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Much has been made of today's Reuters story how "Iran turns to barter for food as sanctions cripple imports" in which we learn that "Iran is turning to barter - offering gold bullion in overseas vaults or tankerloads of oil - in return for food", and whose purpose no doubt is to demonstrate just how crippled the Iranian economy is as a result of the ongoing US embargo. Incidentally this story is 100% the opposite of the Debka-spun groundless disinformation from a few weeks ago that India was preparing to pay for Iran's oil in gold (they got the asset right, but the flow of funds direction hopelessly wrong). While there is certainly truth to the fact that the US is actively seeking to destabilize the local government, we wonder why? After all as the opportunity cost for the existing regime to do something drastic gets ever lower as the popular resentment rises, leaving the local administration with few options but to engage either the US or Israel. Unless of course, this is the ultimate goal. Yet going back to the Reuters story, it would be quite dramatic, if only it was not the case that Iran has been laying the groundwork for a barter economy for many months now, something which various other analysts perceive as the basis for the destruction of the petrodollar system. Perhaps regular readers will recall that back in July, we wrote an article titled "China And Iran To Bypass Dollar, Plan Oil Barter System." Specifically, we wrote that "according to the FT, China has decided to commence a barter system in which Iranian oil is exchanged directly for Chinese exports. The net result: not only a slap for the US Dollar, but implicitly for all fiat intermediaries, as Iran and China are about to prove that when it comes to exchanging hard resources for critical Chinese goods and services, the world's so called reserve currency is completely irrelevant." Seen in this light the fact that Iran is actually proceeding with a barter system, something that had been in the works for quite a while, actually puts the Reuters story in a totally different light: instead of one predicting the imminent demise of the Iranian economy, the conclusion is inverted, and underscores the culmination of what may have been an extended barter preparation period, has finally gone from beta to (pardon the pun) gold, and Iran is now successfully engaging in global trade without the use of the historical reserve currency.

We have discussed forecasts for the second (and certainly not last ) February 29 3 Year LTRO in the past, with expectations for its size ranging from €1 trillion all the way up to a mindboggling €10 trillion. Today, Goldman has conducted a poll focusing on investors and banks, to gauge the sentiment for what has over the past 2 months been taken as the latest Deus Ex, which is really nothing than yet another bout of quantitative easing, only one in which the central bank pretend to be sterilizing 3 year loans by accepting any and virtually all collateral that banks can scrape off the bottom of their balance sheets (as a reminder, back in the financial crisis, Zero Hedge discovered that the Fed was accepting stocks of bankrupt companies as collateral - certainly the ECB is doing the same now). And once the banks get the cash instead of lending it out, or using it for carry trades, they simply use it to plug equity undercapitalization due to massive asset shortfalls on their balance sheets which are mark-to-unicorn^TM, yet which generate zero cash flow, even as banks have to pay out cash on their liabilities. In essence, the banks convert worthless crap into perfectly normal cash with the ECB as an intermediary: and that is all the LTRO is. Luckily, as we pointed out, even the idiot market is starting to grasp the circular scam nature of this arrangement, and the fact that it is nothing short of Discount Window usage, and because of that, the stigma associated with being seen as needing this last ditch liquidity injection is starting to grind on the banks. It is only a matter of time before hedge funds create portfolios in which they go long banks which openly refuse to use LTRO cash, and short all the other ones (read every single Italian and Spanish bank out there, and most French ones too) because at the end of the day one can only fool insolvency for so long. But once again we are getting ahead of the market by about 3-6 weeks. In the meantime, and looking forward to the next LTRO, whose cash will be used exclusively to build up "firewalls" ahead of the Greek default, here is what Goldman's clients expect to happen...

The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water.  As goes the rest of the world, so goes the US. When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning. This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people.

Back in July of 2011, when we first predicted the demise of the second Greek bailout package, even before the details were fully known in "The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP" we asked, "what happens tomorrow when every German (in a population of 82 very efficient million) wakes up to newspaper headlines screaming that their country is now on the hook to 32% of its GDP in order to keep insolvent Greece, with its 50-some year old retirement age, not to mention Ireland, Portugal, and soon Italy and Spain, as part of the Eurozone? What happens when these same 82 million realize that they are on the hook to sacrificing hundreds of years of welfare state entitlements (recall that Otto von Bismark was the original welfare state progentior) just so a few peripheral national can continue to lie about their deficits (the 6 month Greek deficit already is missing Its full year benchmark target by about 20%) and enjoy generous socialist benefits up to an including guaranteed pensions? What happens when an already mortally wounded in the polls Angela Merkel finds herself in the next general election and experiences an epic electoral loss? We will find out very, very shortly." Alas, it has not been all that very "shortly", as once again we underestimated people's stupidity and willingness to pay the piper of a crumbling economic and monetary system. But our prediction is finally starting to come true. Spiegel has just released an article, which encapsulates what well over 50% of Germans think, who say that the time to let Greece loose, has come.

