long time.

They must be frustrated and desperate.

BandGap's picture

They get the very best medications, my friend.

High Plains Drifter's picture

its called QE 3 and it is coming  to my friends in europe...... first you have deflation and then comes guessed the artist formerly known as printz........

LookingWithAmazement's picture

Printing will come, "crisis" over. Merry Christmas.

SheepDog-One's picture

Nope, sorry, you lose. There will be no 'printing' and everyone with a brain knows it.

Auburn's picture

I could see the foam frothing from Zervos' mouth while reading this.  "We did not spend all that money on the Marshall plan just to have Europe blow up the world again!"?????   Clearly insane!

GhostTrader's picture

There is a general sense of surrealness in the totality of the various sources of financial malfeasance. In a next few years all these fianncial stunts will come to a crescendo and the floor is going to open underneath financial markets in general. Enter Jubilee of a Century. 

Jim in MN's picture

The Fed should print on the bottom of the fucking Atlantic.  With all their staff present and Ben at the helm.


Safety first y'know.

Roland99's picture

The U.S. taxpayers bail out Europe to compensate for the problems caused by U.S. companies that have already been bailed out by U.S. taxpayers. *that's* what they mean by double-dip recession!

High Plains Drifter's picture

when in doubt, always return to good old amerikans...........they can take a fuckin and keep on tickin.....

Steel_Preacher's picture

Wait, I thought the EZ was "fixed", isn't it time for the 2:30pm hopium bounce?

SheepDog-One's picture

Right, what problems? Eurozone was declared fixed last week. Now 1 day later we need the FED to print and hand them money? Not going to work, I think this guy was just talking hoping to get a Hopium market bounce, but those days are over as well.

kaa1016's picture

WTF is wrong with these people????

itstippy's picture

They are on the wrong side of Eurobond trade, bigtime.  That makes people say and do crazy things.  Google "Jon Corzine".

OutLookingIn's picture

We should?

They should?

You should?

The way I see it, there is far too much 'shoulding' on each other going on!

The damage is done. Any further dithering just makes the situation worse.

Debt is everywhere. Only two ways out - pay it off or default and start over. Period.

TheSilverJournal's picture

There's far too much debt to pay off, so that leaves default as inevitable. The question now is how they'll default. Either they default honestly and restructure debt, or default through hyperinflation. The hyperinflation route doesn't force anyone to take blame and make tough decisions and it also keeps the game going longer, so I think they'll default through hyperinflation.