European Central Bank

Thus we have the world’s three most important Central banks as well as the global economy’s “economic miracle” retreating from aggressive monetary intervention.

All you need to read and some more.

It's one thing for liberals to demand one group of Americans pay for another group of Americans, with a third group's money of course (until it runs out), but when a progressive think tank actually has the temerity to tell Bernanke that Europe is not socialist enough, and thus needs liberal US support, that's when things just get plain old silly. Which incidentally, is precisely what the progressive brains of Mark Weisbrot and Dean Baker, co-directors of the liberal Center for Economic and Policy Research, have done. Naturally, we are all for a humanistic effort; we also believe in leading by example. If Messrs. Weisbrot and Baker would first be kind enough to divest themselves of all their earthly possessions and bank account contents, which should be Fedexed and wired in the direction of Spain post haste, it would make their transparently theatrical pursuit of pseudo-noble causes just that more palatable to the masses who already are on the verge of poverty, and are now being asked to bail out other countries. 

The reality that the global Status Quo has fixed absolutely nothing in four years is finally coming to roost in the global economy. Though there is an endless array of complexity to snare the unwary, the source of instability is both visible and easily understood: too much debt that will never be paid back. Making matters much worse, much of the money that was borrowed--by sovereign governments, local governments, households and private enterprises--was squandered on consumption or malinvestments, and so there are precious few assets or collateral underlying the debt. Even when there is an asset--for example, a vacant house in a vacant development in Spain, or a Greek bond--the market value is considerably lower than the purchase price. The reality is that trillions of dollars, euros, yen and renminbi in phantom wealth will disappear when the losses that have already taken place are finally recognized. Everyone in the world with exposure to the global economy will become poorer in terms of abundant money floating around buying goods and services as credit dries up and deleveraging wipes out trillions of dollars, euros, yen and renminbi of phantom wealth.

All you need to read.

Confused by the latest developments, headlines, stories, counterstories, denials, counterdenials and rumors, but mostly prayers out of Europe? Here is your one stop shop of everything that has transpired in the Eurocrisis most recently.

What would the weekend be without at least one rumor that Europe is on the verge of fixing everything, or failing that, planning for a master fix, OR failing that, planning for a master plan to fix everything. Sure enough, we just got the latter, which considering nobody really believes anything out of Europe anymore, especially not something that has not been signed, stamped and approved by Merkel herself, is rather ballsy. Nonetheless, one can't blame them for trying: "The chiefs of four European institutions are in the process of creating a master plan for the euro zone, the daily Die Welt reports Saturday, in an advance release of an article to be published Sunday. Suggestions targeting a fiscal, banking, and political union, as well as structural reforms, are being worked out..." Less than credible sources report that Spiderman towels (which are now trading at negative repo rates) and cross-rehypothecated kitchen sinks are also key components of all future "master plans" which sadly are absolutely meaningless since the signature of Europe's paymaster - the Bundesrepublik - is as usual lacking. Which is why, "the plan may well mean that the euro zone adopts measures not immediately accepted by the whole of the European Union, the article adds." So... European sub-union? Hardly strange is that just as this latest desperate attempt at distraction from the complete chaos in Europe (which will only find a resolution once XO crosses 1000 as we and Citi suggested two weeks ago and when the world is truly on the verge of the abyss), none other than George Soros has just started a 3-month countdown to European the European D(oom)-Day.

Dodge City, Kansas is a lovely place. The home to 26,101 people regularly enjoy old west casinos, old west rodeos and old west movies. Like we say – it is a lovely place. Yet years ago when it was still cool to be a cowboy, cowboys of all types were getting’ out of Dodge. And who could blame them - bullets flew around town on a regular basis. As we look across the globe today, Dodge City’s are popping up all over the place across America, Europe and Asia. However, within the World of financial markets, government sponsored economic policies are desperately trying to keep everyone in the 2012 financial version of Dodge. Today’s question of the century is which market is the equivalent of Dodge? One thing is for sure, financial bullets are flying fast and furious these days forcing every sane investor to keep their head down. For all other investors, be a good cowboy and be sure to have an exit plan – you never know when you’ll need it.

