Tuesday, September 27, 2011

September 27 2011: Leveraged Stability? Excuse me?


Walker Evans French Drip December 1935
"New Orleans, downtown street"


Ilargi: The latest greatest plan to save Europe, or the Eurozone, or the Euro, whichever sounds better, involves taking the present legal authority and financial clout of the EFSF (European Financial Stability Facility), which due to become the ESM (European Stability Mechanism) in 2013, and expand them greatly, something like this (Reuters' David Lawder and Daniel Flynn quote a "top EU official"):
Europe aims to beef up crisis fund
"We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet" the official said, speaking on condition of anonymity.

Ilargi: You take an X amount of money and then you leverage it by a factor of five and claim it's actually worth 5X. Something like that. And this in a supra-governmental kind of "fund" (whichever of the two) that carries the term "stability" in its name.

If "leveraged stability" is not already considered an oxymoron, it should and will be from now on in. All these people, from Merkel to Geithner to Lagarde, will tell you that this stuff is aimed at "restoring confidence -in the markets-". Like the markets don't understand what happens when €1 becomes €5 at the mere stroke of a keyboard.

Oh, they’ll take it, ain't nobody don't appreciate a free lunch, but it does nothing to restore confidence. Quite the opposite. You can't bribe people into trusting you. The markets know: what the keyboard giveth, the keyboard taketh away.

But we're to understand that today everyone's finally in real panic mode, and that breaks all rules and previous promises and -moral- principles. When Tim Geithner goes so far as to suggest bank runs, it's game on. From the same Reuters piece:
"The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally,"Geithner told the IMF.

Ilargi: Geithner talks about bank runs to overcome the remaining resistance in Europe against the leveraged stability plans. But that resistance is still formidable. Here's the most talked about plan as Philip Aldrick describes it in the Telegraph:
Germany at war over eurozone bail-out
Under the proposal, banks across the continent would be recapitalised with tens of billions of euros, the €440 billion European Financial Stability Facility (EFSF) would be "leveraged up" through the European Central Bank (ECB) to provide €2 trillion of firepower, and Greece would be subjected to a managed default on 50% of its debt but stay in the euro.
Officials hope the move would restore confidence in Spain and Italy and calm nervous bond markets.

Ilargi: And as Aldrick and Jeremy Warner do, again for the Telegraph:
Multi-trillion plan to save the eurozone being prepared
German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone’s sovereign debt crisis is spiralling out of control. Their aim is to build a "firebreak" around Greece, Portugal and Ireland to prevent the crisis spreading to Italy and Spain, countries considered "too big to bail".

The complex deal would see the EFSF provide a loss-bearing "equity" tranche of any bail-out fund and the ECB the rest in protected "debt". If the EFSF bore the first 20% of any loss, the fund’s warchest would effectively be bolstered to €2 trillion. If the EFSF bore the first 40% of any loss, the fund would be able to deploy €1 trillion.

Using leverage in this way would allow governments substantially to increase the resources available to the EFSF without having to go back to national parliaments for approval, which in a number of eurozone countries would prove highly problematic.

As quid pro quo for an enhanced bail-out, the Germans are understood to be demanding a managed default by Greece but for the country to remain within the eurozone. Under the plan, private sector creditors would bear a loss of as much as 50% – more than double the 21% proposal currently on the table. A new bail-out programme would then be devised for Greece.

Ilargi: By the way, the expansion of the EFSF from $220 billion to $440 billion has yet to be voted on in several Eurozone countries. Not a done deal at all. Let alone any further expansion. And there are more problems. First, Aldrick once more:
Leveraging up the EFSF through the ECB, though, would not be without risk. Germany and France could both lose their AAA credit rating, a top official at Standard & Poor's warned. David Beers, head of S&P's sovereign rating group, said: "There is some recognition in the eurozone that there is no cheap, risk-free leveraging options for the EFSF any more."

Ilargi: Private investors don't like it either, reports AP:
Bank Lobby Rejects Reopening of Greek Rescue Deal
The international bank lobbying group that has been leading negotiations on giving debt-ridden Greece easier terms for its bonds on Sunday rejected calls to impose larger losses on private investors.

Forcing private creditors to write down their Greek bond holdings by more than the 21% tentatively agreed to in a July deal would quickly cause a "domino effect" that would see the crisis spread to other parts of Europe, warned Josef Ackermann, the outgoing chairman of the Institute of International Finance.

Such a move would ultimately cost taxpayers much more than just bailing out Greece and erode confidence in the euro, said Ackermann [..]

Under the July deal, Greece is asking banks and other large private investors to swap their existing Greek bonds for ones with longer repayment deadlines, a lower face value or lower interest rates. The IIF says the deal would save Greece some €54 billion by 2014 and €135 billion by 2020.

However, most analysts say that those savings are far too small to make Greece's massive debts — which amount to some 160 percent of economic output — sustainable again. At the same time, there have been growing doubts that investors will agree to swap 90% of their bond holdings, a minimum threshold that Athens set to make the deal worthwhile.

Getting private creditors to agree to the deal comes at a heavy cost for Greece. Apart from temporarily being rated in "selective default" — a first for a eurozone nation — the country has to spend some €42 billion on setting up a collateral fund that would secure the remaining value of the bonds.

If at some point Athens decides that a steeper cut in its debt was necessary, that money would go to the bondholders. "If the July deal goes ahead, Greece would be locked into this perpetually," said Sony Kapoor [..]

Ilargi: Nor does the German Central Bank, according to Der Spiegel:
German Central Bank Opposed to Merkel's Euro Course
The new Bundesbank president, Jens Weidmann, used to be one of Merkel's closest advisers. Now, he is one of her staunchest critics over the euro rescue. He is strictly opposed to the European Central Bank's policy of buying up bonds from debt-stricken countries -- and is winning a growing number of allies for his cause. [..]

Behind the glass facade of ECB headquarters in Frankfurt, a fierce battle over fundamental beliefs has been smoldering for months. ECB President Jean-Claude Trichet and the majority of his colleagues are willing to rush to the aid of embattled EU finance ministers and to make major purchases of the sovereign bonds of debt-ridden euro-zone countries, such as Greece, Portugal and Italy.

For his part, Weidmann is strictly opposed to these measures. He believes they amount to an unacceptable means of financing states through effectively printing money. In fact, he has come to assume the mantle of the last staunch defender of monetary stability. His views were shared by his predecessor, Axel Weber, and the ECB's former chief economist, Jürgen Stark, both of whom stepped down from their positions because it was getting lonelier and lonelier on their side of the battle.

Weidmann, on the other hand, plans to keep fighting -- and in full public view.

Ilargi: Or the ECB itself, for that matter, writes Marc Jones for Reuters:
ECB fights to avoid role in euro zone rescue fund
The European Central Bank battled to avoid being dragged further into the area of fiscal policy this weekend, as its policymakers stood firm against using the ECB to help supercharge the euro zone's rescue fund. [..]

One of the ideas that has been floated is to give the fund the ability to borrow money from the ECB's currently unlimited lending operations, which it could then use to inject into troubled government bonds or banks.

There was widespread rejection of such a maneuver, however, by key ECB figures and Klaus Regling, head of the fund, known as the European Financial Stability Facility (EFSF). "There are serious concerns about the compatibility with the ECB because it may not be in line with the prohibition of market financing, so I think it is very unlikely that you will see that,"

For the ECB, it is a case of not being dragged further beyond the central bank's core task of keeping inflation in check. The ECB is already deeply uncomfortable about buying government bonds, something it started doing last year, and there are fears its independence is being compromised.

ECB Executive Board member Juergen Stark and former ECB heavyweight Axel Weber also hit out at pushing the central bank beyond its remit. "For monetary policy to remain effective, its responsibilities must remain within clear limits," Stark said in a speech. "Opportunistic manipulations of the monetary policy framework of course damage the foundations on which that framework rests."

Ilargi: It might also very simply not be legal, claims the Wall Street Journal :
Europe Split Threatens Rescue Plan
Deutsche Bundesbank's Jens Weidmann [..] said leveraging the bailout fund, specifically by allowing it to borrow from the ECB, would be equivalent to the monetary financing of state budgets, which is forbidden by the EU treaty.

Ilargi: Of course, there are still and always the flat-out deniers, which we insert just for fun. The earth is flat, don't you know? And Jesus walked with the dinosaurs. From Lawder and Flynn at Reuters and Ambrose Evans-Pritchard at the Telegraph, respectively:
Europe aims to beef up crisis fund
Greek finance minister Evangelos Venizelos told reporters that Athens was determined not to default. "Greece is determined to honor all its obligations. No Greek paper will ever go uncovered."[..]

Another top ECB official sought to quash growing expectations that Greece will eventually default. ECB Governing Council member Athanasios Orphanides said the idea of a Greek default was "surreal" but warned that it could occur as the result of a "political accident."

Geithner Plan for Europe is last chance to avoid global catastrophe
Christian Noyer, the Bank of France's governor, denied on Sunday that French officials were mulling a capital injection of up to €15 billion to beef up banks. "There is no plan, and we don't need one. The banks are very solid. None of them is hiding any toxic assets," he said.

Ilargi: But seriously, we need to realize that these plans will lead to one thing only: the further erosion of our economies and societies. French banks, which hold ludicrous amounts of Greek and Italian debt, will be "recapitalized" with leverage, i.e. money that doesn't exist but will in the future still have to be paid back -by our children-.

(Talking about that future, policies like the ones being discussed here should wake up those people who are worried about the natural environment we will leave our children. If these policies are not halted, and very soon, our children will not have the luxury of worrying about the environment. They will have no choice but to preoccupy themselves with bare survival.)

The French banks, and their counterparts in other countries that made equally foolish investment (gambling) decisions, shouldn't be recapitalized. They should be restructured. All losses should be laid out before us into the open, and those institutions that are found to have too much debt and losses should default. That's how you create stability and restore confidence. Not by continuing to hide the losses and throwing more public funds at them.

Greek banks are in trouble because they hold a lot of Greek sovereign debt. French banks are in trouble because they hold a lot of Greek sovereign debt AND of Greek bank debt. Morgan Stanley will certainly soon be in trouble because it is heavily involved in French banks. Other Wall Street banks will be because of their dealings with Morgan Stanley.

The whole system is so tightly interconnected that you would have to bail out everyone's debt. But that is not possible. There's too much of it. That fact is generally recognized. But not publicly. In public, we hear fear-mongering about bank runs, which can, so we are told, be prevented with more of your money. But this is not true. They can be postponed, not prevented. And postponing them comes at a huge and entirely futile cost to our children.

We'll have to bite the bullet. And now's as good a time as any to do it. In fact, it's by far the best time. The longer we delay it, the poorer we will be, because our money is being used on an oxymoron: "Leveraged Stability". There's no such thing. Europe is planning to throw another €2 trillion to the wolves in the bottomless pit.

The markets will rise for a few days on the news. And then reality will set in once again. The reality of too much debt. Only now, that debt will have grown by €2 trillion. Pretty simple, really. And pretty stupid too, to just sit back and let it happen to you.

We're talking about "saving" banks and countries for a limited period of time that have no chance of surviving beyond that time without ever more and ever larger financial injections. We're doing so with money leveraged on nothing but the future earning power of our children. And then we label this "stability", and claim we use it to restore confidence. Some logic.










There are no miracles in Greek tragedies
by Jeff Randall - Telegraph

Lending ever greater sums to a mismanaged and corrupt economy won’t make it solvent

Just before the roof fell in on Kweku Adoboli, the UBS trader whose "miscalculations" cost his bank $2.3 billion, he posted a message on Facebook: "I need a miracle." Keep an eye out for something similar from George Papandreou, Greece’s prime minister, who has been telling us: "Let everyone be certain, Greece will not default, we will not let it default." Nothing short of a supernatural event is now required for that promise to be met – the Greek bubble is about to pop.

There are similarities between Mr Adoboli’s flame-out and Greece’s imminent bankruptcy: failure of regulation, credulity of investors and a desperation to throw good money after bad. The difference, however, is scale. UBS’s losses are shocking but manageable. By contrast, when Greece repudiates all, or even part, of its 370 billion euros of debt, the foundations of the single currency will crack and many bystanders will be hurt.

Financial pain will be accompanied by the political humiliation of European Union leaders and their apologists in the commentariat who boasted that such an outcome was impossible because there was the "necessary will" to prevent it occurring.

The fallacy at the heart of this crisis is that every financial problem has a political solution. If only. Yet the Brussels elite and its co-conspirators at the IMF continue to promise that by "doing all it takes" they will, somehow, defy indefinitely economic gravity. This illusion of political primacy is perpetuated because a confession of impotence would not only undermine the worth of those in power but also expose the euro’s fatal flaw: monetary union without fiscal union is a marriage that weds the prudent to the profligate with no control over the latter’s spending.

Voters who were taught that debt-fuelled consumption was the path to prosperity are now shocked to discover that the racket is bust. Unwilling to accept the agony that comes with retrenchment, they expect those in charge to administer analgesics. In the short run, chary of disappointing the electorate, pusillanimous ministers load up the system with financial morphine. For a while it feels good. Then the patient demands a bigger fix, and another, and another. Eventually the drug providers wake up to a nightmare: the syringe is empty. When costs rise exponentially, even the rich run out of money.

The bail-out of Greece began with a 100-billion-euro package. Very soon a second deal of the same order was required. Now we learn that the 440-billion-euro European Financial Stability Facility may need to be five times bigger to beat back the Debt Beast, which, having gobbled up Greece, is turning its attention to Italy, where Silvio Berlusconi is in a 1.9-trillion-euro hole.

As my Daily Telegraph colleague Peter Oborne explains in his report for the Centre for Policy Studies, Guilty Men, Greece’s calamity and the unravelling of the euro zone are hugely embarrassing for the soi-disant intellectuals who urged the United Kingdom to abandon sterling for the euro. I still marvel at a paper, Why Britain Should Join The Euro, written in 2002 by Richard Layard (London School of Economics), Willem Buiter (Citigroup), Christopher Huhne (Energy Secretary), Will Hutton (ubiquitous Left-wing commentator), Peter Kenen (Princeton University) and Adair Turner (former director-general of the CBI).

It asserts: "Opponents of the euro have forecast disasters which have in fact never happened and which always looked most unlikely… Euro-sceptics constantly underestimated the competence of Europeans and their ability to organise things properly." What, like allowing Greece to fiddle its entry form?

Euro-fanatics are not alone in being routed by the debacle in Athens. Those who denounced opponents of budgetary incontinence are also squirming. Warnings that excessive debt would drown countries awash with borrowings were dismissed by progressives as cave-man economics. Who are the Neanderthals now?

At the risk of giving Johann Hari, the disgraced plagiarist, more space than he deserves, here’s his analysis: "Debt isn’t the problem. Debt is part of the cure. The facts suggest [we] need to spend more, not less, to get the economy back to life – and pay back the debt in the good times, when we will be able to afford it."

While Mr Hari is attending truth awareness classes, perhaps he should ask for some lessons in economic history. Between 2003-2007, the UK was, apparently, enjoying a boom. These were the "good times". So how much debt did the state repay in that period? Answer: nothing. In fact Gordon Brown borrowed, on average, £32 billion pounds a year, clocking up £160 billion of debt at a time when tax revenues should have been tucked away as a shield against future storms.

The lesson of Greece is that lending ever greater sums to a mismanaged and corrupt economy does not make it solvent. It defers the day of reckoning, but delivers no salvation. To escape from debt, a sovereign borrower has four options. It can spend less than it earns and use the surplus to diminish obligations. Greece has little hope of that. It can sell assets. The trouble is, Greece’s 50-billion-euro privatisation programme knocks only a small hole in its commitments and is way behind schedule.

It can inflate away its debt, but the European Central Bank, the guardian of the euro’s integrity, will not permit Greece to do so. Finally it can bilk its creditors and start again. It’s a financial solution to a financial crisis – and that’s what Greece will do. Because, as Kweku Adoboli discovered, miracles are hard to find.




Trader on the BBC says Eurozone Market will crash






Europe thinks the unthinkable to solve crisis
by Peter Spiegel - FT

The window for resolving the eurozone’s sovereign debt crisis is closing more quickly than policymakers anticipated. Choices on Greece and the future of the euro that were once considered a long way off now must be settled within weeks.

Eurozone governments, many facing growing public disquiet, must now address three overlapping policy discussions for stepping up their response to the crisis. Once-unthinkable proposals for fiscal union and shared responsibility for sovereign debt are now being hurriedly readied for ministerial discussion.

Senior European officials hope that by the time of a summit of European Union leaders in October, they will have: put in place powers for the eurozone’s €440bn rescue fund; agreed on the need to expand the fund’s firepower; and presented plans for further economic integration. But policymakers still have to work out countless disagreements that could doom the process.

1. A rescue fund with extra tools
The most immediate task facing European leaders has been on the front burner for more than two months: getting all 17 eurozone parliaments to approve the overhaul of the European financial stability facility, the bloc’s rescue fund.

Once resisted by Germany and the Netherlands, among others, they are now seen as essential to dealing with the two things that most threaten the survival of the eurozone: a meltdown of the banking system, perhaps starting in France, and a run on Italian and Spanish bonds.

Under the overhaul, the EFSF would be able to inject capital into banks and purchase bonds of distressed governments on the open market, lowering borrowing costs and giving capitals more time to implement reforms.

The politics of the overhaul have begun to get tricky. Although six parliaments have approved the measures, Finland – the most ornery of the eurozone’s six triple A rated members – is to vote on Wednesday, and passage is not assured.

All eyes then turn to Thursday’s vote in Germany, where Angela Merkel, the chancellor, has the support of opposition parties but faces a revolt from within her own coalition. "If any triple As step out, I think it’s a dead deal," said one senior EU diplomat.

Then there is Slovakia, where political opposition is strongest. "There’s a huge impatience in the bigger member states and they’re really, really upping the pressure," said Sony Kapoor, head of Re-Define, an economic consultancy that has worked with eurozone governments. If Slovakia fails to approve the deal, it may not be fatal but is likely to increase calls from other sceptical nations looking for opt-outs.

Mujtaba Rahman, Europe analyst for the Eurasia Group, said the biggest risk now was that EFSF powers would be diluted in the national parliaments in legislative horse-trading, drastically reducing their effectiveness. Already, the German Bundestag has insisted having approval rights over EFSF actions. There has been a renewed push by some eurozone officials, particularly within Germany, to re-examine a larger-scale "haircut" for Greek bondholders once the new EFSF powers are in place next month.

Many officials in Brussels and at the European Central Bank have resisted such moves, but some in Berlin believe the new EFSF powers will enable leaders to "ringfence" Greece and protect other struggling countries and European banks. "That’s what the moderates in Germany would like to see," joked a senior European official. But such support for a quick and hard default is limited and most officials believe it is unlikely.

2. Boosting the rescue fund’s firepower
For the EFSF to perform effectively its new duties, eurozone leaders have finally acknowledged that the fund – originally set up as a temporary facility to deal with small peripheral economies – is no longer big enough for its new tasks. Bail-outs for Ireland, Portugal and Greece have reduced usable EFSF guarantees to about €250bn ($336bn). Many contributing countries are now unable to increase their commitments for political reasons or because they could jeopardise their own credit ratings.

Instead, leaders are debating at least five different proposals on how to make EFSF money go further, mostly by leveraging the available remaining cash. One proposal is for the EFSF to guarantee losses of up to 20 per cent on sovereign bonds, for example of Spain and Italy, rather than buying the bonds outright. Such insurance would increase the value of EFSF support by five times and avoid upfront payments. Another variant would speed up by a year the creation of the EFSF’s replacement, the permanent European stability mechanism, which was originally to come into place in mid-2013.

Mr Kapoor says they fall along a spectrum, from relying on the EFSF alone to find ways to increase firepower to looking to the ECB to do most of the heavy lifting.
Unlike the EFSF, which is funded through guarantees, a large portion of ESM funding will come from paid-in capital from member states, money that could then be more easily leveraged in the financial markets.

Proposals that rely more on the ECB include turning the EFSF into a bank and allowing it to borrow money from the ECB, a nearly unlimited reserve. The plan has been criticised by the Bundesbank, however. Another version would keep the ECB purchasing sovereign debt as it now does but have the EFSF guarantee the bond purchases, moving potential losses to the fund rather than the ECB.

A broader restructuring of Greek debt is not likely until one of the new leveraging proposals is in place, and officials are divided over how long it could take. Eurozone finance ministers are likely to discuss proposals next week, and EU leaders could set out principles at their October summit. But getting the new plans in place could require another round of parliamentary approvals, which could push off their implementation – and plans for a restructuring of Greek debt – for months.

3. Closer economic integration and moves towards fiscal union
Eurozone leaders will also start debating wider-ranging reforms to establish more centralised EU authority over national economies. Herman Van Rompuy, the European Council president, will outline proposals at the October summit, including ideas for an EU finance minister and new bonds collectively backed by all 17 eurozone countries.

Instead, much recent debate has focused on whether a new round of treaty changes would be needed to implement the reforms. Opinion is highly divided, with several countries, including the UK, concerned that a wide-ranging debate on new EU treaties could lead to acrimonious fights within each member state that could destabilise the union. "Treaty change at this stage would be very dangerous," said one senior EU diplomat.

Some officials have argued that the eurozone already has authority to make big changes under the just-implemented Lisbon treaty, which gives the eurozone the authority to "strengthen the co-ordination and surveillance of their budgetary discipline". But European Commission lawyers are dubious, and officials said Germany was pressing hard for new treaties to enshrine tough rules that would prevent profligate members from undermining the currency.

Although collectively backed "eurobonds" are expected to be included in the debate, several officials noted that any move to pool risk would implicitly rely on Germany’s strong economy and credit rating – in return giving Berlin unparalleled authority to push for tough new treaty rules in exchange.




Geithner Tells Europe to 'Get On With It' After Global Chiding Over Crisis
by Ian Katz - Bloomberg

U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region’s debt crisis after a chiding from counterparts around the world.

"They heard from everybody around the world" in Washington meetings last week, Geithner said on ABC’s "World News With Diane Sawyer" program. Europe’s crisis is "starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea. And they heard the same message from us they heard from everybody else, which is it’s time to move."

Geithner’s remarks maintain pressure on Europe ahead of finance minister and central bank gatherings next week and a decision on whether to disburse a loan Greece may need to avoid default. Speculation that rescue efforts will be strengthened spurred a rally in stocks even after Dutch and Finnish officials said they won’t boost commitments to a euro-area bailout fund.

Europe has "some time, but not very much time," Geithner said in the interview late yesterday. "If you listen carefully to what they said this weekend, not just to us in private, but what they said publicly, they’re foreshadowing now the escalation that’s going to come. And we’d like them to get on with it."

The MSCI Asia Pacific index of stocks gained 2.9 percent as of 11:48 a.m. Tokyo time, after national benchmark indexes rallied yesterday in all 18 western European markets except Greece and Norway. Futures contracts on the U.S. Standard & Poor’s 500 Index advanced 0.3 percent. The euro headed for a third session of gains, up 0.2 percent at $1.3554.

Europe’s Pledge
Euro-region finance chiefs committed at a gathering of the Group of 20 in Washington Sept. 22 to boost the flexibility of their rescue fund and "maximize its impact" by the time of the next G-20 conclave. Euro-area finance ministers meet Oct. 3. European Central Bank officials have indicated they will consider expanding liquidity provisions when they meet Oct. 6.

Geithner set the tone at the annual meeting of the International Monetary Fund and World Bank by warning that failure to combat the Greek-led turmoil threatened "cascading default, bank runs and catastrophic risk." That gathering followed the G-20 session.

People’s Bank of China Governor Zhou Xiaochuan said at the talks that the euro-area crisis "needs to be resolved promptly." Japan’s Finance Minister Jun Azumi said many G-20 members urged Europeans to implement a July plan to expand powers of the European Financial Stability Facility.

Japan Aid
Azumi told reporters in Tokyo today that Japan may weigh expanding its support to Europe through a regional bond fund if nations implement their pledged fiscal measures.

European leaders "recognized the need to escalate," Geithner said in the ABC interview. "They’re going to have to put a much more powerful financial framework behind this. I really believe that you’re going to see them do that, but we wanted to make sure they do it as quickly as they can and as definitively as they can."

German Chancellor Angela Merkel said Sept. 25 that euro- region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states and said expanding the powers of the region’s rescue fund, known as the EFSF, was necessary to avoid contagion.

