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Financial Armageddon dead ahead!

November 30, 2010 Leave a comment

No one saw this thing coming except a few of us, who were ignored and ridiculed.  Now it’s happening, people are still in denial.  This complacency is simply incredible.

This is what Financial Armageddon looks like.  A sustained spike in government bond yields and a slow, creeping flight to gold and farmland and real assets.

Deny, deny, deny… until the shit completely hits the fan.

Investor reaction comes as a bitter blow to eurozone leaders, who expected the €85bn (£72bn) package for Ireland agreed over the weekend to calm “irrational markets”.

While the Irish rescue removed the immediate threat of “haircuts” for senior bondholders of Irish banks, it leaves open the risk of burden-sharing from 2013 on all EMU sovereign bonds and bank debt on a “case-by-case” basis. Traders said bond funds have been dumping Club Med bonds frantically to comply with their “value-at-risk” models before closing books for the year.

Yields on 10-year Italian bonds jumped 21 points to 4.61pc, threatening to shift the crisis to a new level. Italy’s public debt is over €2 trillion, the world’s third-largest after the US and Japan.

“The EU rescue fund cannot handle Spain, let alone Italy,” said Charles Dumas, from Lombard Street Research. “We we may be nearing the point where Germany has to decide whether it is willing take on a burden six times the size of East Germany, or let some countries go.”

Italy distanced itself from trouble in the rest of southern Europe early in the financial crisis, benefiting from rock-solid banks, low private debt, and the iron fist of finance minister Giulio Tremonti. But the crisis of competitiveness never went away, and the country has faced a political turmoil for weeks.

If Portugal and Spain have to follow Ireland in tapping the EU’s €440bn bail-out fund – as widely feared after Spanish yields touched 5.4pc – this will put extra strains on Italy as one of a reduced core of creditor states. The rescue mechanism has had the unintended effect of spreading contagion to Italy, and perhaps beyond. French lenders have $476bn of exposure to Italian debt, according to the Bank for International Settlements.

In Dublin, Fine Gael, Labour and Sinn Fein have all vowed to vote against the austerity budget in early December, raising doubts over whether the government can deliver on its promises to the EU.

Echoing the national mood, Sinn Fein leader Gerry Adams said it was “disgraceful” that the Irish people should be reduced to debt servitude to foreign creditors of reckless banks. “The costs of this deal to ordinary people will result in hugely damaging cuts,” he said.

One poll suggested a majority of Irish voters favour default on Ireland’s bank debt. Popular fury raises the “political risk” that a new government elected next year will turn its back on the deal.

Premier Brian Cowen said there was no other option. “We are not an irresponsible country, ” he said, adding that Brussels had squashed any idea of haircuts on senior debt. Irish ministers say privately that Ireland is being forced to hold the line to prevent a pan-European bank run.

There is bitterness over the EU-IMF loan rate of 5.8pc, which may be too high to allow Ireland to claw its way out of a debt trap. Interest payments will reach a quarter of total revenues by 2014. Moody’s says the average trigger for default in recent history worldwide has been 22pc. “The interest bill is enormous. The whole process lacks feasibility,” said Stephen Lewis, from Monument Securities.

Olli Rehn, the European economics commissioner, said Ireland is in better shape than it looks, recording the EU’s strongest growth in industrial output in September as the IT and drug industries boost exports.

“Ireland’s real economy has not gone away. It is flexible, open, has strong fundamentals, and has the capacity to rebound relatively rapidly. The Irish are smart, resilient, stubborn people, and they will overcome this challenge,” he said.

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Categories: Uncategorized

Is there any way Australia is NOT another Ireland?

November 30, 2010 Leave a comment

I’m trying to think of one difference.

One.

I can’t think of any.

Corrupt stupid short-sighted politicians in the pockets of property developers and bankers.  Tick.  Housing boom.  Tick.  Corrupt bankers with a very small deposit base using international wholesale debt funding to grow their property book.  Tick.  Gross greed and mindless venality everywhere.  Tick.  Ponzi scheme dynamics.  Tick.  Housing flippers.  Tick.  Fucked regulatory structure.  Tick.  Past and present promises to bail out bankers and guarantee deposits.  Tick.  Talk of covered bond issuance, screwing small depositors.  Tick.

We are sooooooooooooooooooooooooooooooooooooo vulnerable to another freeze in international capital markets, or a housing bust, it ain’t funny.  It just ain’t funny.

Categories: Best assets to sell

Krugman demands freedom for all embezzlers

November 29, 2010 Leave a comment

To quote The Shill for the Shysters:

So Spain is in effect a prisoner of the euro, leaving it with no good options.

