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As Lagarde Throws Germany And European Banks Under The Bus, Did She Just Truncate Her IMF Career?

Tyler Durden's picture




 

This year's biggest winner from the botched DSK affair has been France's Christine Lagarde, who despite the dropping of all charges against the former head, is now in charge of the IMF. We admit that the ascension of Lagarde to the throne of the world's most irrelevant global bailout organization (what the IMF "does" is of not importance: the only thing that matters is who Beijing, and Chinabot, feels like rescuing today) happened even though we previously predicted that Germany would be very much against it. Well, Germany let it slide, and endorsed Lagarde. That may soon change though, after the former finance minister essentially threw the entire European (read French, Swiss and German whose assets as a % of host GDP are ridiculous... yes, a technical term) financial system under the bus at Jackson Hole, a day after Bernanke said to wait until September 20 for QE3 clarity. Per Bloomberg: "Bolstering banks’ balance sheets “is key to cutting the chains of contagion,” Lagarde said today in the text of remarks at the Federal Reserve’s annual forum in Jackson Hole, Wyoming. Without an “urgent” recapitalization, “we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis." Lagarde, a former French finance minister who took the helm at the Washington-based IMF in July, said recapitalization should be “substantial.” Banks should look for funds in the markets first and seek public funds if necessary. One way to provide capital could be through the European bailout fund, she said." And now, one can see why Germany is fuming: not only will Germany soon have no choice but to fund the EFSF's sovereign bailout ration all on its own, which as we, and other have speculated, could be as large as €3.5 trillion (or about $5 trillion), but it will be Germany's duty to also fund the rescue of all banks on a parallel track. What is the additional tally? Why at least $230 billion in Europe alone in the next several months. Then again, when you get to $5 trillion, what's a few hundred billions between friends?

Reuters explains:

Banks will struggle to refinance the upcoming mountain of government-guaranteed debt that is due to mature in the next two years unless the primary market fully thaws in the coming weeks, according to bankers and investors.

 

Banks had planned to aggressively use the autumn period to get ahead of large refinancing requirements in 2012.

 

Thomson Reuters data show that the USD230bn equivalent of European bank government-guaranteed debt will mature in 2012 and US banks will have more than USD122bn maturing.

 

Governments started guaranteeing banks' debt issuance in September 2008 as capital and money markets froze after the failure of Lehman Brothers on September 15th.

 

Most of the guarantees had a three-year maturity, although Spain and France allowed banks to issue up to five years.

 

"The wall of upcoming maturing government-guaranteed debt is a concern, especially if the current market freeze goes on for much longer and spills over into 2012," said Martin Lukac, financials credit analyst at Principal Global Investors.

 

"If you look back, the government-guaranteed schemes were all established around the same time and were limited in terms of maturities which means that a lot of them are coming up at the same time, making the banks' maturity profile very frontloaded," said Lukac.

 

According to Thomson Reuters data, a mere USD7bn equivalent of senior was raised by European banks in July while the tally for August is even lower at just over USD1bn equivalent. This compounded poor volumes in June when USD17.4bn was sold, well below May' s figure at USD41.2bn.

All of the above is another way of saying what Zero Hedge pointed out last week: namely that Europe is now entirely shut out from capital markets, as confirmed by the following Morgan Stanley chart.

And then just to make sure her message was heard loud and clear, Lagarde added:

Lagarde also warned that the world economy is in a “dangerous new phase” and called for measures that will ensure a sustainable fiscal path in the medium term while boosting growth now. Policy makers in advanced economies are under pressure to reduce their public debt just as their economies show renewed signs of economic weakness and unemployment fails to decline.

So just when Europe thought it had the collapsing situation under control (although not if one looks at the DAX, which has tumbled over 20% in August alone), here comes the IMF and tells the country it is its duty to bail out more, more, more. Then again, anyone who read our analysis back in late July about the transition of risk from the periphery to the core, could have seen the German rout (in both stocks and CDS) coming from a mile away. As a reminder: "The most ironic outcome would be if the eurozone, in an attempt to prevent further contagion at the periphery, simply invited the vigilantes to bypass Italy (recall how everyone was shocked that instead of attacking Spain, it was Italian spreads that got destroyed in a manner of days), and head straight for the country on whose shoulders lies the fate of the entire EUR experiment?" Which is why we believe odds that Miss Lagarde will be met with a metaphorically comparable "Sofitel maid" incident as the former IMF head, just went up by a lot to quite a lot.

 

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Sat, 08/27/2011 - 14:49 | 1607742 Azannoth
Azannoth's picture

Now who had the 'bright' idea of putting a french woman in charge of anything ?

Sat, 08/27/2011 - 14:53 | 1607755 Fish Gone Bad
Fish Gone Bad's picture

The french government has its issues, but the french people are okay.  They did give us the guillotine and all those cool pastries.

Sat, 08/27/2011 - 14:58 | 1607769 spiral_eyes
spiral_eyes's picture

time for america to liberate france from those evil frenchies who don't believe that the solution to everything is printing massive amounts of currency and giving them to goldman sachs?

http://azizonomics.com/2011/08/25/team-america-world-police/ 

Sat, 08/27/2011 - 15:52 | 1607914 Stax Edwards
Stax Edwards's picture

Go back to your hole

Sat, 08/27/2011 - 20:13 | 1608453 DogSlime
DogSlime's picture

Erm... you're either being ironic or you haven't noticed what's been happening in the USA over the past couple of years...  Hopefully you're being ironic :)

Sat, 08/27/2011 - 15:01 | 1607776 AldousHuxley
AldousHuxley's picture

Time for french to dust off the guillotine and bring it out or turn the Effel tower in to a massive guillotine.

 

 

 

Sat, 08/27/2011 - 18:24 | 1608234 unununium
unununium's picture

TAXPAYERS to be hit before BONDHOLDERS AGAIN ???

SOMEONE please STOP the INSANITY !!!