Since the start of the year, global markets have been apparently buoyed by the understanding that Draghi's shift of the ECB to lender-of-last-and-first-resort via the LTRO has removed a significant tail on the risk spectrum with regard to Euro-banks and slowed the potential for contagious transmission of any further sovereign stress. In fact the rally started earlier on the backs of improved perceptions of US growth (decoupling), better tone in global PMIs, and potential for easing in China and the EMs but it does seem that for now the ECB's liquidity spigot rules markets as even in the face of Greek uncertainty, as George Magnus of UBS notes, 'financial markets are most likely to defer to the ECB's monetary policy largesse' as a solution. Both Magnus and his firm's banking team, however, are unequivocal in their view that the next LTRO will unlikely be the last (how many temporary exceptions are still in place around the world?) and as we noted earlier this morning, banks' managements may indeed not be so quick to gorge on the pipe of freshly collateralized loans this time (as markets will eventually reprice a bank that holds huge size carry trades at an inappropriate risk-weighting) leaving the stigma of LTRO borrowing (for carry trades, substitution for private-sector funding, or buying liquidity insurance) as a mark of differentiable concern as opposed to a rising tide lifts all boats as valuations reach extremes relative to 'broken' business models, falling deposits, and declining earnings power.

They expect a EUR300bn take up of the next LTRO, somewhat larger than the previous EUR200bn add-on - but not hugely so - as the banks face a far different picture (in terms of carry profitability) and yet-to-be-proven transmission to real-economy credit-creation that will make any efforts at a fiscal compact harder and harder to implement as its self-defeating austerity leave debtor countries out in the cold. The critical point is that unless the market believes there will be an endless number of future LTROs, covering the very forward-looking private funding markets for banks, then macro- and event-risk will reappear and volatility will flare.

The last week has offered an amusing display of the difference between the cheerleading corporate mainstream media, lying Wall Street shills and the critical thinking analysts. What passes for journalism at CNBC and the rest of the mainstream print and TV media is beyond laughable. Their America is all about feelings. Are we confident? Are we bullish? Are we optimistic about the future? America has turned into a giant confidence game. The governing elite spend their time spinning stories about recovery and manipulating public opinion so people will feel good and spend money. Facts are inconvenient to their storyline. The truth is for suckers. They know what is best for us and will tell us what to do and when to do it....  The drones at this government propaganda agency relentlessly massage the data until they achieve a happy ending. They use a birth/death model to create jobs out of thin air, later adjusting those phantom jobs away in a press release on a Friday night. They create new categories of Americans to pretend they aren’t really unemployed. They use more models to make adjustments for seasonality. Then they make massive one-time adjustments for the Census. Essentially, you can conclude that anything the BLS reports on a monthly basis is a wild ass guess, massaged to present the most optimistic view of the world. The government preferred unemployment rate of 8.3% is a terrible joke and the MSM dutifully spouts this drivel to a zombie-like public. If the governing elite were to report the truth, the public would realize we are in the midst of a 2nd Great Depression.

While we wait for the antics in Greece to result in some announcement, I can’t help but think about how different the Greek situation is from when JPM bought Bear Stearns (shortly after the last time the Giants won the super bowl). The “weekend” deadline for Bear was neither artificial, nor self-imposed. Without a deal, Bear would have failed that week as risk aversion hit an extreme. Greece has until the March 20th payments, so all the deadlines we keep hearing about are mostly negotiating ploys. The negotiators in Greece will have to approve whatever they decide, so they will need some time. When Jamie Dimon said “done” on the Bear deal, it was done. It also meant a very savvy investor had his people do the analysis and was comfortable with the deal (I’m sure the Fed backstop didn’t hurt). But in Europe, almost none of the people involved in the negotiations have the authority to “pull the trigger”. They have to go back to their respective parties or groups or special interests they represent and get the deals approved. Even more bizarre, is how few of the people involved have financial experience, let alone investment experience. They are largely politicians. The Minister of Finance was the Minister of Defense less than a year ago. The IIF team has limited experience in distressed debt. The “technocrat” in charge has experience, but like many of the Troika members it is as an economist in a functioning economy – not the disaster that is Greece.

Isn’t it meaningless to look at the inverse floaters in isolation? To assess risk, shouldn’t we look at the entire portfolio held by Freddie Mac?

