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News may come, and news may go, but the fiscal policy implementation vehicle known as the market, and now controlled by the Political Reserve don't care. For those who do, here is what has happened in the past few hours and what is on deck for the remainder of the week.

Yesterday, in a rather paradoxical development, the Japanese Cabinet formally announced that the government will purchase several disputed islands that China also claims — a move that Beijing said would bring "serious consequences." The issue at hand is that China and Taiwan also claim the islands, which are part of what Japan calls the Senkakus and China the Diaoyu group. It is paradoxical because the last thing Japan, and its statutory deflationary and demographic collapse needs right now is to "antagonize" the world's fastest growing economy, and its neighbor to the west with whom it had a rather violent give or take as recently as 1945. Japan spin was naive: Chief Cabinet Secretary Osamu Fujimura repeated that the islands are part of Japan's territory and should not cause any friction with other countries or regions. "We certainly do not wish the issue to affect our diplomatic relations with China and it is important to resolve any misunderstanding or miscommunication." Turns out quite a bit of friction was caused as a result, as well as a substantial amount of misunderstanding and miscommunication. As Globe and Mail reports, "China has dispatched two patrol ships to the East China Sea in a show of naval strength and antagonism toward Japan after Tokyo said it had purchased a group of disputed islands from their private owners. China’s aggressive response ratcheted up tensions in a long-standing conflict between the two countries over claims to the territory."

The ECB has released the details of its SMP 2.0 program, aka the OMT program, which will be pari passu, unlike the SMP 1.0. The full details are a whopping 472 words. Furthermore, we hope that it is quite clear to Greece that if the ECB has bought Greek bonds under the new SMP 2.0 program instead of SMP 1.0, its debt would now be about €100 billion less.

From the ECB:

The disregard for the future and the fundamentals of fiscal well-being is about to reap consequences. The Powers That Be counted on "time healing all," as if the mere passage of time would magically heal a broken economy and political machine. Time heals all--unless you have an aggressive cancer. The system has been pushed to extremes: the expectations are impossibly high, the promises are impossibly generous and the sums of money demanded by the vested interests "just to stay afloat" are stratospheric. The "run to fail" levers have all been pushed to the maximum, and it is simply too politically painful to make any real-world adjustments that might save the system from imploding. Nobody wants a crisis, yet a crisis is the only thing that can save the system from implosion.

Monopolies contribute to many problems - the record of evidence illustrates the potential inefficiency, waste and price fixing. Yet the greatest trouble with monopolies is what they take away - competition. Competition is a beautiful mechanism; in exercising their purchasing power and demand preferences, individuals run the economy. If we are for competition in goods and services, why should we disclude competition in the money industry? Would competition in the money industry not benefit the consumer in the manner that competition in other industries does? Why should the form and nature of the medium of exchange be monopolised? Shouldn’t the people - as individuals - be able to make up their own mind about the kind of money that they want to use to engage in transactions? Earlier, this year Ben Bernanke and Ron Paul had an exchange on this subject. It is often said in Keynesian circles that Bernanke is too tame a money printer, and that the people need a greater money supply. Well, set the wider society free to determine their own money supply based on the demand for money.

It is hard to find fiscal situations that are worse than Japan's. The gross government debt/GDP ratio, at more than 200%, is the worst among the major developed economies. Yet yields on Japanese government bonds (JGBs) have not only been among the lowest, they have also been stable, even during the recent deterioration during the European debt crisis. This apparent contravention of the laws of economics is both an enigma for foreign investors and the reason for them to expect fiscal collapse as a result of a sharp rise in selling pressure in the JGB market. As Goldman notes, the European debt crisis has led to an increase in market sensitivity to sovereign risk in general and questions remain on when to expect the tensions in the JGB market and the fiscal deficit to reach a breaking point in Japan. In the following 14 charts, we explore the sustainability of fiscal deficit financing in Japan and Goldman addresses the JGB puzzles.

Silver, wine, art and gold – or SWAG – may be the solution for investors looking to protect their wealth in the coming years according to perceptive Reuters Columnist, James Saft. In an interesting article and an interesting video for Reuters, Saft coins the term “Investing 201” which means having SWAG in your portfolio in order to protect investors from “a grim decade of money printing and financial repression.” SWAG, as in silver, wine, art and gold, are real assets that might just outperform if official policy causes the money supply to surge according to Saft. This is the idea of Joe Roseman, who says SWAG will do very well over what could be a very troubled next decade. "These assets effectively act as a money supply index tracker," said Roseman, who for 16 years was a money manager and economist at Moore Capital, run by the legendary Louis Bacon. "If the authorities are going to bail themselves out, money supply will expand. Every single time governments have been here, this is exactly what they have done."