Sat, 08/27/2011 - 19:54 | 1608423 eureka
eureka's picture

CL is just a pretty girl who takes orders from ... - well, let's say her local "big boys". 

Check her clueless responses to questions re the 08/09 financial collapse in the documentary "Inside Job" - her response: "I don't know".

Sun, 08/28/2011 - 06:24 | 1609097 falak pema
falak pema's picture

Remember she is a lawyer by training and blows with the wind and "you never know" which way the wind will blow!

Good survival instinct. But now she is in the hot seat and can't pass the buck. So she talks like the globalist clique that employs her and calls the shots.

I don't think they have the solution but I don't think that current market schizophrenia is something that will provide a better result, as its taking us faster down to the bottom. 

We're damned if we do stay "global"; we're damned if we do go "reductionist and local". Civilization in crisis...can we avoid WW3 is the real issue now.

Sun, 08/28/2011 - 02:20 | 1609003 Albertarocks
Albertarocks's picture

Not to mention some pretty fine pasties.  Always considered them as a major league visual nuisance though.

Sat, 08/27/2011 - 15:19 | 1607832 IMA5U
IMA5U's picture

because they work better on their knees

Sat, 08/27/2011 - 20:52 | 1608519 Ras Bongo
Ras Bongo's picture

She was trained to do God's work u idiot!

Sat, 08/27/2011 - 14:49 | 1607744 props2009
props2009's picture

BofA, GS and MS reports on Apple post Steve

http://capital3x.com/?p=375

 

Full reports:

http://capital3x.com/?p=365

Sat, 08/27/2011 - 15:13 | 1607808 sIewie the pi-rat
sIewie the pi-rat's picture

props2009 TROLL!!!!!!!!!!

who uz WorK 4 props??????????????? GS yes we hate GS  and you should LEAVE NOW

T-R-O-L-L

Sat, 08/27/2011 - 15:17 | 1607822 septicshock
septicshock's picture

SIewie, you havent even been a member for a week. Stop the bold face and exclamations.

Sat, 08/27/2011 - 15:18 | 1607827 sIewie the pi-rat
sIewie the pi-rat's picture

okay, sorry

Sat, 08/27/2011 - 19:00 | 1608326 septicshock
septicshock's picture

No worries bro. No one likes a troll, call em out when you see em. Zerohedge is a good site. Sometimes the passion becomes overwhelming and people think everyone that doesnt conform to the view is a troll. Tyler is working hard to bring us the news without the usual paid media spin... Of course, he has own bias... But a bias shared by us all here mostly.

Sat, 08/27/2011 - 21:02 | 1608376 Id fight Gandhi
Id fight Gandhi's picture

But he's good at sniffing out trolls.

Really I am sick of these READ MY BLOG posters.

Sat, 08/27/2011 - 18:59 | 1607768 Newsboy
Newsboy's picture

Panic now Christine!

Go for the Eurobond fight!

Piss on the German constitution; they're pigs, anyway!

(Trashers oblivious to sarcasm are in evidence again)

Sat, 08/27/2011 - 15:02 | 1607779 Spitzer
Spitzer's picture

The ECB doesn't care what the IMF demands. The IMF has no power over the ECB.

They are separate entities. If the IMF thinks that the problems in the EU will bring down the dollar system then she can bail out Europe herself.

Sat, 08/27/2011 - 16:11 | 1607960 Snidley Whipsnae
Snidley Whipsnae's picture

Christine should go to her copy machine and print up however many SDRs she needs to bail out the entire flocking world!

SDRs, what a joke... Just more god damned paper...

Germany... Time to tell the PIIGS, the Fed, and Christine to take a flying flock at themselves... Go your own way...

Sat, 08/27/2011 - 19:28 | 1608383 destiny
destiny's picture

They may not be officially linked...but we all have the same few masters so do these two toilet paper shit holes..

Sat, 08/27/2011 - 15:03 | 1607781 bugs_
bugs_'s picture

YEEEAAAAAAAAHHHH!!!

Meet the "dangerous new phase"!

Same as the "dangerous old phase"!

 

Sat, 08/27/2011 - 15:26 | 1607849 sIewie the pi-rat
sIewie the pi-rat's picture

 bugs_  this is a classy hood.

So stop with the UPPERCASE and exclamations.

 

Sat, 08/27/2011 - 18:16 | 1608212 Problem Is
Problem Is's picture

HaHa... Touche...
Nice touch of do unto others as others have done unto you, new guy...

You won your first fight at fight club...

Sat, 08/27/2011 - 19:03 | 1608333 septicshock
septicshock's picture

Look at him go. :)

Sat, 08/27/2011 - 15:08 | 1607792 septicshock
septicshock's picture

It Is becoming Clear that world governments have no plan for peak oil and are now just trying to hold the system together as long as possible... The hope and prayer chance that some miraculous new energy source can be found to be exploited.

Long gold, cause I would rather carry a few pounds of gold than haul a carload of silver or a shipload of fiat paper.

Long beans, bullets, and barbwire... Cause this shit is on like donkey kong.

Oh, and tyler... Thanks for the good work. I have unfortunately not been able to capitalize on them well. Your short term predictions are about fifty/fifty.... But your long term predictions are 100%. This is the single best site on the web for economic news... Ofcourse, the additional commentary is the icing on the cake.

Sat, 08/27/2011 - 15:22 | 1607835 IMA5U
IMA5U's picture

the hardest thing about the market is not knowing the facts.  it's timing the trade correctly

Sat, 08/27/2011 - 19:05 | 1608337 septicshock
septicshock's picture

Whats the saying imasu? "What does the other guy know that i don't?"

Sat, 08/27/2011 - 16:11 | 1607962 oldman
oldman's picture

Hey Septic,

Not-to-worry about peal oil nor peak anything----the imf is saying that peak capital is the real problem(read crowding out of the capital markets everyone else except the US of A). It seems that this thing is much worse than anyone imagines---even the doomers are too light in their prognosis----the future is with us.