The challenge of debt sustainability in Europe is in part a consequence of the 1999 inception of the euro as a single currency, the U.S. Treasury chief signaled.

Euro’s Legacy
European governments took advantage of the lower interest rates "that came with monetary union, and they borrowed a lot. And they spent too much. And the governments got very big. Benefits got very generous," he said.

Turning to the U.S., Geithner said "there’s a very good chance" Congress will approve President Barack Obama’s $447 billion jobs proposal. The plan, incorporating payroll-tax cuts and a $105 billion infrastructure program, is designed to help pull down the nation’s 9.1 percent unemployment rate. Geithner was in Louisville, Kentucky, yesterday to meet with leaders from businesses including Ford Motor Co. to discuss the jobs proposal and to tour operations of package-delivery company United Parcel Service Inc.

The European crisis "hurts us not just because it means that growth around the world will be slower and we’ll export less, but it hurts people very directly and very quickly when stock prices fall and the value of their pensions fall," Geithner said on ABC. "It makes people more tentative. And that’s why it’s so important to us that they move."




Germany at war over eurozone bail-out
by Philip Aldrick - Telegraph

European officials have confirmed that discussions are afoot to boost the eurozone bail-out fund's firepower as part of a grand plan to contain the region's sovereign debt crisis in Greece.

Confirmation of the talks, however, sparked outrage in Germany, where opposition politicians threatened to derail the plans by voting against a key amendment to the bail-out fund this Thursday. The head of Germany's constitutional court also piled on the pressure by warning the government not to circumvent the law "by the back door".

Despite the wrangling in Germany, markets across Europe staggered back to life on hopes that the crisis could be contained and the recovery restored. In the UK, the FTSE 100 rose 0.4pc to 5,089.37 after £78bn was wiped off shares last week. In France, the CAC 40 rose 1.75pc, and Germany's DAX recovered almost 4pc.
Policymakers in Europe are working on a three-pronged plan to ringfence the euro crisis around Greece.

Under the proposal, banks across the continent would be recapitalised with tens of billions of euros, the €440bn European Financial Stability Facility (EFSF) would be "leveraged up" through the European Central Bank (ECB) to provide €2 trillion of firepower, and Greece would be subjected to a managed default on 50pc of its debt but stay in the euro. Officials hope the move would restore confidence in Spain and Italy and calm nervous bond markets.

The developments follow mounting international pressure on Europe's leaders to fix their problems. President Barack Obama said last night that Europe's debt crisis "is scaring the world". On Monday, EU economic affairs commissioner Olli Rehn, confirmed that the euro bloc is "thinking about giving the EFSF greater leverage, to give it greater strength".

German ministers also hinted at plans to leverage the EFSF, but stressed the fund itself would not be increased. Chancellor Angela Merkel said the euro needed a firewall around Greece to stop the attacks on other European states. Finance minister Wolfgang Schaeuble insisted the EFSF needed to be more "efficient", adding: "We are giving it the tools so it can work if necessary. Then we will use it effectively but we do not have the intention of boosting its volume."

Leveraging up the EFSF through the ECB, though, would not be without risk. Germany and France could both lose their AAA credit rating, a top official at Standard & Poor's warned. David Beers, head of S&P's sovereign rating group, said: "There is some recognition in the eurozone that there is no cheap, risk-free leveraging options for the EFSF any more."

On Thursday, the German parliament is expected to vote through reforms to the EFSF agreed on July 21 to make it more flexible. However, the latest revelations have redoubled opposition efforts. Social Democrat Carsten Schneider said the government should come clean on its "real intentions" and that "the parliament and public are having the wool pulled over their eyes".

His fears appeared to be confirmed by François Baroin, France's finance minister, who said last week that the reforms would allow the EFSF to conduct joint operations with the ECB. Heaping more pressure on Chancellor Merkel, Andreas Vosskuhle, president of the German constitutional court, warned against further transfer of powers to Brussels. "If anyone wants to go beyond these boundaries, which may be politically justified, then Germany needs a new constitution. For that to occur, there must be a referendum," he said.

Separately, Spain today called a snap election for November 20. The government is seeking a mandate to push through unpopular reforms, with both parties committed to cuts. Greece also denied talk of an orderly default.




Hugh Hendry On The Critical Debate About The Eurozone Crisis
by Courtney Comstock - Business Insider

Hedge fund manager Hugh Hendry, whose prediction of the crisis in the Eurozone was spot on, says we're at a rare moment in economic history.

"The problem is greater than the ability of the politicians to respond," he says in a radio debate on BBC's Bottom Line.

"There is no policy prescription that they can offer that will redeem the situation. The redemption will come through the citizens of Greece and elsewhere throwing the politicians out and rejecting the European ideal."

Hendry's view on what the solution should be (a Greek default that doesn't protect the creditors) is quite different than Evan Davis' - the BBC host - and Brent Hobermann's of mydeco.com, another guest on the show. Theirs also happens to be the opinion which we heard resounding at the Bretton Woods conference in DC, which is that something BIG needs to happen.

Everyone agrees that the big question right now is: is this Eurocrisis one of those in which leaders should implement incremental solutions until... (some later point)? OR is it one in which we need a big action?

We're seeing an increasing divide in how economists and politicians, and how private money managers answer the question.

Tim Geithner, Hobermann and Davis, and Larry Summers, for example, say that the Eurocrisis can only be solved by a big action proposed by a big leader.

That process of being open to contemplate that big action, and take that big risk, is essential, says Davis.

Hobermann agrees.

He says, "Hugh doesn't like the word emergency or crisis but I think that's the only catalyst which will make people [act] - because most of the time, people are thinking just about their own political survival, not necessarily about the UN, but if you link the two inextricably in an emergency situation, then they have to think in that bigger picture and not just about votes next week."

Summers said something similar at Bretton Woods. "One of the most difficult problems during a crisis is finding the language that generates concern and action, but that won’t trigger despair," said Summers on Friday.

Hendry has other ideas about a solution. He says, "Bankruptcy is a solution [because] creditors who extended that debt [to Greece] - that was a folly. All this firefighting is trying to protect the creditors, as opposed to the oppressed person."

Hendry's view is that Greece should default and leave the Euro. "Greece needs a real exchange rate," he says. "If you go on a drachma and [a beer in Greece is] .50p, there's a stimulus that's not open to them today [cheaper money]."

Hendry says the UK is in depression - not recession - and it will take years to get back to where we were in 2006 and 2007. It's been 5 years since the financial crisis, and it might take another.

That Hendry's opinion differs from that of economists is not surprising. Economists and politicians will point the finger frequently at hedge fund managers and "speculators" now. Hendry believes their anger is rooted in the inability of a policy prescription to solve the Eurozone crisis.

He's been right about the Euro crisis in the past. However there is strong pressure coming from Geithner and other leaders for the ECB and/or another European entity to take control via a decisive action.

So it seems like the question right now is, is it possible for a leader to step forward to announce and implement the solution, in a time when politicians, because of party politics, have questionable authority?

(Also interesting: Hendry is no longer the CEO of Eclectica. He's the CIO, and his CEO has banned him from media. Terrible news!)





Geithner Plan for Europe is last chance to avoid global catastrophe
by Ambrose Evans-Pritchard - Telegraph

Europe, the G20, and the global authorities have one last chance to contain the EMU debt crisis with a nuclear solution or abdicate responsibility and watch as the world slides into depression, endangering the benign but fragile order that has taken shape over the last three decades.

The threat of cascading default, bank runs, and catastrophic risk must be taken off the table," said US Treasury Secretary Tim Geithner over the weekend. "Sovereign and banking stresses in Europe are the most serious risk now confronting the world economy. Decisions cannot wait until the crisis gets more severe."

Euroland's dysfunctional arrangements are no longer a local affair. As the European Central Bank's Jean-Claude Trichet said in Washington, EMU is at the epicentre of a global sovereign debt crisis that risks engulfing all, and is more intractable than 2008 because governments themselves are now crippled.

China, India, Brazil and the world's rising powers will not escape lightly this time if leaders let events spiral out of control. European banks have lent $3.4 trillion to emerging markets (BIS data), or three quarters of external loans to these countries.

The International Monetary Fund warned last week that emerging markets face the risk of "sharp reversals" or even a "sudden stop" if there is further spill-over from Europe. This comes at a time when Asia and parts of Latin America are already in the topping phase of a credit boom, one of epic proportions in China where loans have doubled to almost 200pc of GDP over the last five years.

Warning signs have been flashing red for the last three weeks. Shares of China's top property developer Greentown have crashed by a third this month. The currencies of Indonesia, Brazil, Korea, South Africa, and Hungary have all buckled, and central banks have begun intervening to stop the slide. "A continued flight from risk raises the growing possibility of investor capitulation in emerging markets," said Neil Mellor from BNY Mellon.

The reserve powers would be well advised to pull out all the stops to save Europe and its banking system. Together they hold $10 trillion in foreign bonds. If they agreed to rotate just 4pc of these holdings ($400bn) into Spanish, Italian, and Belgian debt over the next two years, they could offer a soothing balm. None has yet risen to the challenge. It is `sauve qui peut', with no evidence of G20 leadership in sight.

Once again, the US has had to take charge. The multi-trillion package now taking shape for Euroland was largely concocted in Washington, in cahoots with the European Commission, and is being imposed on Germany by the full force of American diplomacy. It is an ugly and twisted set of proposals, devised to accomodate Berlin's refusal to accept fiscal union, Eurobonds, and an EU treasury. But at least it is big.

The EU's €440bn bail-out fund (EFSF) will be "leveraged" from €440bn to €2 trillion to cope with Italy and Spain. The fund will assume an "equity" stake of 20pc or so in holdings of EMU debt, supported by loans of 80pc from the European Central Bank.

Commercial banks that cannot raise money from Mid-East wealth funds will be seized by the state, partly or fully, or be recapitalized by the EFSF. This should leave them strong enough to absorb a 50pc default imposed on Greece, and potential knock-on defaults in Portugal and Ireland.

Or at least, that is the idea. We will see how the Bundestag reacts this week. It has not even voted on the July deal to boost the powers of the EFSF, itself a furiously contested plan that may provoke a 30-strong rebellion within Chancellor Angela Merkel's own coalition. German lawmakers now learn that implicit liabilities may be five times as big.

"We should not think of leveraging a public pot of funds as a free lunch," said Ireland's central bank governor Patrick Honohan. Indeed not. The details of this financial engineering have a familiar ring to those who remember the `CDOs' and other instruments of structured disguise before the subprime debacle. The bill comes due.

We will see too whether France is willing to swallow national pride and confront its own financial elite. Christian Noyer, the Bank of France's governor, denied on Sunday that French officials were mulling a capital injection of up to €15bn to beef up banks. "There is no plan, and we don't need one. The banks are very solid. None of them is hiding any toxic assets," he said.

What is the point of uttering such rubbish? The markets know this is untrue, and so does the IMF. It is an almost surreal refusal to recognize that investors are - for good reasons - terrified about French bank exposure to Italian sovereign debt. Mr Noyer encapsulates the mixture of stubborness and amour propre now threatening the world with disaster, and which is so like the French reflex as everything collapsed in mid-1931. Funny how they never change.

Even if the €2 trillion "Geithner Plan" does get off the ground, it can do no more than buy time - not to be sneezed at, for sure. The root of the euro crisis is a 30pc intra-EMU currency misalignment between North and South. That structural flaw cannot be solved with debt guarantees or bank rescues.

Nor can this gap in competitiveness be bridged by austerity alone, by pushing Club Med deeper into debt-deflation and perma-slump. Such a strategy must slowly eat away at Italian and Spanish society, undercutting the whole purpose of the EU Project. It would ultimately risk trapping them in a debt spiral aswell, leading to collosal losses for Germany in the end.

The Geithner Plan must be accompanied a monetary blitz, since the fiscal card is largely exhausted and Germany refuses to lower its savings rate to rebalance the EMU system. The only plausible option is for the ECB to let rip with unsterilized bond purchases on a mass scale, with a treaty change in the bank's mandate to target jobs and growth.

This would weaken the euro, giving a lifeline to southern manufacturers competing with China. It would engineer an inflationary mini-boom in Germany, forcing up relative German costs within EMU. That would be the beginning of a solution, albeit a bad one.

Sorry Deutschland. History has conspired against you, again. You must sign away €2 trillion, and debauch your central bank, and accept 5pc inflation, or be blamed for Götterdämmerung. It is not fair but that is what monetary union always meant. Didn't they tell you?




ECB fights to avoid role in euro zone rescue fund
by Marc Jones - Reuters

The European Central Bank battled to avoid being dragged further into the area of fiscal policy this weekend, as its policymakers stood firm against using the ECB to help supercharge the euro zone's rescue fund. The 17-country euro zone wants to convince financial markets that its bailout fund is big enough to handle any future debt troubles, but without having to tap resistant governments for yet more taxpayer money.

Over the last few weeks, the plans have been gathering momentum. One of the ideas that has been floated is to give the fund the ability to borrow money from the ECB's currently unlimited lending operations, which it could then use to inject into troubled government bonds or banks.

There was widespread rejection of such a maneuver, however, by key ECB figures and Klaus Regling, head of the fund, known as the European Financial Stability Facility (EFSF). "There are serious concerns about the compatibility with the ECB because it may not be in line with the prohibition of market financing, so I think it is very unlikely that you will see that," Regling told a panel discussion organized by the Euro50 group.

For the ECB, it is a case of not being dragged further beyond the central bank's core task of keeping inflation in check. The ECB is already deeply uncomfortable about buying government bonds, something it started doing last year, and there are fears its independence is being compromised.

"I think the whole idea of leveraging the EFSF is one of a variety of financial engineering innovations that have been put forward. Some of them are better than others, I'll leave it at that," Ireland's ECB Governing Council member Patrick Honohan told Reuters, when asked whether the ECB could be involved in bolstering the EFSF. "I think there are many other opportunities and possibilities that are maybe higher on the list (than using the ECB)," he said.

ECB Executive Board member Juergen Stark and former ECB heavyweight Axel Weber also hit out at pushing the central bank beyond its remit. "For monetary policy to remain effective, its responsibilities must remain within clear limits," Stark said in a speech. "Opportunistic manipulations of the monetary policy framework of course damage the foundations on which that framework rests."

Liquidity Deluge
Stark's comments came just hours after U.S. Treasury Secretary Timothy Geithner bluntly told European governments to eliminate the threat of a catastrophic financial crisis by teaming up with the ECB to boost the bailout capacity.

The International Monetary Fund also applied pressure, saying it would support interest rate cuts. Antonio Borges, head of the fund's European department, urged the ECB to continue to buy bonds once the EFSF gets the power to do so, saying the ECB was the only player with the ability to scare market speculators. Financial markets now expect the ECB to cut rates by 50 basis points back to a record low of 1 percent next month.

ECB President Jean-Claude Trichet warned at the IMF meeting that the euro zone was at the epicenter of a much bigger sovereign debt crisis and that risks to the stability of the financial system had risen considerably. Policymakers also indicated the ECB was ready to firehose another round of ultra-long liquidity into the banking system to subdue funding fears, a further move back in the direction of full crisis mode.

Debates at the meeting saw bankers recommending three- or even five-year funding operations, although ECB members suggested one-year operations were the likely first step. "One of the instruments we had was, in the context of full allotment of policy, to have one-year tenders," Austria's Ewald Nowotny said. "I think it might be advisable to think about reintroducing this approach. We could discuss a reintroduction."

Double-Dip?
Rate-cut expectations were also given a further boost by gloomy comments about the economy and the first signs the bank now fears the euro zone could fall back into recession. "It is more likely now that the second half of 2011 will be less positive than expected and the key question is whether the current slowdown in the global economy is largely a transitory phenomenon ... Could it lead to a double-dip or is it just a soft patch? This is the issue we will have to monitor," said Stark, who oversees the economics department.

Nowotny said growth forecasts could well be cut , while Weber warned he expected a further escalation of the debt troubles. "I fear very much the situation is going to deteriorate further before it improves," Weber said during a question-and-answer session.

"We all understand that there needs to be further action because what has been decided so far has not convinced the markets ... Ultimately I believe that if markets become much worse than they are now we will see drastic action (by policymakers to resolve the crisis)," he said.




For IMF, Debt Crisis Fears Spread Beyond US and Europe
by Jeff Cox - CNBC.com

Lost in much of the rancor and hand-wringing over the debt crisis in the European Union and the US is that it's not just those two regions that will be affected.

Instead, another financial pandemic, similar to or worse than the 2008 calamity, would infect multiple parts of the world, and particularly those emerging economies that are being counted on as the main drivers in the global growth engine. That contagion problem, as much as anything, is what keeps global policy makers awake at night.

World Bank President Robert B. Zoellick warned of "the looming danger that failure to take decisive action in Europe and the United States may shake the entire global economy, throwing developing countries off track...The numbers emerging out of developing countries over the past month, even the past week, are shaking and shaky."

Preventing the disease from spreading, then, will be a large focus of the various organizations — the World Bank, International Monetary Fund and G-20 — which will be hashing out the problem ahead of the early November G-20 conference in Cannes.

"We shouldn't be under any illusions. We are in this together," IMF Managing Director Christine Lagarde said. "Resolving the crisis in the advanced economies is a major priority because it affects everybody — not just the advanced economies but the rest of the economies."

Stemming the flow of the crisis — which centers for now on Greece's sovereign debt obligations, but could cascade quickly in case of a default — is paramount among IMF priorities.

Global leaders were taking great pains at the World Bank/IMF conference this weekend to dispel speculation and rumors about Greece defaulting and leaving the EU, and instead focused on what steps were being taken to resolve the problems.

"Greece is and will always be a euro area member state," Greece Finance Minister Evangelos Venizelos said in a statement. "At a moment that Greeks are subjected to new and very important new sacrifices, we regain of our lost credibility, we answer back to the negative stereotypes about Greece that have been floating around internationally over an extended period of time. "

Lagarde, too, fired back, saying the various negotiations and discussions yielded not only a framework going forward but also broad agreement that the organizations take action to stop the crisis from spreading. "We are halfway through and it's a question of pushing hard to get to the other side," she said  in one of her more optimistic statements, which countered her rather grim opening remarks Friday.

Whereas on Friday she spoke of how "the mood outside is grim," the following day she referred to "a shared sense of common purpose" from officials gathered for the steering committee meeting. "There was no denial, there was no fingerpointing. It was about recognition and it was about support," Lagarde said. "Today we agree to act decisively to attack the danger confronting the global economy. There was dialogue and there was a clear response from the membership."

Earlier, billionaire investor and liberal activist George Soros predicted the euro zone crisis would be worse than the 2008 financial crisis heralded by the collapse of Wall Street banking titan Lehman Brothers. Soros said the crisis was especially pernicious because of the impact it would have on emerging economies that provide an increasing level of financing for the developed world.

IMF Chairman Tharman Shanmugaratnam said the organization is acutely aware of the global risks and is prepared. "The IMF is ready and it will deliver on any type of resources necessary and available to all its members," he said. "It's not just a euro-focused issue at the moment. There are other countries affected. It's a global occurrence."




Europe Split Threatens Rescue Plan
by Sudeep Reddy, Bob Davis And Geoffrey T. Smith - Wall Street Journal

Critical differences between European leaders threatened to stymie efforts to combat the euro zone's debt woes, despite mounting international pressure to contain a broadening crisis.

After a weekend of tense meetings among world finance officials here, euro-zone leaders were weighing options to maximize the size of their bailout fund by borrowing against it. The move could provide trillions of dollars of firepower to rescue governments and banks—-but only if all 17 euro-zone legislatures approve a two-month-old agreement to broaden the bailout fund.

Highly public opposition from Germany, the largest and most powerful euro-zone economy, could block the plan. Policy makers are "focused on their own internal restraints, so that we don't have the outcome that we need," Antonio Borges, head of the International Monetary Fund's Europe department, said Sunday. While key players were understandably acting in self-interest, he said, it was generating "disastrous" collective results.

A deep sense of anxiety hung over the IMF's annual meeting. Three years ago, finance officials gathered after the failure of Lehman Brothers sent the global economy spiraling into its deepest downturn since the 1930s. This year, the risk of Europe bringing down the financial system topped everyone's minds.

The latest turmoil is "more serious than the crisis of 2008," said billionaire investor George Soros. Three years ago the institutions necessary to fight the crisis were in place, he said, but today European leaders need a continental Treasury Department and instead are working with "an embryo" in the form of a €440 billion ($594 billion) rescue fund.

The fear on everyone's minds after the market turmoil of the past week: Would investors outpace European politics and start a cascading global financial crisis? Rampant rumors about an imminent Greek default, despite denials from Greece and others, threatened to do just that. Some European leaders acknowledged they are behind the curve in formulating a decisive response. "Time is strategic, and there's little of it left," said Italy's finance minister, Giulio Tremonti. "We've wasted too much of it."

Throughout the weekend, officials involved in the European response hinted at their options to respond with new force. Leveraging the bailout fund by borrowing against it could enable it to cover investors' first losses. That money could be used to buy debt on the market or inject capital into banks.

Officials are also discussing how to use the European Central Bank's balance sheet—with trillions of dollars of lending capacity—to protect the euro zone further by buying more debt or backing debt. Some of the options could be used to help prevent a Greek default, or even attempt to insulate the rest of the euro zone from a Greek default by pushing capital into European banks and building a firewall around larger vulnerable euro-zone nations like Spain and Italy.

But warnings from the German finance minister, Wolfgang Schäuble, suggested serious obstacles remain. "We won't come to grips with economies deleveraging by having governments and central banks throwing—literally—even more money at the problem," he told the IMF meetings. He told reporters that the bailout fund can only work within the legal framework of the European Union's treaty, and more specifically, within the agreement governing the bailout fund. Neither of those allows the facility to be leveraged, he said.

Deutsche Bundesbank's Jens Weidmann also said leveraging the bailout fund, specifically by allowing it to borrow from the ECB, would be equivalent to the monetary financing of state budgets, which is forbidden by the EU treaty. Other Europeans and leaders outside the euro zone maintained hope that they could finesse the problem by devising a format that Germany and the ECB could support.

European policy makers throughout the meetings consistently articulated their intent to boost the fund's firepower, a senior U.S. official said, but they are likely to be cautious about discussing details of their plans until they can secure approval from national parliaments for an expanded rescue fund.

U.S. officials, who have urged euro-zone leaders to leverage their bailout fund, continued to press for action. Treasury Secretary Timothy Geithner said on Saturday, "The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally."

The days leading up to the meeting carried some hope that big emerging-market countries—which depend on Europe as a key customer for their exports—could be part of a common solution to the European crisis. Several of their leaders indicated they could help down the road, but said that first Europe would need to take action.

Chinese leaders made clear they didn't see China as having an elevated role in Europe, despite the country's $3.2 trillion in foreign reserves. "We can't just go save someone," said Gao Xiqing, president of China Investment Corp., the country's huge sovereign-wealth fund, at a panel discussion Saturday. "We're not saviors. We have to save ourselves," he said.

China, often in the crosshairs at the meetings for its foreign-exchange policies, was seen as a potential engine of growth and investment. "Many economies with external surpluses, notably China, can support domestic demand by reducing the pace of fiscal consolidation," said an IMF report issued to its members over the weekend.

Zhou Xiaochuan, China's central bank governor, said it was unrealistic to think China could boost growth much more than the 9% pace it is running now. "Some people may have an irrational hope that the higher the growth the better," he said at a Saturday news conference. Annual growth of between 8% and 10% was a "reasonable expectation," he said. He said Chinese outward investment was growing, but cautioned against unrealistic expectations. When it comes to overseas markets, "many Chinese investors and entrepreneurs are in the learning stage," he said.




£1.75 trillion deal to save the euro
by Patrick Hennessy - Telegraph

British taxpayers risk being caught up in a £1.75trillion deal aimed at saving the euro by allowing Greece to default on its massive debts.

The three-pronged deal would set up a massive fund to create a "firewall" around the most indebted eurozone countries, allow for an "orderly" Greek default on at least some of its liabilities, and bail out European banks most at risk from debt. German and French officials came up with the strategy which aims to end the eurozone's sovereign debt crisis before it spirals completely out of control, plunging the world back into recession.

