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Mark Grant: "I Do Not Believe, Any Longer, That The Catastrophe Can Be Avoided"

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Submitted by Mark Grant, author of Out Of The Box

State Guarantees

“Countries were additionally asked about the amount of state guarantees. These do not form part of government debt, but are a contingent liability.”

On No Account

I am asked so often about this that I wanted to print out the exact wording from the European Statistics office. In fact, no contingent liabilities are calculated in any government’s debt to GDP ratio in Europe nor are their liabilities (ownership) at the European Union or the European Central Bank. They not only do not include any of these numbers but state guaranteed bonds and bank guaranteed bonds and derivatives contracts also are not part of any debt to GDP ratios in Europe. Right, wrong or indifferent; this is the way Europe does its calculations.
The numbers speak for themselves. The contingent assets are trumpeted from the plains of Heaven. The contingent liabilities are lame mutes living in the “sounds of silence.” The proffered songs could not be more distinct.

“There are two kinds of truths: those of reasoning and those of facts. The truths of reasoning are necessary and their opposite is impossible; the truths of fact are contingent and their opposites are possible.”
                                                                            -Gottfried Leibniz

The Counting House

This paradigm for liabilities then is in stark contrast with contingent assets. Here Europe not only counts sovereign guarantees but flouts them in the Press as is the case with the IMF firewall or the European Stabilization Funds. In each case there is very little actual paid in capital but a tremendous amount of promised capital if needed. So the methodology is to count contingent assets and not to count contingent liabilities and, hence, we have arrived at a position of inaccurate numbers, deceptive information and decisions made based upon falsifications by omission. In my view there is no rational justification for using the two opposing schemes at the same time except to distort the data for Europe’s own benefit and to mislead investors, suppliers and perhaps the non-domiciled international banks.

“They're out there...One Flew Over the Cuckoo's Nest”
                                                                      -Ken Kesey