Yesterday we presented why when it comes to Syria, the UN Security Council can forget any attempt at "overhauling" a regime that is a cornerstone for Russian naval presence in the Mediterranean and the middle east. Today, in the aftermath of the UN reminder that it is the world's biggest collection of post-facto hypocrites, not to mention, the world's most irrelevant and ineffectual organization, anger at the Russian and Chinese veto has already manifested itself, as protesters have attacked the Russian embassy in Tripoli and tore down the Russian flag, Al Jazeera reported on Sunday. As Itar-Tass reports, "According to Al Jazeera, the riots staged by the Syria opposition involved Libyans as well. No further details are available so far. None of the Russian diplomats has been hurt in an rally stage by the Syrian opposition in front of the Russian embassy in Tripoli on Sunday, an officer from the Russian embassy told Itar-Tass over the phone. “No one has managed to break into the territory of the Russian diplomatic mission, no one of the personnel has been hurt. All are safe and sound. Although the protesters have managed to tear down the Russian flag,” the diplomat said." Still, the wily occupiers of the Kremlin preempted what they perceived as potential 'displeasure' with Russian tactics to protect its own national interests. Because as Zero Hedge has been reminding readers on occasion, Russia has something that is far more valuable to Europe than the Goldman-alum controlled printing press: it has the world's largest natural gas reserves. Which for a continent gripped in one the coldest winters on record, whose heating infrastructure is based primarily on natgas, and where Russian imports account for 25% of total nat gas, Russia has the upper hand in, well, everything. Which it gladly reminded the world of yesterday. According to the AP: Russia's state-controlled Gazprom natural gas giant acknowledged for the first time Saturday that it "had briefly reduced gas supplies to Europe amid a spell of extreme cold."  Oops... Just a fat finger there, nothing to worry about. Oh, and if anyone forgets that in the Eurasian continent it is Russia who increasingly holds all the cards, Gazprom may "briefly" cut all supplies to Europe, -40 C degree temperatures be damned. Briefly...

Following up on our report from this morning that according to former Greek defense minister, German submarine chief procurer, and not to mention Jenny Twenty repeat offender, Evangelos "Xanax" Venizelos, we learn that the god of Deus Ex Machinae is about to abandon Greece, after an announcement by that most magic unicorn-infatuated of bureaucrats, Eurogroup head Jean-Claude Juncker made it clear that Greece is all but finished. As Reuters reports, "The possibility of a sovereign default by Greece cannot be ruled out, Jean-Claude Juncker, head of the Eurogroup of finance ministers from the single currency zone, said in a German magazine on Saturday." Translation: A Greek default on that €14.5 billion bond maturity D-day of March 20, is now inevitable. In an advance copy of comments to news weekly Der Spiegel, Jean-Claude Juncker was quoted as saying Greece could no longer expect solidarity from other euro zone members if it cannot implement reforms it has agreed. "If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy," he said. So after years of delaying the inevitable sovereign Lehman weekend, it is finally here. As a reminder, when Lehman filed, everyone, at least those in charge, thought the fall out could be contained. It couldn't, and the Fed had to step in with roughly $30 trillion in backstops, guarantees, and asset purchases. The same will happen this time.

UPDATE: Hardly reassuring (from Bloomberg): *U.S. IS `DISGUSTED' WITH RUSSIA, AMBASSADOR RICE SAYS AT UN

The world is suddenly aflutter in its usual fake indignation (how many times have we seen this) having realized what has been going on in Syria for months on end. It was none other than the Headhunter In Chief who "condemned the "unspeakable assault" Saturday by Syrian forces on the city of Homs, a sustained attack that activists say killed more than 200 people in what may be the bloodiest confrontation of the uprising against Bashar Assad's regime.  The assault sparked fierce international outcry ahead of a meeting Saturday of the U.N. Security Council, where the U.S. and other nations are pushing for a vote on an Arab League-backed resolution calling for Assad to step down." Needless to say, just like in the case of Libya, both China and Russia are now a confirmed veto for any security council resolution that enforces a regime change, no fly zone, or what have you. Only this time the stake for Russia (and China as well, as Syria is nothing but a gateway to Iran), are far higher. And as Zero Hedge noted regarding Iranian developments yesterday, "We've seen this play by play many times before and frankly at this point the posturing is getting just silly. What we do want to find out, however, is how will Russia get involved in all of this. Because if recent actions are any precedent, we fully expect Putin to send an aircraft carrier, purely symbolically, in the Arabian Sea himself, just to indicate that any invasion, pardon, liberation, of Iran crude, will first have to go through him. And not to mention China... or India." Sure enough, speaking of aircraft carriers, it was none other than the Russian navy's aircraft carrier Kuznetsov that landed at the Russian naval base in Tartus "in support of the al-Assad regime" back in November, and it is the Tartus base that is arguably one of the most critical locations for the US military vis-a-vis developments in the middle east. And here is why Russia will block any attempt by the west to impose its own will in Syria.