Gotta wipe the slate clean---maybe everybody loses----'no loss-no gain' is all we need to remember

This oldman has no idea, but it certainly is becoming interesting        om

Sat, 08/27/2011 - 18:43 | 1608273 Nate H
Nate H's picture

"peak capital is the real problem"

 

define capital

Sat, 08/27/2011 - 18:57 | 1608310 septicshock
septicshock's picture

Chanting does help my sanity. :)

Sat, 08/27/2011 - 19:32 | 1608392 destiny
destiny's picture

@ septicshock

You actually can have FREE and Unlimited energy...only ain't too good for the buck business, that would be too easy and it ain't the same chess board ! 

Sat, 08/27/2011 - 15:13 | 1607800 PulauHantu29
PulauHantu29's picture

The King is dead. ....Long live the Queen!

 

Looks like someone must print a whole lot a whole lot sooner then expected.

Sat, 08/27/2011 - 15:11 | 1607803 Mister Ponzi
Mister Ponzi's picture

The Sofitel maid may be a liftboy in this case...

 

The graph, however, is not up-to-date. Last week we had at least two covered bond issuances by European banks, one of them was UniCredit. Doesn't really change the big picture though.

Sat, 08/27/2011 - 15:28 | 1607859 palmereldritch
palmereldritch's picture

Breaking News

This one appears to be Italian

http://tinyurl.com/3ds3po3

Sat, 08/27/2011 - 15:12 | 1607804 Dick Darlington
Dick Darlington's picture

On the menu very soon: massive political crisis in eurozone. That will mark the rapid beginning of disintegration. You can already feel the tension between the countries, politics (blaming others) through national newspapers instead of actually having a real conversation etc etc. In the end Germany will take care of itself and leave the insolvent southern europe and France crying after the tit of german taxpayer.

Sat, 08/27/2011 - 16:07 | 1607950 sqz
sqz's picture

Spot on. The market will force the fiscal union minimum requirement with any half measures (e.g. cdo funds and untested "guarantees") just acting as bait to the modern equivalent of gov. bond vigilantes, compounded with increasing distrust of central banks, politicians in rigid democractic systems and therefore the value of fiat currencies.

I think further Eurozone political union with a minimum of fiscal union will be an incredibly hard sell. The natives will gradually cotton on to "fiscal" as a bad word: as long as no one needed to care about how the Euro is funded and it was just a shiny new source of money, no one cared. It's a whole different ball game when it means giving up control of spending on jobs, pensions, access to credit, housing, benefits, medical care - basically everything REAL. Iceland, yes ICEland, [which few in the market or even ZH seem to comment on/realise] is the prime example of what happens when the population wakes up and smells the coffee.

The only question is how quickly this all plays out. Central bankers seem to have realised this is inevitable and are simply trying to delay as long as possible, hoping that the economic reality on the ground gives them any kind of policy breathing room. Good luck on that front! Even the Emerging Markets cannot work miracles in the "short" term, with incomplete markets and structural issues, and all the main players in the West are dead in the water from debt overhang with almost no monetary (or fiscal) policy bullets left.

Sat, 08/27/2011 - 16:27 | 1607983 drider
drider's picture

The suggestion of embedding fiscal policy requirements and deficits limitations in the european countries constitutions, is merely a defensive strategy put forward by Merkel and Sarkozy. Since they realize that upcomming elections in various european countries will result in majorities that will press for the redistribution of wealth heisted by the banks back to common people, they try to put up a scheme that will prevent just that.

Ofcourse dictated deficits cuts means that the recession will grow bigger and the only way to meet the deficits limitations will be to tax the rich more heavily (hint: Buffet)

Sat, 08/27/2011 - 19:33 | 1608396 destiny
destiny's picture

oh no it won't be a crisis, DSK is back ! hahaha

Sat, 08/27/2011 - 15:12 | 1607806 pain_and_soros
pain_and_soros's picture

So Germany needs to backstop euro countries (& banks) that haven't been able to control spending & deficits & leverage & risks...all so that these countries & banks can continue doing what they did to get themselves into this trouble in the first place???

And if Germany doesn't acquiesce to such ridiculous demands, they'll be shunned by the rest of europe and seen once again as the bad guys who caused europe to implode...

I think the end game has already been disclosed - since the PIGS can't discipline & control themselves, Germany will make further bailouts conditional - the PIGS agree to provide collateral that will enforce discipline on them - namely gold.

Simple solution - we'll lend you paper, but to ensure it doesn't go into a black hole again & that you don't come back later saying you can't pay it back & need more, we'll take gold as collateral. If you don't like it, go wallow in the mud some more with your corrupt political leaders & see if that makes you better off...

Sat, 08/27/2011 - 15:37 | 1607882 Confused
Confused's picture

 

And if Germany doesn't acquiesce to such ridiculous demands, they'll be shunned by the rest of europe and seen once again as the bad guys who caused europe to implode...

Looks like its stacking up this way. The Germans will constantly be the scapegoat. 

 

Sat, 08/27/2011 - 17:45 | 1608055 SovietCong
SovietCong's picture

What many don't realize is that the public opinion in Germany is strongly divided on this. People don't understand how Eurobonds should work, and they don't understand because they are being intentionally misguided by the banking lobby. Even the influential Handelsblatt notoriously lies in the matter (think what CNBC would have to say when given the mandate by Junckers and Trichet and you'd have the picture).

Interestingly, some right-wing media, like the conservative FAZ, point out that the very name "Eurobonds" is a PR spin. The word is foreign to the German populace used to the German word "Anleihen", the term an average German understands and clearly does not like, particularly when he hears it used together with something suggesting his being jointly liable with Greeks et al. But the "bond" has a nice ring to it: in German, it sounds like "Bund" (association, union) or "Bonitat" (good faith). Moreover, Germans are used to the idea of joint issuing of some "European bonds", because that is how German states issue their "munis" for better marketability.