Nowhere is the danger greater than in Belgium at present. They paid $7.13 billion for their share of Dexia and took on, at the time, another $71.9 billion in contingent liabilities. Since then they have provided sovereign guarantees for BNP Paribas in Belgium and for Fortis Banque which has taken Belgium to $182.2 billion in sovereign guaranteed bank debt. In addition they have provided $20.7 billion in capital and $11.4 billion in loans to the financial sector. Taken all together this totals $213.8 billion which is nowhere to be found in their debt to GDP ratio. Just these liabilities alone are then equivalent to 41% of Belgium’s GDP. On 4/20/12 the central Bank of Belgium admitted the economy was in contraction and that the current “official” debt to GDP ratio was 98.2%. This then takes financial sector contingent liabilities and the “official” debt to GDP ratio to an astounding 139.2% but the story does not end there. Belgium is accountable for $132.8 billion of the ECB’s balance sheet, $50 billion for the Stabilization Funds, $36 billion for the Macro Financial Assistance Fund, $26.8 billion of the European Investment Bank’s balance sheet which adds another $245.6 billion to Belgium’s liabilities. Consequently Belgium’s European liabilities are an additional 64% of their GDP. Then the gross total is:
Belgium’s Actual Debt to GDP Ratio                                    203.2%
Now guarantees and promises and contingent liabilities are funny things. You can pretend that they aren’t there but then they show up and demand payment. You may recall the monoline bond insurers who were just fine with their guarantees of American municipal debt and then they expanded their coverage to mortgage obligations and the result of that decision is now written in the pages of history. 
It is nice that they now have $430 billion in contingent assets pledged for Europe. You may wonder, since every politician on the Continent says that things are so much better, why this weekend they were holding the G-20 charity event. If things were actually better one would speculate that a request for alms would not be needed. If everything is so great at home; they would not need to come begging from other nations. I believe there is a clue here, a real indication of the problems and a real sign of the severity of the issues.
It is all fine and dandy that pledges have been made and that the back-slapping ensued. The reality is, however, that this does not change one blessed fiscal problem in Greece, Portugal, Ireland, Spain, Italy or Belgium. Nothing changed; nothing was minimized so that when the financial obligations overcome the available capital the result will be just the same. The real debt to GDP numbers for these countries will drive the results regardless of the funny numbers offered by Europe. There is NO opinion in the data for the liabilities that I have presented; it is Europe’s own numbers. I just counted what they did not wish to count.
When will the bough break?
I am asked this all of the time, each conference that I speak at, each television segment on Europe and at each discussion with various money managers concerning the problems on the Continent. I always smile because we have already had three branches snap and they are Greece, Portugal and Ireland. So the actual question is when will the next sprig be shorn and then when will the tree be felled. If we use this tree as the analogy then so far Europe’s responses have been to “water, water, water” and then “prune, prune, prune.” This is liquidity shoved in and austerity meted out. There are only two ways out of the current dilemma and that is growth which is not possible as the European economies contract and fare worse as the result of the austerity measures or Inflation; which Germany can’t stomach. The “at the very bottom of the barrel” answer then is not an economic response at all but a question of politics. The answer is actually when some nation cannot take it anymore; either the funding and the increase in national debt and the resultant credit downgrades or in receiving and the pain inflicted upon the populace. From the funding perspective it will be when the debts of the givers begin to match the debts of the borrowers. From the recipients it will be when the core nations decide that no more money will be given and so they will leave the funding nations and their banks with the debts and return to their own currencies and devalue. Which one comes first can only be answered by Divine Providence but I do not believe the train wreck can be stopped. I do not believe, any longer, that the catastrophe can be avoided and I would begin to immediately plan for an event that will eclipse the American financial crisis of 2007-2009 because this one will be far worse.
The Netherlands
The government has fallen. There will be a new caretaker government until things get straightened out. The government fell due to the austerity measures that have been demanded by the new fiscal pact in Europe. The Netherlands are one of the few “AAA” governments left in Europe and the head of the party that withdrew its support from the current coalition stated, “We don’t want to follow Brussels’ orders. We don’t want to make our retirees bleed for Brussels’ diktats.” That is pretty clear I think; long live the Dutch and to heck with the commands of the European Union. Europe is in a recession and Nationalism is coming to the fore and the real numbers are hitting the core nations in Europe regardless of whether they are recognized by politicians or not.
The Sounds of the Trumpet
The numbers that I have given you for various countries’ debt to GDP ratio are accurate and inclusive. There is nothing magic about them. The data all comes from what the Europeans provide themselves. There is a long slog in finding the numbers and then it is simple addition and one division by their stated GDP. Then since you have the real ratios you can make your own decisions before the contingent liabilities show up. I can assure you after my almost four decades in the Great Game that many of the liabilities will show up especially those connected to banks and other entities that are not under the State’s control. The signs are all around you; France will be ruled by an anti-bank socialist, the Netherlands government has fallen, every nation in Europe is becoming much more Nationalistic, the Continent is in recession, Spain cannot hold because any rational reading of their financial position decries the political nonsense, Greece will get another round of capital or leave the Euro in short order having milked everyone they could for their own benefit, Portugal is a continuing disaster, Ireland is hanging on  by the skin of their teeth and this grand experiment that Europe has constructed is about to end. Even if you disagree with my conclusions; you cannot ignore the risk. At the present time the Risk is so over weighted as to the Reward that common sense demands either a prompt exit or some kind of vote against if that is your mandate. There are those in life that get some sort of joy from singing the song of “I told you so” but I am not one of them. Take my advice now and when the hordes of Mordor begin their march we can smile and sigh that we were safely behind the castle walls and not out in the pasture being devoured.

“It is forbidden to kill; therefore all murderers are punished unless they kill in large numbers and to the sound of trumpets. “


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Mon, 04/23/2012 - 09:27 | 2366473 kato
kato's picture

Welcome to the club. Still, 'they' have done quite a job up to this time and are not to be understimated.

Mon, 04/23/2012 - 09:31 | 2366489 SilverTree
SilverTree's picture

....He just got the memo?!?

Mon, 04/23/2012 - 09:42 | 2366525 ratso
ratso's picture

Oh no! THE SKY IS FALLING _ again.  Dear me

Mon, 04/23/2012 - 09:51 | 2366554 edwardscpa
edwardscpa's picture

Contingent liabilities aren't booked at face value because of the expectation that they would not all come due at once, or ever - black swans being inconceivable, of course.  The basic argument made here is not unlike accusing a life insurance company of not having the ability to pay claims should all of its policyholders die at once, should an asteroid stike.  Without some sort of risk-weighted formula, there'd be no insurance market.  That said, Europe is toast.

Mon, 04/23/2012 - 10:59 | 2366865 Harlequin001
Harlequin001's picture

'I do not believe, any longer, that the catastrophe can be avoided...'

Switched on cookie this bloke eh? Nothing like being last at the party...

Mon, 04/23/2012 - 10:28 | 2366707 Peter Pan
Peter Pan's picture

The curtain is starting to come down on the FIATRICS.

Mon, 04/23/2012 - 12:48 | 2367342 sessinpo
sessinpo's picture

Well you know the US Postal service is cutting back. Someone should have sent him an email. Don't ask me to tweet, I am not a twit. That was an insult in my day.