While all eyes are on the absurdist tragicomedy playing out in Europe, Japan is quietly circling a financial black hole as its export economy is destroyed by its strong currency and the global recession. There is a terrible irony in export-dependent nations being viewed as "safe havens." Their safe haven status pushes their currencies higher, which then crushes their export sector, which then weakens their entire economy and stability, undermining the very factors that created their safe haven status.

The Swiss are the envy today. Soon they will be goats.

Far fetched? Yes, but not crazy....

• Bundesbank’s Weidmann Says ECB Shouldn’t Overstep Mandate (Bloomberg)
• Hollande and Monti Vow to Protect Euro (FT) - be begging Germany to death
• Monti Calls French, Finns to Action as Italy Yields Rises (Bloomberg)
• not working though: Banking license for bailout fund is wrong: German Economy Minister (Reuters)
• Switzerland is ‘New China’ in Currencies (FT)
• Regulator Says no to Obama Mortgage Write-Down Plan (Reuters) - tough: there will be socialism
• Gauging the Triggers to Fed Action (WSJ)
• When domestic monetization is not enough: Azumi Spurns Calls for Bank of Japan to Buy Foreign Bonds to Curb Yen (NYT)
• Indonesia’s July Inflation Accelerates on Higher Food Prices (Bloomberg) - remember: the Deep Fried black swan
• China Manufacturing Teeters Close to Contraction (Bloomberg)
• Spain Introduces Regional Debt Ceilings to Achieve Budget Goals (Bloomberg) - yes, they said "budget goals"

• Schäuble View on Eurozone at Odds With US (FT)
• Juncker: Euro zone leaders, ECB to act on Euro (Reuters)
• German Banks Cut Back Periphery Lending (FT)
• Monetary Policy Role in EU Debt Crisis Limited: Zoellick (CNBC)
• Bond Trading Loses Some Swagger Amid Upheaval (NYT)
• As first reported on ZH, Deflation Dismissed by Bond Measure Amid QE3 Anticipation (Bloomberg)
• Record Cash Collides With Yen as Topix Valuation Nearing Low (Bloomberg) - but, but, all the cash on the sidelines...
• Greek Leaders Agree Most Cuts, Lenders Stay On – Source (Reuters)
• Chinese Investment in US 'set for record year' (China Daily)

The unconscionable behavior of the political class should be thought of as a contagious disease that infiltrates any industry that comes within influence of the state.  Government contractors, lobbying associations, favored corporations, and even the press all seek to use the monopolized power of government to further their own interests.  Instead of attempting to roll back stifling regulations, many of these firms simply wish to get in on the spoils of the great extortionary scheme.  The results are always the same.  Politicians pretend to be saving the people from cold-natured capitalism while politically-connected businessmen and bankers act as if their commercial success is completely of their own doing.  The hidden truth is both act in tandem to fleece the average taxpayer.

• Bundesbank Maintains Opposition to ECB Bond Buying (WSJ)
• Greek Budget Talks Stumble as EU Urges Samaras to Deliver (Bloomberg)
• Fortified by euro, Finns take bailouts on the chin (Reuters)
• China Job Market for Graduates Shows Stress on Slowdown (Bloomberg)
• China Exports Fade as Inflation Eludes Targets: Cutting Research (Bloomberg)
• Japan Falters as Ito Calls for Euro Buys to Rein in Yen: Economy (Bloomberg)
• Government weighs social insurance reforms (China Daily)
• Colombia’s Split Central Bank to Weigh First Rate Cut Since 2010 (Bloomberg)

Somewhat stunned by the market's exuberant reaction to Mario Draghi's 'Believe Me' speech this morning, Charles Biderman, CEO of TrimTabs, sees the slow-motion train-wreck that is the European crisis speeding up and rapidly running out of track. Charles sees the European crisis as "not a solvable problem the way the world works today." Neither Draghi nor any of the bankers even bothers to talk about the real problem of not enough regional income and too much government spending. Draghi's only solution is some form of money printing. "Printing money to pay bills maybe will work over the short term. But long term, it cannot"; if money printing works in the real world why not print and give every one a billion Dollars, Euros or Yen? While governments will do anything to maintain the status quo (and avoid the tough times ahead), Charles succinctly reminds that, "the road to hell is paved with good intentions."