The likely deal came ahead of a major new setback for the British economy - with BAe Systems, Britain's biggest manufacturer, poised to cut 3,000 jobs. Whitehall officials believe the job losses could be announced as early as this week and are likely to affect the company's military aircraft division in Warton, Lancashire, and Brough, Yorkshire.

The eurozone deal, being brokered by the G20 group of nations, would seek to "ring fence" the crisis around Greece, Portugal and Ireland - preventing it from spreading to major EU economies such as Italy and Spain. It would involve the bailing out those European banks - mostly French - most at risk from their massive lendings to tottering economies.

Greece, crucially, would be able to default on at least some of its more than £300billion debts but remain inside the eurozone. The Greek government's private creditors would bear most of the increased costs. At this stage, a new bail-out programme would be devised for Greece - with cash coming at least in part from the International Monetary Fund, in which Britain holds a 4.5 per cent stake.

This could mean British taxpayers paying out more than the £1billion they are already slated to have to contribute under the terms of the first Greek bailout fund. Britain is not a member of the European Financial Stability Fund (EFSF) - which was set up last year to "preserve financial stability of Europe's monetary union" by providing temporary financial assistance to eurozone countries in difficulty.

Most of the money in the new rescue package would come from the EFSF - limiting Britain's involvement. The fund is currently valued at £350billion, but would need much more cash pumped into it from its members states. Britain's banks, moreover, are not among the most exposed to Greek debt.

The deal would also use cash to buy up the government bonds issued by Italy and Spain - which are currently going unsold and adding to the peril surrounding the eurozone's third and fourth largest economies. In total it would amount to euro 2 trillion - £1.75 trillion.

Any agreement, according to experts, would be similar to the proposal made to eurozone nations by Tim Geithner, the US Treasury Secretary, earlier this month. Germany - the key player in the eurozone - initially rejected the suggestion but is understood to have been sparked into action on a variation of the plan by the recent turmoil on world financial markets.

Last night George Osborne, the Chancellor, attempted to play down suggestions of an imminent deal. He said: "No-one here has put forward a plan for that. Greece has got a programme and needs to implement it." Last week, Mr Osborne warned the eurozone it has six weeks to fix the crisis or risk world economic meltdown. He said the situation must be brought under control by November's G20 summit in Cannes, France and added: "Time is running out."

David Cameron, in a speech in Canada last week, criticised eurozone leaders for failing to come up with a solution to the crisis and added that the global economy was close to "staring down the barrel". It was the Prime Minister's gravest warning yet about the economic outlook. He told European leaders to stop "kicking the can down the road".

Christine Lagarde, the managing director of the International Monetary Fund, has said: "There are dark clouds over Europe and there is huge uncertainty in the US. And with that we could risk a collapse in global demand. "Let's remove the clouds and remove the uncertainty. Easier said than done, and it requires clearly a collective action."




Europe aims to beef up crisis fund
by David Lawder and Daniel Flynn - Reuters

Europe is working on ways to boost the firepower of its bailout fund, a top European official said as the United States, China and other countries turned up pressure on the euro zone to contain its debt crisis.

Signs are growing that Europe is readying new measures to prevent fallout from Greece's near-bankruptcy from spreading to other euro zone countries, threatening the region's banks and hurting the world economy. The European official said on Saturday the euro zone countries cannot boost the size of the 440 billion-euro fund, known as the EFSF, because Germany would not agree to such an increase.

"We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet" the official said, speaking on condition of anonymity.

The United States and other countries have urged Europe to leverage up the European Financial Stability Facility, possibly by using funds from the European Central Bank.

In a statement, the International Monetary Fund's steering committee said the euro zone would do whatever was necessary to resolve the single currency bloc's sovereign debt crisis. U.S. Treasury chief Timothy Geithner, in his most explicit warnings to date, said the ECB should take a more central role in fighting the crisis.

"The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally," Geithner told the IMF.

Financial markets have been wracked by fears the Greek debt crisis could overwhelm other euro zone countries and banks. Investors took some comfort on Friday from signs of new resolve by European officials to bolster their defenses after nearly two years of what many see as half-hearted action.

Many policymakers now talk openly of possible Greek default and the need for Europe to move much more aggressively to cope with it. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe," Geithner said.

His warning was echoed by China's central bank governor Zhou Xiaochuan, who urged quick action to bring greater financial stability to the European region. "The sovereign debt crisis in the euro area needs to be resolved promptly to stabilize market confidence, and forceful and credible fiscal consolidation measures are needed in relevant economies to alleviate sovereign debt stress," Zhou told the IMF.

The semi-annual gathering of the IMF and World Bank is dominated by worry about the risk that Europe now poses to the rest of the world. A default by Greece could cause a domino effect in other highly indebted euro zone countries, officials fear, putting at risk Europe's banking system given the size of holdings of debt issued by weak European nations. Canada's central bank governor, Mark Carney, told Canadian radio that the euro area's bailout fund should be more than doubled to "the neighborhood of a trillion euros."

Greek finance minister Evangelos Venizelos told reporters that Athens was determined not to default. "Greece is determined to honor all its obligations. No Greek paper will ever go uncovered."

Geithner wants more cooperation among European policymakers -- who set their own tax and fiscal policy -- and their central bank that is mandated to focus on keeping inflation low. "European governments should work alongside the ECB to demonstrate an unequivocal commitment to ensure sovereigns with sound fiscal policies have affordable financing, and to ensure that European banks have recourse to adequate capital and funding to win the full confidence of their depositors and creditors," Geithner said.

The United States has been pushing for a heightened role for the ECB. Washington has pointed to the way the Treasury and the Federal Reserve cooperated during the 2007-2009 financial crisis which threatened to engulf the U.S. banking system.

One option could be for the ECB to commit large amounts of funding, with the European Financial Stability Facility, Europe's temporary bailout fund, putting forward money to cover potential losses.

In another sign of Europe considering new measures to tackle the crisis, a senior lawmaker from German Chancellor Angela Merkel's conservatives said the euro zone's permanent rescue mechanism should be introduced sooner than mid-2013 to beef up private creditors' response to the Greek debt crisis.

But in a reminder of how sensitive some European officials are to the ECB taking a more active role in the crisis, a board member of Germany's central bank, the Bundesbank, suggested the time was coming for the ECB to stop buying government bonds. "I think the time is coming for this to stop," said Joachim Nagel, adding that the ECB's bond buying was only supposed to be a temporary measure until the euro zone's bailout fund is beefed up with powers to buy bonds and lend to governments.

Another top ECB official sought to quash growing expectations that Greece will eventually default. ECB Governing Council member Athanasios Orphanides said the idea of a Greek default was "surreal" but warned that it could occur as the result of a "political accident."

Greece is in tense talks with the IMF and European authorities to secure a new 8 billion-euro installment of its rescue package. In return, Athens has pledged deep austerity measures but negotiators are frustrated at what they say is Greece's slow reform pace. October's loan payment, however, is still widely expected to be made. The next installment is due in December.

Germany, as the strongest economy in Europe, plays a central role in any effort to curb a debt crisis but public opinion there has turned against further big bailouts for fellow euro zone countries. Finance Minister Wolfgang Schaeuble said on Saturday he will meet Venizelos, while in Washington for the IMF meetings. "We are permanently in contact and talk a lot," Schaeuble said, a day after Merkel said a Greek default was not an option for her.

"The damage would be impossible to predict," Merkel warned members of her political party in Germany. Greece's Venizelos was quoted by two newspapers on Friday as saying an orderly default with a 50 percent haircut for bondholders was one way to resolve the heavily indebted euro zone nation's cash crunch.




Geithner sounds alarm on Europe
by Ben Rooney - CNNMoney

U.S. Treasury Secretary Tim Geithner warned Saturday that the sovereign debt and banking crisis in Europe represents "the most serious risk now confronting the world economy." In an official statement to the International Monetary Fund, Geithner also discussed the need to both support the U.S. economy in the short term and take steps to lower the nation's long-term deficits.

But his strongest comments were directed at Europe, where the specter of a default by the Greek government has upset financial markets around the world. The nation's long-standing debt problems are threatening to spill over into the European banking system, with possible repercussions for the fragile U.S. economy. While he praised the actions European leaders have taken so far, Geithner said more needs to be done to create a "firewall against further contagion."

"The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally," the Treasury chief said. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe."

Geithner also reiterated his argument that President Obama's recently proposed $447 billion plan to boost hiring and employment could create one million jobs "at a critical moment in the recovery." At the same time, Geithner reaffirmed the administration's commitment to reduce deficits by more than $3 trillion over 10 years by cutting spending and reforming the nation's tax code.

Geithner's comments came as global finance ministers and central bankers gathered in Washington for the annual meeting of the IMF and the World bank. The meeting takes place against a backdrop of economic gloom and deep anxiety over the sovereign debt and banking crisis in Europe.

Christine Lagarde, the newly appointed managing director of the IMF, noted the grim mood in her opening remarks earlier Friday. "All across the world, people worry more and more about their futures and their children's futures," she said. "They are looking to us for solutions."

Lagarde urged policymakers in developed nations to take urgent and coordinated action to address what she called a "crisis of confidence" in the global economy. The U.S. government must act now to reduce long-term deficits while being careful not to hurt the nation's fragile economy by cutting spending too aggressively, she said.

In Europe, Lagarde said countries with unsustainable debts and dim economic prospects must follow through on commitments to reduce deficits and boost growth. At the same time, she called on stronger European economies to "do whatever it takes" to support the weaker members of the European Union.

On Thursday, finance ministers from the Group of 20 major economic powers issued a statement saying that they remain "committed to a strong and coordinated international response to address the renewed challenges facing the global economy." However, the statement was seen as a disappointment by many investors and commentators who argue that being committed to action and actually taking action are two different things. 




Multi-trillion plan to save the eurozone being prepared
by Philip Aldrick and Jeremy Warner - Telegraph

European officials are working on a grand plan to restore confidence in the single currency area that would involve a massive bank recapitalisation, giving the bail-out fund several trillion euros of firepower, and a possible Greek default.

German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone’s sovereign debt crisis is spiralling out of control. Their aim is to build a "firebreak" around Greece, Portugal and Ireland to prevent the crisis spreading to Italy and Spain, countries considered "too big to bail".

According to sources, progress has been made at the G20 meeting in Washington, where global leaders piled pressure on the eurozone to fix its problems before plunging the world back into recession. In a G20 communique issued on Friday, the world’s leading economies set themselves a six-week deadline to resolve the crisis – to unveil a solution by the G20 summit in Cannes on November 4.

Sources said the plan would have to be released as a whole, as the elements would not work in isolation.

First, Europe’s banks would have to be recapitalised with many tens of billions of euros to reassure markets that a Greek or Portuguese default would not precipitate a systemic financial crisis. The recapitalisation plan would go much further than the €2.5bn (£2.2bn) required by regulators following the European bank stress tests in July and crucially would include the under-pressure French lenders.

Officials are confident that some banks could raise the funds privately, but if they are unable they would either be recapitalised by the state or by the European Financial Stability Facility (EFSF) – the eurozone’s €440bn bail-out scheme.

The second leg of the plan is to bolster the EFSF. Economists have estimated it would need about €2 trillion of firepower to meet Italy and Spain’s financing needs in the event that the two countries were shut out of the markets. Officials are working on a way to leverage the EFSF through the European Central Bank to reach the target.

The complex deal would see the EFSF provide a loss-bearing "equity" tranche of any bail-out fund and the ECB the rest in protected "debt". If the EFSF bore the first 20% of any loss, the fund’s warchest would effectively be bolstered to €2 trillion. If the EFSF bore the first 40% of any loss, the fund would be able to deploy €1 trillion.

Using leverage in this way would allow governments substantially to increase the resources available to the EFSF without having to go back to national parliaments for approval, which in a number of eurozone countries would prove highly problematic.

The arrangement is similar to the proposal made by US Treasury Secretary Tim Geithner to the eurozone at the September 16 EcoFin meeting in Poland. Gathering turmoil in financial markets has convinced Germany to begin work of some kind of variant of the US plan, despite having initially rejected the notion as unworkable as threatening to compromise ECB independence.

The proposal would be hugely sensitive in Germany as its parliament has yet to ratify the July 21 agreement to allow the EFSF to inject capital into banks and buy the sovereign debt of countries not under a European Union and International Monetary Fund restructuring programme. The vote is due on September 29.

As quid pro quo for an enhanced bail-out, the Germans are understood to be demanding a managed default by Greece but for the country to remain within the eurozone. Under the plan, private sector creditors would bear a loss of as much as 50pc – more than double the 21pc proposal currently on the table. A new bail-out programme would then be devised for Greece.

Officials would hope the plan would stem the panic in the markets and stop bond vigilantes targeting Italy and Spain, which European and IMF figures believe should not be in any immediate distress but are in need of longer-term structural reform.

Delegates at the IMF meeting in Washington claimed that there had been "a visible shift in pace and mood" to address sovereign debt problems, particularly in the eurozone. But George Osborne, the Chancellor, said today: "No one here has put forward a plan for that. Greece has got a programme and needs to implement it."




German Central Bank Opposed to Merkel's Euro Course
by Peter Müller, Christian Reiermann, Michael Sauga, Christoph Schult and Anne Seith - Spiegel

The new Bundesbank president, Jens Weidmann, used to be one of Merkel's closest advisers. Now, he is one of her staunchest critics over the euro rescue. He is strictly opposed to the European Central Bank's policy of buying up bonds from debt-stricken countries -- and is winning a growing number of allies for his cause.

Jens Weidmann knew what would happen, but he had to make the joke anyway. He owed it to himself and to his new position as head of the Bundesbank, Germany's central bank. "Did you leave so much space between us on purpose?" he asked German Finance Minister Wolfgang Schäuble with a cheeky grin. Indeed, the podium that had been set up for their joint press conference on Friday in Washington really did have generous dimensions, leaving enough space for two or three people between them.

Schäuble examined the distance between them. Then he answered, with a pained smile: "We did that because of your independence."

One of Merkel's Fiercest Adversaries
Germany is marveling at a breathtaking shake-up of political roles. For five years, Weidmann served as an economic adviser to Chancellor Angela Merkel. During that period, he was loyal to her, even seeming too keen at times. But now, in his new role as president of the Bundesbank, he has become one of her fiercest adversaries.

Weidmann has criticized decisions related to the euro bailout as "inconsistent" and "highly risky." He has called on politicians in Berlin to change their course, and he has been advocating "the Bundesbank's principles regarding stability." All of those things put him at odds with top officials at the European Central Bank (ECB).

Behind the glass facade of ECB headquarters in Frankfurt, a fierce battle over fundamental beliefs has been smoldering for months. ECB President Jean-Claude Trichet and the majority of his colleagues are willing to rush to the aid of embattled EU finance ministers and to make major purchases of the sovereign bonds of debt-ridden euro-zone countries, such as Greece, Portugal and Italy.

For his part, Weidmann is strictly opposed to these measures. He believes they amount to an unacceptable means of financing states through effectively printing money. In fact, he has come to assume the mantle of the last staunch defender of monetary stability. His views were shared by his predecessor, Axel Weber, and the ECB's former chief economist, Jürgen Stark, both of whom stepped down from their positions because it was getting lonelier and lonelier on their side of the battle.

Weidmann, on the other hand, plans to keep fighting -- and in full public view. He gives speeches and interviews, like the one he gave to SPIEGEL last week. He riled Europe's finance ministers at their most recent summit in the Polish city of Wroclaw. And he has been having serious talks with the members of the budget committee of the Bundestag, the German parliament. Indeed, in an unprecedented campaign, Weidmann is trying to rally a majority of ECB council members to re-adopt the monetary-policy principles that Germany has traditionally championed.



'I Hope Weidmann Succeeds'
Having a Bundesbank president as the leader of the opposition on monetary policies is something that has seldom happened before in the subtle and sophisticated world of central bankers, who like to cloak even their fundamental decisions in opaque hints and insinuations.

Indeed, the game that Weidmann has started is a risky one. If he gets his way, the ECB could emerge from its worst-ever crisis even stronger than before. If he fails, the Bundesbank's positions on monetary policies might be buried for good. "I hope Weidmann succeeds," says Thomas Meyer, the chief economist at Deutsche Bank, Germany's largest bank. "But I wouldn't bet on it."

Ironically, one of the things threatening Weidmann's chances of success is his popularity among Germans, who have gotten plenty of exposure to the young Bundesbank chief in recent days. He has become the new star of the euro crisis.

On Sept. 13, for example, Weidmann swept into a packed hall in Cologne's elegant Hotel Barceló to deliver a speech at the invitation of the ASU, an association of family-owned businesses in Germany. Dozens of executives from companies based all over Germany sat on chairs with gilded frames while ASU President Lutz Goebel, the head of a motor company in Krefeld, set the tone for the event. Goebel complained that some of the teetering countries in the euro zone had "no business model" and that Germany's government was constantly throwing "good money after bad."

Weidmann's voice also grew louder as he approached the key passages in his 23-page speech. The balance sheet of the ECB is "burdened with significant risks" because it has purchased sovereign bonds, he said, adding that he would advocate against any expansion of this policy "under any circumstances." In his closing, he stressed that "with or without others fighting by my side, this stance will remain." The speech was received with thunderous applause.

The Stereotype of a Technocrat
Weidmann is playing a role he does not necessarily look cut out for. With his Ph.D. in economics and neatly parted hair, he seems like the stereotype of the cool-headed technocrat. In his steep rise from being a division head at the Bundesbank to a senior civil servant in the Chancellery, he knew not to force himself and his opinions into the spotlight.

These days, Weidmann is the most influential critic of Merkel's bailout strategy. This change has led the chancellor to follow her former aide's campaign at a cool distance. Merkel has nothing against the fact that Weidmann's new job makes him the champion of the Bundesbank's traditional positions. But that doesn't mean she's going to support him. On the contrary, sources close to Merkel say that, at their most recent summit, European leaders expressly approved the ECB measures that she backs and Weidmann opposes.

This forces Weidmann to rely on finding allies on the ECB council who will back his position. Doing so isn't completely out of the question, however, as the most recent purchases of sovereign bonds have triggered growing unease among some people in the ECB.

In early August, after having already purchased the sovereign bonds of Greece, Portugal and Ireland, the ECB decided to also buy Italian ones for the first time. The measures were meant to help Italy scare off speculators and to apply lasting pressure to keep interest rates on Italian debt low.

Since then, the monetary watchdogs have come to fear that they are throwing their money into a bottomless pit. Indeed, despite having already purchased over €150 billion ($200 billion) in sovereign bonds, there is no success on the horizon. Every time Trichet's securities traders stop buying, the interest rates start going back up. In this way, what was originally envisioned as emergency assistance has turned into long-term subsidization.

No Impact on the Market
Even the expanded European Financial Stability Fund (EFSF), whose new powers are expected to be ready to use by the middle of next month -- assuming that all the euro-zone parliaments ratify the reforms by then -- won't change things much. In short, the amounts of money that would be needed to help Italy would simply be too big for it.

"If the EFSF purchased €50 billion worth of Italian sovereign bonds, it would exhaust a good deal of its free resources without achieving anything on the markets," say Michael Heise, chief economist at the German insurance giant Allianz. This has led many central bankers to fear that European leaders will soon put pressure on the ECB to take renewed action.

US Treasury Secretary Timothy Geithner has already done just that. At the recent summit in Poland with his European counterparts, Geithner called for a banking license to be issued to the newly expanded bailout fund. The suggestion was also discussed at the meeting of the International Monetary Fund (IMF) and the World Bank held last week in Washington. Even Finance Minister Schäuble said he would think about the idea.

If this model were actually implemented, the EFSF could purchase significantly larger amounts of state debt and deposit them at the ECB as collateral in return for fresh money with which it could, in turn, purchase additional sovereign bonds.

Nightmarish Idea
But what Geithner and the Obama administration view as a particularly elegant solution to the euro crisis is a nightmarish idea to stability champions like Weidmann. Last week, he warned the German parliament's budget committee that "state financing through monetary policy" would become a permanent fixture if the solution were adopted.

Weidmann's low opinion of the most recent suggestions is also shared by Luc Frieden, the finance minister of Luxembourg. In his view, the planned changes to the EFSF bailout fund are intended precisely to free the ECB from the necessity of having "to purchase sovereign bonds itself."

What's more, many economists don't view Italy as a candidate for a default at all. The country enjoys a strong industrial base, boasts tens of thousands of healthy companies and has comparatively little foreign debt. Indeed, most government debt is owned by the Italians themselves. And even the level of debt could easily change if Prime Minister Silvio Berlusconi would for once make a serious attempt to collect unpaid taxes.

But, instead, the conservative politician finds it more convenient to tap European institutions, as Italian Finance Minister Giulio Tremonti recently put it in a blunt comment. He also figures that Italy wouldn't have to introduce any more austerity measures if euro bonds already existed on a large scale.

Losing Patience
It's no surprise that Europe's central bankers are gradually losing patience. They no longer want to play the role of cleaning up after incompetent European politicians, and they're looking for an opportunity to demonstrate their independence.

This has only increased Weidmann's chances of recruiting supporters for his campaign. Last Tuesday, he already met with potential comrades-in-arms in Eltville, a small wine town near Frankfurt. The list of invitees included everyone on the ECB council who had ever given a hint of being open-minded toward the German position. Joining them were also Yves Mersch, Klaas Knot and Ewald Nowotny, the respective heads of the central banks of Luxembourg, the Netherlands and Austria.

One other Weidmann ally couldn't make it to the meeting because he was sitting on a Lufthansa flight heading from Frankfurt to Washington for an IMF meeting. Jörg Asmussen currently works in Berlin as a senior official in the German Finance Ministry. But, come 2012, he will head to Frankfurt to assume the position of Jürgen Stark, who announced his resignation as the ECB's chief economist in early September.

Though Asmussen has yet to make any public statements, he has made it clear to his confidants that he will number among Weidmann's allies. He detests the kind of mixing of monetary and fiscal policies that have come to characterize the attempts to save the euro.

Looking for Congratulations
But as long as Trichet remains at the ECB's helm, little will change in terms of its public stance. During a five-minute outburst at a Sept. 8 press conference, Trichet made it clear how much the German opposition had gotten on his nerves. "We have delivered price stability ... impeccably, impeccably," he angrily said. "I would like very much to hear the congratulations for an institution which has delivered price stability in Germany over 13 years."

But, ironically, instead of thanking him, the Germans even want to drag him to court on account of his bank's controversial purchases of the sovereign bonds of debt-ridden euro countries. Markus Kerber, a Berlin-based constitutional lawyer and financial expert, has filed a complaint at the General Court of the European Union in Luxembourg, hoping it will declare the purchases invalid and put a permanent halt to them.

In Kerber's view, by purchasing sovereign bonds, the ECB has violated a number of articles of the Treaty on the Functioning of the European Union, including articles 123 and 125, which deal with economic policy. In his complaint, Kerber says that "both the implementation of the program for the securities markets and the suspension of the credit quality threshold when determining whether the sovereign bonds of Greece, Ireland and Portugal were eligible to be treated as collateral by the central bank" violated the prohibition against purchasing government securities.

Preparing for the New Constellation
Still, it's going to take more than a court decision to settle this conflict. That will primarily be the job of Mario Draghi, the Bank of Italy governor who will succeed Trichet as ECB president in November. At that point, he will have to prove just how independent he is -- particularly when it comes to the government back home in Italy.

Weidmann and Asmussen have already started preparing themselves for the new constellation. They took a break from the IMF-World Bank meeting in Washington to meet at the bar of the Ritz-Carlton hotel with a professor they had both studied under in Bonn: Axel Weber, Weidmann's predecessor as Bundesbank president.




Portugal 'moving quickly' to fix economy: PM
by Reuters

Portugal, going through a deep recession, is moving "quickly and resolutely" to fix its shaky finances and reform its economy, Prime Minister Pedro Passos Coelho told the United Nations on Saturday.

Lisbon is enacting tough austerity measures to meet the terms of a 78 billion euro ($105 billion) bailout from the European Union and International Monetary Fund. Portugal was the third euro zone member to receive rescue funds after Greece and Ireland.

"As widely recognized, we are moving quickly and resolutely to consolidate our public accounts and to implement structural reforms to modernize our economy and promote economic growth and employment," Passos Coelho told the U.N. General Assembly. "We view the crisis as an opportunity to adapt our economic model and to strengthen the Portuguese economy."

