Off the keyboard of John Ward
Published on The Slog on April 6, 2013
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The eurozone ‘is haemorrhaging investment’ – Brussels source
“Capital outflow from eurozone especially pernicious” – UBS analysts
In trying to calm nerves, the ECB’s denial of Cyprus Template Syndrome is acting as a confirmation of what unofficial but well-informed sources already know: the investment seeds the eurozone so desperately needs for recovery have been blown far, far away by the hurricane of mistrust following the EC’s Cyprus energy grab. Not only is this going to get worse, it has ensured that the first domino of disaster is about to hit the second. The timescale remains, as ever, uncertain: but its duration just got decimated. The Slog analyses the ‘unforeseen consequences’ of depositor theft.
Mario ‘No Shadow’ Draghi arose from his coffin last Thursday afternoon for a grudging attempt at eurozone damage limitation.
“Cyprus is no template, Cyprus is no turning point in euro area policy,” said Mr Draghi. “I am absolutely sure that the chairman of the Eurogroup has been misunderstood.” He was of course referring to Dutch stream of consonants Jeroen Djisselbloem’s blasé agreement with the concept of stealing our money going forward. It had all been a terrible mistake, allegedly: there would be No More Nicosias, watch my lips.
I spoke to a representative cross-section of dealers, traders, wealth managers, and bond market opinion leaders afterwards. I also spoke to four expats in France, an Italian, a Spaniard, two Americans and three Greeks. None of them believed a word of it. All of them were convinced that, almost certainly, Draghi was trying to stem a capital flight crisis. I have been warned by a Brussels contact that the leakage of euro-investment monies to elsewhere after the Cyprus Heist has been “disastrous”. But I don’t as yet have any hard evidence about the total picture. (If anyone does, then email@example.com is the place to send it).
I can tell you this, however: a Singaporean banker to whom a Slogger kindly introduced me earlier in the week said he had “never been busier” handling panicked demands to open investment and chequing accounts. Another institution in Singapore dealing in accounts larger than $5million had a record week for takings from the eurozone. And the Californian office of a senior banking firm saw “a mega-spike” in ezone euros switching into Dollars.
If all this feels too anecdotal and sample of one, think again: UBS Research Analyst Gareth Berry is happy to confirm the trend in full based on the bank’s own monitoring: “We expect that the theme of capital flight out of the Eurozone will continue to run for some time in the wake of the Cyprus bailout,” he says, “capital flight in the form of investment outflows is even more pernicious.”
Supporting The Slog’s ECB website observations, Berry adds:
“As timely data is still rather difficult to come by, we used our Equity Flow monitor from last week to see if asset managers are now liquidating underlying investments in the Eurozone, especially taking into account that our FX Flow Monitor has been showing such trends for several weeks. The Eurozone suffered the most out of all G10 markets we track, but the distribution of selling was even more troubling – ie, for non-Eurozone based investors it was one way: the US and UK both registered strong inflows last week but almost all of the buying came from their own clients leaving the Eurozone. If past history is anything to go by, the Eurozone’s funding gap may widen further and it’s the real economy, beyond the banks, that will suffer.”
However, the thing is, nobody outside the self-appointed élite knows the official numbers. And this is a bit naughty of the ECB, because it’s supposed in theory to publish some indicative figures on this every week. I’ve yet to read a single mainstream media article that’s noticed just how far behind on this the ECB’s website is. Somehow, Mario Draculaghi managed to get through his monthly report two days ago without being asked a single question about it. He said his forecasts for Q 3&4 2013 were on target “but subject to downside risks”, and that “all incoming data will be monitored closely”. In short, he said nothing whatsoever. Signor Draghi didn’t have to: he has no boss, he has no regulator, and he is not democratically responsible to anyone. But the idea of a Q 3&4 recovery in an investment desert is complete tosh.
Look at the schedule of media releases for the coming week, and you will see that eurozone capital flow trends are absent. The next Governing Council meeting of the ECB in Frankfurt is not until 18th April. The last eurozone risk dashboard was published on March 23rd. The April stats overview shows no data beyond Q3 2009.
In theory, The Big One is the euro area monthly balance of payments and quarterly international investment position to be issued on 19th April. However, that will cover up to the end of February…..long before the alleged capital flight panic got under way.
The reality, as I understand it, is that we are not going to know anything about the eurozone official capital investment position until mid July. And it gets more curiously inconsistent the more one digs into it: the eurozone balance of payments data is known already up to the end of January: but the eurozone international investment stats stop at the end of 2011. We don’t have a single published stat on this for 2012.
Clearly, the ECB’s inner sanctum (and, I’d imagine, the Chancellery, the Elysée Palace, and the Big Beast central banks) will know these numbers almost up to date. My Brussels source says yes, of course they know. He doesn’t know the details: he just alleges that the eurozone “is haemorrhaging money”. He admits that he is simply peddling inside gossip; but I believe him when he says he is sure it’s right. And the UBS monitoring analysis supports his contention entirely.
It would be hard to overestimate the importance of this, a combo of informed gossip and hard data that reflect intuitive common sense. It isn’t conclusion jumping, it’s educated guesstimating: following the blatant theft from depositors in the Cypriot banking system, it should be clear to even the most anally pedantic commentator now that a major exit of vital investment capital from the eurozone is under way. Expect mendacious drivel from Olli Rehn, Tubby Barroso, the key eurogroup players, and it’s incompetent flappy-mouth Dijsselbloem: expect it, and ignore it. The cat is out of the bag, and unless the eurocrats can find a way to stop the outflow and/or replace it, not only is their precious currency project doomed: the eurozone economy will collapse at every point of the compass.
For the debtor eurozone countries, the obvious question to ask from here on is this: what on earth is the point of staying inside a millstone currency? Not only will it price them out of every export market in the world, loss of business investment trust will be swiftly followed by loss of debt bond trust…..the debt mountain ClubMed has will become a beanstalk to infinity they cannot possibly climb.
I suspect the key Sovereign in this context is Italy. That the unofficial certainty of capital outflow is now obvious plays straight into the hands of emerging radical voice Beppo Grillo. This too is clearly evidenced in the desperate attempts by Mario Monti there to cobble together (and force through with Presidential help) a technocratic administration to block further elections. But throughout the formerly supine ClubMed, local attitudes are hardening: Portugal’s Constitutional Court has ruled that the planned austerity measures there are unconstitutional, thus at a stroke derailing the Troika’s strategy. The Court threw out cuts in state pensions and public sector wages, potentially forcing Prime Minister Pedro Passos Coelho to negotiate alternative measures with the country’s international lenders.
In Greece, we have a bailout schedule that is really nothing more than a debt volcano spewing out more suffocating fumes and lava with every year. In Cyprus, a non-economy stabbed in the neck by frenzied rapists. In Italy, a growing tide of public antipathy towards the eurozone. And now in Portugal, a poke in the eye for the Troikanauts from the lawyers. The euro project faces a democratic crisis in southern Europe, and support for those ridiculing it is on the rise throughout the EU . Almost every ClubMed sovereign would today, technically, be better off defaulting on its debt.
For Brussels and ECB-Frankfurt, the game plan now must be to stifle any attempt at new elections in the South. I cannot see how this could succeed: there is no effective eurozone ‘standing army’ to enforce financial repression, and even if there was, the growing rift between Paris and Berlin would ensure the blockage of any such measures.
For Berlin, the pressure from hysterical anti-bailout Bankfurters is increasing and must soon become crucial to this inter-city power struggle. In a thundering lead-article yesterday, its mouthpiece the Frankfurter Allgemeine Zeitung wrote:
‘The European heads of state and governments are sitting in a burning house haggling over the total sum they will have to rustle up for the water damages from putting out the fire. The reproach that they have lost contact with the citizens doesn’t ring true: the fact is, they never had any to start with. The system we live in neither provides for nor admits any legitimate representation for the citizens of Europe.’
Terribly stirring and all that, but the FAZ agenda remains “let’s GTF out of the euro now”. Angela Merkel may feel smug about public anger in Germany about ClubMed depictions of her as a Nazi control-freak, but still 41% of them don’t believe she can protect German savings. One bad election result and one default in the eurozone will put her under irresistible pressure to quite the common currency.
For Paris, Greek default remains the nightmare which dare not speak its name. Embroiled in an offshore banking scandal (Le Monde’s headline this morning is ‘Two French banks fingered’) Hollande found himself depicted as a lame duck on the front page of almost every newspaper yesterday. But whatever Credit Agricole and BNP Paribas have been up to, behind the headlines the French President knows this crisis for him is as nothing compared to the crisis rapidly heading for the country like a runaway truck. Ironically, Le scandale d’offshore is a distraction which may suit some of the Elysée’s advisers down to the ground.
If Berlin starts to make noises about leaving the eurozone – suggesting default as the route for Athens – then the French banking system is dead in the water. Just one ‘bad’ ClubMed election result would be enough to send French debt bond yields heading for the stratosphere. Hollande has, in reality, done little to rein in French State spending and employment: that which he had done is far too little far too late. There is now no way back for Paris, and I suspect the ENAs know it.
For Wall Street, beyond the standard MSM reassurance the growing fear is that two outcomes are likely. First, contagion from eurozone economic flatlining in Q 3&4 will openly reverse Obama’s fake recovery. Yesterday’s NFP Report continued a string of US data output falling short on hope: only 88,000 jobs were created in March, far less than the 190,000 expected. The markets responded with nervous selling of equities. The Great QE Stock Market Wily E Coyote illusion is about to get into serious trouble.
Second, it is fine to get your investment deposits out of the eurozone, but impossible to reverse one’s previously crazy bets. Again, an anarchic eurozone member election could be enough to trigger trouble for a major US bank: confirmed capital flight and economic standstill data from Europe would make one at least almost inevitable.
The first domino is no longer wobbling: it is about to hit the second.
The twelve dominoes of Crashmas
Cyprus has turned out, against all the odds, to be the first domino to head towards the second domino. That Number Two will be the eurozone bond market going from sick to dead. Only events can dictate the exact order of dominoes after that one. But there follows a sensible attempt to suggest one.
The third will be the release (0r leak) of official capital flight figures from Brussels. The fourth will be a consequent acceleration of capital flight. The fifth will be the release of Q3 eurozone economic data.
The sixth will be a Chinese export slowdown. Few people grasp this, but the EU represents 16% of all Beijing’s exports – just one percentage point behind the US.
The seventh will be Berlin backing away from further involvement, while maintaining a vice-like grip over Cyprus. The eighth a Greek default alongside Italian political stalemate. The ninth a chaotic German election. The tenth a major French banking collapse. The eleventh a banking sell-off on Wall Street, and the Dow starting to slide as the White House mirage fades. The twelfth….the hyper-acceleration of a gold rush as global stockmarket confidence implodes.
Off the keyboard of RE
Published on the Doomstead Diner March 31, 2013
Discuss this article at the Economics Table inside the Diner
Easter Sunday 2013, and as usual the Dominoes are Toppling all over the world economically and geopolitically, as a portion of the world population celebrates the Life-Death-Life-Death of a Carpenter-Preacher who claimed to be 1/3 of God.
Inside the Diner as usual also, the debate goes on about the Validity of these claims and what the Significance of them are. From my POV, with so much shit currently ongoing with a MUCH more direct impact on our further Earthly Existence, whether or not JC was 1/3rd of God or not is not a major concern. That is just me though, and does not reflect the Group Think of the Diner. LOL.
Let me go to my major concern of the day, the ongoing Redefinition of what it means to be a Bank Depositor. Most people believe that a Bank is place that Holds Your Money, keeps it Safe from Thieves and you can go get it anytime the Bank is Open and you have your ID with you to prove you are the Owner of said Money. Sorry, no.
The NEW definition of a Bank Depositor is as an UNSECURED CREDITOR of the Bank! When you make a deposit, you are LOANING your money to the bank, and the Bankster now owns it and is free to Gamble it in any way he sees fit. If he loses the money, since you are Unsecured, any assets the bank might still have go FIRST to Senior Bondholders, they get to Divy up the Carcass, the Depositor is left with BUPKIS.
Now, this is hardly the first time in History a Banking System has crashed, in fact it happens at VERY regular intervals in the 80 year Nabe. Every time though, the same folks Reboot, claim to Own Everything they Repoed in the Crash and start Loaning out money AGAIN based on the Assets they Claim to Own. If you want access to any of those Assets, you gotta Borrow the New Money from them, pay interest on it and get taxed on it, try to Save it until the NEXT crash when POOF Up in Smoke it goes again, Rinse and Repeat.
Last time this occurred in the Great Depression, to “Restore Faith” in the Bankstering System, they came up with the Marvelous Gimmick of Goobermint INSURANCE of Bank Deposits! Known here in the FSoA as FDIC. In this farce, supposedly if your Bank goes Belly Up, Da Goobermint will make good on your Deposit up to some nominal figure, 100K has been the common amount chosen for this, though with Inflation in some places it was upped to 250K.
While such Insurance can sorta work in the case of Individual Bank Failures, it can’t work in a systemic Banking Collapse, especially when Da Goobermints doing the Insuring themselves are BK. They don’t HAVE the money to “make good”, and no they can’t just print it either. Why not?
Well first off because NONE of Da Goobermints INCLUDING the FSoA owns the money based on the World Reserve Currency of the Dollar. The Banking Syndicate owns this money and they’ll only Print It in return for Bonds issued by the respective Goobermints, and they’ll only buy those Bonds with Freshly Printed currency of one color or another if they think they can extract further Wealth and Profit out of a given country. Once you look like a Bad Bet as a country, you can’t sell your Bonds, unless yet ANOTHER supra-national agency guarantees them, read that the Troika in the case of Eurotrashland.
The Troika over in Europe and Da Fed here are ALSO insolvent entities, but they are Last Up the Line until the Ferengi Interstellar Freighters loaded with Gold Pressed Latinum show up and the Vulcans arrive to share their Matter-Antimatter Energy system powered by Dilithium Crystals stolen from the Klingons and Romulans. LOL.
Political Pressures abound on both Da Fed and the Troika, but neither is currently engaged in Naked Printing, they are still just buying Bonds from the few countries they consider good bets to extract more wealth from, aka the FSoA and Germany mostly. Said countries have to keep issuing out more debt to support the collapsed debt already everywhere else. The more peripheral countries sucked into this Black Hole of Debt, the bigger the problem becomes for the Core countries, and eventually their Bond Market collapses too. Then the Big Repo begins, along with of course the concomittant Warfare involved.
The HI scenario for the Dollar only occurs if Da Fed will Naked Print to Cover on all the FDIC Insured accounts when systemic Bank failure crosses the pond, and so far what is occurring in Greece & Cyprus indicates they will not do that. Rather Capital Controls will be put in place to prevent Bank Runs and Depositors will be Locked Out from their savings held in the banks.
Exactly WHY any J6P in Eurotrashland is keeping money in a Bank now past a month worth of Bills is a mystery to me. It’s not like any accounts pay much interest under ZIRP. The security is NIL, there is a WAY more likely chance your deposit will be confiscated by the Bank than there is someone will find the cash buried in your backyard.
Small to Medium size Biznesses have an altogether more difficult issue, they HAVE to keep sizable sums in Banks to do commerce and make payroll. Said accounts usually are beyond even Fake Goobermint Insurance, so when the Bank Holiday comes to their Bank, they are basically SOL. Thus a Banking Collapse leads rapidly to a collapse of trade, widespread Unemployment and Depression. Ongoing in Cyprus now as we speak.
There is much Smoke now in Eurotrashland that a Bank Run is already underway out of the Euro even beyond Cyprus. Slovenia is being hit hard, and Super Mario Draghi is hiding behind the Refrigerator with the rest of the Goldman Cockroaches. The ECB is being very Cagey about publishing numbers on Capital Outflow. Measures to restrict Capital flow across borders are being implemented everywhere. The Banksters are LOCKING DOWN.
Where there is SMOKE, there is FIRE. If you are in Europe, I highly suggest you get your money OUT of the Bank and OUT of Euros sooner rather than later. That Titanic is GOING DOWN. For the Dollar Holders here in the FSoA, you probably have a bit longer, but not by much I think. When it goes down in Europe, the AVALANCHE truly begins. Avalanches don’t go SLOW.
Off the keyboard of John Ward
Published on The Slog on March 23, 2013
Discuss this article at the Economics Table inside the Diner
Robbing banks, reducing wages, increasing hours worked: the lessons to take from the Cyprus bailin.
What is the American State Department up to? What will Turkey do? Why didn’t things develop in Moscow? Where is Mario Draghi? WTF is this really all about?
How do you tell if a eurocrat is short-sighted? You ask him to spot the difference between a Russian billionaire’s pocket money and a Cypriot’s life savings.
That gag doing the rounds in southern Europe sums up the perfectly natural focus of most people in ClubMed: this is just more of the same old same old Brussels-am-Berlin bullying cock-up, followed by mealy mouthed denials and a screwed up financial system. As indeed it is. Put with less humour but equal bluntness is this verdict from the OECD Director General’s adviser Adrian Blundell-Wignall:
‘The Cyprus crisis is the result of policy mistakes and a failure of collective responsibility, as well as an illustration of what bad policy can do and could do if it’s not corrected.’ Quite. But not everyone is as stupid as they pretend to be.
Type ‘Cyprus’ and ‘Putin’ into The Slog’s search engine, and you can see that this small island is, and always has been, of pivotal strategic importance in relations between Europeans and Arabs. The energy and rare-earth mineral finds of recent years have merely accentuated what was already a place of obvious military importance: access to the Med for Moscow, and a jumping-off point for the US and its obsessive concern with securing energy supplies and the ever-more tenuous Al Qaida.
What very few people do for starters is just look where the hell Cyprus is. As you can see from this map, it is a long way east of Rhodes. That country it appears to be pointing a finger at is Syria. Just after that comes Iraq and Iran. A spit and a throw to the north is Erdogan-run Turkey. Every one of these countries is in one form or another the victim (willing or otherwise) of Islamist advance.
Since 9/11, the so-called War on Terrorism plus Peak Oil theories have had the Americans in a fit of manic focus on this entire area.
Erdogan has always wanted Cyprus ‘back’ (although it was never his in real terms) but more especially he wants the energy fields reconfigured to favour Turkey. Being a NATO ally, he is more than capable of making this mess even more complicated – and the Turks confirmed two days ago that they’d challenge any move by Cyprus to speed up offshore natural gas exploration. Yet there seems to be no pressure from NATO to shut Erdogan up. Why?
For Moscow, the stakes are very high both strategically and in relation to the energy reserves.
In a number of key areas of the region, one of the biggest prospectors in Noble Energy. Former employee Jim Cramer explains:
“…about the nexus between the Cyprus bank bailout deal and the natural gas and oil development in the western Mediterranean…I believe there are some places where these two seemingly unconnected events meet. Since 2010, Noble Energy has been on the front line in exploring the massive Levant basin, including large potential deepwater fields located in both Israeli and Cypriot waters. At every turn, enthusiasm has grown, and it is now thought that the many fields inside the Levant basin could change the natural gas supply dynamic in the entire Western Mediterranean, including both Greece and Italy. Eastern Europe has been forced to depend exclusively on very undependable Russian gas supplies, periodically cut by the Russians dependent upon prices and their own national demand, as well as their national interest. But the now-nearly ready supply from the Leviathan and Tamar fields might begin to break that Russian hegemony. The Tamar field will begin production in April, promising more than a 1 billion cubic feet a day of natural gas, a small but important start….”
So here is a way for Moscow to escape into the Med, have a finger in both energy pies, and avoid being stitched out of its all-important energy-supply business. But also here is an American company leading the charge. What we haven’t seen is any evidence of the US State Department getting heavy with Brussels, Berlin, or Moscow in public.
Even more mystifying (although there were cold Muscovite feet from the start of the the Russo-Cypriot bailout talks) the sessions came to nothing: Russia walked away. Why?
The EC itself is now admitting (a rarity in itself) that this the Cyprus bailout offer was a cock-up. But the ECB has delivered an ultimatum (anyone remember there being a vote on that?) to Nicosia saying ‘Monday is it guys: if you’re in fine, if you’re not, you’re broke’. Yet of the most powerful financial officer in Europe, Mario Draghi, there is no sign: nothing, in fact, since March 7th. Why?
Former Foreign Minister and losing Presidential candidate of Cyprus George Lillikas said Wednesday last that he was certain a Cypriot eurozone exit would lead to the collapse of the single currency. “I am sure that if one country, no matter how small, leaves the eurozone, the euro will collapse,” he said, “but the troika’s suggestions of imposing a tax on deposits in Cypriot banks would destroy the island’s banking system”. As indeed it would. Yet Berlin turned up the heat on Cyprus yesterday, increasing the amount Nicosia must raise to secure a bailout…despite the mortal injury that Cyrpriot exit could inflict on the eurozone via a mélange of rebellion and financial contagion. Why?
This leaves us with a number of questions to answer. And you must, I’m afraid accept most of what follows for what it is: informed speculation. I’ve been given some steers and hints along the way, but nothing concrete.
I think there’s every reason to suspect that the US is giving Turkey a long leash, because it needs Turkey as a base (and a suitable place to invent fictitious crap about Syria) through which it can neutralise first Assad and then Iran. The American strategy is clear: support the Sunni Muslim Brotherhood against the Shi’ite Iranians and Alhawite Syrian élite, and thus secure energy access throughout the Middle East. As so often with the US, the policy is naive, its consequences haven’t been considered enough, and it has no basis in terms of how the Sunnis will run things as and when Assad finally loses. But America is ultimately selfish in foreign policy, and paranoid about energy and raw materials.
That reality may also partly explain why the US State department has been surprisingly private about this whole affair. There are some who will tell you that the long term Pentagon aim for Cyprus is a shared hegemony over the place with Turkey. So a weak Cyprus in hock to the EU might suit both very well. It would also, of course, remove the legal obstacle Brussels would face in having two members, both claiming the island as theirs. But whatever the EU says in public, several key members remain implacably opposed to Turkish entry.
The bigger mystery at first sight is why Putin looked this gift-horse in the mouth. I think there is probably far more to this than Moscow simply being unwilling to clear up the mess created by Brussels-am-Berlin. At a total bailout cost of €18 billion – small change for Russia these days – the Kremlin could’ve broken out from its perceived encirclement and neutralised any EU/US attempt to stitch it out of new energy reserves. In purely geopolitical terms, this looks like an act of completely myopic idiocy.
But there are other important factors. The Mafia/oligarch axis in Russia is virtually indistinguishable from the energy sector. They might get control of the sub-ocean finds – but they might not. If they didn’t – with Nicosia and Putin heavily involved – then their control over the Russian economy would be reduced. It’s likely that the top blokes applied pressure to the talks on that basis.
The Kremlin was also worried about the British naval presence on Cyprus. They seem to have seen the deal as rather like buying a low-priced house with sitting tenants already in place: it isn’t really your house until they leave. In a military dimension, that sort of thing is very important.