Generally, people are not informed that Eurobonds would result in backstopping everyone else. The whole public debate is about how much extra German taxpayers would pay in their public debt service relative to the Bunds and whether this burden is overweighted by the benefit of rescuing poorer countries from bankruptcy. Another issue is moral hazard and ensuring joint fiscal austerity, an issue close to every German heart. But nobody, repeat: *nobody*: tells the people the truth - either the Germans backstop the rest, France included, or the Eurozone implodes. So the French are trying to sway the public by creating the impression that the Eurobonds are a forgone question and the only thing on the table is how to structure the issuance. This is what, IMO, Lagarde is doing with her statement.

Sat, 08/27/2011 - 17:58 | 1608175 oldman
oldman's picture

The germans who I know are hip to the game-----bad music, but not dumb.

Sat, 08/27/2011 - 18:35 | 1608255 destiny
destiny's picture

Swaying the public and creating impressions is a French specialty, this is called "défoncer des portes ouvertes" (bursting open already opened doors..).  The French are sick and tired of these clowns.

Sat, 08/27/2011 - 22:00 | 1608644 pain_and_soros
pain_and_soros's picture

I suspect the division you are referring to is between the ruling elite (including the banksters), who overestimate their understanding & abilities and the German people, whose understading of the situation is being underestimated by those same elite.

I think the elite are much more committed to the eurozone, since they would reap most of the benefits and incur little of the costs of the solutions being tossed around publicly, which will be left for German taxpayers to pick up. 

I do think typical Germans generally support a eurozone, but not at any cost - they will want to see a proportionate burden being born by those being bailed out & they will also want to ensure that the bailout includes specific measures to ensure this situation won't be allowed to be repeated.  Anything short of this will mean the political end of whichever German politician(s) attempt to ram thru a suboptimal solution.

Someone mentioned that 1 in 3 Germans is seriously considering buying gold - most are aware of their Weimar history and foresee what the end result of mindless Euro printing will be, 

That is why I think von der Leyen's suggestion that gold be used as collateral is so signficant - it signals that some politicians are hearing what the electorate are saying & "get it"...and unless those in positions of authority safeguard german taxpayer interests, they will earn the wrath of the electorate.

Sat, 08/27/2011 - 15:13 | 1607810 how to trade ar...
how to trade armageddon's picture

And the first capital injection is in ...

From those charitable Qataris ...

Putting 500m euros into Alpha bank ...

To fund its merger with EFG Eurobank.

Kind of like a wedding between two terminal cancer patients.

Sat, 08/27/2011 - 15:27 | 1607852 drider
drider's picture

Why did the Quataris blessed this wedding? What is in for them?

Sat, 08/27/2011 - 15:48 | 1607907 how to trade ar...
how to trade armageddon's picture

They have a big investment in Alpha that they're trying to bail out. I guess the Greek government used its leverage, saying we won't support Alpha (with Germany's money) unless you kick in more and take this Eurobank dog.

Sat, 08/27/2011 - 16:00 | 1607930 drider
drider's picture

Thank you. Increasing their position in Alpha is making sense in terms of protecting their investement. I also guess that the merger with Eurobank will help them lower their overall operating costs. We will known the details on Monday

Sat, 08/27/2011 - 16:29 | 1607985 lizzy36
lizzy36's picture

Mideast investment funds are awesome at averaging down, down, down, done.

Sun, 08/28/2011 - 01:48 | 1608979 chindit13
chindit13's picture

And therein lies the incentive for cheating on OPEC quotas. It isn't just to fund more palaces and Western concubines.

Sometimes these seemingly odd algos make sense.  Who would have thought that the price of oil is partially dependent on the price of Citibank stock?

Sun, 08/28/2011 - 04:07 | 1609053 falak pema
falak pema's picture

The Qatar /Emirates connection to EU.

The Qataris have moved in big with France into Libya. They partially financed the Libyan Nato invasion. They are now big as representatives of "progressive pro-EU power" in MENA. As a long term alternative to the Saud-USa connection.

The Qataris will now actively support the Euro and Euro investments. 

Qatar is staging the world cup in 2022 and Al JAzeera is their Spear head Information agency. They see themselves as the representatives of more modern, western attuned arab society than regressive Saudi. As a small nation with huge gas reserves they will be solvent and surplus in revenues like Emirates. Sarkozy has groomed very close ties with them having invested in a French naval base in Abu Dhabi.

Further down the road if the Germans buy into Euro integration, big if, on which the decisiion is expected in 2011/2012 period, Qatar will definitely spear head ME investment in EUro as alternative reserve currency to USD.

The battle between US and EU currency domination in the future will hot up if Germany goes for the big bail out scheme and ECB is given broader powers to print and EU goes down the road to fiscal cohesion and Euro bonds in 2013.

That's apparently the road map, that Lagarde is now promoting along with the French. WIll the Germans buy it?

ZE BEEEEG KESTION...

Sat, 08/27/2011 - 15:14 | 1607814 max2205
max2205's picture

Le rauch de puoiu

Sat, 08/27/2011 - 15:14 | 1607815 Manthong
Manthong's picture

This will not end well.

Sat, 08/27/2011 - 15:25 | 1607841 PulauHantu29
PulauHantu29's picture

First, "Bolstering banks’ balance sheets" simply means the ECB must print and repeat what The Bernank + Timmy Team have been doing in the USA, right? Issue bonds, print money to buy bonds, banks buy bonds then sell them to the ECB which has already printed the Brand New Crispy Euros to hand over to banks as "reserves"...right?

 

Second, there's always Buffet to step up and buy someones preferred shares with an implicit guarantee from the ECB to be bailed out if things go bad, right?

 

Third, if all esle fails then Germans will simply have to work until they are 92 before they can retire to the shores of southern Spain..or Turkey or the Seychelles.

Sat, 08/27/2011 - 15:49 | 1607908 Black Forest
Black Forest's picture

to the shores of southern Spain..or Turkey or the Seychelles

I suppose you mean Northern Morocco, Northern Syria and that new holiday district of China?