Portugal's recession is expected to last through next year and unemployment is at its highest levels since the 1980s as the government raises taxes and cuts spending to meet budget deficit targets. The government has to cut the deficit to 5.9 percent of gross domestic product this year from 9.1 percent in 2010.




Worried Greeks Fear Collapse of Middle Class Welfare State
by Rachel Donadio - New York Times

Sitting in the modest living room of the home she shares with her parents, husband and two teenage children, Stella Firigou fretted about how the family would cope with the uncertainties of an economy crashing all around them. But she was adamant about one thing: she would not pay a new property tax that was the centerpiece of a new austerity package announced this month by the Greek government.

"I’m not going to pay it," Ms. Firigou, 50, said matter-of-factly, as she lighted a cigarette and checked her ringing cellphone to avoid calls from her bank about late payments on a loan. "I can’t afford to pay it. They can take me to jail."

While banks and European leaders hold abstract talks in foreign capitals about the impact of a potential Greek default on the euro and the world economy, something frighteningly concrete is under way in Greece: the dismantling of a middle-class welfare state in real time — with nothing to replace it.

Since 2010, the government has raised taxes and slashed pensions and state salaries across the board, in an effort to rein in the bloated public sector that today employs one in five Greeks. Last week, the government announced it would put 30,000 workers on reduced pay as a precursor to possible termination and would cut pensions again for nearly half a million public-sector retirees.

A clerk in her local town hall, Ms. Firigou, like all public-sector workers, took a precipitous pay cut last year — in her case to less than $1,300 a month from $2,000 a month — as the government slashed wages to meet the terms of its foreign lenders. Her husband, who sells used car parts, has seen his commissions drop. Her mother’s pension was cut to about $800 a month from around $920.

Like many families here, the Firigous cushion the impact of such cuts and the rising cost of living with property acquired in the past. Her grandfather built the two-story apartment house in this Athens suburb, Psychiko, where the six now live, starting in the 1930s and finishing it after the Second World War. And so the new tax, probably in excess of $2,000 per year for the Firigous, stings particularly hard. "The house is the only thing we have left," she said.

There is a lot for Greeks to swallow. Beyond the public-sector wage cuts, in recent months the government has also imposed a "solidarity tax" ranging from 1 to 4 percent of income on all workers and an additional tax on self-employed workers, who make up the bulk of the economy. It has also raised its value-added tax on many goods and services, including food, to 23 percent from 13 percent.

The economy is flagging, and it is not uncommon for even private-sector workers to see pay cuts of 30 percent or more, sometimes in exchange for a reduction in working hours.
The so-called troika of foreign lenders — the European Central Bank, the European Commission and the International Monetary Fund — is increasingly playing hardball with the Greek government, insisting it meet its deficit-reduction goals before it decides whether to release the next installment of $11 billion that Greece needs to meet expenses starting in mid-October.

Many Greeks fear a vicious circle: a death spiral of more austerity measures, further economic contraction and correspondingly lower tax revenues, making it that much harder to make a dent in the debt, pushing the country toward default in spite of the austerity. Unions have called general strikes for Oct. 5 and Oct. 19, and tensions are building.

Economists say the measures are necessary to bring down debt and modernize Greece’s economy. But the cuts have come far faster than the modernization, and the social fabric is starting to fray — if not tear. The unemployment rate, already at 16 percent, and emigration are increasing; the birth rate is dropping; and the rate of suicide is rising. The education minister recently apologized that public schools lack textbooks, and the country’s morale is flagging.

"The government is increasingly at war with the citizens," said Jens Bastian, an economist at the Hellenic Foundation for European and Foreign Policy in Athens. "It is taking decisions whose consequences are not only squeezing the middle class, but threatening its very existence."

Some private-sector workers say they have not been paid in months. "It’s illogical and unfair," Aphrodite Korogiannaki, 38, a speech pathologist at a center for intellectually disabled youth, said of the property tax as she participated in a peaceful demonstration in Athens last week. "If I haven’t been paid for two months, how can I pay?"

A growing number of Greeks are asking that question, and increasingly their anger is focusing on the proposed property tax, the one that Mrs. Firigou insists she cannot pay.
The government has said it expects to raise $2.7 billion through the tax, which would affect an estimated 5.5 million homeowners. (There is no precise number for Greek homeowners since the country still lacks a comprehensive land register.) According to the Hellenic Property Federation, an association representing Greece’s homeowners, the tax would cost an average family between $1,200 and $2,000 extra per year.

Last week, the Socialist prime minister, George Papandreou, implored Greeks to accept the measures. "There is no other path. The other path is bankruptcy, which would have heavy repercussions for every household, for every Greek citizen," he said. "We know it will be difficult, but now is the time for the most decisive battle of all."

The tax would be levied through electricity bills, another source of frustration here. A failure to pay would result in the power being shut off, but the powerful union that represents the workers of the public power company has said it will refuse to cooperate, jeopardizing its implementation. A growing chorus of members of Mr. Papandreou’s Socialist Party is opposed to the tax, and a vote on the measure scheduled to be held in Parliament this week is widely expected to be close.

Critics say the country has failed to adequately crack down on tax evasion among the wealthiest segments of society — and failed to carry out more focused cuts because it is reluctant to take on some public-sector unions that protect a small, powerful cadre of workers who have deep ties to the governing Socialist Party. "I don’t think they know what to do," Nikos Panoutsopoulos, 38, an archaeologist who works at the Culture Ministry, said as he participated in a demonstration in Athens last week. "Instead of fighting" the electric company union, or the train company union, he added, "they just cut salaries horizontally."

Some of the short-term unemployed will still be expected to pay the new property tax. Faced with that prospect, a woman who gave her name only as Antonia as she waited in an unemployment center in downtown Athens burst into tears, a day after losing her job as a cleaner for the Ministry of Education. "My husband is a construction worker, he has hardly had any work this month now due to the collapse of the construction market," she said. "My son is 20 years old and also unemployed."

Such stories are common in Greece today. Yet even as the country bleeds, it is not meeting the deficit-reduction targets set as terms for its bailout. According to data released by the Finance Ministry on Thursday, net revenues were $4.7 billion off target and expenses $1.35 billion higher than projected in the first seven months of 2011.

Back in her living room, Ms. Firigou said she had not seen it coming. "No one warned us," she said. "I have no hope, not for myself, not for my children, and I am only 50." But she said some things still make her laugh. "I can’t get it into my mind that my life is such a mess," she said. "It’s a joke."




Banks Splinter on Europe Debt Crisis
by Christine Harper, Dawn Kopecki and Simon Kennedy - Bloomberg

Wall Street leaders, urging coordinated action from world governments to solve the European sovereign-debt crisis, struggled themselves during four days of meetings in Washington to agree on what’s needed to end it.

The chiefs of firms including JPMorgan Chase, Goldman Sachs Group, Deutsche Bank and Societe Generale met for three hours at the National Archives on Sept. 23. They differed on which government and private solutions may restore confidence in European debt and banks, and on some elements of regulation, said two participants who spoke on condition of anonymity because the meeting wasn’t public.

"It was a big group there, they’re going to differ about stuff; there’s a lot of tension in the air because of the world we live in," Morgan Stanley Chief Executive Officer James Gorman, 53, said as he left the event, which coincided with weekend meetings of the International Monetary Fund and Institute of International Finance. "There’s no one solution. It’s going to be 25 different things."

Bank-stock indexes in Europe and the U.S. have dropped more than 30 percent this year and borrowing costs for European lenders have climbed amid concern that Greece and other European countries may default. The level of disagreement between bankers and government officials who gathered for the annual IMF meeting was matched only by their shared sense that the stakes have rarely been higher.

'More Gravity'
"There’s not been a prior meeting at which matters have had more gravity and at which I’ve been more concerned about the future of the global economy," said Lawrence Summers, a former U.S. Treasury secretary and White House economic adviser, who said it was his 20th annual IMF meeting.

Asian stocks fell today amid concern the European debt crisis may weaken economic growth. The MSCI Asia Pacific Index slid 1.2 percent to 110.38 at 11 a.m. in Tokyo, set for its lowest close since June 2010.

Discussion of European governments’ options, including how to use their 440 billion-euro ($596 billion) rescue fund, dominated the policy meetings. Most European parliaments, including Germany’s, still haven’t voted on a July 21 plan to endow the fund with more powers, including the ability to buy bonds and inject money into banks.

Geithner’s Plea
U.S. Treasury Secretary Timothy F. Geithner urged governments to unite with the European Central Bank to increase the firepower of the fund, known as the European Financial Stability Facility.

Failure to act carries the "threat of cascading default, bank runs and catastrophic risk," Geithner said in a Sept. 24 statement to the IMF, his strongest public lobbying yet. Bank of Canada Governor Mark Carney said 1 trillion euros may be needed and U.K. Chancellor of the Exchequer George Osborne set a Nov. 3-4 Group of 20 summit as the deadline for a solution.

European policy makers indicated they may use leverage, or borrowed money, to increase the spending strength of the EFSF. Klaus Regling, its CEO, and German Finance Minister Wolfgang Schaeuble downplayed speculation that the fund might borrow from the European Central Bank or provide insurance on loans provided by the ECB directly to the private sector.

Finance officials this week will also discuss accelerating the establishment of a permanent rescue to July 2012, a year earlier than planned, according to a document prepared for the meetings and obtained by Bloomberg News. ECB Governing Council members Ewald Nowotny and Luc Coene said in interviews in Washington that the bank may step up its own response next week.

Bankers Mingle
The Institute of International Finance, an organization of more than 400 financial companies worldwide, holds its annual meetings in parallel with the IMF’s. In normal times, the private-sector bankers use the weekend to mingle with one another, and with government ministers and central bankers, trying to win business and get policy insight.

In some ways, this time was no different as bankers hunkered down in hotels around Washington for meetings with government clients and executives of other banks. JPMorgan and Citigroup Inc., both based in New York, held cocktail parties. Even UBS AG feted guests with champagne and dance music on Sept. 24, the same day CEO Oswald Gruebel, 67, resigned following the bank’s announcement that it lost $2.3 billion on what it said were "unauthorized" trades.

Compares With 1930s
Yet in private discussions, bankers said the environment was exceptional. A senior European banker said he sees policy makers’ decisions as being as momentous as those in the 1930s. A senior U.S. bank executive said he’s more worried than he was at any point during the financial crisis of 2008 and 2009.

About 1,000 people attended a Sept. 24 IIF dinner, which featured a tribute to ECB President Jean-Claude Trichet, who’s stepping down Oct. 31 and will be succeeded by Mario Draghi, the governor of Italy’s central bank.

Guests dined on beef tenderloin stuffed with red chard, dates and pine nuts, and truffled potato crepes. They heard speeches about Trichet’s career and accomplishments from IIF Chairman Josef Ackermann, who’s also CEO of Frankfurt-based Deutsche Bank, as well as former Federal Reserve Chairman Paul Volcker and Carney, the Bank of Canada governor.

The ECB’s policies in recent years, such as buying bonds issued by weaker European nations and providing cash loans in return for banks’ bond holdings, have helped provide support for both governments and lenders. The policies also have stirred discontent as two German members of the ECB’s governing council resigned this year amid signs of growing disagreement about the central bank’s efforts.

ECB Easing
IIF Chief Economist Philip Suttle told conference attendees on Sept. 24 that solving the European crisis will require the ECB to reduce interest rates to boost growth. "You need the ECB to ease significantly, and that probably means the euro needs to come down," Suttle said.

Schaeuble, the German finance minister, addressed the same room hours later with a contrasting message: "We won’t come to grips with economies deleveraging by having governments and central banks throwing -- literally -- even more money at the problem," he said.

At a panel discussion yesterday titled "Systemic Stability and Global Financial Firms," bank executives including Goldman Sachs President Gary D. Cohn and Barclays Plc CEO Robert E. Diamond, 60, discussed risk management and regulation without addressing the European crisis directly.

Restore Confidence
After the discussion, Cohn was asked what he thinks European leaders must do to restore investor confidence. "The market needs to hear that they understand the depth and breadth of the problem," said Cohn, 51. "They just need to convey to them that what they’re doing is big enough and powerful enough to get the market’s attention."

Modeling a European rescue after the U.S. Treasury Department’s Troubled Asset Relief Program, which started injecting capital into banks in 2008, "would be a good solution," he said.

Frederic Janbon, global head of fixed income at Paris-based BNP Paribas SA, said he hopes policy makers stick with implementing the plan agreed to on July 21. "Before we go to what we do after, we start by doing what we promised before," he said in an interview. Deutsche Bank’s Ackermann urged European nations to approve the 440 billion-euro rescue fund and to implement a bailout plan for Greece that are part of an agreement reached on July 21.

'Seal the Deal'
"Our strong advice is to move on and seal the deal which was agreed on in Brussels at the end of July," Ackermann, 63, said during a press conference yesterday. "To re-open that debate would not be productive and definitely not stabilize the turbulent situation we’re in.

JPMorgan Chief Economist Bruce Kasman, speaking a day earlier, said the July 21 bailout plan for Greece isn’t going to be enough to contain the crisis. "Greece is insolvent and the European Monetary Union, the European Union as a whole, needs to deal with that," Kasman said at a Sept. 24 panel discussion hosted by the IIF. "It hasn’t yet come to terms with that."

At the private gathering of bank CEOs on Sept. 23, which was the first joint meeting of the IIF and the Financial Services Forum, the executives spent part of the session getting Carney’s views on the regulatory outlook. JPMorgan CEO Jamie Dimon, 55, criticized regulators’ plans to require the biggest banks to hold extra capital and got into a dispute with Carney, said three people with knowledge of the encounter.

Joseph Evangelisti, a spokesman for JPMorgan, and Jeremy Harrison, a spokesman for the Bank of Canada, declined to comment on what was said at the meeting. "More generally, we have been engaged in constructive dialogue with a range of stakeholders, both domestic and international, as we move forward through this financial-sector reform process," Harrison said in an e-mailed statement.




Christine Lagarde: IMF may need billions in extra funding
by Louise Armitstead and Jonathan Russell - Telegraph

Christine Lagarde has signalled that the International Monetary Fund (IMF) may have to tap its members – including Britain – for billions of pounds of extra funding to stem the European debt crisis. The head of the IMF has warned that its $384bn (£248bn) war chest designed as an emergency bail-out fund is inadequate to deliver the scale of the support required by troubled states.

In a document distributed to the IMF steering committee at the weekend, Ms Lagarde said: "The fund's credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-casescenarios. Our lending capacity of almost $400bn looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders."

The suggestion came after European officials revealed they were working on a radical plan to boost their own bail-out fund, the European Financial Stability Facility (EFSF), from €440bn (£384bn) to around €3 trillion. The plan to increase the EFSF firepower is the crucial part of a three-pronged strategy being designed by German and French authorities to stop the eurozone's debt crisis spiralling out of control. It also includes a large-scale recapitalisation of European banks and a plan for an "orderly" Greek default.

Although Britain is not involved in the large-scale eurozone bail-out projects, it is liable for 4.5pc of IMF funding. The plan, which would aim to build a "firebreak" around the indebted eurozone countries, emerged at the IMF annual meeting in Washington where global leaders united to demand urgent action from European politicians.

Despite the developments, traders warned that the failure of politicians to agree a solid rescue plan would result in more turbulence on global stock markets. One trader said: "The expansion to the EFSF would be good, although it's still not the eurobonds that the market has really been wanting to see. And, most significantly, it's still only an idea, not a deal." In a G20 communique issued on Friday, leaders set a six-week deadline to resolve the crisis – to unveil a solution by the G20 summit in Cannes on November 4.

However, already the plans to recapitalise European banks have been criticised in France – which has the biggest exposure to Greek debt. The governor of the Bank of France, Christian Noyer, told reporters yesterday he didn't "see any sign" that French banks were in trouble and that he believed there was "no need" for a recapitalisation.

But international pressure on European politicians has intensified. Timothy Geithner, the US Treasury Secretary who proposed an increase to the EFSF at the Ecofin meeting on September 16, said that the sovereign debt pressures and banking strains in Europe were "the most serious risk now confronting the world economy". Larry Summers, Barack Obama's former chief economic adviser who was attending his 20th IMF meeting, said: "I have not been at a prior meeting at which matters have had more gravity."

Demands for action were also made by emerging market leaders. Brazil's finance minister, Guido Mantega, said European policymakers had a responsibility "to ensure that their actions stop contagion beyond the euro periphery". The governor of the Chinese central bank, Zhou Xiaochuan, said that "the sovereign debt crisis in the euro area needs to be resolved promptly to stabilise market confidence".

With Greece facing a debt deadline at the beginning of October, the first priority is to release an €8bn tranche of bail-out money. Ms Lagarde said that the priority of international authorities this week must be "implementation, implementation, implementation" of the bail-out agreement of July 21.




'Barrier' Around Greece Needed: Merkel
by Tony Czuczka - Bloomberg

German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states that would risk breaking up the currency area.

Expanding the powers of the region’s rescue fund, the European Financial Stability Facility, as agreed by European leaders in July is necessary to avoid Greece’s problems from spilling over to other countries, Merkel said late yesterday on ARD television. The fund’s permanent successor, due to take effect in mid-2013, is needed "so we can in fact let a state go insolvent" if it can’t pay its bills.

"We have to be in a position to react," Merkel said. "We have to be able to put up a barrier." Even so, "I don’t rule out at all that at some point we will have the question whether one can do an insolvency of states just like with banks." She made no mention of setting up the permanent fund before 2013.

Merkel, as the head of Europe’s biggest economy, is at the center of calls by the U.S. and other governments to do more to stop the European sovereign debt crisis as it pounds global financial markets. The situation is "serious" and "there are no easy solutions," Merkel said in the hour-long interview. She also indicated that she’s being treated for high blood pressure.

'A Bit Earlier'
Policy makers can make the EFSF more "efficient" by leveraging it without involving the European Central Bank, Finance Minister Wolfgang Schaeuble said over the weekend. He also raised the prospect of bringing in the permanent backstop before 2013. Senior finance officials are preparing to examine the cost advantages of accelerating the start of the fund by a year to 2012, according to a document prepared for meetings this week obtained by Bloomberg News.

"Maybe we can manage it a bit earlier" than 2013, Schaeuble told reporters in Washington on Sept. 24 after the annual meeting of the International Monetary Fund. The current facility is a "preliminary solution and we want a permanent solution as quickly as possible." Its successor, known as the European Stability Mechanism, will have a "quite different lasting, stabilizing, confidence-creating function" and Germany "would not oppose" bringing it forward, he said.

With global stocks entering their first bear market in two years last week, European policy makers were met with pressure at the weekend from foreign counterparts at the IMF meeting to do more to stop the contagion seeping from Greece.

'Can’t Force It'
Merkel rejected Greece leaving the euro area, saying that "we can’t force it, but I don’t believe in that in any case" because it would send a signal to financial markets that attacks on euro-area sovereigns can succeed.

"Maybe Greece leaves, the next country leaves and then the next country after that," she said. "They would speculate against all the countries." A small group of euro countries would be left at the end, deprived of the euro’s advantage as the currency appreciates, she said.

Merkel suggested that Greece may be able to get the next tranche of bailout aid, after a team of officials from the IMF, the ECB and the European Commission assess the Greek government’s progress in meeting deficit-reduction and other targets. Merkel is due to host Greek Prime Minister George Papandreou for talks in Berlin on Sept. 27, two days before German lawmakers vote on the enhanced rescue fund.

It’s the "troika’s" job to make the ruling on progress made by Greece, she said. "Were they to come back one day and say Greece can’t make it, then we would have to rethink," Merkel said. "But they aren’t doing that so far."

EFSF Vote
Merkel said she’ll win legislative approval of the expanded EFSF powers on Sept. 29 on the strength of her governing majority without depending on opposition support. "I want a majority of my own and I’m confident I will get it," she said. "I’m also going to lobby for it one more time this week."

For all the turmoil, Germans can have confidence in the euro. "We need the euro," she said. "The euro is good for us. That is why we need to improve on what has gone wrong in the past." Changing European treaties to make it easier to enforce budget discipline is one solution, she said. "We have to work toward treaty change."




Bank of France chief dismisses talk of €15 billion recapitalisation
by Jill Treanor - Guardian.

Christian Noyer insists French banks can withstand eurozone crisis but German banker warns of risk from bankruptcies

France rejected speculation that it was preparing to put up to €15bn (£13bn) into its banking sector despite fears about the impact of losses from Greek debt might have on some of the country's banks – and others across the eurozone.

Christian Noyer, head of the Bank of France, insisted the country's banks were strong enough to withstand the problems in Greece despite anxiety in the markets about French banks' ability to cope with the pressures in the eurozone. The shares of France's biggest banks have lost 50% of their value in just three months and endure daily volatility amid rumour and counter-rumour about their financial health.

But while France was confident that its banks were strong, a senior German banker painted a different picture of the industry, warning that banks around the world needed to be ready to take losses on their exposures. "I don't think that banks will get around further charges regarding Greece," Andreas Schmitz, head of the German banking association BdB, told Reuters in Washington.

The meetings of the G20 finance ministers and the International Monetary Fund in Washington at the weekend sparked speculation that banks in France, and elsewhere in Europe, would receive fresh injections of capital. The focus has been on the 16 banks that received borderline results from their European Banking Authority stress tests in the summer but other banks are also the subject of rumours.

The French newspaper Le Journal du Dimanche fuelled expectations by reporting that French officials were ready to put up to €15bn in a special contingency plan if recapitalisation was needed. But Noyer was adamant this was not necessary. "They are very solid," he said. "They have a solid capital base comparable to other European banks and they are profitable … none of them is hiding any toxic assets".

Despite his protestations – and those of the bosses of BNP Paribas and Société Générale – markets are gripped by speculation that the banks will seek fresh funds. BNP Paribas has been linked with Qatar but denied any talks and avoided a downgrade by ratings agencies after announcing plans to cut the value of its balance sheet. SocGen insists its exposure to Greece is manageable.

While the French banks have become of the major focus of the markets' concern about the impact of a default by Greece on its debt pile, other banks are not immune. Schmitz, who is also the head of the Düsseldorf-based private bank HSBC Trinkaushaus, said: "German banks could cope with an isolated insolvency of Greece. Such a scenario would not endanger their survival. But if a wave of bankruptcies sweeps through Europe, the situation looks different; many banks would get into trouble – and not just in Europe."

This is one of the reasons why there is talk of the authorities trying to put a firewall around Greece. Banks are already expected to take a loss of 21% on their holdings of Greek debt – as agreed under the terms of the bailout – but after speculation this weekend, the loss is expected to rise to at least 50%.




Only ECB has power to 'scare' global stock markets, warns IMF
by Larry Elliott - Guardian

Brussels has until November's G20 summit to work out how best to turn the €440 billion bailout fund into €2 trillion war chest

The International Monetary Fund has warned that the immense firepower of the European Central Bank (ECB) would be needed to "scare" the financial markets and prevent an intensification of the turmoil threatening to send the global economy back into recession. With investors poised to give their verdict on the weekend talks in Washington of finance ministers and central bank governors, European policymakers insisted that fresh moves to boost the fighting fund to support struggling eurozone members were in the offing.

Brussels has a deadline of the Cannes G20 summit in early November to flesh out its proposals but is waiting for a key vote in the German parliament this week on the expansion of the European Financial Stability Facility (EFSF) before deciding how best to turn the €440bn (£380bn) pot of capital into a €2tn war chest.

"We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet," one senior European official said. Some European countries, including Germany, are sceptical about using the ECB to provide the leverage but the International Monetary Fund (IMF) insisted there was no alternative.

Antonio Borges, head of the IMF's European division, said: "It is very important that we see a combination of the ECB and the EFSF. Anyone who thinks that the EFSF will be a miraculous solution to the problem is making a very big mistake. "The ECB is the only agent which can really scare the markets."

Privately, many officials at the IMF and in its 187 member governments accept the inevitability of a Greek default and now see the priority as preventing the two much bigger economies of Italy and Spain being dragged down.

Greece's finance minister, Evangelos Venizelos, said Greece would not default before talks with the IMF about the next €8bn instalment of its rescue package due next month. Sources in Washington said Greece would get the money in the hope that Europe would buy itself enough time to piece together a convincing anti-contagion strategy. The likeliest time of a Greek default is thought to be in late 2011 or early 2012.

On Sunday night, German chancellor Angela Merkel said she would not rule out letting a eurozone country default on its debts once the currency union has its permanent rescue fund, the European stability mechanism (ESM), in place.