Finally, it is clear that Moscow doesn’t trust Anastasiadi, seeing him virtually as an enemy. Allegedly, at the outset of the discussions very little seemed to be on offer from the Cypriots, and this convinced more than one on the Russian side that Nicosia wasn’t serious: that it was using Moscow’s interest as a bargaining tool against the EC. Others in turn pointed out that the bailout amount seemed hazy (as I showed yesterday, it was worked out on the most facile of bases) and likely to pave the way for more debt until Cyprus became a money pit. On the other hand, a Cypriot source thinks the Russians were never serious either, and wished only to wind up the West.
I still find much of this hard to rationalise. It is just possible that Russia no longer sees military attack as the best way to influence events, so the Med has a lower strategic importance for them: that energy and cyberspace are better weapons. That’s what one source in Washington thinks. I’m not convinced.
The mystery of Mario Draghi the Invisible Man is more disturbing in some ways. I posted about Schäuble briefing bigtime against him the week before last, and I now think it boils down to two serious possibilities. The first is that Berlin has somehow neutralised the ECB boss, and told him to stay out of public and leave it to them. If so, he has managed very well to be AWOL during a classic Brussels-am-Berlin cock-up. But even as the ECB demanded a Nicosia decision by Monday and then demanded more money after the Moscow talks broke down, SuperMario was nowhere to be seen. That is odd.
The second possibility – and one I increasingly favour – is that from the outset Mario Draghi saw Cyprus as a distraction, no more: he knows that via his control over the banking purse-strings, he can bring the island to its knees any time he likes. Either he knew (or guessed) that the Berlin mentality would jackboot into the situation and use it as a test-case for (a) future events where threats are felt to be necessary and (b) setting the precedent for State theft of depositor funds under the guise of bollocks like Open Bank Recontruction (OBR) or fantasy ‘levies’. Of course, he would prefer to be away from that grubby operation, but I return to the key word here – distraction: Germany’s aim is control; Draghi’s aim is the survival of the euro, whatever it might cost. The two need not be the same, and in the long term probably won’t be.
I have heard but one rumour about what is distracting Draghi, but that’s all it is. I can however say with near-certainty he has been genuinely busy in recent weeks on the subject of eurozone exports.
In almost his last public appearance just over a month ago, ECB President Mario Draghi tried to take the heat out of the currency wars debate by dismissing it as a fantasy. That always makes my nose twitch: when any top Wally says never, unique, impossible, poppycock or fantasy, you know you’re onto something. And while Mario worked hard to rubbish the idea, he did quite openly say that the ECB would “still have to assess the economic impact of the euro’s strength”.
His chief concern at the moment is high costs making eurozone exports uncompetitive. This problem doesn’t seem to afflict Germany, but it is at base the fundamental problem with the euro: you can’t devalue it here and revalue it there. It’s all or nobody, as it were. Devalue the whole eurozone currency, and it may help ClubMed for a while: but in the medium term, it will make things even easier for Germany to get richer and richer. Draghi does not, in private, want that at any cost. What he wants is an efficient EU ensuring a stable, respected currency.
While there’s no doubt that on balance the ECB would like a cheaper euro (another reason to have left Germany alone to f**k up the Cyprus bailout?) Mario’s ideas are far more focused on cost reduction in the real world of manufacturing: and the biggest single way to do that is to drive down wages.
Two weeks ago, the ECB boss made a late-night presentation to senior eurocrats and europols about the twin issues of productivity and wages. Six years ago Germany went through the studied process of maintaining a voluntary pay freeze. Draghi thinks the rest of Europe must follow suit, but ClubMed workers tend to be less obedient than Shop Floor Fritz. He has not, in fact, been neutralised by Berlin: he is supporting Berlin’s plan to provide cheap labour working longer hours, but via another, less public, method: helping to make people desperate.
The toughest immediate challenges ahead now are Italy and Spain. Both countries have powerful leftwing Parties unwilling to put up with much more austerity. Draghi’s opinion is strongly towards easing off on the cuts, finding the money for stimulus, and lowering the expectations of those re-entering the job market. It’s a tough circle to square, but he’s on the case.
Equally, Spain, Italy and France could soon find themselves at the epicentre of a european bond market panic…especially if Greek default becomes more likely (it must) and Italian rebellion gains speed (it will). As I reported some time ago, Mario Draghi is keen on the idea of using gold as a bond-backing instrument to overcome this. That’s no easy task either.
The point is this: Draghi may have had his own career reasons for being off the set during the last fortnight. But thinking about it in the round, he is clearly very busy. It may add up to no more than that. Personally, what he plans to do adds up to yet another form of citizen pauperisation alongside the bank robbery approach. I think it is bound to make things worse, but there you are: what do I know?
And so the final question sets itself really: peering out from the helicopter, WTF is going on here? I think there is one further possibility. You may have noticed that President Obama conveniently turned up in Israel this week, talking airily about peace – in that rhetoric-dominated manner he adopts when there’s no beef in the sandwich. In fact, he got Netanyahu to utter some encouragingly nice bromides about America as an ally and the bonds of friendship being unbreakable and so forth. I don’t think Barack Obama was in the region to talk about peace. He was doing the “I’m here to remind you all that I’m keeping a beady eye on this sh*t”.
There is a theory that runs like this. The commitment to Berlin remains strong in Washington, as the only place likely to sort out the eurozone disaster. Merkel’s husband is extremely well-connected in the American security sector. State under Hillary Clinton made it very obvious she was “betting the farm” on Germany, as indeed did Timothy Geithner. Both sides now have a vested interest in a supine ClubMed in general (less threat to Wall Street) and Greco-Cypriot weakness in particular (the EC remains dominant, Berlin gets tough on the euro, the Americans retain their access to mining, energy and military bases, the Russian monopoly on gas supply is broken). That also, of course, suits Turkey.
This may very well be how the interested parties see it. Erdogan mouths off and gets to look macho, Schäuble plays hardball and gets another one over Draghi, and the US President turns up to remind everyone who’s really in control here. I cannot believe that these NATO allies didn’t at least discuss some of the possible outcomes beforehand. Thus I would also assume that all this – and the dangers of messing with it – will also have been politely explained to Moscow. There may even have been a carrot on hand if necessary.
The total picture on Cyprus is on three main levels: Brussels-am-Berlin mendacious control to blame austerity’s failure on nasty billionaires, lazy Greeks, and dumb Cypriot potato-heads; Washington-am-Berlin geopolitical power games; and a deregulating financial élite working along side Major League politicians to find ‘solutions’ to the problems they themselves created. This last dimension is the one I think the most significant: if the Berlin-dominated EC decides it wants a power bulwark against Russia, China, the US or whomever, there’s nothing I can do to stop them, and there are plenty of ways to avoid the effects of it. I’m British, and sixty-five years old. I’ll continue to try and wake people up to it, but I’m past the barricades stage of life. Ditto the likelihood that US Friedmanite mercantilism will wind up blowing us all up. But in the end, most power and almost all misery stems from money.
It’s very clear now – and the catalyst here has indeed been the Cyprus crisis – that most developed countries have a plan in place for buying their way out of self-inflicted trouble, and that we aren’t going to even loan them the dosh: they’re going to find ways to cut out the middle men (the Revenue services) and simply steal it from our bank accounts, bond investments, gold punts, interest on capital, dormant accounts and so forth. What RBS has been doing to SMEs for the last four years is going to happen globally to all of us…..unless we resist. Confirmation of this is, in my view, the main by-product of Nicosia’s collapse at the prospect of Berlin smash-and-grab.
Without money, States cannot fulfil their objectives. On the other hand, money does get people off the sofa in the end. On those encouraging bases, I foresee some change of focus for The Slog from here on.
Off the keyboard of Steve from Virginia
Published on Economic Undertow on March 17, 2012
Figure 1: Does the crude market unravel due to hoarding of funds or is there a ferocious price spike followed by a crash? The EU plays with fire. Chart comparing costs for replacement crude oil to what the customer can afford to pay: by TFC Charts (click on for big). The time remaining to adjust or make positive changes in policy direction has become shorter and more uncertain. The window of roughly two years until fuel supply shocks presumed no policy errors on the part of the establishment.
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Welcome to the new, improved bank run!
The European Union bosses have levied a tax against bank depositors in Cyprus, the purpose being to maintain the drive-first status quo. By doing so they appear to have stepped off the end of the gangplank (NY Times):
Facing Bailout Tax, Cypriots Try to Get Cash Out of Banks Liz Alderman, NY TimesATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.After Negotiations, Cyprus Agrees to a Euro Zone Bailout Package (March 17, 2013)The move — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
This is naked confiscation of funds from ordinary citizens, there is no correlating increase in worth of the remaining funds or expansion of the Cypriot economy. It is simply shoveling more good money down the euro rat hole to save senior secured creditors to the banks from loss … as well as support the automotive waste status quo.
Athens, Greece is flooded with rainwater as well as with endless streams of traffic. Europeans do not realize that as long as one car is running in Europe and elsewhere, there will be economic decline. Globalization at work: the Europeans are subsidizing fuel demand in China which increases competitive cost pressure in Europe. This decline is spread to Cyprus by way of its banks, an afterthought to the crisis that has engulfed Greece and the other euro-states.
Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits under that amount are to be taxed at 6.75 percent, meaning that Cyprus’s creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.
Problems in Cyprus are not new, the country’s banks have loaned large amounts to Greek businesses and banks, the loans are multiples of Cypriot GDP. As Greece falls further into bankruptcy, so do the Cypriot banks.
Cyprus is also in the cross-hairs of European bank regulators as Russian ‘investment’ funds flow into Cypriot banks from Russia … then back out again. Regulators accuse Cypriot bankers of laundering funds of Russian gangsters and oligarchs. The source of particular funds is unclear but in aggregate, all euros in the hands of Russian depositors are from European energy consumers buying Russian non-renewables including natural gas and crude oil.
The Washington Post says:
Why today’s Cyprus bailout could be the start of the next financial crisis Neil IrwinIt is a bad day to have your money deposited in a bank in the Mediterranean island nation of Cyprus. And it may just mean some bad days ahead for the rest of us.Early Saturday, the nation reached an agreement with international lenders (IMF, European Central Bank and European Union) for bailout help. Part of the agreement: Bank depositors with more than 100,000 euros ($131,000) in their accounts will take a 9.9 percent haircut. Even those with less in savings will see their accounts reduced by 6.75 percent. That’s right: Anyone with money in a Cypriot bank will have significantly less money when the banks open for business Tuesday than they did on Friday. Cypriots have reacted with this perfectly rational reaction: lining up at ATM machines to try to get as much money out in the form of cash before the money they have in their accounts is reduced.
The idea that emerges is that banks — like real estate — are currency traps, that there is no ‘safety’ for funds … anywhere. - A bank run has been underway in Europe for several years. Part of this is the foreign exchange aspect of the eurozone and is structural.
Figure 2: The God-like Unholy Trinity which determines the course of foreign exchange for all countries including those in Europe. A country can have an independent monetary policy, it can maintain a currency peg with another country or countries and it can enjoy the free flow of capital across its borders. It can effect two of these, or two can be denied, but never all three at once.
The worth of money is determined — not by central banks — but by its voluntary exchange for a valuable physical good on demand … at gasoline stations around the world millions of times a day. Even with policy rates set to zero and the all-out lending to governments by central banks there is no independent monetary policy … anywhere. The worth of money is determined by its exchange for crude and crude products and nothing else. The only policies that central banks can effect are those that make matters worse.
The euro is not a currency in the sense that it is the product of a nation named ‘Europe’, rather it is the collection of currencies of individual European nations that all happen to be called the euro. These currencies are all pegged to each other, a source of Europe’s misery as there is no way for the individual euros to be repriced independently of the others. Europe has the pegged currencies and no independent monetary policy: all that remains is the free flow of capital or not across European borders … that is, bank runs.
Bank runs are baked into the cake to some degree because of the use of the European Stability Mechanism (ESM) which is a credit-laundering machine to allow the ECB to make unsecured loans. This is fatal to the central bank because it has insufficient capital and its assets are the same assets that have bankrupted the various commercial banks. Once implemented — due in April — here is no effective lender of last resort in Europe. The ECB is simply another insolvent European commercial lender.
The system is clearly worth more to the Europeans than the funds it contains. The system is embodied in the euro which = gasoline. Stripped to essentials, the Europeans are choosing to drive over maintaining a functioning economy. Granted, the economy has depended upon driving to maintain cash flows, but this waste-based approach is unraveling. Cash flows will be interrupted regardless of what the Europeans choose to do. It would be best for the Europeans to jettison the driving and use the money to re-capitalize a less wasteful economy.
When the euro system fails it will be as a result of eurozone countries being bankrupt, not defects of the euro itself. When a country is bankrupt to the degree it torpedoes the euro that country cannot do better with any other currency! In other words, these countries in Europe could dollarize and they would still be bankrupt.
At this point in the five-year decline in Europe, policy errors are unavoidable. Bank assets in Europe are worthless. They are essentially car loans … along with loans to enable the Europeans to buy fuel which has been burned up for absolutely no return. This is why the countries are bankrupt, not because of the euro which is simply a currency.
Europe has made itself vulnerable to push-back from Russians who are large depositors to Cypriot banks. Russia will pay itself at the front end of the natural gas pipeline: 10% less deposits, 10% less gas. All Putin has to do is order pet Gazprom to turn a valve and the Europeans freeze inside their houses.
Not the first time depositors have been ravaged in Europe: Spanish depositors have been made into stockholders of combined banks after smaller home-loan banks failed. When the combined banks failed in turn the new shareholders were completely wiped out.
From the ‘shooting oneself in the foot and liking it’ department: the entire euro banking system collateral is the same system’s deposits. European banks need more deposits not less! Instead of stifling contagion in Europe as is claimed by the managers, this action looks to be the trigger for Continent-wide bank runs.
It will be very hard for the establishment to put this particular genie back into the bottle. Even discussions about withdrawing the action will be destabilizing as every word will be freighted with consequences to depositors, not just in Cyprus but elsewhere.
The strategy to solving money laundering is to deal with it directly, by prosecuting criminals rather than penalizing ordinary bank customers. It isn’t the customers’ fault that Russian- and other overseas criminals use Cypriot banks, there is nothing ordinary bank customers can do about it, either.
Whatever the Troika hopes to gain by annexing deposits will be lost by the European Central Bank and the banking system as a whole.
Notice that the action took place on a weekend, as was the case during the ‘Lehman breakdown’. Also notice that Cypriot banks are now to be closed on Tuesday as well (Monday is a Cypriot national holiday).
“(Cyprus President Nicos) Anastasiades explained that Cyprus gave way after the ECB threatened to push the island into a disorderly default by withdrawing liquidity support for Laiki, its second-biggest bank, on Tuesday.
He said Cyprus had a choice between “a catastrophic scenario of disorderly bankruptcy, or a scenario of a painful but controlled management of the crisis”.
According to Cyprus sources, the IMF and German managers wanted a 40% haircut. 7-10% is only the first installment. The Cyprus bank insolvency cannot be cured, only the money interests made whole by the rest.
All EU depositors — in countries with similar finance problems as Cyprus or not — are facing theft of funds. In Cyprus, funds are stolen from depositors and handed to senior secured creditors of the Cypriot banks, preferred shareholders, lenders to the Cyprus state and depositors to Cypriot banks outside of Cyprus. The establishment is afraid the bondholders won’t lend any more. The EU system is broken, nobody knows what to do, there is no reason to lend, anyway.
With the cost of new fuel rising due to geological constraints, with access to credit diminishing due to high energy prices, there has been a rapidly shrinking window of opportunity for the managers to take appropriate actions to strengthen the money- system and to conserve resources/capital. That window is now being slammed shut by foolish managers.
Notice how the ‘system’ works, nothing really changes except the scale: from, “Hiding in plain sight”:
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.
Q: How would you describe the economy?
A: It is a system that allows a select few to borrow immense fortunes. The rest of us … you, me, everyone else … repay the debts.
Q: That’s it?
A: That’s it.
The face of Peak Oil. 
We are in the middle of a crisis that has been ongoing for almost five years now: the managers demand the economic system be bailed out. Of whom do they make demands? Entrepreneurs? Innovators? The finest minds of a generation?
A: Pensioners. (Bank depositors.)
The economies must become more productive which means increasing the efficiency of output. Consequently, pensioners are called upon to sacrifice their retirements in the UK, Greece, Ireland, Portugal, in the US … in cities and states pensions everywhere are under attack.
Why not more machines? If machines are productive, wouldn’t deploying more machines solve the economic problems around the world rather than deploying pensioners (and bank depositors)? Technology is supposed to save us but the raiding of pensions — and bank accounts — insists otherwise: the scraping of the bottom of the barrel in real time. It’s an admission that technology won’t work, from the people who are in a position to know.
What happens after the retirements (and bank accounts) are pilfered? Who knows? Nobody has a plan.
The world is shocked to discover a shortage of capital, not for investments but to prop sagging balance sheets. Who could have guessed as capital has been shoveled into the furnaces of ‘development’ for decades? Only economists and bureaucrats believe that we never run out of inputs.
Neil Gough (NY Times)
China’s banks are among the biggest and most profitable financial institutions in the world. But the state-backed banks are also starved for capital after an aggressive lending spree that was encouraged by the government.
Maybe they are profitable and maybe not. “Starved for capital,” suggests not. The operating idea is that capital is money rather than material inputs. These inputs are mispriced so that the money-equations used by industrialists add up to something ‘positive’. Cheating works until it doesn’t any more: substituting debt for unaffordable inputs doesn’t produce anything. Debt isn’t capital and self-delusion isn’t capitalism. Maybe we should call our economic system ‘Delusionism’ and be done with it.
Within the last year (2011), seven of the biggest Chinese banks tapped the markets for 323.8 billion renminbi ($51.4 billion ) in new funds, according to Citigroup estimates. Several financial firms are expected to raise another $17.7 billion in the next few months, with China’s fifth-biggest lender, the Bank of Communications, accounting for $9 billion. Banks around the world have been tapping investors for new funds as they struggle with slumping share prices and waning profits. But Chinese firms have maintained that their profit growth is strong and their balance sheets are solid, raising red flags among some analysts about the banks’ persistent capital needs.
Chinese bankers and business tycoons, each more corrupt than the last: raise that Red Flag high! The Chinese need capital because so many are stealing it and removing themselves overseas.
The problem is that paying out high dividends blows holes in their base capital. Thus, banks need to continue tapping the markets for fresh funds, often diluting minority shareholders by issuing new shares. The finance ministry, the banks’ ultimate controlling shareholder, always buys in, keeping its stakes topped up.
Somebody at the bottom always takes it in the neck. Today, it’s the minority shareholders, tomorrow it will be the senior bondholders or the pensioners or the schoolchildren forced to eat radioactive school lunches. This is part of an ongoing process, not a new feature within delusionism. It was invisible when everyone was busy getting rich: now that the abuses are visible it can only be on account that fewer are getting rich. The endgame heaves into view.
The journey from ATM to ATM to withdraw money is just beginning in Europe, as it was years ago in Argentina. After that comes the banging of pots and pans in the streets, then come bomb attacks on police stations. This is not a good journey for the Europeans to be embarked upon.
 Unidentified cinematographer, ‘The Character Humongous from the film, Road Warrior’.
Off the keyboard of John Ward
Published on The Slog on March 16, 2013
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The depositor haircut: German exit visa or just plain stupidity?
When I first heard of the bailout ‘solution’ for Cyprus late Friday morning, my first inclination was not to believe it. But then I remembered a conversation with a Madrid source earlier in the week (it was about the Wolfgang Schäuble v Mario Draghi dogfight) and went back to him late Friday afternoon just to check my memory of the conversation was correct. It was: he’d more or less said that it was a fight between two people on mad missions – respectively, to control European fiscal management according to German needs, and to ensure that nothing and nobody would get in the way of the euro’s survival.
On the Greek haircut question, Draghi illegally subordinated the private bondholders. Now it was Brussels-am-Berlin’s turn to subordinate the depositors in Cypriot banks. My own guess here is that Draghi knew precisely how dumb the Schäuble idea was for Cyprus (at one point in the debate, the German Finance Minister demanded depositors be wiped out to the tune of 40%) and decided to let him make an idiot of himself. So quickly were Draghi’s expectations of a bank run shared by the media, by early Saturday morning Olli Rehn was hastily promising a press conference that there wouldn’t be a repeat anywhere else in the eurozone of the tax on bank deposits that was imposed as part of Cyprus’s aid programme.
However, other interpretations are possible. Even in Berlin – even within the CDU, even in the Chancellery – nobody is entirely certain whose side Wolfgang Schäuble is really on. There are those who think he secretly supports the Bankfurt hardliners who want out of the euro. Others see him as a control freak with an unquenchable desire to run Europe’s fiscal system. A Frankfurt contact told me recently, “I’d guess that Schäuble’s plan is to slam the ECB and thus keep German losses in Cyprus to a minimum.” Based on what he wanted from the Cyprus bailout, that sounds like an increasingly accurate perception.
But does he really want to keep the euro, or did he set out to insist on doing something profoundly stupid over Cyprus in order to hasten the end of the euro….and get out with minimal damage to Berlin?
And here’s another angle: the bank run in Cyprus actually began a week ago, when Russian money began shipping out fast. Did Berlin tip Putin off as to what was about to happen?
This picture was sent to me from outside a Cypriot bank today. It displays more than panic: the large vehicle featured is clearly set up to ram the bank if it looks like farmers can’t get their money out. On Tuesday morning, the banks will open in Cyprus and there will queues to withdraw money round the block. Cyprus’s own finance minister dismissed the idea of a depositor haircut only a few days ago saying “Really and categorically – and this doesn’t only apply in the case of Cyprus but for the world over and the euro zone – there really couldn’t be a more stupid idea.”
Wolfie not only had the stupid idea, he also sold it to the others in the room. This is how crazy and/or Machiavellian things get when the endgame is just around the corner.
As to what will happen in the rest of ClubMed when their banks open, as Karl Whelan wrote in Forbes yesterday, ‘Now that people know that a depositor haircut is part of the European toolkit for dealing with banking problems, why would you sit around and wait for it to happen to you? This decision has the potential to trigger a full-scale bank run across the euro area, and such an outcome could place in question the continued existence of the euro as a common currency.’
But Whelan himself admits nothing might happen. However, he does acknowledge that the decision to tax all deposits below €100,000 shows that ordinary Cypriots are going to be hit very hard….and that this wasn’t just an attempt to shave the heads of Russian gangsters.
All I can say is that I was going to put a large six-figure sum into a eurobank next week to hedge against Sterling being openly massaged down the toilet in value. Now I’m going to put it into Dollars outside the eurozone. It seems to me that having torpoedoed the long-term bond market in Europe, the Eunatics have cast huge doubts over their willingness to guarantee deposits in the ezone banking system. Whether this is madness inflicted by angry Gods or catalysts thrown onto the fire by wily Germans is anyone’s guess. Either way, investors won’t be impressed.
Off the keyboard of RE
Published originally on the Doomstead Diner on January 12, 2013
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If you are the kind of person who worries about Inflation and read the pages of Zero Hedge, there’s a good chance a few days ago reading through the article summaries on the Home Page you had to take a trip to the Throne Room and kneel down and Pray to the Porcelain God while Heaving the Technicolor Yawn.