Mon, 04/23/2012 - 09:34 | 2366490 GetZeeGold
GetZeeGold's picture



I hear Mark Grant is 10 feet tall and flames shoot out of his arse.


Don't fight the Mark!

Mon, 04/23/2012 - 09:47 | 2366545 SheepDog-One
SheepDog-One's picture

I dont think theyve done so well myself Kato, Im just a fuckin nobody, and if I got it all along since TARP and TALF and all this other crap then everyone should have got it too.

Mon, 04/23/2012 - 09:28 | 2366475 misterc
misterc's picture

Is the Euro collapse the new widowmaker-trade?

Mon, 04/23/2012 - 10:20 | 2366669 slow_roast
slow_roast's picture

Logged in just to give you a +1000

Mon, 04/23/2012 - 09:28 | 2366478 monopoly
monopoly's picture

Gulp! This does not look so good.

Mon, 04/23/2012 - 10:26 | 2366700 Peter Pan
Peter Pan's picture

By the time this is over, politicians will be wearing brown pants and underwear as well as bullet proof vests.

Mon, 04/23/2012 - 09:28 | 2366479 dereksatkinson
dereksatkinson's picture

Iran Claims It Has A Blockade On The Strait Of Hormuz

Mon, 04/23/2012 - 09:30 | 2366484 5880
5880's picture

the mouse that roared?

Mon, 04/23/2012 - 09:51 | 2366534 GetZeeGold
GetZeeGold's picture



Dear mouse......480 tomahawk missiles....incoming.


Have a nice day!


Mon, 04/23/2012 - 09:55 | 2366566 fuu
fuu's picture

Bullish for silver.

Mon, 04/23/2012 - 10:33 | 2366729 FEDbuster
FEDbuster's picture

Bullish for AK 47s and AR 15s.  Gun sales continue to set records.  This won't be your great-grand-father's Depression.

Mon, 04/23/2012 - 09:56 | 2366568 Rusticus
Rusticus's picture

Dear chickenhawk .... $66trillion in unfunded liabilities .... incoming.


Have a nice century !

Mon, 04/23/2012 - 09:31 | 2366491 libertus
libertus's picture

The link just went poof! Got another one?

Mon, 04/23/2012 - 09:40 | 2366516 Rusticus
Rusticus's picture

Iran in full control of Strait of Hormuz: IRGC Cmdr.


Mon, 04/23/2012 - 09:37 | 2366512 resurger
resurger's picture


Mon, 04/23/2012 - 09:46 | 2366539 SheepDog-One
SheepDog-One's picture

*POOF* its gone.

Mon, 04/23/2012 - 09:58 | 2366573 Cruel Aid
Cruel Aid's picture

Bagdad Bob syndrome is prevalent over there.

Mon, 04/23/2012 - 10:46 | 2366813 Beam Me Up Scotty
Beam Me Up Scotty's picture

Whoops.  Link is dead.  Premature ejaculation got you down?

Mon, 04/23/2012 - 11:18 | 2366939 lakecity55
lakecity55's picture

They are checking ships as they transit the strait; it is not a naval blockade.

Mon, 04/23/2012 - 09:34 | 2366495 the 300000000th...
the 300000000th percent's picture


Mon, 04/23/2012 - 09:36 | 2366502 tecno242
tecno242's picture

Welcome Mark. Fair warning, you have entered the box of suck.  Watching a slow motion train wreck you can't stop.

The US is on the same path too Mark, it will just occur at a later date than Europe, simply because US debt will, indavisably, remain a "safe" haven until Europe eventually falls apart.  Then it will be our turn.

Mon, 04/23/2012 - 10:53 | 2366839 Vagabond
Vagabond's picture

Getting out of the way also happens in slow motion.  Although you can't stop the train wreck from happening, hopefully you can get out of the way in time.

Mon, 04/23/2012 - 09:37 | 2366506 williambanzai7
williambanzai7's picture


Mon, 04/23/2012 - 09:37 | 2366508 Jim in MN
Jim in MN's picture




From the guy that brought you 'psychopathocracy' and 'spray and pray' for Fukushima....




**************Moldilocks Economy****************




Mon, 04/23/2012 - 09:37 | 2366509 Sudden Debt
Sudden Debt's picture

thats not good...

Mon, 04/23/2012 - 09:59 | 2366579 Acet
Acet's picture

Vraiment, iedereen wist dat Belgie een betje van een grapje was, c'est pas?