With the world ever more lethargic daily, as if in silent expectation of something big about to happen (quite visible in daily trading volumes), it is easy to forget that just about a year ago the Mediterranean region was rife with violent revolutions in virtually every country along the North African coast. That these have passed their acute phase does not mean that anything has been resolved. And unfortunately, as BMO's Don Coxe reminds us, it is very likely that the Mediterranean region, flanked on one side by the broke European countries of Greece, Italy, Spain (and implicitly Portugal), and on the other by the unstable powder keg of post-revolutionary Libya and Egypt, will likely become quite active yet again. Only this time, in addition to social and economic upheavals, a religious flavor may also be added to the mix. As Coxe says: "Today, the Mediterranean is two civilizations in simultaneous, rapidly unfolding crises. To date, those crises have been largely unrelated. That may well be about to change." Coxe bases part of his argument on the same Thermidorian reaction which we have warned about since early 2011, namely the power, social and economic vacuum that is unleashed in the aftermath of great social change. But there is much more to his argument, which looks much more intently at the feedback loops formed by the divergent collapsing economies that once were the cradle of civilization, and this time could eventually serve as the opposite. To wit: "The eurocrisis has been front and center for nearly two years, during which time the economic and financial fundamentals have continued to deteriorate. “The Arab Spring” came suddenly, in a series of outbursts of optimism. It may have come at the worst possible time for the beleaguered nations of the North Shore. The Mediterranean has entered one of the stormiest periods in recorded history. It is the major contributor to risk in global equity markets. It is too soon to predict how these crises will end. The Cradle of Civilization is rocking amid an array of winds and storms. “The Arab Spring” ...may have come at the worst possible time for the beleaguered nations of the North Shore."

While we first presented Bill Dudley's financial disclosure two days ago, we did so to present the New York Fed's president, and former Goldman managing director's, implicit need to perpetuate the status quo from even purely personal wealth reasons (AIG and GE waiver issues aside). Yet that a Fed member, especially a Goldman alum, is deeply enmeshed within the fabric of the existing, and failing, monetary system is not all that surprising. What is far more surprising, is that the Fed's FOMC may well have a gold bug within its midst, because we were rather surprised to find that none other than the Dallas Fed's Dick Fisher, who however is no longer a voting Fed president in the 2012 year, is a proud owner of at least $1 million worth of Gold in the form of the GLD ETF....and another up to $250K in physical (not paper) platinum. Which begs the question: is Fisher the only Fed president to have seen the light and to put a substantial portion of his wealth in the only asset class that benefits in real terms, from the perpetuation of the Fed's dollar, and fiat broadly, debasement strategy?

In the past, when discussing the goalseeking C-grade excel jockeys at the Congressional Budget Office (or CBO), we have not been technically full of reverence. After all when one uses a phrase such as this one: "What do the NAR, Consumer Confidence and CBO forecasts have in common? If you said, "they are all completely worthless" you are absolutely correct", it may be too late to worry about burned bridges. We do have our reasons: as we pointed out last year, following the whole US downgrade fiasco when the Treasury highlighted the CBO's sterling work in presenting a US future so bright, Timmy "TurboTax" G had to wear shades, we said "according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion." As we know now they were off only by a modest $17.5 trillion on that debt forecast. Yet we never attributed to malice and bias and outright corruption, what simple stupidity and gross incompetence could easily explain. Until today that is, when following a WSJ article, we are left wondering just how deep does the CBO stench truly go and whether its employees are far more corrupt than merely stupid?

Counterfeiting is illegal because it is the false creation of value. The counterfeiter takes low-value paper and turns it into high-value money, which is fundamentally a claim on the real productive value of the economy that issues the currency and recognizes it as a proxy means of exchanging that productive value. Counterfeiting is illegal because the counterfeiter creates no additional value--he creates only the proxy for value. Creating real value--adding meaningful goods or services to the economy--is tedious, hard work. How much easier to simply transform near-worthless paper into a claim on actual goods and services.  If this is illegal, then would somebody please arrest the Board of the Federal Reserve for counterfeiting? The Fed has blatantly printed money without creating any real value to back up their added claims on productive value. Hence they are counterfeiting, pure and simple. A government based on rule of law would arrest these fraudsters and cons at the earliest possible convenience.