Let me begin this article by pasting in a few of the synopses from Jan 7th, which came nearly one right after another describing the various and sundry Monetary “experiments” being undertaken by the Bank of Japan (BoJ), the People’s Bank of China (PBoC), the Swiss National Bank(SNB) the European Central Bank (ECB), and of course that Central Bank we all Love to Hate here in the FSofA, Da Fed(FRB). Not all these main CBs are covered in these articles, but they are sufficient to detect a pattern forming up.
Submitted by Tyler Durdenon 01/07/2013 – 22:03
Just when we thought America would be alone in crossing into the montary twilight zone where so many Keynesian lunatics have gone before, and where trillion dollar platinum coins fall from the sky right onto the heads of all those who have not even the faintest understanding of money creation, here comes Japan:
ASO: JAPAN TO BUY ESM BONDS
ASO SAYS JAPAN TO BUY ESM BONDS USING FOREIGN EXCHANGE RESERVES
ASO: ESM PURCHASES WILL HELP TO STABILIZE YEN
For those who have forgotten, the E in ESM stands for European (the S for Stability), not Japanese (Stability). Otherwise it would be, er… well, JSM. Keynesian at that. But yes – Japan will now proceed to “stabilize” itself by monetizing European debt. Because its own JPY 1 quadrillion in debt was not enough.
Submitted by Tyler Durdenon 01/07/2013 – 19:58
Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today’s flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled – Jack Lew, Obama’s current chief of staff, is likely days away from being announced as Tim Geithner’s replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM’s Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble – yes, you really can’t make this up) and Goldman’s Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.
Submitted by Tyler Durdenon 01/07/2013 – 19:19
As loathed as we are to say “we told you so,” but we did and sure enough eKathimerini is reporting this evening that: thanks to the ‘voluntary’ haircuts the Greek banks were force-fed via the latest buyback scheme and the political uncertainty causing non-performing loans (NPLs) to rise (in a magically unknowable way), they will need significantly more ‘capital’ to plug their increasingly leaky boats. The original Blackrock report from a year did not foresee a rise in NPLs (which Ernst & Young now estimates stands at 24% of all loans) and the buyback dramatically reduces the expected profitability of the banks as it removes critical interest payments that would have been due. Whocouldanode? Well, plenty of people who did not just buy-in blindly to the promise of future hockey-stick returns to growth. Expectations are now for the Greek bank recap to be over EUR30bn.
Eooowwwchhh! Reading this stuff, you get the sinking feeling that Monopoly Money is pouring off the Printing Press at Warp Drive Speeds, and in a fashion you would be correct in believing that. The Nipponese are clearly in the Deep Doo Doo, their Export Market is collapsing, the “Off” switch on “cheap” Nuke Power currently remains off (though the new Goobermint intends of firing them up again); the Greeks are a Black Hole of Debt the ECB and various and sundry Financial Special Purpose Vehicles (SPVs) like the ESM keep funding with more fictitious money, and of course Da Fed remains busy in Financing the FSofA War Machine through an exponentially growing Federal Deficit, while at the same time expanding it’s “Balance Sheet” in order to buy absolutely WORTHLESS collateral from the TBTF Banks to keep them from going under this week.
Trying to look at what EVERY CB is doing here to Monetize Debt is an exercise in futility, the rest of the post would be filled with Graphs up the Wazoo here. As it is, just looking at FSofA Debt Monetization and Population Issues has more graphs than I like to jack into one article. I’m a Big Picture Pontificator, not an Actuary or CPA, so inundating the reader with endless Graphology of the Exponential Function in action is not my Stock in Trade. I’m a decent enough mathematician, but I am also perfectly aware that throwing out endless numbers for most people makes their eyes Glaze Over, so I try not to do that.
However, it is necessary in going forward with this post to look at what actually is occurring on the Monetary level, at least here in the FSofA utilizing Da Fed as the Example. It’s no different for the BoJ,the ECB, the SNB or the PBoC, and in fact since Da Fed produces the WORLD RE$ERVE CURRENCY of the DOLLAR, this best represents what is occurring on a global scale with the monetary system.
Let’s begin with the expansion of the Balance Sheet of Da Fed. This BS expands as Da Fed purchases Trash for Cash. TBTF Banks unload worthless MBS, CDOs, Soveriegn Bonds, Securitized Student Loans and Baseball Cards (the ONLY thing in this list of real value)
As you can see, the FRB Balance sheet shot to the Moon in 2008, when in order to keep the Financial System from Imploding, Da Fed when on a Buying Spree of Junk Assets on the books of these banks they could not unload to anybody else for Cash, which everybody was short of at the time. Does this really mean Da Fed “printed money” here for this stuff that wasn’t already in existence? Not really, becuase these ‘assets” represented money that was already trading around in the system anyhow, Da Fed just traded FRNs for the collateral, providing more liquidity in the system. Actual Dollars in Circulation, the M1 Money Supply didn’t change all THAT much, certainly not as much as what the above fairly TERRIFYING Graph would indicate.
Not that it still isn’t terrifying to see this vast expansion of Da Fed BS, it still is because it is indicative of the fact the regular Credit Market was in catastrophic failure mode so the assets were transferred off of Private Balance sheets onto Da Fed Public one, even though all this accomplishes is moving insolvency from one place to another. In the end when the system does implode (it will), it really doesn’t matter who goes broke FIRST here because everybody will go broke. The Banksters weren’t ever going to be able to pay off their Bad Bets, nor will the Taxpayer be able to do it. Broke is Broke when distributed over an entire system like this.
The next graph shows the ALSO TERRIFYING expansion of the Federal Deficit, not coincidentally occurring at precisely the same point in time, 2008-9, when Da Fed Balance sheet went Ballistic.
Why is the Federal Deficit ballooning here at the same time? Because with Private Credit drying up for lack of Creditworthy Borrowers in the Private Sector, in order to keep the system from imploding on this level, Da Goobermint steps in as the Borrower here, basically borrowing money on its own account to do the numerous Bailouts of failing institutional lenders. This again serves the purpose of providing liquidity and keeping Zombie Banks as the Walking Dead a while longer, but it is still not really putting money into a system that wasn’t already there, just in other forms in the “Shadow Banking” system. This is unaccounted for money, and nobody really knows how much of it is out there even now, estimates run as high as Quadrillions. All that is happenning in this case is that some of that sloshing pool of fictitious money is being moved to the Public balance sheet, in dribs and drabs as parts of the system continue to fail.
So now what we have to do is to drop back from the gross debt being pitched around here and look at the components of the Money Supply to see how they are doing. Below is the graph of the FSofA Monetary Aggregates, divied up into M1, M2 and M3 forms of “Money” that circulate and/or get parked as Savings or Investment in something.
The part of this graph that concerns the Main Street Economy and J6P is mainly down in Blue at the Bottom of the graph. That’s the actual Cash FRNs floating around out there and digibits in your Checking Account. As you can see, it has increased substantially since around 1980, but nowhere near the vast increase through the other components of the Money Supply, half of which were such a small component of the total supply in 1970 they don’t even show up on the graph. This is where most of the “Money” is floating around, and it is mainly held in large Corporate Accounts, Pension Funds etc, in theory there as a balance sheet number, but in realty not there at all. This is the most fictitious of the fictitious money. “Other Checkable Deposits” I believe represents Reserves the TBTF Banks have on deposit at Da Fed, my good friend and fellow Macro Economist Steve from Virginia from Economic Undertow will correct me if I am wrong on this.
Although the increasing muber of FRNs and digibits is causing some inflation, particularly in Food prices now which are also being pressed on the Supply End due to drought, overall cost per capita doesn’t expand that rapidly (at least not at an HI pace until there is a currency collapse of the Dollar), because this Main Street Economy money is distributed out over many more people than it was in 1970. First the graph of US Population expansion over the time period in question.
As you can see, since 1970 the FSofA has seen a roughly 50% increase in population size from the 200M neighborhood to the 300M neighborhood, so what FRNs there are out there for J6P to earn are spread over more people. All else being equal, if the number of FRNs don’t increase at the same rate the population size does, each person will have fewer of them, which would be of course highly deflationary for Prices. Fewer people would have say $5 for a 1 lb Ribeye Steak at Safeway, so to sell the same number of ribeyes, Safeway would have to lower the price to what the new normal was, in this case a 50% decrease in available cash per capita of consumers of Ribeyes, so the price would have to drop to probably around $3/lb to keep selling the Ribeyes.
Obviously no such thing has happenned, the price keeps going up, but not as fast as you might think it would if you look at the top graphs in the Fed balance Sheet and Federal Deficit graphs. More money is out there, but sprinkled out over many more people than it was in 1970, and not just here in the FSofA either. The vast increase in total money supply mostly is NOT distributed out either, it remains “in reserve” at Da Fed on accounts of the TBTF Banks.
This because with increasing Globalization of trade along with the fact the Dollar has served as World Reserve currency through the time period has meant many of these Dollars are now sprinkled across the WHOLE WORLD, often used as black market currency in many highly populous nations that are unable for one reason or another to run a viable currency system of their own. So Dollars now aren’t spread through just the FSofA population, but across the whole WORLD population in one form or another.
So this leads us to look at the Global Population Graph for the time period, yet another TERRIFYING graph.
Here you can see especially if you look at Asia since around 1950, the Global Population has more than Doubled, and where have many Dollars been spent to buy stuff? From Asia of course, Japanese Carz and Electronics, Chinese Plastic Toys etc. Since the FSofA has had a Trade Deficit since at least the 1970s, a constant outflow of Dollars produced has made it into the hands and savings accounts of literally Billions of Asians, when looked at across the aggregate scale anyhow. In reality, most of said dollars are just in a few hands, not ALL Asians have gobs of FRNs stuffed in the Bank of Sealy.
Any given INDIVIDUAL in China doesn’t have gobs of FRNs to spend to buy a Ribeye steak, in fact most have far fewer than even the most imoverished Amerikans living on Food Stamps. The result is that instead of getting an HI in the price of Ribeyes, what yoou mostly get is Demand Destruction as margins are compressed and the actual price a Cattle wholesaler can get is pressed down by the inability of most people to afford to buy the Ribeyes.
The same Bizness of course is occurring with Gasoline (Petrol for the Eurotrash), so instead of HI in Gas, actually prices have now once again DECLINED here in Alaska to BELOW what I paid for it when I first got up here 7 years ago. It has been above that price for most of those years, but across the board the Demand Destruction is taking hold on this, and despite no increase in total production of Liquid Fuels (see Monsta666 Energy I&II articles), the prices are getting pushed back down again. Mainly probably attributable to cratering demand for Gasoline in Eurotrashland, now Double digit Unemployment throughout the PIIGS countries and working its way into France also.
To conclude here in this portion of the running Kick the Can Game in Debt Monetization Economics, despite some outrageously BIG numbers and some really TERRIFYING graphs is really just spreding its way across the entire global monetary system, but because all the CBs are currently engaged in the same process of trying to provide liquidity to an illiquid market, the RELATIVE VALUATIONS between the currencies are not yet changing that much. Euro’s will spike up or down on a given day dependent on the Newz, same with Yen, same with the Dollar itself of course. Everytime they do spike though, the OTHER CBs in the system react to it, genrally themselves ALSO adding more liquidity. Absolute Numbers go up, Relative Values don’t change all that much, at least they have not YET.
Eventually, somebody’s currency will crack here in a Crisis of Confidence, forcing a run out of that currency. Remains to be seen who is the FIRST to go down the Toilet, but it most CERTAINLY will not be the Dollar. It is too big and too much of the current system is dependent on valuations made in Dollars. the much more likely candidates are the Euro or the Yen. These are the currencies most at risk right now for an HI event, not the Dollar.
In terms of actual Purchasing Power for all these currencies with respect to Oil & Food (closely related clearly), all are destined for terminal decline as the resource base declines and the Cheap Oil dwindles in availability. What counteracts that on the gross scale is Demand Destruction, and that can occur a lot faster than actual resource depletion does. It is moving at an INCREDIBLY rapid pace in Eurotrashland right now.
I had Chartist Friend From Pittsburgh do a curvilinear wave analysis of this graph, and as I suspected, the resistance line is well broken and demand for Oil Products in Europe is likely to hit new lows as we move into 2014. How LOW will it GO by 2014? 13K BPD seems like a very good bet to me. This represents around a 20% decline off Peak Demand in Europe for Oil, while at the SAME time the population there has increased substantially. Obviously, per capita consumption of Oil is on a steady downward slope there already, and this is nothing if not highly deflationary all around. Thus of course the massive Unemployment problems the Eurotrash are immerssed in already.
Where will the Demand Slack be taken up? Will it be in China or South America or Africa, in the “growing” economies of the developing world, or will it be in the last place to lose Credi to buy the Oil, likely the FSofA, home of the Printing Press of the Dollar and Home Base for the Big Ass Military? One thing is for certain, TPTB cannot allow the Demand to Crater entirely, because when it does (it will eventually of course), the entire monetary system they depend on to maintain power goes with it. The ULTIMATE demand side solution for this is full on WAR, and that of course is liekly to come down the pipe in the bye and bye.
Time will tell, but until the whole Geopolitical equation plays itself out, my bet is that no debt monetization undertaken by Da Fed will spark an HI in the Dollar during this period. There are too many other weaker players in the same game. The “Game” still has a few rounds to go in terms of competitive devaluations of the Major Currencies by each of the respective Central Banks, along with still more rounds of Austerity and Demand Destruction being embarked on by more Central Players, including France, Germany, and of course the FSofA.
Off the keyboard of John Ward
Published on The Slog on November 27, 2012
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It’s been a good 48 hours for the self-styled élite
‘How is it,’ a rightly affronted Slogger writes, ‘that Angela Knight, once Chief Exec of the British Bankers Association, is now Chief Exec of Energy UK – a body representing all the major gas and electricity suppliers? Could it be that the energy companies sense a sh*t storm coming down the line in relation to collusion in energy pricing and opaque tariffs, and want a veteran, well versed in PR bollocks, to put a positive spin on their activities?’
Who knows the answer to this conundrum? The continuing success of the humdrum remains a conundrum, but not the confusion when it comes to collusion. I loved the way two months ago Cameron set up ‘an enquiry into whether oil prices are being manipulated by the oilcos’. Shurly how much and by whom, Cammersh, not ‘whether’?
My question re this one would be as follows however:
‘How is it that Angela Knight is not facing criminal charges in relation to the quite deliberately and obviously false testimony she made to the Treasury Select Committee just before Libor broke? And how can Michael Fallon, the Deregulation Desperado, sit on the bloody thing given the nature of his mainstream involvement in Libor trading?’
But of course, the Black Knight has now fallen deeper still on energy transparency: the wannabe energy diversifiers are on the run, it’s money for the shareholders and what-for to all you old n cold folks who should be dead anyway I mean WTF are you doing hanging around making a nuisance of yourselves you’re just a bunch of ex-hippy Babby Boomer scroungers when all’s said and done Amen.
I do feel sorry for Rik Mayall: he couldn’t possibly bring Alan B’stard back now, as he’d sound like Ed Balls but without the gags. Anyway, this one just leaked from the 1922 Committee:
‘Our plan once Gove gets the Chancellorship is that we will simply double all energy prices and tie Labour’s hands by saying it’s a Green, energy conservation policy. Then you see we can simply tax five points as opposed to 27 million salaries, and thus cut the HMRC numbers from 76,504 to 9….and get re-elected on a ticket of abolishing income tax. Result!’
For the anally retentive Trolls out there, that was a joke. For the time being. (Please do not show this post to George Osborne)
Meanwhile, it’s goodbye Merv and allo-allo-whatsa-goin-on-ere-then Mark Canuck. In supporting the choice for new Bank of England Governor on Twitter yesterday, the Prime Minister showed he is still wrestling with 3rd Year English Grammar, but the gist of it was ‘Mark was the besterest candidate of one’.
I think we might all get a whiff of what’s coming via this recent extract from ongoing Carneythink:
“How we manage the rebalancing of the global economy could profoundly influence how open, equitable, and prosperous the New World Order will be. Globalized product, capital, and labour markets lie at the heart of the New World Order to which we should aspire. However, the next wave of globalization needs to be more firmly grounded and its participants more responsible.”
If I can just put that jargon into words:
“How we get the sheep to pay for our policy of inventing virtual money will determine whether we wind up still on top of things, or hanging from lampposts. So let’s all get behind mercantile globalism and trade wars as the way ahead, but fer Chrissakes stop scoring own goals by lying transparently. The future will be all about not getting caught, so go to it.”
PS: the bank Mark used to work for is an anagram of A MAD SLAG’S CON.
More on Mark ‘Fred’ Carno in due course. Until then, keep an eye on what gold does at 10 am New York time today: it’ll be a clear guide to whether anyone believes Greece has been saved by 50 billion
sheets of Andrex euros in debt forgiveness….or whether the ClubMed problem might be a little bigger than that.
Off the keyboard of John Ward
Published on The Slog on November 15, 2012
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While Greece dangles on a piece of string, Spain is let off the leash.
Olli Rein in Spain normally involves acute pain, but not on this occasion. Last night, the EU’s economy prefect announced that Spain will need no further austerity measures until the end of next year. This despite the fact that the country will miss its deficit targets- in much the same way that the Moon has so far managed to miss the Earth during its daily round-trips over the last 400 billion years.
This is, opined the London FT last night, ‘the clearest sign yet Brussels is backing away from an austerity-focused crisis response’. Rein’s approval is in truth based on nothing more than blind faith in the structural reforms proposed by Spain two months ago…none of which have as yet been enacted or even drafted.
Applying the same criteria to Greece, Athens could justifiably press for a total debt write-off, $600bn in Frankfurt gold, and the head of Herman van Rompuy. But times have changed in the eurozone. The eurozone plan now, in fact, is to kill time completely, by staying in an eternal present. The ideas of Eckhart Tolle have been adopted in toto: the future does not exist, there is only an Eternal Now.
Five days spent down among the unpleasant lowlife of British culture have not taken my eye off the eurozone ball, because the euroball never moves. It is involved in a game of Zen football in which the players are unreal: they dummy, they feint, and they swivel but – having no physical form – they do not affect the stationary nature of the ball. In Zen eurofootball, the ball lands where you want it to, in your head. On the ground, it moveth not.
This is increasingly referred to as Brussels, Berlin and Frankfurt ‘killing time’, and I have no doubt the eunatics love that thought, because it suggests they can, rather like Italian scientists after a little too much Campari, transcend the rules of e=mc2.
But you can’t kill time: Einstein knew that, and old Albrecht was never wrong. In the 3D world, killing time is an oxymoron.
Talking of morons, real-life footballers are often referred to as ‘playing for time’, or ‘wasting time’, when they’re 1-0 up with a minute to go. But the difference here is that, at the referee’s whistle, the game is over. In the eurozone, the idea is that the game should never be over, because the problem can never be solved.
In one sense, ever since late 2009 the eurozone has been wasting time. Forgiveness of debt at that stage, with a small bondholder haircut subsidised by the long-suffering taxpayer, would’ve come out at $450bn all up. Anyone who thinks we’re within three noughts of that today is disturbingly unclear about the direction in which Time travels.
The Greek economy contracted by 7.2% in the third quarter just gone, according to data published by ELSTAT two days ago. This might suggest that time is running out, as at this rate, Greece will have no economy at all beyond guns and petrol-bombs by August 2017. I have it on good authority that in that month, things will start to pick up, but that authority has a history of mental illness and is called Christine Lagarde, so don’t bank on it coming to pass.
Mario Draghi’s shtick with Time is to try and make it appear to stand still by reducing all progress on every issue to 0%. Being an intelligent man who obviously understands relativity theory, his is only a slightly sprained form of sanity. Thus last week he relaxed the collateral conditions for the Bank of Greece, but then on August 2, he’d already reduced the amount of repo-able T-Bills the BoG can get from the ECB by €3.5 billion – or roughly 50%. So now Athens has half the money but twice as well collateralised.
It’s what we bankers call ‘a trade off’. Or ‘killing time’. We’ve had Zirp, now comes Zip – Zero Infinite Progress. It’s an ultimate expression of limitless lack of potential from the same stable that brought you friendly fire and negative forward movement going forward.
Liberal Austrian newspaper Der Kurier wrote yesterday that ‘The help from the donor countries is half-hearted and ultimately will only postpone Greece’s bankruptcy rather than averting it’, a timeless observation that should’ve been put into action a long time ago. But the concept of anything from the eurozone being half-hearted is seen by some as a massive increase on cold-hearted.
Unfortunately, back here in real life again, half a heart doesn’t work. The thing with your heart is that you need all of it, or you die in very short order. Another favourite Einstein observation was that if you halve the distance between the mouse and the hole for infinity, the mouse never gets there. But mainly, the mouse never gets there because the cat isn’t working on this principle of movement, and thus eats him. There is a very good parallel for the EU in this one.
Another thing about time is you can’t fool all the people during all of it. David Cameron has his own personal Collider working flat out to try and disprove the famous Abe Lincoln remark, but it looks doomed to failure. After Olli Rehn’s complete capitulation last night, the eurozone’s mantra about treating Greece and Spain equally is finally consigned to the pit. Only the ever-lowering pendulum is left, dropping inexorably until it slices right through the eurozone’s bollocks.
I wonder what my many Greek friends, sources and readers will make of this. Most Spaniards (probably including Mariano Rajoy) will draw the lesson that standing firm coupled with going on strike is an excellent way to get bullies out of one’s face. It’s the standing and firm parts of the strategy that seem to be lacking in the Greek political class. That and, well, honesty, decency, consistency, calm, courage, and a calorie-controlled diet.
Off the keyboard of Jason Heppenstall
Published on 22 Billion Energy Slaves on September 22, 2012
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- A man was murdered with a single shot to the head outside the office I work in. The attack was thought to be a revenge attack for a hit on some people walking out of a mosque a year ago (also next to my office) which I heard. At the time I had thought somebody was throwing heavy things into a skip – that’s what it sounded like.
- A couple of days later I went running at night. On a particularly dark street near the beach a car pulled up next to me and a man yelled something obscene at me. I ignored him and he drove off. Ten minutes later the whole place was full of police cars and it was on the news later that a man on that street had been randomly cruising around and stabbing passers-by. One victim was stabbed in the chest but managed to walk to hospital.
- I also went running the next night and surprised two men doing something suspicious at a deserted building site – they didn’t take it well and I had to put a sprint on.
- Three nights later I encountered a gang of youths, one wielding a metal pole outside a grim local shopping precinct. They were dressed in the American ‘gangster’ style of pants hanging down and covered in bling. They were also smashing the place up and again I had to sprint to get away from them as they shouted after me.
- Then last night – the final night I went out. Half the police force of Copenhagen descended on the island of Amager where I live after violence flared up between the two main Hells Angels gangs who are Denmark’s de facto mafia. One man was thrown out of a moving car, and another was found kneecapped in the back seat of another. Just another night in Copenhagen.
- A cold blooded murder of a Somali man who was leaving his flat for work and was gunned down from a passing car in front of his children.