Mon, 04/23/2012 - 09:40 | 2366517 crawldaddy
crawldaddy's picture

heres the thing, Freakin a hundred years ago Henry Ford said 


"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. "


this corruption thing is not new

Mon, 04/23/2012 - 10:51 | 2366770 FEDbuster
FEDbuster's picture

No, but more people are waking up thanks to the Internet, G. Edward Griffin, Ron Paul, Alex Jones, etc....  People are starting to peek behind the curtain, and they are seeing the FED for what it is, a corrupt criminal syndicate run by greedy, self-dealing banksters whom have taken control of the World's governments.

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."

- Napoleon Bonaparte, 1815

Mon, 04/23/2012 - 09:42 | 2366526 aleph0
aleph0's picture




Couldn't help thinking of the old nursery rhymes "Sing a Song of Sixpence" & "Rock'a bye Baby"


"The Kings was in his counting house, counting all his money "

"When the bough breaks, the cradle will fall "

..... obviously showing my age !


Mon, 04/23/2012 - 09:45 | 2366535 Thomas Jefferson
Thomas Jefferson's picture

Does this mean we are eating frog with the French this evening?

Mon, 04/23/2012 - 10:00 | 2366582 francis_sawyer
francis_sawyer's picture

You ARE the frog...

Mon, 04/23/2012 - 09:54 | 2366559 Dr. Engali
Dr. Engali's picture

I'm glad to see you're coming around to where we have been all along. Up next...war

Mon, 04/23/2012 - 09:54 | 2366563 3FrenchHens
3FrenchHens's picture

Can't fathom what's held things together this long. Each day events are more and more unbelievable.  God help us all.

Mon, 04/23/2012 - 09:55 | 2366565 ekm
ekm's picture

Either deflation shock or hyperinflation shock, no other way around. It's too too late already. Too much "reserves" created.

Mon, 04/23/2012 - 10:01 | 2366587 francis_sawyer
francis_sawyer's picture

actually ~ both

Mon, 04/23/2012 - 10:18 | 2366656 ekm
ekm's picture

Oh Christ!!!

That would lead to food protests at Wall Mart and food banks.

Mon, 04/23/2012 - 11:57 | 2367138 ironsky
ironsky's picture

Food Banks? Paper food? MMMM.

Mon, 04/23/2012 - 12:37 | 2367293 ekm
ekm's picture

That's how we call them in Canada. Soup kitchen?

Mon, 04/23/2012 - 09:57 | 2366570 buzzsaw99
buzzsaw99's picture

Welcome to the party pal!

Mon, 04/23/2012 - 10:00 | 2366580 buzzsaw99
buzzsaw99's picture

Without zirp they were nothing. They built a house of straw. The thundering HFT machines sputtered and stopped. Their leaders talked and talked and talked...

Mon, 04/23/2012 - 10:00 | 2366581 Flounder
Flounder's picture

...Nationalism is coming to the fore...

For true nationalism you need your own currency such as the guilder, DM, franc, etc.  How these euro planners got the people to ignor this is indredible.

Mon, 04/23/2012 - 10:03 | 2366595 francis_sawyer
francis_sawyer's picture

the "mark" of the beast

Mon, 04/23/2012 - 10:11 | 2366627 XXL66
XXL66's picture

well, i'm from Belgium and we would already have zimbalike inflation if it wasn't for the euro... but with the euro they just gave us more time to stack silver and gold.

The housing prices have held up very good so far over here, they even continued to rise after 2008. But i smell we now reached the turning point.

Mon, 04/23/2012 - 10:29 | 2366713 Flounder
Flounder's picture

Uh, I lived and shopped in Belgium and the Pays Bas in 1987 and again in 2008.  You've had much inflation.  The Netherlands and Belgium house prices are being artificial chained up to ridiculous levels so that local banks don't have to realize losses.

Mon, 04/23/2012 - 10:28 | 2366706 inzider84
inzider84's picture

"If you rob people of their democracy, if you rob them of their identity, then all they are left with is nationalism and violence"

- Nigel Farage

Mon, 04/23/2012 - 10:07 | 2366615 carbonmutant
carbonmutant's picture

At some point self interest will trump all agreements...

Mon, 04/23/2012 - 10:13 | 2366635 CPL
CPL's picture

Then a nice big war happens.

Mon, 04/23/2012 - 10:31 | 2366719 inzider84
inzider84's picture

Let it tank! Maybe we will get a fresh start. Default for freedom?



Hedge accordingly and keep stacking, bitchez!

Mon, 04/23/2012 - 10:34 | 2366738 Peter Pan
Peter Pan's picture

Ladies and Gentlemen, please take your belongings with you. Flight QE3 has been cancelled. You will now be boarding QE².

