default

As I warned, Greece is ever closer to default (a default that is damn near guaranteed) while Ireland is probably in worse shape!!! Financial contagion begets economic contagion which breeds more financial contagion...

Probably not the best words to use when trying to diffuse a ticking time bomb.

SCHAEUBLE SAYS WOULD REGRET LETTING EURO COUNTRY DEFAULT
SCHAEUBLE SAYS EURO FOUNDERS COULDN'T IMAGINE SOVEREIGN DEFAULT

The market should dutifully ignore this if it knows what's good for it.

And why not - after all it's all the rage among those waiting in line for iPads so they can be first to buy "The Steve Jobs Guide for Deadbeat Dummies Trying To Learn To Read Good." Now that Obama has given his blessing to an entire generation of Americans to tear up contracts (very appropriate coming from a contract law professor), the follow up to moral hazard is resulting in not just individuals and companies, but entire nations simply opting out of paying their dues. Evans-Pritchard reports that after today's ludicrous rates on 3 and 6 month Bills the tide may be turning in Greece, with both parties in the country finally realizing its creditors will do everything in their power to bleed it dry, at "usurious" rates. With economic growth negative for a decade and debt interests quite certainly positive, the marginal difference will destroy not only economic output, but sink Greece ever more in debt, as existing creditors fund capital shortfalls at maturity (or default) by ever increasing interest rates. Greece has the option to stop funneling domestic capital to Germany later (inevitable) or sooner (if it finally makes the right decision).

A casual reminder of what Joaquin Almunia said just over two months ago goes to show the caliber of intellect of those running the show. Needless to say, Zero Hedge was skeptical of Joaquin's bullshit. Speaking of said bureaucrat, we wonder - did he fall off the face of the earth recently? With statesmen like this, who create soundbites such as "We have no Plan B - Plan A is on the the table, it is fiscal adjustment" who needs enemies like Ben Bernanke. Oh yeah, Europe. Nevermind.

Bankingnews.gr has disclosed something interesting. According to the Greek website, an account, allegedly a large US bank, has been dumping, in what it classified as "panic selling", its holdings of a 10 Year GGB maturing on April 20, 2010, or in 11 days. What is unclear is whether the bank has been trading for its own account or for a client. What is clear, is that the seller is certainly not too convinced that the bond will see a repayment of principalwhen it matures, in other words believes that Greece will go bankrupt before April 20th.

The chart says bond curve got more worried, and the CDS curve was … what it was in January. It seems that the CDS market reacted to the bailout news, while bonds continued to sell off. Differences in the curves at other times are reflections of inflation expectations and non-credit idiosyncratic risk. Neither curve is pricing in magical lightning from Zeus’ butthole that miracles billions of euros...Seems that all Greece has to show for their trouble is higher interest costs on a mountain of issuance coming up. On a global scale, aggregate debt repudiation either through inflation or default will be the endgame.

In today’s financial world, a real life, real-time economic World Series of Poker is being played out before our very eyes between the Central Banks of the world’s largest economies. As opposed to the annual Las Vegas World Series of Poker tournament, the buy in at the Central Bank World Series of Poker table is exponentially steeper, in the range of trillions of dollars, yen, and Euros that have been used to monetize the world’s debt, and the stakes are default of sovereign debt and the accompanying collapse of that domestic fiat currency.

Ultimately, as my colleague Dylan Grice writes, I think we head back to double-digit inflation rates as governments opt to default. I certainly again expect to see CPI inflation above 25% in the UK and indeed in most developed nations in my lifetime ? I have happy memories of the three-day week and doing my homework by candlelight. In the near term, however, the deflationary quicksand will suck us ever lower until we suffocate. A key driver for underlying inflation remains unit labour costs. While unit labour costs decline at an unprecedented rate, they are sucking us inevitably into a Fisherian, debt-deflation spiral. Only then will we see how far policymakers are willing to go to debauch the currency. Last year saw them cross the Rubicon. Monetisation is now the policy lever of first resort.

- Albert Edwards, Soc Gen

Some amusing headlines appearing elsewhere today, proclaiming the Greek crisis is over. Hardly: Uri Dadush of the Carnegie Endowment, and formerly of the World Bank says that "it is virtually inevitable that Greece will either default or need a bailout of some sort." Dadush, who a week ago wrote a provocative op-ed in the FT titled "End this inflation fundamentalism", in which he noted that "what happens in Greece will not stay in Greece" also says that "over and beyond the Greek bailout we have to do some thinking about our approach to overall fiscal and monetary approach in Europe." What? Visiting Ben Bernanke every 6 months is no longer sufficient? Oh wait, when everyone is undergoing austerity measures (now coming to Portugal, soon Italy, UK, Germany, Japan, and, lastly the, US), just who is it that will importeveryone else's exports? Why China of course. But hold on, isn't China a net exporter? Oh who cares about facts...The market's mind is already made up. Uri's conclusion will make Hugh Hendry proud: "I think under any circumstance we are going to see a significantly lower euro. I think we are going to see slower growth in Europe over several years, and I think there is a serious risk that the eurozone will implode unless there is a sea-change in the way fiscal and monetary policies are conducted."