Sat, 08/27/2011 - 15:24 | 1607842 drider
drider's picture

European countries have retained the right to print euros using ELA (Emergency Liquidity Fund). The Irish cental bank activated ELA before been coerced into the European/IMF bail-out deal. This mechanism can be vetoed by a 2/3 majority of the ECB governing council.

Greece is now considering using an analogous mechanism to support under-capitalized Greek banks. What do you make of that, in the context of the EFSF and CPI program difficulties already signaled?

Sat, 08/27/2011 - 15:33 | 1607870 Infinite QE
Infinite QE's picture

The ELA though is located beneath the Guinness Brewery in Dublin.

Sat, 08/27/2011 - 15:38 | 1607887 drider
drider's picture

I was refering to this news 

 

Greece Activates Last-Ditch Liquidity Rescue Package To Preserve Its Financial System

 

http://www.zerohedge.com/news/greece-activates-last-ditch-liquidity-rescue-package-preserve-its-financial-system

Sat, 08/27/2011 - 15:27 | 1607854 Rodent Freikorps
Rodent Freikorps's picture

That LaGarde is one handsome man.

I bet he and Barry have a lot in common.

Sat, 08/27/2011 - 15:32 | 1607869 Infinite QE
Infinite QE's picture

I hear they use the same shaving cream.

Sat, 08/27/2011 - 15:57 | 1607922 Rick64
Rick64's picture

Lol

Sat, 08/27/2011 - 15:54 | 1607917 Tao 4 the Show
Tao 4 the Show's picture

Something does not add up. Maybe worth a detailed analysis or perhaps there is an easy explanation I'm overlooking:

Case A: Germany bails out periphery. Euros are created based on German taxpayer obligation to pay them back and then used for the bailouts. It's not as though the Euros already exist - they have to be created.

Case B: ECB prints Euros to bail out periphery (monetizes debt).

I don't see that much difference between cases A and B. In both cases, Euros are created. The recipient countries are not producing goods to cover the increased money supply, but neither are the Germans in case A.

Either route seems inflationary to me. Perhaps case A is somewhat less inflationary because it means ( in theory) that the Germans buy fewer goods since their taxes are higher to pay back the debt. But in reality, hardly any part of Europe is highly extravagant on the whole. There just is not that much fat that can be cut.

Seems to me this discussion is a massive sham and it is interesting to try and understand the precise reason for the indirection. Any school kid can figure out that, even if Germany can cover European shortfalls for a little while, they can't do it for long. What happens then?

Most amazing about all of this is that anyone at all thinks that a serious, reasoned discussion is being held. It's obviously a sham, and I would enjoy hearing an explanation from others here, Tyler, or a guest poster.

Sat, 08/27/2011 - 16:17 | 1607964 Black Forest
Black Forest's picture

even if Germany can cover European shortfalls for a little while, they can't do it for long

Just a short note (from Germany) because of my poor English and laziness in writing long texts: You put it in a nutshell. The EUR cannot survive in medium term. The EUR zone will break up, and create political earthquakes ....

 

Sun, 08/28/2011 - 09:34 | 1609190 espirit
espirit's picture

IMF / FED Playbook.

This is straight out of the study on Sweden. EuroZone is a no-fail.

http://www.clevelandfed.org/research/PolicyDis/pdp21.pdf

Sun, 08/28/2011 - 17:30 | 1609991 CTG_Sweden
CTG_Sweden's picture

Esprit:

 

IMF / FED Playbook.

This is straight out of the study on Sweden. EuroZone is a no-fail.

http://www.clevelandfed.org/research/PolicyDis/pdp21.pdf  

 

 

The author does not mention the fact that the Swedish krona was pegged to the Ecu (the forerunner of the Euro), not the old basket of currencies, in 1990-92. I think that the leading parties in Sweden pegged the krona to the Ecu because they knew that it would not work and that this would end in disaster. Professor Assar Lindbeck said that the unemployment would rise to 8 % if they pegged the krona to the Ecu and that a devaluation of the Swedish krona then would follow. I think that it is hard to claim that our leaders did not know what they were doing. They knew what they were doing and they did it because they wished for a disaster to happen so that they can say that Sweden needed EU membership in order to prevent that from happening again. And apparently the general public bought that argument. No professor in economics, financier or well-known business executive said this was a lie. Therefore, the Swedish electorate bought this argument.

 

Furthermore, 30 % of the interest rate on household real estate debt was still tax deductible 1992 (this is also still the case).

 

By the way, the household real estate debt problem in Sweden is actually worse now than 20 years ago if low interest rates can not be taken for granted in the future.

Sat, 08/27/2011 - 17:57 | 1608172 CTG_Sweden
CTG_Sweden's picture

 Tao 4 the Show:

Something does not add up. Maybe worth a detailed analysis or perhaps there is an easy explanation I'm overlooking:

Case A: Germany bails out periphery. Euros are created based on German taxpayer obligation to pay them back and then used for the bailouts. It's not as though the Euros already exist - they have to be created.

Case B: ECB prints Euros to bail out periphery (monetizes debt).

 

  

I just can´t understand why Germany should choose case A. To me, they seem stupid if they do that. Why not print as long as they can, just like the Federal Reserve does?!

I don´t understand why it should be impossible to let ECB print money, lend it to the PIIGS countries at near zero interest rate and thereby solve the debt crisis. If the ECB charter has to be changed, why not do that?

 

If the Federal Reserve can print money in the US, why can´t ECB do the same on a smaller scale?

 

I agree that there may be a problem if the PIIGS countries think that the ECB can bail them out over and over again. But why not force them to go back to their old currencies in return for huge zero interest loans? If the interest in any case will be near zero it doesn´t matter if their currencies will depreciate compared to the euro. Furthermore, it should be possible to remit debt that consists of printed money in the future.

 

I also can not understand why the ECB (or Germany) should bail out banks which have lent money in an irresponsible way to the PIIGS countries and others. That would be the same as encouraging the banks to do the same thing over and over again. Let them go bankrupt and prepare for government take-overs. Existing stockholders should lose all their money. Otherwise other stockholders won´t see to that their banks behave in a more responsible way in the future. I suspect that the expression "to big to fail" was coined by some banker who wished that the taxpayers should bail him out.