- A local bar (very close to my flat) invaded at night by a machine gun wielding gang hunting for junior members of a Hells Angels club. After shooting up the bar they dragged one unfortunate punter outside, pulled his trousers down and put the gun up where the sun don’t shine. I photographed the blood spattered plants pots and gore covered latex gloves of the paramedics.
- The assassination of a powerful Chinese businessman in a restaurant outside the office.
- The aftermath of a drugs turf war related grenade attack on some people enjoying a quiet beer in the alternative commune of Christiania. The grenade landed on the table and blew a young man’s jaw off.
- The attempted assassination of a biker leader as he sat in a Joe and the Juice café drinking a milkshake. The bullet went through the window into his back, where he was sitting, although he didn’t die.
Off the keyboard of Steve from Virginia
Posted on Economic Undertow on September 22,2012
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The economic crisis in Europe and elsewhere deepens, political systems are unable to respond, conditions are rapidly spiraling out of control.
In English, this remark from the Chinese social networking site, Weibo:
beijingwanbao: We can adapt as times change. If the foreign devils haven’t said the U.S. army won’t get involved, what are we doing tying up our own hands and feet? If we don’t even have this measure of resolve, we’ll just be blackmailed. //@tracelesstraveler: China affirms it would not use nuclear weapons first. //@beijingwanbao: “Starting a Sino-Japanese War: Comparing Weaponry in Pictures” http://t.cn/zWsiGrC (via @milnews) Why waste energy? Skip to the main course and drop an atomic bomb. Simple.Reposts: 2082 Comments: 974
Beijing Wanbao is a Chinese capital city news broadcaster. The frenzy is about the purchase of the Senkaku Islands, a couple of uninhabitable islands by the Japanese government from their private owners last week. These islands are located near Formosa.
Around 1900, Japanese entrepreneur Koga Tatsushirō constructed a bonito processing plant on the islands with 200 workers. The business failed in 1940 and the islands have remained deserted ever since.
Back then, nobody cared …
The islands came under US government occupation in 1945 after the surrender of Japan ended World War II. In 1969, the United Nations Economic Commission for Asia and the Far East (ECAFE) identified potential oil and gas reserves in the vicinity of the Senkaku Islands.
The xenophobic, paranoid hyper-nationalism of the Chinese is never far from the surface, the smallest scratch brings it to the surface:
More Weibo: the sign says, “Even if China becomes nothing but tombstones, we must exterminate the Japanese; even if we have to destroy our own country, we must take back the Diaoyu Islands.”
Kill humans so that there might be cars!
It’s not just about the oil, it’s about the denial about the oil: the banner is posted in front of an Audi automobile dealership by employees. Without the presumed gusher of fuel from Diaoyu-Senkaku Islands, cars are a hard-sell. The Chinese fanatics defend both their pocketbook interests and their new-found adoration of the sports sedan. The Chinese are late to the party and they know it: the furious desperation with which they grasp their last, best chance is indicative. They will have their wasteful moment in the sun and they will blow up anything and everything that stands in their way.
Like Americans, the Chinese have bet the rent money on endless supremacy of the automobile over all other things into the far distant future. Cognitive dissonance: what the banner holders don’t grasp is their cars devour the fuel supply that they themselves are willing to kill and die for. Each Chinese dies twice, once to gain oil concessions then again when their pet cars burn up the fuel supply. At the end of the day, the Chinese have nothing to show for their human sacrifices other than some used cars … and massive debts that cannot be repaid.
All of this and violent anti-Japanese riots on top of threats by the Chinese establishment to bankrupt Japan by dumping its collection of Japanese IOU’s on the market at once.
Clearly the American Way loses something in the translation to Chinese. Cars cease being ‘fun’ when they become instrumental to mass destruction.
China’s fury is misdirected: the Japanese are flat broke, depending upon the Bank of Japan to keep the debt collectors at bay for one more day (Ambrose Evans-Pritchard):
The Bank of Japan is to buy a further 10 trillion yen (US$130bn) of bonds, bringing the total accumulated so far in its battle against deflation to 80 trillion yen, or 20pc of Japanese GDP.Jun Azumi, Japan’s finance minister, praised the bank’s “bold” efforts to hold down the yen, lending credence to suspicions that the real motive is to counter “beggar-thy-neighbour” currency devaluations by other powers and prevent the strong yen choking Japan’s export industry.Yunosuke Ikeda, from Nomura, said the Bank of Japan had yielded to “immense political pressure” after months of criticism.
Japan seeks to protect its own precious automobile industry, the central bank jumps on the quantitative easing bandwagon in an attempt to keep the status quo intact. The fact of mass, coordinated QE speaks for itself. Meanwhile, the crisis in Europe takes a political turn (Ambrose Evans-Pritchard):
Spain risks break-up as Mariano Rajoy stirs Catalan fury.
The ruling parties of Catalonia have sought guidance from Brussels on the legality of secession from Spain, requesting a “route map” for membership of the European Union and the euro as an independent state.
Jose-Manuel Garcia-Margallo, the (Spanish) foreign minister, threw down the gauntlet, calling Catalan secession “illegal and lethal”. He warned that Spain would use its veto to stop the region of Catalonia becoming an EU member “indefinitely”.
Catalan leader Artur Mas held high-stakes talks with Mr Rajoy in Madrid on Thursday, armed with a mandate from the Catalan parliament and with charged emotions left from an unprecedented protest by 1.5m people in Barcelona 10 days ago.
He demanded an independent treasury for the rich Catalan region, with control over its own tax base akin to the model already enjoyed by Basques. The 9m Catalans have an economy the size of Austria’s.
[ ... ]
A serving army officer, Colonel Francisco Alaman, has fueled the flames by comparing the crisis with 1936 – when Gen Francisco Franco seized power – and by vowing to crush Catalan nationalists, described as “vultures”.
“Independence for Catalunya? Over my dead body. Spain is not Yugoslavia or Belgium. Even if the lion is sleeping, don’t provoke the lion, because he will show the ferocity proven over centuries,” he said.
Retired Lt-Gen Pedro Pitarch, a former army chief, said the words reflect “deeply-rooted thinking in large parts of the armed forces”. He also accused Madrid of bungling the Catalan drama disastrously.
“Are we looking at a failed state?” he asked. Investors holding Spanish debt are listening carefully.
There are disputes, violence and disturbances relating to oil and other resources in the Arctic, in northern, eastern, southern and western Africa, out and out war in the Middle East, in the Eastern Mediterranean littoral, the Persian Gulf in both Iran and Bahrain, in South Asia, as well as political gridlock in Europe, Japan and the United States. Every day the world steps closer to the precipice. As the economic tools prove to be useless to stem decline what remains are military tools, the means to simply steal from others. The imperial West has resorted to these tools already, to kill all of us so that (presumably) all of us might drive.
All of the above is more Peak Oil denial, like the ‘Central Bank Printing Money’ meme. The gist of the militarist argument is that stealing resources is a permanent solution to resource constraints, that the resources are available to steal, that they will be better employed by the thief.
China, Japan, Spain and the rest are bankrupted by their unaffordable automobiles. None of these countries can pay for their past consumption of non-renewable resources. They have borrowed in the past and seek to borrow now, to pay for the resources and to retire older debts.
Meanwhile, the same countries have nothing worthwhile to offer as payment for the resources they need tomorrow … or for the generations to come. They consume the means with which to pay. They offer up comic-book drek … of a careless future the outlines of which are becoming more clear. In the place of a fanciful futurama of robot kitchens and flying cars, there is a continual unraveling accompanied by denial of the same unraveling, a collective inability to respond appropriately leading to system breakdown: more cognitive dissonance.
Reality about energy supplies begins to emerge and it’s as ugly for ‘Autoworld’ as Thanksgiving is for turkeys. Peak Oil has blitzed the Greek economy into the dumpster with stunning dispatch, so much so it seems beyond the ability of sensible Greeks to understand what happened to them. Greece isn’t a hedge fund or an over-leveraged investment bank peddling fubar MBS out of a back room but a modern, middle-class nation with a (semi)functioning government and a four-thousand year history: all that except for the history is gone … in a heartbeat. Fall asleep in Greece, wake up in Angola.
Nobody will admit that Greece was undone by peak oil, nobody will even discuss it or entertain the possibility! This isn’t economists in 2004 missing a prediction about what might happen in 2008. This is an entire army of exceptionally well-paid, over-educated analysts, policy makers, business leaders, economists, educators, pundits, energy bloggers, fiction writers, poets and bass fishermen not seeing what is taking place right under their noses!
Now it is Spain’s turn to be swept off the table by its automobile waste. The only issue is how long will the process take. Using Greece as a model, once the establishment is admittedly insolvent, the spasm of national ruin and follow-on decline is almost instantaneous.
Like Greeks, the Spanish bet the rent on the American Way waste-based consumer economy, not realizing it was a scam. Now that they ‘know’ (or are dimly aware) there is nothing they can do about it, there is nothing the Spanish want to do about it. Like the Greeks the Spanish want the euro, they want the cars they want the modernity and will continue to do so even when the Spanish economy completely collapses. The Spanish have spent centuries living off the soil in small villages and they have no desire to return.
Same with the Chinese and Japanese.
“There’s a lot of momentum embedded in the passion of Chinese here to adopt higher-standard of living … they want their apartment, they want their cars, they want their air conditioning.
These countries’ chances to turn aside from faddish consumerism came and went decades ago. They caught themselves in the self-reinforcing web of fashion … that requires chic Spaniards/Greeks/Japanese/Chinese to have a shiny new cars, luxury jobs, designer ‘accessories’, new houses in the suburbs and ‘resorts’. Add the predatory lenders and ruthless manufacturers, shills and gamblers and the moderns were doomed. They had no idea what it was they were signing their futures away for, they believed the salesmen rather than following common sense.
All of this overhead structure is precariously balanced upon slender resources. The amounts of oil near the Senkaku Islands look to be very small. Information from the International Energy Agency (IEA, 2008)
|Field||Estimated Oil Reserves (Mbbl)|
Twenty million barrels is an insignificant amount of oil to go to war over. Presumably there is more than the 20 million … that can be retrieved by improved drilling. Yet, even 2 billion- or 20 billion barrels of proven reserves would do little to address the 10 million barrel per day consumption habits of the Japanese and Chinese. A decade and more of extraction enterprise is required to bring any oil to the markets. In the meantime, the world’s other oil wells relentlessly decline. Bloated demand outruns all possible sources of new supply. The only question is how long will it be until this demand is bankrupted?
Next goes Europe, itself. The Greek default closes the book on Europe in its current form, which is a lost cause. It is the end of the beginning: there is not going to be any ‘recovery’ or way back from the abyss that is now engulfing the continent. Some fragments here and there might save themselves for a little while, then like sparks from a bonfire be swept away by the wind. The crisis must now burn itself out: Europeans, look to yourselves and may your turkey-God have mercy on your souls.
Not much longer, children ….
Off the Keyboard of Steve from Virginia
Published originally on Economic Undertow on September 14, 2012
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Ongoing rush of monetization world-wide took a predictable step yesterday as the Fed Chairman announced open-ended lending to mortgage industry. This is on top of ongoing lending to the government (LSAP/Operation Twist) and the promise of ‘unlimited’ lending to banks (by way of governments) in the European Union. On the way is more central bank lending in Japan, UK as well as more stimulus in Chinaand elsewhere.
As was pointed out in the Economic Undertow short-version:
Modernity cannibalizes its capital, as such our crisis is irreversible. Conventional marketplace remedies such as debt jubilees/write-offs, re-distribution, bailouts, stimulus, austerity policies, monetary easing, etc. have no effect on outcome other than to worsen conditions. These are efforts to reclaim capital that no longer exists. Consequently, remedies accelerate unraveling process by increasing gross debt (claims against capital) while exposing remaining capital to consumption at higher rates.Economists insist that capital is symbolic (money) rather than material. Capital = resources (Daly), all industrial money is debt. Abstract money is infinitely reproducible, material inputs are not.
The central bankers endeavor to reproduce as much of the abstract ‘money’ as possible, hoping that consumption can grow to ‘normal’ levels. The central banks lend, this is all they can do. Despite talk about ‘tools’, they only have one: making- or not making loans. The banks’ only form of medicine is more of what put the world in the hospital in the first place!
The economies are like a car that cannot start. First one person then another puts the key into the ignition and cranks the engine. New people arrive and say, “I can start the car,” and take their turn with the key. They declare the problem is with the battery or the starter or the engine or the electrical system. Each believes the other simply does not know how to start a car. The gas tank is empty the car will not start regardless of who turns the key. Eventually, the battery fails.
Battery Failure = Great Depression
Most of the people in the world do not want a second Great Depression. There are also very few on this planet that do not acknowledge the possibility/likelihood of another depression. The people will do whatever it takes to forestall it. If this requires believing the establishment’s lies … they will become believers. They will repeat whatever lies they must to themselves, to their children, they will live the lies until they are submerged by them.
When the central bankers promise the children that they will save them, the children act accordingly … even though the fact of the central banks having to make such promises speaks for itself. When the Fed and the rest are the last line of defense, there really is no last line of defense.
What people don’t understand is the nature of our crisis, it is an energy crisis in drag. High real input prices due to scarcity are stranding trillion$ of infrastructure used to waste resources, (sunk capital investment). There is no coming back from this. When capital resources are gone they are gone forever, wasting infrastructure is worthless junk. The process has arrived at the point when the various actors are beginning to come to understand what ‘forever’ actually represents and that they are confronting it.
The monstrousness of our predicament is almost beyond the ability of the human mind to grasp its scale. We burn up our resources today, there will be no more resources to burn for millions of years. We’re it. Apres moi le deluge!
Central bankers cannot issue value-on-demand. They cannot offer anything other than symbols for value, items that have worth only under circumstances that do not currently exist and cannot again! They cannot print crude oil, topsoil, surface water, they cannot increase waste-carrying capacity, they can add to the assault on these things by way of their lies and the willing credulity of others. They can only make matters worse, the central banks are at odds with themselves.
As far as it goes, the entire world is in the grip of resource deflation, from which there is no escape. Our voracious machines dig the graves of our grandchildren faster and deeper, capital is destroyed more utterly, what remains becomes unaffordably expensive, at some point the costs are bankrupting … see ‘Greece’.
Greece is all of our futures, our children’s futures, our grandchildren if they are very, very lucky and can dodge the consequences of our stupidity and blindness. They will live in small villages, they will till what fertile soil they can find, they will make things by hand they will wish all of us had died before we were born.
Loans without end … just not for you!
Tens of millions are unemployed worldwide! The solution is to offer loans at near-zero cost to bankers! That will solve the problem … right? Let the Fed Chairman’s friends take they money and run … to Peru!
Figure 1: This graph of Fed total assets and liabilities from Cleveland Federal Reserve Bank (click on for big). This amount is set to grow by another US$480 billion per year into the foreseeable future. Keep in mind, the central bank balance sheet expands because the private sector balance sheet contracts. Fed credit supplants private credit, it is not added to it. If there is no private sector deficiency there is no need for easing! The end of the day has no net increase in available funds for the public, only balance sheet problems pushed further into the future.
The breakdown of Federal Reserve balance sheet can be seen on the Fed statistical release page. Regardless of what the report says, all assets held outright by the Fed are loans made by them: the purchases of Treasury- or agency bonds are loans to these agencies.
The flow of credit is from the central bank into reserve accounts at the Fed (not circulating currency). Reserves do not appear in the greater world unless there is demand for them in the form of redemptions/depositor withdrawals that exceed the requirements of ordinary, day-to-day business. A good example of this excess depositor demand would be a bank run.
What the central bank has done is guarantee all bank deposits by offering what amounts to unlimited reserves.
It’s not clear guaranteeing deposits is what the Fed Chairman intends to do. Bank runs are underway in Europe, China, Argentina and elsewhere. The reason is there are no effective lenders of last resort, the consequence of central bank over-promising/making unsecured loans. When central banks leverage themselves they become no different from ordinary, commercial banks/shadow lenders who are insolvent because of their unsecured lending. The central bankers promise ‘unlimited’ supplies of liquidity, they cannot possibly deliver it. The central banks are collateral-constrained. There is less good collateral available: collateral is capital, there is a shortage of it: our crisis is the consumption of capital. Adding claims against what little remains is pointless particularly when the form of the claim is accelerated consumption.
The Chairman guarantees bank deposits with the left hand while making the guarantee necessary with the right.
More left hand-right hand: or perhaps left foot-right foot: the central banks place the petroleum industry’s boot on the throat of the world’s economies (click on for big):
Figure 2: Brent crude continuous front-month contract, chart by TFC Charts: the financing needs of the petroleum extractors is at odds with those of the extractors’ own customers (Guardian):
Further quantitative easing in doubt as petrol prices near record high.
The Bank of England could be prevented from boosting the economy with another round of QE if inflation rises
Petrol pump prices jumped to 139.7p a litre this weekend, within 3p of the 142.5p record set in the spring, according to figures from the AA.
The cost of diesel also rose as Europe’s major refiners blamed hurricanes in the US and a string of refinery shutdowns for a spike in the cost of crude oil.
A rising oil price will spook the Bank of England, which has relied in its inflation forecasts on a fall in oil prices linked to falling demand across the world. The central bank’s monetary policy committee, which sets interest rates, could be prevented from adding to its £375bn programme of quantitative easing to boost lending in the economy if inflation takes hold, analysts said.
Higher pump prices will also add to concerns that the UK will join continental Europe in a stagflation trap as inflation rises while growth remains flat.
Fears that the economy will remain in recession for the rest of the year were heightened by a report on Monday that found optimism among UK businesses has hit a 20-year low.
There is an upper bound to the price of petroleum, where the costs of consumption become unaffordable and demand is constrained. In the US, the price is a little over $4 per gallon of motor gasoline: at this level the entire fuel wasting enterprise becomes unaffordable, including the precious tract house- and office developments, sectors of the economy the central banks are desperate to revive.
Figure 3: Got gold? (TFC Chartz, click on for big) How about silver? It is hard to see a green light given to Wall Street asset speculators that won’t push up the price of all commodities. Unlike crude oil, which cannot rise in price without self-limiting demand destruction, gold is not strategically important. An ounce of gold can be bid up to a cool million dollars per ounce without effecting the so-called ‘productive’ economy. Gold is a fetish, like a Tiger tank or a Warhol Car Crash: a very high price might reflect uncertainty about the worth of other goods (including currency) but the implied shortage of gold would not materially effect output of necessary goods.
The central banks think only of creating asset price ‘bubbles’, in our ruin of a world there is nothing left.
Off the Keyboard of Steve from Virginia
Published originally on Economic Undertow on September 6th, 2012
The ‘question du jour’ is — and has been for awhile — ‘when’?
‘When’ is the dam going to burst? ‘When’ will the coyote hanging in mid-air fall? ‘When’ is the decrepit status quo going to collapse?
‘When’ is so … yesterday! Coyotes have been dropping for five years. The process has been satisfactorily papered over to a large extent. Managers have learned a lot about crisis management since 1929 and 1973 and 1987. When there are difficulties the managers know to run out the shills. The public — and markets — are credulous. They want to believe. Nobody wants a Greater Depression and will do whatever is possible to avoid one.
There was no television in 1929. There was no Internet in 1973 or ’87. With modern media there are unlimited distractions that can be offered at near zero-cost. In order to divine reality one has to look for irretrievable actions on the part of managers themselves: you have to follow the running feet.
Here is some distraction right here:
Building the Next China
Stephen S. Roach (Caixin)
Concerns about the country’s economic situation are overblown and ignore a significant fact: urbanization will be the next engine of growth.
But the hype of the pessimists overlooks one of the most important drivers of China’s modernization: the greatest urbanization story the world has ever seen. In 2011, the urban share of the Chinese population surpassed 50 percent for the first time, reaching 51.3 percent, compared to less than 20 percent in 1980. Moreover, according to projections by the Organization for Economic Cooperation and Development, China’s already burgeoning urban population should expand by more than 300 million by 2030 – an increment almost equal to the current population of the United States. With rural-to-urban migration averaging 15 to 20 million people per year, today’s so-called ghost cities quickly become tomorrow’s thriving metropolitan areas.
Shanghai Pudong is the classic example of how an “empty” urban construction project in the late 1990′s quickly became a fully occupied urban center, with a population today of roughly 5.5 million. A study by international management consulting firm McKinsey & Co. estimates that by 2025 China will have more than 220 cities with populations in excess of one million, versus 125 in 2010, and that 23 mega cities will have a population of at least five million.
China cannot afford to wait and build its new cities until after newly migrated citizens have arrived. Instead, investment and construction must be aligned with the future influx of urban dwellers. The “ghost city” critique misses this point entirely.
See? Everything is going to be fine! Why? Because Roach says so! He’s a high-powered financier shill with fingers on the pulse. He makes the, “They aren’t making any more land,” argument. With more people and the limited amounts of build-able land certainly demand/prices/economies have nowhere to go but up, right?
Problem is nobody is making more people with money. The money trend is going in the wrong direction: the reality direction as James Howard Kunstler would put it. More people are going broke faster. What remains of money vanishes from circulation, lines of credit are cut off, putative apartment buyers are denied mortgages because they simply don’t earn enough to make the payments. The tens of millions of empty apartments that Steve Roach celebrates are mostly owned by a modest group of Chinese speculators with access to no-questions-asked, low-cost credit. These speculators are stranded, waiting for the horde of Chinese consumers who are never going to arrive. As in the West, the cost of credit … has become too high for individual buyers to afford.
The speculators are victims of their own greed. In order to sell and capture gains they must find buyers who are more successfully greedy than they are (or the government has to bail them out).
The 300 millions that Roach and the Chinese speculators are counting on are near-penniless rural peasants and sweatshop workers. Already these workers complain that urban housing is unaffordable. This worker-demand never really mattered, instead it was the supply of credit from overseas looking for yield. China has been at the end of a massive capital pipeline from the US and elsewhere. The Chinese narrative of perpetual real estate growth and ever-increasing prices is the same as the free-money narrative in America, UK, Dubai, Spain, Ireland and elsewhere. Credit flowed into real estate in all these countries at the same time. Meanwhile, economies were cutting workers’ earnings: something has to give.
There is more to economies than assuming can openers, they are sub-components of culture. What economies manage are cultural goods, not ‘things’ but surrogates for things. What makes China China are the cultural fetishes that represent Chinese ‘modernity’ with an accompanying narrative of American-style material progress.
What American commercial artists, television producers and advertising managers devise, the unimaginative Chinese instantly covet. Their defining idea of America is post-Dean Martin-Joey Bishop-Liberace-Bugsy Siegel Las Vegas: the entire country is turned into a cheesy version of The Strip. The ‘Old China’ that passed the test of centuries is swept away as rapidly and completely as possible. It is replaced with forests of vacant, brutalist 60 story concrete towers, freeways, rail networks, shipping terminals, shopping centers, airports and the rest of Sprawl-America automobile detritus. All of this rests uneasily alongside gigantic, Earth-destroying/polluting industrial complexes … collateral needed to propel the whole mess forward.