The good news about America is that we aren’t in that kind of trap: we still have our own currency, with all the flexibility that implies. By the way, so does Britain, whose deficits and debt are comparable to Spain’s, but which investors don’t see as a default risk.

The bad news about America is that a powerful political faction is trying to shackle the Federal Reserve, in effect removing the one big advantage we have over the suffering Spaniards. Republican attacks on the Fed — demands that it stop trying to promote economic recovery and focus instead on keeping the dollar strong and fighting the imaginary risks of inflation — amount to a demand that we voluntarily put ourselves in the Spanish prison.

Let’s hope that the Fed doesn’t listen. Things in America are bad, but they could be much worse. And if the hard-money faction gets its way, they will be.

So Krugman argues that further monetary debasement, further counterfeiting, the ratification of the Ponzi scheme, the ‘freeing’ of all embezzlers from responsibility for their evil actions, is somehow better than ‘imprisoning’ the populace with a fixed currency like gold.

Of course, we all would have been better off had the Ponzi scheme not been promoted in the first place, but letting Ponzi get away with it for a few more years won’t solve anything.

I don’t want to go down the same path as Spain or Ireland or the US (and the US is looking worse than Spain, economically, by the way –  even with the ‘wonderful’ QEing and inflating and insane bailouts).

I want what we had for 4,500 years – a metallic monetary standard that worked.

Simple.

God and taxes

November 29, 2010 Leave a comment

From the Bible:

Taxes are paid for the support of godly governments. Rom. 13:6.  
A poll or head tax can be levied (which is to be of a small amount) according to a census taken on persons of a certain age. Exod. 30:12-15; Lev. 27:3-8; Num. 3:40-51.  
All men subject to a poll tax are to pay the same amount (the rich shall not pay more, and the poor less). Exod. 30:13-15.  
Every man shall give as he is able, according to the blessings God has given him (advalorern tax). Deut 16:17; 1 Cor. 16:1-2.  
Abusive and heavy taxation leads to rebellion by the people. 1 Kings 12:13-19; 2 Chron. 10:13-19.  
Abusive and heavy taxation causes an impoverished nation and burdensome debts. Neh. 5:1-5.  
Oppressive taxation is often due to the sins of the nation. Neh. 9:32-37.  
Tithes and offerings collected as taxes are to be put into the treasury. Neh. 10:38; Neh. 13:12-13.  

Categories: Miscellaneous Musings

God help Ireland

November 29, 2010 Leave a comment

From the Bible (noted economic textbook, forgotten in today’s age):

There shall be a cancellation of debt every seven years – a creditor can only hold a debt for 6 years and must release the obligation on the seventh year. Deut 15:1-2.  
Debts of foreigners may be continued beyond seven years. Deut. 15:3.
Those who need to borrow from you are not to be turned away. Matt. 5:42.  The borrower is servant to the lender. Prov. 22:7.  
You shall not think evil and withhold loaning to your brother in need because the Seventh Year, the year of release, is at hand. You shall surely give to him and the LORD will bless you in all your works. Deut. 15:9-10.  
It is wicked to borrow and not repay. Psa. 37:21; Prov. 3:27; Rom. 13:8.  Lend to the poor and needy what is sufficient for his needs. Deut. 15:8.  
It is best to owe no man any thing. Rom. 13:8.  
Items necessary to sustain a livelihood are not to be given as a pledge (security) for a debt. Deut. 24:6; Job 24:3.  
You shall not take a widow’s garment as a pledge. Deut 24:17.  
Warnings against giving sureties for debts of others. Prov. 6:1-3; Prov. 17:18; Prov. 22:26-27.  He who is surety for a stranger will suffer for it, but one who hates being surety is secure. Prov. 11:15.  Pledges given by the poor for debt are not to be retained overnight. Exod. 22:26; Deut. 24:12-13; Job 24:9-10.  
When you lend your brother anything you shall not go into his house to take his pledge, but rather he shall bring the pledge out to you. Deut 24:10-11.  The righteous man restores to the debtor his pledge, but the unrighteous does not restore a pledge. Ezek. 18:5, 7, 12

Categories: Miscellaneous Musings

An insane idiot tries to solve the unsolvable

November 29, 2010 Leave a comment

Wolfgang Münchau from FT.com tries to solve the Euro debt crisis.  In hypothetical land.  And even that doesn’t work.

A correspondent whom I respect challenged me last week. It is easy to criticise eurozone governments, he wrote. But how about some constructive advice?

OK. The following actions would solve the problem. But the chances are you are going to hate them.

First, I would favour some immediate debt restructuring for Greece, Ireland and Portugal – the three countries with the most unsustainable debt trajectories. This could involve haircuts, debt-for-equity swaps or other schemes. What matters is that the liabilities of the public sector are reduced to a sustainable level.