Sat, 08/27/2011 - 16:08 | 1607953 Joshua Falken
Joshua Falken's picture

After nearly 22 years of Japanese deflation and stimulus packages, only politicians, central bankers and corporate executives have benefited.

 

Lagarde will take Europe and America down the same endless path of bail before fail because she cannot countenance banks going bust.  

 

Stop saving self serving leechs with our money and press reset

Sat, 08/27/2011 - 16:30 | 1607990 Caviar Emptor
Caviar Emptor's picture

German debt/GDP ranks #19 in the world at 78%. France is #15 at 83%. 

Germany has issues beyond just debt. Liabilities (or what we call entitlements in US)  are very high. 

The lifeboat has a few holes in it

Sat, 08/27/2011 - 16:47 | 1608023 drider
drider's picture

Germany is slowly deconstructing the social welfare system originaly put forward by CDU. Also the German workers have suffered from zero wages increases for practicaly a decade now.

I don't know how this will play out eventually, but I suspect that the German people are begining to see past the scapegoat propaganda about Greece and other indebted European nations. I expect that they will be increasingly aware that the various bail-out programs are essentially serving the zombie european banks (including many German banks too).

It is too late now to prevent social unrest throughtout Europe.

Sat, 08/27/2011 - 18:39 | 1608263 destiny
destiny's picture

The same goes for France as well....!

Sat, 08/27/2011 - 18:48 | 1608284 Nate H
Nate H's picture

that is just government debt. if you include a wide boundary definition of debt - Germany is right up there with USA between 400-500% of GDP (private, corp, muni household etc)

Sat, 08/27/2011 - 16:40 | 1608005 Volaille de Bresse
Volaille de Bresse's picture

One thing you probably don't know but shouldn't ignore : Lagarde has ZERO knowledge in economy. She's A LAWYER by trade.

Since she was the only one who could speak English decently "El chapo" Sarky knighted her the "French Geithner" (cough cough) but believe me she knows even less about how things work than Ben "QE14" Bernanke... 

What landed her at the IMF is the fact that she's a complete slave to the U.S. kleptocracy.

Sat, 08/27/2011 - 18:31 | 1608249 RiverRoad
RiverRoad's picture

You betcha.  'Twas Obama and the CIA that put her where she is.

Sat, 08/27/2011 - 16:46 | 1608019 LookingWithAmazement
LookingWithAmazement's picture

In Europe, rumors of (1) a merger between Greece banks and (2) fresh money from Dubai do rise. No funding crisis. Boring world we live in.

Sat, 08/27/2011 - 16:48 | 1608033 ISEEIT
ISEEIT's picture

Gimme a break. The lady was well vetted and long groomed for the role. She is following a script. They are working to set-up a 'global' crisis. Anyone who doesn't understand that this crap is engineered well in advance is to naive to even be paying attention.

Just watch TV and forget about it.

Sat, 08/27/2011 - 16:53 | 1608047 Freewheelin Franklin
Freewheelin Franklin's picture

I'm not buiying it, either, and neither is Nigel Farage.

 

http://www.youtube.com/watch?v=0vBysAiHwqs

Sat, 08/27/2011 - 21:31 | 1608590 mendigo
mendigo's picture

excellent link thanks

why is it the situation is so clear for some?

why is it that us does not have strong voices like this?

Sat, 08/27/2011 - 23:22 | 1608793 tsx500
tsx500's picture

we do have a strong voice, he is Ron Paul.

Sat, 08/27/2011 - 16:53 | 1608050 irishlink
irishlink's picture

time to go long ink as the whole western world will be printing soon. In  early 2009 a mom in my daughters school put it so well in one phrase. How did thet allow it to come to this..... NOW how can anybody believe that they can fix this.....

Sat, 08/27/2011 - 17:02 | 1608063 falak pema
falak pema's picture

It all depends now on the constitutional crisis in Germany; whether the German supreme courts allows the German government to fund other sovereign countries in EU. Decision upcoming in September 2011. Merkel can then see if she has any room to maneuver or not. 

Make or break German national decision in September. 3 Trillion euros is no big deal according to bank estimates IF inflation stays low in EU and interests spreads stay below 5% for core economy bonds. That's Keynesian econometrics for you! 

That's THEIR central bank vision of things. What will the market say...? Bigga question, if they go all in!

Sat, 08/27/2011 - 17:20 | 1608097 drider
drider's picture

Also on September: Berlin state elections. If the regional elections results are catastrophic for CDU, expect a govermental crisis... 

Sat, 08/27/2011 - 17:39 | 1608138 The Onion Of Tw...
The Onion Of Twickenham's picture

There is not the slightest chance that the Germans will add a single brass pfennig to the EFSF.

The ECB can buy Italian and Spanish bonds until the end of September and then it's Good Night Vienna. As for Greece well we've all given up on them. There is total bailout fatigue and the Austrians are delighted to take the opportunity to drive the stake into the heart of Bail Out 2 by demanding collateral a la Finland, knowing full well that it is a non-starter.

Greece defaults in mid-September. Italian and Spanish bonds rise back to 6% by the end of the month and at that point it's every man for himself.

 

 

Sat, 08/27/2011 - 18:05 | 1608190 drider
drider's picture

Yeah right, everyone is ready to abandon the 30-40 years of planning and preparation for the EU and the eurozone. That would be an unprecedented destruction of invested time and capital, even from the elites points of view.

The joined capitalistic interests still far outweight the capitalistic tensions (nation-wide, europe-wide, or even in the context of a globalized economy). 

The eurozone is too big to fail...

Sat, 08/27/2011 - 18:40 | 1608267 Roger Knights
Roger Knights's picture

The bigger they come ...

(Anyway, the Titanic is too big to bail.)