The China narrative has been offered as the improbable Horatio Alger communist-rags to riches story: gritty (fanatically xenophobic) workers compete with the rest of the world to make its shoes, pants, salad shooters, lawn furniture, oil tankers, catalytic crackers, CNC machines, automobiles, nuclear reactors, poison dog food and other consumer ‘durables’. According to the narrative, Chinese are ambitious, hard-working, enduring, risk-taking hyper-capitalists. The Chinese planned economy is well-managed. The Chinese don’t make foolish policy errors as do Americans or Europeans, they aren’t lily-livered softies, they crush anyone and anything who stands in the way of progress. They do whatever is necessary to become rich as fast as possible.
This is the establishment’s narrative, one of non-stop ‘sustainable growth’ … Despite hiccups, growth is assured to begin … tomorrow!
China city party chief ‘fled with money’
A Chinese report says billions of dollars have been stolen by corrupt officials in recent years
A former top official of a city in northeast China has fled the country – reportedly with millions of dollars, Chinese reports say.
Wang Guoqiang, who was party secretary of Fengcheng city in Liaoning province, left for the United States in April with his wife, the People’s Daily said.
Local officials said Mr Wang, who was being investigated for corruption, had been removed from his post, it said.
Several reports cited 200m yuan ($31.5m; £20m) as the amount taken.
The local officials did not elaborate on allegations that he had embezzled and transferred the funds to the US, where his family is believed to be.
A report released by China’s central bank last year said more than $120bn (£74bn) had been stolen by corrupt officials who fled overseas, mainly to the US.
Between 16,000 and 18,000 officials and employees of state-owned companies left China with the funds from the mid-1990s up until 2008, the report said.
Officials and other prominents taking wads of cash and going to another country is irreversible. Rather than happy multitudes goose-stepping toward prosperity and their very own high-rise apartments, the rats are fleeing from the sinking Chinese ship as fast they can.
If the Treasurer for the city of Las Vegas (Pop. 580,000) stole $30Mn of tax payer money and fled to Canada or Australia, the US FBI would have the Aussies and Canucks hunt them down and have them extradited back home. Why aren’t the Chinese doing the same thing?
The authorities enacted a ban immediately to report on the case, and blocked Wang’s name in search engines. However, in blogs, the news spread faster than censors could delete it.
What matters is the sanctity of the narrative, who cares about the money? Under everyone’s noses, China is morphing from a capitalist paragon into (another) nose-diving coyote.
It’s not just the thievery and corruption, it is the business ‘slowdown’. Steel makers, ship builders, property developers, banks and finance guarantee companies and manufacturers are corpses floating down the river. It really is different this time: none of these enterprises are ‘coming back’.
China + modernity = business collapse is not the dynamic the bosses had in mind when the made the jump to the America Way. As such, the Chinese arrived at the party just as the last line of cocaine was being snorted: the US narrative has fallen apart, so has the hyper-snobbish stiff-little-finger bourgeois narratives of Americanized Europe and Japan. Perhaps the Chinese should have examined the old whore’s fake boobs and pustulent genitalia more carefully before deciding to jump in bed with her.
James Howard Kunstler
Meet the new third party in national politics: Reality.
Reality is the only party with an agenda consistent with what is actually happening in the world.
Heh heh … reality IS what’s happening in the world.
Reality doesn’t need to drum up dollar donations from anyone. Reality doesn’t have to pander to any interest group or subscribe to any inane belief system. Reality doesn’t even need your vote. Reality will be the winner of the 2012 election no matter what the ballot returns appear to say about the bids of Barack Obama and Mitt Romney to lead the executive branch of the government. In the vicious vacuum that national party politics has become, the Republicans and Democrats are already dead. They choked to death on the toxic fumes of their own excreta. They are empty, hollow institutions animated only by the parasites that feed on and squirm over the residue of decomposing tissue within the dissolving membranes of their legitimacy. Think of the fabled Koch brothers as botfly larvae and the Securities Industry and Financial Markets Association PAC (SIFMA PAC) as a mass of writhing maggots.
The Reality Party is something that can be gotten behind here at Economic Undertow. Where does one go with all this? Managers race out the door with whatever loot than can be stuffed into suitcases. Here is the Euro-style reality, by way of Mark Grant:
The central bank of Spain just released the net capital outflow numbers and they are disastrous. During the month of June alone $70.90 billion left the Spanish banks and in July it was worse at $92.88 billion which is 4.7% of total bank deposits in Spain. For the first seven months of the year the outflow adds up to $368.80 billion or 17.7% of the total bank deposits of Spain and the trajectory of the outflow is increasing dramatically. Reality is reality and Spain is experiencing a full-fledged run on its banks whether anyone in Europe wants to admit it or not.
Just like China only more so …
Between December of 2011 and the end of March 2012 the Spanish banks bought $109 billion of the Spanish sovereign debt. Much of this was facilitated by the ECB who lowered and lowered again the collateral rules and handed the money to the Spanish banks in such a size that bad things, very bad things will result if Spain hits the wall and defaults. Then since March, as forced by their own inadequate capital positions, the trend has reversed and the Spanish banks have sold $21.3 billion of Spanish sovereign debt with $11.7 billion in July alone as capital flees from the Spanish banks and the actuality of the balance sheets overcomes the “dynamic provisioning” that helped to cause the fantasy. The friendly “suggestions” by national governments in Europe are also getting a push back from European buyers. BNP recently imposed a $12.5 billion debt limit by country and many other banks in Europe are following suit. BNP has reduced their sovereign debt holdings by 35% since June 2011. In July, the aggregate of sovereign debt reduction for all of the French banks was $8.7 billion as they took advantage of the ECB speculation to lower their holdings.
When the central bank is insolvent because it makes leveraged/unsecured loans or appears to do so — there is no lender of last resort. No lender of last resort and there is no guarantor for deposits. If all institutions are insolvent the currency which represents these things is worthless.
Capital flow is from bank account => account at another bank => account in another country => account in another currency => out of currency into durable good/asset. Unsurprisingly, the gold price is increasing during a period of credit deflation.
Figure 1: Keep in mind there are also bank runs out of Greece, Italy, Portugal and Ireland. funds flow from Europe into Switzerland, the flow itself jeopardizes the viability of the Swiss franc as it becomes a proxy for the increasingly worthless euro … the reason to prop up the euro at some stable rate of exchange is to facilitate removing funds from one country to another.
Spanish Bank Runs and Struggling Deutsche Bank:
There is a fully fledge bank run ongoing in Spain that is not being adequately reported in the mainstream news media. In June $70 billion dollars left their system. In July it was $92 billion which is 4.7% of total banking deposits. This means that from January to July of this year $368 billion or 17.7% of total banking deposits has fled Spanish institutions. Previously this money was heading for Switzerland and Germany but with the truth filtering out concerning the weakness of German and Swiss banks alternative destinations are now being chosen. The emerging weakness of Deutsche Bank is a particular worry for the ECB and the situation is being exacerbated by a sharply contracting German economy. As reported in Spiegel today:
“Euro Crisis Starts to Bite. German Export Orders Fell Sharply in August.
Exports are a major pillar of the German economy, but now the sector is starting to feel the impact of the euro crisis and the global economic slowdown. German export orders fell in August by the highest rate in more than three years, the Markit financial information company announced Monday after conducting a survey of 500 industrial firms.
“Survey respondents commented on a general slowdown in global demand and particular weakness in new business inflows from Southern Europe,” the institute said. The firms hardest hit by declines are manufacturers of machinery and other investment goods as well as producers of intermediate goods such as chemicals.
In the first half of 2012, German exports had still grown thanks to demand from Japan, the United States and Russia. But it was already evident then that exports to crisis-hit countries were falling sharply, and that trend is now continuing.
Markit economist Tim Moore said the German industrial sector is going through its worst quarter — the three months to the end of September — in more than three years.
“The new orders figures are especially disappointing, with export work dropping at the fastest pace since April 2009 amid an ongoing deterioration in global demand,” he said in a statement.”
ECB Boss Mario Draghi is trapped. He needs to keep propping that euro even as doing so is fatal. Direct bond-buying by the bank will accelerate bank runs and there will be nothing to be done to stop them.
Building/not building more concrete towers in China is fatal. Germany selling/not selling more automobiles in Europe is fatal. Adding more carbon/not adding carbon to the atmosphere is fatal. As for the Americans, the running game has been underway since the crisis began. The smart money is long gone from speculative markets, all that remains is the dumb money milling around waiting for tomorrow to arrive.
Comes that happy day, there are runs out of currencies. The Chinese thieves, the Spanish depositors and the rest are voting with their feet. The game is over and they are taking their balls home. All of them. It’s every man for himself and devil take the hindmost.
Posted originally on Alt-Market on August 7, 2012
Off the Keyboard of Brandon Smith
Discuss this article at the Epicurean Delights Smorgasbord inside the Diner
The idea of “collapse”, social and financial, comes with an incredible array of hypothetical consequences ranging from public dissent and martial law, to the complete disintegration of infrastructure and the devolution of mankind into a swarm of mindless arm chewing cannibals. In an age of television nirvana and cinema overload, I have found that the collective unconscious of our culture has now defined what collapse is based only on the most narrow of extremes. If they aren’t being hunted down by machete wielding looters or swastika wearing jackboots, then the average American dupe figures that the country is not in much danger. Hollywood fantasy has blinded us to the tangible crises at our doorstep.
The reality is that collapse is not a singular event, but a process. It is a symphony of doom, composed of a series of exponentially more powerful crescendos. If the past four years since the implosion of the derivatives bubble have proven anything, it is that catastrophe has the ability to drown a nation slowly like a river of molasses, rather than sweep it away like a flash flood. That said, almost every recorded collapse of modern societies in the past century has been preceded by a primary trigger event; a moment in which the mathematical certainty of failure becomes clear, even if the psychological certainty is muddled.
In 2012, we still await that trigger event, which I believe will be the announcement of QE3 (or any unlimited stimulus program regardless of title), and the final debasement of the dollar. At the beginning of this year, I pointed out that we were likely to see such an announcement before 2012 was out, and it would seem that the private Federal Reserve is right on track.
Last month, the Fed announced that it was formulating a plan to “expand its tool kit”. This includes an openly admitted possibility of a third round of quantitative easing starting as early as September:
This timeline appears to coincide perfectly with the breakdown of the EU, which may also see a climax event in September. In that month, EU policymakers will return from summer holiday. German courts will make a ruling which could put an end to any chance that the country will support a eurozone rescue fund. The Dutch, which are anti-bailout, will vote in elections. Greece will be attempting to renegotiate its financial lifeline. And, the ECB will have to assess the impending chaos in Spain and Italy:
As far as the Fed’s ability to remedy the fiscal situation goes, let’s clear something up right here; the Fed has NO TOOLKIT. Sorry, but central banks have only two options when attempting to shift the tide of the economy: They can lower interest rates to zero, and, they can print-print-print. That is it. We’ve had TARP, numerous bailouts, QE1 and QE2, Operation Twist, and interests rates have been kept near zero for years! These so called solutions have been strapped like millstones around our necks and absolutely nothing has been accomplished since 2008.
Real unemployment still stands at over 20%. The housing crisis remains an unstoppable juggernaut. Europe is on the verge of meltdown (despite the trillions in American taxpayer dollars handed to EU banks). The national debt continues to grow at a pace far beyond what the Obama Administration and mainstream economists (who should have been fired long ago) predicted in 2010. There are no secret magic tricks up the sleeve of Ben Bernanke. Even if the Fed actually wanted to save our financial system, and our currency (which they don’t), there is nothing they can do except make the situation worse. Central banks are perhaps the most useless institutions ever devised, unless, of course, their true purpose is to diminish the financial health of a country and siphon away its economic sovereignty…
Enter the death of the dollar.
The IMF has been consistently calling for the end of the dollar as the world’s reserve currency, and for its replacement by the SDR (Special Drawing Rights):
The new president of France, Francois Hollande, has recommended the expulsion of the dollar as the go-to reserve, a deeper relationship between France and the BRIC nations:
China has been demanding an end to dollar primacy for years:
And so has Russia…
And so has the UN…
It’s not as if it’s a big secret that the dollar is on everyone’s hit list. Until recently, alternative economists could only point out circumstantial evidence that this sentiment was a product of collusion between the world’s central banks and elements of various governments. Suggesting that China, Russia, the UN, the IMF, and the Federal Reserve were working in tandem to devalue the dollar and replace it with a global currency has always elicited at least a few jeers and the ever present standby catch-all accusation of “conspiracy theory”. However, the times they are a’ changen’…
With the exposure of the Libor Scandal, we now have definitive proof and even open confessions from international banks, the Federal Reserve, and the Treasury, admitting that the true debt problems of major institutions have been hidden, deliberately, in tandem with multiple agencies in multiple countries, from the general public, with the full knowledge of numerous governments. The most vital and shocking element of the Libor Scandal is that it shows, beyond a shadow of a doubt, that there is indeed a conspiracy which has melded the corporate world and the political world into a single ominous creature.
The collusion has become so brazen, central banks around the globe now institute policy initiatives within the same hour of each other: http://www.reuters.com/article/2012/07/05/us-centralbanks-action-idUSBRE8640RN20120705
Years back, I wrote an article about the most important signs to watch for when facing a heightened state of collapse. One of those signs was the advent of openly admitted corruption on the part of the banks. When criminals become absolutely transparent and nonchalant about their criminality, it is usually because they no longer fear the threat of justice or reprisal. This is exactly the atmosphere we have in 2012. But, what could possibly have made the banksters so confident that they are willing to flaunt their racket to the world? I can only surmise that an event is on the horizon. One so distracting that the hucksters believe we will forget all about them.
Looking at it from another perspective; if I was a globalist hell bent on undercutting the dollar as the world reserve and replacing it with a centralized standard while turning the U.S. into a third world pit in the process, I would probably pull the plug soon. Here are some reasons why:
Drought Crisis Provides Inflationary Cover
The drought which has struck half of the U.S. agricultural centers and which has also hit Russian production is the perfect cover event for dollar devaluation. The full view of crop production and yields will be revealed this autumn, and according to the mainstream, the numbers will be dismal. Maybe they will be, maybe they won’t, but the likelihood of inflation in food prices all over the planet is high. If the Fed announces QE3 and sets an implosion of the dollar in motion, the price spikes this will cause in commodities, especially grains and other foodstuffs, can be easily blamed on drought, rather than the destruction of the greenback. At least for a time. Syria And Iran Theater
If the UN pulls observers from Syria, expect an attack by either the U.S., Israel, or both is on the way. Expect Russia to be quite unhappy. Expect China to respond with financial warfare. Expect Iran to fulfill its mutual defense pact with Syria and come to their aid. Expect hard core catastrophe. I have been warning about Syria as a catalyst for global crisis for quite some time. Long before anyone ever heard the name “Assad”:
Every time I catch a glimpse of the MSM, whether it be MSNBC, CNN, or FOX, they are all spewing the same rhetoric: The U.S. should have invaded Syria months ago. It would seem that the American people are being psychologically prepped for a new war, but in reality, they are being prepped to be distracted from the banking sector’s primacy in the economic calamity that is about to unfold.
European Seesaw Of Destruction
With the EU in shambles, and only getting worse, the ECB has been attempting to work around the rules of its own charter which forbid the infusion of capital directly into governments. The latest weapon in the fight against the financial stupidity of EU member countries? European stimulus! That’s right folks, the U.S. is not the only country that will be raping its own currency this year! Be sure to catch the euro-sized version of QE: http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/03/maybe-draghis-speech-wasnt-a-disaster-after-all/
I believe, in keeping with the collusion central banks have already shown, that the Federal Reserve and the ECB will announce new stimulus measures very close to each other, if not in tandem. The continued devaluation of the Euro will help to hide the effect of the falling dollar as the two currencies seesaw back and forth, allowing for a delayed reaction from the public as well as investment markets. Investors looking for a safe haven currency will be scrambling in confusion.
Stocks Ready To Bust
Finally, it is very likely that the Fed will wait for markets to dive in the wake of faltering demand for goods and raw materials in all major economies, as well as declines in manufacturing. As I have said in the past, the Fed wants us to beg for QE3. The only reason this decline has not occurred yet is because investors that are still participating are salivating for new stimulus and expect it shower them with riches soon. So, to put this in perspective, the Dow is above 13,000 right now because investors have already priced in a QE package not just in the U.S., but in the EU as well. If they do not get it fast, they will pull out, and stocks will plummet. The market addiction to fiat injection is so pervasive now, I cannot imagine how they would react if the pipeline was cut off. It would probably induce a fiscal bloodbath.
What Will Collapse Really Be Like?
I expect the event will be spectacular in some ways, but subdued and subversive in many other ways. Triggers may be swift and startling, but the reactions of the populace slow, uncertain, and presumptive. There will be fissures in our foundation, but the complete extent of the danger may take a few more years to become evident. While the public continues to maintain its fixation on some Mad Max nightmare scenario, the real collapse will be taking place right under their noses in the form of 25%-50% increases in food and fuel, tightened job availability with pensions swallowed by austerity, food lines hidden by food stamps until the government finally defaults and pulls the rug out from under entitlement programs, etc. For a time, it will look and feel like a slightly darker version of today, and not the cinematic melodrama that we have come to envision. The worst of times that we often find extolled in the pages of history books come at the cost of years of almost equal disparity, and usually, the lead up is far more difficult to handle than the finale…
The world has just discovered that folks in finance cheat whenever they can (always): now that the LIBOR cat is out of the bag manipulation is to be seen everywhere including the metals and crude oil (ZeroHedge):
Forget Libor-gate, Oil Market Manipulation Is Far Worse
Since the Global Community all the sudden seems to be preoccupied with Market manipulation even though the authorities knew it was a problem for over 5 years with Libor Rate Fixing. It is high time authorities look at the Crude Oil market which has been manipulated for the last decade and all the sophisticated participants know it is rigged or artificially higher than the fundamentals of the economy dictate. Consumers are paying an easy $35 dollars per barrel over what they would otherwise dole out for a barrel of oil if fund managers didn`t use the benchmark futures contracts as their own personal ATMs.
Everyone needs to get their stories straight. The crude boys accuse market participants of pushing prices up, metal girls accuse the same players of manipulating prices down. Since the aim is to profit from volatility or its absence, both sides of this argument are half-right. Here is another take from Chris Cook by way of Naked Capitalism:
The Dying of the Light
By Chris Cook, former compliance and market supervision director of the International Petroleum Exchange
A generation of markets is dying and the era of the Middleman is coming to an end. The ‘Bezzle’ – as J K Galbraith described financial misbehavior in a boom, revealed by a bust – is now coming to light.
We now see a wave of popular rage against the freshly revealed manipulation by banks of LIBOR, the London Interbank Offered Rate benchmark for interest rates which is the cornerstone of the money market.
This manipulation in the financial world is being augmented by a groundswell of protest against manipulation taking place in the real world. Here, the allegation is that the Brent/BFOE (Brent, Forties, Oseberg, Ekofisk) crude oil benchmark price, against which global crude oil prices are set, is the subject of routine manipulation by market participants, particularly investment banks and traders of physical oil.
In both cases, the popular outcry is based upon misconceptions as to what has actually been going on. The good news in the oil market at least is that the manipulation which is being revealed is nowhere near as serious in its effects on the general public as is believed. The bad news is that the true manipulation, as yet still concealed, is far more serious than anyone has yet conceived.
The arguments exclude everything that is underway outside of the finance markets. Middlemen trading in crude are not that important because they cannot hold more than the smallest fraction of daily output (from well head). World crude production per day = 75 million barrels per day. There are only so many spare tankers, oil storage facilities and underground salt formations within which to store petroleum. Once these are at capacity the middlemen can only sell or promise to sell.
What traders can do is earn a volatility premium by being virtual swing producers. This occurs when there is an excess of spare capacity and the well-head producers are not paying attention. The virtuals offer their stored crude in the place of that of the sleeping producers’: they gain a ‘volatility premium’ when their sales iron out price swings.
This sort of thing only effects the marginal barrel price over very short time-frames. If more than a few hundred thousand barrels per day are at issue, the producers make the necessary adjustment(s) hanging the middlemen and everyone else out to dry.
Producers can store crude at zero-cost by simply leaving it in the ground. In so doing they easily outmaneuver middlemen, who can only sell what they have (until they sell out) or sell what they don’t (until they have to cover). Meanwhile, the producers or their agents can buy/sell crude- or crude derivatives into the future at prices that remove middleman profits altogether.
Right now, spare capacity is vanishing into the gas tanks of the producers themselves. Once that capacity is gone the volatility will increase. At that point a few thousand barrels-per-day might make a great deal of difference yet these barrels may also be ‘Unobtainium’.
This dynamic explains the drilling interest in otherwise marginal- or borderline plays. If a small field can produce ten thousand barrels-per-day each barrel could conceivably command a steep premium … that would still be far less than the price that would result without the added crude. The assumption is that fuel constraints will always and everywhere produce increased real returns, that there will be industrial demand.
The real manipulation is the fuel-as-subsidy as well as subsidies for use of the fuel. This takes place everywhere both in consumer- and producer countries.
Manipulations include free/cut rate gas (in Venezuela, Nigeria, Saudia, Iran), free highways, cheap credit, home mortgage guarantees/tax advantages, restrictive zoning, free police/ambulance services, mandatory insurance (which spreads casualty costs), depletion allowances, depreciation and write-offs for drillers, capital-loss provisions and direct bailouts for manufacturers (GM, Chrysler) and indirect bailouts (Ford, Fiat, BMW, Daimler, Honda, etc.); the opening of commons to discount leasing/price collusion, military overreach, credit embargoes (PIIGS, France, Germany, China, Japan), invasion threats, irregular warfare, labor arbitrage, etc.
Each barrel of oil really costs +$300: payment is smeared into other categories or kicked into the future.
The intent of the establishment has always been to flood markets with cheap crude (UK selling its North Sea crude for -$20/bbl) to lever auto, house, office tower, highway construction, finance and other related industries. This is manipulation that has taken place since John D. Rockefeller created the modern integrated energy company and built the world’s largest fortune for himself — by forcing prices lower. This took place in the 19th century, which is why analysts ignore it.
Rockefeller was as important to the auto industry as Henry Ford. Standard Oil guaranteed fuel for pennies which in turn guaranteed a market for automobiles.
Sen. Schumer tells Bernanke to stimulate economy before November
Joel Gehrke (Washington Examiner)
Sen. Chuck Schumer, D-N.Y., exhorted Federal Reserve Chairman Ben Bernanke to stimulate the economy before November through some form of quantitative easing or other monetary policy, which Bernanke said could create jobs.
“Despite two false starts, we’re having a much rougher time than we ever imagined getting unemployment down,” Schumer told the Senate Banking Committee. “So get to work, Mr. Chairman.” Schumer said Bernanke needed to stimulate the economy because Congress refuses — “maybe after November we will,” he opined.