From the unthinkable, to the possible, the unavoidable, the actual and finally, the patently obvious

"I kept thinking about prior sovereign events I lived and invested through, and how the “unthinkable” eventually became the “possible”, the “unavoidable”, the “actual” and finally, the “patently obvious”. This week's Sovereign Default Time Capsule shows what people were thinking and saying in real time as sovereign debt and currency crises played out. This is not meant to say that Greece is Argentina; there’s a big difference between Mercosur and the European Union, and it looks like the First Act of the EMU drama will be a bailout for Greece. But it’s instructive to remember how politicians, markets, investors and analysts can underestimate the depths of a problem". - Michael Cembalest, CIO, JP Morgan, Global Wealth Management

The Federal Deposit Insurance Corp. said Tuesday that its deposit-insurance fund fell to $20.9 billion at the end of 2009, a $12.6 billion drop in the final three months of the year, as bank failures continued at a pace not seen since the savings and loan crisis. The fund's reserve ratio was -0.39% at the end of the quarter, the lowest on record for the combined bank and thrift fund...Net charge-offs of troubled loans occurred across all major loan categories, led by a $3.3 billion increase in residential mortgage loans. The FDIC said U.S. banks' coverage ratio--reserves divided by the amount of noncurrent loans--fell to 58.1% in the fourth quarter from 60.1% in the third quarter.

Spanish National Intelligence Agency (CNI) is investigating whether the Spanish economy and the euro have fallen victim to a concerted attack by speculators and foreign media (El Pais)

Wall Street helped mask debts shaking Europe (NYT)

Γερμανογαλλικ? εγγ?ηση στα ελληνικ? ομ?λογα – Πως θα κινηθε? το ΧΑ - Here's to hope for another €5 billion Greek bond deal - the question: will it be guaranteed by Germany/France (B(T)ankingNews.gr)

Majority of Germans want Greece expelled from the euro zone(Reuters)

Dubai stocks plunge after disclosure Dubai World to pay 60 cents on dollar (Bloomberg)

European finance ministers meet to discuss week ahead (Economist)

Greek FinMin unveils tax reform, wage policy, outlawing of cash: "From 1. Jan. 2011, every transaction above 1,500 euros
between natural persons and businesses, or between businesses,
will not be considered legal if it is done in cash. Transactions
will have to be done through debit or credit cards" (Reuters)

Greek Britain? (BBC)

Greek saga won't kill the euro but the end may begin here (Telegraph)

It has long been discussed, both on Zero Hedge and elsewhere, that the massive budget deficit over the next 10 years will have to be funded with an unprecedented amount of new Treasury issuance. Various estimates project that absent a dramatic increase in yields, especially in the mid and longer dated side of the curve, there will simply not be enough demand for treasuries to fund the budget shortfalls just in the upcoming year (let alone the next ten). Furthermore, it is known that governmental estimates put early to mid 2011 total US debt estimates in the $14 trillion ballpark, courtesy of the just signed into law debt ceiling raise to $14.3 trillion. Lastly, the Treasury has made it well known that it intends to push debt issuance away from Bills and into Bonds and Notes, with the goal of increasing the average maturity of new debt to 5-6 years, which also would inevitably increase the average cost of Treasury borrowings as existing debt, of which 40% matures in under a year, has to be rolled into longer-dated debt. We present a recent monthly analysis of core Treasury receipts and outlays, highlighting the minor role that interest payments play currently. Yet should there be a dramatic or even gradual increase in rates, the monthly cost of funding of the ever increasing debt burden will soon become unbearable. A black swan scenario, which introduces an average interest rate reversion to those dark early 1980's days, when USTs carried interest of 10% and over, will see a 424% increase in monthly interest expenditures, which will push the annual interest expense as a percentage of core Treasury Deposits from the current 10% to nearly 50%, plunging America into a debt funding spiral.

When psychologists evaluate human behavior, one of the most prevalent observations regarding any activity is the all too often flawed basis of perceived versus realistic outcomes that dictates our every action. As imperfect creatures, we tend to construct theories that conform with our worldview, which are subsequently reinforced by our confidence (or lack thereof) in the future. This is true in any discipline: finance, politics, gambling, mating, etc. There is hardly a better example of this than the very basis of modern economic theory where assumptions about the validity of fiat currencies determine the actions of central banks, which in turn spill over into every aspect of modern society . Yet what if the very basis of core assumptions is wrong? What if every activity exhibited by humans in the post gold-standard world has a flawed assumption at its core? Austrian economists have, of course, claimed this for ages, usually seeing their efforts conclude with a dead-end as the attempt to change the status quo hits the brick wall of quadrillions of (arguably worthless) pieces of paper which dictate the status quo. However, with the recent turn for the worse, courtesy of sovereign bail outs (as confused as they may be) could the day of reckoning be fast approaching? With each passing the day an affirmative answer seems closer at hand. Today SocGen's Dylan Grice shares his perspectives on popular delusions, and why these may soon be coming to an abrupt end.

In a CNBC interview on Feb. 10, Marc Faber went out on a limb saying ALL governments will eventually default, including the United States. From all indications, this is a fairly plausible scenario.