In an hour-long interview with ARD television, Merkel underlined the importance of an expanded mechanism to prevent future crises spilling over into other nations. She said that once the ESM is in place, "I don't exclude that we at some point … that one could do the insolvency of a state just as of banks." The ESM is currently slated to start in 2013. The chancellor also said a permanent structure would allow other European partners to set up a "barrier" around Greece to prevent a domino effect on other nations.

Prices of shares and commodities plunged last week as dealers took fright at Europe's intensifying debt crisis and signs of a marked slowdown in the world economy. The managing director of the IMF, Christine Lagarde, said the world was in a "very dangerous place" while the president of the World Bank, Robert Zoellick, said there was a risk of the contagion spreading to emerging economies, which have been performing more strongly than the rich western nations. "The numbers emerging out of developing countries over the past month are shaking and shaky," Zoellick said.

European policymakers in Washington responded to pressure from the US, Britain and emerging country members of the G20 group. Brazil's finance minister, Alexandre Tombini, said his country's experience showed the need to act with "overwhelming force", while Tim Geithner, the US treasury secretary, said: "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe."

Justine Greening, economic secretary to the Treasury, said Britain had been urging Europe to get to grips with the crisis for several weeks. "I think we've had some positive steps taken this weekend towards the eurozone being able to do that in terms of both recapitalising the banks in Europe that are under stress but also [by] putting in place a bailout fund that is big enough to give confidence to the markets," she said.

Olli Rehn, Europe's commissioner for economic and financial affairs, said the eurozone needed to do more. "We need to build a bridge and I think this bridge will be developed on the basis of the current reform of the EFSF and as one part of that next stage we are contemplating the possibility of leveraging the EFSF resources to have more firepower and thus have a stronger financial firewall to support our member states doing the right thing."

One option to increase the potency of the EFSF currently under discussion would be for the ECB to commit large amounts of funding, with the capital in the EFSF used to cover potential losses. German finance minister, Wolfgang Schäuble, said he was open to the idea of leveraging Europe's rescue fund but said that did not necessarily mean the ECB should provide the extra firepower.

Mohamed el-Erian, co-chief investment officer of the giant bond fund Pimco, said: "It is encouraging that … European officials are signalling a better appreciation of the depth and potential consequences of the crisis. "Now they need to translate this into decisive actions underpinned by a common vision of what they want the eurozone to look like in five years' time."

Almost from the moment the €440m EFSF was created it was deemed too small. Hence all the talk now about how to enlarge the bailout fund to convince the markets that Europe has the firepower to contain the crisis. But the problem is that the countries that need to contribute to the EFSF either cannot afford to put in more cash or lack the political support. So ideas are now being conjured up to make it bigger without putting up more money – to turn one euro into five, as one EU source put it.

Analysts at Credit Suisse say one idea would be to turn the EFSF into a bank to enable it to use bonds it has bought from troubled countries in exchange for fresh funds at the ECB. Credit Suisse acknowledges this might look like a "story of a leveraged hedge fund" and would mean that countries such as France contributing to the EFSF might find their AAA rating under threat. They think a better idea would be to enlarge the EFSF and lend a third of the funds to governments to buy bonds, a third to recapitalise the banks and the rest to create an EFSF bank.




Bank Lobby Rejects Reopening of Greek Rescue Deal
by AP

The international bank lobbying group that has been leading negotiations on giving debt-ridden Greece easier terms for its bonds on Sunday rejected calls to impose larger losses on private investors.

Forcing private creditors to write down their Greek bond holdings by more than the 21 percent tentatively agreed to in a July deal would quickly cause a "domino effect" that would see the crisis spread to other parts of Europe, warned Josef Ackermann, the outgoing chairman of the Institute of International Finance.

Such a move would ultimately cost taxpayers much more than just bailing out Greece and erode confidence in the euro, said Ackermann, who is also the CEO of Germany's Deutsche Bank, a major lender to Greece.

Germany and other rich eurozone nations have been pushing for a re-negotiation of the July deal, arguing that the economic situation in Greece has significantly deteriorated since then and may require a steeper cut in the country's debt load.

However, Ackermann quickly rejected that push, saying that the agreement was fair and already placed a heavy burden on banks at a time of major market turmoil. "If we now start reopening this Pandora's box we will lose a lot of time and I'm not sure people would be willing to participate," Ackermann told a news conference on the sidelines of the annual meeting of the International Monetary Fund.

Under the July deal, Greece is asking banks and other large private investors to swap their existing Greek bonds for ones with longer repayment deadlines, a lower face value or lower interest rates. The IIF says the deal would save Greece some €54 billion by 2014 and €135 billion by 2020.

However, most analysts say that those savings are far too small to make Greece's massive debts — which amount to some 160 percent of economic output — sustainable again. At the same time, there have been growing doubts that investors will agree to swap 90 percent of their bond holdings, a minimum threshold that Athens set to make the deal worthwhile.

Getting private creditors to agree to the deal comes at a heavy cost for Greece. Apart from temporarily being rated in "selective default" — a first for a eurozone nation — the country has to spend some €42 billion on setting up a collateral fund that would secure the remaining value of the bonds.

If at some point Athens decides that a steeper cut in its debt was necessary, that money would go to the bondholders. "If the July deal goes ahead, Greece would be locked into this perpetually,"
said Sony Kapoor, managing director of Re-Define, a Brussels-based economic think tank.

Greece has been relying on €110 billion in rescue loans from other eurozone countries and the International Monetary Fund since May 2010. In July, when it became clear that Athens needed more help, eurozone leaders agreed on a second, €109 billion bailout, although several aspects of that deal still need to be finalized.

To make the second aid package acceptable for their taxpayers, several rich countries led by Germany pushed for banks and big insurance companies to share some of the pain of bailing out Greece — despite opposition from the European Union and the European Central Bank, the central bank for the 17 nations that use the euro as a common currency.

But since July, the eurozone's debt crisis has significantly worsened, partly because investors now fear that they may also face losses on bonds from already bailed-out Portugal and Ireland as well as struggling Italy and Spain. The Greek economy is now set to shrink 5.3 percent this year, up from a June estimate of a 3.8 percent decline, followed by a further contraction in 2012.




The Greek tragedy: no money, no hope
by Paul Mason - BBC

Despairing middle classes could be the biggest threat to Greece's future

Dmitris Andreou made the last sale out of his small estate agents business in June. His wife Mary, makes her living preparing high-school students for English exams. But her living has dried up. Their savings are exhausted, their disposable income has dropped by about 50 per cent in two years, and they are angry.

"Some days we only buy the basics and a few days lately we were not able to buy even those. We have to count our cents to decide between buying bread, milk or butter," says Mary. "Some days are better, but some are difficult. We don't buy clothes any more. People don't go out. There is simply no money around out there."

In their neat apartment in an Athens suburb, surrounded by family heirlooms and lace tablecloths, they are a world apart from the anarchist demonstrators who snatch the headlines whenever opposition to the EU-imposed austerity measures is discussed.

But what's happening in living rooms like theirs presents the bigger danger to the future of Greece. People are switching off: from politics, from the mass media, from social life. "We would like to see the politicians executed," says Maria, not smiling as she delivers the joke. "Most people are saying this: politicians deserve capital punishment – at the Greek equivalent of Traitors' Gate. It would be a nice time for politicians to be heroes, to stand up and defend the people. But they're not."

"We can't watch the television news any more," says Dmitris, shaking his head. "If you watch it, with the constant uncertainty, it can make your psychology very low. It's like a nightmare we can't wake up from. Perhaps it's fortunate that we've had to cancel our cable TV subscription. I don't trust the media any more: I get all my news from the internet."

Across Europe, governments are reining in public spending to prevent the markets' confidence in their finances ebbing. Ireland and Portugal have made sweeping cuts; Italy and Spain are under intense pressure to perform better. But it is the 11 million Greeks who are feeling it most acutely as their government struggles to head off default - or worse.

If Greek public sector workers at all levels have been hit by pay and pension cuts, for the middle class – people like the Andreous, both of whom are self-employed – it is tax that is the problem. Tax rises, a property downturn and the collapse of business income has halved their spending power, and that's before the next round of austerity measures, due to be voted on in parliament on Tuesday, begin.

It is this sudden collapse of middle class lifestyles that makes the Greek situation so volatile. In Britain and the USA, public spending hawks have argued: reduce the size the state and the private sector will grow. In Greece the debt crisis – which has spiralled out of control in 2011 – means that cutting public sector jobs and services is not enough. The pensions, savings and incomes of the middle-class are being raided too.

As a result Greek politicians have started to worry about something called "anomie" – a pervasive listlessness, low-level social conflict and the erosion of bonds between the country's citizens and the state.

You can read it in the figures: suicides have soared by 40 per cent in a year. Thefts and break-ins almost doubled between 2007 and 2009. Hostility to migrants – their arrival ignored during the good times after entry into the EU and the euro – has become widespread and unconcealed.

At the doors of small charities, queues of single men – ranging from Iraqis to Somalis to Nepalese – form in the early morning to receive free food or medical treatment. Now, to their intense anger, some Greeks are being forced to join these queues: 39 per cent of the country's under 24s are unemployed.

And there is more austerity to come. With total Greek debt headed for 189 per cent of the country's GDP - the equivalent of almost two years' entire economic output - the EU pushed the government and parliament into agreeing a second austerity package on June 29, in return for the promise of a new €159bn bailout. That was supposed to be the circuit breaker, and its passage was marked by burning barricades in the smart, historic Plaka district of central Athens, manned by shopkeepers and restaurateurs alongside the anarchists.

But that deal has fallen apart. Greece needs to raise a further €2bn just to meet this year's deficit target, which it will do through an emergency property tax, collected through people's electricity bills. When the energy workers said they would refuse to issue the bills, the crisis escalated.

Phone calls, emergency cabinet meetings, walkouts by IMF negotiators – the familiar choreography of a Greek bailout tranche by now – produced a third austerity package. The Andreous now face an extra property tax of between €500 and €1,000 a year until 2014, and a further income tax hike.

After the deal in June the protests had been muted. With general strikes called for this week they will escalate, but Greek commentators are no longer focused on the organised protests: it's the disorganised and random events that worry them.

Antonis Papayiannidis, who publishes Economic Monthly, warns: "In an almost detached way people have just watched the catastrophe happening to them. They were very displeased but they did not erupt. They became withdrawn and they are still withdrawn. But it could erupt very quickly, because the feeling of helplessness is very intense right now - in a way that makes the petrol bombs and barricades of June look pathetic."

The economics of the crisis are brutally simple: Greece has been bailed out twice and cannot be saved again. Either the third round of shock measures announced last week locks the EU into the long-term bailout payments already agreed, or Greece defaults. Any default would sink the country's own banks – their debt was downgraded on Friday, and 12 per cent of their deposits have been withdrawn over the past year.

Greek default would rip through the French banking system– SocGen and Credit Agricole were downgraded this month over their exposure to Greek debt. It would leave Spain and Italy totally dependent on a lifeline from the European Central Bank. And it would then pose the question everybody wants to avoid: can Greece stay in the euro?

For the Andreous, it is hard to see how things get better in the short-term. They face four more years of austerity, their savings are gone, and the chances of a university education for their daughters Phaedra, 16, and Ira, 12, are evaporating.

Right now though, they have more pressing problems. At the two girls' secondary school, the autumn term has started without textbooks. The pupils have been handed CDs instead. "It feels like we're in a post-war situation," says Mary. "There's no optimism; we don't know what happens next. We just try to survive."

Over the past six months I've stood in the middle of Athenian crowds so furious that they will withstand tear gas and endure near-lethal stampedes to make their point. What's been obvious, each time, is the ordinariness of the people involved – bank clerks, interior designers, even a concert pianist once, their faces painted with alkaline liquid against the sting of the gas.

But it is this seething anger of those who have never been on a demo that is really frightening - because we have no model for what happens if the middle class of a developed country simply switches off from politics and gives up hope. Not since the 1930s, anyway.




Why We Know We're Right
About the Dollar

by Harry Dent



Click to open in new window



138 comments:

lautturi said...

Too bad you didn't link the one slip of the tongue from BBC how the world is ruled by Goldman Sucks. Ruthless...

jal said...

We have entered into a new world. VIRTUALITY.
I had the occasion of participating in A VIRTUAL OPEN LINE FORUM WITH OUR LOCAL PROVINCIAL MEMBER OF PARLIAMENT. The computer had a name, ERIC.

It seemed real. ( I wonder if anyone else was able to tell that it was computer generated and controlled). If it catches on, you will soon be asked to be part of one in your area.

Since I did not have a chance to give my question I was given the opportunity to leave my question as a recorded message.

So as you can see, its not just the stock markets and the financial system that are going virtual.
Im waiting to see how the virtual will react/respond to my recorded REAL question.

Preamble:
75% of the population are up to their neck in debt and would drowning if they missed one paycheck.
Only 25% of retirees are on high ground and have no debt.
Our political leaders and financial leaders have been saying that we are swimming in a sea of debt which cannot be paid back. 
This seem no different than when Noah, was advising people to build an ark, and the people ignoring the warnings of a flood.
When the flood came the people pleaded to be let into the ark but the arc was full.
Those who need more info can follow the info that is being presented at The Automatic Earth, Zero Hedge, and Market ticker. ( I hope your aids have taken notes of those blogs so that they will become better advisors.)

Question:
From your leadership position, What are you doing;
so that people will act to save themselves from the debt flood that is coming? 
and to restrain the bankers from weighing people down with more debts?
===

Ilargi said...

lautturi

I added it. But he says the same we've both been saying for years, just in this case with a definite timeframe (12 months). It's funny that people will latch on to it at this point because "A Trader" is on BBC TV.

The more warnings the better though, provided they don't tell people any time soon the dollar will collapse, gold is safe and there'll be hyperinflation. Too many false and deluded prophets out there



.

jal said...

I’ve been saying that they announced this move way-back-when. "Leveraged Stability" will work to save the bankers.
They don’t gives a dam about the rif-raf.
Check out my comments.

bluebird said...

In previous thread, Jack said "Here is the kind of talk I am hearing around me.
Europe is going to let go of Greece and than everything will be OK."

This is what I hear...
Why should I pay attention to Greece? It's way over there. They don't make anything. Why is Greece important to me?

As soon as I start to explain in a simply manner, they roll their eyes. Worldwide debt is not a topic that most people want to discuss.

However, there is a new TV show about Pam Am stewardesses.

el gallinazo said...

Nassim's idea of a pre-deposit debit card sounds really good in my situation. Scotiabank of Puerto Rico is raping me on USD - Mex Peso exchange. They gave me less than 12 on a day that the interbank forex had broken 14. Despite its other villainies, JPMC had been giving me an excellent forex rate at the cash cows of the countries I have been living in. But Nassim's "Cash Passport" only accepts deposits in euros or sterling. Can someone recommend one that specializes in travel and forex that takes deposits in USD? One thing really nice about Nassim's card was it gives the current exchange rates with a variety of countries on line so you could see how competitive it is.

Partisan said...

Ilargi said...we've predicted most of what's happening now pretty accurately...Not predictions of the exact timing, but that's not the essence"

Isnt timing in fact THE essence of your predictions? For example:

Hyperinflation Nation said "gasoline will cost 15 dollars a gallon by 2010"

Stoneleigh said "by the end of 2010 I'd be surprised if the DJIA was still over 1000."

My uncle said "mark my words, John McCain will win the 2008 election"


In your book are these predictions "early" or are they just "wrong"?

el gallinazo said...

Regarding the debate between Ash and Dave, we all can agree that leveraging the EFSF would be an eventual disaster for the debt slaves of Europe. But it would bail out the system for a few months and allow banks to make large short term profits. It would also be risk on for equities, particularly the euro bank stocks, for the moment. I think that the probable cause of the current rally is based on the idea that this leveraged bailout fund can be rammed up the collective orifice of the body politic of the eurozone debt slaves. The banks are buying back their equity because they assume that they can bribe the politicians to ram this through. When it comes to bribing parliaments, my memory tells me they are batting 1.000, so based on their previous record, they will probably succeed.

The Social Democrats of Germany are firmly in the pocket of the bankers. Perhaps ironically, the pseudo left of Europe is more firmly directed by the bankers and the CIA than the moderate right.

el gallinazo said...

Partisan

Of the three, Stoneleigh's prediction was correct. She was surprised. When the crisis first developed in 2008, many of us did not foresee the utter recklessness of the Fed to extend tens of trillions of credit dollars to save the banks for a year or two. I, for one, have learned my lesson. The Fed will do **anything** including eating babies if they think it will keep their multinational banks constituents in walking zombie condition for another few days. The end game is the same, but pissing away tens of trillions of debt slave future dollars did buy them two years. Can they do it again? They will try, but with the diminishing returns, it would probably only buy them 2 months. Furthermore, it appears that Benny is throwing the stock market under the bus to save the treasury by keeping bond prices near zero. Battlefield tirage.

davefairtex said...

Ash -

You got most of what I said, but you missed some important nuances.

For instance, I did not say "we should expect this "deal" to actually work, because the "smart money" bankers are betting that it will."

I said that something may be in the works that would be good for the bankers. And the bankers may be aware of the deal, and have a sense of the likelihood of its passage.

An example of one deal would be that national governments sign up to buy lame sovereign bonds from the banks, and that would lift the prices of the bank equities. Without such help, banks would likely either implode, or their equity prices would be Citibanked by government equity injection.

This is not the same thing as the deal "actually working" in the sense of permanently ridding the financial system of its pending deflation, but it will sure help the banker's stock price. And it might stabilize the system for another three months.

Likewise, I'm not suggesting that "short term price movements" should be extrapolated into the future. I'm noting a potential trend change, which if it sticks, does mean something. If it doesn't stick - then nobody cares.

Behind all the things I'm saying is this: I get the sense that the many here imagine a one-way trip down into deflationary hell, with the no more opportunities for the folks in power to do anything at all.

I don't agree. I think there will be twists and turns, some possibly significant. It puts me in the minority here, I realize. Today is the third day - DB is up again, today 8%, although it looks a bit like distribution today. If DB moves through its 50 DMA then I'll take this move as significant.

We'll know soon enough. Opposing opinions are what makes a market. And if nothing ends up happening, I'm good with it. Price movements are all about probabilities, not certainties.

davefairtex said...

Partisan -

If you're trading, then timing of a prediction is critical. Early is exactly the same as being wrong. Lets say you went short BAC in March 2009 expecting certain deflation to sink the institution. Ouch. You're broke. Even if they die end of 2011, you would not have survived the move to 20.

But if you're predicting general trends and advancing a theory, then timing isn't so important. Being off by a few years, not such a big deal.

I think I&S here are right about the trends, but perhaps their level of certainty about what will happen might lead one to read certainty about timing into what they say.

In other words, don't trade on what these guys say, you'll likely end up getting killed. They aren't traders - nor do they pretend to be. But if you do a rip-van-winkle and wake up in 10 years, they'll have been right about the important stuff.

Their focus is not on trading, its on getting people to prepare for a particular future situation. That's good, because the vast majority of people need that kind of advice far more than they need trade timing.

Just my sense.

p01 said...

Jack said...
If we are going to have a depression than how come the stock market is going up.
Those are the kind of questions being asked by people around me and I have a hard time giving a good answer.


The definition of insanity is doing the same thing over and over again and expecting different results. So what I did personally is stop explaining, because it's the sane thing to do, plus I don't like being looked at as a zombie-apocalypse nut because the bank runs have not started yet. Some people don't want to hear the truth, no matter what, so quit trying to explain and waste time and energy. It's their life after all.

That's how I roll these days and try to mantain sanity.

lautturi said...

Thanks, Ilargi.

I agree, nothing new there - for us that is. I just had smile (sadly, sardonically, not sure) when I saw that interviewing lady in the end of the clip - quite scared if you ask me... I'm pretty sure that she wasn't sure why - a mad trader? on to something - or on something?

This would be funny if it wasn't so sad (>_<)

Ash said...

Dave and El G,

"I said that something may be in the works that would be good for the bankers. And the bankers may be aware of the deal, and have a sense of the likelihood of its passage."

We all agree that there are big deals "in the works" by/for bankers, ranging from leveraged super funds to fiscal integration of Europe to massive QE3 by the Fed to outright "emergency" capital injections into banks, and combinations of the above. I believe the disagreement is a) their current ability to push these deals through the political process and b) the efficacy of these deals in providing short-term market stability. Dave and I also disagree about the predictive significance of short-term price movements, especially in financial/equity markets, but we can keep agreeing to disagree on that.

With regards to a), I believe Ilargi's lead post does a good job summarizing the plethora of ways in which the big "expanded, leveraged EFSF" proposal could be D.O.A. A lot of the resistance comes from Germany, but some of it even comes from the ECB and the banking lobbies themselves. In terms of QE3 or Eurobonds or whatever, we have also gone over the practical financial, political and social difficulties of implementing these many times here. Many of those difficulties cannot be overridden by a bunch of bankers, no matter how much political influence they wield (which is clearly becoming less than they used to in terms of fiscal and monetary matters).

With regards to b), it's practically impossible to predict what impact such deals will have on the markets and for how long with any degree of specificity. Once again, I do not believe short-term capital flows through global markets are instructive to this end. Generally, it is quite clear that centralized, leveraged "solutions", regardless of their finer details, are becoming increasingly ineffective at maintaining confidence in the risk markets. That's just a fundamental attribute of overly-complex systems that have evolved rigid and destructive inter-dependencies, such as the global economy. It seems quite obvious to me that the sociopolitical upheaval in Europe will rapidly intensify if any of these proposed deals actually go through, and similar responses would be seen in the US if the Fed decides to go "all in" as well. That, on top of the unsustainable math underlying the global ponzi, will weigh heavily against the efficacy of can-kicking attempts.

Lynford1933 said...

The head of the German Constitutional Court said the EFSF leverage was unconstitutional for Germany. Doesn’t his judicial opinion mean anything or is he kinda like Judge Judy.

Lynford1933 said...

I watched the video of the Trader: It gives a bit of understanding to the markets today. "I don't care if they go up or down, I will make money either way." We are looking at 1 1/2 hours to go with low volume and the traders are making money ... that's all that counts. Ultimately the fundamentals will prevail but in the meantime the HFT algos and the trader are doing quite well (DOW @+300).

Outreach said...

All this Ann Rand crap started in the 1980s. It took twenty years before the shit hit the fan. The current extend and pretend can go on for many months, maybe years. Why get hung up on how soon it will happen. We know it's coming and should be thankful for the extra time. Get used to people thinking you're crazy, you only need to be right once, by then it'll be too late for those who have been "right" all along.

Jack said...

http://andrewgavinmarshall.com/audiovideo-interviews/
I don't know how much importance you give to this person but in one of his videos he says that the timing of the housing collapse in the USA was discussed before it happened in the billburg(I am not sure about the spelling) group meetings.
So if that is true than the timing of the big crash is also arranged by them

The Anonymous said...

"Davefairtex said...

Behind all the things I'm saying is this: I get the sense that the many here imagine a one-way trip down into deflationary hell, with the no more opportunities for the folks in power to do anything at all. I don't agree. I think there will be twists and turns, some possibly significant."

Agreed - I call it the "straight line down hypothesis" and I too think it is far too prevalent on this blog. As I see it, this is the potential unwinding of this experiment called the United States. If it took 250 years to reach its nadir, I have a hard time seeing why it will all go *poof* in the matter of "months or years".

In that regard, something you said later on struck me:


"Davefairtex said...
But if you're predicting general trends and advancing a theory, then timing isn't so important. Being off by a few years, not such a big deal."

Agreed, however, every long term failed prediction starts off as being "off by a few years". In my particular case, I know a guy who sold his home 20 years ago in large part because he suddenly found religion in the form of extreme deflation, which he thought was "just around the corner".

He continues to maintain the deflation is "just around the corner" to this day. Thus, in his case, the house he sold to avoid imminent crippling deflation is now worth 3X what he sold it for, and would have been paid off by now. Instead, this poor chap has been renting for 20+ years with no end in sight. In his case, the failure to time this better pretty much destroyed his life.

Accordingly, the problem I see here is that whenever a prediciton fails, its not the thesis that is wrong but the timeline. The timeline of the great implosion has been continuously pushed out beyond the horizon.

p01 said...