Schumer is a political hack. He wants the Fed to do ‘something’ today that would give the economy a lift heading into the election. Chuck knows that the Legislative side can’t/won’t do a thing before November, so he begs Ben to light another monetary fire to help the Democratic cause. I doubt that Bernanke listens to the noise from Senators very often, but Chuck’s words got a lot of press. I’m wondering what Ben is thinking. Schumer has brought politics into the outcome of the August 1st Fed meeting. Whatever Ben decides to do, he will be accused of partisan politics.
Cut to the chase:
(The Fed can make) A cut in the deposit rate (banks’ accounts at the Fed) from a 1/4% to a 1/8%.
a) This appears to be a modest step. As such, it would be less susceptible to criticism.
b) The small change in the deposit rate would achieve something that Bernanke has been shooting for a long time. Returns on short-term money would go negative. Three and Six month Bills would certainly be negative. One-year paper would trade around flat.
c) Germany and Switzerland are already in negative territory. Other, smaller bond markets like Finland and Sweden are also in the red. For the US to follow suit would not be that big a surprise. Bernanke could blunt critics by saying he had done less than Europe – an 1/8th in the US versus 0% for the ECB.
d) The change to negative yields, (regardless of how small), will force money to move around. There are trillions in money market funds, Trillions in short term Treasury paper, and trillions more on corporate balance sheets. All of this is now going to be looking at negative returns.
e) With the first rungs of the yield curve in the bucket, the longer maturities would be dragged down. The Ten-year would move toward 1%. This result would be similar to the (hoped for) outcome of a large LSAP.
f) Bernanke could still say, “The Fed has more it could do”, as the deposit rate could be cut again (to zero) at some point.
Of these options, I believe that #V has the greatest probability of occurring.
I hope that the Fed sits tight, and does nothing. But that seems unlikely. Bernanke knows that the economy is now decelerating, and that his hands get tied after the August meeting. So “something” is more likely than “nothing”.
It’s hard to predict what might happen if Ben pushes rates into negative territory. It could end up resulting in an orderly market transition from cash, to high-risk securities like stocks and junk bonds. The virtuous cycle of higher stocks leading to higher spending and more jobs might be the result. But I doubt it.
a) The knee jerk reaction to negative rates might be positive, but in a short period of time the market will come to realize that negative rates are not going to force people (more) into dividend stocks. Quite the opposite, it will scare the crap out of them.
b) This is not good for the banks (who cares); but the financials are still a big chunk of the S&P.
c) This move will likely cause more “unwanted inflation”. If China or India is faced with negative returns on their reserves, they might be inclined to just buy commodities with the billions of cash they are sitting on. Prices of grains, beans, copper, coal and oil come to mind. Gold would be on the list as well.
d) If three-month bills went from +8bp to -7bp you might think that it wouldn’t matter. The change is so small on a relative basis. I think of it as stepping off the edge of a cliff.
The entire global financial system is based on fiat money and the presumption that the money has “value” as a store of wealth. Nearly every action by the Fed over the past few years has led to the debasement of money. In the final stage, the issuers of money debase it to the point where it is no longer desirable to hold. I see the move to negative rates across the globe as a tipping point, one that will be damn hard to reverse once undertaken.
If the politicians weren’t inept they would not have these money problems. However, they all belong to the ‘prosperous past’, like the character in the Springsteen song, they long for the glory days of high school.
Better leadership by the current (brain dead) bunch would have made it unnecessary to prod the central banker. There really is nothing for Mr Bernanke to do, he cannot ‘print money’, he cannot pull rabbits out of a hat, he’s already lost too much credibility (get it? Credit = credibility?) and does not have any effect on the cost of money.
– Deflation sets the price of (so-called) risk-free ‘assets’ to zero (or less which is Krasting’s concern). This is well known, Fisher described it in 1933. The manipulation by way of reserve rates or whatever has the same limited effect as does the manipulation of crude oil prices by middlemen. The same is true for all of the other finance products’ prices. What sets prices — now as always — are fundamentals, which have now turned against market participants.
– Fuel prices money. Right now money represents fuel-using-activities which have been promoted as highly fashionable by the marketing industry. Coming soon is money representing the fuel itself. We are almost there. The outcome is nasty. Whether Bernanke understands this is uncertain. He is a very smart dude but says little about energy, the rest of the establishment lies through its teeth about energy.
– When money represents energy the various currencies will sort themselves out (or the reverse will happen as with the euro) and the winner will fall out of circulation (hoarded). The other currencies will simply vanish or will buy goods OTHER THAN fuel. Energy availability will plummet, to meet the small amount of ‘good currency’ in circulation available at any given time for fuel purchase.
Think about how much cash is in circulation right now (not e-money) and you get the idea how much fuel will be available. Access to circulating money will be the way fuel is rationed (if not directly by way of fuel cards) the same way access to credit rations fuel now. Needless to say there will be no credit at all.
This is the straitjacket that central banks and treasuries face and there is almost nothing they can do about it. If they ‘adjust’ (depreciate) their currencies they won’t be able to swap them for fuel. The producers will absolutely dominate: instead of accepting false-promises of ‘growth’ in trade for their valuable resources they will demand resources in return. Having a crude tradeable currency means having one that is as hard to find as a one-armed violin player.
The usual response is to insist that the US can trade agricultural goods for fuel. The difficulty with that thesis is that agriculture is itself a petroleum dependency. With insufficient funds agriculture will be less productive, there will be less surpluses to trade. Diminished fuel inputs would constrain output further effecting the fuel trade in a vicious cycle. Soon enough there would be insufficient agricultural goods to trade and less fuel available for agriculture itself.
Another response is that the US and others would seize fuel resources by military- and other related means. Indeed such efforts have been- and are underway. It remains to be seen after ten years of trial that the desired outcome of more fuel output at lower cost can be had. There is also the chance of paralyzing shortages which would be counterproductive.
US produces 1/3d of its current fuel consumption but a cash regime would cut availability to less than 1/3d of of that or 10% (roughly) of current (assuming the government puts some additional currency into circulation). With near- 100% dependency on petroleum fuels for agriculture there is a very real threat of crop failures and famines in the US due to the sector’s shrinking ability to fuel itself. The last time there was non-petroleum agriculture in this country there was 1/4th the current population and almost 6x as many farmers, most of whom were highly experienced.
Cash-currency limitations are not confined to the United States. If other countries cannot gain a tradeable currency they must do without. The worldwide ‘Green Revolution’ is very much petroleum dependent for transport, tillage, irrigation, chemicals and fertilizers.
There is a far better chance of crop failures and starvation in countries that depend on external credit, imported fuel and F/X flows. Vulnerable Pakistan could see its population completely wiped out and India could lose half of its 1.4 billion in a matter of weeks or months, particularly if coupled with a diminished- or failed monsoon. There are simply no food stocks available to shift to needy areas in sufficient quantities … to feed billions. Fuel poverty would restrict the ability of nations to replenish food stocks or create new ones. We are near- or at a food/fuel limit.
Central banks are simply not equipped to handle problems like this. Manipulation can fool investors but have zero- effect on resources which are either available or not.
The real problem with manipulation is the idea that everything having to do with markets is false: that anything the markets might indicate can be safely ignored. Here is the boy who cries ‘sheep’: comes now the wolf and there is no idea how to deal with it or even that it exists.
Off the keyboard of Steve from Virginia
Edvard Beneš was born into a peasant family in the small town of Kožlany, Bohemia, ca. 60 km west of Prague. … He spent much of his youth in Vinohrady district of Prague, where he attended a grammar school from 1896 to 1904. During this time he played football for Slavia Prague. After studies at the Faculty of Philosophy of the Charles University in Prague, he left for Paris and continued his studies at the Sorbonne and at the Independent School of Political and Social Studies (École Libre des Sciences Politiques). He completed his first degree in Dijon, where he received his Doctorate of Laws in 1908. Then he taught for three years at the Prague Academy of Commerce, and after his habilitation in the field of philosophy in 1912, he became a lecturer in sociology at Charles University.
During World War I, Beneš was one of the leading organizers of an independent Czechoslovakia abroad. He organized a Czech pro-independence anti-Austrian secret resistance movement called “Maffia”. In September, 1915, he went into exile where in Paris he made intricate diplomatic efforts to gain recognition from France and the United Kingdom for the Czechoslovak independence movement, as he was from 1916–1918 a Secretary of the Czechoslovak National Council in Paris and Minister of the Interior and of Foreign Affairs within the Provisional Czechoslovak government.
From 1918–1935, Beneš was first and the longest serving Foreign Minister of Czechoslovakia, and from 1920–1925 and 1929–1935 a member of the Parliament. He represented Czechoslovakia in talks of the Treaty of Versailles. In 1921 he was a professor and also from 1921–1922 Prime Minister. Between 1923–1927 he was a member of the League of Nations Council (serving as president of its committee from 1927–1928). He was a renowned and influential figure at international conferences, such as Genoa 1922, Locarno 1925, The Hague 1930, and Lausanne in 1932.
Beneš was a member of the Czechoslovak National Socialist Party (until 1925 called Czechoslovak Socialist Party) and a strong Czechoslovakist – he did not consider Slovaks and Czechs to be separate ethnicities.
In 1935, Beneš succeeded Tomáš Garrigue Masaryk as President. He opposed Nazi Germany’s claim to the German-speaking so-called Sudetenland in 1938. In October, the Sudeten Crisis brought Europe on the brink of war, which was averted only as France and Great Britain signed the Munich Agreement, which allowed for the immediate annexation and military occupation of the Sudetenland by Germany.
Neither Beneš nor any member of the Czecho-slovak government was permitted to attend the conference where the little country was sacrificed to Hitler and his mad men. The Euro-powers England and France were unprepared for war, they overestimated Hitler’s readiness and demurred. Czecho-slovakia was sacrificed to buy goods that could not be had: peace or greater preparedness. Out of recession and deleveraging of the 1930s, no country had anything but a transient material advantage over the others.
What emerged instead was a contest of institutional restraints, or between restraints on one part versus their absence on the other. There was the high-minded rationalization on the part of the powers versus the total absence of same on the part of the Germans. The German strategic advantage was set in high relief in Munich by Germany’s reasonable and well-intended adversaries. To outmaneuver whatever obstacles Germany might encounter on its path to geographic empire it had only to react to restraint as if it was acknowledgement of fatal weakness. The Germans would demand everything, to threaten annihilation otherwise, to exceed all limits, to put its army on wheels so that it might be turned loose in all directions, to massacre without conscience … to be unorthodox in all things or appear to be so. To be modern, in other words: restraint was prissy and old-fashioned, bourgeois and incompetent. According to German doctrine, there was to be no place in the modern world for anachronistic little duchies and principalities … Negotiations and conferences existed only to produce surrender documents.
After Munich, restraint was synonymous with cowardice and appeasement along with the word ‘Munich’ itself. Hitler was outraged that the appeasement had cost him a war that he was sure Germany would win.
Neville Chamberlain, British ambassador Neville Henderson, German foreign minister Ribbentrop and Hitler at Munich. By 1946 all of these men were dead, all of the European countries and their economies were destroyed.
Sudetenland was handed over immediately after the Munich Accord, announced with fanfare, the rest of the country was annexed by Germany and Hungary within six months. The accord offering ‘Peace in our time’ was not worth the paper it was written on, like so much else within modernity, it was a another false ‘tomorrow promise’.
After Munich, Beneš fled into exile in Britain, after the war he was part of a brief independent Czech government that was eventually undermined by the Soviets in 1948.
Right now ‘Munich 2.0′ spools out right under everyone’s noses: the Spanish public is sold into the abyss by the feckless government seeking to buy a little time. Like the Czechs and Slovaks in 1938, the people have nothing to say about their own fate … which is determined in the shadows by unrestrained and unaccountable mad men (Telegraph):
Prime minister Mariano Rajoy explains the surrender of Spain to the Anglo-American banking cabal in front of the Spanish Parliament, admits draconian terms demanded by EU financiers. Photo: AFP
Debt crisis: Spain bows to EU ultimatum with drastic cuts
Spanish premier Mariano Rajoy has raised VAT sharply in a humiliating volte-face and pushed through €65bn (£51bn) of drastic austerity measures to comply with a European Union ultimatum, risking a downward spiral into full depression.
In Churchillian tones of blood and toil – even as Asturian miners and their wives clashed violently with police after a three-week march on Madrid – Mr Rajoy called for yet another round of cuts, admitting that Spain was obliged to take “urgent” action under the terms of the latest EU summit deal.
“We Spanish no longer have the choice whether or not to make sacrifices. We no longer have such liberty,” he said.
Hours before, the daily newspaper El Pais had stunned the nation by publishing the leaked “Memorandum” imposed by the eurozone’s creditor bloc as the condition for Spain’s €100bn bank rescue.
The draconian terms include an EU takeover of the Spanish financial system, with calls for haircuts on €67bn of junior and hybrid bank debt, a bad bank to wind down crippled lenders, “on-site” raids by inspectors, and intrusive demands across the gamut of fiscal policy.
The Washington Consensus succeeded brilliantly in Greece, the obvious reason to apply it with more vigor in Spain.
Chamberlain and Daladier ‘understood’ that Germans would not annex anything more than a small part of Czecho-slovakia. Rajoy understood that Spain would not be subject to severe austerity by the finance sector in return for what amounts to a trifling borrowed sum. Unlike the aggressive, militaristic Hitler, today’s mad men are well mannered and abstract. The outcome for the victims is identical, bondage and pillage. Because no one else will lend to Spain, with no great power England or France — or United States — to rescue her, there is no choice for the unimaginative Rajoy but to sell his country down the river.
Like the hapless Beneš there is certain to be a place in the Spanish rump for the elder statesman Rajoy long after the country is a smoking ruin. Like Beneš, he looks good in a suit.
The Spanish establishment does not understand symmetry. There is nothing to compel Spain to borrow under duress, or to prevent Spain from repudiating the odious- and ill considered debts it has already taken on. If the country had a real government instead of a cowardly fake it would behave the same as the mad men, to stand up to them, to beat the bullies and put them in their place. The establishment fails to understand the economic dynamic that is underway. The cost of submission is no different from the cost of non-submission. Putting the costs of unrestricted capital back upon capital is where it belongs. Spain would abandon its costly ‘prosperity’ but would maintain its sovereignty and the freedom if its citizens to act for themselves. By surrendering, the prosperity is gone and so is the sovereignty. The citizens are free to be paupers or emigres. Spain becomes a colony of Wall Street.
The current tragedy in Europe is unfolding with the same sense of dishonor and inevitability as during 1938. History may rhyme as Mark Twain once said, but it clearly is repeating itself, now. The establishments around the world insist on sacrificing others to the mad men. This strategy fails, appeasement makes these men bolder, they cannot be satiated or even evaded. Their ambition and reach has become universal, they are monsters. They must be destroyed, annihilated and all memories of them done away with. Their tools of destruction which they promote as ‘efficiency’ must be hammered flat and repudiated. The steps leading to Munich failed to bring peace but led instead to a great war, the steps leading to Brussels follow the exact same path. It is the cowardice of the good people, the moral relativism of the disinterested who refuse to see it.
The Europeans and their economic ministers and economics do not understand what it underway. Europe is subject to an Anglo-American credit embargo similar to those implemented in Latin America in the 1980s and in S. Asia in the 1990s. The US gains more from Europe’s bankruptcy than it can gain as return on new credit.
Because the establishment does recognize the energy component to their economic troubles they cannot see the potential gains to others … from Europe’s collapse.
Europe consumes 15 million barrels of petroleum per day: by bankrupting the EU 10 millions of those barrels can be exported to the US instead. This is the equivalent to the production of Saudi Arabia, without all the drilling.
The 5% reduction in fuel availability in the West in 1973 resulted in what was the world’s deepest post- WWII recession, excluding the current recession. At issue is a reduction of 70%.
Analysts blame the European problems on corrupt Greeks and others but these countries did not make the loans to themselves: it takes two corrupts to tango. The Eurozone was a pit of predatory lending under false pretenses (for fake, USA-style ‘prosperity’). The euro was — and is — a defective credit instrument similar to a sub-prime mortgage.
No sovereign can repay finance-level debts, such a thing is impossible. Greece cannot repay, Spain cannot hope to begin to repay.
Not only cannot Greece repay, Germany in full flower of industrial output cannot repay Greek debts. The demand for repayment is a charade and anyone bothering to look for more than five minutes can see that this is true.
The rate of change in GDP year over year is the surplus carried forward over the previous year’s expenses. It is this margin from which a country’s debts might be serviced — not retired — the annual increase in German GDP might be sufficient to partially service Greek debts for that year. Anyone who believes that Germany could repay Greek debts believes in unicorns and fairies.
Keep in mind that GDP growth must also meet other expenses besides service of loans outstanding. Almost all debt service is financed along with principal roll-over.
The Germans object to the obligation to repay Greek debts, it is because such a thing is impossible regardless of intentions.
Greece is dependent upon external sources of (borrowed) capital: Germany genuflects in the direction of capital because Germany itself is just as dependent on external capital flows as is Greece.
If Germany cannot repay Greek debts how can Greece be expected to do so, in the face of a credit embargo?
The embargo is effective because there is no European lender of last resort: what passes for one appears to offer unsecured loans to banking clients which themselves are insolvent. A lender of last resort cannot at the same time be insolvent: the one concept excludes the other. When the central bank takes on the impaired loans of its clients it becomes insolvent, it loses credibility.
Because of system insolvency there are fatal bank runs. These are taking place this minute.
Debts are intractable: they must either be replaced/refinanced with more debts or they must be repudiated, there is no other way. When debts are repudiated, the country is de-industrialized as it cannot import fuel, its money is unacceptable.
The fantasy of industrialization and so-called ‘progress’ is what various ‘leaderships’ including Rajoy’s are loathe to abandon. This is even as industrialization destroys the countries’ economies and the countries themselves. Managements cling to the false promises that have been offered for 400 years, that have brought wealth to a handful of thieves in exchange for Napoleon, revolutions. Communism, Hitler, world wars and great depressions. This, then … is the dividend of concentration and economies of scale, leaving out the complete destruction of the very air, land and water upon which we as living creatures absolutely depend … for a few pieces of colored paper.
If the country does not repudiate its debts, its money is unacceptable anyway as the money is proxy for nothing but unserviceable debts.
This non-acceptance is the end of the road … the end of all the roads.
By repudiating the debts all of the associated wealth is annihilated: wealth = debt. The problem is the foolish Europeans want to get rid of the debt and keep the wealth. They do not accept that, a) this cannot be done, and b) there is really no such thing as money-wealth.
What comes this way is the contest between the few, the mad men with their machines and their blandishments, their constant readiness to do the world ill for their immediate gain. On the other side of the contest is the void, a bloated dependent (over)population: here is the reason for overpopulation in the first place! Dependents dare not agitate without risking starvation, homelessness or withholding of institutional ‘benefits’. There is the loss of place, a generalized self-contempt, selfishness and institutionalized laziness. Not the stuff of revolutions or reform.
The mad men inch closer to self-immolation, to take the rest of the world with it. This is the end-game of industrialization, the promise of Valhalla the reality of a wasteland.
Keynes was wrong, in the short run we are all dead.
Published originally on The Slog on July 12th, 2012
In Clubmed, the guilty are protected and the innocent turn to violence. The Olympic Games are a sideshow.
The Daily Telegraph website’s ‘Hot Topics’ this morning read as follows:
Olympics: great moments Olympics: torch relay Olympics: Team GB Olympics: schedule Olympics: graphics
All fine and dandy if you like that sort of thing – despite the growing signs that its organisation is all over the place. But three things of late have conspired to ensure that Britain has its head firmly inserted up its backside at the moment: weather damage, the ‘Barclays scandal’, and the Olympics.
The Government has awarded us the taxpayers the job of paying for the bad weather via our insurance premiums (another hidden bailout), the Libor scandal represents the glowing testicles of the global banking hyena (another scam to make us poorer), and the Olympics look set to be both the wettest in history – and a massive drain on our resources for no return (yet another legacy of Tony Blair).
But it would do no harm to remember where the Olympics started – and what its founder is still going through at the hands of Berlin am Brussels hypocrisy. And if we have an interest in sport (and for the vast majority, that doesn’t stretch to an Olympics covered in logos and sprinkled with puerile hype) then let us take our minds back to Spain, whose national football team is the envy of the world, and whose club side Barcelona just keeps on winning the Champions’ League – because it is the best and most stylish team of players ever assembled.
Yesterday, Senor Rajoy the Spanish Prime Minister raised VAT and cut social expenditure in a country already on its knees, and not surprisingly violence ensued. Despite the Troika’s Page One error of reducing demand, cutting output and demanding slavery in preference to debt forgiveness – and the EU’s continuing determination to deny that the euro has been a boon for some but a disaster for others – no amount of hard empirical evidence demonstrating the socio-economic disaster unfolding in the ClubMeds has made the slightest dent in the tin hats of Merkel, Schäuble, or Lagarde. The equally doubly-endowed standards of Nicolas Sarkozy have now been replaced by a dull Leftwing Establishment dweeb called Francois Hollande, but for all his greyness and lack of reforming instincts within France, the new President has at least put his hand up to say, “This is madness, and it must stop”.
Less remarked by the MSM yesterday, however, was this piece of news from Greece, published by respected title Kathimerini: (my emphasis)
‘In the shadow of another report on tax evasion – this one using
bank records – that shows tax cheats are robbing Greece blind of
critical revenues, seven retired and active tax officers, including four
high-ranking administrators, were sentenced to more than 70 years in
jail for embezzlement of up to 28 million euros – then
promptly released on bail.’
This band of merry men first came under suspicion in 2001 after a retired inspector, Aliki Kyriakaki, made claims that she had come under pressure from certain members of the group to reduce tax fines against a large company she’d been auditing – and found to have arrears of 36 million euros, or $44.2million. She said they offered to write off the debts if they were paid bribes.
She said their tactics to keep her silent included having her disciplined numerous times on specious charges, for which she was
cleared completely by an administrative court. She had refused to work with her colleagues and become a whistle-blower to
reveal the corruption.
But her courage was all for nought, because the convicted felons were granted ‘conditional release’…although the authorities would not release their names. This despite the huge sums they had blackmailed and embezzled from taxpayers over the years. These low-lifers are thus now free to do the bidding of the gargoyles in Brussels and the IMF: and lest we forget, they will also be doing the work of the banks, speculators and pro-EU elites who caused all this mess in the first place. That is, they will continue to rob from the poor in order to ingratiate themselves with the rich.
The Greek legal system also allows convicted felons to buy themselves out of prison sentences for tax evasion. Naturally this usually means that the poor, minor dodgers rot in prison…and the troughers walk away. Most of the €70bn lost last year to the Hellenic Exchequer involves the latter: some 200 alleged tax cheats have been rounded up in recent months, but not one high-level business figure has been prosecuted….and as we’ve seen, by far the biggest heist in Greek tax history has resulted in the guilty being….let off.
As southern Gallic relaxez-vous stretches down to meet Mediterranean manana, the attitude held by the majority of taxpayers is thus very simple: “the government cheats me and hires blackmailers to rip me off, so I cheat them at every opportunity”. As my own woodman here in the Lot said to me six years ago, “I don’t pay tax m’sieur, it only encourages them”.