To be clear, the Fed, indeed, Global Central Banks in general, have never had to deal with a problem the size of the coming EU’s Banking Crisis. I want to stress all of these facts because I am often labeled as being just “doom and gloom” all the time. But I am not in fact doom and gloom. I am a realist. And EU is a colossal mess beyond the scope of anyone’s imagination. The World’s Central Banks cannot possibly hope to contain it. They literally have one of two choices:

1. Monetize everything (hyperinflation)
2. Allow the defaults and collapse to happen (mega-deflation)

We finally get to continue what we started in 2008. Becuase the TPTB insisted on kicking the can down the road, the resulting pain will be excruciatingly devastating versus simply horrible! Alas, once you get you short positions/puts/futures in before the inevitably ill-informed short ban, money can still be made. 

“Gear up!” That is what I say to you this morning. Open your closet door, drag out the flak jacket from 2009, lace up your boots, unlock your guns, bring out the ammo and get ready to go at it one more time because the placid fields of Verdun, long silent, finds the Germans and the French at it once again and we are all about to be dragged back into it; like it or not. There is quite serious business afoot and, just like in war, the political statements made are nothing more than propaganda to mislead the enemy and the enemy is YOU.

• Germany shifts, gives Spain more time on deficit (Reuters)
• Europe must prepare an emergency plan (FT)
• EU Spain reveals €100bn capital flight (FT)
• Spain’s Guindos says future of Euro at stake in Spain (Bloomberg)
• ECB, EU officials warn euro’s survival at risk (Reuters)
• China can ‘cope’ if Greece exits Euro, NDRC Researcher says (Bloomberg)
• Japan Warns Against Rising Yen (WSJ)
• Global stocks investors head for exits (FT)
• Hot Copper Shorts Burning Commodity Firms (Caixin)

All you need to read.

Here we go again. Back in July 2011 we wrote an article entitled "The Real Banking Crisis" where we discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Since that time (and two LTRO infusions and numerous bailouts later), Eurozone banks, as represented by the Euro Stoxx Banks Index, have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the abysmal situation currently unfolding in Greece and Spain.... Although the last eight months have not played out the way we would have expected for gold, they have played out the way we envisioned for the banks. The question now is how long this can go on for, and how long gold can remain under pressure in a banking crisis that has the potential to spread beyond Greece and Spain? So much now rests on the policy responses fashioned by the US Fed and ECB, and just as much also rests on what's left of European citizens' confidence in their local banking institutions. Neither of these things can be precisely measured or predicted, but we continue to firmly believe that depositors in Greece and Spain will choose gold over drachmas or pesetas if they have the foresight and are given the freedom to act accordingly. The number one reason we have always believed gold should be owned, and why we believe it will go higher, is people's growing distrust of the banking system - and we are now there. We will wait and see how the summer develops, and keep our attention firmly focused of the second phase of the bank run now spreading across southern Europe.

If there was one piece of news that could force an all out panic in a market already on the edge, it is that outgoing (as in finally departing) US Treasury Secretary, Tim Geithner, was getting involved in the European Crisis. Sadly, this is precisely what happened.

• SPAIN DEPUTY PM: US TREASURY'S GEITHNER AGREES TO WORK WITH SPAIN TO RESOLVE BANK CRISIS - DJ
• SAENZ DE SANTAMARIA SAYS GEITHNER URGES SPAIN BANK SOLUTION
• SPAIN'S SAENZ DE SANTAMARIA TOLD GEITHNER OF REFORM EFFORTS
• GEITHNER DISCUSSED SPAIN'S PLANS TO STRENGTHEN FINANCE SECTOR
• SPAIN'S SAENZ DE SANTAMARIA TOLD GEITHNER OF REFORM EFFORTS

Sorry, Europe, you are now doomed.