@The Anonymous
Sorry to hear (again) about your friend who has been living within his means for so long. Must have been a horrible sight. Oh, well...

el gallinazo said...

the anonymous

"I know a guy who sold his home 20 years ago in large part because he suddenly found religion in the form of extreme deflation, which he thought was "just around the corner".

You recycle this story every time I move to a new country. You must be a card carrying member of the Green Party. Panama. Argentina. Now Mexico. I'll let you know when I move on so you can do it again in good conscience :-)

OK. I'm a geezer. In knew this guy in Amsterdam who made a fortune in flipping tulip bulbs, bought a huge mansion, but saw the inflation continuing and the tulip market as secular bull.. His ghost still haunts that mansion.

Ash said...

re: "straight line down" deflationary collapse

That's not the view of anyone here, as far as I know, so "people" should really stop bringing it up as if it was. In fact, I&S and many others here go out of our way to make it clear that debt deflation is a non-linear process, and will be interspersed with attempts at centralized intervention and "risk rallies" on the way down. That's a huge part of what makes the markets short-term unpredictable. Some of us even argue that governments may react with openly oppressive measures, i.e. retroactively changing/suspending legal rules, penetrating surveillance of the population, blatant suppression/persecution of dissident groups, military force, etc. Debt deflation is an ongoing process, and one that is very severe for the lives and balance sheets of many people, businesses and governments right now. If a person can't see how that's true, then that person would probably be better off visiting the optometrist than recycling stories and false allegations about predictions and timelines on this forum.

el gallinazo said...

Ash,

The only thing that we disagree on is the odds of the MotU pushing this leveraged TARP through the parliaments. As I said, they are batting 1.000 so far. Name one country where they have failed. And I see no signs of a reduction in their ability to bribe MP's.

Lynford1933

As in the USA, the Constitution is just a crappy piece of paper according to W. When big money comes up against constitutions, constitutions always lose. Look at the recent SCOTUS decision which gave virtual people more rights than meat muppet consumers. Think Judge Judy.

davefairtex said...

Ash -

"Dave and I also disagree about the predictive significance of short-term price movements"

Ash, I'm feeling a little frustrated here.

First, let me agree with you - there is no significance in every short term price movement. Clear enough? We agree on that 100%.

Trend changes, on the other hand, are quite significant. For instance, in March of 09 there was a series of short term price movements in the SPX that eventually resulted in a trend change that became more apparent as 750 resistance, and then 800 resistance was overcome. That took 2 weeks to play out. This was an important trend change; missing it meant you missed valuable information as to how things might play out in the near to medium term.

Trend changes don't happen in one day. They happen day by day, as a series of short term price movements. I see one possibly forming in DB. We're 3 days into it now. It could be something significant. Volume is another clue to the "authenticity" of a move, and DB's daily volume is high. Not a guarantee, but it increases the probability of the move as being something authentic. And price moves are all about probabilities, not certainties. Every high volume up day that passes increases the probability something interesting is in the works. (Today it looked a bit like distribution which weakens the probability somewhat; that's ok, this isn't about ego or religion for me. I'm wrong all the time. Its just about observation and probability)

If we want to wait until its clear to the stupidest person on earth that the trend in bank stocks is now up, we can wait until 3 weeks pass, and everyone is shocked, shocked when the EU executes yet another bailout. "But I thought the Germans would say no!" Bank stocks spike further, the bond market settles down, the public shouts hooray and buys, the big guys sell their inventory to them at the top. The usual. Who could have known that would happen?

Or we can attempt to look forward into an uncertain future at possibilities and ask the question: might this PARTICULAR set of short term price moves be telling us something interesting?

You say there's no predictive value in short term price movements. I say most of the time that's true, but sometimes its not. That word "sometimes" is a very important distinction. The critical distinction, actually.

Today, it looked like distribution in the broad market. Financials ended barely up, yet DB remained +6%, the top of the heap, and MS in #2 at +2.6%. Significant? Not sure. But possibly significant.

One last point. Perhaps all my points here are too close in time for this site. After all, it has a 10-20 year time focus, and what happens in the next few months is kind of irrelevant to that focus. I totally respect that.

Yet I feel impelled to comment when some people suggest we're on an elevator ride straight down, no stopping until we hit bottom. I heard that before, in 2008/2009. It didn't work out that way then. I'm providing a point of view that suggests it MIGHT not work out that way this time either. That's not so popular with TPTB here, but I hope I'm doing it in a civil and polite way.

Greenpa said...

"Leveraged Stability? Excuse me?"

LOL! Cracked me up, good.

Yeah, unbelievable, ain't it! And yet, they keep floating this nonsense out there- and it keeps floating- for a while. Mind boggling.

Way way back there, I had exactly the same reaction to what we know know affectionately as "monetary easing."

Excuse me??? You're telling us that monetary masturbation is the same thing as monetary regulation/management/growth/anything good? What planet are you from??

And yet! here we are! Markets are UP folks; trumpet trumpet, all's swell. Again.

The next Analytic Derivative of the problem is to understand how in hell we keep being surprised when they float crap- and the crap floats.

seychelles said...

Ash said

"Some of us even argue that governments may react with openly oppressive measures, i.e. retroactively changing/suspending legal rules, penetrating surveillance of the population, blatant suppression/persecution of dissident groups, military force, etc."

These concepts are arguable? These measures are a certainty!

We should also enjoy our freedom of expression on websites such as TAE, while it lasts.

Has anyone noticed that over the past few days it has become harder to find bad economic news on the internet? Has it become more of an effort to pull up
various market charts, or is this my imagination?

The third of a third down wave is coming up pretty soon...weeks to months as these corrective waves can meander for awhile, so it is definitely time to get safe, conservative and liquid.

Phil said...

The "rouge" trader in that BBC interview is Alessio Rastani.

Kid Dynamite asks Why Are You Making Such a Big Deal About Alessio Rastani?

Why indeed?

scrofulous said...

"Of the three, Stoneleigh's prediction was correct. She was surprised. "

Common El G, give it a rest. Wrong is wrong and quibbling is quibbling.

It was perfectly obvious that 'they' would do 'something' to push things down the road as far as possible. What I asked, at the time and on this site, was how far they could push it. I guess that question still has some relevance. Lets see if anyone can answer it this time - without being surprised. LOL

Nassim said...

'Why should a billionaire pay the same tax as a Jew?': Obama gaffes by confusing Jews with janitors in economy speech

A bad day at the teleprompter. :)

el gallinazo said...

Went into town yesterday on my moto. The rear tire was well inflated and hard. On the return trip, about a km from home, it suddenly went squishy and I had to push the damn thing the rest of the way. So I can feel some empathy for the USA equity markets when Vice Chancellor Roesler announce a little after 2 PM EDT that a leveraged EFSF was "off the table." Suddenly the market went soft and squishy all the way home.

scrofulous

Well I personally did not make a public prediction. However, I will admit that I am surprised that they could kick the can down the road as long as they did and at the number of trillions that they pissed away in the process. I had been looking at the 1929-34 charts. The Fed played a far softer manipulative hand then in propping up the markets. I figured that we would get a typical 6 month dead cat bounce and then anchors away. But 80 years ago the financial sector was far, far smaller than the industrial sector. Today the tail wags the dog. BTW, what was your prediction? Link?

Joe in NC said...

Nice chart in this article of the '08 -'09 market decline with "announcements" and programs timelines embedded:

Won't Get Fooled Again

Looks like we're at the beginning of a new period that will have plenty of announcements and programs.

Franny said...

Regarding timing and hyperinflation/deflation. This argument (or set of arguments) reminds me of taking my husband along for our baby's 4 month well baby visit to the pediatrician. Daddy proudly informed the doc that baby was pushing up and pulling herself along the floor, and questioned if she would be crawling soon. Doc does a polite eye roll and says "there are a lot of things baby needs to do first before crawling. Like sitting up." Human babies need to sit up before they can crawl. And the dollar needs to live through the great contraction of all of the dollar denominated unpayable debt on the planet before it can hyperinflate. That doesn't mean we won't see a lot of volatility in the dollar and other currencies, including gold, along the way. It is a bit silly to predict how long it will all take, given the Fed's ability to intervene, not only with QE but with who knows what other games.

Tim St.Germain said...

An interesting link from Financial Post. Click the link and listen to this guy...

http://business.financialpost.com/2011/09/27/anyone-can-make-money-in-a-market-crash/

Ash said...

Dave,

I believe the reason you are frustrated is that I really (like absolutely, seriously, completely) do not agree with your premise on short-term market movements. I'm not arguing with you to be a nuisance... this is something I've believed in and argued in support of for quite some time now. You and I even had a very similar debate about gold early last month, as I pointed out before.

Let's define "short term" to be measured in days and weeks. You argue that price and volume signals over this time frame can form a trend which gives us some significant insights into how financial markets will perform over the next few months or perhaps even a year, correct? For that reason, you also believe the current action in financials is something to take note of, because it may be signaling a huge "risk on" reversal in markets, most likely due to some major EMU deal that is, as of yet, still unknown to the public.

I, on the other hand, believe there is almost zero predictive significant in such market moves. If anything, I would place much more weight on technical analysis of long-term charts, and even then, I would greatly subordinate that TA to my broader theoretical perspective and its application to current developments. So, that's why I simply do not agree with you on that issue.

"I'm providing a point of view that suggests it MIGHT not work out that way this time either."

Fair enough, and I get that. However, I feel your point of view is misleading for the reasons stated before, and may lead people to take very unnecessary and unjustified risks, by either investing capital in the wrong places or delaying various preparations because they believe another "extend and pretend" repeat of last year is likely to occur. It is, of course, possible, but still very unlikely IMO. Again, I also believe you short-term price trend analysis adds almost no further insights into the probability that it will occur.

This is simply a perspective that I have held for some time now. That being said, I do appreciate you presenting your perspective to us in an objective and polite manner. I think it is very important to consider and discuss all possibilities in such a manner.

el gallinazo said...

Ash,

Why don't you think the USG and the Fed can't pull off another 2 years of extend and pretend? What is different from the fall of 2008? (I don't either, but I would like to hear your analysis).

Mercury4 said...

Ah Jack, the stock market has not been able to exceed its 2007 highs during the whole period of "green shoots recovery" and is currently going down if you look at the chart action.

Partisan said...

"el gallinazo said...Of the three, Stoneleigh's prediction was correct. She was surprised."

No offense, but thats kind of a semantic punt isnt it? She was only "surprised"? OK, under what circumstances would or could she have been considered "wrong"?


"El gallinzalo said...many of us did not foresee the utter recklessness of the Fed to extend tens of trillions of credit dollars to save the banks for a year or two..."

This sounds like a better answer in that it acknowledges that you are wrong, and (even better) explains why that was the case. Had this been Ilargi's position I would not have taken issue with it.

The whole reason I bring this up is because it sounds like something you would hear from some financial advisor trying to toot their own horn about how "accurate" they are when in fact their crystal ball is just as cloudy as the average joes. Guys like Jim Dent do this all the time, thereby duping the uninformed who think he is largely infallible (they arent aware of his dow 40,000 by 2009 call)

I know that TAE does not dispense financial advice. I get that, and I think their motives are pure. Still, at the end of the day, one needs to be forthcomging about their hits and their misses...and not only about direction, but magnitude. So if you say that the DJIA will hit 1K by the end of 2010, and if at the end of 2010, you are off by eleven orders of magnitude, its seems awful dubious to say you predicted the future "pretty accurately" by any understanding of the term.

Mercury4 said...

Ah Partisan, how many bad predictions from over-optimistic pundits?

"Dow 36,000"
"There is no housing bubble"
"The economy is in a new paradigm"
"The recession ended in 2009"

Nassim said...

...Pan Am stewardesses...

Yes, that does bring back the memories about travelling around the globe on PA1 and PA2 (the opposite way). However, the only notable thing about their stewardesses (I first typed hostesses, by accident) is that they reminded me of a little old American lady who I once knew.

scrofulous said...

El Gal

The only prediction I made was a pretty general one made somewhere on the oil drum back in 2006 in that if the market crashed it would notget up again due to just plain lack of energy to do so. I still think that and so far it has not done so!. Now unless of course Stoneleighs 'prediction' that there will be: "We could see a market cascade over the next few weeks, likely followed by a larger counter trend rally than we've seen since the May 2nd top.", is larger than the 2008 peak then my rather pathetic prediction still holds. Fancy that, eh, maybe I should get myself a Brooklenese accent and go work for Gerald Celente?

el gallinazo said...

Partisan

Minor point but off by only one order of magnitude. An order of magnitude is a factor of 10, so 1000 and 10,000 are one order of magnitude different.

Timing is always the most difficult with markets. Of course it is the life blood of traders such as that young sociopath who made such a splash on the BBC, but the purpose of TAE is to try to prep people for the long haul. If Stoneleigh does dream of the worsening depression, I would doubt that she salivates about earning riches from the suffering of others while doing so. Since the idea of the DOW at 1000 is so absolutely unthinkable to conventional thinking, I would you ask (as a former science teacher) would you give Stoneleigh partial credit if it happens in 2013 or 2014 :-) Her motto is better a year early than a day late when it comes to preparation.

YesMaybe said...
This comment has been removed by the author.
Nassim said...

el G,

The card I linked to previously is run jointly with the Australian post office. This card is run by an Australian bank and it has no fees for withdrawals from Mastercard terminals and no point-of-sale fees when you buy from a store or online. However, it has to be denominated in only one currency (e.g. US dollars).

I phoned NAB up and they told me that one does not have to be a customer of the bank to buy a card (around $20) - one needs only a passport to get one. The process only took me 10 minutes in Melbourne. The card is debited $1 per month if you don't use it for over 12 months - that is the equivalent of "banking fees", I guess.

Personally, I think it is brilliant. The downside is that it is only a matter of time before Homeland Insecurity blacklists people who are found to be carrying them.

Ash said...

El G,

Well, I guess the first place to start is with the underlying Fisher/Minsky/Keen theory of debt deflation, which has accurately predicted the private credit growth would once again accelerate to the downside in many developed economies. We are even beginning to see this occur in China, as its property/infrastructure bubble rapidly loses steam. So just based on those credit and housing fundamentals, it appears all of the combined efforts of the USG and Fed over the last few years have largely worn off.

I think it is safe to assume that the USG/Fed would need to implement significantly bigger stimulus/QE measures just to keep things from deteriorating further, and perhaps boost markets for awhile. However, these institutions have lost significant credibility and discretion precisely because previous measures were so ineffective and created very harmful price inflation and trade imbalances in other parts of the world.

So the US fiscal stimulus route is practically dead now that the conservatives control the House and debt was downgraded, and the monetary route carries great institutional risks for increasingly fewer benefits to either the real or speculative casino economy. The latest OT measure was even being called the "anti-stimulus" by some banks, as it merely shifts the Fed portfolio's maturity profile, without monetizing any new debt, and compresses the yield curve that banks rely upon for profits. Bernanke simply couldn't give them at anything more.

Of course, then we have the Euro sovereign debt situation, which has proven to be absolutely outside of anyone's financial or political ability to contain. Greece, Ireland and Portugal will continue to worsen no matter how many bailouts they get (which are not looking very likely anymore), and Italy and Spain are simply too big to even try to save. The sheer amount of sociopolitical opposition to any larger attempts to stabilize the area has become practically insurmountable, anyway.

Essentially, the only interventions that are feasible at this point are various easing measures by central banks, which may or may not be coordinated, and currency swap lines, and these simply have little to no effect any more. They perpetually disappoint the markets, which are looking for something HUGE which doesn't really exist. The predicament still remains one of solvency for people, businesses and governments, and there is no leveraged policy fix for that. Last year, enough people still had confidence that the solvency issues could be indefinitely pushed back until employment, consumer spending, business investment, etc. returned. Now, very few people are still subject to that delusion.

There are also more "intangible" factors at play here, such as the generally deteriorating social mood around the world, or the possibility for "black swan" destabilizing events, of which I would include any environmental disasters, or the fact that some elites may actually be encouraging a sharp deflationary crisis for their own personal benefit. Although, on that last point, I'm confident they would much rather prefer to "extend and pretend" longer, but that's obviously not a credible option. Those are all things to consider, IMO, but are much harder to factor in with a degree of certainty.

Generally, the entire system is just much more fragile and irresilient to destabilizing events, financial or otherwise, than it was in 2008, mainly due to the reactionary policies and bogus reforms of governments since then, along with the re-leveraging of the financial economy to unprecedented levels. The productive economy has also continued to deteriorate even as the markets were rallying, which means there is less of a cushion to stabilize the credit or equity markets when they continue cascading downwards. The people have been bled dry over the last few years, and now the system will pay the price for that.

progressivepopulist said...

From Ilargi's spot-on essay:

"We're talking about "saving" banks and countries for a limited period of time that have no chance of surviving beyond that time without ever more and ever larger financial injections. We're doing so with money leveraged on nothing but the future earning power of our children. And then we label this "stability", and claim we use it to restore confidence. Some logic."

Sounds not too different from the logic used to keep us fighting un-winnable wars in Afghanistan and Iraq.

Don't you see?!? We can't stop dropping debt bombs on these banks and countries or all the debt bombs we've already dropped will have been dropped in vain!

el gallinazo said...

Nassim,

It really does sound great. I particularly like the ability to lock in an exchange rate when you load it. On the downside, despite living near the Pacific coast of Mexico, it's a really exhausting swim to my local office in Melbourne :-) The web site gives no indication that they can be bought on line from people outside of OZ. Can't find anything half as good in the USA. So far my research indicates that Credit Unions give you the best deal on debit cards which pull out foreign currency from ATM's.

Eric in Cali said...
This comment has been removed by the author.
Eric in Cali said...

Do bank ratings matter?
Do bank accounts matter?

Online savings account @ The Washington Savings Bank = 1.5% interest. @ Ally Bank (former GMAC) = 0.99%. @ Chase = 0.01%

If all banks are equally weak, then why not just stuff whatever one has left in the FDIC bank with the highest interest rate?

Will all banks shut together, or will some limp along while others close? Is their any advantage to taking a lower rate at a safer and sounder bank?

Are demand deposits (0% interest checking accounts) safer than savings account deposits (which earn some interest)? Checking accounts often have fewer withdrawal restrictions.

I&S have often said FDIC doesn't offer protection. We all need some money in the banking system for the transactions of normal life.

I don't see how a system wide bank shutdown occurs in practice. The electric company is still going to want it's bills paid. So is the grocery store. So is the water company. How does that happen with banks closed and access to accounts frozen? It can't, therefore some banks must continue to limp while others don't. The sun will still rise and I can't see the lights going out for decades.

Eric in Cali said...
This comment has been removed by the author.
el gallinazo said...

"This out of Germany this morning "Andreas Vosskuhle, head of the constitutional court, said politicians do not have the legal authority to sign away the birthright of the German people without their explicit consent. He stated that 'The sovereignty of the German state is inviolate and anchored in perpetuity by basic law. It may not be abandoned by the legislature (even with its powers to amend the constitution),' There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit – which might be politically legitimate and desirable – then Germany must give itself a new constitution. A referendum would be necessary. This cannot be done without the people, he told newspaper Frankfurter Allgemeine."

Once you start talking referendums, the banksters can kiss their collective asses good-bye. Just look at Iceland.

Ilargi said...

About that trader:

BBC financial expert Alessio Rastani: 'I'm an attention seeker not a trader'

He's become the face of the global debt crisis and an internet sensation. The self-styled City trader who stripped away the jargon and bluster of the financial world and summed up our woes in just three minutes. "I go to bed every night dreaming of another recession," Alessio Rastani explained in a BBC interview. "It's an opportunity."

The soundbites won Mr Rastani instant fame. He became a viral hit and was trending on Twitter. BBC business editor Robert Peston was among the fans. "A must watch if you want to understand the euro crisis and how markets work," he told his army of 82,000 followers on Twitter on Tuesday.

The interview contained such gems as "Governments don't rule the world, Goldman Sachs rules the world [and] Goldman Sachs does not care about the rescue package."

But on Tuesday night the BBC was left facing questions about just how qualified Mr Rastani is to speak about the markets.

In the interview Mr Rastani described himself as an independent trader. Elsewhere he claims he's an "investment speaker". Instead of operating from a plush office in Canary Wharf Mr Rastani works and lives with his partner Anita Eader in a £200,000 semi in Bexleyheath, south London. The house, complete with a mortgage from Royal Bank of Scotland, belongs to her not him.

He is a business owner, a 99pc shareholder in public speaking venture Santoro Projects. Its most recent accounts show cash in the bank of £985. After four years trading net assets are £10,048 - in the red.

How a man who has never been authorised by the Financial Services Authority and has no discernible history working for a City institution ended up being interviewed by the BBC remains a mystery.



.

Eric in Cali said...

Centralized Power or Dispersed Power?

The agrarian small town community doomstead model seems dependent on power dispersal following waterfall market crash. James Howard Kunstler has often said he doesn't expect the federal government will be able to answer the phone.
He predicts better times in small towns with more people involved in agriculture.

That seems a Utopian future to say the least.

I see the opposite. I see the centralization of power. I see an authoritarian response supported openly by the vast middle and lower classes in exchange for the provision of basic necessities. I see growing urban slums and I see older suburbs closer to urban areas repopulated--people will move to the places that provide basic services. I see Bayonne, NJ returning to 1930 population levels and beyond.




I don't see how an agrarian community based doomstead would work in an era of liberty stripping authoritarianism.

Ilargi said...

Partisan said...
Ilargi said...we've predicted most of what's happening now pretty accurately...Not predictions of the exact timing, but that's not the essence"

Isnt timing in fact THE essence of your predictions?


No, it's not.



.

Ash said...

re: Nassim's card

Isn't their a downside to locking in an exchange rate when you load the card? For example, if you load it with USD and lock in a rate, and then the USD appreciates relative to many other currencies afterward, wouldn't you be missing out on the increased purchasing power for foreign goods? So, ideally, I imagine you would want to load it up with a currency which is likely to be devalued in the near future (such as EUR), and then convert into stronger currencies at the previously locked in rate?

progressivepopulist said...

Eric,

Seems to me that there will be trade offs. I agree with you that in the large urban areas access to energy, limited public services, public transit will be available in exchange in part for acquiescence to the authoritarian state (along with other goods and services for those who can afford them).

In rural areas I would expect to be more or less left to my own devices (be they individual or communal) so long as I/we don't engage in any rabble-rousing or boat-rocking. Living as I do in a rural area, and having considered the relative merits of urban vs. rural, I'm not sure that I see why/how the rural lifeboat homestead wouldn't work. Could you clarify?

Ash said...

re: the trader on BBC

Frankly, I don't care who he is or what his qualifications are. The fact is that he spoke a good deal of truth, and that's a good thing. The BBC is now saying that he was vetted properly and he is who he claims to be, but, again, who cares? He sounded like a greedy, selfish scumbag to me, but he spoke some well-needed truth about the state of the global economy, and that's really all that matters.

Eric in Cali said...

I just spent the weekend along the northern CA coastline.

I noted that the state of CA was spending an incredible amount of money to prevent Coastal Highway 1 from sliding down a rock face into the Pacific. I wondered how much return on investment these road improvements provide. I watched fuel trucks driving the highway and wondered how difficult it would be for these communities to obtain basic necessities of life should the state decide that the road maintenance was no longer feasible. Could these small isolated communities maintain these roads without state support? Not a chance.

It extends way beyond maintaining roads and the shipment of basic necessities. How about the miles and miles of power lines over remote mountains? What's the EROEI there? What about clean water? What value would there be in sending inspectors long distances to ensure maintenance of basic sanitary rules? How about postal service? How about medical care and medical supplies? These are not items that can be easily bartered in small isolated communities, no matter how closely knit.

el gallinazo said...

Ash

RE Nassim's card

It appears that they give you the option. If you lock and it's a bad call, then yeah, you pay the consequences. It's a karma kard. But it's nice to have the option.

Re the BBC trader

Agree with Ash on most points. But it is interesting that he is a far less successful scumbag than he presents himself to be, particularly as he makes the claim that any armadillo can make a fortune in a crashing Ponzi. Since most credit, i.e. pseudo money, disappears into that alternate universe, it's not so easy even for the spiritually challenged.

Ash said...

El G,

"The only thing that we disagree on is the odds of the MotU pushing this leveraged TARP through the parliaments. As I said, they are batting 1.000 so far. Name one country where they have failed. And I see no signs of a reduction in their ability to bribe MP's."