I have reached the stage with the Fiscal Union/Troika juggernaut where I no longer accept the thesis that Berlin am Brussels is simply inflexibly dumb. I think that particular axis of evil knows exactly what the problem is, and how it happened, viz: the EMU beyond northern Europe was always going to doom those who took it up, because it was of less than no use to them given the nature of their economies. And the fiscal rules would never suit Europe south of Bordeaux because the entire relationship between the citizen and the taxpayer is different.
This deserves some further elucidation.
Before they blagued their way into the eurozone on the back of EU hubris and graft, Greece and Spain were doing just fine thank you very much. Having at various times kicked out fascist colonels and a sclerotic Caudillo, both countries saw enormous growth through the liberalisation of capitalist mechanisms alongside generous welfare systems. Tax evasion was and remains endemic, because the elites are corrupt, and the tax collectors a bunch of blackmailers. But none of that mattered too much, because their primary ‘export’ was the country itself – the weather, the food, the culture, the olive oil, the glistening oceans and stunning offshore islands.
Above all, what Greece and Spain had going for them (when it came to attracting Nordeuropa holidaymakers) were high temperatures and low costs: meals, wine, beer, flights and hotels tended to be cheap. When I first went to Greece in 1970, you could bum around the islands on not much more than twenty quid a week. My first fortnight in Spain cost £50 – flights and apartment included. The sun shone, the ferries were sporadic, the people were gentle: it would be done manana, but in the meantime enjoy your yoghurt and honey, have some tapas with your La Ina, sleep it off on the beach, and then eat late with the locals and their children at the Taverna. With these two venues and Portugal, Europeans would never want for cheap, relaxing holidays.
But then along came the eurozone, and soon afterwards the plot was completely lost. Spain took advantage of cheap ECB and US bank money to invest in a second-home property bubble that could never sustain itself; and probably more than any other ezone founder, the Greeks swapped their wonderfully good value ‘drachs’ for an immediately inflationary euro…and its elites really began to dive fully-clothed into the money-trough. In this of course, the pols and bureaucrats were aided and abetted by Germany in general, and Siemens in particular. As vacation destinations, their problem was exacerbated by the growing realisation that other parts of south-eastern Europe, and intercontinental long-haul, were where one could now find excellent value and something a little more esoteric – be that Croatia or Thailand.
The foregoing is obviously a gross simplification of how we got to here, but it’s more or less fair. Given cheap loans by Trichet, an expensive currency made even more uncompetitive for exports by a successful Germany, and a spendaholic France, the ClubMeds saw their boom slowing down in real terms by 2004. But like everyone else in the world, they chose to borrow their way out of a changing balance of power between Europe and Asia.
Probably, sanity is at hand. As I predicted against the tide last month, the Karlsruhe Court isn’t rolling over, and Gauck is sticking to his guns. Schäuble-licken is bellowing that the sky will fall in if Germany ‘dithers’ further (it probably will) but both Bankfurt and the Opposition Parties can smell blood: they are starting to push a coordinated line – that Germany will be ruined by Merkel’s ego – and Fritz in the street is beginning to catch on. The longer things drag on, the more obviously inevitable the euro’s demise in its current form will become – which is, let’s face it, what Wolfgang Schäuble is really upset about. His dream of being Ubersturmbannfuhrerfinanz for the eurozone is fading rapidly.
As long as bonds spike and austerity rules, the euro will move even more rapidly towards its implosion. There are three options left today:
1. A Nordeuro is formed, led by Germany (and perhaps a Sudeuro by France)
2. Germany quits the euro completely
3. Insolvency events overtake the Sprouts, and the entire eurobanking system falls apart, immemdiately infecting the US.
If you can choose between them right now, than you’re a better man than I. Stay tuned.
Now that the Wicked Witch of the North (Angela Merkel) has been turned to stone/burned at the stake and Europe saved for the next five minutes, all eyes turn toward China.
Jonathan R. Laing (Barrons)
The Chinese economy is slowing and is likely to slow a lot more. Get ready for a hard landing.
After three decades of annual growth averaging 10%, China’s bullet-train economy is slowing markedly. Economic problems in Europe and the U.S. are stunting export growth, long the primary driver of China’s economic miracle. Growth in industrial production has likewise been decelerating for months. This year growth in gross domestic product could slip to 8%—and it may get a lot worse from there. Though recently announced interest-rate cuts and a ramp-up in the government’s already massive infrastructure spending could postpone the day of reckoning, to us it looks like the Great China Growth Story may be falling apart.
A comprehensive report by Nomura Global Economics issued late last year entitled “China Risks” paints at least one scenario in which China’s growth would fall in half to under 4%.
The Euro-zone is just as far away from Euro-bonds, Euro-reform, Euro-conservation and Euro-salvation as it was two weeks ago, Merkel is just as belligerent, the region is just as broke and dependent upon external sources of both credit and fuel as it was two weeks ago … certainly none of these problems apply to China, right?
Figure 1: China’s petroleum consumption massively increases, it does so at the expense of China’s overseas customers. We can see how this works in the unraveling markets outside of China. Analysts believe non-remunerative fuel waste can increase endlessly into the future, one look at China’s exponential consumption should put an end to such nonsense. China depends on overseas merchandise sales to the same countries that China’s expansion starves of fuel.
Here is distributed vulnerability in a zero-sum world: China is as dependent as Greece on outside capital, almost as dependent as the US on petroleum imports. China isn’t support for the world economy, it cannibalizes the world economy instead: petroleum consumption chart is from Jonathan Callahan’s excellent Mazama Science Energy Export Databrowzer (BP Data).
China is no slouch in the production department but its consumption is out of this world, with a proportion of imports to domestic production similar to the US. With its ballooning auto fleet China is increasingly dependent upon petroleum imports. China also requires a flow of hard currency from outside the country which it uses to purchase the fuel. The yuan does not trade in forex markets: China is unable to ‘borrow’ fuel or gain it by seigniorage as do the US and the EU. It is left with the ‘poison dog food for oil’ trade.
Here are the US and Chinese energy consumption charts side-by-side, (Click on chart for big):
Figure 2: US and China consumption is virtually identical, the Chinese burn much more coal. Waste-begets-waste: China export trade is cheap coal in the guise of near-worthless consumables, an energy subsidy to US ‘consumers’.
|According to the International Monetary Fund the US nominal GDP for last year was:||US$15.094 trillion.|
|According to the IMF the China nominal GDP in US dollars for last year was:||US$7.298 trillion.|
What this means is China is structurally half as productive as the US: to obtain the same unit of output as super-guzzler USA China must burn twice as much fuel. For China to have the same level of goods- output as the US it must double its already staggering fossil fuel waste or reconfigure its energy use infrastructure to be twice as efficient. It is hard to see how the Chinese can do this on top of the massive (mal)investments already made in the capital-intensive sectors.
The use of coal speaks for itself: China has built the cheapest possible energy base for a Victorian-style manufacturing economy. According to a 2007 MIT report:
China is currently constructing the equivalent of two, 500 megawatt, coal-fi red power plants per week and a capacity comparable to the entire UK power grid each year.
Power plants have life-spans of 50 years or more. The Chinese cannot afford to replace inefficient current plants with newer versions of the same plants, nor can China afford to abandon them. Nevertheless, to cut fuel use the Chinese have little choice but to do without, they have put themselves into the American ‘sunk capital’ quagmire. As Chinese resource waste declines, so must GDP.
It is hard to imagine Chinese industry having the capacity to physically move energy goods into- and within the country at much more than the current rate. Like everything else, fuel acquisition and handling is subject to diminishing returns.
China burning twice as much coal would blow out our planetary life-support due to excess CO2 emissions and knock-on effects. Chinese fuel waste processes are collateral for loans to Chinese oligarchs and nothing more: burning more coal would be the equivalent to robbing a bank by blowing up the city where the bank is located with a nuclear weapon.
Because China is dependent upon capital flows from outside the country, slowdowns elsewhere such as Europe adversely effects China company sales, this in turn effects consumption within China. The slowdown in capital flows follows flows in goods which bounces back into capital flows in a self-reinforcing cycle.
Slowdowns emerge among China vendors such as coal exporter Australia which is staring at a recession (Fureyous):
Figure 3: Yields on Australian credit issues, the inverted yield curve is an alarm bell. Anyone looking for signs of the 2008 credit crisis would have predicted it after seeing the obvious negative Treasury yields in 2007. The curve is inverted when longer duration government debt trades at a higher price (lower yield) than rediscounted debt, the price of which is defended by the central bank. Inverted yield curves indicate lower long term interest rates — and a recession — in the future.
Australia is in the middle of a credit-driven real estate ‘bubble’ which makes that country vulnerable to declines in asset prices and increases in unemployment. Capital flowing into Australia rewarded miners and real estate lenders, the capital flowing out of Australia is in the process of stranding the same businesses: look for a sharp decline in house prices and many defaults on high-priced mortgages, look for subsequent Australian banking failures.
Energy constraints are amplified by currency repatriation and dollar-preference worldwide. Priced in crude, dollars have worth: here is the world’s inadvertent monetary policy. The ‘price’ of money is set at gas pumps by millions every single day.
Figure 4: Here is China’s Unholy Trinity along with everyone else’: there are currency pegs with China and her trading partners, monetary policy is set in the world’s filling stations. The world’s monetary regime has become inflexible. What remains for China and its vendors is the free flow of capital: bank runs and cross-border capital flight which are underway right now.
The same conditions hold true in the EU with its fixed exchange rate nonsense and Europe’s fuel waste setting monetary policy. These areas have the choice of conserving energy — to sever the relationship between fuel and money, to ‘go off’ crude as nations went ‘off gold’ in the early 1930s. Or they can endure fatal bank runs leading to financial system collapse.
None of this is optional or subject to negotiation. The rigidities that the establishment appears willing to defend to the utmost allow for no other outcome. The argument is that economies can grow without increasing energy waste, that money can be decoupled from fuel. It can, but not in the way that the establishment hopes for. One way or the other there will be conservation of energy and other resources. It will be accepted voluntarily or it will be imposed at the (empty) ATM machine or at the point of a bayonet.
Additional symptoms of China distress emerge as the various Ponzi schemes that make up the Chinese economy are exposed. If resource waste was truly productive there would be no need for such schemes in the first place as running wasteful machines in circles would pay for itself. The emergence of these schemes — and others — is suggestive of the fundamental earning incapacity of the waste-based regime.
Anyone looking for evidence that money is brain poison has to look no further than China: Craig Tinsdale notes The Looting of China by the Kleptokapitalist Bourgeoisie Roaders, long-time China expert Patrick Chovanek describes how Chinese non-response to US complaints about China company bookkeeping threatens to have all Chinese companies deregistered from US exchanges. While this last step is unlikely, it is reasonable that most if not all US-listed Chinese companies are accounting control frauds created specifically to take advantage of the ‘Super-China economic growth miracle narrative’ and the associated suckers. Here is John Hempton’s take:
China is a kleptocracy. Get used toit.
I start this analysis with China being a kleptocracy – a country ruled by thieves. That is a bold assertion – but I am going to have to assert it. People I know deep in the weeds (that is people who have to deal with the PRC and the children of the PRC elite) accept it. My personal experience is more limited but includes the following:
(a). The children and relatives of CPC Central Committee members are amongst the beneficiaries of the wave of stock fraud in the US,
(b). The response to the wave of stock fraud in the US and Hong Kong has not been to crack down on the perpetrators of the stock fraud (so to make markets work better). It has been to make Chinese statutory accounts less available to make it harder to detect stock fraud.
There are also banking system alarms in Chinese media, that finance is over-leveraged with bad loans multiplying.
The ongoing China exposé is suggestive: Warren Buffett’s naked swimmers appear therefore the tide must be going out. What is seen right now is the tip of the crime iceberg: as deflation takes hold more naked swimmers and deformed monsters emerge. Consequently, the public loses confidence while the process feeds on itself. It will be interesting to see whether the Chinese crooks are more effective than their European- and American counterparts at the arts of finance can-kicking, ‘key-man propping’ and promulgating false hopes.
It is possible the Chinese — unlike the Greeks, Irish, Spanish and Americans — will explode in a blind fury and turn the country into a large and bloody version of Syria. Keep in mind that a large part of China’s petroleum consumption is immediately exportable …
Wasting resources produced an immediate short-lived statistical revolution at the expense of long-term stability. The the future has been spent into the atmosphere for some easily stolen ‘wealth’, the outcome is inevitable resource starvation. Swapping poisoned dog food for the Disney-fied US-style waste-based economy turns out to be a horrible long-term trade for the Chinese.
Conventional remedies dance around reality. People presume the Eternal Kingdom is not subject to physical laws and natural conditions: that it cannot have recessions with negative-growth like all the other economies. An entire saga of economic rationalizations has been erected around the fantasy of endless Chinese positive GDP growth. When other economies flatten out the Chinese will be there with their 8% GDP to bail everyone out. This gives economic agents the luxury of doing nothing but wait for the Chinese to show up with bags of money.
While the waiting is underway, the idea is for the downtrodden Euro-zone to become more like China. How this is supposed to work is never explained but Spain, France and the rest are to become a source of cheap industrial labor, ready to slug it out in wage competition with the Chinese — or Bangladeshi — sweatshops. Here is the conventional remedy in the New York Times dolled up with some currency ‘devaluation’:
To Save the Euro, Leave It
By Kenneth C. Griffin and Anil K. Kashyap
A better, bolder and, until now, almost inconceivable solution is for Germany to reintroduce the mark, which would cause the euro to immediately decline in value. Such a devaluation would give troubled economies, especially those of Greece, Italy and Spain, the financial flexibility they need to stabilize themselves.
Although repeated currency devaluations are not the path to prosperity, a weaker euro would give a boost in competitiveness to all members of the monetary union, including France and the Netherlands, which is why they might very well choose to remain in it even if Germany were to gradually leave. A resurgence of manufacturing would also allow the vast unemployment rolls of Spain, Portugal, Greece and other countries to begin to decline. The tremendous loss of human capital and human dignity we are witnessing would ease.
Left out of this discussion is that Europeans cannot produce China-like GDP numbers unless they can waste energy at the same rate as China.
The Europeans are supposed to become China just as China implodes! The recycled solutions are easy mercantilism, easy currency depreciation, easy ‘flexibility’ and competitiveness. Mercantilism is rent-seeking at the national scale: it fails when everyone intends to become mercantile states. Currency depreciation fails when everyone tries to cheapen their currency at the same time. Doctrinal flexibility avoids non-industrial choices: the unintended consequence is self-reinforced rigidity.
The competitiveness concept applied to labor is intellectually dishonest. It is nothing more or less than industrial slavery, the race to the bottom. The term is a gross distortion of language: the idea suggests labor as a harmless child’s game. In the real world, the competitiveness ‘winners’ are entrepreneurs who use management monopoly and wage arbitrage to repress workers. The endgame is revolution because industrial slavery is intolerable.
Americans encountering wage competition cannot be counted on to endlessly consume: their rate of energy waste declines along with the Europeans. This impairs China capital flows: they find themselves in a competition with the US establishment for dollars needed to obtain fuel.
Minuscule manufacturing profits don’t matter because the infrastructure allows Chinese entrepreneurs to borrow vast personal fortunes leaving to the West’s customers and Chinese labor/depositors the burdens of repayment.
Mercantile ‘wealth’ is is skimmed from Chinese accounts and spirited elsewhere. The rats are fleeing another sinking economic ship.
China’s Rich Head for the Exit
Pan Kwan Yuk (Financial Times)
According to the two surveys … by rich list publisher Hurun Report and Bain & Co. … 60 per cent of about 960,000 Chinese people with assets of over Rmb10m ($1.6m) have already begun the process of emigrating or are considering doing so. The US was the top destination, followed by Canada, Singapore and Europe. But immigration officials in less obvious destinations such as St. Kitts and Nevis in the Caribbeans, as well as Bulgaria, are also reportedly seeing a sharp in interest from well-off Chinese.
Those in the best position to know inform by way of their actions the countries supposed to become more like it that China is not the plutocrats’ paradise it has been made out to be. Filling a country with malcontents, smokestack industries, racketeers and the world’s most monstrous real estate ‘developments’ makes Bulgaria a paradise by comparison.
While the discussion circles around the unscrupulous Chinese establishment, what unravels the Chinese economy is its own operation. Waste provides many opportunities to steal but less is gained with the passage of time. In twenty years the Chinese have built a colossus, they have little choice but to pick away at its margins while waiting for it to collapse under the weight of its own waste.
The remedy is to reduce centralized industrial production altogether so that distributed community supply can meet community demand. Without single-source manufacturing there is less distribution rents (mercantilism), this results in the elimination of middlemen and ‘fixers’ along with a diminution of the power of advertising as well as the end of industrial China as the economic model for everyone else.
Says Pu Zhiqiang (lawyer):
“No matter what, we must not lose confidence in justice and human nature. We believe this will overwhelm the leviathon (China establishment). Our aim is not to knock it off, but to ensure a peaceful transition after the fall.”
Sounds like Economic Undertow.
Debtonomics does not support ‘bubbles’, that is: bubbles do not exist within the framework of debtonomics as all credit expansion represents a bubble, rather there are changes in the rate of the supply of credit (Keen).
Note the pointlessness of central bank policies. Of the three points of the triangle, one cannot exist because there are no independent monetary policies: there are never such policies anywhere within the fuel-consuming (auto driving) world. The worth of money is determined continually by drivers voluntarily swapping it (or not) for a valuable resource. Petroleum is as gold was during the 1930s: the material basis for the world’s currencies … some more so than others.
The impossible trinity has the eurozone with a fixed exchange rate regime within the zone and the free flow of capital within (and without).
The impossible trinity has China with fixed exchange rates with its trading partners and the free flow of capital. When the Europeans install capital controls to address bank runs that will be the automatic end of the euro which is nothing more or less than a fixed exchange mechanism.
Capital controls in China means currency peg breakdown and successful speculative attacks on the yuan leading to China’s loss of forex reserves. At that point China — like Greece — will have difficulty importing fuel.
At first, even if the water is rough, ballast in the keel keeps you pretty stable. As the storm continues though, the boat takes on more and more water and the waterline moves up the hull. The ballast is no longer a great stabilizer because it doesnt represent that big a fraction of the total weight carried inside the Hull, filling with ever more water. The boat starts rocking back and forth with the waves, the inside water sloshing around right along with that.
Today in the markets we saw this effect in spades. Stocks have been crashing big time and USTs shooting to the Moon while the Euro was crashing, but today we went right over to starboard as the Money/Water went sloshing back the other way with the latest Wave, rumours of a new Master Plan in Eurotrashland to fix their unfixable problems. Treasuries get dumped to by Stocks and the Euro rises back up against the Dollar as FOREX traders ride the latest Momo Wave and try to make their daily Profit by being at the leading edge of the wave and surfing down it. Thos not quick enough with HFT Algos running their trading at best get left behind here and miss the ride. They have to sit and hold tight and wait for the next wave to come rolling in. Which it will of course, because this Storm is far from being over, it’s really just beginning here.
By now about everybody knows the Euro is Finished and the Euro Titanic will sink, but none of the really BIG Players can afford to admit that or exit their Euro Positions by wholesale dumping them on the market. So they hold onto most of the supply in the Hull and wait for it to slosh one way or the other as OUTSIDE the Hull the vast Sea of Money rolls in ever bigger waves.
All the time of course, MORE Money/Water sloshes over the gunwhales and into the boat courtesy of CBs pushing out endless liquidity waves and ever bigger bets are made inside the boat with the additional water, causing it to list from side to side at greater angles all the time.
Everybody on board knows the boat is sinking, but nobody wants to Jump Ship here, particularly since those Tiny Lifeboats named Drachma, Lira, Pesetas, Punts etc don’t look like they will hold up too long in such rough Seas. Everybody wants to get aboard the Lifeboat with the Swissie Cross painted on the front, but that one looks too overloaded already. Other folks want to get on the Golden Lifeboat, with the small problem that Gold doesn’t Float too well. Others wait for the Krauts to build a D-Mark Lifeboat, except only Krauts will be allowed on board that one if they build it in time.
Meanwhile, Floating out there in the same storm is the Mighty Ship of the Dollar. At the Helm, Captain Helicopter Ben Bernanke is motoring through the storm also on his big Nuke Powered Helicopter Carrier. Captain Super Mario Dragon is sending MAYDAY calls over the wireless to Captain Helicopter Ben to send in the Hueys, but so far they aren’t Flying. Captain HB doesn’t want to risk his Helicopters yet to save the sinking Eurotrash. He’s going to NEED those Helicopters when the Dollar ship goes down, and if he loses them trying to save the Eurotrash he won’t be able to get himself or his Officers off the Dollar when it goes down.
While the Storm Rages in the North Atlantic, over in the South China Sea Captain Sum Dum Fuk is piloting the recently built Renminby out of the Foxconn Shipyard, which has such poorly welded seams that not only is the water sloshing over the gun’ls, its flowing in right through the hull as well. Captain Sum Dum Fuk figures if he reverses direction on the Sump Pumps and pumps MORE water into the Renminby ship, this will create a pressure gradient forcing water OUT of the Hull rather than into it. So he orders his North Korean Chief Engineer Park Sum Cok to turn the pumps on Full pumping water INTO the good ship Renminby.
For the crew and passengers on all these ships, the band plays on and the deck chairs get rearranged, but few are building their own lifeboats still. The Helicopters will not come to save them, they are reserved for the Officers aboard the Good Ship Dollar. If you are not building a Lifeboat NOW, I sure hope you are one fucking good Swimmer.
US Treasury prices fall as stock market surges
By The Associated Press–1 hour ago
U.S. Treasury prices fell sharply Wednesday as fresh hopes that Europe will address its debt crisis drew money into riskier investments.
The Dow Jones industrial average jumped 286 points, its biggest gain of the year. The surge pushed the Dow back into positive territory for 2012.
As money flowed into riskier investments like stocks and commodities, traders sold ultra-safe Treasurys. The price of the 10-year Treasury note fell 50 cents for every $100 invested, pushing its yield up to 1.64 percent as of 3:30 p.m. EDT from 1.57 percent late Tuesday. Higher bond yields reflect lower demand for the securities.
Last week, the 10-year yield hit a record low of 1.44 percent after an alarmingly weak report on the U.S. job market renewed fears about the pace of economic recovery.
Wednesday’s whiff of optimism was related to hopes that European officials will find new ways to ease the region’s debt crisis. News reports said that German and European Union officials are assembling a rescue for Spain’s teetering banks.
Spanish banks invested heavily in that nation’s real estate bubble. Some can’t afford the losses they expect on loans, and the Spanish government can’t afford to bail them out. Spain has been the latest flashpoint of worries about Europe’s financial stability.
In other trading, the price on the 30-year Treasury bond fell $1.88 per $100 invested, pushing its yield up to 2.74 percent from 2.63 percent late Tuesday.
The yield on the two-year Treasury note rose to 0.29 percent from 0.25 percent late Tuesday. The yield on the three-month Treasury bill was unchanged at 0.08 percent.