Mon, 04/23/2012 - 10:40 | 2366775 dbomb12
dbomb12's picture

Where is Gandalf when you really need him

Mon, 04/23/2012 - 11:43 | 2367090 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

"I'm not taking that ring -- you take it!"

Mon, 04/23/2012 - 13:45 | 2367610 Beaver_Valley
Beaver_Valley's picture

Give it to the eagles FFS!

Mon, 04/23/2012 - 10:55 | 2366848 SwingForce
SwingForce's picture

Thanks, Mark. Your detective work in this area has been underappreciated, for sure. I really liked the line about the proffered songs, your words are getting as interesting as your numberz...

Mon, 04/23/2012 - 10:57 | 2366857 OhOh
OhOh's picture

For a US perspective has anyone done a similar post on say the top 15 US States?

Mon, 04/23/2012 - 11:15 | 2366925 BlackVoid
BlackVoid's picture

Bring it on already, as this is really boring me now.


Collapse, dammit.

Mon, 04/23/2012 - 11:39 | 2367068 zerotohero
zerotohero's picture

Yup agreed - this daily shit is boring the hell out of me as well.

Mon, 04/23/2012 - 11:41 | 2367084 Diogenes
Diogenes's picture
"I Do Not Believe, Any Longer, That The Catastrophe Can Be Avoided"

A little slow on the uptake are we?

Mon, 04/23/2012 - 11:57 | 2367141 vh070
vh070's picture

Give it up, the euro zone is a failed concept.  The sooner it is broken up, the weaker members devalue and the weak banks get nationalized (how else?), the less the pain will be.  Try again in another 50 years if you must.  With a better, less naïve scheme.

Mon, 04/23/2012 - 12:29 | 2367257 icanhasbailout
icanhasbailout's picture

at this point we thank our lucky stars that no country west of Turkey can function militarily on its own (as Libya demonstrated)

Mon, 04/23/2012 - 12:38 | 2367296 Don Levit
Don Levit's picture

The contingent liability v contingent asset is starkly portrayed in the Social Security trust fund.

The excess FICA dollars were lent to the Treasury to pay for current expenses and lower the deficits.

Thus, we had an immediate asset.


The liability owed by the Treasury to the trust fund, however, was contingent  -  contingent upon when trust fund outgo exceeded income, excluding interest.

So, what was an immediate asset (including unfunded interest) was alao a contingent liability for many years  -  until 2010 when cash outgo exceeded cash income (excluding interest).

Don Levit

Mon, 04/23/2012 - 13:16 | 2367492 Thisson
Thisson's picture

Sounds like: "The Americans are not there. They're not in Baghdad. There are no troops there. Never. They're not at all."

Mon, 04/23/2012 - 20:15 | 2368785 mendolover
mendolover's picture

There better be a collapse!  I just bought 80 lbs. of rice and beans!

Mon, 04/23/2012 - 23:05 | 2369011 GoldVsFRNdotCOM
GoldVsFRNdotCOM's picture

IT'S OVER 9000!!!!!!!!!!!!!!!!!!!!!!!!

Mon, 04/23/2012 - 23:05 | 2369013 GoldVsFRNdotCOM
GoldVsFRNdotCOM's picture


Tue, 04/24/2012 - 00:03 | 2369074 xcehn
xcehn's picture

"From MMNews – (20.04.12)Euro: German exit in the summer:The interest rate markets are preparing for the German euro-exit: Bund futures are at a record high, interest rates on ten-year government bonds at a record low: 1.6%. Eurex offers Bundfuture-options June up to a level of 155"

"from Michael Mross: The run on German government bonds remains strong. The interest on these securities fell today to a record low: 1.6%. The question arises: What madman buys government bonds at this level? Under present circumstances this must be, with deadly certainty, a loss business. Or perhaps not? If Germany is to be involved ever deeper in euro-zone liability, these investments make absolutely no sense. But it would make sense if Germany was to exit the Euro. And more and more market participants appear to be speculating on that, and buying Bunds.
(…)The Bund futures traded today at more than 140 – higher than ever before. But that could be just the beginning. On the options market for Bund futures Eurex has contracts as of June in the range up to 155. These would in today’s situation not make any sense. However, if Germany exits, then it would. Then the Bund futures would namely jump in the direction of 150. Eurex has thus already made arrangements that interest rate derivatives are available at all if push comes to shove. This cannot be a coincidence and is an indication that a “major event” will happen by summer. In the range above 140 the Bund futures option area is already being busily traded. Interest technically, this is the preparation by some market participants on Germany’s exit from the euro. The coming weeks are likely to be so gripping.”

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