Just saw this comment, and it seems you have illustrated with other comments within this thread why the odds may be significantly lower than we would think based on past "successes". Between the legal barriers, German political opposition and internal dissent within the organizations allegedly spearheading the operation, it seems this expanded, leveraged "stability fund" is not going to get off the ground at all. Markets are starting to figure that out.

Ka said...

El G,

I think Bancomer offers some kind of dollar/peso account for gringos who live or even just travel a lot in Mexico. With a peso debit card. Don't know if this meets your problem, but might be worth checking out.

progressivepopulist said...

Eric,

"Could these small isolated communities maintain these roads without state support? Not a chance."

-The answer to these questions will vary according to location. Rural doesn't always equate to isolated- I'm five miles from an interstate and 17 miles from the I-26/I-40 intersection. Though I will grant that in some areas this may well represent a significant problem.

"It extends way beyond maintaining roads and the shipment of basic necessities. How about the miles and miles of power lines over remote mountains? What's the EROEI there?"

-Again, similar issue though power line maintenance in many areas requires less energy/resource investment than Highway 1- poles are renewable and lines don't degrade at a very fast rate.

"What about clean water? What value would there be in sending inspectors long distances to ensure maintenance of basic sanitary rules?"

-In the mountains we have an abundance of fresh water (not something one could say about a number of large urban areas or many rural areas for that matter). As to sanitation, where gov't fails to enforce sensible controls, communities will.

"How about postal service?"

-This may be an issue to some extent, but the only important mail we need to receive are bills (frequently) and checks (infrequently) and I'm sure that many of these challenges can be solved with adaptations from prior eras.


"How about medical care and medical supplies?"

-Doctors do live in many rural areas too, and as for access to supplies and access to care in general- this is now and will likely be more so in the future an issue that is mediated by one's ability to pay (an ability that is rapidly being undermined for an increasing number of citizens both rural and urban).

"These are not items that can be easily bartered in small isolated communities, no matter how closely knit."

-Again trade offs apply- here in my rural area increased access to food, water, wood for heating, and shelter are significant pluses. Additionally, we may well find ourselves living in a condition of greater physical security, greater social cohesion, and we do live in a place where there is still a living memory of life in a largely cashless local economy. I don't mean to downplay the numerous challenges that we are likely to face here, but the last time I lived in an urban area, my apartment was broken into once, my vehicle twice and I can only imagine that the future will bring with it an abundance of urban dangers such as: communicable diseases, riots/civil unrest, industrial pollution, police violence, food shortages, energy shortages/power outages, and who knows what all else.

You buy your ticket and you takes your chances. IMHO, living rural places more of the burden of my success on my own ability to work hard and learn/employ basic skills, whereas living urban leaves much to forces beyond the control of any one peasant.

lautturi said...

Nigel Farage had a field day today in EU parliament.

Greece fundamentally has no problems because it's a member of euro zone. Hilarious! Juncker (spelling?) appears like a worm in a hook...

progressivepopulist said...

Eric,

One additional point: my expectation for urban areas (though there will certainly be variation here too) is that many will come to resemble urban areas in developing countries. I haven't been to too many, and I'm sure that San Francisco will not soon come to resemble Manilla, but I would expect: shanty towns; significan increases in organized crime; massive political and police corruption; extraordinary pollution of air, soil and water; poor access to healthy foods; decreasing social cohesion; and all the resulting depression, anxiety, rage, domestic violence, substance abuse, disease, etc that comes with such cities.

progressivepopulist said...

Thanks lautturi, that was 4 min, 27 sec well worth watching.

el gallinazo said...

Ka

re Bancomer

Thanks for the suggestion. Started to research it and I came across some riveting stories like this one:

http://tinyurl.com/4ydzvqa

They do have special services. This may be one of them :-(

Ash said...

I just watched a fascinating presentation/discussion between Christian Parenti, author of "Tropic of Chaos", and David Harvey, a renowned Marxist historian/sociologist. Parenti's new book essentially takes an in-depth look into the somewhat attenuated, but very real relationship between climate change and societal violence in the global south (mainly Latin America and Africa). It presents a very unique way of looking at the serious and somewhat imminent threat posed by climate change, by recognizing it as a crisis which is converging into many other pre-existing crises, such as the cold war militarization of various post-colonial regions and the rise of neoliberal economics and finance in the West. I haven't read the book yet, but after listening to the discussion, I plan on doing so very soon.

Christian Parenti in Conversation with David Harvey

jal said...

Can the EU do its "Leveraged Stability" fund?
It looks like a coin toss.

If they don’t then China might step in to buy time. Their own agenda will determine the path that they chose.

Pesek: China as J.P. Morgan Might Have to Save World
http://www.bloomberg.com/news/2011-09-27/china-as-j-p-morgan-might-have-to-save-world-commentary-by-william-pesek.html

Amid all the doubt and despair, here is one thing we do know: Keeping Europe together, if it’s even possible, will be monumentally expensive. Christine Lagarde’s International Monetary Fund is supremely out of its league. Its $384 billion lending chest would barely be enough to save Greece, never mind Spain or Italy. The IMF needs a bailout.

And so it’s come to this: Asia, flush with trillions of dollars of cash, is being cast as the potential savior of global capitalism. Being thrust into the role of a modern-day J.P. Morgan, the New York financier who restored order amid the Panic of 1907.

Now that German taxpayers are having fits about coughing up more to bail out their single currency’s weakest links, Europe is looking East. People’s Bank of China Governor Zhou finds himself saying it’s “too early” to determine how emerging economies can help the euro area overcome its sovereign-debt crisis. Yet he knows this is a matter of “when,” not “if.” The BRIC nations -- Brazil, Russia, India and China -- have $4.3 trillion of reserves, and Europe, a major trade partner, needs money.
That might calm markets, but it won’t reduce the need for major reforms. Why begin the messy process of creating a fiscal union among 17 members and generating a euro-wide bond issue if Asia’s money can buy time? Giving Europe the scope to again delay economic upgrades won’t do anyone any good.

Nassim said...

I can't see the lights going out for decades.

Eric in Cali,

A lot of people think like you - because something is dreadful then it cannot happen. Unfortunately, it does happen. Surprisingly, life does go on without electricity, banks, petrol and supermarkets. People have an amazing innate ability to adapt - even Americans.

Nassim said...

Isn't their a downside to locking in an exchange rate when you load the card? For example, if you load it with USD and lock in a rate, and then the USD appreciates relative to many other currencies afterward, wouldn't you be missing out on the increased purchasing power for foreign goods?

Ash,

When I buy and load it up with 1000 US dollars - paid for in Euros - I would need to spend today around 1000/1.35 = 740 Euros. If the dollar goes up against the Euro and reaches parity, I could, in theory, sell my $1000 and get back 1000 Euros - a profit of 1000 - 740 = 260 Euros. Revaluing a currency always makes foreign goods cheaper.

When I lived in Paris, you could almost tell whether the dollar was high or low by the number of young Americans buying daiquiris, margaritas, B52's and so on at the bar. When the dollar was up, these bars did a good trade.

YesMaybe said...

Ash

Thanks for that link! I love David Harvey. I'm always shocked, though, when I hear an intellectual say "I don't believe in peak oil". It makes me doubt his basic competence at research and forming conclusions. There must be something good there, since Harvey is into it, but this is some serious cognitive dissonance.

John Day said...

I've been trying to post for a couple of weeks, but getting "unauthorized" messages. Sigh...
Trying again.

davefairtex said...

Ash -

"You argue that price and volume signals over this time frame can form a trend which gives us some significant insights into how financial markets will perform over the next few months or perhaps even a year, correct"

Not correct. We still don't have agreement on what we're disagreeing about yet!

Short term trends are meaningless for our purposes here. I'm not interested in them at all.

I'm talking about identifying reversal patterns in long term trends. Perhaps this is all trader-speak and since we use different vocabularies, that actually impedes communication. So....let me explain (and I hope those bored by this can hopefully just use that little scroll wheel...and not be too offended by my verbosity)

A trend is established when there is a series of price movements that tend to go in one direction - down, or up. Moving averages help identify trends. You can also identify a down-trend, say, by a series of lower highs and lower lows. A trend continues until it reverses.

At this site, we only care about trends lasting months to years, so we only pay attention to trends in the "daily" domain, where each point is one day. Short term trends are seen on charts where each point is 1 or 5 minutes; we don't care about them.

So, I'm focused on long term trends. However, trend reversals can happen over a relatively short timeframe - days or weeks, depending on the intensity of the reversal. A reversal changes the momentum, from up to down, and vice versa.

Moving averages are used to help identify reversals; when a price crosses a moving average, its generally seen as being significant.

So why on earth might we care about prices, trends, reversals and all that trader crap? Won't the system die in debt deflation? Well sure, but when? And where are we on the path? Timeline and progress are both important - some might say critical.

My theory says, prices (over the longer term) represent an aggregate level of faith in the thing being charted. That's why prices matter. Why on earth would someone pony up real money to buy something if they didn't have faith it would either stay the same or appreciate over the expected holding period?

So for me tracking long term price trends is tracking faith. And right now, it is crystal clear that faith in banks is declining, and has been since mid-March 2011. It got a bigger kick downhill in mid-June when the 50 ma crossed the 200.

Might this trend reverse? It doesn't make any sense to me - I too believe the theory about debt deflation is valid and the banks will likely die off. And right now I am not sure how this can be altered given politics in the eurozone.

But after my experience in 2009 when much to my surprise the faith in the system was restored (and that restoral was first visible in the reversal of the downtrend in financial companies), I'm tracking prices to see how faith is doing. I would prefer not to be surprised again.

To me, it is perhaps 60% likely that DB will hit its 50 dma and then continue downhill - and the downtrend (and loss of faith) continues. But if that doesn't happen, I want to be the first on my block to know about it rather than wonder 2 months later, "hey, so what ever happened to the apocalypse anyway?"

Perhaps in the car trip of life I'm the guy who always asks, "are we there yet?"

Eric in Cali said...

Post collapse real estate and Coal:

What parts of the country will make good real estate investments post financial collapse. I'm interested in:
Geography, economic history, and economic projections.

Based on these factors, West Virginia coal regions seem poised to ultimately become major centers of activity.

Why?
If financial collapse leads to a breakdown in globalized trade links, then cheap domestic sources of energy like West Virginia Coal will become valuable.

If we assume than financial collapse will lead to a wholesale gutting of environmental regulations in the US, then West Virginia Coal will hugely benefit.

For example, most (40%) of the nation's coal supply is currently derived from sub-bituminous coal mines in the Powder River Basin geological formation of Wyoming and Montana. However, it is currently only economically feasible to mine this coal due to enforcement of the Clean Air Act and its requisite removal of sulfur dioxide pollution. Prior to these regulations this Wyoming and Montana coal was worthless:

See wikipedia:
Powder River Basin coal is classified as "sub-bituminous" and contains an average of approximately 8,500 btu/lb, with low SO2. Contrast this with eastern, Appalachian bituminous coal containing an average of 12,500 btu/lb and high SO2. PRB coal was essentially worthless until air pollution emissions from power plants became a concern. A coal-fired plant designed to burn Appalachian coal must be modified to remove SO2 at a cost estimated in 1999 to be around $113 per ton of SO2 removal if it switches to burning PRB coal, and $322 per ton of SO2 removal by installing scrubbers.[4]
----------------

If we further imagine that gutting environmental laws will allow mountain top removal, then the barriers to economic coal extraction in Wyoming will be further reduced. This could be the future US energy hub.

jules said...

Thankjs agaion for an other great read. If this hair brain scheme sounds likme utter tosh edven to outsiders then why does the market rally 6 percent?
i'm just worried that we get another nauseatinmg rally, thew sooner the crash, the cooner we can get on with things. WE all know its toast like the tarder but I am just mazed its held up this long. Its difficult to carry on with anything until its over. I am also amazed at the commenst by Ambrose in that he believes it will, work. Thbis guy is like a high tech piece of electrical equipment with a loose wire, he starts off writing amazing things witha lot of insight and then it all goes wrong and he believes in the KEYNESIAN claptrap. he even said the US had to show the e3uropens how to do it like he4 believes the US is a role model.
Unbelievable. he goes from intellectual to complet moron in one sentence.

davefairtex said...

Ash -

One more thing. We talked about gold a while back; I feel recent price movements in gold have demonstrated to me pretty conclusively the impact of margin deleveraging.

The gold bugs may say it was just central bank selling; if true, then why did they wait until now to pull the trigger? Why not simply execute this super-effective selling program at any point? My theory is, margin calls added some sellers but more importantly, it took out all the buyers; when all you have are sellers, the price drops - really fast as it turns out.

All the central bank selling did was accelerate a process already in motion that would have played out anyway. If you look at the chart for copper, that waterfall down is to me is a pretty good proxy for what would have likely happened to silver and gold during this deleveraging period without central banker attention.

What remains to be seen is if we will have continual waves of this, and when the flight-to-safety non-margined physical buyers (including asian central banks) will end up putting a floor on the gold price.

Perhaps the buck will tell us the answer. A continued rise in the dollar may be the clue that deleveraging is continuing, and that will continue to remove margined buyers from the gold markets.

Really interesting times we live in.

Eric in Cali said...

The Benefits of Moutain Top Removal:

What mines in West Virginia would become most profitable if Mountain Top Removal restrictions were reduced or abolished? We all know Mountain Top Removal is inevitable. With restrictions and regulations cleared from the table, the area will open up to jobs, investment, and a real estate recovery. This is all post financial collapse of course.

Eric in Cali said...

@ el g,

Hi El G,
Have you decided where to invest your post waterfall savings? As Stoneleigh has said, the deflationary strong dollar stage will probably only last 1-2 years. 2 years goes quick and I think we as a community of commenters should be laying out our plans for post collapse investments now. I think it's important to anticipate the next phase and what we'll do before it arrives.

Alessio Rastani said...
This comment has been removed by the author.
Stoneleigh said...

Comments temporarily closed as we're travelling today.

Outreach said...

If bondholders and banks take a haircut it's supposed to be the end of the world as we know it. The U.S. Fed used the world's reserve currency to create 2 Trillion bucks to save the American banks. Who do you think has to pay that back? Our children, that's who. So they told Europe, all you have to do is take the $450 billion in the EFSF and magically turn it into 2 Trillion Eurobucks by entering a higher number on their computers. Magic presto! Now they can use the new 2 Trillion Eurobucks created by new debt to pay off the old debt. No wonder they call it high finance. These guys must be freaking high as a kite. So the average person in southern Europe has to watch their taxes go up and their wages and pensions go down while we pretend that it could never happen in the Great White North. We are told that's what happens when you play with Socialism while at the same time we give future taxpayers' money to investors and banks. We fearfully accept this pain because the guys with the big fancy words threaten us with worse if we don't. Their idea of pain is a 50% haircut on investments while lose our pay, jobs, pensions and homes. Stupidity and fear.

lautturi said...

Finnish parliament bends over for EFSFSHTF (whatever) today (with 103 yes-votes vs 66 against - and 30 MPs didn't even bother to show up). 136 promised a no-vote before elections but who's to remember that far. Even all the lefties voted yes...

LOL

Didn't see that one coming (time to go under the bed with a bottle of whiskey).

Ash said...

Dave,

"Not correct. We still don't have agreement on what we're disagreeing about yet!"

That's not correct. Granted, I wasn't very clear in framing your argument properly in my last response, but I knew exactly what your argument was re: short-term price trend reversals. Needless to say, nothing has changed since then, and I still 100% DISAGREE.

"My theory says, prices (over the longer term) represent an aggregate level of faith in the thing being charted. That's why prices matter. Why on earth would someone pony up real money to buy something if they didn't have faith it would either stay the same or appreciate over the expected holding period?"

Well, if we leave aside obvious attempts at manipulation by influential players (i.e. pump and dump), which are typically a part of any ponzi scheme (i.e. the entire global economy), there's still the problem that people's aggregate confidence or expectations do not translate into those expectations being validated. In fact, many times the opposite occurs. Patterns in longer-term charts may be instructive, but that's not your argument at all. You are talking about "short-term" (days and weeks, as I defined before) trend reversals and the "probabilities" that these short-term movements imply for future price action.

Frankly, I think your argument in this regard is complete nonsense (your other argument about a sustained divergence between news flow and market action has at least some credibility). It basically boils down to, "I'm looking at short-term price movements and, based on how they relate to longer-term price movements, they may or may not signal some randomly generated probability of what's going to happen in the future, so we should keep watching, and if the reversed trend doesn't hold, then... oh well". OK great, keep watching, but you have provided no further insights into what people should really be expecting as likely to occur in the next few months or year.

"We talked about gold a while back; I feel recent price movements in gold have demonstrated to me pretty conclusively the impact of margin deleveraging."

I'm glad they're telling you that now, but that doesn't do you much good if you had been listening to yourself last month and had sold dollars to buy gold, because the price movements were telling you that the former was not acting as a safe haven asset while the latter was. I don't think there is any need for me to go back to that comment thread and start busting out quotes...

el gallinazo said...

@Outreach

You should get your terms "socialism" and "fascism" straight. Fascism is when corporations take over and subsume the roll of government (as defined by il Duce himself). Corporations play no or a small role in a socialist state. Most libertarians make this mistake. They seem to be afraid to use the F word, with some notable exceptions like Gerald Celente.

Lautturi

Does this mean that the Finnish parliament will not order Olli Rehn to be tarred and feathered for treasonous activities? The so-called left is even more bought and paid for by the banksters than the right in the Eurozone (and Usanistan as well). Merkel is relying on the Social Democrats to override opposition in her own party.

lautturi said...

@ el G

It appears they agreed on some details about the law and not JUST YET flashing the green light for the BS-factory. Quite a buzz about the situation now... Prime Minister Cash already saying the EFSFSHTF thingie won't be active on secondary market.
LOL
Like the EFSFSHTF was going to bow to his opinion.

When it comes to Rehn, I don't think the puppet intends to return to Finland any time soon (good riddance). Welcome to Moneycracy (somebody please translate the word "money" into some sophisticated Greek word).

jal said...

There is only one question that needs to be explored.

Why won't the bankers, edge funds, pension funds, mutual funds etc., take their haircuts?

High finance is the dirtiest kind of warfare. There are no friends. There are only competitors, conquerors and losers.

Financial alliances are temporary and made to be broken at the first clear signal of being able to be first.

Look at a bike race, for an example.

A group of bikers break away from the main pack, they cooperate to maintain their lead, and at the last moment its every man for himself.
jal

Ash said...

lautturi,

Don't worry, there is still plenty of barriers to the leveraged EFSF. Mainly from the country that would end up bearing almost the entire burden of contribution and subsequent losses - Germany.

It also appears that another person has bucked the "extend and pretend" party line in public, and this time it's not some unknown trader on BBC, but the head of UniCredit bank.

http://www.zerohedge.com/news/step-aside-bbc-trader-head-unicredit-securities-predicts-imminent-end-eurozone-and-global-finan

TD:"Either the YesMen have infiltrated Italy's biggest, and most undercapitalied, bank, or the stress of constant, repeated lying and prevarication has finally gotten to the very people who know their livelihoods hang by a thread, and the second the great ponzi is unwound their jobs, careers, and entire way of life will be gone."

The other possibility is, of course, that this Op Ed was written to create fear and support passage of a huge bailout plan, such as the leveraged EFSF. But, after reading it, this seems unlikely, since it basically spoke of EMU collapse and financial contagion as a done deal, no matter what policymakers do.

lautturi said...

Ash, I agree - many problems for EFSFSHTF to be realized (thanks for the ZH linkie). Still the BS appears endless, how was it - "hope springs eternal"?

I feel I'm beyond worrying - though obviously I'm occasionally taken off guard by how politicians defy laws of physics: you can push them with a string. (^_^)

Golem XIV had a "nice" guest post today. Our leaders are indeed beyond redemption...

lautturi said...

The next one from Golem himself is even more sobering:

Last night I heard from a banker friend that people in Germany are beginning to get a somewhat incredible letter from HVB (Hypovereinsbank – now part of UniCredit). The letter says – and I have not seen the letter myself, so you may chose to hold this as ‘rumour’ for the moment – that HVB offers to increase to 3% in the interest paid on their account, IF they agree to let the bank hold their money without being covered by any government deposit scheme.

It’s so bizarre you have to think about it for a second. Why would UniCredit ask its customers to do this? I asked my friend and the answer is simply. Banks are required by Basel 2 to retain in the bank around 8% of any deposit as their contribution to the deposit insurance scheme. If a depositor will waive this protection the bank gains a massive 8% new money to invest. Out of this 8% it can afford to siphon off 1% as the incentive for the depositor
.

Ash said...

lautturi,

Thanks for the Golem XIV link. I am very surprised that I didn't even hear about this before:

"What Hungary did on 19th September was to pas a law allowing Hungarians who took out loans in Swiss Francs, which they cannot now pay back, to pay back the loan in Florints at a heavily discounted exchange rate. The discount will be up to 22%."

I guess Hungary either does not have any Constitutional rules against unilaterally changing the terms of private contracts, or does not care about following such rules at this precarious time? Fine by me. I'm sure he's right that this move had a lot to do with the outburst by the UniCredit head in the Hungarian paper. The move by the Hungarian Parliament is very significant, and could even be called a "game changer" if it holds up. More info:

http://www.ft.com/intl/cms/s/0/22904922-e835-11e0-9fc7-00144feab49a.html?ftcamp=rss#axzz1ZGSZ9iqI

seychelles said...

Ash
More power to the Hungarians and let us all hope that this is the little pebble that starts an avalanche. An end to situational ethics (i.e. no ethics) for banksters vs toe the line sucka for those on the gerbilwheel.

el gallinazo said...

Looking at the world equities markets, I think the old refrain, "The Thrill is Gone" is most fitting. Some alternative pundits ascribe the flash rally to Steve Liesman of CNBC. Others claim that it was a giant profit taking short squeeze. Strange how names can often dictate character. I knew a ob/gyn doctor named Goldfinger. If the Liesman explanation be true or even partially so, it just demonstrates how mentally dysfunctional the equities markets are now that they are approaching a seppuku moment.

In the USA the giant pension fund managers are totally screwed, at least in terms of career path. They need an 8% return on investment to keep up. And where can they hope to get it? Only in ultra junk bonds and trading stocks and commodities. And these are the same geniuses who bought worthless toxic waste MBS's from Goldman after the handwriting was on the wall with anyone with three functional neurons to see. But the operational word is "hope" as in hopium. They desperately need a liquidity rally, caught between Scylla and Charybdis, two more Greek monsters for the price of one.

A major part of repair plumbing is the acute observation of exactly how a toilet flushes. This can sometimes indicate whether a problem is in the venting or a waste blockage. Regarding the Eurozone, I would say the flush is now damn near the center of the vortex. The PIIGS must default on their sovereign debt and leave the Euro. It is not enough to simply default on their debt as they cannot adjust their currency to reflect their individual economies while locked into the Euro.

A Euro wide save of the giant banks appears to be politically and legally impossible now. The only way these banks can be spared from immediately obvious insolvency and functional collapse is by TARP actions by their individual governments. But can the national banks such as the Bundesbank print euros? I think not. They would have to sell more sovereign bonds to finance the bankster bailout. Germany could for the moment, but can Spain and Italy? Checkmate?

Or they could take a page out of Abe Lincoln's playbook and start printing greenbacks.

p01 said...

For those who don't have FT subscriptions, google the title of the article:
"EU urged to probe Hungary mortgage move" then go to FT link. This way all FT articles can be read, if you know the title or the keywords to google.

I wonder what the discount is for those who did not take loans in CHF, and how long before everyone wants a discount on their debts. Also those who don't have debts might chose to take some assets for free, once this spirals into debt forgiveness. I could be wrong, but in Eastern Europe if some get something for nothing, everybody will feel entitled to oblige, and do the same -by force if necessary.

Painful or not, bankruptcy for all impossible to pay debts (predators and prey) is the only way out without major, and I mean major social conflicts.

jal said...

el gallinazo said...
"In the USA the giant pension fund managers are totally screwed, at least in terms of career path. They need an 8% return on investment to keep up."

Its a bike race ...

Right now its all about the lead group jocking, ( or should I say joking) for position

at the last moment its every man for himself.

jal

jal said...

p01 said...