Sat, 08/27/2011 - 18:52 | 1608297 Nate H
Nate H's picture

failure in this case would result in a near cessation in international trade, including to the US.  Our food, medical, sanitation, etc. systems are not prepared for this. E.g. if Euro fails, so likely does industrial civilization as we know it (it doesn't have to be that way, but there are no preparations being taken by institutions to mitigate it - as it sounds too farfetched)

Sat, 08/27/2011 - 21:10 | 1608552 Tapeworm
Tapeworm's picture

Why should it fail? Prior to the official launch of the Euro currency we slobs on Kitco gold site were discussing the built in failures done with derivatives and phony accounting by mostly Italy, because that was the least opaque. There was less information on Greece, but all that was available on the Italy, Spain, Portugal, Greece was enough to see that it was a scam from the start.

 Around fourteen years ago there were some of the best knowledge folks that posted the links and commented upon the importance of the Euro setup. They were long gone by 2001 and had moved onto more serious sites or just dropped out. None of the problems with the Euro now weren't discussed at length more than a decade ago. The derivative leverage from WS banks was fairly well known back then and must have been known by the Eurocrats, but they were more interested in sinecures than what lay down the road on the first test of their monetary contraption.

 The Kitco site of 1998 was really something that taught a group of finance imbeciles what was shaping up by way of derivatives and the somewhat simpler gold market. I'd be broke without the help from the fine knowledgeables that inhabited that site back then. It was an impossible time to be a gold bug back then without the freely offered help from some fine people. There are no sites that even remotely approach the level of discourse of Kitco in 1997-2000

Sun, 08/28/2011 - 04:16 | 1609054 drider
drider's picture

As a European I envy the FED, since at least this institution has incoporated into its mandate the employement factor. The Maastrich treaty clauses were set up as if no economic crises would be realizable in the future. I see now that this omission was a deliberate one, although many still support the notion that it was a matter of widespread economic dogmatism at that time.

As far as the fiat currency discussion is concerned we all know that is a system largely built on (mis)conceptions and expectations. At the time of the Eurozone establishment everyone supported (including the Germans) the idea that the more the member countries the better. Rules set up previously were not respected and even the ECB allowed for windows of "opportunity" like the currency based swaps (see for example Greeks joining the euro).

In that sense I was not suprised to see ECB overriding/bending its own rules during this latest crisis. It will continue to do so, even if the ECB is not enterily happy about this...

 

Sat, 08/27/2011 - 17:42 | 1608140 disabledvet
disabledvet's picture

Far simpler than anyone here is portraying. There will be nothing done. Welcome to Collapse Incorporated. Move along puny humans.

Sat, 08/27/2011 - 17:58 | 1608170 CTG_Sweden
CTG_Sweden's picture

 

double post

Sat, 08/27/2011 - 18:04 | 1608186 thegr8whorebabylon
thegr8whorebabylon's picture

Now, what to do if the Bene Gesserit Witches ask put your hand in a box?

Sat, 08/27/2011 - 18:12 | 1608202 Rodent Freikorps
Rodent Freikorps's picture

"What's in the box?"

"Pain."

Sat, 08/27/2011 - 18:20 | 1608221 thegr8whorebabylon
thegr8whorebabylon's picture

yessir rodent freikorps, hellinabox if ever there was anything.  ;)))

Sat, 08/27/2011 - 18:32 | 1608250 Rodent Freikorps
Rodent Freikorps's picture

Pain is weakness leaving the body.

Sun, 08/28/2011 - 00:55 | 1608934 thegr8whorebabylon
thegr8whorebabylon's picture

good call.

Sat, 08/27/2011 - 18:09 | 1608194 Problem Is
Problem Is's picture

Germany has the ultimate trump card...

FU Lagarde, Deutsche Mark...

Sat, 08/27/2011 - 18:15 | 1608211 destiny
destiny's picture

EXCELLENT PIECE TYLER....MDR (= lol in french)

 

Bons baisers from France...

Lagarde is among the goofiest puppets the French Gvt ever had.  That should give you a taste of the general level of the ruling court of Sarkozy the last ! 

Sat, 08/27/2011 - 18:19 | 1608219 Problem Is
Problem Is's picture

And... Lagarde looks just like DSK in drag...

Sat, 08/27/2011 - 19:05 | 1608338 destiny
destiny's picture

And the French politicians are awaiting the return of DSK hoping that he will save France's ass !! that is the actual state of politics in France today...just  unbelievable !!   

Sat, 08/27/2011 - 18:29 | 1608242 RiverRoad
RiverRoad's picture

Just 2 weeks ago ol' Christine was exhorting US to cough up for the cause too.  To coin a Nancy Reagan, just "Who does this dame think she is?

Sat, 08/27/2011 - 18:57 | 1608311 valuetrader
valuetrader's picture

I wouldn't be shocked to see the ECB buy nice stakes of Pref Shares in European banks with the plan of flipping them to the ESFS when that is up and running (which maybe never). Or perhaps Buffett can take another bath and call the CEO's of a few European banks but he can't do it all alone.

Sat, 08/27/2011 - 18:59 | 1608321 Monedas
Monedas's picture

Conservative male leaders are rare in this Socialist cesspool world.....unfortuneately Conservative female leaders are even rarer ! Except for Maggie Thatcher, it's almost an American monopoly ! A great source of pride for the Monedas ! Merkel and Legarde are spineless wenches of the Socialist cookie cutter variety ! ......... Nigeria should be a major donor to the UN......not a beggar ! These sub-Saharan pig states are hopeless......even when the are rolling in petro dollars and gold and diamonds ! Why can't the Muslims feed the Egyptians ? They can afford it ! Don't let Monedas 2011 catch you donating to the UN or to food programs which should be financed with Muslim charity ! By the way, disappointed in your miners ? South Africa is going down like Zimbabwe and your SA miners will be worthless.....given a relatively short time line ! Same for Latin America and all Africa and God knows where else ! Hoarding is all there is, really !