What follows this introduction is one of the many articles I wrote on TBP in the aftermath of the Fuk-U-Shima Quake and Tsunami. Some of them are too dated to repost, but this one has particular significance because of a similar Quake and Tsunami building now in Eurotrashland, just on more of a financial level than a geological one. The Euro markets are crashing now in much the same way the Nikkei did after Fuk-U-Shima. The CB interventions already look similar to what occurred then.
The important aspect insofar as recent discussions going on inside the Diner are concerned relate to how Hyperinflationary events might transpire in the aftermath of such Quakes. In the first paragraph, just substitute “Euro” for Yen and “ECB” for BoJ and you should see the whole game is pretty interchangeable here as far as how the CBs are handling it. Will this lead to Hyperinflation, and in which currencies and when? Read on for some more thoughts on these subjects.
After a couple of days watching the Nikkei sink like a stone and the Yen rapidly appreciate in value against the Dollar, the Central Banksters of the world Pulled together here, and now have gone ALL IN. The Geeks from MIT, Harvard, Princeton, Columbia and Trinity College of Cambridge University have loaded up on Jolt Cola and they are working in overdrive now pulling All Nighters every night. The BoJ will print as much Yen as necessary to keep the Nikkei floating and the other CBs will print in tandem to swap out as much currency as necessary to keep the relative exchange values even. This should keep the Supercomputers doing Teraflops here until the circuits burn out.
What are the Intangibles, what is going on BEHIND the curtain here? Its not all that different than what has been going on with the NYSE, which is that although the nominal value of the stocks are being kept relatively even, the OWNERSHIP of those stocks has been steadily changing hands. The Insiders are selling out their shares, the CBs are buying them up through their Proxies of the trading desks of the TBTF Banks.
All this really worthless paper is going onto the Books of Banks which ALL will eventually go BK, the liabilities then transferred to the Nation States they are chartered under. Insiders are currently exchanging the stocks for currency they can still use to buy hard goods and secure themselves. They need the currency to remain working as long as possible to be as complete as possible buying up what remains of wealth in the world. Every means possible to forestall currency collapse is being taken here, because once it does occur, all bets are off and it becomes a Power Game which all the Big Players are positioning themselves to play here, but which none of them know the outcome of.
By maintaining the relative value BETWEEN international currencies, none of them will Hyperinflate until there is a local collapse of confidence in one of the currencies, most likely to be the Yen first now. Local Japanese are going to start spending what Yen they have as fast as possible as soon as there are any hard goods to buy with that Yen. Internal commerce in Japan is so slow now (for all intents and purposes it is at a complete halt) that this Hyperinflation will take a while to develop. Might not be for a few weeks or even monthswhen they get some control over the ongoing Nuke disaster and Humanitarian crisis of around half a million people displaced from their homes and in emergency shelters, and try to begin “rebuilding”. Could begin sooner though once the currency traders wake up and smell the coffee. (Note: over a year now still no HI of the Yen. It clearly takes a lot longer for such a loss of confidence and complete evacuation of a currency such as the Yen to occur. So for the Euro, same probably is true, and it probably will take longer than seems logical right now for a complete Euro Collapse to play itself out)
Right NOW, the Yen has appreciated in value because it is NEEDED in Japan, but once it becomes evident that it is hyperinflating, everybody will try to get rid of what Yen they hold outside of Japan. The currency is fundamentally worthless now, the industrial infrastructure on which its value was based is pretty much in ruins. Short term though, it is highly VALUABLE, because everybody in Japan needs Yen right now, it’s the currency THEY use to buy stuff.
Anyhow, if the BoJ continues printing at this rate, currency traders who hold Yen should see the Writing on the Wall unless they are stupefyingly dense. The Unknown Variable here is just how fast this will Dawn on the currency traders, and how fast they react by trying to dump their holdings of Yen. If they start dumping, the BoJ has to stop printing, elsewise you get a synergistic effect and the currency completely blows up. (So WHY don;t they dump the Yen as I wrote here? My current take on this is that Da Fed and BoJ prevent this from occuring through Swaps and currency manipulation. the Carry Trade here is enormous, and these folks cannot unwind these trades without gettinng HAMMERRED, so the CBs prevent runs on the currency juicing the market either way if it looks like a run is underway. I suspect the same will be true if a major run begins on the Euro. Not so sure Da Fed can move enough CASH through the Back Door in the even of a run on Spanish Banks though.)
If you think about it, this explains why the Dollar, despite constant printing by Helicopter Ben over the last few years has not Hyperinflated. Yes, there IS price increase in commodities and some services resulting from Hot Money flow into speculation in the commodities market and indexes which track that are perceived by many as “inflation”. However, for the most part the money printed here by HB is being HOARDED, not spent rapidly out into the market by end consumers. End consumers for the most part have no access to this money. Smart folks who are still in Surplus aren’t spending their dollars, they are paying down debt and some are Speculating with them buying PMs and driving the price of them up. Relatively small segment of the population in the category of current surplus to be doing either of these two things though. However, there is not YET a crisis in confidence over the Dollar which would lead to across the board Dollar Dumping by people who still have a large surplus of dollars. To achieve Hyperinflation, there must be a crisis in confidence in the currency, which has not happened yet with the Dollar. It will happen eventually as long as the current path is pursued, but the crisis of confidence will come in smaller currencies FIRST, the Yen being the most likely right now.
As it becomes ever more clear just how dire the situation is in Japan, there will be a crisis in confidence over the value of the Yen. Belief is a very strong thing, so is Denial. The belief still exists in many that Japan will shrug this off, rebuild and continue to produce Toyotas and Sony Plasma TVs to sell to worldwide Consumers. Reality will eventually undermine this belief, denial will become impossible as long as things there continue to be out of control, this will happen sooner rather than later.
Of course, the ongoing Nipponese Armageddon is only a part of the total Collapse Picture. Just about as big as this is what is happening over in the M.E., and with the sheer MAGNITUDE of the problems in Japan I haven’t spent much time in the last few Daily Rants keeping tabs on that Shitstorm. Fast as I can keyboard, its just not possible to keep up with all this shit. Besides, I have to keep the OP under 5000 words each day anyhow. LOL. Partially because I promised I would do this, but more for personal reasons which is that if I let myself go longer, it would take more time than the hour or so I will devote each night to writing while I make dinner before I hit the sack. I spend a LOT more time than this composing, but I do it during the day while I am at work in my head. It’s multitasking. So at night, all I have to do is keyboard it out which does not take that much time, not actually compose it which is more time consuming. That is how I write so much every day, in case you were interested, which you probably are not. LOL. The Quality varies from day to day obviously. A few Gems, plenty of Rocks. If you are Panning for Gold here in what I write, you have to sift through a lot of dirt to find some grains of Gold. I’m just ranting on what I think about with respect to the ongoing Collapse, that is all.
Since I last updated on the M.E., there has been quite a bit of action in Bahrain and Saudi Arabia, but the big Newz of the day is the UN resolution to implement a No-Fly Zone over Libya, AKA a License to NATO to Bomb el-Kabong back to the Stone Age. The “Arab League” quickly capitulated on the idea that Arabs could solve Arab problems here. The “Arab League” is of course not representative of the Arab PEOPLE, it’s the Stooges the Illuminati prop up as Goobermints in these countries, all part of the Oil Conduit.
Why are they doing this? It is NOT to bring Democracy to Libya obviously, its because there is so much fucking CHAOS there right now that probably ZERO Oil is floating on tankers out of Libya, even though the MSM claims that production is only down by 2/3rds or so. Italian Auto plants are dependent on Libyan Oil, and if they don’t keep producing Fiat Cars, Silvio Berlusconi will not have any Fiat Money to buy Underage Hookers with.
So the ANSWER they have come up with here is to as quickly as possible bomb the living shit out of all the military hardware THEY sold to el-Kabong, so that then HOPIUMFULLY they can send in a small force of Boots on the Ground to ally with Rebels and get those damn Oil Fields BACK online ASAP! They are likely to be as successful with this concept as they were with Bombing Baghdad back to the Stone Age to take control of Iraqui Oil Fields after Saddam got outta control.
This is of course a UN operation of “Peacekeeping”, not an FSofA Imperialist War, and dutifully all the NATO countries are contributing here, even the Hosers in the Great White North are sending over some Jets piloted by Bob & Doug Mackenzie to bomb the Living Shit out of the Libyans. What about the freaking ITALIANS? They get most of the Libyan Oil, who are THEY sending over there? OK, they are probably providing Airbases in Sicily to fly out of.
El-Kabong has been singularly uncooperative here, unlike the Hoser Mubarak in Egypt he did not dutifully Exit Stage Left with a few Billion in Gold Bars. No, El-Kabong is going to fight to the DEATH to keep control over his patch of depleted land. If he wasn’t such a complete SCUMBAG with bad taste in his wardrobe, his refusal to capitulate to the Illuminati could almost be viewed as heroic. LOL. However, like all the rest of the propped up Dictators, he IS a scumbag, and in the process of trying to hold onto “his” property, a whole heck of a lot of disenfranchised Libyans are going to get a near term ticket to the Great Beyond.
The Intangible Question in the case of El-Kabong is just exactly what Options he has here once NATO brings to bear their Air and Naval assets on that patch of land? How Well Prepped IS he? Does he have enough Anti-Aircraft weaponry to fill the skies full of Lead and shoot down some NATO hardware? Can he send Missiles aimed at Italy from Libyan shores? Can he send out teams of Special Ops forces to do some Assassinations? How LONG can he hold out under Carpet Bombing? (Question has been answered. Not too long. El-Kabong clearly did not Bunker himself up well enough here.)
El-Kabong is isolated and his days are numbered here, but he has made it VERY clear he is not going down without a fight. Also clear is he is not going to make a distinction between Civilians and Military, either among his own people or anybody else. ALSO clear is that he is not going to hand over the Oil Fields intact no matter what. His personal Pretorian Guard knows they are all Dead Men once his regime is overrun, so they are likely to be just as INSANE as he is. Even if its ONLY 10,000 troops he has as part of this force, if they have access to good military hardware and enough MREs to keep going for a few months, this will be a rough bunch to take out. They are ALL suicidal now, they all know they are dead men walking, so they have NOTHING LEFT TO LOSE. That makes them dangerous indeed.
I did have the intention tonight of addressing the question Flash asked, which is once all this SHTF stuff coalesces, where does that put us a year or so down the line after an across the board monetary system collapse? That is a very good question to ponder on, but too much to drop in this rant unfortunately even though on a word level this one is short at around 2000 words. I am about out of time here regardless, and I have a Salmon Fillet simmering in Garlic, Lemon Rinds, Dill, Cayenne Pepper and Kerri-Gold Irish Butter just about ready for consumption. I’m a little slow on the keyboard tonight because I have to keep a close watch on the fillet, overcooked it falls apart and doesn’t have the right texture, undercooked the flavors don’t blend properly. So that question will have to wait for tomorrow’s Daily Rant, unless of course I wake up tomorrow and still MORE SHTF I have to address. No shortage these days of Doomer Topics to write on. We have not reached Peak Doom here by any measure, it is the Gift that keeps on Giving to the Doomer. I am of course a major Doomer. (A year later now, we are still mired in what appears to be a “Long Emergency” of the Kuntsler variety rather than a Fast Crash. Indidcations are that the “Long Emergency” will remain the dominant paradigm for a while longer. However, the system remains so unstable that it could FLIP at any time. You have to pay attention to it all the time to not get caught with your pants down. If /when it flips to aFast Crash, you will not have much time to make the Last Bugout.)
Long Emergency or Fast Crash in terms of the Human Lifespan is concerned notwithstanding, either way I STILL See Dead People.
Climate change- and Peak Oil deniers are like turkeys who gather in a corner of the farm convincing each other and the other turkeys that this mysterious circumstance called ‘Thanksgiving’ is a fraud. According to rumors that flare up like wildfires through the community then evaporate just as quickly, when this ‘giving of thanks’ event draws near The Great God stuffs the turkeys in a truck (whatever that is), takes them somewhere then has them all put to death! Turkey corpses are then wrapped in plastic (whatever that is) and shipped to supermarkets (whatever these might be). The rumors are highly disturbing to the turkeys even as some of the more perceptive among them notice that turkeys who leave the community never return.
“Pay no attention,” cry the deniers. “This obviously cannot be so: God is the turkeys’ best friend. Every day he brings more and more delicious food, as much as the turkeys can eat. The more food we eat the more we have available to eat. All this food and much more has been provided by God for as long as us turkeys can remember.”
“Certain as one day follows the next, this incredible bounty will go on forever. We dare not change anything or leave. To do so would have us … living like savages in caves!”
“Where are the old turkeys?” asks a thoughtful, young turkey. Where are they indeed: there are old turkeys and bold turkeys but no old, bold turkeys. Recently the climate denying-gobblers had a chance to see that the turkey-god is a farmer with an ax and a calculating mind. This came in the form of Senate testimony from the insurance industry.
It’s one thing for the pimply-faced teenaged brigade of energy company shills/morons to scorn scientists and for middle-American turkeys to believe them. It’s another thing altogether for the shills to smear the insurance industry. The warming-related disasters are costing the top insurance gangsters real money, these costs ricochet through related real estate and finance rackets:
Climate Change: Insurers Confirm Growing Risks, Costs
Stakeholders from the insurance industry met with members of the U.S. Senate to acknowledge the role global warming plays in extreme weather-related losses, and to issue a call for action.
The politics of global warming have typically involved much debate as to the role climate change plays in growing weather-related risk. Yesterday, however, at a Capital Hill a press conference on the cost of climate change, debate was not on the agenda. Pointing to a year of history-making, $1 billion-plus natural disasters, representatives of Tier 1 insurance companies took a definitive stance with members of the U.S. Senate to confirm that costs to taxpayers and businesses from extreme weather will continue to soar because of climate change.
Representatives from The Reinsurance Association of America, Swiss Re and Willis Re and Ceres, a nonprofit organization that leads a national coalition of investors, environmental organizations and other public interest groups working with companies to address a variety of sustainability challenges, joined Sens. Bernie Sanders (I-Vt.) and Sheldon Whitehouse (D-R.I.) yesterday to discuss the growing financial impact of global warming.
Reality about energy supplies begins to emerge and it’s as ugly for ‘Autoworld’ as Thanksgiving is for turkeys. Peak Oil has blitzed the Greek economy into the dumpster with stunning dispatch, so much so it seems beyond the ability of sensible Greeks to understand what happened to them. Greece isn’t a hedge fund or an over-leveraged investment bank peddling fubar MBS out of a back room but a modern, middle-class nation with a (semi)functioning government and a four-thousand year history: all that except for the history is gone … in a heartbeat. Fall asleep in Greece, wake up in Angola.
During the period of the Asian credit contraction or the Argentina default and crisis Latin America that took place during the late 1990s there were exceptions to malaise. The industrialized economies such as Japan and the US performed well. In 2012, the economy of entire world finds itself stuffed into the back of the truck heading for the freezer.
It really is different this time!
Forget the turkey gobble about ‘Peak oil in 2035′ or ‘energy self-sufficiency’. Without drastic change in attitude, the world is never going to get to 2015 in one piece. From an energy standpoint there is no difference between Germany and Greece … or Japan! Berlin (Tokyo) must sell cars to millions of turkeys or the lights go out. Peak oil drives a stake through the heart of the auto-sexy sales pitch. What happens next? Both Japan and Germany have carefully constructed the model post-modern energy-arbitrage value-added economy: Peak Oil destroys it. What rampages through Greece is getting ready to cum inside quivering Germany, possibly within months.
Ominously, fuel prices are rising to record levels even as the world slips into recession. This is a slowdown in credit expansion, without credit there are few funds available ‘on the sidelines’ to push up crude prices. What this means is that any spare change on the sideline is being burned up for nothing right now.
There are output declines in the UK, outliers in once-booming China, ongoing deflation as well as a new trade deficit in Japan, slowdowns in the countries which have depended on commodities sales to China and India: the EU is collapsing and the US is pincered between the need for more easing to keep debt costs under control and the steadily rising fuel prices amplified by more easing:
Figure 1: here is your Gasbuddy gift, red spreads across the US in the form of plus-four dollar gas prices. What sort of turkey will Gasbuddy bring in the future? Plus-five dollar gas or declining prices and faster declining ability to pay? Best to bet on declining employment and more poverty.
|BRENT CRUDE FUTR (USD/bbl.)||125.520||0.180||0.14%||20:00|
|GAS OIL FUT (ICE) (USD/MT)||1,030.000||1.750||0.17%||20:00|
|HEATING OIL FUTR (USd/gal.)||325.400||1.110||0.34%||20:01|
|NATURAL GAS FUTR (USD/MMBtu)||2.263||-0.006||-0.26%||19:58|
|GASOLINE RBOB FUT (USd/gal.)||333.630||1.330||0.40%||20:01|
|WTI CRUDE FUTURE (USD/bbl.)||106.640||0.300||0.28%||20:00|
Table from Bloomberg has Brent crude at a economy-crushing $125./barrel. The economic infrastructure has been built around an assumed $20./barrel forever. Crude costing more than $40 per barrel or so strands the entire fuel-wasting enterprise, this includes China. Meanwhile, the high fuel prices represent/require massively expanded credit. The reason for the credit in the first place was because there wasn’t enough cheap crude to satisfy all demand starting ten years ago! Credit access became a substitute for fuel and a way to ration it at the same time.
So far the current mini-spike hasn’t been able to push past last April’s high of $128./barrel for Brent. If the $128 level holds it indicates the world is too broke to afford higher prices. Prices pushing above that level indicate the turkeys’ best chances of buying their way past the consequences of their own waste are being hurled into the fire.
Figure 2: this chart is from Jonathan Callahan’s Energy Export Databrowser.Greece does not produce any petroleum energy to speak of: a few thousand barrels per day from offshore fields. It has to import fuel from overseas, mostly from Middle East producers such as Iran. Where does Greece get the hard currency to swap for petroleum overseas?From an energy standpoint Greece is insolvent. It once borrowed — euros — from banks to buy fuel. Now it has to borrow from new banks to pay off the old banks AND to buy the fuel. Greece is on the road to oblivion. It buys less fuel even as it falls further into debt. Without some drastic change Greece will not only default but collapse.Like the other countries, Greece obviously failed to earn enough from using the fuel to pay its energy bill otherwise it would not be insolvent.
Last Summer was really the EU’s last chance to put its energy house in order and get serious about conservation. It is too late when economies are stripped out there are no funds with which to ‘buy’ the saved btu’s. Greece from the ground:
“A harder Default To Come”
“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner.
In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector … shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
What a horror show! Richter doesn’t mention that the only way for Greece to escape its straitjacket is to either borrow more and roll over debt or to repudiate it. There is no way for Greece — or Germany — to repay Greece’s finance debts even if 100% of its citizens hold jobs. The debts are simply too enormous.
Greece Undergoes An Energy Cramdown.
Greece’s GDP has declined right along with energy consumption. This is no accident or coincidence. The fairy-tale increase in GDP that everyone loved so much was powered by credit expansion which leaked into fuel bourses. Credit enabled the virtuous cycle of bull markets and ever-rising asset prices. Customers could meet the cost of expensive fuel (and everything else) by taking on more debt. At the same time credit expanded — as it must — so that internal costs of that credit could be managed.
The problem is that expensive fuel is that it returns the same ‘nothing’ by its use as does the cheap stuff! $20 fuel is a bagatelle to waste, it subsidizes the $50,000 automobile and the $500,000 tract house. $125 per barrel crude oil is burning a Jackson Pollock in the fireplace. The mindless waste on a planet-wide scale digs a bottomless pit that economies are unable to climb out of. The automobiles and tract houses cease to be assets but become liabilities instead: ‘Welcome to Greece’.
Here is what the world’s economists ignore: that our Number One Investment for the past two-hundred years has been non-remunerative waste, paid for with an ‘asset’ that mandates its own ceaseless and perpetual increase. The beneficiaries of this waste have been a handful of very special turkeys. Like them, the economists insist that the waste is ‘productive’ and ‘progress’: that the wasting process is so fundamental to our way of life as to defy scrutiny.
Just like the turkey farmer, credit has been our best friend, the ready enabler of all our wants. The Credit God stuffed us with everything our hearts and stomachs desired, even as these became perverse then self-destructive. Waste for its own sake was elevated to a virtue, it became the basis of our economies.
With supply constrained relative to increasing worldwide demand, fuel costs rise until something important breaks, in 2008 it was the securitization industry and shadow banking, now looks to be repos and sovereign credit. The costs of fuel plus the debt needed to bid for it are breaking costs, countries can no longer borrow. Without credit there are vanishing chances of expanding GDP or to roll-over maturing debt … or to import fuel.
Figure 3: Adding insult to injury: gasoline in Greece costs about $8.75 per US gallon, on the way to $50 per US gallon by way of black market profiteering and diminishing fuel supply. In the future, if Greeks want gas they will have to sell their children in order to afford it.
– Europe must borrow in order to obtain fuel even as the continent’s defective borrowing structure breaks down.
– The mercantile states such as Germany have been able to borrow against the accounts of their EU trading partners but now these partners are bankrupt. Unsurprisingly, the German economy is starting to contract.
– Europeans afford high priced fuel by cutting back on car purchases.
– Europe’s liabilities in euros are expanding dramatically along with the euro ‘rescues’ and bank bailouts. Germany has little choice but to exit the euro to escape mounting peripheral liabilities. Defending the euro would be suicide for Germany as would abandoning it: Germany chooses its poison.
– Euro-finance is a Ponzi-scheme, he who exits first escapes with something, the rest hold the bag. UK has exited the euro-concordat already, Spain looks to exit along with the Netherlands, France will exit after Sarkozy is ousted from his presidency. Germany cannot carry the bailout costs these other countries represent. As EU countries exit or default Germany will ditch the euro for the D-mark.
Germany is partially responsible for the multi-trillion euro ECB balance sheet. The collateral held by the ECB for its LTRO is deteriorating: there are margin calls. The central bank’s balance sheet is becoming largely unsecured debt. Germany encounters the First Law of Economics: the cost of managing surpluses becomes greater than the surpluses are worth. Selling all those cars turns out to be more than a dead loss.
Germany has been running persistent current account surpluses with the peripheral states since the introduction of the euro (click on for big).
Figure 4: Europeans have bankrupted themselves with their automobiles. Current accounts don’t lie, the credit imbalances are vendor financing within a fixed exchange rate regime, all for the benefit of German industrial firms. As European managers remain silent about the need to conserve energy, energy conservation as a natural consequence of credit breakdown is scything through the turkeys.
It is astounding that the Europeans would throw Greece into the pit, it is certain that they did not mean to do so, circumstances forced them to it. Too bad nobody is willing to face reality and throw the automobiles into the pit, instead.
Next goes Europe, itself. The Greek default closes the book on Europe in its current form, which is a lost cause. It is the end of the beginning: there is not going to be any ‘recovery’ or way back from the abyss that is now engulfing the continent. Some fragments here and there might save themselves for a little while, then like sparks from a bonfire be swept away by the wind. The crisis must now burn itself out: Europeans, look to yourselves and may your turkey-credit-God have mercy on your souls.