On its own, this would not be a solution at all. On the contrary, the bond markets would seize up completely. Investors would quickly conclude that all European debt – except German – was insecure.

For the plan to work, it would take two further steps. First, we have to find a way to separate national debt from financial debt. I would change the remit of the European financial stability facility, the sovereign bail-out fund, and charge it with the restructuring and downsizing of the European banking sector. Banking must be taken away from the member states.

That would alleviate the pressure on sovereign debt but would not solve the problem. For that, I would turn all outstanding sovereign bonds, existing and new, into a common European treasury bond.

Since a single bond constitutes the core of a fiscal union, you also need a functioning institutional set-up. You need, of course, a eurozone treasury, lots of rules and democratic control. What I am proposing is a regime change. It would require a new European treaty, no doubt. But it would end the crisis. And it would end all speculation about the longevity of the euro.

Meanwhile, back on earth, let me assure you that my proposal stands no chance of success. For a start, Angela Merkel, the German chancellor, would not allow it. The German constitutional court would not allow it either. The proposed treaty change would almost certainly be defeated in some referendum if it were agreed. And member states would never countenance ceding control of their banking sectors.

So how about some realistic suggestions? I think we have moved beyond a situation in which the “realistic” technical fix can do the job. If we had the luxury of not starting from here, as the Irish joke goes, a much less invasive solution could have been found several years ago. One could have constructed a system based on policy co-ordination. One could have established credible bail-out, default and exit rules. But the European Union chose not to act during the euro’s fair-weather decade. The longer you wait, the more radical the solution has to become. Today, the eurozone must deal with a simultaneous – and inter-acting – financial and governance crisis. The radical nature of my proposed solutions is merely a reflection of the mess we are in.

So what is going to happen? The eurozone has only one strategy for now, the bail-out, shortly to be followed by the bail-in. Axel Weber, president of the Bundesbank, last week made a revealing comment when he offered his macro-arithmetic of the crisis. He said the various bail-out funds added up to €925bn. The maximal possible financial risk in the eurozone is €1,070bn, leaving a small gap of €145bn. The implication is that the eurozone would somehow find the petty cash to make up the difference in a worst-case scenario.

This is very typical of the complacency with which European policymakers approach this crisis. How can we be so certain about the maximum damage? Every day last week, the markets seized on another country. On Friday it was the turn of Spain. Who knows, this week they might go after Italy and Belgium.

There are other accidents waiting to happen. Ms Merkel and Nicolas Sarkozy, the French president, were last week putting the final touches to their new bail-in rules, to introduce collective action clauses in sovereign bond contracts. I would not be surprised if at least one member state rejected the Franco-German diktat. For example, I cannot see how Spain or Italy can conceivably support them. To use a seasonal analogy, it would be like turkeys voting for Christmas.

Another accident waiting to happen could be a decision to appoint an unknown technocrat to lead the European Central Bank when Jean-Claude Trichet retires next autumn. As Mr Weber is skilfully manoeuvring himself out of contention, there is a danger that the EU may once again settle for a less well-known candidate, similar to Herman Van Rompuy, who in his first year as president of the European Council has failed to provide leadership during the crisis.

A more immediate accident could be an unco-ordinated decision to wipe out Irish bank bondholders. If that happened, eurozone sovereign risk premiums would go through the roof. This is why I am proposing to separate banking risk from sovereign risk – and to pool the latter. I think bondholder bail-ins are a good idea. But they cannot work on their own.

The eurozone is manoeuvring itself into a position where it confronts the choice between two alternatives considered “unimaginable”: fiscal union or break-up. If you are saying my proposals are unrealistic, you are making a very strong statement indeed – one with implications that I somehow find unimaginable.

The simple reality is that after an unsustainable Ponzi-like debt build up either you must default (and cause Ponzi some losses), you must continually bailout (thereby inflating the system to death and causing a final, massive speculative bubble in gold and real stuff like food), or you must impoverish and imprison and indenture the debt-serfs.  Who feed you.  Who make the economy work.

The parasite has finally fucked the host.  There’s NOTHING that can be done.

This unholy consummation of government coercion and private Shylock-bankers has reached its logical epiphany:  Total economic anarchy, and a collapse of the system.

The zombie governments don’t see it yet.  But it’s staring them in the face.  They’re already dead.

The definition of insanity is doing something again and again and expecting a different result.  You are an idiot if you don’t deal with reality as it exists.  Wolfgang is not only an idiot.  He is mad as well.

Categories: Predictions

Weekend funny

November 28, 2010 Leave a comment
Categories: Miscellaneous Musings