Sat, 08/27/2011 - 20:12 | 1608451 Jovil
Jovil's picture

Living through a currency devaluation and how to cope

I was managing an American subsidiary of a successful large US Company in Mexico. It had been a financial turnaround for our team. Cash flow had accumulated in our bank in Mexico and corporate didn’t want the money repatriated to the US. Although we had already paid a 35% income tax to the Mexican government, we would have to pay an additional 30% exit tax to repatriate the money. In addition, we would have to pay high fees for the peso/dollar exchange, in order to make the transfer. The company wanted to expand our successful business and so we decided to keep the money in Mexican pesos to be used for further expansion.

 

One morning, as my wife and I were on a trip driving on the highway, we heard a national message from the President of Mexico in 1976, Luis Echevarria, one of the most corrupt presidents in Mexican history. “It is a lie that we are going to devalue the peso,” he said.

Read more

 

http://lonerangersilver.wordpress.com/2011/08/13/living-through-a-curren...

Sat, 08/27/2011 - 20:37 | 1608492 ptolemy_newit
ptolemy_newit's picture

short term euro sinking until the union is smaller (more fiscal coutnries) then the euro will sore.  Amrerica needs an unstable eruope and a stable euro around 156!

it wont be safe in the southern region for americans or germans

 

Sun, 08/28/2011 - 00:14 | 1608881 PeterB
PeterB's picture

Why is it when ever I log in the home page displays articles from the 20/08/11? I was only able to upload this article from another site. Anyone else have this problem?

Sun, 08/28/2011 - 01:26 | 1608956 Coldfire
Coldfire's picture

Mr. Lagarde's elitist hauteur notwithstanding, killing the banks might not be such a bad idea.

Sun, 08/28/2011 - 05:08 | 1609077 cranky-old-geezer
cranky-old-geezer's picture

 

 

"Bolstering banks’ balance sheets “is key to cutting the chains of contagion,” Lagarde said today in the text of remarks at the Federal Reserve’s annual forum in Jackson Hole, Wyoming. Without an “urgent” recapitalization, “we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis."

This is the very same shit we heard in '08.  If banks aren't "recapitalized" the world will end.

In '08 Paulson said the same thing and bullied congress into giving him $700 billion to "recapitalize" banks.   It didn't help the economy one bit.  Banks nerver started lending again.  Instead they paid themselves huge bonuses then took the rest of the money and went back to the casino ...and lost it all.

So they came back asking for more money ...and got it ...and paid more huge bonuses ...and went back to the casino again ...and lost it all again.  Actually they didn't lose it.  They figured out ways to put it in their pockets.

And they kept lending money to bankrupt governments and bankrupt corporations.   Then they sold all that worthless debt paper to the Fed at full par in QE1 & QE2 and got trillions more money to pay more huge bonuses and go back to the casino again and put more in their pockets again.

Now that worthless scum Lagarde is in Jackson Hole saying we have to keep "recapitalizing" banks or the world is going to end.

It's the biggest hoax in human history.  The biggest taxpayer ripoff in human history.

Sun, 08/28/2011 - 06:25 | 1609101 Dick Darlington
Dick Darlington's picture

Spot on cranky! I hope the near future will bring more wide spread view of peak politication, peak financialisation and peak uncontrolled globalisation. We already see cracks all over the system that tptb are desperatelly trying to maintain.

Sun, 08/28/2011 - 06:14 | 1609092 supermaxedout
supermaxedout's picture

I admire Mrs. Merkel because she is really a tough fighter for the interests of Germany and since Germany is the economic  heartland of Europe she is fighting for all Europeans. Its an epic battle between the US and the majority of the world and Ms. Merkel is holding out despite she is under enormous pressure.

Example: She voted with Russia and China in the UN security council not to intervene in Libya. This very important decision made by her does not find any positive resonance in the German media whether its, TV, Radio or newspapers all are against Merkel without any exemption. While it is also clear, that the Germans in the overwhelming majority oppose the intervention in Libya. The German media is firmly in the hands of the US that became now cristall clear to me!! Or is it otherwise possible, that a decision by a elected head of state simply is opposed by all media in this country. I have not heard one positive voice in this matter in Germany despite the fact, that Merkels decision clearly not to participate is very popular in Germany.

Strauss Kahn and Merkel \:      Mrs. Merkel managed that Straus Kahn cooperated with her to help Greece. Thus the IMF worked against US interest in a very povocative way.  The US which were busy trying to destabilize the Eurozone were forced even to donate money through the IMF to prop up Greece. In short: This provocation by Straus Kahn was in my opinion the reason why he was pulled down from his throne in such a dishonorable way. The US wanted to show a very strong signal: Whoever is in our way will be smashed!!! It doesnt matter who he is and how high on the ladder he is standing.    Lagarde is despite her words a loyal follower of the US. Her doings are important not her words!   Lagarde and Sarkozy are from the same stable. Have a look here. Then you can see how alone Mrs. Merkel is:

http://www.voltairenet.org/Operation-Sarkozy-how-the-CIA

Sun, 08/28/2011 - 12:55 | 1609427 jmc8888
jmc8888's picture

How big does the financial tsunami have to be in order for people to start screaming Glass-Steagall?

Default isn't the answer...because when you 'default'...you're saying...MY FAULT.

When you Glass-Steagall...you're saying....IT'S THE BANKS FAULT.

 

...and it is.

 

There is no way saving this fascist fucktard of a system.  Monetarism blows goats.  End monetarism.  End this version of monetarism.  Destroy the fraud, or watch it destroy everyone. 

What Germany needs to 'change labor laws, retirement, healthcare, infrastructure, etc'  spending because they are indebited, to bailout all of everyone else's FRAUD?  Talk about jump the shark.

Same here in the U.S.

Printing won't solve the fraud

Taxing won't solve the fraud

Cutting won't solve the fraud

 

Take on the fraud head-on, cancel it, via Glass-Steagall.  Then 'export' that to the rest of the world. 

Sun, 08/28/2011 - 17:32 | 1609982 CTG_Sweden
CTG_Sweden's picture

 

double post 

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