"how long before everyone wants a discount on their debts"

Your answer is in the US mortgage forgiveness plans.
They will never willingly give a jubillee.
There is no one who can force them to give it. Organized default requires someone to impose a decision of which investors will be winners and/or losers.

jal

davefairtex said...

Ash -

Ok, finally we're at least talking the same language. You think what I say is complete nonsense? Well for my part I simply disagree with you. But I'm comfortable dropping it now.

As for gold, last month it looked like one thing was happening. This month, it looks different. I was not suggesting people buy gold at 1900 and sell dollars, I was observing that people were buying gold and not dollars. One is advice, the other observation. I absolutely don't advise people.

If it seemed to you like I was giving advice, then I need to exercise more care in my choice of words. Perhaps you could help me out, and go bust out a quote and show me where it looked to you like I was advising someone to buy gold at 1900, so I don't make that mistake again?

el gallinazo said...

And don't forget the huge loans that the Swedish banks made to the Baltics. Since Sweden is not in the Eurozone, less attention is being paid to this. But when the Baltics finally explode (and their debt peonage may be the worst in the EU at the moment), the Swedish banks are toast.

Punxsutawney said...

Eric in Cali

How will these small towns survive?

The same way they did in the late 19th and early 20th centuries. Yes, you most likely won’t be able to jump in a 6,000lb truck and travel 20 miles to get a lobster dinner or an ice cream cone, and then back the same evening, but people can and did survive. It just means keeping stores of canned and dried foods and eating fresh that you grow. Yes the so called “standard of living” will be lower, but with the demise of fossil fuels that’s to be expected.

Gravel roads are much cheaper and easier to maintain than asphalt and work just fine for wagons. The coast here in Oregon is riddled with them.

Also, few people realize that up into the 50’s there were a number of railroads from Portland / Willamette Valley to the coast here as well. Lots of people took them to go to the beach on the weekends. Since auto transport became popular they fell into disuse, but theoretically could be rebuilt. A transcontinental railroad was built in this country using manual labor, and there will be plenty of manual labor available. No reason to believe it can’t be done again, assuming any resources remain, and we aren’t too busy trying to kill each other or steal each other’s last crust of bread.

The hard part will be the re-alignment of expectations of the population, and the will to work together to the most positive outcome possible. And so many variables to play out including to what extent technology may still play a helping hand to make a prediction of what will happen with any certainty, but people adapt, it just most likely won’t look like anything we have now.

p01 said...

@jal
That's why you're damned if you do the right thing (bankrupt everyone who cannot pay their debts, period) damned if you do the wrong(est) thing (bailout the banks of all people).
Hell breaks lose either way, and the derivatives just hover there like the alien ships from Independence Day, waiting to obliterate everything, everywhere, in a coordinated fashion.

That's also why I did not answer to your question about influencing a politician to find a "solution". There is no solution. ;)

Frank said...

Icelandic Riot Police Quit

The story, courtesy of Google Translate and several Icelandic acquaintances:

The new session of the Icelandic Parliament convenes Saturday. A demonstration is planned.

Iceland of course does not have a dedicated riot squad, but each of the four largest municipalities has a number of officers trained in crowd control. This is special duty, for which cops volunteer in exchange for brownie points and probably other bennies.

Last week the cops union got the short side of an arbitration award. As of last night, more than half of the riot squad has 'unvolunteered'.

This is of course Iceland. To the best of my knowledge, the worst violence yet has been the wife of the previous prime minister getting a pie in the face.

Ash said...

Dave,

Exactly, we simply don't agree. I hold strong opinions on this issue, because I believe your mode of analysis can be extremely misleading. I did not accuse you of actually advising people to sell dollars and buy gold (i.e. buying gold with your dollars). Most people here do not give out specific financial advice like that, because that's just never been the aim of the site, and I applaud you for not doing so either. However, the method of analysis we use and resulting predictions we make can easily influence people to make faulty decisions that negatively impact their extent of financial and/or physical preparation for a deflationary collapse. I believe this is especially true when the analysis focuses on short-term price action, which is what you were doing last month with gold, and what you are also doing now with financials.

I even took the time to write an article about this issue earlier in the year, analyzing economic/financial predictions in the context of "perturbation theory", which is commonly applied in physics:

The Perturbational Path of Human Civilization

We spend a lot of our time thinking about how much prices for specific goods will rise or fall next week or next month, and telling others what we imagine will happen. What kind of return will gold provide by the end of the Summer, or how about some local real estate?

Perhaps we are wondering how U.S. and European stock market valuations will be affected by the ongoing disasters in Japan, or the worsening sovereign debt situation in Europe. We ask people to tell us where and when the next Middle Eastern revolution will break out, and exactly how the global community will respond. In the final analysis, the "predictors" just end up using the same speculative "value at-risk" models that global financial investors followed right off of an economic cliff in the first place.

Instead, we should content ourselves with knowing the generalized "solutions" derived from perturbation theory, and embracing its shortcomings. We start with the biggest influences on our global society and work our way down, until it becomes meaninglessly complex to continue. The size of the influence must be measured by its approximate timing and its systemic impact, which is largely rooted in the scope of the system which it affects (financial, industrial, environmental, etc.). We attempt to "calculate" the general pressures that will be exerted on civilization's path by each influence, adjusting the path's course as new influences are incorporated.


According to me, factoring in short-term price action to calculate our longer-term path, whether such action is a reversal of a trend or not, is something that is "meaninglessly complex" to do.

p01 said...

@el gallinazo
I don't know about the Baltics, but the implosion has started in Romania, and the fallout is going to be huge, it has the potential to destroy not only communities, but divide families into small warring clans. The signals I get from there are terrifying, everyone envies everyone who still has his nose above the surface, and also blames them for their own downfall. It's the Balkans, so it comes as no surprise.

Jack said...

davefairtex
I dont know about finding a quote of you saying to buy at 1900 but it did sound like you were on the side with those HI people like Max Kaiser

Partisan said...

"Mercury4 said...
Ah Partisan, how many bad predictions from over-optimistic pundits?"

Oh in the thousands im sure. I agree with you though, those "bad" predictions, be them overly bullish or overly bearish are not "early" they are just "wrong", and its really disingenuous for them to think they predicted things "pretty accurately" because timing doesnt matter.

Partisan said...

Ilargi said...No, it's not.

Ok if timing is not important for predictions, I feel much better about saying this.

I like to dabble in weather forecasting, and one of the models I trust says all of north america is in for a massive, crippling coldwave/snowstorm starting tomorrow. The meterology community dismiss this as a "blip" but they are the sheeple/herd so its best not to listen to them and immediately prepare as follows:

1. Tomorrow AM, bring your heavy coat, hat, gloves, etc with you wherever you go. People may laugh at you and wonder why you are bundled up when the cold is months away, tell them that "timing doesnt matter" and they should do the same thing. Trust me, they will thank you soon enough...if not tomorrow, certainly in a month or two.

2. For those in the northern half of the continent, you might as well not send your kids to school as the snow will clearly be too deep by tomorrow evening to retrieve them. In fact, you might as well pull them out for the full week, perhaps longer, since even if I am wrong, the snow is inevitable and timing doesnt matter. Tell the administrators you will put them back in in the spring when the last risk of snow has passed.

3. Farmers, you may think you have time to wait til all your crops harvest. You do not. Go out right now and harvest everything. Sure some of your crop may not be ripe, but you do not want to "wring every last nickel out of the system", (oops I meant, wring every last day out of the growing cycle) do you? Sure, the sheeple may wonder why you are doing this now, but since timing doesnt matter, tell them you would rather eat/sell unripe produce than risk it by leaving it out too long. After all, as I always say, its better to be "2 months too early than 2 minutes too late"...

While I may be "surprised" in that all of the things I say may not come to pass tomorrow, but do you really want to take that risk? And if any of that doesnt happen and you come back tomorrow to tell me so, just remeber, I was not wrong, just "surprised".

In fact, whether the snow comes tomorrow or in January, given that it is indeed inevitable, and that timing doesnt matter, I would say my prediction is "pretty accurate" overall. So I will be back to take my victory lap tomorrow.

Ilargi said...

Partisan,

Want to talk about"really disingenuous"? Look at yourself. I don't like people bending my words to suit their agendas. And I have no intention of reacting to those who do. I may delete their twists though.

Telling people what will happen is more important than telling them exactly when. Yes. When Stoneleigh says she'd be surprised if things would be at a particular point by a particular date, she means exactly that. Not just half of it.

In other words, she didn't say things will certainly happen or she'll hang herself, she addressed trends. There is nothing disingenuous about that. There is about the way you twist our words though. So either read us with more care or spare us your thoughts please.


.

A moderator said...

comments open

Punxsutawney said...

p01

The signals I get from there are terrifying, everyone envies everyone who still has his nose above the surface, and also blames them for their own downfall.

I work with a Romanian women and she agrees with what you are saying. Given the actions of US neo-liberals and their confusing democracy with capitalism in your country, is it no wonder things are messed up?

Partisan,

Meteorology is a true science unlike economics so I don’t think it compares well. Still the better Mets know to look at the actual conditions and adjust their forecasts rather than parrot model output. Specific long range forecasting (6 months to a year) is not possible at this time, and almost certainly never will be. But some general claims can be made based on atmospheric and ocean conditions that may well turn out to be correct.

snuffy said...

Hmm surprise ,someone is around...


I have noticed that the quality of those who want to nay say the general topic/thrust/mindset of this blog seems to have improved[?].
Oh well, I think events will out run the speed of the ones who wish to discount the words and ideas that I&S have been providing for the last several years.

Did everyone notice how fast the "Trader" was show to be a slug?

Looked to me like a complete set-up...with the intent of discounting all but the most "trusted names" in the biz..I might be wrong,but the whole thing seemed like a set piece.

I am starting to discount about 20-30% of what my lyin eyes see these days...I think we are all seeing some very sophisticated propaganda...with the intent of keeping it all "biz as usual"

Bee good,or
Bee careful

snuffy

davefairtex said...

Jack -

Apologies for sounding like Max Keiser! I don't see hyperinflation happening now, and it doesn't seem to be looming on the horizon. Commodity price inflation is happening, but that's not the same thing.

Yet gold is up 220% since november 09. And I'm still trying to figure out why. It appeared last month that gold popped whenever there was an escalation to the Greek crisis, but this month it was pounded when it became clear the euro banks were in jeopardy. It's a puzzle, at least to me.

davefairtex said...

Ash -

First I'm talking complete nonsense, and now my mode of analysis is extremely misleading. Hmm.

I disagree, but I choose to spend no further energy in this conversation. There's just no point. I think we can talk about other subjects and have more constructive conversations.

A moderator said...

Comments open for now.

Jack said...

davefairtex

As far as trying to forecast the future price, I think that is in the hands of the CB
They will adjust the price the way it will suit them and so that they can make as much money for themselves as possible

snuffy said...

I think I have figured out the game...or enough to want to reach for my 6 tine pitchfork....


The wealthy of the world have decided that "capitalism"of the old sort...meaning the game where you make a bad bet,or "investment"as they might be called...and it goes poorly...you are no longer a capitalist...because you just lost your capital...

Now the game,world wide as it seems,is if you can purchase enough political power...you can make the public...[me and thee]spend the rest of our lives,and our childrens lives,paying off your bad bet...

Have I got this right...?

Its dressed up with a lot of blue smoke and mirrors...but I think I have it right....And it is everywhere...and in Europe,its right out there for everyone to see....not hidden by congress as was the case here...People I don't think really "Get it" yet...but they ARE slowly

Sooner or later even the dullest among us will figure out that it means we are chattel..owned,just as if I was a slave 300 years ago...except that I have to make sure that I make enough to keep body and soul together,as well as pay this guys freight...

Eventually ...it means civil "unrest"....

Will someone explain to me why this wont happen in a very short time...like as soon as a majority of the folks miss a few meals...and start to see clearly just how this came about?

Bee good,or
Bee careful,



snuffy

RBM said...

Hi Snuffy

Did everyone notice how fast the "Trader" was show to be a slug?

I haven't seen any coverage of that development. Does anyone have a link ?

I think your redefinition of a capitalist with the politico's as 'company' partners is accurate.

p01 said...

I'm all for analogies, so I'll make the car analogy. It's always the car analogy that's easyest to understand. So here we go:
I&S: Your car has no brakes, you should stop, get out of the car and get away from it to a safe place.
Driver: Yeah?! Sez who?
I&S: That would be your little red light blinking over there, the manual said it's....
Driver: Duuuhh, I`m flying, the road is clear
IS&: You should really stop...
Driver: I`m good at this, watch!!
I&S: WATCH THAT CURVE, I'd be surprised if you made it!!!
Driver: Nothing happened, see?
Hey everyone, these guys said I would crash in that curve, because I don't have any brakes!!!
What dumba$$es!!! Watch me fly!!! You don't know $hit!! (famous last words)

Mister Roboto said...

I hope this isn't too off-topic, but this sort of thing is what led to my epiphany yesterday that this really is a good time to cultivate inner peace, even though you know very harsh things are coming down the road. My own personal obstacle to this peace in the past has been (among other things) too much emotional investment in the politics industry and the Democratic Party. The Democratic Party used to be very good at fooling people as to where their true loyalties were. But now that the mask has slipped off and they're not so good at it anymore, their co-dependent supporters are all too eager to do this deceiving work on themselves on behalf of the Democratic Party bosses.

But such investments yield no real dividends. What I believe I need to do to cultivate the inner peace necessary in these troubled times is just forget about the politics industry. Whatever outrages are being perpetrated by government are happening because a large and powerful faction of the ruling class wants them to happen. Does anyone really imagine that a movement as batpoop-crackers as the "Pee Tardy" (thanks Greenpa, I'm using that one all the time now!) would get as far as it has without the full and deliberate support of the plutocrats? If they are ever politically stopped, it will be because the ruling class has decided their bat-poopery is more trouble than it's worth. Not because of the moral courage and strong will of Democratic Party politicians.

I realize this is mondo-serious "no-duh" to an awful lot of regular commenters here, I just felt like sharing this because I've been struggling with letting go of all that politics-industry nonsense for a while now. When you live in a declining oligarchic society, inner peace means accepting your own relative political powerlessness and realizing that whatever is going to happen will just happen, and it is what it is.

Mister Roboto said...

@RBM: This story from Yahoo News is the only follow-up I've seen on the "Rogue Trader on BBC" controversy so far.

Greenpa said...

Mister Roboto- actually, my version was Pee Tarty - but I like your variant better. :-) Interesting fantasies, either way. Has to be a crack or two about returning in the future to the Golden Showers standard.

Meanwhile- purely for purposes of entertainment- if my "counter-indicated" theory of market movement is correct, there's enough "good economic news" today to knock them down a couple hundred points. My bet- Dow ends the day down at least 100, maybe 200.

What really drives the markets of course is not any version of economic "reality"; but the known brain-function patterns of sociopathic gambling addicts. Trepidatious euphoria will be followed by fearful fear.

jal said...

Germany approved the changes to EFSF

What we are witnessing is the greatest Greek satyr being played upon the world stage. For the common man it is a tragedy. For the financial literate it is a comedy.*
---
( For a full appreciation, since you are an intellectual audience, look up the meanings of those words. Do not rely upon your memory.)

scandia said...

Reading in the Globe and Mail that the US is " mulling over " building a wall along the Cdn/US border. The 800 comments were great. Stuff like build baby build and keep the Americans out of Canada and the sweet spot is the US pays for the wall. Several suggesting the US is building the wall to keep Americans from escaping.
Judging from the comments times have changed when Cdns welcome such a wall.

@Mister Roboto, Appreciated your comment on developing inner peace. I have noticed in my own case that I only know what the right thing is to do from a peaceful place. Such was the case when I made the decision to protest the tar sands/pipeline in Ottawa. I was peaceful throughout the protest. Not angry just clear as a bell.

A moderator said...

Comments will now be reviewed before being published for the time being. If a moderator is "on duty", the comment should be published shortly after submission. If not, then it may take more time, but all legitimate, non-fraudulent comments will be published.

RBM said...

Thanks for the link.

The Yes Men publicly denied that Rastani is a member. And the BBC said in a statement that it doesn't think he is, either: "We've carried out detailed investigations and can't find any evidence to suggest that the interview with Alessio Rastani was a hoax. He is an independent market trader and one of a range of voices we've had on air to talk about the recession."

Since the Yes Men make an explicit denial - and they are ALL ABOUT media coverage, I'd have to say that's the end of that assertion.

Ash said...

RBM,

Rastani was also interviewed by CNN after the infamous BBC interview, so yeah, I'd say he's legit.

http://www.zerohedge.com/news/alessio-rastani-makes-us-prime-time-tv-circuit

The Anonymous said...

"p01 said...
@The Anonymous
Sorry to hear (again) about your friend who has been living within his means for so long. Must have been a horrible sight. Oh, well..."

Actually, thanks for reminding me. The cruel irony of his selling so long ago and renting is that his rent is going to soon exceed his means as he wants to retire.

Had he only not sold his house 20+ years ago to prepare for the "imminent deflation", he would now only be paying insurance, taxes, & maintenance, which is far less than his current rent, meaning he could retire meagerly, yet comfortably. Instead, he will be working til the day he dies, just to keep from being evicted.

So sad...

Ric said...

Scandia says I was peaceful throughout the protest

You're describing Neijia, the internal martial arts developed by the Taoists.

Ash said...

The Anonymous,

Advice for the future:

You need to be a little more creative when you make up a story. If your friend sold his house 20 years ago and has been preparing for "imminent deflation" ever since, then he would have a lot of cash saved up, would not have watched the value of his stock portfolio or retirement account plummet, and would have no problem "paying rent" when he retires now. He may have potentially missed out on some monetary gains, but he would not have to keep working "until the day he dies". Also, you should make sure to factor in the money he saved from not being exposed to recent decreases in property values, as an offset to the rent he has been paying since 2005-07. See? Work on the story, then get back to us.

p01 said...

The Anonymous said...
Actually, thanks for reminding me. The cruel irony of his selling so long ago and renting is that his rent is going to soon exceed his means as he wants to retire.
So sad...

Maybe you forgot to mention he had an addiction problem?

So sad indeed...
I think we now know one of the impersonators.

el gallinazo said...

pO1

He is a troll but has been feeding us the same stuff for years, so is not an impersonator. Hopefully he will take Ash's advice and fine tune his story a bit or just post it on Tea Party sites.

The Anonymous said...

"Ash said...If your friend sold his house 20 years ago and has been preparing for "imminent deflation" ever since, then he would have a lot of cash saved up,"

Im sure he has some, probably around 100K or so. Would have been about 500K if he left it in the market, but whatever.


"Ash said...would not have watched the value of his stock portfolio or retirement account plummet"

He sold around Dow 2,000. In hindsight, im sure he would gladly have watched it "plummet" to 6,600 in 2008 or "plummet" to 11,000 today.



"Ash said...and would have no problem "paying rent" when he retires now. He may have potentially missed out on some monetary gains, but he would not have to keep working "until the day he dies".

Lets see, his 100K will pay his rent for 60 months or so. So unless he plans to kill himself in 5 years, where is he going to get the money to pay the rent til the day he dies?




"Ash said...Also, you should make sure to factor in the money he saved from not being exposed to recent decreases in property values, as an offset to the rent he has been paying since 2005-07. See?"

Well, he sold around 70K, it once got up to 250K, now its down to 180K. As far as I can tell he has spent at least 175K in rent over the last 20+ years, with another 20 years to go. Show me how he was better off selling then?

The Anonymous said...

El G. As you may recall, last time we spoke (this summer I think) I asked you when, if ever you would come around to my position (i.e. that the implosion, while inevitable, is years, perhaps longer away). You in turn asked, when if ever, I would come around to your way of viewing things.

Well as luck would have it, the drop in the DOW was enough to trigger all my stop losses -- first time since mid 2008 that this has happened. It remains to be seen if things turn green enough for me to go back in. So while I am still not all the way over to your position, I am certainly closer now than I was this summer :)

bosuncookie said...

Mister Roboto said...

When you live in a declining oligarchic society, inner peace means accepting your own relative political powerlessness and realizing that whatever is going to happen will just happen, and it is what it is.

It seems to me that there is a middle way between "accepting your own relative political powerlessness" and "it is what it is." I may not be able to dismantle the existing global-debt-exploitation-system, but surely there is something I can do at my own, local level to move to an alternative way of being in the world. I can work to create parallel structures that address the needs of my community in ways that the current structures do not.

Things "are-what-they-are" only at THIS precise moment. Every time I act, I am changing things to a new state of things "being-as-the-are" at THAT moment. We are not helpless in the face of this global contraction. Not by any stretch of the imagination. Of course, figuring out what to do (in the face of global contraction) in my own little neighborhood, community, or town is sometimes hard to do.

But it can be done. Suppose, for example, say you are able-bodied but have no money or credit. What to do? Create a community exchange system . In your own neighborhood. Just one small example of the possibilities that exist between global powerlessness and "accepting things just as they are."

My own definition of inner peace admits to the possibility of being at-ease with contraction, attempting to mitigate its effects locally by action, and most importantly--not getting hung up on the success or failure of those acts. Such inner peace finds a way to walk wisely and open-heartedly among the thickets of pessimism, optimism, nihilism, action, or inaction.

Ash said...

The Anon,

I'm not saying "your friend" made a lot of good decisions. Just saying that your story is obviously constructed in a way as to imply that is not true at all. It is a combination of a person making the worst possible decisions at the worst possible times, and a person who has not been continuously preparing for deflation at all (or was working as a slave laborer in SE Asia before he decided to move back to a major US city and start renting).

Anyway, I'm going to leave you be now... can't say the same for others, though.

Jack said...

davefairtex
You seem like you are trading currencies and I was wondering if you have any helpful tips for people interested in this field.

The Anonymous said...

"P01 said...Maybe you forgot to mention he had an addiction problem?"

Not that I know of. Then again, back before the internet, the only reliable source of economic doom was Prechters newsletters. I think he finds plenty of free stuff these days...

The Anonymous said...

Ash said...Just saying that your story is obviously constructed in a way as to imply that is not true at all.

Whatever Ash. The guy was/is a Prechter disciple. Once he saw how Prechter called the early 80s boom, AND the 87 crash, he became convinced Prechter could do no wrong, and went "all in" on the deflation thesis.

Thus, once Prechter warned of "great depression II starting in 1989", he got liquid in everything and has been liquid since.

Oh, and if you think I wanted to concoct this based on the worst possible timing, then I would have gone back to the Richard Russell disciples. Those poor saps have been on the sidelines preparing for deflation since what the late 1970s? I am sure I could dig up one of these guys if you like...

el gallinazo said...

Re The Anonymous


I am going to take a page out of one of my favorite blogger's book, George Washington. When he does a post about the facts concerning 9/11, he co-posts a numbered list of about 20 academic and bogus logical fallacies, so he can just respond to comment posts with a couple of numbers.

The logical fallacy of The Anonymous is the following:

1) A hypothetical friend was convinced in the 1980's that the economy was shortly going into a deflationary collapse and acted accordingly with his fiscal planning.

2) Since the economy for most of the succeeding years was in a credit expansion, this fellow is now having needless economic hardship.

The above is at least hypothetically true. Your friend made bad decisions based on a bad analysis. Now we enter your realm of hyperbogus assumptions and logic:

Since anyone who expected deflation over the last 20 odd years was wrong, then anyone expecting
deflation over the next 5 years must also be wrong. (Presumably because deflation can never (has never) occur (ed) ?) So, if you wish to prosper in the future, expect credit expansion forever and act accordingly. Bubbles never burst.

Well, The Anonymous, I am quite hoping that you not only put all your assets into places which will prosper in a future credit expansion, but that you borrow every penny you can and do the same with them.

I myself will plan for a deflationary collapse in 2011 onward. Let us compare notes in 5 years.

el gallinazo said...

Jack said...
davefairtex
You seem like you are trading currencies and I was wondering if you have any helpful tips for people interested in this field.
______________________

Jack, you didn't ask me, but I'll throw in my two cents. You want to gamble, go to Las Vegas. The odds against you are more obvious and clear. If you think you can go up against supercomputers with nanosecond responses with a PC and a couple of Mbps connection, you will be sadly disappointed. These guys are moving their computers into the same buildings as the exchanges because the speed of light over a couple of km is a handicap.

Ilargi said...

New post up.




All you need to know about what's real and what's not





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